<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 22, 2000
REGISTRATION NO. 333-93039
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UNIVERSAL ACCESS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 4813 36-4186543
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
100 NORTH RIVERSIDE PLAZA, SUITE 2200
CHICAGO, ILLINOIS 60606
(312) 660-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PATRICK C. SHUTT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
UNIVERSAL ACCESS, INC.
100 NORTH RIVERSIDE PLAZA, SUITE 2200
CHICAGO, ILLINOIS 60606
(312) 660-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JUDITH MAYER O'BRIEN, ESQ. SCOTT FEHLAN, ESQ. JOHN L. SAVVA, ESQ.
DONNA PETKANICS, ESQ. GENERAL COUNSEL SULLIVAN & CROMWELL
ALISANDE ROZYNKO, ESQ. UNIVERSAL ACCESS, INC. 1888 CENTURY PARK EAST
WILSON SONSINI GOODRICH & ROSATI 100 NORTH RIVERSIDE PLAZA, SUITE 2200 SUITE 2100
PROFESSIONAL CORPORATION CHICAGO, ILLINOIS 60606 LOS ANGELES, CA 90067
650 PAGE MILL ROAD (312) 660-5000 (310) 712-6600
PALO ALTO, CA 94304
(650) 493-9300
FAX (650) 845-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE REGISTRATION FEE(3)
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock ($.01 par value)...... 11,500,000 $10.00 $115,000,000 $30,360
- ---------------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 1,500,000 shares of common stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(a) promulgated under the Securities Act of 1933, as
amended.
(3) This fee has been previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES
IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED FEBRUARY 22, 2000.
10,000,000 Shares
[UNIVERSAL ACCESS LOGO]
Common Stock
----------------------
This is an initial public offering of shares of common stock of Universal
Access, Inc.
Universal Access is offering for sale all of the shares in the offering.
Prior to this offering, there has been no public market for the common
stock. Universal Access estimates that the initial public offering price per
share will be between $8.00 and $10.00. Universal Access will apply to include
the common stock for quotation on the Nasdaq National Market under the symbol
"UAXS".
See "Risk Factors" beginning on page 7 to read about certain factors you
should consider before buying shares of the common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Universal Access.............. $ $
</TABLE>
To the extent that the underwriters sell more than 10,000,000 shares, the
underwriters have the option to purchase up to an additional 1,500,000 shares
from Universal Access at the initial public offering price less the underwriting
discount.
----------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
GOLDMAN, SACHS & CO.
CHASE H&Q
ROBERTSON STEPHENS
----------------------
Prospectus dated , 2000.
<PAGE> 3
Description of cover artwork for edgar submission:
FRONT COVER:
CENTER: Universal Access logo. Picture of company employees interfacing with
clients and utilizing databases to provision circuit; lower center text:
"Creating a Seamlessly Connected Network."
Upper Right margin: text, Universal Access, Inc.: top to bottom pictures of
silver and purple abstract images, silver background computer configurations
"00110011", fiber image, Provisioning service identifier, Access service
identifier, UTX facilities identifier, Corporate identifier, UIX database
identifier, CAS service identifier.
INSIDE FRONT COVER - FOLDOUT
HEADLINE TEXT: "Universal Access", Corporate Identifier image and text:
"Creating A Seamlessly Connected Network."
DIAGRAMS: BACKGROUND OF WORLD MAP IS RUNNING BEHIND ALL IMAGES ACROSS ENTIRE
INSIDE COVER LAYOUT
CENTER: Map of United States with cities highlighted in a network configuration.
UPPER LEFT: Picture of employees utilizing the databases and interfacing with
clients; text: "Our proprietary Universal Information Exchange, or UIX, contains
capacity, availability, physical location and pricing information from over 35
transport suppliers and more than 75,000 physical sites."
LOWER LEFT: Picture of a circuit made of segments from multiple vendors; text:
"End-to-End Multiple Vendor Network Access;" End Customer Los Angeles -
UTX--Vendor 1 DS-3 Local Loop - UTX--Vendor 2 DS-3 Long Haul - UTX--Vendor 3
DS-3 Long Haul - Vendor 4 - DS-3 Local Loop - End Customer Washington, D.C."
UPPER RIGHT: Diagram showing different kinds of circuits the Company can
provision; text: "Universal Access efficiently and cost-effectively provides
clients with dedicated circuits that connect across the networks of multiple
suppliers."
LOWER RIGHT: Diagram of UTX facility integrated into the UIX database; text:
"Universal Transport Exchange (UTX): Washington, DC - The UTX facilities
interconnect the networks of local, long haul and international communications
providers allowing data to seamlessly pass between multiple carrier networks."
UPPER CENTER: Diagram of UIX databases overlaying United States map; text:
"UIX - Quoting - Order Processing - Provisioning - Carrier Development -
Network Management - Network Planning"
TENTATIVE>BOTTOM OF PAGE: logos of Universal Access clients and suppliers
including Teleglobe, AboveNet, BCE Nexxia, GTE, and IDT as clients and
Williams, BroadWing, MCIWorldcom and AT & T as suppliers.
REAR COVER
ENTIRE PAGE: Multiple pictures of globe overlaying page
UPPER LEFT TEXT TOP TO BOTTOM: "Sales Locations - Chicago Portland San
Francisco San Jose Los Angeles Denver Dallas Boston New York Washington DC
Miami"
<PAGE> 4
[INSIDE COVER ART]
2
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information about us, the common stock we are selling in this offering and our
consolidated financial statements, including the notes to those statements,
included elsewhere in this prospectus.
OUR BUSINESS
We are a business-to-business intermediary that facilitates the
provisioning, installation and servicing of dedicated communications circuits
for service providers who buy network capacity, and transport suppliers who sell
network capacity. Provisioning refers to the process of supplying communications
circuits to users. A transport supplier is an entity that supplies
communications network capacity over which information is transmitted.
We aggregate network information, operate facilities where communications
networks can be physically interconnected, provide ongoing dedicated circuit
access and provide client support services. We offer our clients the ability to
obtain pricing quotes and availability information, and order circuits over the
Internet. We intend to expand our on-line service offering to include network
management, monitoring and restoration. Through these services, we provide our
clients with an outsourced, integrated solution to the challenges they face
within a fragmented network services market.
As an independent intermediary, we have been able to collect and aggregate
network information from multiple transport suppliers. Our Universal Information
Exchange, or UIX, consists of several proprietary, interconnected databases
containing capacity, availability, physical location and pricing information
from over 35 transport suppliers and more than 75,000 physical sites. Through
our UIX we efficiently and cost-effectively provide our clients with dedicated
circuits that connect across the networks of multiple suppliers. In addition, we
operate network interconnection facilities called Universal Transport Exchanges,
or UTXs, where various transport suppliers can easily connect to the networks of
any other transport supplier in that facility. We also provide a single point of
contact for network management services, including network monitoring,
maintenance and restoration.
As of December 31, 1999, we provided services to over 100 clients,
including AboveNet Communications (MFN), BCE Nexxia, Cable & Wireless, Teleglobe
Communications and UUNET, each of which represented at least 1% of our monthly
recurring revenues as of December 31, 1999.
THE OPPORTUNITY
The communications network services market is competitive, complex and
fragmented. Domestic and international deregulation, combined with growth in
Internet usage, has spawned a rapid increase in the number of transport
suppliers and service providers as well as the strategies they employ to build
networks and reach customers. This diversity of industry participants and
business strategies has resulted in the development of multiple networks serving
various geographic regions. In this multiple vendor landscape, the fact that
transport suppliers and service providers do not have access to pricing,
capacity, availability and location information for the networks of other
suppliers continues to hinder network connectivity. Because transport suppliers
compete with each other, they have little incentive to share this information or
to locate their equipment within competitors' facilities. To date, we believe
that major transport suppliers have not been able to effectively support
dedicated circuits that connect across the networks of multiple suppliers on
their own networks, or through efficient interconnection with other suppliers,
to fully meet their customers' requirements.
3
<PAGE> 6
This multiple vendor market environment causes a number of challenges, as
outlined below.
<TABLE>
<CAPTION>
CHALLENGES FOR SERVICE PROVIDERS CHALLENGES FOR TRANSPORT SUPPLIERS
-------------------------------- ----------------------------------
<S> <C>
- - significant time and expense related to - inability to efficiently fulfill customer
quoting, provisioning and installing demand for dedicated circuits due to the
circuits; limited reach of their networks;
- - difficulty determining the availability of - costs associated with selling excess
capacity in a timely manner, which may network capacity; and
result in significant backlog of customer
orders and possibly lost revenues; and - inability to provide a consistent level of
service over multiple network segments.
- - inability to maintain, monitor and restore
connections.
</TABLE>
OUR SOLUTION
Our integrated solution addresses these challenges and provides the
following key benefits to our clients:
- Single Point of Contact for Provisioning, Installation and Network
Management Services. As a third-party provider, we allow our clients to
outsource the provisioning, installation and management of their
communications infrastructure. Our solution provides significant time,
effort and cost savings to our clients who would otherwise be forced to
independently analyze the capacity, availability and pricing of circuits
from multiple vendors to construct and maintain circuits. In addition, we
maintain a network management service organization through which we
provide a single point of contact for 24-hour-a-day, seven-day-a-week
network monitoring, maintenance and restoration across multiple vendor
networks.
- Efficient, Cost Effective Circuit Provisioning and Installation Across
Multiple Vendor Networks. We leverage the information contained in our
UIX databases to efficiently and cost-effectively provide and install
circuits across geographically dispersed, multiple vendor networks.
- Easily Extended Network Reach. Our clients are able to easily extend the
reach of their networks by purchasing dedicated circuits from us by
accessing the networks of over 35 network transport suppliers.
- Significant Source of Demand for Transport Capacity Suppliers. We
represent a significant source of demand for transport suppliers because
we purchase a large volume of circuits. We believe our transport
suppliers consider us to be a valuable partner because we provide them
efficient access to the capacity requirements of our clients.
- Ongoing Client Support. We provide ongoing technical and administrative
support during the circuit planning, ordering, provisioning and
installation processes.
OUR STRATEGY
Our objective is to facilitate the creation of a seamlessly connected,
global communications network by improving the overall efficiency of the market
for transport capacity and infrastructure services. To achieve this objective,
we intend to:
- continue to enhance the Internet functionality of our UIX;
- continue to expand and populate our UIX databases with network
information;
- continue to develop UTX facilities;
- aggregate network demand;
- expand UIX, UTX and client support services internationally; and
- enhance capabilities through acquisitions and partnerships.
4
<PAGE> 7
CORPORATE INFORMATION
Our principal executive offices are located at 100 North Riverside Plaza,
Suite 2200, Chicago, Illinois 60606, and our telephone number is (312) 660-5000.
Information contained on our website, www.universalaccess.net, does not
constitute part of this prospectus. We were incorporated in Illinois in October
1997. We reincorporated in Delaware in June 1999.
TRADEMARKS
Universal Access, the Universal Access logo, Universal Transport Exchange,
Universal Information Exchange, UTX and UIX are service marks and ProVision and
Stuff Software are trademarks of Universal Access. Each trademark, trade name or
service mark of any other company appearing in this prospectus belongs to its
holder.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered.................................. 10,000,000 shares
Common stock which will be outstanding after the
offering(1)......................................... 84,809,264 shares
Use of proceeds....................................... For general corporate purposes, including
working capital, capital expenditures and
potential acquisitions of complementary
products, technologies and businesses.
Proposed Nasdaq National Market symbol................ "UAXS"
</TABLE>
- ---------------
(1) Based on the number of shares outstanding as of December 31, 1999. This
number excludes:
- 13,000,000 shares of common stock reserved for issuance under our Amended
1998 Employee Stock Option Plan, of which 10,465,750 shares were subject
to outstanding options with a weighted average exercise price of $0.99
per share, and 934,250 shares were available for future grants;
- 1,943,400 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $0.59 per share; and
- 11,000,000 shares available for issuance under our 1999 Stock Plan, 1999
Employee Stock Purchase Plan and 1999 Director Plan.
Except where we state otherwise, the information in this prospectus:
- gives effect to the conversion of all of our outstanding shares of
preferred stock into 42,834,243 shares of common stock upon the closing
of this offering, and assumes that each share of Series E preferred stock
converts into three shares of common stock. For a description of the
conversion terms of the Series E preferred stock, please read
"Description of Capital Stock";
- assumes no exercise of the underwriters' option to purchase additional
shares in this offering; and
- reflects a 500 for 1 forward stock split that our board approved on July
10, 1998, a 2 for 1 forward stock split that our board approved on
February 17, 1999, a 3 for 2 forward stock split that our board approved
on June 23, 1999 and a 2 for 1 forward stock split that our board
approved and effected as a stock dividend on September 15, 1999.
5
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
The pro forma statement of operations data give effect to the Pacific Crest
Networks, Inc. and Stuff Software, Inc. acquisitions as if they had occurred on
January 1, 1998. The pro forma financial data set forth below may not be
indicative of our financial condition or results of operations had these
acquisitions actually occurred on the dates assumed, nor do they purport to be
indicative of our future financial position or results of operations.
Pro forma basic and diluted net loss per share have been calculated
assuming the conversion of all outstanding preferred stock into common stock, as
if the shares had converted immediately upon their issuance.
<TABLE>
<CAPTION>
PRO FORMA
INCEPTION PRO FORMA YEAR
THROUGH YEAR ENDED YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1998 1999 1999
------------ ------------ ------------ ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................... $ 77 $ 1,629 $ 2,294 $ 14,259 $ 14,906
---- ------- ------- -------- --------
Total operating expenses..... 246 2,884 4,466 30,502 31,978
---- ------- ------- -------- --------
Operating loss............... (169) (1,255) (2,172) (16,243) (17,072)
---- ------- ------- -------- --------
Net loss......................... (170) (1,374) (2,336) (15,552) (16,381)
Pro forma basic and diluted net
loss per share................. $ (0.05) $ (0.27)
Shares used in computing pro
forma basic and diluted net
loss per share................. 30,069 56,855
</TABLE>
The pro forma balance sheet data as of December 31, 1999 gives effect to
the conversion of all outstanding shares of preferred stock into common stock
and all preferred stock warrants to common stock warrants upon the closing of
the offering. The pro forma as adjusted balance sheet data as of December 31,
1999 also give effect to the sale of 10,000,000 shares of common stock by us in
this offering at an assumed initial public offering price of $9.00 per share,
after deducting an assumed underwriting discount and estimated offering
expenses.
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
DECEMBER 31,
1999
---------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash........................................................ $120,224
Total assets................................................ 146,465
Total long-term debt, net of current portion................ 2,369
Total stockholders' equity.................................. 134,242
</TABLE>
6
<PAGE> 9
RISK FACTORS
An investment in our common stock involves a high degree of risk. Before
you invest in our common stock, you should consider carefully the risks
described below, together with all of the other information included in this
prospectus. If any of the risks described below were to occur, our business,
financial condition and results of operations could be materially adversely
affected. In that case, the trading price of our common stock could decline and
you could lose part or all of your investment.
IF WE FAIL TO INCREASE OUR REVENUES, WE WILL BE UNABLE TO ACHIEVE AND MAINTAIN
PROFITABILITY.
We have incurred significant losses since inception and expect to continue
to incur losses in the future. As of December 31, 1999, we had an accumulated
deficit of $18.3 million. Although our revenues have grown from $899,000 in the
quarter ended December 31, 1998 to $5.7 million in the quarter ended December
31, 1999, we cannot be certain that our revenues will continue to grow, or that
we will achieve sufficient revenues to achieve profitability. We expect to
continue to incur significant and increasing expenses in order to:
- expand sales and marketing activities to increase market acceptance;
- expand our operational activities to further develop our business model;
- expand our administrative organization to support the anticipated growth
of our business;
- expand and enhance our UIX databases; and
- build out our UTX facilities.
As a result, we will need to generate significantly higher revenues to
achieve and maintain profitability. If we fail to generate higher revenues, our
business will suffer.
OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT.
We have a limited operating history and, therefore, limited meaningful
historical financial data upon which to base our planned operating expenses.
Specifically, our UTX business model is relatively new, and we have not operated
our UIX databases in conjunction with our UTX facilities long enough to
accurately predict trends in our business. Moreover, we have not built out
enough UTX facilities to be able to test whether our strategy to utilize these
facilities will work. Accordingly, we are subject to all of the risks that are
associated with companies in an emerging industry and in an early stage of
development, including:
- undercapitalization;
- cash shortages;
- the unproven nature of our business model;
- the new and unproven nature of the market for our services;
- the need to make significant expenditures and incur significant expenses
as we develop our business, infrastructure and operations;
- the lack of sufficient clients and revenues to sustain our operations and
growth without additional financing;
- difficulties in managing growth; and
- limited experience in providing some of the services that we offer or
plan to offer.
If we are unsuccessful in addressing these risks, our business may be
seriously harmed.
7
<PAGE> 10
WE HAVE AN UNPROVEN BUSINESS MODEL, AND WE CANNOT BE SURE THAT CLIENTS WILL
WIDELY ACCEPT OUR SERVICES.
Our business strategy is unproven. To be successful, we must convince
prospective clients to entrust their network capacity data and transport
requirements to a company without a long and proven track record. We are not
aware of any companies that have a directly comparable business, and we cannot
be sure that clients will widely accept our services.
Our ability to expand our client base may be limited by the following
factors:
- the speed, reliability and cost effectiveness of our services;
- the willingness of clients to outsource their circuit provisioning;
- our ability to market our services effectively; and
- the growth of the Internet.
Our business will suffer if the markets for our services fail to develop or
grow more slowly than anticipated, if competitors enter the market or if we are
unable to expand our client base.
OUR ABILITY TO IMPLEMENT AND MAINTAIN OUR UIX DATABASES IS UNPROVEN, AND IF WE
CANNOT INCREASE THE SCOPE AND ACCURACY OF THESE DATABASES AS PLANNED, OUR
BUSINESS WILL SUFFER.
To be successful, we must increase and update information about pricing,
capacity, availability and location of circuits contained in our databases. Our
ability to provision circuits and to provide ongoing dedicated line circuit
access depends upon the information we collect from our transport suppliers
regarding their networks, which we include in our UIX databases. Our suppliers
are not obligated to provide us with this information and could decide to stop
providing this information to us at any time. Moreover, we cannot be certain
that the information that our suppliers share with us is completely accurate or
current. If we cannot continue to maintain and expand our UIX databases as
planned, our business will suffer.
THE MARKET FOR OUR UTX SERVICES IS NEW AND UNPROVEN, AND WE HAVE LIMITED
EXPERIENCE PROVIDING OUR UTX SERVICES.
The market for our UTX services is new and unproven. Our business will
suffer if the market for these services fails to develop, or develops more
slowly than we expect. The growth of this market depends on several uncertain
events or occurrences including:
- our ability to remain a neutral intermediary between transport suppliers
and the willingness of these suppliers to install their equipment in our
UTX facilities;
- our ability to successfully and cost-effectively market our services to a
sufficiently large number of clients; and
- the increased need for high speed communications network services.
To date, we have derived substantially all of our revenues from providing
on-going circuit access, and we have only limited experience providing our UTX
services. At December 31, 1999, we had two operational UTX sites and seven UTX
clients. However, these clients may terminate their UTX contracts at any time,
and our business will suffer if we fail to maintain our existing clients and to
attract new clients for our UTX services.
RAPID EXPANSION OF OUR UTX FACILITIES WILL CAUSE A SIGNIFICANT STRAIN ON OUR
BUSINESS.
One of our key strategies is to expand our business by opening additional
UTX facilities in geographically diverse locations. As of December 31, 1999 we
had operational UTX facilities in Chicago and Santa Clara and UTX facilities
under construction in San Francisco, Los Angeles, Miami,
8
<PAGE> 11
Dallas and Washington, D.C. We expect to begin the construction of eight
additional UTX facilities in the United States in 2000.
If we are unable to generate sufficient cash flows or raise sufficient
funds, we may have to delay or abandon some or all of our development and
expansion plans. A delay in the expansion of our UTX facilities may make it more
difficult for us to respond to competitive pressures and establish our presence
in the market.
It usually takes us at least six months to select an appropriate location
for a new UTX facility, construct the facility, install equipment and
communications network infrastructure and hire operations and sales personnel.
We must incur these costs before we have clients who purchase our services to be
delivered from the UTX facilities. If the demand does not develop as we
anticipate, we will have fixed costs without corresponding revenue and our
business will be harmed. Once a UTX facility becomes operational, we expect it
to experience losses for at least one year.
Our ability to open UTX facilities is subject to a number of risks,
including the following:
- the availability of appropriate space for these facilities on reasonable
terms;
- competition for limited space in desirable locations from large,
well-capitalized companies that may be more attractive tenants for
potential landlords;
- construction delays;
- cost overruns;
- equipment and material delays; and
- inability to obtain necessary permits on a timely basis.
In addition, our costs will increase as we open additional UTX facilities.
These increased costs include:
- leasing additional real estate;
- expenses associated with hiring, training and managing new employees;
- purchasing new equipment;
- implementing power and redundancy systems;
- implementing multiple communications connections; and
- depreciation expense.
An inability to establish additional UTX facilities as planned, to
effectively manage our expansion or to attract sufficient clients to our UTX
facilities would harm our business.
IF WE CANNOT SUCCESSFULLY IMPLEMENT OUR NETWORK OPERATIONS CENTER, WE WILL BE
UNABLE TO PROVIDE MONITORING, MAINTENANCE AND RESTORATION SERVICES TO OUR
CLIENTS, AND OUR BUSINESS WILL SUFFER.
One of our primary business objectives is to provide our clients with
network monitoring, maintenance and restoration services 24 hours a day, seven
days a week through a network operations center. However, we have not fully
developed this capacity and currently provide network management services
through an outsourcing arrangement with a third party, until our own facility
becomes operational. We recently acquired a network operations facility, but
have not yet upgraded this facility or begun hiring employees, and we have only
limited experience implementing services of this type. As a consequence, we
cannot be sure that our efforts to provide these services will be successful.
Our ability to implement this strategy will depend on many factors, including
our ability to upgrade the facility, install new equipment and hire, train and
manage employees.
9
<PAGE> 12
If we fail to successfully implement a network operations center, we may
not be able to monitor network operations effectively or troubleshoot circuits
in a cost-effective manner, which would cause our business to suffer.
WE FACE RISKS ASSOCIATED WITH OUR PLAN TO EXPAND INTERNATIONAL OPERATIONS.
An important component of our strategy is to expand into international
markets, such as Europe, Asia and South America. However, we have no experience
operating internationally. The risks inherent in conducting our business
internationally include:
- unexpected changes in regulatory requirements and trade barriers;
- unexpected changes in national and international (including European
Union and World Trade Organization) regulatory requirements and trade
barriers;
- challenges in staffing and managing foreign operations;
- differences in technology standards;
- employment laws and practices in foreign countries;
- longer payment cycles and problems in collecting accounts receivable;
- inability to obtain access to transport capacity;
- political instability;
- fluctuations in currency exchange rates and imposition of currency
exchange controls; and
- potentially adverse tax consequences.
In addition, in order to expand internationally, we may enter into joint
ventures or outsourcing agreements with third parties, acquire complementary
businesses or operations, or establish and maintain new operations outside of
the United States. We may not control or manage some or all of these operations.
As a result, we may be required to depend on third parties for the management of
these international operations. If these foreign operations are not successful,
they could significantly damage our reputation, which would harm our business.
COMPETITION IN OUR INDUSTRY IS INTENSE AND GROWING, AND WE MAY BE UNABLE TO
COMPETE EFFECTIVELY.
The market for the services we provide is highly fragmented. In addition,
the market in which we operate is new, rapidly evolving and highly competitive.
We believe that at this time no single competitor competes directly with us with
respect to all of the services we offer; however, we currently or potentially
compete with a variety of companies, including some of our transport suppliers,
with respect to our products and services individually, including:
- national and local carriers, such as AT&T, Broadwing, MCI WorldCom and
Williams Communications;
- companies that provide collocation facilities, such as AboveNet
Communications (MFN), AT&T, Equinix, Exodus Communications, Frontier
Global Center, and Intel;
- competitive local exchange carriers, such as AT&T, ELI, ICG
Communications, MCI WorldCom, NextLink Communications, and Pathnet; and
- incumbent local exchange carriers, such as GTE and Sprint, and regional
Bell operating companies such as BellSouth and SBC Communications.
We expect to face additional competition from new market entrants in the
future as there are few substantial barriers to entry in our market. Significant
new competitors could arise from increased consolidation and strategic alliances
in the telecommunications industry. Other new entrants could
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enter the market with a business model similar to ours. Our target markets may
support only a limited number of competitors. Operations in such markets with
multiple competitive providers may be unprofitable for one or more of such
providers. Prices in both the long distance business and the data transmission
business have declined significantly in recent years and are expected to
continue to decline.
Moreover, while recent regulatory initiatives allow carriers such as us to
interconnect with incumbent local exchange carrier facilities and to obtain
unbundled network elements from incumbent local exchange carriers, certain
initiatives also provide increased pricing flexibility for, and relaxation of
regulatory oversight of, the incumbent local exchange carrier. This may present
incumbent local exchange carriers with an opportunity to subsidize services that
compete with our services with revenues generated from non-competitive services.
This would allow incumbent local exchange carriers to offer competitive services
at lower prices. Existing laws also restrict the regional Bell operating
companies from fully competing with us in the market for interstate and
international long distance telecommunications services, but also permit the
Federal Communications Commission, the FCC, to lessen or remove some
restrictions. If FCC decisions under existing law, or future amendments to
Federal telecommunications laws, permit the regional Bell operating companies to
compete fully with us in this market, our revenues from these services could be
reduced if these companies are able to attract a substantial portion of our
customers.
We must distinguish ourselves through the quality of our client service,
our service offerings and brand name recognition. We may be unsuccessful in
doing this.
Many of our potential competitors have certain advantages over us,
including:
- substantially greater financial, technical, marketing and other
resources, including brand or corporate name recognition;
- larger customer bases;
- longer operating histories; and
- more established relationships in the industry.
Our competitors may be able to use these advantages to:
- expand their offerings more quickly;
- adapt to new or emerging technologies and changes in customer
requirements more quickly;
- take advantage of acquisitions and other opportunities more readily;
- enter into strategic relationships to rapidly grow the reach of their
networks and capacity;
- devote greater resources to the marketing and sale of their services; and
- adopt more aggressive pricing and incentive policies, which could drive
down margins.
If we are unable to compete successfully against our current and future
competitors, our gross margins could decline and we could lose market share,
either of which could materially and adversely affect our business.
WE HAVE A LONG CIRCUIT PROVISIONING CYCLE, AND IF WE HAVE DIFFICULTIES OR DELAYS
IN DELIVERING CIRCUITS TO OUR CLIENTS, OUR OPERATING RESULTS WILL SUFFER.
It typically takes 30 to 90 days to provision a circuit for a client, and
we do not begin to recognize revenue until a circuit has been installed and
accepted by the client. Once we agree to provision a circuit for a client, we
negotiate with one or more transport suppliers and manage the provisioning
personnel and field technicians of multiple vendors. A client can withdraw its
order with minimal liability at any time before accepting the circuit. We may
experience difficulties in provisioning circuits if our transport suppliers run
out of capacity, forcing us to look for alternative sources of
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capacity at the last minute. If we are unable to provision a circuit in a timely
manner or fail to obtain client acceptance of the circuit, we will be unable to
recognize access revenues for that circuit, and our operating results would be
adversely affected. Furthermore, the ability of our clients to cancel orders at
any time before accepting the circuit may make it difficult for us to forecast
revenue and plan our expenses accordingly.
THE UNPREDICTABILITY OF OUR QUARTERLY RESULTS MAY ADVERSELY AFFECT THE TRADING
PRICE OF OUR COMMON STOCK.
Our revenues and operating results will vary significantly from quarter to
quarter due to a number of factors, many of which we cannot control and any of
which may cause our stock price to fluctuate. These factors include the
following:
- uncertainty regarding timing for provisioning of circuits or failure to
obtain client acceptance of circuits;
- timing of the completion of new UTX facilities;
- decisions by end-users to reallocate their information resources to other
purposes, including year 2000 preparedness;
- costs related to acquisitions of technology or businesses;
- decisions by existing clients not to renew services on a timely basis
when existing client contracts terminate;
- the amount of unused circuit capacity that we hold;
- general economic conditions as well as those specific to the Internet and
related industries; and
- Internet growth and demand for Internet infrastructure.
In addition, we depend on decisions by our clients to expand their Internet
infrastructure, which decisions in turn depend upon the success and expected
demand for the services these clients offer.
We expect our operating expenses to increase significantly in future
periods. Our operating expenses are largely based on anticipated revenue trends,
and a high percentage of our expenses are, and will continue to be, fixed in the
short term due in large part to our build out of our UTX facilities. As a
result, fluctuations in our revenue for the reasons set forth above, or for any
other reason, could cause significant variations in our operating results from
quarter to quarter and could result in substantial operating losses.
Because of these factors, we believe that quarter-to-quarter comparisons of
our operating results are not, and will not be, a good indication of our future
performance. It is likely that, in some future quarters, our operating results
may not meet the expectations of public market analysts and investors. In that
event, the price of our common stock may fall.
OUR FACILITIES AND THE NETWORKS ON WHICH WE DEPEND MAY FAIL, WHICH WOULD
SERIOUSLY HARM OUR BUSINESS.
Our clients depend on our ability to provide ongoing dedicated circuit
access. The operation of these circuits depends on the networks of third party
transport suppliers, such as MCI WorldCom or Williams Communications. The
networks of transport suppliers and clients who may use our UTX facilities, may
be interrupted by failures in or damage to these facilities. Our facilities and
the ongoing circuit access we provide may be interrupted as a result of various
events, many of which we cannot control, including:
- fire;
- human error;
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- earthquakes, floods and other natural disasters;
- train derailments or similar disasters along communications
rights-of-way;
- power loss;
- telecommunications failures; or
- sabotage or vandalism.
We may be subject to legal claims and be liable for losses suffered by our
clients for disruptions to circuits or damage to client equipment resulting from
failures at our facilities or on the networks of third party providers. In
addition, we may be subject to legal claims and be liable for losses suffered by
clients and carriers who use our UTX facilities. Our contracts with our clients
and with carriers who use our UTX facilities attempt to eliminate our liability
for consequential or punitive damages and for damage to client equipment not
caused by our gross negligence or willful acts. However, those provisions may
not protect us from being held liable for those damages.
We generally provide outage credits to our clients if circuit disruptions
occur. If our circuit failure rate is high, we may incur significant expenses
related to circuit outage credits, which would reduce our revenues. We would
also have to incur significant expenses in investigating and addressing the
causes of such circuit failures, which would divert resources from the expansion
of our services and cause our business to suffer. Clients may seek to terminate
their contracts with us if there is a circuit failure. In addition, if our
circuit failure rate is high, our reputation could be harmed, which would
materially harm our business.
WE DEPEND ON SEVERAL LARGE CLIENTS, AND THE LOSS OF ONE OR MORE OF THESE
CLIENTS, OR A SIGNIFICANT DECREASE IN TOTAL REVENUES FROM ANY OF THESE CLIENTS,
COULD SIGNIFICANTLY REDUCE OUR REVENUE AND INCOME.
Historically, a substantial portion of our revenues has come from a limited
number of clients. For example, for the year ended December 31, 1998 two clients
accounted for approximately 29% of our total revenues, and for the year ended
December 31, 1999, one client accounted for approximately 38% of our total
revenues. We have a number of significant revenue contracts with this customer.
These contracts expire on various dates between May 2000 and April 2007.
If we lose one or more large clients, or if one or more of our large
clients reduces the services they purchase from us and we fail to add new
clients, our revenues could decline and our results of operations would suffer.
OUR CLIENTS MAY FAIL TO PAY OR BE UNABLE TO PAY THEIR OBLIGATIONS TO US IN A
TIMELY MANNER OR AT ALL, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
Some of our clients may have limited operating histories and may have
inadequate financial resources to meet all of their obligations. We recorded a
substantial bad debt expense during the year ended December 31, 1999 primarily
in connection with the failure by one of our clients to pay its bills. If other
of our clients are unable to meet their obligations to us, we may incur
additional bad debt expenses, which could harm our cash flows and results of
operations.
THE REGULATORY FRAMEWORK UNDER WHICH WE OPERATE AND NEW REGULATORY REQUIREMENTS
OR NEW INTERPRETATIONS OF EXISTING REGULATORY REQUIREMENTS COULD HARM OUR
BUSINESS.
Our communications services are subject to both federal and state
regulation. In providing our interstate and international communications
services, we must comply with federal telecommunications laws and regulations
prescribed by the FCC. At the state level, we are subject to state laws and to
regulation by state public utility commissions. As we expand internationally, we
will also become subject to regulation by foreign authorities and, in some
markets, supra-national authorities, such as the European Union.
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These laws and regulations are subject to frequent changes and different
interpretations, and therefore, it is difficult for us to assess the impact of
these factors on our operations. The current domestic and international trend is
toward deregulation of telecommunications and Internet services. However, we
cannot assure you that this trend will continue, and it is possible that changes
in regulatory policies could limit our ability to compete in some markets. The
implementation, modification, interpretation and enforcement of laws and
regulations vary and can limit our ability to provide many of our services.
We will need to obtain authorization from the FCC and many state public
utilities commissions to offer particular types of telecommunications services.
Once we receive this authorization, we will have to comply with a variety of
regulatory obligations on an ongoing basis. We cannot assure you that the FCC or
state commissions will grant the required authority (or do so in a timely
manner), or refrain from taking action against us if we are found to have
violated any requirements of their rules. If authority is not obtained or if our
schedules of prices, terms, and conditions are not filed, or are not updated, or
otherwise do not fully comply with the rules of the FCC or state regulatory
agencies, third parties or regulators could challenge our ability to offer our
services. Such challenges could cause us to incur substantial legal and
administrative expenses.
For additional information on governmental regulations affecting us, see
"Business -- Governmental Regulation."
REQUIRED REGULATORY APPROVALS MAY INTERFERE WITH OR DELAY CORPORATE
TRANSACTIONS.
As a regulated company, we are required to obtain the approval of the FCC
and certain state regulators before engaging in certain types of transactions,
including mergers, acquisitions of other regulated companies, sales of all or
substantial parts of our business, issuance of stock, and incurrence of debt
obligations. The particular types of transactions that require approval differ
in each jurisdiction. In several states, any transaction that results in a
transfer of 10% or more of our voting stock may require prior approval. If we
cannot obtain the required approvals, or if we encounter substantial delays in
obtaining them, we may not be able to enter into transactions on favorable terms
and our business would suffer.
TELECOMMUNICATIONS REGULATIONS OF OTHER COUNTRIES MAY RESTRICT OUR OPERATIONS.
We will be subject to the regulatory regimes in each of the countries in
which we conduct business. Local regulations range from permissive to
restrictive, depending upon the country. Changes to existing regulations of
foreign countries may decrease the opportunities that are available for us to
enter into those markets, or may increase our legal, administrative or
operational costs, or may constrain our activities in other ways that we cannot
necessarily anticipate. Any of these developments could impair our efforts to
develop foreign operations.
WE EXPECT TO FACE RISKS ASSOCIATED WITH ACQUIRED BUSINESSES.
Part of our expansion strategy includes acquiring businesses and
technologies that we believe will complement our existing business. For example,
in 1999 we acquired two companies, and we may acquire additional companies in
the future. These acquisitions will likely involve some or all of the following
risks:
- difficulty of assimilating acquired operations and personnel and
information systems;
- potential disruption of our ongoing business;
- diversion of resources;
- possible inability of management to maintain uniform standards, controls,
procedures and policies;
- possible difficulty of managing our growth;
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- risks of entering markets in which we have little experience; and
- potential impairment of relationships with employees or clients.
We may need to complete these transactions in order to remain competitive.
We cannot be sure that we will be able to obtain required financing for these
transactions or that these transactions will occur.
WE EXPECT TO REQUIRE ADDITIONAL THIRD-PARTY FINANCING, AND IF WE CANNOT OBTAIN
THIS FINANCING ON COMMERCIALLY REASONABLE TERMS, OUR BUSINESS WILL SUFFER.
Our ability to meet our planned growth will require substantial cash
resources. We expect that the anticipated expansion of our UTX facilities,
including the completion of five UTX facilities currently under construction,
and the beginning of the construction of eight additional facilities during the
year 2000 (at an estimated average cost of $3.2 million per facility), and our
anticipated funding of negative cash flow from operating activities, will
require substantial capital. In addition, part of our expansion strategy
includes acquiring complementary businesses and technology, which may require us
to raise additional funds. We do not expect to generate significant cash flow
from operations in the near term. Accordingly, our ability to meet our
additional future capital needs will depend upon our ability to renegotiate,
extend or replace our credit facilities, obtain supplemental financing or raise
additional capital. Additional debt financing may limit our financial and
operating flexibility. We may not be able to renegotiate or replace our credit
and equipment lease facilities on a timely basis, on acceptable terms or at all.
Additional equity financing may not be available or may be dilutive to existing
stockholders. If we are unable to obtain future financing when needed or on
acceptable terms we may have to delay or abandon our development and expansion
plans, which could materially adversely affect our growth and ability to
compete.
WE MUST EXPAND OUR MARKETING AND SALES OPERATIONS SUBSTANTIALLY TO INCREASE
MARKET AWARENESS AND SALES OF OUR SERVICES.
Our services require a sophisticated sales effort that targets key people
within our prospective clients' organizations. This sales effort requires the
efforts of select personnel as well as specialized system and consulting
engineers within our organization. We have recently expanded our sales force and
plan to hire additional marketing and sales personnel and system and consulting
engineers, particularly individuals with experience in the telecommunications
industry. Competition for these individuals is intense, and we may not be able
to hire the number of qualified sales personnel and system and consulting
engineers we need. In addition, we may substantially increase our budget as part
of our marketing program. If we are unable to expand our marketing and sales
operations, we may not be able to increase market awareness or sales of our
products and services, which may prevent us from achieving and maintaining
profitability.
IF WE DO NOT EXPAND OUR CLIENT SUPPORT ORGANIZATION SUBSTANTIALLY, CLIENTS MAY
SIGNIFICANTLY REDUCE PURCHASES OF OUR SERVICES.
We currently have a small client support organization and will need to
increase our staff to support new clients and the expanding needs of existing
clients. Our client support organization is responsible for providing our
clients with technical and operational support, and for identifying and
developing opportunities to provide additional services to our existing clients.
Competition for qualified client support personnel is intense because few people
have the necessary level of technical skills and experience in
telecommunications provisioning and network management. If we fail to expand our
client support organization, we may be limited in our ability to gain more
business from existing clients, and we may be unable to obtain or maintain
current information regarding our clients' and suppliers' communications
networks, which could limit our ability to provision future circuits for our
clients.
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IF WE DO NOT ESTABLISH AND MAINTAIN KEY CLIENT RELATIONSHIPS, OUR REVENUES MAY
DECLINE.
Our success will depend upon our ability to develop and manage key client
relationships in order to generate additional revenues from existing clients.
Our ability to develop and manage our client relationships depends on, among
other things:
- our ability to maintain the timeliness and quality of our provisioning
services;
- our ability to deliver our clients additional services, such as network
monitoring, maintenance and troubleshooting services;
- our ability to expand our client support organization with additional,
qualified personnel; and
- performance by the transport suppliers with whom we contract to provide
circuits to our clients.
If we fail to establish and maintain these client relationships, our
revenues may stagnate or decline.
IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY, OUR BUSINESS COULD SUFFER.
Our ability to successfully offer our services and implement our business
plan in a rapidly evolving market requires an effective planning and management
process. We continue to increase the scope of our operations and have
substantially increased the number of our employees. At December 31, 1997, we
had a total of five employees and at December 31, 1999, we had a total of 135
full-time employees. In addition, we plan to continue to hire a significant
number of employees. This growth has placed, and our anticipated growth in
future operations will continue to place, a significant strain on our management
systems and resources. We expect that we will need to continue to improve our
financial and managerial controls, reporting systems and procedures, and will
need to continue to expand, train and manage our work force. Furthermore, we
expect that we will be required to manage multiple relationships with various
clients, suppliers and other third parties. We cannot be sure that we will be
able to manage our expansion effectively.
WE ARE STILL IMPLEMENTING OUR MANAGEMENT INFORMATION SYSTEMS.
We are in the process of augmenting our management information systems to
facilitate management of client orders, client service, billing and financial
applications. Our business could be harmed if we fail to successfully and
promptly:
- implement all applications of our management information systems;
- integrate all the client records and the billing, ordering, inventory,
management, accounting and other financial information systems of the
businesses we have acquired or may acquire into our management
information systems;
- identify all of our information and processing needs;
- repair "bugs" and design defects that may exist in our management
information systems;
- implement a wide area network connecting our main offices and our UTX
facilities in different geographic locations; or
- maintain and upgrade our management information systems as necessary.
In addition, our business could suffer if the software which runs our
information systems malfunctions.
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WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET, AND OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO RETAIN OUR KEY
PERSONNEL AND HIRE ADDITIONAL PERSONNEL.
Our future success depends upon the continued services of our executive
officers and other key sales, marketing and support personnel. In particular, we
rely upon the services of our President and Chief Executive Officer, Patrick C.
Shutt, and Chief Operating Officer, Robert J. Pommer, Jr. We do not have "key
person" life insurance policies covering any of our employees.
In addition, we depend on the ability of a relatively new management team
to effectively execute our strategies. We recently hired several of our key
employees. Between June and September 1999, we hired our Executive Vice
President of Marketing and Executive Vice President of Client Services. Because
some members of our management team have worked together only for a short period
of time, we need to integrate these officers into our operations.
We will need to hire additional personnel in our communications
provisioning, sales, marketing and support areas in the future, and we believe
our success depends, in large part, upon our ability to attract and retain these
key employees. Competition for these persons is intense, especially in the
communications provisioning area. In particular, we have experienced difficulty
in hiring qualified network engineers, and we may not be successful in
attracting and retaining these individuals. The loss of the services of any of
our key employees, the inability to attract or retain qualified personnel in the
future, or delays in hiring required personnel could harm our business.
WE HAVE LIMITED ABILITY TO PROTECT OUR PROPRIETARY INFORMATION.
We have no patented technology that would preclude or inhibit competitors
from entering our market. We rely on a combination of copyright, trademark,
service mark and trade secret laws and contractual restrictions to establish and
protect our intellectual property. We have no federally registered trademarks or
service marks, although we have applied for registration of certain of our
service marks. Even if registration is granted, we may be limited in the scope
of services for which we may exclusively use our service marks. We enter into
confidentiality agreements with our employees, consultants and partners, and we
control access to, and distribution of, our proprietary information. Our
intellectual property may be misappropriated or a third party may independently
develop similar intellectual property. Moreover, the laws of certain foreign
countries may not protect our intellectual property rights to the same extent as
do the laws of the United States. Unauthorized use of any of our proprietary
information could seriously harm our business.
WE FACE A NUMBER OF UNKNOWN RISKS ASSOCIATED WITH YEAR 2000 PROBLEMS.
The year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. To
date, we have not encountered any problems relating to the well-publicized year
2000 computer problem. While we do not anticipate a material business
interruption, there remain risks that not all year 2000 problems have been
discovered. For example, the year 2000 is a leap year, which could cause
problems for computer hardware and software. If not fully resolved, the year
2000 computer problem could result in a system failure or miscalculations
causing disruptions of operations, including a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
We have designed our UIX databases for use in the year 2000 and beyond, and
we believe they are year 2000 compliant. Although we are past January 1, 2000,
and we believe that our UIX databases will function during the year 2000, we may
yet discover that our UIX databases may have problems because of the year 2000
calendar change. In this event, our business could suffer. In addition, we may
still find problems with our internal systems, which could harm our business.
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If our suppliers, vendors, major distributors, partners, clients and
service providers fail to correct their year 2000 problems, these failures could
disrupt our operations, damage our relationships with our clients and harm our
business. If a year 2000 problem occurs, it may be difficult to determine which
party's products caused the problem. Due to the general uncertainty inherent in
the year 2000 readiness of third-party suppliers and vendors, we are unable to
determine at this time whether year 2000 failures could harm our business and
our financial results.
Our clients' purchasing plans could be affected by year 2000 issues if they
need to expend significant resources to fix their existing systems to become
year 2000 compliant. This situation may reduce funds available to employ our
services. In addition, some clients may wait to purchase our services until
after the year 2000, which may reduce our revenues in the short term. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance".
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, AND A PUBLIC MARKET MAY NOT
DEVELOP OR BE SUSTAINED.
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering, and the market price might fall below the initial
public offering price. The initial public offering price may bear no
relationship to the price at which our common stock will trade upon completion
of this offering. The initial public offering price will be determined based on
negotiations between us and the representatives of the underwriters, based on
factors that may not be indicative of future market performance. See
"Underwriting".
CERTAIN STOCKHOLDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER UNIVERSAL
ACCESS AFTER THIS OFFERING AND COULD DELAY OR PREVENT A CHANGE IN CORPORATE
CONTROL.
We anticipate that Internet Capital Group, Inc., funds affiliated with
ComVentures and other stockholders, directors and officers will, in the
aggregate, beneficially own approximately 56.7% of our outstanding common stock
following the completion of this offering assuming these entities and
individuals do not purchase additional shares in the offering. However, Internet
Capital Group, Inc. has indicated its intention to purchase additional shares in
the offering or in the public market after this offering. These stockholders,
acting alone or together, would be able to influence significantly all matters
requiring approval by our stockholders, including the election of directors and
the approval of mergers or other business combination transactions. See
"Principal and Selling Stockholders".
PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD
PREVENT A CHANGE IN CORPORATE CONTROL.
Provisions of our amended and restated certificate of incorporation,
bylaws, and Delaware law could make it more difficult for a third party to
acquire us, even if doing so would be a benefit to our stockholders. See
"Description of Capital Stock".
THERE MAY BE SALES OF A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK AFTER THIS
OFFERING THAT COULD CAUSE OUR STOCK PRICE TO FALL.
Our current stockholders hold a substantial number of shares of our common
stock, which they will be able to sell in the public market in the near future.
All of the 10,000,000 shares sold in this offering will be freely tradable. The
remaining 74,809,264 shares outstanding, based on the number of shares
outstanding as of December 31, 1999, are restricted securities as defined in
Rule 144 of the Securities Act of 1933. Approximately 5,064,812 shares will be
tradable, subject to certain conditions described in "Shares Eligible for Future
Sale", three business days after we publicly announce financial results for the
full fiscal quarter next following the fiscal quarter in which the date of this
prospectus falls. Approximately 61,516,306 of these shares will be tradable
beginning 180 days after
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the effective date of this offering, and the remainder will become freely
tradable at various times thereafter subject to certain conditions described in
"Shares Eligible for Future Sale". Sales of a substantial number of shares of
our common stock after this offering, or market expectations that these sales
may occur, could cause our stock price to fall. In addition, the sale of these
shares could impair our ability to raise capital by selling additional common
stock. See "Shares Eligible for Future Sale".
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR SHARE PRICE WHICH COULD NEGATIVELY
AFFECT YOUR INVESTMENT.
The market price of our common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control,
including:
- quarterly variations in operating results;
- changes in financial estimates by securities analysts;
- changes in market valuations of Internet-related companies;
- announcements by us or our competitors of new products and services or of
significant acquisitions, strategic partnerships or joint ventures;
- any loss of a major customer;
- additions or departures of key personnel;
- any deviations in net revenues or in losses from levels expected by
securities analysts;
- future sales of common stock; and
- volume fluctuations, which are particularly common among highly volatile
securities of Internet-related companies.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
Accordingly, if you purchase common stock in the offering, you will incur
immediate dilution of approximately $7.45 per share. You will incur further
dilution if outstanding stock options and warrants are exercised. See
"Dilution".
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may", "will", "expect",
"anticipate", "believe", "estimate", "plan" and "continue" or similar words. You
should read statements that contain these words carefully because they: (1)
discuss our future expectations; (2) contain projections of our future results
of operations or of our financial condition; or (3) state other
"forward-looking" information. We believe that it is important to communicate
our future expectations to our investors. However, there may be events in the
future that we have not accurately predicted or which we cannot control. These
events may include our future operating results, our ability to implement our
business plan, our efforts to address Year 2000 issues and potential
competition, among other things. The risk factors listed under "Risk Factors",
as well as any cautionary language in this prospectus, provide examples of
risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
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USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the 10,000,000
shares of common stock we are selling in the offering will be approximately
$82.2 million (or $94.8 million if the underwriters' option to purchase
additional shares as described in "Underwriting" is exercised in full), based on
an assumed initial public offering price of $9.00 per share and after deducting
an assumed underwriting discount and estimated offering expenses payable by us.
We expect to use the net proceeds from this offering for working capital,
capital expenditures and general corporate purposes. In addition, we may use a
portion of the net proceeds to acquire complementary products, technologies or
businesses; however, we currently have no commitments or agreements, nor are we
involved in any negotiations, with respect to any such transactions. Pending use
of the net proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, to operate and expand our
business and do not expect to pay any cash dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis giving effect to the conversion of all outstanding
shares of preferred stock into common stock and all preferred stock
warrants to common stock warrants upon the closing of the offering
(assuming that each share of Series E preferred stock converts into three
shares of common stock); and
- on a pro forma as adjusted basis to reflect the sale by us of 10,000,000
shares of common stock in the offering at an assumed initial public
offering price of $9.00 per share, after deducting an assumed
underwriting discount and estimated offering expenses.
This information should be read in conjunction with our financial
statements and the notes to those statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Notes payable and term loans, net of current portion........ $ 2,246 $ 2,246 $ 2,246
Obligations under capital leases, net of current portion.... 123 123 123
Stockholders' equity:
Preferred stock:
Cumulative Convertible Series A -- $0.01 par value;
1,000,000 shares authorized, 772,331 shares issued and
outstanding actual; no shares issued and outstanding
pro forma and pro forma as adjusted................... 2,208 -- --
Series A warrants...................................... 83 -- --
Cumulative Convertible Series B -- $0.01 par value;
2,400,000 shares authorized, 2,233,335 shares issued
and outstanding actual; no shares issued and
outstanding pro forma and pro forma as adjusted....... 5,531 -- --
Series B warrants...................................... 500 -- --
Convertible Series C -- $0.01 par value; 667,000 shares
authorized, 666,667 shares issued and outstanding
actual; no shares issued and outstanding pro forma and
pro forma as adjusted................................. 1,941 -- --
Cumulative Convertible Series D -- $0.01 par value;
7,058,823 shares authorized, 6,042,697 shares issued
and outstanding actual; no shares issued and
outstanding pro forma and pro forma as adjusted....... 26,220 -- --
Cumulative Convertible Series E -- $0.01 par value;
1,597,386 shares authorized, 1,557,385 shares issued
and outstanding actual; no shares issued and
outstanding pro forma and pro forma as adjusted....... 27,954 -- --
Series E warrants...................................... 136 -- --
Common stock, $0.01 par value; 300,000,000 shares
authorized; 31,975,021 shares issued and outstanding
actual; 74,809,264 shares issued and outstanding pro
forma; 84,809,264 shares issued and outstanding pro
forma as adjusted...................................... 2,475 66,329 148,529
Common stock warrants..................................... 13 732 732
Additional paid-in-capital................................ 6,491 6,491 6,491
Deferred stock option plan compensation................... (1,468) (1,468) (1,468)
Accumulated deficit....................................... (18,314) (18,314) (18,314)
Notes receivable -- employees............................. (1,728) (1,728) (1,728)
-------- -------- --------
Total stockholders' equity........................ 52,042 52,042 134,242
-------- -------- --------
Total capitalization............................ $ 54,411 $ 54,411 $136,611
======== ======== ========
</TABLE>
21
<PAGE> 24
The table above does not reflect the exercise of any stock options
outstanding at December 31, 1999. As of December 31, 1999, there were options
outstanding to purchase a total of 10,465,750 shares.
The table above also does not reflect the exercise of any warrants. As of
December 31, 1999 there were Series A preferred stock warrants, Series B
preferred stock warrants, Series E preferred stock warrants and common stock
warrants outstanding to purchase an aggregate of 1,943,400 common or common
equivalent shares. If these warrants are exercised, there will be further
dilution to new stockholders.
22
<PAGE> 25
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the initial public offering price per share of
our common stock and the pro forma as adjusted net tangible book value per share
of our common stock after this offering. We calculate net tangible book value
per share by dividing the net tangible book value (total assets less intangible
assets and total liabilities) by the number of outstanding shares of common
stock.
Our pro forma net tangible book value at December 31, 1999 was $49.6
million, or $0.66 per share, based on 74,809,264 shares of our common stock
outstanding after giving effect to the conversion of all outstanding shares of
preferred stock into common stock.
After giving effect to the sale of the 10,000,000 shares of common stock by
us at an assumed initial public offering price of $9.00 per share (less an
assumed underwriting discount and estimated offering expenses payable by us),
our pro forma net tangible book value at December 31, 1999 would be $131.8
million, or $1.55 per share. This represents an immediate increase in the pro
forma net tangible book value of $0.89 per share to existing stockholders and an
immediate dilution of $7.45 per share to new investors, or approximately 83% of
the assumed initial public offering price of per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 9.00
Pro forma net tangible book value per share at December 31,
1999...................................................... $0.66
Increase per share attributable to new investors............ 0.89
-----
Pro forma net tangible book value per share after this
offering.................................................. 1.55
--------
Dilution per share to new investors......................... $ 7.45
========
</TABLE>
The following table shows on a pro forma basis at December 31, 1999, after
giving effect to the conversion of all outstanding shares of our preferred stock
into an aggregate of 42,834,243 shares of common stock upon the closing of this
offering, the number of shares of common stock purchased from us, the total
consideration paid to us and the average price paid per share by existing
stockholders and by new investors purchasing common stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders......... 74,809,264 88.2% $ 65,148,000 42.0% $0.87
New stockholders....... 10,000,000 11.8 90,000,000 58.0 9.00
Total........ 84,809,264 100.0% $155,148,000 100.0% $1.83
</TABLE>
The computations in the tables above assume no exercise of any stock
options outstanding at December 31, 1999. As of December 31, 1999, there were
options outstanding to purchase a total of 10,465,750 shares of common stock at
a weighted average exercise price of $0.99 per share. If any of these options
are exercised, there will be further dilution to new public investors.
The table above also does not reflect the exercise of any warrants. As of
December 31, 1999 there were Series A preferred stock warrants, Series B
preferred stock warrants, Series E preferred stock warrants and common stock
warrants outstanding to purchase an aggregate of 1,943,400 common or common
equivalent shares. If these warrants are exercised, there will be further
dilution to new stockholders. The table above also does not include
consideration received for any warrants that have not been exercised as of
December 31, 1999.
23
<PAGE> 26
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with our financial statements and the notes to our financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", included elsewhere in this prospectus. The statement of operations
data for the period from inception through December 31, 1997, and the years
ended December 31, 1998 and 1999, and the balance sheet data as of December 31,
1997, 1998 and 1999 are derived from, and are qualified by reference to, the
audited financial statements included elsewhere in this prospectus.
The financial data as of and for the year ended December 31, 1999 reflects
the acquisitions of substantially all of the assets of Pacific Crest Networks,
Inc. and Stuff Software, Inc. on July 30, 1999 and November 1, 1999,
respectively. Both acquisitions were accounted for using the purchase method of
accounting.
Pro forma basic and diluted net loss per share have been calculated
assuming the conversion into common stock of all preferred stock outstanding
during the relevant period, as if the shares had converted immediately upon
their issuance.
<TABLE>
<CAPTION>
INCEPTION
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.............................................. $ 77 $ 1,629 $ 14,259
------- ------- --------
Operating expenses:
Cost of circuit access.................................... 66 1,256 12,021
Operations and administration (excluding stock option plan
compensation)........................................... 180 1,516 12,725
Operations and administration (stock option plan
compensation)........................................... -- 65 4,927
Depreciation.............................................. -- 47 829
------- ------- --------
Total operating expenses................................ 246 2,884 30,502
------- ------- --------
Operating loss.......................................... (169) (1,255) (16,243)
------- ------- --------
Other income (expense):
Interest expense.......................................... (1) (27) (81)
Interest income........................................... -- 8 739
Other expense............................................. -- (100) 33
------- ------- --------
Total other income (expense)............................ (1) (119) 691
------- ------- --------
Net loss.................................................... (170) (1,374) (15,552)
Accretion and dividends on redeemable and nonredeemable
cumulative convertible preferred stock.................... -- (28) (1,187)
------- ------- --------
Net loss applicable to common stockholders.................. $ (170) $(1,402) $(16,739)
======= ======= ========
Basic and diluted net loss per share........................ $ (0.01) $ (0.05) $ (0.54)
Shares used in computing basic and diluted net loss per
share..................................................... 23,799 29,063 31,142
Pro forma basic and diluted net loss per share.............. $ (0.05) $ (0.27)
Shares used in computing pro forma basic and diluted net
loss per share............................................ 30,069 56,855
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1998 1999
---- ------- --------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................................ $ 1 $ 844 $ 38,024
Working capital............................................. (35) (562) 33,337
Total assets................................................ 100 1,969 64,265
Total long-term debt, net of current portion................ -- 149 2,369
Total stockholders' equity (deficit)........................ (34) (1,282) 52,042
</TABLE>
24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with "Selected Financial Data" and our
financial statements and the notes to our financial statements included
elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors including the risks described in "Risk Factors" and
elsewhere in this prospectus.
OVERVIEW
We commenced operations on October 2, 1997. To date, we have derived
substantially all of our revenues from providing ongoing, dedicated circuit
access. Monthly recurring circuit revenues are generated under client contracts
with terms ranging from 12 to 60 months. Contracts with our clients may be
terminated by the client at any time. However, a client that cancels a contract
is required to pay us substantially all of the amounts payable over the
remaining term of the contract. Circuit charges are billed monthly in advance,
and circuit revenues are recognized in the month that service is provided.
Amounts billed in advance are recorded on the balance sheet as unearned revenue.
At December 31, 1999, unearned revenue was $2.1 million.
Monthly recurring UTX revenues are generated from leasing space in our UTX
facilities. To date we have derived minimal revenue from UTX activities. Our UTX
billing and revenue recognition policies are the same as those described above
for circuits. In addition, we facilitate the provisioning, installation and
servicing of point-to-point dedicated circuits for our clients. To date, we have
not charged our clients for provisioning, installation or network management
services.
At December 31, 1999, we had two operational UTX facilities and five UTX
facilities under construction. Construction, equipment and facility leasing
costs incurred in connection with the construction of a UTX facility are
capitalized until the facility becomes operational. Once the facility becomes
operational, these costs are amortized over the lesser of the term of the lease,
ranging from seven to 15 years, or the estimated useful life of the equipment.
At December 31, 1999, we had $16.2 million of capitalized UTX construction
costs. In addition, at December 31, 1999, we had outstanding commitments of
approximately $9.5 million with respect to UTX construction services and
approximately $28.5 million with respect to facility leases. In addition to the
two operational UTX facilities and five facilities under construction at
December 31, 1999, we expect to commence construction on eight additional
facilities during 2000.
Our clients are communications service providers and transport suppliers,
such as Internet service providers, competitive local exchange carriers,
incumbent telecommunication service providers and other application and network
service providers. Our largest two clients represented an aggregate of
approximately 29% of total revenues for the year ended December 31, 1998. Our
largest client represented approximately 38% of total revenues for the year
ended December 31, 1999.
To date, cost of circuit access consists of amounts paid to transport
suppliers for circuits. We have negotiated volume discounts and network
route-specific discounts under contracts with the majority of our suppliers.
These contracts generally have terms ranging from three to ten years and include
minimum monthly purchase commitments that begin anywhere from six to twelve
months after we enter into the contract. At December 31, 1999, these minimum
purchase commitments totaled approximately $500,000 per month. However, actual
purchases have exceeded these minimum purchase commitments and for the year
ended December 31, 1999, totaled approximately $12.0 million. In addition, we
are party to contracts that will impose additional minimum purchase commitments
that we anticipate will total approximately $1.8 million per month by September
2000. In future periods we will incur costs associated with the UTX facilities
which will include amortization of certain UTX equipment costs and certain
technical labor.
25
<PAGE> 28
Operations and administration costs consist primarily of salaries and
employee benefits, facilities expenses for our headquarters and sales offices,
and sales and marketing expenses. We did not open our first sales offices until
June 1999 at which time we began to significantly expand our sales and marketing
staff. As a result, we have not historically segregated sales and marketing
expenses from operations and administration expenses.
In July 1999, we acquired substantially all of the assets of Pacific Crest
Networks, Inc. in a transaction accounted for as a purchase. Intangible assets
of approximately $1.2 million were recorded in connection with the acquisition
and are amortized over five years. In addition, in November 1999, we acquired
substantially all of the assets of Stuff Software, Inc. in a transaction
accounted for as a purchase. Intangible assets of $1.3 million were recorded in
connection with the acquisition and are being amortized over five years.
In each quarter since our inception, we have incurred operating losses and
net losses and experienced negative cash flows from operations. At December 31,
1999, we had an accumulated deficit of $18.3 million.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1999
REVENUES
Revenues increased from $1.6 million for the year ended December 31, 1998
to $14.3 million for the year ended December 31, 1999. Substantially all of our
revenues consisted of circuit revenues in each of these periods. UTX revenues
represented less than 5% of revenues during these periods. The increase in
revenues was attributable to an increase in the volume of circuits sold, some of
which were higher capacity and, therefore, generated greater revenues per
circuit. In addition, there was an increase in the number of clients and
additional sales to existing clients.
COST OF CIRCUIT ACCESS
Cost of circuit access increased from $1.3 million for the year ended
December 31, 1998 to $12.0 million for the year ended December 31, 1999. As a
percentage of revenues, cost of circuit access increased from 77% for the year
ended December 31, 1998 to 84% for the year ended December 31, 1999. The
increase in cost of circuit access in absolute dollars was primarily
attributable to an increase in the volume of circuits sold, some of which were
higher capacity and, therefore, generated greater cost per circuit. In addition,
there was an increase in the number of clients and additional sales to existing
clients. The increase in cost of circuit access as a percentage of revenues was
in part attributable to the fact that we deliberately reduced our margins on
certain high capacity circuits in an effort to attract large clients, and in
part attributable to $350,000 of circuit charges incurred for circuits that are
yet to be sold to clients.
In April 1999 we reduced the margins on certain circuits sold to two high
profile clients in an effort to attract these clients. These margin reductions
were one-time occurrences. We do not expect to decrease margins on future sales.
OPERATIONS AND ADMINISTRATION (EXCLUDING STOCK OPTION PLAN COMPENSATION)
Operations and administration expenses increased from $1.5 million for the
year ended December 31, 1998 to $12.7 million for the year ended December 31,
1999. The increase in operations and administration expenses was primarily
attributable to an increase in personnel and continued expansion of our sales
and marketing efforts. During the year ended December 31, 1999, we opened sales
offices in Vienna, Virginia and San Jose, California. The number of our
employees increased from 11 at December 31, 1998 to 135 at December 31, 1999. In
addition, we incurred bad debt expense of $42,000 for the year ended December
31, 1998 and $867,000 for the year ended December 31, 1999. Approximately
one-half of the increase in bad debt expense related to one
26
<PAGE> 29
substantial client account, which represented over four months of billings. We
have revised our credit and collection procedures so that service is now
discontinued within two months of non-payment. The remainder of this expense
related to the creation of a general reserve for doubtful accounts. We expect
total operations and administration expenses to continue to increase in absolute
dollars as we continue to grow our revenues, but expect that operations and
administration expenses will ultimately decrease as a percentage of revenues as
we leverage our existing infrastructure.
OPERATIONS AND ADMINISTRATION (STOCK OPTION PLAN COMPENSATION)
During 1998, we recorded a total of $487,000 and during the year ended
December 31, 1999, we recorded a total of $1.4 million in deferred stock option
plan compensation as a result of granting options to employees and non-employees
with per share exercise prices deemed to be below the fair market value of our
common stock at the date of grant. Deferred stock option plan compensation is
amortized over the vesting period of the related options. Amortization expense
totaled $316,000 for the year ended December 31, 1999. We expect to recognize
additional deferred stock option plan compensation expense of approximately $1.5
million over the next four years, based upon options outstanding at December 31,
1999.
In addition, during the year ended December 31, 1999 we recorded $4.6
million of stock option plan compensation expense, related to loans issued to
three officers of the Company, in connection with exercise of stock options.
DEPRECIATION
Depreciation expense includes depreciation of furniture, fixtures and
equipment at our office facilities and of equipment at our UTX facilities. We
expect depreciation expense to increase substantially in the future as we
continue to place our UTX facilities into service.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense increased from $27,000 for the year ended December 31,
1998 to $81,000 for the year ended December 31, 1999. The increase was
attributable to additional borrowings under a term loan and line of credit
facility used for general working capital requirements and to fund capital
expenditures.
Interest income increased from $8,000 for the year ended December 31, 1998
to $739,000 for the year ended December 31, 1999. The increase was attributable
to investing a portion of the proceeds from our Series A, Series B, Series C,
Series D and Series E preferred stock offerings in short-term money market
instruments.
INCOME TAXES
From our inception through September 27, 1998, we elected to be treated as
a subchapter S-corporation for income tax purposes. On September 27, 1998, we
converted to a C-corporation. At December 31, 1999, we had approximately
$10,091,000 of federal and state net operating loss carryforwards. These
carryforwards may be available to offset future taxable income. Our federal and
state net operating loss carryforwards expire at various dates beginning in
2018. Due to the uncertainty that we will generate future earnings sufficient to
enable us to realize the benefit of these net operating loss carryforwards, we
have recorded a valuation allowance for the full amount of our deferred tax
asset. As a result, no income tax benefit has been recorded in our statement of
operations. We assess the realizability of our deferred tax asset on an ongoing
basis and adjust the valuation allowance based on this assessment. Additionally,
Section 382 of the Internal Revenue Code of 1986, as amended imposes annual
limitations on the use of net operating loss carryforwards if there is a change
in ownership, as defined, within any three year period. The utilization of
certain net operating loss carryforwards may be limited due to our capital stock
transactions.
27
<PAGE> 30
PERIOD FROM INCEPTION TO DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31,
1998
REVENUES
We commenced operations on October 2, 1997. Revenues increased from $77,000
during the period ended December 31, 1997 to $1.6 million during the year ended
December 31, 1998. The increase in revenues was primarily attributable to growth
in the number of our clients.
COST OF CIRCUIT ACCESS
Cost of circuit access increased from $66,000 for the period ended December
31,1997 to $1.3 million for the year ended December 31, 1998. As a percentage of
total revenues, cost of circuit access decreased from 86% for the period ended
December 31, 1997 to 77% for the year ended December 31, 1998. The increase in
cost of circuit access in absolute dollars was attributable to an increase in
the number of circuits purchased. The decrease in cost of circuit access as a
percentage of revenues was attributable to volume discounts negotiated with our
transport suppliers, reflecting higher purchasing levels.
OPERATIONS AND ADMINISTRATION (EXCLUDING STOCK OPTION PLAN COMPENSATION)
Operations and administration expenses increased from $180,000 for the
period ended December 31, 1997 to $1.5 million for the year ended December 31,
1998. The increase was primarily attributable to growth in headcount and
expansion of our corporate headquarters. Our employee headcount increased from
five at December 31, 1997 to 20 at December 31, 1998.
OPERATIONS AND ADMINISTRATION (STOCK OPTION PLAN COMPENSATION)
During 1998, we recorded a total of $487,000 in deferred stock option plan
compensation as a result of granting options to employees with per share
exercise prices determined to be below the fair market value of our common stock
at the date of grant. Amortization expense totaled $25,000 for the year ended
December 31, 1998. In addition, during 1998, we recorded $40,000 of stock option
plan compensation in connection with options issued to non-employees in exchange
for services.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense increased from $1,000 for the period ended December 31,
1997 to $27,000 for the year ended December 31, 1998. The increase was
attributable to additional borrowings from stockholders and under a term loan
used to fund our working capital needs.
OTHER EXPENSE
Other expense totaled $100,000 for the year ended December 31, 1998. The
amount related to a settlement paid upon termination of an executed letter of
intent to acquire a network access service provider.
SUMMARY QUARTERLY FINANCIAL DATA
The table below presents unaudited quarterly statement of operations data
for each of the last eight quarters through December 31, 1999. This information
has been derived from unaudited financial statements that have been prepared on
the same basis as the audited financial statements
28
<PAGE> 31
included elsewhere in this prospectus and, in our opinion, includes all
adjustments, consisting only of normal recurring adjustments, that are necessary
for a fair presentation of the information.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $168 $ 227 $ 335 $ 899 $1,531 $ 2,719
---- ----- ----- ------ ------ -------
Operating expenses:
Cost of circuit access...... 125 194 273 664 1,285 2,316
Operations and
administration (excluding
stock option plan
compensation)............. 135 274 481 626 1,175 2,470
Operations and
administration (Stock
option plan
compensation)............. -- -- 46 19 28 108
Depreciation................ -- -- 1 46 25 28
---- ----- ----- ------ ------ -------
Total operating
expenses................ 260 468 801 1,355 2,513 4,922
---- ----- ----- ------ ------ -------
Operating loss................ $(92) $(241) $(466) $ (456) $ (982) $(2,203)
==== ===== ===== ====== ====== =======
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
1999 1999
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Revenues...................... $ 4,333 $ 5,676
------- -------
Operating expenses:
Cost of circuit access...... 3,876 4,544
Operations and
administration (excluding
stock option plan
compensation)............. 3,499 5,581
Operations and
administration (Stock
option plan
compensation)............. 2,949 1,842
Depreciation................ 237 539
------- -------
Total operating
expenses................ 10,561 12,506
------- -------
Operating loss................ $(6,228) $(6,830)
======= =======
</TABLE>
Our future revenues and operating results may vary significantly from
quarter to quarter due to a number of factors, many of which we cannot control.
These factors include those described in "Risk Factors" included elsewhere in
this prospectus.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through private placements as
well as through borrowings from stockholders and financial institutions. Since
inception through December 31, 1999, we have raised $63.4 million in capital
through private placements of common and convertible preferred stock and common
and preferred stock warrants. Our principal uses of cash are to fund operating
losses, working capital requirements and capital expenditures. At December 31,
1999, we had $38.0 million in cash and cash equivalents.
In March 1999, we entered into a credit agreement with a bank under which
we may request the bank to issue letters of credit or we may borrow up to a
total of $4.0 million. The agreement provides that outstanding borrowings bear
interest at the bank's prime rate and expires in April 2000. This credit
agreement requires as to maintain a cash balance in a custodial account at an
amount not less than the total borrowings and letters of credit outstanding.
Letters of credit totaling $1.7 million were outstanding under the agreement as
of December 31, 1999. At January 31, 2000, letters of credit totaling $500,000
were outstanding under the agreement.
In September 1999, we entered into a credit agreement with a bank under
which we may request the bank to issue letters of credit or we may borrow up to
a total of $6.0 million. The agreement expires in August 2000. Outstanding
borrowings under the agreement bear interest at rates ranging from the bank's
prime rate to the bank's prime rate plus 3% and are secured by substantially all
of our assets. The agreement requires that we maintain specified debt to
tangible net worth and quick ratios. The Company was in compliance with both
ratios at December 31, 1999. Letters of credit totaling $2.2 million were
outstanding under the agreement as of December 31, 1999.
In December 1999, we entered into a credit agreement with a bank and
borrowed $3.3 million. Outstanding borrowings bear interest at approximately 15%
and are secured by specifically identified assets. The agreement expires in
November 2002 and requires that we maintain an unrestricted cash balance of at
least $15 million. As of December 31, 1999, the outstanding balance of this loan
was $3.2 million.
Net cash used in operating activities increased from $946,000 for the year
ended December 31, 1998 to $6.9 million for the year ended December 31, 1999.
The increase in net cash used was
29
<PAGE> 32
primarily due to increased net losses and increased accounts receivable,
partially offset by increased accounts payable, accrued expenses and unearned
revenue. We anticipate that we will continue to require cash to support our
future operating activities.
Net cash used in investing activities totaled $265,000 for the year ended
December 31, 1998 and related to purchases of property and equipment. Net cash
used in investing activities totaled $19.6 million for the year ended December
31, 1999, and related to purchases of property and equipment, funds advanced in
exchange for notes receivable, and the purchases of Pacific Crest Networks and
Stuff Software, Inc. We expect to increase our investments in equipment in the
near term substantially as we increase our number of UTX facilities.
At December 31, 1999 we had two operational UTX facilities and five
facilities under construction. In addition to these facilities we intend to
commence construction on eight additional facilities during 2000.
We plan to spend approximately $50.0 million on capital expenditures during
2000, including approximately $6.0 million on the completion of the five
facilities under construction and $25.6 million on the construction of eight
additional facilities, the remainder of which will be used to fund the expansion
of corporate facilities and the build out of corporate infrastructure. We
anticipate we will use part of the proceeds of this offering for these capital
expenditures.
Net cash provided by financing activities increased from $2.1 million for
the year ended December 31, 1998 to $63.7 million for the year ended December
31, 1999. The increase was primarily due to the receipt of proceeds from the
issuance of convertible preferred stock. Pending their use, we invested these
proceeds primarily in marketable securities, with an original maturity of not
greater than six months. We intend to continue investing surplus cash in similar
securities.
In July 1999, we acquired substantially all of the assets and assumed
certain liabilities of Pacific Crest Networks, Inc. for a total purchase price
of $1.4 million (comprised of $1.1 million in a cash and the assumption of debt,
and 82,353 shares of Series D convertible preferred stock with a fair market
value of $4.25 per share on the date of issuance). In November 1999, we acquired
substantially all of the assets of Stuff Software, Inc. for a total purchase
price of $1.2 million (comprised of $930,000 in cash and 50,021 shares of common
stock with a fair market value of $6.10 per share on the date of issuance). The
cash portion of these purchases was funded with proceeds from the issuance of
convertible preferred stock.
Our future capital requirements will depend on a number of factors,
including market acceptance of our services, the resources we devote to
developing, selling and marketing our services and the rate at which we expand
our UTX facilities. In addition, we plan to continue to evaluate possible
investments in complementary businesses, products and technologies. Although we
believe that the net proceeds from this offering, together with existing cash
balances, will be sufficient to fund our operations for at least the next twelve
months, we may require additional financing within this time frame. Additional
funding may not be available on terms acceptable to us, or at all.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
We maintain our cash equivalents and short-term investments primarily in a
portfolio comprised of commercial paper, money market funds and investment grade
debt securities. As of December 31, 1999, all of our investments had maturities
of less than six months. Accordingly, we do not believe that our investments
have significant exposure to interest rate risk.
EXCHANGE RATE SENSITIVITY
We operate primarily in the United States, and all our revenues and
expenses to date have been in US dollars. Accordingly, we have had no material
exposure to foreign currency rate fluctuations.
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YEAR 2000
IMPACT OF THE YEAR 2000 COMPUTER PROBLEM
The year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
STATE OF READINESS
We completed our assessment of our year 2000 readiness and our inventory
and testing of certain internal systems. We are currently requesting
confirmation of year 2000 compliance from our suppliers.
Based upon our year 2000 assessment, we do not believe that we have any
significant systems that are not year 2000 compliant. We have represented to
some of our customers that our computer systems will continue to process date
data in the year 2000 and beyond, including leap year calculations.
The applications for our UIX databases were developed internally within the
last two years using year 2000 compliant equipment, operating systems and
software development tools. We developed these databases and systems to be year
2000 compliant. We have obtained assurances from third parties or internally
verified that the systems and equipment in our UTX facilities are year 2000
compliant.
We have used commercially available software to verify that our internally
used hardware and software, including applications used for accounting, order
entry and invoicing are year 2000 compliant.
To date, we have not experienced any significant year 2000 problems.
However, a programming error that has not yet been discovered, whether in
hardware and software not used every day or otherwise, could still cause
problems during the year 2000 and harm our business.
COST
Based on our assessments to date we believe that we will be able to manage
our year 2000 transition without any material adverse effect on our business or
results of operations. To date our costs of assessing our year 2000 readiness
have not been material.
RISKS
We believe that our most significant year 2000 risk is that third parties,
such as transport suppliers and utility providers, do not fully address their
year 2000 issues.
Failure of our transport suppliers to adequately address their year 2000
issues could result in circuit outages. We generally provide outage credits to
our clients if circuit disruptions occur. A high circuit failure rate may result
in lost revenues and lost customers and may divert resources from the expansion
of our services and adversely affect our business and results of operations. To
date, no circuit disruptions or failures have occurred as a result of the year
2000.
Failure of our internal systems to be ready for year 2000 could delay order
processing, provisioning of circuits and issuing invoices. To date, we have
experienced no delays as a result of the year 2000.
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CONTINGENCY PLAN
We will continue to assess our year 2000 issues. We have developed a
contingency plan in the event our efforts to identify year 2000 problems are not
effective. This plan includes:
- temporary relocation of head office functions;
- using contract personnel to correct any problems;
- using alternative sources of transport capacity; and
- increasing work hours for our personnel.
Based upon our evaluation of these issues, we believe that year 2000 issues
will not have a material impact on our financial condition or results of
operation. However, we cannot assure you that we will not be affected by such
issues. In addition, if any significant transport supplier, utility provider or
other third party with whom we deal fails to ensure year 2000 compliance, our
financial condition or results of operations could suffer.
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BUSINESS
OVERVIEW
We are a business-to-business intermediary that facilitates the
provisioning, installation and servicing of dedicated communications circuits
for service providers who buy network capacity, and transport suppliers who sell
network capacity. Provisioning refers to the process of supplying communications
circuits to users. A transport supplier is an entity that supplies
communications network capacity over which information is transmitted.
We aggregate network information, operate facilities where communications
networks can be physically interconnected, provide ongoing, dedicated circuit
access and provide client support services. We offer our clients the ability to
obtain pricing quotes and availability information, and order circuits over the
Internet. We intend to expand our online service offering to include network
management, monitoring and restoration. Through these services, we provide our
clients with an outsourced, integrated solution to the challenges they face
within a fragmented network services market.
As an independent intermediary, we have been able to collect and aggregate
network information from multiple transport suppliers. Our UIX consists of
several proprietary, interconnected databases containing pricing, capacity,
availability, location and interconnection information, currently from over 35
transport suppliers and more than 75,000 physical sites. Our UIX enables us to
efficiently and cost-effectively facilitate the design, provisioning,
installation and maintenance of circuits across multiple vendor networks for our
clients. Our UTX facilities are physical sites where transport capacity
suppliers and our clients lease space to locate communications equipment and
interconnect with the networks of transport suppliers. Our UTX facilities enable
our clients to more easily extend the geographic reach of their networks through
interconnection. We also provide a single point of contact for network
management services, including network monitoring, maintenance and restoration.
By aggregating network information, managing physical network
interconnections and providing dedicated support services, we intend to improve
the overall efficiency of the network infrastructure services market and,
ultimately, create the foundation for a seamlessly connected, global
communications network.
We were incorporated in Illinois and began operations in October 1997. We
reincorporated in Delaware in June 1999. We operated as a subchapter "S"
corporation until September 1998, when we converted to a "C" corporation.
INDUSTRY BACKGROUND
MARKET OPPORTUNITY
The Internet is emerging as a global medium for communications and
commerce. According to International Data Corporation (IDC), the number of
Internet users will grow from 142 million at the end of 1998 to 502 million by
2003. Businesses in particular are becoming increasingly dependent on Internet
enabled applications to facilitate transactions and are using the Internet for a
variety of activities, including disseminating corporate information,
advertising, sales, customer service, training and communications with business
partners. Forrester Research estimates that U.S. business trade on the Internet
will grow from $43 billion in 1998 to $1.3 trillion in 2003.
The growth in Internet usage, and in particular the adoption and use of the
Internet by businesses, has created substantial global demand for additional
network infrastructure and underlying communications capacity. We believe that
the increased reliance by businesses on data-intensive applications, including
data communications, electronic commerce, video and graphics, will continue to
support this trend. In addition, we believe that the resulting demand for
network capacity
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to transmit data will accelerate as service providers increasingly offer high
speed data access to businesses.
According to the Yankee Group, the U.S. market for Internet capacity and
network services will total $56.8 billion by 2002. Service providers currently
rely on multiple transport suppliers who focus on any one or a combination of
geographically dispersed network segments, including local segments, intercity
segments, interbuilding segments, and segments connecting the networks of
multiple providers. The ability of a service provider to obtain dedicated
circuits and infrastructure services quickly and efficiently across multiple
geographically dispersed network segments is becoming increasingly difficult as
the number of transport suppliers increases.
FRAGMENTED MARKET
The market for transport capacity and infrastructure services is complex,
competitive and fragmented due to the growth in the number of transport
suppliers and service providers. This growth is attributed to the deregulation
of the telecommunications industry beginning with the 1984 divestiture of AT&T
and continuing with the Telecommunications Act of 1996. The Telecommunications
Act of 1996 has spawned a rapid increase in the number of transport suppliers
and service providers, including:
- competitive local exchange carriers, which are communications companies
authorized by local regulatory authorities to offer competing local
communication services within an incumbent telecommunication supplier's
territory;
- interexchange carriers, which are communications companies that offer
service between local service areas in different geographic areas;
- Internet service providers;
- application service providers, which are companies that offer individuals
or enterprises access over the Internet to application programs and
related services that would otherwise have to be located in their own
personal or enterprise computers;
- cable operators; and
- public utility companies.
Similar deregulation is occurring in international markets. The increase in
the number of transport suppliers and service providers competing in and across
different geographically dispersed network segments has impeded the development
of seamless communications networks.
With the growth in Internet communications and commerce and the
increasingly competitive market for network capacity and infrastructure
services, new entrants and incumbent transport suppliers have employed a variety
of business strategies to compete. These strategies include building or
acquiring additional network infrastructure, entering into interconnection
agreements, reselling or exchanging network capacity and offering new services.
As a result, multiple networks have developed serving various geographic regions
and focusing on different network segments. In this competitive, multiple vendor
landscape, we believe that to date, transport suppliers have not been able to
effectively support dedicated circuit connections on their own networks, or
through efficient interconnection with other suppliers, to fully meet their
customers' requirements.
Compounding the problems associated with a fragmented, multiple-vendor
landscape, transport suppliers and service providers have placed a higher
priority on obtaining customers to build market share rather than on
interconnecting their independently built networks. In addition, network
connectivity continues to be hindered by the fact that transport suppliers and
service providers do not have access to pricing, capacity, availability, and
location information for the networks of other suppliers. Because transport
suppliers compete with each other, they have little incentive to share this
information or to locate their equipment within competitors' facilities in order
to connect their networks.
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CHALLENGES FOR SERVICE PROVIDERS
This fragmented market environment causes a number of challenges for
telecommunications service providers, ISPs, ASPs and other buyers of capacity,
including:
- significant time and expense related to quoting, provisioning and
installing circuits across multiple vendor networks;
- lack of information about vendor networks, making it difficult to
determine the availability of capacity in a timely manner, and which may
result in significant backlog of customer orders, lost revenues and
possibly lost customers; and
- inability to maintain, monitor and restore connections across multiple
vendor networks.
CHALLENGES FOR TRANSPORT SUPPLIERS
This fragmented market environment also causes a number of challenges for
IXC, local loop, and other transport suppliers, including:
- inability to efficiently fulfill customer demand for dedicated circuits
due to the limited reach of their networks and limited interconnections
with other carrier networks;
- costs associated with selling excess network capacity on existing routes
to multiple buyers; and
- inability to provide a consistent level of service due to the lack of
information about and control over network segments in a multiple vendor
landscape.
OUR SOLUTION
Our integrated solution addresses these challenges and provides the
following key advantages:
SINGLE POINT OF CONTACT FOR PROVISIONING, INSTALLATION AND NETWORK
MANAGEMENT SERVICES. As a third-party provider, we allow our clients to
outsource the provisioning, installation and management of their communications
infrastructure. Our solution provides significant time, effort and cost savings
to our clients who would otherwise be forced to independently analyze the
capacity, availability and pricing of circuits from multiple vendors to
construct and maintain circuits. In addition, we maintain a network management
service organization through which we provide a single point of contact for
24-hour-a-day, seven-day-a-week network monitoring, maintenance and restoration
across multiple vendor networks. Our organization interfaces with the network
management organizations of our transport suppliers, which enables us to
identify and isolate circuit outages and facilitate their restoration throughout
each segment of dedicated circuits. Without these services a client would have
to contact multiple vendors to determine the source of a circuit outage and to
restore the circuit. Currently we provide these services in conjunction with an
outsourcing arrangement with a third party until our own facility becomes
operational.
EFFICIENT, COST EFFECTIVE CIRCUIT PROVISIONING AND INSTALLATION ACROSS
MULTIPLE VENDOR NETWORKS. We provide buyers of transport capacity efficient and
cost-effective circuit provisioning and installation across multiple vendor
networks. As an independent intermediary, we have been able to collect and
aggregate network information from multiple transport suppliers. By leveraging
this information, which is contained in our UIX databases, we efficiently and
cost effectively provide our clients circuit solutions across geographically
dispersed network segments.
EASILY EXTENDED NETWORK REACH. Transport suppliers are able to easily
extend the reach of their networks by purchasing access to dedicated circuits
from us. We provide clients a single point of contact from which to access the
networks of over 35 transport suppliers. In addition, by locating in our UTX
facilities, we believe that transport suppliers can access these networks faster
and more cost-effectively, utilizing a cross connect circuit connection within
our UTX facility rather than a local loop connection. With access to a greater
number of circuit routes, our clients are better positioned to
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offer a broader range of options to their customers. We currently have two
operational UTX facilities in two cities in the United States and are in the
process of constructing five additional sites.
SIGNIFICANT SOURCE OF DEMAND FOR TRANSPORT SUPPLIERS. Through our UIX
databases, we are able to match our clients' demand with the available capacity
of transport suppliers. We represent a significant source of demand for
transport suppliers because we purchase a large volume of circuits. We believe
our transport suppliers consider us to be a valuable partner because we provide
them efficient access to the capacity requirements of our clients. We believe
that by working with us, transport suppliers can reduce their costs associated
with selling excess network capacity on existing routes to multiple buyers.
ONGOING CLIENT SUPPORT. Our approach to client support involves developing
an understanding of our clients' business objectives, competitive environment,
market initiatives and service needs by maintaining close contact with our
clients through our Client Advocacy Services group. This group places highly
trained technical personnel in the field that are responsible for understanding
and rapidly responding to our clients' needs. Client Advocacy Services personnel
provide technical and administrative support during the circuit planning,
ordering, provisioning and installation processes and are available for ongoing
consultation.
OUR STRATEGY
Our objective is to facilitate the creation of a seamlessly connected,
global communications network by improving the overall efficiency of the market
for network capacity and infrastructure services. To achieve this objective, we
intend to:
CONTINUE TO ENHANCE INTERNET FUNCTIONALITY OF OUR UIX. We are currently
developing the infrastructure to provide an enhanced Internet interface that
will enable our clients to obtain quotes, order circuits and receive dedicated
monitoring and support services, all in real time. We believe these Internet
initiatives will enhance the efficiency and reliability of our web-based
services and will enable us to offer a more complete, e-commerce solution to our
clients.
CONTINUE TO EXPAND AND POPULATE OUR UIX DATABASES. We plan to continue to
gather data elements from our existing transport suppliers, including
information about pricing, capacity, availability, location and interconnection
information and other network elements for inclusion in our UIX databases. We
also plan to add information to our UIX on the networks of domestic and
international transport suppliers from whom we do not currently gather
information. We believe that our UIX databases provide us with a competitive
advantage and will become more difficult for a competitor to replicate as we
enhance the data and functionality of our UIX over time.
CONTINUE TO DEVELOP UTX FACILITIES. We plan to continue to construct
additional UTX facilities in strategic locations within North America, Europe,
Asia and South America. In addition, we intend to construct UTX facilities that
are designed to meet the specific service requirements of major metropolitan
areas, regional sites and high occupancy buildings. We believe these facilities
will provide our clients a convenient and cost-effective method to interconnect
with multiple service providers and transport suppliers. We also believe that
our UTX facilities represent a platform for offering new services to our clients
and transport suppliers alike. For example, once a transport supplier places its
network in our UTX facility, the supplier may utilize our UTX services to
interconnect with other suppliers in that UTX facility to extend the geographic
reach of its network.
AGGREGATE NETWORK DEMAND. We intend to aggregate discrete circuits between
network access points in order to optimize circuit configurations and realize
network and economic efficiencies. We will use the information available in our
UIX and the extensive connections in our UTX facilities to enable this
aggregation.
EXPAND INTERNATIONALLY. A number of international markets, such as Europe,
Asia and South America, have experienced deregulation similar to that in North
America and are therefore experiencing problems associated with fragmentation of
the network capacity market. We plan to offer
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our UIX, UTX and client support services in international markets. We believe we
can leverage our experience in the U.S. market to achieve a competitive
advantage by being one of the first to address the network capacity constraints
currently developing in international markets. Given the high rates of
interconnection between our clients and emerging European suppliers, we believe
that Europe represents our most compelling international opportunity at this
time.
ENHANCE CAPABILITIES THROUGH ACQUISITIONS AND PARTNERSHIPS. We plan to
continue to acquire complementary businesses or technologies and to enter into
strategic partnerships. For example, in 1999 we completed two acquisitions to
expand and enhance the capabilities of our UIX databases.
SERVICES
We offer our clients an integrated solution utilizing our UIX databases,
our UTX facilities and our client support services.
UNIVERSAL INFORMATION EXCHANGE (UIX)
Our UIX consists of several proprietary, interconnected databases
containing capacity, availability, physical location and pricing information
from over 35 transport suppliers and more than 75,000 physical sites. The UIX
databases contain over 3.3 million data elements. We expect this number will
grow as we continue to add information to our UIX about the networks of new
transport suppliers. We offer our clients the ability to access information and
obtain services from our UIX using the Internet. By utilizing our UIX we are
able to provide our clients with a single point of contact for the provisioning
and installation of circuits from multiple vendors, as well as circuit access
and network monitoring. We believe our UIX enables us to provide these services
more efficiently and cost-effectively than traditional transport suppliers.
We utilize our UIX to offer our clients a comprehensive range of services
including:
QUOTING. Our quoting system can be accessed over the Internet and enables
clients to request and receive quotes for circuit configuration, provisioning
and installation. We are generally able to provide a basic quote within 24 hours
of our clients' request.
ORDER PROCESSING. Clients can place orders online by directly entering
information about their desired circuit, including capacity requirement,
physical location, contract terms, technical specifications and special
instructions.
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PROVISIONING AND INSTALLATION. Our UIX contains information on the
provisioning and installation processes of over 35 transport suppliers. By using
this information we are able to work with the provisioning personnel and field
technicians of multiple vendors to provide dedicated circuits to our clients. As
part of our provisioning and installation service we provide our clients with a
graphical design layout record showing critical network points and a weekly
status update.
[In this space we will insert a diagram depicting representative circuit
segments (local loop, long haul, local loop) that could create a single
end-to-end circuit between end customers in New York City and San Francisco.]
CIRCUIT ACCESS. We provide our clients with ongoing dedicated circuit
access over the networks of multiple vendors through long term contracts, with
terms typically ranging from 12 to 60 months. Our clients remit payment to us
for this ongoing circuit access on a monthly recurring basis for the life of the
contract.
A circuit can be delivered at different speeds and capacities. We currently
are able to provide our clients circuit access at data rates ranging from DS-1
circuits carrying data at a rate of 1.536 million bits per second to OC-192
circuits carrying data at a rate of 192 OC-1 signals or 9.952 billion bits per
second.
BILLING. We compile the costs of multiple vendor circuit segments and
present our clients with a single monthly invoice containing a single line item
for each service. This eliminates the need for our clients to process multiple
vendor bills and reduces our clients' processing time and costs.
NETWORK MANAGEMENT SERVICES. We provide 24-hour-a-day, seven-day-a-week
network management services, offering a single point of contact for network
monitoring, maintenance and restoration across multiple vendor networks. Through
this single point of contact, we generate one client reference record of a
problem, which we use to provide network management across multiple vendor
networks and to provide our clients with reporting and trouble resolution. This
single client reference record increases response time and decreases down time
in a circuit outage.
Our organization interacts with the network management organizations of our
transport suppliers, enabling us to identify and isolate circuit outages and to
facilitate their restoration throughout each segment of a circuit. Without these
services a client would have to contact multiple vendors to determine the source
of a circuit outage and to restore the circuit. Currently, our network
management services are partially outsourced through a third party until our own
facility becomes operational.
UNIVERSAL TRANSPORT EXCHANGE (UTX)
Our UTX facilities provide interconnection points between multiple network
service providers and transport suppliers. Network service providers and
transport suppliers lease space in our facilities to place network equipment
that may be connected to other network service providers and transport suppliers
in the facility. Our UTX facilities may range in size from 500 square feet to
10,000 square feet.
Our facilities do not depend on any particular technology and are open to
multiple competing network service providers and transport suppliers, such as
local exchange carriers, interexchange
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carriers, competitive local exchange carriers, ISPs and ASPs. We are not aligned
with or reliant upon any single or group of transport suppliers. We believe that
our UTX clients are attracted to our neutral position, which both alleviates
their competitive concerns and provides them a broader range of solutions.
As of December 31, 1999 we had two operational UTX facilities in Chicago
and Santa Clara, and five UTX facilities under construction in Dallas, Los
Angeles, Miami, San Francisco and Washington, D.C. We expect to commence
construction on eight additional facilities during 2000.
Our UTX facilities are integrated with our UIX databases. Our UTX
facilities enable us to obtain additional information regarding available
network capacity and points of access that is entered into our UIX databases.
This additional information enables us to use our UIX databases to provide more
efficient circuit provisioning and network monitoring services for our clients.
CLIENT SUPPORT SERVICES
CLIENT ADVOCACY SERVICES. We provide high quality client support services
through our Client Advocacy Services organization. Our Client Advocacy Services
personnel are highly trained field representatives with extensive knowledge of
our services and an understanding of our client's business objectives. These
representatives team with both our sales and provisioning organizations to meet
client service expectations, and also provide technical assistance and field
support during circuit testing and installation.
CARRIER DEVELOPMENT SERVICES. Our development services personnel are
responsible for managing our relationships with our existing transport suppliers
and for identifying new relationships.
SALES AND MARKETING
Our sales and marketing efforts are focused on achieving broad market
penetration and increasing brand name recognition. Our sales efforts target
ISPs, telecommunications service providers and ASPs that we believe have the
greatest need for transport capacity and infrastructure services.
SALES
We have developed a two-tiered sales strategy which is designed to (a)
target new accounts through our direct sales representatives and (b) identify
opportunities for additional sales to our existing client base through our
account managers. As of December 31, 1999 our sales staff consisted of 18 direct
sales representatives, including six account managers in 12 sales offices in the
United States, including offices in California, Virginia, New York and Illinois.
The direct sales force is divided into two geographic regions in the United
States and is supervised by regional directors, each of whom has responsibility
for all sales functions in his geographic region. The account management group
is supervised by a director and targets larger clients, based on recurring
monthly revenue.
We have developed programs to attract and retain a highly skilled,
motivated sales staff that possesses the necessary technical skills,
consultative sales experience and knowledge of its assigned territory markets.
These programs include technical and sales process training and instruction in
consultative selling techniques. Our sales representatives and account managers
are compensated through a combination of base salary and performance-based
bonuses.
MARKETING
We direct our corporate marketing efforts to a select market segment of
clients, including Internet service providers, application service providers and
telecommunications service providers. Our marketing activities include the
following:
- Participation at telecommunication industry tradeshows where our clients
and prospects are in attendance;
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- Advertising in telecommunications trade publications that target
suppliers and buyers of bandwidth access;
- Direct mail campaigns that are focused around tradeshow lists in order to
attract the show's participants to our booth to learn about our current
service offerings; and
- Press releases about our services.
We intend to increase marketing expenditures in future periods in an effort
to stimulate demand for our services and build brand awareness.
CLIENTS
As of December 31, 1999, we had more than 100 clients, including
telecommunication services providers, Internet services providers and
application service providers. For the year ended December 31, 1999, AboveNet
Communications (MFN) accounted for 38% of our revenues. For the year ended
December 31, 1998, Carmen Associates accounted for approximately 16% of our
revenues and GTE Internetworking accounted for approximately 13% of our
revenues. The following is a list of all of our clients accounting for over 1%
of our monthly recurring revenues generated under client contracts as of
December 31, 1999:
AboveNet Communications (MFN)
AIT/PrePay Worldwide
Atlas Communications
BCE Nexxia
Business Technology Services
Cable & Wireless
CETLink
Electric Lightwave
Fiber Network Solutions
IDT
Internet Capital Group
InterXchange
Kivex
MegsInet
NapNet
Pathnet
Road Runner
Teleglobe Communications
UUNET
Our client contracts generally provide for terms ranging from 12 to 60
months. Our clients may terminate their contracts at any time. However, a client
that cancels a contract is required to pay us substantially all of the amounts
payable over the remaining term of the contract. We bill for circuit charges
monthly in advance, and we recognize circuit revenues in the month that we
provide the service.
COMPETITION
The market for the services we provide is highly fragmented. We believe
that at this time no single competitor competes directly with us with respect to
all of the services we offer. However, we currently or potentially compete with
a variety of companies with respect to our services on an individual basis.
There are few substantial barriers to entry into our market, and we expect that
we will face additional competition from existing and new global entrants in the
future. We believe that any entrant in this market must grow rapidly and achieve
a significant presence in the market in order to compete effectively. We believe
that the principal competitive factors in this market include:
- the ability to access information regarding multiple vendor networks;
- the ability to provide connections to networks of multiple vendors;
- the ability to provide comprehensive network management services
including troubleshooting and circuit restoration across multiple network
environments;
- the ability to secure strategic relationships with carriers and clients;
- the ability to provide a high level of ongoing client service and
support;
- the ability to locate interconnection facilities in strategic locations;
and
- brand recognition.
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We might not have the resources or expertise to compete successfully in the
future. For additional information on the competitive risks that we face, you
should read the section entitled "Risk Factors -- Competition in our industry is
intense and growing, and we may be unable to compete effectively".
INTELLECTUAL PROPERTY RIGHTS
We rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect proprietary
rights in our intellectual property. We have no patented technology that would
preclude or inhibit competitors from entering our market. We have no federally
registered trademarks or service marks, although we have applied for
registration of certain of our service marks. Even if registration is granted,
we may be limited in the scope of services for which we may exclusively use our
service marks. We enter into confidentiality agreements with our employees,
consultants and partners, and we control access to, and distribution of, our
proprietary information. Our intellectual property may be misappropriated or a
third party may independently develop similar intellectual property. Moreover,
the laws of certain foreign countries may not protect our intellectual property
rights to the same extent as do the laws of the United States. Unauthorized use
of any of our proprietary information could seriously harm our business.
GOVERNMENT REGULATION
We plan to offer communications common carrier services that will be
subject to regulation by federal, state and local government agencies. Most data
and Internet services are not subject to regulation, although communications
services used for access to the Internet are regulated. We have obtained certain
federal and state regulatory authorizations for our regulated service offerings,
and are in the process of applying for additional authorizations.
The FCC will exercise jurisdiction over our facilities and services to the
extent those facilities are used to provide, originate or terminate interstate
domestic or international common carrier communications. State regulatory
commissions will have jurisdiction over our services to the extent they are used
to originate or terminate intrastate common carrier communications.
Municipalities and other local government agencies may require carriers to
obtain licenses or franchises regulating use of public rights-of-way to install
and operate their networks. Many of the regulations issued by these regulatory
bodies may change and are the subject of various judicial proceedings,
legislative hearings and administrative proposals. In addition, federal, state
and local authorities may seek to tax the services which we provide, which could
impair the profitability of our business. We cannot predict the results of any
changes.
As we expand our business to other countries, we will become subject to
similar regulatory issues in each country in which we do business. Although the
trend in regulation globally is towards less regulation of competitive
telecommunications markets, regulations in particular countries may limit our
service offerings or our ability to compete effectively.
FEDERAL REGULATION
The FCC regulates us as a non-dominant communications common carrier. The
FCC's generally applicable regulations permit us to provide interstate domestic
common carrier services without any further authorization, and we also have
received authority from the FCC to provide international services between the
United States and foreign countries. Our interstate domestic and international
services are not subject to significant federal regulation, although we are
required to file schedules of our prices, terms, and conditions, or tariffs with
the FCC for our telecommunications services, and to pay regulatory fees and
assessments based on our interstate and international telecommunications
revenues. The FCC has the authority to condition, modify, cancel, terminate or
revoke our licenses and authorizations for failure to comply with federal laws
or the rules, regulations and policies of the FCC. The FCC may also impose fines
or other penalties for violations. The FCC also imposes prior
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approval requirements on transfers of control and assignments of authorizations.
While we believe we are in compliance with applicable laws and regulations, we
cannot assure you that the FCC or third parties will not raise issues with
regard to our compliance.
INTERNATIONAL SERVICES. The FCC has adopted rules for a multi-year
transition to lower international settlements payments by U.S. common carriers.
We believe that these rules are likely to lead to lower rates for certain
international services and increased demand for these services, including
capacity on the U.S. facilities that provide these services.
LOCAL COMPETITION RULES
The FCC's role with respect to local telephone competition arises
principally from the Telecommunications Act of 1996. This Act preempts state and
local laws to the extent that they prevent competitive entry into the provision
of any telecommunications service and gives the FCC jurisdiction over important
issues related to local competition.
Incumbent local exchange carriers (ILECs), such as the regional Bell
operating companies and affiliates of GTE and Sprint, are required to negotiate
in good faith with competing carriers on rates, terms and conditions for
interconnection, access to unbundled elements, resale, and other duties imposed
by the Telecommunications Act of 1996. The Telecommunications Act provides
procedures and timetables for negotiation, arbitration and approval of
interconnection agreements. Arbitration decisions involving interconnection
arrangements in several states have been challenged and appealed to Federal
courts. We may experience difficulty in obtaining timely implementation of local
interconnection agreements, and we can provide no assurance we will offer local
services in these areas in accordance with our projected schedule, if at all.
The duties imposed on ILECs by the Telecommunications Act of 1996 include
the following:
INTERCONNECTION. ILECs are required to provide interconnection for
competing local telecommunications carriers at any technically feasible point,
on rates, terms and conditions that are just, reasonable and nondiscriminatory.
ACCESS TO UNBUNDLED ELEMENTS. ILECs are required to provide access to
network elements on an unbundled basis at any technically feasible point, on
rates, terms, and conditions that are just, reasonable, and nondiscriminatory.
On November 5, 1999, the FCC, in response to a recent U.S. Supreme Court
decision, released an Order revising its rules on the network elements that
incumbents must make available, particularly those used in the provision of
advanced services. Among other things, this Order confirms that dedicated
transport, including dark fiber, is among the network elements that ILECs must
provide on a unbundled basis. A subsequent FCC order, released on December 9,
1999, requires ILECs to unbundle the high-frequency portion of local access
lines, so as to permit competing carriers to offer broadband data services over
the same copper wires the ILEC uses to provide voice telephone service. While we
do not believe that these revisions will have significant impact on our
business, other parties may request an appeal of this Order, which will create
continued uncertainty.
COLLOCATION. 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 offer alternative arrangements,
if it demonstrates to the state regulatory commission that physical collocation
is not practical for technical reasons, or because of space limitations. On
March 18, 1999, the FCC adopted measures designed to facilitate a competitor's
ability to access ILEC collocation space, including a requirement that ILECs
permit collocation without construction of a "cage" to enclose the competitor's
equipment, and a requirement that competitors be able to locate all equipment
necessary for interconnection, among other things.
TRANSPORT AND TERMINATION CHARGES. ILECs and competitive local exchange
carriers (CLECs) must enter into reciprocal arrangements for transport and
termination of local telephone calls. State regulatory commissions, during
arbitrations, should set symmetrical prices for these services based on
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forward-looking economic costs, using the Total Element Long Run Incremental
Cost, or TELRIC, methodology.
PRICING METHODOLOGIES. State commissions are required to set arbitrated
rates for interconnection and unbundled elements based on the ILEC's TELRIC,
plus a reasonable share of forward-looking joint and common costs.
RESALE. State commissions are 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.
ACCESS TO RIGHTS-OF-WAY. Telecommunications carriers and utilities are
required to provide nondiscriminatory access to their poles, ducts, conduits,
and rights-of-way.
The Telecommunications Act of 1996 also eliminates previous prohibitions on
the provision of long distance services by the regional Bell operating companies
and GTE's telephone operating company subsidiaries. These companies are now
generally permitted to compete in providing long distance services, except that
the regional Bell operating companies are not allowed to provide long distance
service within the regions in which they also provide local exchange service,
known as "in-region service," until they receive specific approval of the FCC on
a state-by-state basis, based on satisfying several conditions, including a
checklist of requirements intended to open local telephone markets to
competition.
In December 1999, the FCC authorized Bell Atlantic to provide in-region
long distance service in New York state. We expect that the FCC will consider
several other applications by regional Bell operating companies to provide
in-region services within the coming year. If the FCC permits regional Bell
operating companies to provide long distance service in their local service
regions before they meet our local interconnection needs, they would be able to
offer integrated local and long distance services and could have a significant
competitive advantage in marketing those services to their existing local
clients.
ILEC PRICING FLEXIBILITY
In an Order issued in August 1999, the FCC granted the major local exchange
carriers increased pricing flexibility upon demonstration of increased
competition (or potential competition) in relevant markets. 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. This ruling will permit the ILECs to charge different rates
for the same service in different geographic markets, and in some cases to
negotiate customer-specific price terms. Although currently under appeal at the
FCC and the District of Columbia Circuit Court, this FCC decision is likely to
have a significant impact on the interstate access prices charged by the ILECs
with which we compete, and hence on our operations, expenses, pricing and
revenue. The ILECs' prices for these services will affect us both directly, as a
customer buying services from the ILECs for resale to our customers, and
indirectly, as a competitor.
UNIVERSAL SERVICE REFORM
On May 8, 1997, the FCC issued an order to implement the provisions of the
Telecommunications Act relating to the preservation of advancement of universal
telephone service. All telecommunications carriers providing interstate
telecommunications services, including us, must contribute to the universal
service support fund. These contributions became due beginning in 1998 for all
providers of interstate telecommunications services. Contributions are assessed
based on interstate and international end user telecommunications. Contribution
factors vary quarterly and carriers, including us, are billed monthly.
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<PAGE> 46
STATE REGULATION
We will offer intrastate common carrier services and are subject to various
state laws and regulations. Most public utility commissions require some form of
certification or registration. We must acquire such authority before commencing
service. In most states, we are also required to file tariffs or price lists
setting forth the terms, conditions and prices for services that are classified
as intrastate. We are required to update or amend these tariffs when we adjust
our rates or add new products and are subject to various other regulatory
requirements, including payment of fees and filing of reports, in these states.
Many states also require prior approval for transfers of control of
certified carriers, corporate reorganizations, acquisitions of
telecommunications operations, assignment of carrier assets, carrier stock
offerings and incurrence of significant debt obligations. Some states treat the
transfer of only 10% of the voting stock of a regulated company, or its parent
company, as a transfer of control that requires prior approval. The need to
obtain these approvals may delay, and therefore may affect the terms of, major
financing transactions in the future.
States generally retain the right to sanction a carrier or to revoke
certification if a carrier violates relevant laws or regulations. If any state
regulatory agency were to conclude that we are or were 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 communications services.
We have applications pending to provide resold and network-based
competitive local exchange and interexchange services in many states and plan to
submit applications nationwide by the end of the year. We cannot be sure that we
will receive the authorizations we seek currently or in the future.
LOCAL GOVERNMENT AUTHORIZATIONS
In some municipalities, we may be required to pay license or franchise fees
based on a percentage of gross revenue, as well as post performance bonds or
letters of credit. In many markets, the incumbent providers do not pay these
franchise fees or pay fees that are substantially less than those that we will
be required to pay. To the extent that competitors do not pay the same level of
fees as we do, we could be at a competitive disadvantage.
At present, we have no plans to construct transmission facilities (such as
fiber optic lines) in public rights-of-way, but if we do so in the future we may
become subject to more extensive local government regulations.
INTERNATIONAL REGULATION
In some countries where we plan to operate, local laws or regulations limit
or require prior government approval for the provision of international
telecommunications service in competition with authorized carriers. For example,
our provision of services over facilities using our own network or by purchasing
minutes from other carriers for resale to our customers may be affected by
increased regulatory requirements in a foreign jurisdiction. Also, local laws
and regulations differ significantly among the jurisdictions in which we operate
or plan to operate, and, within such jurisdictions, the interpretation and
enforcement of these laws and regulations can be unpredictable. We cannot be
sure that future regulatory, judicial, legislative or political changes will
permit us to offer to residents of these countries all or any of its services or
will not have a material adverse effect on us. In addition, we cannot be sure
that regulators or third parties will not raise material issues regarding our
compliance with applicable laws or regulations, or that governmental decisions
will not harm our business.
In addition, the World Trade Organization Agreement, which reflects efforts
to eliminate government-owned telecommunications monopolies throughout Asia,
Europe and Latin America, may
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<PAGE> 47
affect us. Although we believe that these deregulation efforts will create
opportunities for new entrants in the telecommunications service industry, they
also create enhanced opportunities for foreign telecommunications carriers to
compete against us.
LEGAL PROCEEDINGS
We are not the subject of any material legal proceedings. In February 2000
we received notice of a potential claim against us by Point West Ventures, L.P.,
previously known as Fourteen Hill Capital, L.P. and certain other shareholders
in Vaultline Incorporated. The claim arises out of a letter of intent that we
entered into in December 1998 relating to our potential acquisition of
Vaultline. The letter stated that it was not binding on the parties except with
respect to a $250,000 advance to be made by us and certain obligations of
Vaultline. The letter contemplated that we would undertake a due diligence
investigation of Vaultline. After performing the due diligence, we determined
not to complete the transaction and entered into a mutual settlement agreement
and release. Subsequently, Vaultline ceased doing business. The claimants
contend that the mutual settlement agreement executed by the president of
Vaultline was unauthorized. They also contend that had the terms of the letter
of intent been used to close a transaction and had they held their interest as
described in the letter, they would be entitled to over one million shares of
our common stock. We believe all of our legal obligations were satisfied and
intend to vigorously contest any claims that may be asserted against us relating
to this matter.
EMPLOYEES
As of December 31, 1999, we had 135 full-time employees, none of whom was
represented by a labor union. Our future performance depends, in significant
part, upon the continued service of our key technical, sales and senior
management personnel. All of our executive officers are subject to employment
agreements for specific terms. For additional information on these employment
agreements, please see "Management -- Employment Agreements" and "-- Change of
Control Agreements". The loss of the services of one or more of our key
employees could have a material adverse effect on our business, financial
condition and results of operations. To date, we have not experienced any work
stoppages, and we consider our relations with our employees to be good.
FACILITIES
Our headquarters are located in Chicago, Illinois, where we lease 32,142
square feet of office space under a lease expiring in December 2000. We
anticipate that we will need to secure additional space for our headquarters
within the next six months. We also currently lease office space for sales
offices in 12 cities in the United States, and space for UTX facilities in seven
cities in the United States. Our UTX leases expire on various dates between May
2009 and November 2014.
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<PAGE> 48
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages, as of February 1,
2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Patrick C. Shutt(1)(2).................... 32 President and Chief Executive Officer and
Director
Robert J. Pommer, Jr.(1)(2)............... 32 Chief Operating Officer, Chief Technical
Officer, Secretary and Director
Donna M. Shore............................ 31 Executive Vice President, Chief Financial
Officer and Treasurer
Holly A. Weller........................... 48 Executive Vice President, Marketing
Kenneth A. Napier......................... 53 Executive Vice President, Operations
William J. Coyne III...................... 47 Executive Vice President, Client Services
Scott D. Fehlan........................... 31 General Counsel and Assistant Secretary
Mark A. Dickey............................ 36 Vice President, Business Development
George A. King............................ 41 Senior Vice President, Corporate
Development
Paolo Guidi............................... 57 Director
Thomas Kapsalis(3)........................ 66 Director
Robert A. Pollan(4)....................... 39 Director
Joseph L. Schocken(2)(3)(4)............... 53 Director
Roland A. Van der Meer(2)(3)(4)........... 39 Director
</TABLE>
- ---------------
(1) Member of nominating committee
(2) Member of option committee
(3) Member of compensation committee
(4) Member of audit committee
PATRICK C. SHUTT co-founded Universal Access in October 1997 and has served
as our President and as one of our directors since our inception. Mr. Shutt has
been our Chief Executive Officer since December 1998. Prior to founding
Universal Access, from March 1996 to September 1997, Mr. Shutt was Senior Vice
President of Operations at Arista Communications, a telecommunications agency
firm. From February 1994 to March 1996, he was a sales manager with TCG, a
telecommunications company. From October 1993 to February 1994, Mr. Shutt was
the Vice President in charge of Business Development for Valuation Counselors, a
business services company.
ROBERT J. POMMER, JR. co-founded Universal Access in October 1997, has
served as our Secretary since our inception and was our Treasurer from October
1997 to August 1999. Mr. Pommer has served as our Chief Operating Officer since
December 1998 and as our Chief Technical Officer since January 2000 and as one
of our directors since July 1998. Prior to founding Universal Access, from March
1996 to September 1997, Mr. Pommer was Vice President of Operations for Arista
Communications, a telecommunications agency firm. From May 1994 to March 1996,
he was a Manager for Strategic Accounts with TCG, a telecommunications company.
From November 1993 to May 1994, Mr. Pommer was a consultant for Delta
Communications, a telecommunications consulting firm.
DONNA M. SHORE has served as Executive Vice President since January 2000
and Chief Financial Officer and Treasurer since August 1999. From December 1998
to March 1999 she served as our Vice President of Finance and from March 1999 to
August 1999 she served as our Senior Vice President of Finance. From May 1991 to
May 1998, Ms. Shore worked for PricewaterhouseCoopers LLP, a public accounting
firm, most recently as a manager in their mergers and acquisitions division.
HOLLY A. WELLER has served as Executive Vice President of Marketing since
July 1999. Prior to joining Universal Access, from December 1998 until July
1999, she was Vice President of Business
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<PAGE> 49
Development and Marketing for Amteva Technologies, a computer software developer
which was acquired by Cisco Systems, Inc., a manufacturer of network equipment.
From July 1997 to August 1998, Ms. Weller was with ADC Wireless Systems, a
telecommunications equipment manufacturer, as the Vice President of Marketing
and Sales. From January 1995 until July 1997 she was the Vice President and
General Manager of the Wireless Data Group of Comcast Cellular Communications, a
cellular communications company. Prior to January 1995, Ms. Weller spent 10
years working for NYNEX Corporation, a telephone company.
KENNETH A. NAPIER has served as Executive Vice President of Client Services
since January 2000 and as Executive Vice President of Client Services from June
1999 to January 2000. Prior to joining us, from May 1997 to June 1999, Mr.
Napier was Vice President of Business Development for Klein Technologies, Inc.,
a computer systems design company. From February 1991 to May 1997, he was a
Senior Vice President of Strategic Development and a General Manager of
Commercial Operations for Automation Research Systems, a computer systems
engineering and computer management services company. From March 1988 to
February 1991, he worked for Tracor, a computer systems design and integration
company.
WILLIAM J. COYNE III has served as our Executive Vice President of Client
Services since February 2000. From August 1991 to January 2000, Mr. Coyne worked
for Cable and Wireless, a telephone communications company, most recently as its
Vice President of Large Accounts.
MARK A. DICKEY has served as our Vice President of Business Development
since January 2000. From November 1998 to January 2000 he served as our Vice
President of Sales. From June 1996 to June 1998, Mr. Dickey was Director of
Sales for USN Communications, an investment holding company. From April 1994 to
May 1996, Mr. Dickey worked as a manager at TCG, a telecommunications company.
From May 1992 to April 1994, Mr. Dickey was a sales manager with Cable and
Wireless, a telephone communications company.
SCOTT D. FEHLAN has served as our General Counsel and Assistant Secretary
since September 1999. From January 1995 to May 1998, Mr. Fehlan was an
associate, and from June 1998 to September 1999 he was a shareholder of Shefsky
& Froelich Ltd., a law firm. From January 1993 to January 1995, he was an
associate with Kirkland & Ellis, a law firm. Mr. Fehlan holds a J.D. from Yale
Law School.
THOMAS KAPSALIS has served as one of our directors since October 1997. From
October 1997 to February 1999, Mr. Kapsalis was our Chairman of the Board,
Assistant Secretary and Assistant Treasurer. Since June 1986, Mr. Kapsalis has
been Chairman of K&D Facilities Resource Corporation, a business consulting
firm. Mr. Kapsalis has also been a member of the Cole Taylor Bank Advisory Board
since September 1993.
GEORGE A. KING has served as our Senior Vice President of Corporate
Development since August 1999. From our inception to August 1999, Mr. King
served as an advisor to the executive officer group. From our inception to
February 1999, Mr. King was one of our directors. Prior to joining Universal
Access, from February 1995 to November 1996, Mr. King was a Managing Director of
Cambridge Partners, an investment banking firm. From December 1996 to August
1999, was a Senior Managing Director of Hudson AIPF, LLC, a financial advisory
firm. From January 1994 to February 1995, Mr. King was a Vice President of
Credit Suisse First Boston, an investment banking firm.
ROBERT A. POLLAN has served as one of our directors since February 1999.
Mr. Pollan has been a Managing Director of Internet Capital Group, an internet
holding company, since June 1998. From August 1995 to June 1998, Mr. Pollan
served as a Chief Technology Officer and Vice President of Business Development
at General Electric Capital Corporation. From September 1991 to July 1995, Mr.
Pollan was co-founder and Managing Director of OFR, Ltd., an advisory firm
focused on the organizational and financial restructuring of industrial
enterprises in Central Europe.
JOSEPH L. SCHOCKEN has served as one of our directors since October 1998.
He founded Broadmark Capital Corporation, an investment banking firm, in
November 1986 and serves as its
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Chairman. Mr. Schocken is also a director of Broadmark Asset Management Company,
an asset management firm. Mr. Schocken is also the head of Broadmark Capital
Corporation's Corporate Finance Group where he serves as an advisor to a number
of Broadmark's clients and portfolio companies.
ROLAND A. VAN DER MEER has served as one of our directors since February
1999. In June 1987, Mr. Van der Meer founded and became a partner of
ComVentures, a venture capital firm. From June 1993 to June 1997, Mr. Van der
Meer was a partner at the venture capital firm of Partech International.
PAOLO GUIDI has served as one of our directors since August 1999. He has
been the President and Chief Executive Officer of Teleglobe Communications
Corporation, a provider of intercontinental telecommunications services, since
February 1995. From July 1986 to February 1995, Mr. Guidi was employed by Sprint
International Corporation, a provider of intercontinental telecommunications
services, in various capacities, most recently as President.
BOARD OF DIRECTORS
Our board of directors currently consists of nine authorized members. When
this offering is completed, the terms of office of our board of directors will
be divided into three classes: Class I, whose terms will expire at the annual
meeting of stockholders to be held in 2001; Class II, whose term will expire at
the annual meeting of stockholders to be held in 2002; and Class III, whose term
will expire at the annual meeting of the stockholders to be held in 2003. This
classification of our board of directors may delay or prevent a change in
control of our company or in our management. See "Description of Capital
Stock -- Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions".
Our executive officers are appointed by our board of directors on an annual
basis and serve until their successors have been elected and qualified. There
are no family relationships among any of our directors, officers or key
employees.
BOARD COMMITTEES
We established an audit committee and a compensation committee in August
1999. The audit committee consists of Messrs. Pollan, Schocken and Van der Meer.
The audit committee reviews our internal accounting procedures and consults with
and reviews the services provided by our independent accountants.
The compensation committee consists of Messrs. Kapsalis, Schocken and Van
der Meer. The compensation committee reviews and recommends to our board of
directors the compensation of all of our officers and directors, including stock
compensation and loans and establishes and reviews general policies relating to
the compensation and benefits of our employees.
We established an option committee consisting of Messrs. Pommer, Schocken,
Shutt and Van der Meer in March 1999. The option committee reviews and approves
equity grants pursuant to our stock option plans to our employees other than
executive officers.
We established a nominating committee in February 1999, consisting of
Messrs. Pommer and Shutt. The nominating committee reviews and approves the
appointment of directors to our board of directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of our compensation committee are Messrs. Kapsalis, Schocken
and Van der Meer. None of the members of the compensation committee is currently
or has been, at any time since our formation, one of our officers or employees.
None of our executive officers currently serves or in the past has served as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving on our board or compensation
committee.
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<PAGE> 51
Mr. Kapsalis is a holder of approximately 5.3% of our outstanding stock. He is
also principal of K&D Consulting. We paid K&D Consulting $3,000 per month from
April 1999 to October 1999 for management consulting services. Mr. Van der Meer
is a partner of ComVentures, a holder of approximately 17.4% of our outstanding
stock that has purchased shares of Series B preferred stock, Series C preferred
stock and Series D preferred stock. Mr. Schocken is the chairman of Broadmark
Capital Corporation, a holder of approximately 1.7% of our outstanding stock
that has purchased shares of our common stock, Series A preferred stock and
Series D preferred stock. Broadmark Capital Corporation provided financial
services to us in connection with the placement of our Series A preferred stock
and Series D preferred stock. As consideration for these services, we paid them
approximately $502,190 and issued them warrants for our common stock and our
Series A preferred stock. In addition, they received options to purchase a total
of 839,994 shares of our common stock from John Drummond, one of our 5%
stockholders, Thomas Kapsalis, one of our 5% stockholders and a director, and
Sam Zarcone, one of our 5% stockholders. See "Transactions with Related Parties
and Insiders." Prior to the formation of the compensation committee,
compensation decisions were made by our entire board of directors.
DIRECTOR COMPENSATION
Other than our stock option grant to Paolo Guidi in August 1999 which is
described in "Transactions With Related Parties and Insiders -- Option Grants to
Executive Officers and Directors" and the payment of $2,000 to Mr. Guidi for
each board meeting that he attends in person or by telephone, we do not
currently compensate our directors in cash for their service as members of our
board of directors, although they are reimbursed for certain expenses in
connection with attendance at board of director and committee meetings. Our 1999
Director Option Plan provides for the automatic grant of non-statutory stock
options to nonemployee directors. For further information regarding the
provisions of the 1999 Director Option Plan, see "-- Incentive Stock Plans".
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Our certificate of incorporation will, upon the closing of this offering,
limit the liability of directors to the maximum extent permitted by Delaware
law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
The limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and officers and may indemnify our employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence on the part of indemnified parties. Our bylaws
also permit us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in their
capacity as an officer, director, employee or other agent, regardless of whether
the bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification for judgments,
fines, settlement amounts and certain expenses, including attorneys' fees
incurred by the director, executive officer or controller in any action or
proceeding, including any
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<PAGE> 52
action by or in our right, arising out of the person's services as a director,
executive officer or controller of us, any of our subsidiaries or any other
company or enterprise to which the person provides services at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative action, if successful, might otherwise benefit us and our
stockholders. A stockholder's investment in us may be adversely affected to the
extent we pay the costs of settlement or damage awards against our directors and
officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned, awarded or paid for
services rendered to us in all capacities for the fiscal year ended December 31,
1999 by our Chief Executive Officer and our next four most highly compensated
executive officers who earned more than $100,000 in salary and bonus during the
fiscal year ended December 31, 1999, whom we refer to in this prospectus
collectively as the "named executive officers":
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS OPTIONS COMPENSATION
---------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Patrick C. Shutt...................... $196,561 $99,283 500,000 --
President and Chief Executive
Officer
Robert J. Pommer, Jr.................. $182,508 $94,889 300,000 --
Chief Operating Officer, Chief
Technical Officer and Secretary
Donna M. Shore........................ $150,012 $78,701 200,000 --
Executive Vice President, Chief
Financial Officer, Treasurer
Kenneth A. Napier..................... $ 77,492 $27,525 550,000 $16,693(1)
Executive Vice President, Operations
Mark A. Dickey........................ $119,500 $42,221 150,000 --
Vice President, Business Development
</TABLE>
- ---------------
(1) Consists of a housing allowance.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table shows information regarding stock options granted to
the named executive officers during the fiscal year ended December 31, 1999. The
potential realizable value is based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of the ten-year term. These numbers are calculated
based on Securities and Exchange Commission requirements and do not reflect
projections or estimates of future stock price growth. Potential realizable
values are computed by:
- Multiplying the number of shares of common stock underlying each option
by $9.00 per share, the assumed initial public offering price per share;
- Assuming that the total stock value derived from that calculation
compounds at the annual 0%, 5% or 10% rate shown in the table for the
entire ten-year term of the option; and
- Subtracting from that result the total option exercise price.
Actual gains, if any, on stock option exercises will be dependent on the
future performance of our common stock.
The percentage of total options granted is based on an aggregate of
7,131,250 options granted by us during the fiscal year ended December 31, 1999,
to our employees including the named executive officers. Unless otherwise
indicated, options were granted with an exercise price equal to the fair market
value of our common stock, as determined in good faith by our board of directors
at the time of the grants.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS DURING PRICE PER EXPIRATION -------------------------------------
NAME GRANTED(#) PERIOD SHARE DATE 0% 5% 10%
---- ---------- ---------- --------- ----------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Patrick C. Shutt..... 500,000(1) 7.01% $1.51(2) August 4, 2009 $3,745,000 $6,575,000 $10,916,841
Robert J. Pommer,
Jr. ............... 300,000(1) 4.21% $1.51(2) August 4, 2009 2,247,000 3,945,000 6,550,105
Donna M. Shore....... 200,000(1) 2.80% $1.38 August 4, 2009 1,524,000 2,656,010 4,392,736
Kenneth A. Napier.... 50,000(1) 0.7% $6.10 November 5, 2009 145,000 428,003 862,184
100,000(1) 1.4% $1.38 August 4, 2009 724,184 1,328,005 2,196,368
400,000(3) 5.61% $0.27 June 25, 2009 292,000 543,558 929,497
Mark A. Dickey....... 150,000(4) 2.10% $1.38 August 5, 2009 1,143,000 1,992,008 3,294,552
</TABLE>
- ---------------
(1) As of December 31, 1999, these options were completely vested.
(2) The fair market value of our common stock on the date of this grant was
$1.38 as determined in good faith by our board of directors.
(3) This option to purchase our common stock vests as to one fourth of the
shares on June 25, 2000 with the remaining shares vesting ratably on a
monthly basis thereafter.
(4) This option to purchase our common stock vests as to one fourth of the
shares on August 5, 2000 with the remaining shares vesting ratably on a
monthly basis thereafter.
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<PAGE> 54
AGGREGATE OPTION EXERCISES DURING LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table presents information regarding the named executive
officers, concerning option exercises for the year ended December 31, 1999 and
exercisable and unexercisable options held as of December 31, 1999. The value of
unexercised in-the-money options is based on a price of $7.20 per share, the
fair market value of our stock on December 31, 1999, as determined by our board
of directors, minus the per share exercise price, multiplied by the number of
shares underlying the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON --------------------------- ---------------------------
NAME EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Patrick C. Shutt........... 500,000 300,000 -- $2,159,999 --
Robert J. Pommer, Jr. ..... 300,000 300,000 -- $2,159,999 --
Donna M. Shore............. 200,000 121,875 328,125 $ 877,297 $2,361,953
Kenneth A. Napier.......... -- -- 400,000 -- $2,772,000
-- 50,000 -- $ 55,000 --
-- 100,000 -- $ 582,500 --
Mark A. Dickey............. -- -- 150,000 -- $ 873,750
-- 121,875 328,125 $ 877,297 $2,361,953
</TABLE>
INCENTIVE STOCK PLANS
1998 EMPLOYEE STOCK OPTION PLAN
Our 1998 Employee Stock Option Plan, referred to as the "1998 Plan", was
adopted by our board of directors on July 10, 1998 and approved by our
stockholders on May 1, 1998. Our board of directors has decided that as of the
effective date of this offering no further options will be granted under the
1998 Plan. However, the provisions of our 1998 Plan will continue to govern
outstanding options issued under the 1998 Plan. Our 1998 Plan provides for the
grant of incentive stock options, within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, referred to as the "Code", to our
employees and for the grant of nonstatutory stock options to our employees,
directors and consultants.
NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE 1998 PLAN. The maximum
number of shares that may be issued under the 1998 Plan is 13,000,000 shares of
our common stock. As of December 31, 1999 options to purchase 10,465,750 shares
of our common stock were outstanding under the 1998 Plan.
ADMINISTRATION OF THE 1998 PLAN. Our board of directors or a committee
appointed by our board of directors administers the 1998 Plan. The board or
committee has the authority to determine the terms of the option grants under
the 1998 Plan including the exercise price, the number of shares covered by each
option, the vesting of options and the form of consideration payable upon
exercise.
OPTIONS. The exercise price of incentive stock options granted under the
1998 Plan may not be lower than the fair market value, as determined by our
board of directors on the date of grant, of our common stock and the term of an
option may not exceed 10 years. If one of our stockholders owned 10% of the
voting power of all classes of our outstanding capital stock and is granted an
incentive stock option, the exercise price may not be lower than 110% of the
fair market value on the date of grant and the term may be no longer than five
years.
If an optionee's employment is terminated due to death or disability, he or
she generally will have one year to exercise any of his or her outstanding
options. If an optionee's employment is terminated due to retirement, he or she
generally will have three years to exercise each outstanding option. If an
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<PAGE> 55
optionee's employment is terminated for any other reason, he or she generally
will have three months to exercise any options held by him or her; provided,
however an optionee's options will terminate immediately upon his or her
termination for cause.
Options granted under our 1998 Plan are not transferable other than by
will, the laws of inheritance or pursuant to a qualified domestic relations
order.
ADJUSTMENTS UPON MERGER OR ASSET SALE. Our 1998 Plan provides that if we
merge with or into another corporation or sell substantially all of our assets,
the successor corporation will assume or substitute each option. If the
outstanding options are not assumed or substituted by the successor corporation,
the committee has the discretion to allow each option to be exercisable in full,
including shares that would not otherwise be exercisable at the time of such
merger or sale of assets. If the outstanding options are not assumed or
substituted by the successor corporation and the committee chooses to accelerate
the exercisability of outstanding options, all options will terminate if not
exercised during the 30-day period prior to the merger or sale of assets.
1999 STOCK PLAN
Our board of directors adopted the 1999 Stock Plan, referred to as the
"1999 Plan", in November 1999. The 1999 Plan was approved by our stockholders in
January 2000. Our 1999 Plan provides for the grant of incentive stock options,
within the meaning of Section 422 of the Code, to our employees, and for the
grant of nonstatutory stock options and stock purchase rights to our employees,
directors and consultants.
NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE 1999 PLAN. As of
December 31, 1999, a total of 10,000,000 shares of our common stock were
reserved for issuance pursuant to the 1999 Plan, of which options to acquire no
shares were issued and outstanding as of that date. Our 1999 Plan provides for
annual increases in the number of shares available for issuance under our 1999
Plan on the first day of each fiscal year, beginning with our fiscal year 2001,
equal to the lesser of 5% of the outstanding shares of common stock on the first
day of fiscal year 2001, 10,000,000 shares of our common stock, or an amount
determined by our board of directors.
ADMINISTRATION OF THE 1999 PLAN. Our board of directors or a committee of
our board of directors administers the 1999 Plan. In the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the committee will consist of two or more "outside
directors" within the meaning of Section 162(m) of the Code. The administrator
has the authority to determine the terms of the options or stock purchase rights
granted, including the exercise price, the number of shares subject to each
option or stock purchase right, the exercisability of the options and the form
of consideration payable upon exercise.
OPTIONS. The administrator determines the exercise price of options granted
under the 1999 Plan, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Code and all incentive stock options, the exercise price must at least be
equal to the fair market value of our common stock on the date of the grant. The
term of an incentive stock option may not exceed ten years, except that with
respect to any participant who owns 10% of the voting power of all classes of
our outstanding capital stock, the term must not exceed five years and the
exercise price must equal at least 110% of the fair market value on the grant
date. The administrator determines the term of all other options.
No optionee may be granted an option to purchase more than 3,000,000 shares
in any fiscal year; except that an optionee in his initial term of service may
receive options to purchase up to an additional 2,000,000 shares.
After termination of the employment of one of our employees, directors or
consultants, he or she may exercise vested options for the period of time
subsequent to termination stated in the option agreement or for three months if
a period is not stated in the option agreement. If termination of employment is
due to death or disability, vested options will remain exercisable for 12 months
or for
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<PAGE> 56
the period stated in the option agreement. However, an option may never be
exercised later than the expiration of its term.
STOCK PURCHASE RIGHTS. Stock purchase rights, which represent the right to
purchase our common stock, may be issued under our 1999 Plan. The administrator
determines the exercise price of stock purchase rights granted under our 1999
Plan. Unless the administrator determines otherwise, a restricted stock purchase
agreement, an agreement between us and an optionee which governs the terms of
stock purchase rights, will grant us a repurchase option that we may exercise
upon the voluntary or involuntary termination of the purchaser's service with us
for any reason, including death or disability. The purchase price for shares we
repurchase will generally be the original price paid by the purchaser and may be
paid by cancellation of any indebtedness of the purchaser to us. The
administrator determines the rate at which our repurchase option will lapse.
TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Our 1999 Plan
generally does not allow for the transfer of options or stock purchase rights,
and, during the lifetime of the optionee, only the optionee may exercise an
option and stock purchase right. However, the administrator has the authority to
allow for the transferability of options.
ADJUSTMENTS UPON MERGER OR ASSET SALE. Our 1999 Plan provides that if we
merge with or into another corporation or sell substantially all of our assets,
the successor corporation will assume or substitute each option or stock
purchase right. If the outstanding options or stock purchase rights are not
assumed or substituted, the administrator will provide notice to the optionee
that he or she has the right to exercise the option or stock purchase right as
to all of the shares subject to the option or stock purchase right, including
shares which would not otherwise be exercisable, for a period of 15 days from
the date of the notice. The option or stock purchase right will terminate upon
the expiration of the 15-day period provided for in the notice.
AMENDMENT AND TERMINATION OF OUR 1999 PLAN. Our 1999 Plan will
automatically terminate in 2009, unless our board of directors terminates it
sooner. However, our board of directors may amend, suspend or terminate the 1999
Plan provided it does not adversely affect any option previously granted under
our 1999 Plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
Concurrently with this offering, we intend to establish an employee stock
purchase plan. The employee stock purchase plan was adopted by our board in
November 1999 and was approved by our stockholders in January 2000.
NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE PURCHASE PLAN. A total
of 500,000 shares of our common stock will be made available for issuance under
the employee stock purchase plan. In addition, our employee stock purchase plan
provides for annual increases in the number of shares available for issuance
under the employee stock purchase plan on the first day of each fiscal year,
beginning with our fiscal year 2001, equal to the lesser of 2% of the
outstanding shares of our common stock on the first day of the fiscal year,
3,000,000 shares, or such other amount as our board of directors may determine.
ADMINISTRATION OF THE PURCHASE PLAN. Our board of directors or a committee
of our board administers the employee stock purchase plan. Our board of
directors or its committee has full and exclusive authority to interpret the
terms of the employee stock purchase plan.
ELIGIBILITY TO PARTICIPATE. Our employees are eligible to participate if
they are customarily employed by us or any participating subsidiary for at least
20 hours per week and more than five months in any calendar year. However, an
employee may not be granted an option to purchase stock under the employee stock
purchase plan if such employee:
- immediately after grant will own stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
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<PAGE> 57
- has rights to purchase stock under any of our employee stock purchase
plans that accrue at a rate that exceeds $25,000 worth of stock for each
calendar year.
OFFERING PERIODS AND CONTRIBUTIONS. Our employee stock purchase plan is
intended to meet the requirements of Section 423 of the Internal Revenue Code
and contains consecutive, overlapping 24-month offering periods. Each offering
period includes four 6-month purchase periods. The offering periods generally
start on the first trading day on or after May 1st and November 1st of each
year, except for the first such offering period which will commence on the first
trading day on or after the effective date of this offering and will end on the
last trading day on or before January 31, 2002.
Our employee stock purchase plan permits participants to purchase common
stock through payroll deductions of up to 15% of their eligible compensation
which includes a participant's base salary, wages, overtime pay, commissions,
bonuses and other compensation remuneration paid directly to the employee. A
participant may purchase a maximum of 3,000 shares during a six month purchase
period, except as otherwise prohibited in the employee stock purchase plan.
PURCHASE OF SHARES. Amounts deducted and accumulated by the participant are
used to purchase shares of our common stock at the end of each six-month
purchase period. The price is 85% of the lower of the fair market value of our
common stock at the beginning of an offering period or at the end of a purchase
period. If the fair market value at the end of a purchase period is less than
the fair market value at the beginning of the offering period, participants will
be withdrawn from the current offering period following their purchase of shares
on the purchase date and will be automatically re-enrolled in a new offering
period. Participants may end their participation at any time during an offering
period, and will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.
TRANSFERABILITY OF RIGHTS. A participant may not transfer rights granted
under the employee stock purchase plan other than by will, the laws of descent
and distribution or as otherwise provided under the employee stock purchase
plan.
ADJUSTMENTS UPON MERGER OR ASSET SALE. If we merge with or into another
corporation or sell substantially all of our assets, a successor corporation may
assume or substitute each outstanding option. If the successor corporation
refuses to assume or substitute for the outstanding options, the offering period
then in progress will be shortened, and a new exercise date will be set.
AMENDMENT AND TERMINATION OF THE PURCHASE PLAN. Our employee stock purchase
plan will terminate in 2009. However, our board of directors may at any time and
for any reason amend or terminate our employee stock purchase plan, except that,
subject to certain exceptions described in the employee stock purchase plan, no
such action may adversely affect any outstanding rights to purchase stock under
our employee stock purchase plan.
1999 DIRECTOR OPTION PLAN
Our board of directors adopted the 1999 Director Option Plan in November
1999. The director plan was approved by to our stockholders in January 2000.
Subject to stockholder approval, the director plan will become effective on the
effective date of this offering. The director plan provides for the periodic
grant of nonstatutory stock options to our non-employee directors.
NUMBER OF SHARES AVAILABLE UNDER THE DIRECTOR PLAN. As of December 31,
1999, a total of 500,000 shares were reserved for issuance under the director
plan. No options will be granted under the director plan until the effective
date of this offering.
OPTIONS. All grants of options to our non-employee directors under the
director plan are automatic. We will grant each non-employee director an option
to purchase 20,000 shares upon the later of (i) the effective date of the
director plan, or (ii) when such person first becomes a non-employee director;
however those directors who became non-employee directors by ceasing to be
employee directors will not receive such an option grant. All non-employee
directors who have been a
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<PAGE> 58
director for at least six months as of June 30th of each year will receive an
option to purchase 5,000 shares on June 30th of each year.
All options granted under our director plan have a term of ten years and an
exercise price equal to fair market value on the date of grant. Each
20,000-share option becomes exercisable as to 25% of the shares subject to the
option on each anniversary of the date of grant, provided the non-employee
director remains a director on such dates. Each annual 5,000-share option
becomes exercisable as to 100% of the shares subject to the option on the first
anniversary of the date of grant, provided the non-employee director remains a
director on such dates.
After termination as a non-employee director, an optionee must exercise an
option within the time set forth in his or her option agreement. If termination
is due to death or disability, the option will remain exercisable for 12 months.
In all other cases, the option will remain exercisable for a period of three
months. However, an option may never be exercised later than the expiration of
its term.
TRANSFERABILITY OF OPTIONS. A non-employee director may not transfer
options granted under our director plan other than by will or the laws of
descent and distribution. Only the non-employee director may exercise the option
during his or her lifetime.
ADJUSTMENTS UPON MERGER OR AN ASSET SALE. If we merge with or into another
corporation or sell substantially all of our assets, the successor corporation
will assume or substitute each option. If such assumption or substitution
occurs, the options will continue to be exercisable according to the same terms
as before the merger or sale of assets. Following such assumption or
substitution, if a non-employee director is terminated other than by voluntary
resignation, the option will become fully exercisable, including as to shares
for which it would not otherwise be exercisable and generally will remain
exercisable for a period of three months. If the outstanding options are not
assumed or substituted for, our board of directors will notify each non-employee
director that he or she has the right to exercise the option as to all shares
subject to the option for a period of 30 days following the date of the notice.
The option will terminate upon the expiration of the 30-day period.
AMENDMENT AND TERMINATION OF THE DIRECTOR PLAN. Unless terminated sooner,
our director plan will automatically terminate in 2009. Our board of directors
may amend, alter, suspend, or discontinue the director plan, but no such action
may adversely affect any grant made under the director plan.
401(k) PLAN
In 1999, we adopted the Universal Access, Inc. 401(k) Savings Plan and
Trust, covering our eligible full-time employees located in the United States.
The 401(k) plan is intended to meet the requirements of Sections 401(a) and
401(k) of the Internal Revenue Code, as amended, so that contributions to the
401(k) plan by employees, and the investment earnings thereon, are not taxable
to employees until withdrawn from the 401(k) plan. Under the 401(k) plan,
employees may elect to reduce their current eligible compensation by up to the
lesser of 15% of their annual compensation or the statutorily prescribed annual
limit ($10,500 in 2000) and to have the amount of the reduction contributed to
the 401(k) plan. The 401(k) plan does permit discretionary matching
contributions to the 401(k) plan by us on behalf of participants in the 401(k)
plan who have completed at least a year of service to us. To date, there have
been no matching contributions.
EMPLOYMENT AGREEMENTS
From time to time, we have entered into employment agreements with our
executive officers, including the executive officers listed in the "Summary
Compensation Table."
Patrick Shutt. In September 1998, Patrick Shutt entered into an employment
agreement with us. In February 1999 and February 2000, we amended our employment
agreement with Mr. Shutt. Mr. Shutt is currently entitled to an annual salary of
$235,000 with an annual bonus to be paid upon the completion of
performance-based milestones. Mr. Shutt is also entitled to a car allowance of
$600 per month. Mr. Shutt's employment agreement is for a renewable one-year
term.
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<PAGE> 59
Robert Pommer. In September 1998, Robert Pommer entered into an employment
agreement with us. In February 1999 and February 2000 we amended our employment
agreement with Mr. Pommer. Mr. Pommer is currently entitled to an annual salary
of $215,000 with an annual bonus to be paid upon the completion of
performance-based milestones. Mr. Pommer is also entitled to a car allowance of
$600 per month. Mr. Pommer's employment agreement is for a renewable one-year
term.
Donna Shore. In November 1998, Donna Shore entered into an employment
agreement with us. We amended our employment agreement with Ms. Shore in
February 2000. Ms. Shore is currently entitled to an annual salary of $175,000
with an annual bonus to be paid upon the completion of performance-based
milestones. Ms. Shore is also entitled to a car allowance of $600 per month. Ms.
Shore's employment agreement has an initial term of three years and is renewable
for additional one-year terms.
Holly Weller. In August 1999, Holly Weller entered into an employment
agreement with us. We amended our employment agreement with Mr. Weller in
February 2000. Ms. Weller is currently entitled to an annual salary of $155,000
with a quarterly bonus of up to $15,000 to be paid upon the completion of
performance-based milestones. Ms. Weller's employment agreement is for a
renewable one-year term.
Kenneth Napier. In July 1999, Kenneth Napier entered into an employment
agreement with us. We amended our employment agreement with Mr. Napier in
February 2000. Mr. Napier is currently entitled to an annual salary of $145,000
with an annual bonus to be paid at our discretion. Mr. Napier's employment
agreement is for a renewable one-year term.
William Coyne. In February 2000, William Coyne entered into an employment
agreement with us. We amended our employment agreement with Mr. Coyne in
February 2000. Mr. Coyne is currently entitled to an annual salary of $185,000
with an annual bonus of up to $100,000 to be paid at our discretion. Mr. Coyne's
employment agreement is for a renewable one-year term.
Scott Fehlan. In September 1999, Scott Fehlan entered into an employment
agreement with us. We amended our employment agreement with Mr. Fehlan in
February 2000. Mr. Fehlan is currently entitled to an annual salary of $155,000
with a quarterly bonus of up to $10,000 to be paid upon the completion of
performance-based milestones. Mr. Fehlan's employment agreement is for a
renewable one-year term.
Mark Dickey. In November 1998, Mark Dickey entered into an employment
agreement with us. Mr. Dickey is currently entitled to an annual salary of
$120,000 with a quarterly bonus to be paid at our discretion. Mr. Dickey's
employment agreement is for a renewable one-year term.
George King. In August 1999, George King entered into an employment
agreement with us. We amended our employment agreement with Mr. King in February
2000. Mr. King is currently entitled to an annual salary of $135,000 with an
annual bonus to be paid at our discretion. Mr. King's employment agreement is
for a renewable one-year term.
Our executive officers listed under "Management" have provisions in their
employment agreements which provide that if we terminate their individual
employment terms for any reason other than cause, death or total disability, or
if their authority, duties or responsibilities with us have been substantially
reduced, then we will provide them with health, life and disability insurance
for the one-year period after their termination. In addition, other than for
Mark Dickey, we must also pay them the balance of their base salaries and bonus
for the lesser of six months or the remaining term of their employment terms.
For Mark Dickey, we must pay him the balance of his base salary and bonus for
the lesser of four months or the remaining term of his employment term.
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<PAGE> 60
CHANGE OF CONTROL ARRANGEMENTS
Excluding Mark Dickey's August 1999 option grant for 150,000 shares of our
common stock, any unvested options to purchase shares held by our executive
officers will fully vest if there is a change of control which results in both:
- any sale of all or substantially all of our assets, any merger of us with
another company or any other corporate reorganization in which more than
50% of our voting power is transferred; and
- the officer no longer being employed by us or the successor entity under
substantially similar terms and conditions that existed prior to the
change of control.
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<PAGE> 61
TRANSACTIONS WITH RELATED PARTIES AND INSIDERS
Other than the employment agreements described under "Management" and the
transactions described below, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which we were or
are to be a party in which the amount involved exceeds $60,000, and in which any
director, executive officer, holder of more than 5% of our common stock or any
member of the immediate family of any of these people had or will have a direct
or indirect material interest.
TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS
COMMON STOCK. The following table summarizes the private placement
transactions in which we sold common stock or granted warrants to acquire common
stock to our directors, executive officers, 5% stockholders and persons and
entities affiliated with them.
<TABLE>
<CAPTION>
WARRANTS TO
SHARES OF PURCHASE
DATES OF PRICE PER COMMON COMMON
PURCHASER PURCHASE SHARE STOCK STOCK
--------- ---------------- --------- --------- -----------
<S> <C> <C> <C> <C>
Patrick C. Shutt........................... October 7, 1997 $0.000002 4,725,000 --
(executive officer, director and March 1, 1998 $ 0.00003 150,000 --
5% stockholder) August 4, 1999 $ 1.5125 500,000 --
Robert J. Pommer, Jr....................... October 7, 1997 $0.000002 4,725,000 --
(executive officer, director and March 1, 1998 $ 0.00003 150,000 --
5% stockholder) August 4, 1999 $ 1.5125 300,000 --
Donna M. Shore............................. August 4, 1999 $ 1.375 200,000 --
(executive officer)
Sam Zarcone (5% stockholder)............... October 7, 1997 $ 0.0025 4,050,000 --
(includes stock held as joint tenants
with March 1, 1998 $ 0.00003 450,000 --
right of survivorship with his daughter,
Giuseppina Zarcone, and individually)
Giuseppina Zarcone (5% stockholder)........ October 7, 1997 $ 0.0025 4,050,000 --
(includes stock held as joint tenants
with October 7, 1997 $ 0.0025 4,050,000 --
right of survivorship with her father,
Sam Zarcone, and individually)
Thomas Kapsalis............................ October 7, 1997 $0.000004 4,725,000 --
(director and 5% stockholder) March 1, 1998 $ 0.00003 1,050,000 --
John D. Drummond (5% stockholder).......... October 7, 1997 $0.000004 4,725,000 --
(Mr. Drummond beneficially holds our
stock in a family limited partnership and
in a trust)
George A. King............................. March 1, 1998 $ 0.00003 900,000 --
(executive officer)
Broadmark Investments, L.L.C............... February 8, 1999 $ 0.50 -- 360,000
(Joseph L. Schocken, one of our
directors, is a non-member manager of
Broadmark Investments, L.L.C. and has
voting and investment power over the
members of Broadmark Investments, L.L.C.)
</TABLE>
For current information on the holdings of these individuals, see
"Principal Stockholders".
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<PAGE> 62
SERIES A PREFERRED STOCK. On several dates in 1998 and 1999, we sold our
Series A preferred stock and granted warrants to acquire Series A preferred
stock, each share of which is convertible into six shares of common stock. The
following includes all purchasers who are officers, directors, 5% stockholders
and persons and entities affiliated with them:
<TABLE>
<CAPTION>
WARRANTS TO
SHARES OF PURCHASE
SERIES A SERIES A
PRICE PER PREFERRED PREFERRED
PURCHASER DATES OF PURCHASE SHARE STOCK STOCK
--------- ------------------ --------- --------- -----------
<S> <C> <C> <C> <C>
Entities affiliated with Broadmark
Investments L.L.C. ............... September 15, 1998 $3.00 33,334 --
(Joseph L. Schocken, one of our September 15, 1998 $3.00 -- 33,333
directors, has voting and March 5, 1999 $3.00 19,999 --
investment power over the members
of Broadmark Investments, L.L.C.) March 8, 1999 $3.00 -- 43,900
</TABLE>
SERIES B PREFERRED STOCK. In February and April 1999, we sold Series B
preferred stock and warrants to acquire Series B preferred stock, each share of
which is convertible into six shares of common stock. The following includes all
purchasers who are officers, directors, 5% stockholders and persons and entities
affiliated with them:
<TABLE>
<CAPTION>
WARRANTS TO
SHARES OF PURCHASE
SERIES B SERIES B
DATES OF PRICE PER PREFERRED PREFERRED
PURCHASER PURCHASE SHARE STOCK STOCK
--------- ---------------- --------- --------- -----------
<S> <C> <C> <C> <C>
Communications Ventures III, L.P....... February 8, 1999 $3.00 1,111,111 --
Communications Ventures III CEO &
Entrepreneurs' Fund, L.P............. February 8, 1999 3.00 55,555 --
Communications Ventures III CEO &
Entrepreneurs' Fund, L.P............. February 8, 1999 0.01 -- 11,112
Communications Ventures III, L.P....... February 8, 1999 0.01 -- 222,223
Internet Capital Group, Inc............ February 8, 1999 0.01 -- 166,667
Internet Capital Group, Inc............ February 8, 1999 3.00 833,334 --
</TABLE>
Communications Ventures III, L.P. and Communications Ventures III CEO &
Entrepreneurs' Fund, L.P. are affiliated with ComVentures. ComVentures is a 5%
stockholder and Roland Van der Meer, who is one of our directors, is a principal
of ComVentures. Internet Capital Group, Inc. is a 5% stockholder and Robert
Pollan, who is one of our directors, is a managing director of Internet Capital
Group, Inc.
SERIES C PREFERRED STOCK. In May, 1999, we sold our Series C preferred
stock at a purchase price of $3.00 per share. Each share of Series C preferred
stock is convertible into three shares of common stock. The following includes
all purchasers who are officers, directors, 5% stockholders and persons and
entities affiliated with them:
<TABLE>
<CAPTION>
SHARES OF
SERIES C
DATES OF PREFERRED
PURCHASER PURCHASE STOCK
--------- ------------ ---------
<S> <C> <C>
Communications Ventures III, L.P. .......................... May 13, 1999 309,525
Communications Ventures III CEO & Entrepreneurs' Fund,
L.P. ..................................................... May 13, 1999 15,476
Internet Capital Group, Inc. ............................... May 13, 1999 325,000
</TABLE>
SERIES D PREFERRED STOCK. On several dates in 1999, we sold our Series D
preferred stock at a purchase price of $4.25 per share. Each share of Series D
preferred stock is convertible into three
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<PAGE> 63
shares of common stock. The following includes all purchasers who are officers,
directors, 5% stockholders and persons and entities affiliated with them:
<TABLE>
<CAPTION>
SHARES OF
SERIES D
PREFERRED
PURCHASER DATES OF PURCHASE STOCK
--------- ------------------ ---------
<S> <C> <C>
Communications Ventures III, L.P. .......................... August 25, 1999 784,313
Communications Ventures III CEO & Entrepreneurs' Fund,
L.P. ..................................................... August 25, 1999 39,216
Internet Capital Group, Inc. ............................... June 30, 1999 3,764,706
Entities affiliated with Broadmark Investments L.L.C. ...... September 30, 1999 37,332
</TABLE>
LOANS TO EXECUTIVE OFFICERS
Patrick Shutt. In August 1999 we loaned $756,250 to Patrick Shutt under a
promissory note which was amended and restated in December 1999, in connection
with his purchase of 500,000 shares of our common stock. This loan accrues
interest at a rate of 6% and is due and payable on or before August 2004. The
principal amount outstanding under his loan on December 31, 1999 was $756,250.
Robert Pommer. In May 1999, we loaned $200,000 to Robert Pommer under a
promissory note. This loan accrues interest at an annual rate of 6% and will be
due and payable in April 2004. In August 1999 we loaned $453,750 to Robert
Pommer under a promissory note which was amended and restated in December 1999,
in connection with his purchase of 300,000 shares of our common stock. This loan
accrues interest at an annual rate of 6% and is due and payable on or before
August 2004. The principal amount outstanding under his loans on December 31,
1999 was $653,750.
Donna Shore. In August 1999 we loaned $275,000 to Donna Shore under a
promissory note which was amended and restated in December 1999, in connection
with her purchase of 200,000 shares of our common stock. This loan accrues
interest at a rate of 6% and is due and payable on or before August 2004. The
principal amount outstanding under her loan on December 31, 1999 was $275,000.
OPTION GRANTS TO EXECUTIVE OFFICERS AND DIRECTORS
Patrick Shutt. In July 1998 we granted to Patrick Shutt an option to
purchase 300,000 shares of our common stock at an exercise price of $0.01 per
share. In August 1999 we granted to Mr. Shutt an option to purchase 500,000
shares of our common stock at an exercise price of $1.51 per share.
Robert Pommer. In July 1998 we granted to Robert Pommer an option to
purchase 300,000 shares of our common stock at an exercise price of $0.01 per
share. In August 1999 we granted to Mr. Pommer an option to purchase 300,000
shares of our common stock at an exercise price of $1.51 per share.
Donna Shore. In November 1998 we granted to Donna Shore an option to
purchase 450,000 shares of our common stock at an exercise price of $0.01 per
share. In August 1999 we granted to Ms. Shore an option to purchase 200,000
shares of our common stock at an exercise price of $1.38 per share.
Holly Weller. In August 1999 we granted to Holly Weller an option to
purchase 500,000 shares of our common stock at an exercise price of $1.38 per
share.
Kenneth Napier. In June 1999 we granted to Kenneth Napier an option to
purchase 400,000 shares of our common stock at an exercise price of $0.27 per
share. In August 1999 we granted to Mr. Napier an option to purchase 100,000
shares of our common stock at an exercise price of $1.38 per share. In November
1999 we granted to Mr. Napier an option to purchase 50,000 shares of our common
stock at an exercise price of $6.10 per share.
William Coyne. In January 2000, we granted to William Coyne an option to
purchase a total of 450,000 shares of our common stock at an exercise price of
$7.20 per share.
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<PAGE> 64
Scott Fehlan. In September 1999 we granted to Scott Fehlan an option to
purchase 500,000 shares of our common stock at an exercise price of $2.79 per
share.
Mark Dickey. In November 1998 we granted to Mark Dickey an option to
purchase 450,000 shares of our common stock at an exercise price of $0.01 per
share. In August 1999 we granted Mr. Dickey an option to purchase 150,000 shares
of our common stock at an exercise price of $1.38 per share.
George King. In August 1999, we granted to George King an option to
purchase 100,000 shares of our common stock at an exercise price of $2.11 per
share. In November 1999, we granted Mr. King an option to purchase 25,000 shares
of our common stock at an exercise price of $6.10 per share.
Paolo Guidi. In August 1999, we granted to Paolo Guidi an option to
purchase a total of 200,000 shares of our common stock at an exercise price of
$1.38 per share.
OTHER TRANSACTIONS
We entered into an engagement letter agreement with Broadmark Capital
Corporation in August 1998 and amended this agreement in October 1998 and in
February 1999. Joseph Schocken, one of our directors, is the Chairman of
Broadmark Capital Corporation. Broadmark Capital Corporation provided services
to us in connection with the placement of our Series A preferred stock, Series B
preferred stock and Series D preferred stock. As consideration for their
services, we paid them approximately $502,190 and we issued them warrants to
purchase our common stock and our Series A preferred stock. In addition, they
received options to purchase a total of 839,994 shares of our common stock from
John Drummond, a 5% stockholder, Thomas Kapsalis, a 5% stockholder and a
director, and Sam Zarcone, a 5% stockholder.
In April 1999, we entered into a consulting agreement with K&D Consulting
for management consulting services. Thomas Kapsalis, one of our directors and 5%
stockholder and John Drummond, a 5% stockholder, are principals of K&D
Consulting. K&D Consulting was paid $3,000 per month as consideration for their
consulting services. The consulting agreement terminated on October 31, 1999.
Before we moved to our current location at 100 North Riverside Plaza,
Chicago, Illinois, we leased real property located at 1021 West Adams Street,
Chicago, Illinois from a corporation owned in part by Thomas Kapsalis, one of
our directors and 5% stockholder, and John Drummond, a 5% stockholder. This
lease was terminated in December 1998. The monthly rent on this lease was
$2,619.
In September 1998, we began making payments to LaSalle National Trust for a
lease agreement between LaSalle National Trust and a company owned by Sam
Zarcone for property located at 600-780 S. Federal Street, Chicago, Illinois.
Internet Capital Group purchases circuit access from us under five-year
contracts entered into from October through December 1999 with minimum purchase
commitments totaling approximately $29,000 per month. In the year ended December
31, 1999, Internet Capital Group paid us approximately $40,000 under these
contracts.
INDEMNIFICATION
We have entered into indemnification agreements with each of our directors
and officers. These indemnification agreements and our certificate of
incorporation and bylaws require us to indemnify our directors and officers to
the fullest extent permitted by Delaware law.
All future transactions, including any loans from us to our officers,
directors, principal stockholders or affiliates, will be approved by a majority
of the board of directors, including a majority of the independent and
disinterested members of the board of directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to us than could be obtained from unaffiliated third parties.
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<PAGE> 65
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 31, 2000, and as adjusted to reflect
the sale of common stock offered by this prospectus, by:
- each of the individuals listed on the "Summary Compensation Table" above;
- each of our directors;
- each person (or group of affiliated persons) who is known by us to own
beneficially 5% or more of our common stock; and
- all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of January 31, 2000, are deemed issued
and outstanding. These shares, however, are not deemed outstanding for purposes
of computing percentage ownership of each other stockholder.
Except as indicated in the footnotes to this table and subject to
applicable community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares shown as beneficially
owned by them. This table also includes shares owned by a spouse as community
property.
Percentage of ownership is based on 74,884,264 shares of common stock
outstanding on January 31, 2000 and 84,884,264 shares of common stock
outstanding after completion of this offering. The percentage of common stock
outstanding as of January 31, 2000 is calculated in accordance with the rules of
the Securities and Exchange Commission and assumes, for purposes of this
calculation, that all outstanding preferred stock has been converted into common
stock. This table assumes no exercise of the underwriters' over-allotment
option. Unless otherwise indicated, the address of each of the individuals named
below is: c/o Universal Access, Inc., 100 North Riverside Plaza, Suite 2200,
Chicago, Illinois 60606.
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<PAGE> 66
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING
-----------------------------------
SHARES ISSUABLE
PURSUANT TO OPTIONS PERCENT
NUMBER OF AND WARRANTS BENEFICIALLY OWNED
SHARES EXERCISABLE WITHIN --------------------
BENEFICIALLY 60 DAYS OF BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED JANUARY 31, 2000 OFFERING OFFERING
- ------------------------------------ ------------ ------------------- -------- --------
<S> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS AND 5%
STOCKHOLDERS
Entities Affiliated with
ComVentures(1)..................... 13,015,596 -- 17.38% 15.33%
505 Hamilton Avenue
Suite 305
Palo Alto, CA 94301
Entities Affiliated with Internet
Capital Group(2)................... 17,839,122 1,000,002 24.83% 21.94%
435 Devon Park Drive
Suite 800
Wayne, PA 19087
John D. Drummond(3).................. 4,131,000 -- 5.52% 4.87%
Giuseppina Zarcone(4)................ 4,050,000 2,250 5.41% 4.77%
Sam Zarcone(5)....................... 3,918,000 -- 5.23% 4.62%
Patrick C. Shutt(6).................. 5,374,000 300,000 7.55% 6.66%
Robert J. Pommer(7).................. 5,085,000 300,000 7.16% 6.32%
Donna M. Shore....................... 200,000 150,000 * *
Kenneth A. Napier.................... -- 150,000 * *
Mark A. Dickey....................... -- 150,000 * *
Paolo Guidi.......................... -- 200,000 * *
Teleglobe Communications
11440 Commerce Park Drive
Reston, VA 20191
Thomas Kapsalis...................... 3,986,994 -- 5.32% 4.70%
Robert A. Pollan(2).................. 17,839,122 1,000,002 24.83% 21.94%
Joseph L. Schocken(8)................ 330,882 1,039,266 1.65% 1.45%
2800 One Union Square
600 University Street
Seattle, WA 98101
Roland A. Van der Meer(1)............ 13,015,596 -- 17.38% 15.33%
All directors and executive officers
as a group (13 persons)............ 46,611,600 3,514,268 63.94% 56.70%
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 12,390,375 shares held by Communication Ventures III, L.P. and
625,221 shares held by Communication Ventures III CEO & Entrepreneurs' Fund,
L.P. The sole general partner of Communication Ventures III, L.P. and
Communication Ventures III CEO & Entrepreneurs' Fund is ComVen III, L.L.C.
The managing members of ComVen III, L.L.C. are Roland Van der Meer, David
Helfrich and Clifford Higgerson. Roland Van der Meer, one of our directors,
and each of the other managing members of ComVen III, L.L.C. disclaim
beneficial ownership of the shares held by Communication Ventures III, L.P.
and Communication Ventures III CEO & Entrepreneurs' Fund, except to the
extent of their pecuniary interest therein.
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<PAGE> 67
(2) Includes 17,839,122 shares held by Internet Capital Group, Inc. and a
warrant to purchase 1,000,002 shares held by Internet Capital Group, Inc.
Robert Pollan is a managing director of Internet Capital Group, Inc. Mr.
Pollan disclaims beneficial ownership of the shares held by Internet Capital
Group, Inc., except to the extent of his pecuniary interest therein.
(3) Includes 2,631,000 shares held by John Drummond as Trustee for the John
Drummond Declaration of Trust dated July 7, 1999 and 1,500,000 shares held
by John Drummond Family Limited Partnership.
(4) Includes 4,050,000 shares held by the Zarcone Family Limited Partnership.
The general partner of the Zarcone Family Limited Partnership is Giuseppina
Zarcone.
(5) Includes 3,918,000 shares held by Sam Zarcone as the Trustee of the Sam
Zarcone Declaration of Trust dated October 21, 1999. Sam Zarcone is the sole
beneficiary of the Sam Zarcone Declaration of Trust dated October 21, 1999.
(6) Includes 4,504,000 shares held by Patrick Shutt as Trustee of the Patrick C.
Shutt Declaration of Trust dated December 22, 1999, an option to purchase
300,000 shares held individually by Patrick Shutt, and 870,000 shares held
by the Shutt Family Limited Partnership. The general partners of the Shutt
Family Limited Partnership are Patrick Shutt and his wife.
(7) Includes 4,885,000 shares held individually by Robert Pommer, Jr., an option
to purchase 300,000 shares held individually by Robert Pommer, Jr., and
200,000 shares held by Elizabeth M. Pommer as Trustee of the Elizabeth M.
Pommer Declaration of Trust dated December 31, 1999.
(8) Includes 330,882 shares held by Broadmark Investments, L.L.C. and warrants
and options to purchase 624,120 shares held by Broadmark Investments, L.L.C.
and warrants and options to purchase 415,146 shares held by Broadmark
Capital Corporation. Mr. Schocken is a non-member manager of Broadmark
Investments, L.L.C. and is the chairman of Broadmark Capital Corporation.
Mr. Schocken disclaims beneficial ownership of the shares held by Broadmark
Investments, L.L.C. and Broadmark Capital Corporation, except as to his
pecuniary interest therein.
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<PAGE> 68
DESCRIPTION OF CAPITAL STOCK
GENERAL
We are authorized to issue 1,000,000,000 shares of common stock, $0.01 par
value, and 20,000,000 shares of undesignated preferred stock, $0.01 par value.
The following description of our capital stock does not purport to be complete
and is subject to and qualified by our certificate of incorporation and amended
and restated bylaws, which are included as exhibits to the Registration
Statement of which this prospectus forms a part, and by the provisions of
applicable Delaware law.
COMMON STOCK
As of December 31, 1999, there were 74,809,264 shares of common stock
outstanding, as adjusted to reflect the conversion of all outstanding shares of
preferred stock into common stock (assuming no adjustment to the Series E
preferred stock conversion ratio as discussed below), which were held of record
by approximately 160 stockholders.
Our Amended Certificate of Designations provides that each share of Series
E preferred stock will be initially convertible into three shares of common
stock upon the completion of this offering. However, the Series E conversion
ratio for the Series E preferred stock will be multiplied by the lesser of 3.75
and X, where X equals the greater of (A) 1 or (B) the quotient obtained by
dividing (i) $750,000,000 by (ii) the product of (x) the number of shares of
common stock outstanding immediately before this offering is completed (on a
fully diluted and as converted basis, without taking into account additional
shares of common stock that would be issuable to Series E preferred stock as a
result of this adjustment) and (y) the initial public offering price per share
in this offering.
The following examples illustrate the effect that this adjustment to the
Series E preferred stock's conversion ratio would have on the number of shares
of our common stock outstanding upon completion of this offering, based on the
87,218,414 shares of common stock outstanding on an as-converted and
fully-diluted basis as of December 31, 1999:
- If the initial public offering price per share is $9.00 (the midpoint of
the assumed range as set forth in this prospectus), no adjustment would
be made to the conversion ratio. As a consequence, each share of Series E
preferred stock would be convertible into three shares of common stock,
and we would have an aggregate of 84,809,264 shares of common stock
outstanding upon completion of this offering.
- If the initial public offering price per share is $8.60 or greater, no
adjustment would be made to the conversion ratio. As a consequence, each
share of Series E preferred stock would be convertible into three shares
of common stock, and we would have an aggregate of 84,809,264 shares of
common stock outstanding upon completion of this offering.
- If the initial public offering price per share is $2.29 or less, then the
conversion ratio would be multiplied by 3.75. As a consequence, each
share of Series E preferred stock would be convertible into 11.25 shares
of common stock, and we would have an aggregate of 97,657,690 shares of
common stock outstanding upon completion of this offering.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy". In the event of a liquidation, dissolution or
winding up of Universal Access, the holders of common stock are entitled to
share ratably in all assets remaining after payment of liabilities, subject to
prior distribution rights of preferred stock, if any, then outstanding. The
common stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are
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<PAGE> 69
fully paid and nonassessable, and the shares of common stock to be issued upon
the closing of this offering will be fully paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. We cannot state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of the preferred stock. However, the effects
might include, among other things, restricting dividends on the common stock,
diluting the voting power of the common stock, impairing the liquidation rights
of the common stock and delaying or preventing a change in control of Universal
Access without further action by the stockholders. We have no present plans to
issue any shares of preferred stock.
WARRANTS
At December 31, 1999, there were the following warrants outstanding:
- a warrant to purchase a total of 360,000 shares of common stock which
will expire on February 8, 2004, unless earlier exercised;
- a warrant to purchase a total of 199,998 shares of common stock which
will expire on September 20, 2003, unless earlier exercised; and
- a warrant to purchase a total of 1,000,002 shares of common stock which
will expire on February 8, 2004, unless earlier exercised;
- a warrant to purchase a total of 263,400 shares of common stock which
will expire on March 8, 2004, unless earlier exercised; and
- a warrant to purchase a total of 120,000 shares of common stock (assuming
no adjustment to the Series E preferred stock conversion ratio) which
will expire on November 10, 2004, unless earlier exercised.
All five of these warrants will remain outstanding after the completion of
this offering and may be exercised on a "net" basis. If a warrant is exercisable
on a "net" basis, instead of paying the exercise price in cash, the holder may
instruct us to retain a number of shares that has a fair market value at the
time of exercise equal to the aggregate exercise price.
REGISTRATION RIGHTS
As of December 31, 1999 the holders of 38,811,216 shares of common stock,
as converted, and the holders of warrants and options to purchase 2,783,394
shares of common stock, as converted, or their permitted transferees are
entitled to certain rights with respect to registration under the Securities Act
of the shares held by them at any time after 180 days following the closing of
this offering. Subject to limitations specified in the agreements, these
registration rights include the following:
- Piggyback Registration Rights: We must allow the holders of registrable
securities to register all or, any portion of the holder's registrable
securities concurrently with any registration statement we file. These
rights are subject to the right of the underwriter to reduce the number
of shares proposed to be registered in view of market conditions.
- S-3 Registration Rights: The holders of at least twenty percent of the
then outstanding registrable securities may require us to register all or
a portion of their registrable securities on Form S-3 when use of this
form becomes available to us.
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<PAGE> 70
- Demand Registration Rights: If at any time prior to February 5, 2007, we
receive a registration request from at least a majority of the holders of
Series B and Series D preferred stock who have registration rights, then
we must prepare, file and use our best efforts to effect up to two
registration statements.
We will bear all registration expenses other than underwriting discounts
and commissions for holders exercising piggyback rights and S-3 registration
rights.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make it more difficult to acquire us by means of a tender offer, a
proxy contest or otherwise to remove incumbent officers and directors. These
provisions, summarized below, are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of us to first negotiate with us. We believe
that the benefits of our potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging takeover or acquisition proposals because, among
other things, negotiation of these proposals could result in an improvement of
their terms.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became an
interested stockholder, unless (with certain exceptions) the "business
combination" or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior to the determination of interested
stockholder status, did own) 15% or more of a corporation's voting stock. The
existence of this provision would be expected to have an anti-takeover effect
with respect to transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
Our certificate of incorporation and bylaws require that any action
required or permitted to be taken by our stockholders must be effected at a duly
called annual or special meeting of the stockholders and may not be effected by
a consent in writing. In addition, special meetings of our stockholders may be
called only by the board of directors or certain of our officers. Our
certificate of incorporation and bylaws also provide that, beginning upon the
closing of this offering, our board of directors will be divided into three
classes, with each class serving staggered three-year terms, and that certain
amendments of the certificate of incorporation and of the bylaws require the
approval of holders of at least 66 2/3% of the voting power of all outstanding
stock. These provisions may have the effect of deterring hostile takeovers or
delaying changes in control or management of Universal Access.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Norwest
Shareholder Services.
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<PAGE> 71
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the market price of the common stock.
Upon completion of this offering, we will have outstanding 84,809,264
shares of common stock, assuming the issuance of 10,000,000 shares of common
stock offered by us and no exercise of options after December 31, 1999, and
assuming no exercise of the underwriters' option to purchase additional shares
in the offering. All of the 10,000,000 shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act; provided, however, that if shares are purchased by "affiliates" as that
term is defined in Rule 144 under the Securities Act, their sales of shares
would be subject to certain limitations and restrictions that are described
below.
The remaining 74,809,264 shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. Of these shares, all 74,809,264
shares will be subject to "lock-up" agreements described below on the effective
date of this offering. On the effective date of this offering, shares not
subject to the lock-up agreements described below will not be eligible for sale
pursuant to Rule 144(k). All of the directors and officers as well as
stockholders collectively holding more than 100% of the outstanding common stock
have entered into lock-up agreements with the underwriters that provide that the
shares set forth in the table below will become eligible for sale on the dates
set forth in the table below, subject in most cases to the limitations of Rule
144. In addition, holders of stock options could exercise such options and sell
certain of the shares issued upon exercise as described below.
<TABLE>
<CAPTION>
APPROXIMATE
SHARES
ELIGIBLE FOR
RELEVANT DATES FUTURE SALE COMMENT
-------------- ------------ -------
<S> <C> <C>
On effective date(1)............... 10,000,000 Shares sold in this offering.
90 days after effective date(2).... -- Shares tradeable under Rules 144
and 701.
Three business days following the
public release of earnings for
the full fiscal quarter next
following the fiscal quarter in
which the date of this prospectus
falls(3)......................... 5,064,812 10% of shares subject to lock-up
released; shares tradeable under
Rule 144 and 701.
180 days after effective date(2)... 66,581,118 All shares subject to lock-up
released; shares tradeable under
Rule 144 and 701.
</TABLE>
- ---------------
(1) Assumes no exercise of the Underwriters' option to purchase additional
shares in the offering.
(2) Assumes effective date of March 16, 2000.
(3) Assumes second quarter results are released on July 15, 2000.
Our officers, directors and stockholders have agreed not to sell or
otherwise dispose of any of their shares until the third business day following
the public release of our earnings for the full fiscal quarter next following
the fiscal quarter in which the date of this prospectus falls, at which time
they may sell or otherwise dispose of 10% of their shares. The remaining 90% of
their shares may be sold or otherwise disposed of on the date that is 180 days
after the date of this prospectus. Goldman, Sachs & Co., however, may in its
sole discretion, at any time without notice, release all or any portion of the
shares subject to lock-up agreements.
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<PAGE> 72
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 848,093 shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain other requirements
regarding the manner of sale, notice filing and the availability of current
public information about us.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an "affiliate", is
entitled to sell such shares without complying with the manner of sale, notice
filing, volume limitation or notice provisions of Rule 144. Therefore, unless
otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
RULE 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchases shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to resell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with certain restrictions, including the holding period, contained in
Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of such options (including exercises after the date of this
prospectus). Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90 days
after the date of this prospectus, may be sold by persons other than
"affiliates", as defined in Rule 144, subject only to the manner of sale
provisions of Rule 144 and by "affiliates" under Rule 144 without compliance
with its one year minimum holding period requirement.
70
<PAGE> 73
UNDERWRITING
Universal Access and the underwriters for the offering (the "Underwriters")
named below have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each Underwriter has
severally agreed to purchase the number of shares indicated in the following
table. Goldman, Sachs & Co., Chase Securities Inc. and FleetBoston Robertson
Stephens Inc. are the representatives of the Underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. .......................................
Chase Securities Inc........................................
FleetBoston Robertson Stephens Inc. ........................
----------
Total............................................. 10,000,000
==========
</TABLE>
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional
1,500,000 shares from us to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the Underwriters
will severally purchase shares in approximately the same proportion as set forth
in the table above.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the Underwriters by us. Such amounts are shown
assuming both no exercise and full exercise of the Underwriters' option to
purchase 1,500,000 additional shares.
PAID BY UNIVERSAL ACCESS
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share................................................... $ $
Total....................................................... $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the Underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
Universal Access, its directors, officers, employees, and certain
stockholders have agreed with the Underwriters not to sell, contract to sell,
pledge, grant an option to purchase, make a short sale or otherwise dispose of
any of our common stock or securities convertible into or exchangeable for
shares of our common stock during the period from the date of this prospectus
continuing through the
71
<PAGE> 74
lock-up period, except with the prior written consent of Goldman, Sachs & Co. At
any time beginning on the third business day following the public release of our
earnings for the full fiscal quarter next following the fiscal quarter in which
the date of this prospectus falls, each stockholder may sell, contract to sell,
pledge, grant an option to purchase, make a short sale or otherwise dispose of
up to 10% of his or her shares owned as of the date of this prospectus. Each
stockholder may sell, contract to sell, pledge, grant an option to purchase,
make a short sale or otherwise dispose of his or her remaining shares at any
time on or following the date which is 180 days after the date of this
prospectus. This agreement does not apply to any existing employee benefit
plans. See "Shares Available for Future Sale" for a discussion of certain
transfer restrictions.
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Universal Access and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be our historical performance, estimates of our business
potential and earnings prospects, an assessment of our management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.
At our request, the Underwriters have reserved up to 3.5 percent of the
shares of common stock to be issued by Universal Access and offered in this
offering for sale, at the initial public offering price, to persons with
relationships with Universal Access. The number of shares available for sale to
the general public will be reduced to the extent that such persons purchase such
reserved shares. Any reserved shares which are not so purchased will be offered
by the Underwriters to the general public on the same basis as the other shares
of common stock offered by this prospectus.
Universal Access has applied for quotation of the common stock on the
Nasdaq National Market under the symbol "UAXS".
In connection with the offering, the Underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The Underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Universal Access estimates that the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$1,500,000.
Universal Access has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
72
<PAGE> 75
WHERE YOU MAY FIND ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act for the shares of common stock in
this offering. This prospectus does not contain all of the information in the
registration statement and the exhibits and schedule that were filed with the
registration statement. For further information with respect to Universal Access
and our common stock, we refer you to the registration statement and the
exhibits and schedule that were filed with the registration statement.
Statements contained in this prospectus about the contents of any contract or
any other document that is filed as an exhibit to the registration statement are
not necessarily complete, and we refer you to the full text of the contract or
other document filed as an exhibit to the registration statement. A copy of the
registration statement and the exhibits and schedule that were filed with the
registration statement may be inspected without charge at the public reference
facilities maintained by the Securities and Exchange Commission at the SEC's
Public Reference Room at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and copies of all or any part of the registration statement may be
obtained from the SEC upon payment of the prescribed fee. Information on the
operations of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. The Securities and Exchange Commission maintains a World Wide
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission. The address of the site is http://www.sec.gov.
Upon completion of this offering, Universal Access will become subject to
the information and periodic reporting requirements of the Securities Exchange
Act of 1934, and, in accordance with the requirements of the Securities Exchange
Act of 1934, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission. These periodic reports, proxy
statements and other information will be available for inspection and copying at
the regional offices, public reference facilities and web site of the Securities
and Exchange Commission referred to above.
VALIDITY OF COMMON STOCK
The validity of the shares of common stock offered hereby will be passed
upon for Universal Access by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California and for the underwriters by Sullivan &
Cromwell, Los Angeles, California. As of the date of this prospectus, WS
Investment Company 99B, an investment partnership composed of certain current
and former members of and persons associated with Wilson Sonsini Goodrich &
Rosati, Professional Corporation, and certain other members and employees of
Wilson Sonsini Goodrich & Rosati beneficially own 105,894 shares of our common
stock.
EXPERTS
The financial statements as of December 31, 1997, 1998 and 1999 and for the
period from October 7, 1997 (inception) to December 31, 1997, and the years
ended December 31, 1998
and 1999 included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
73
<PAGE> 76
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 77
UNIVERSAL ACCESS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNIVERSAL ACCESS, INC.
Report of Independent Accountants........................... F-2
Balance Sheet as of December 31, 1998 and 1999.............. F-3
Statement of Operations for the period from inception
through December 31, 1997, and the years ended December
31, 1998 and 1999......................................... F-4
Statement of Cash Flows for the period from inception
through December 31, 1997, and the years ended December
31, 1998 and 1999......................................... F-5
Statement of Changes in Stockholders' (Deficit) Equity for
the period from inception through December 31, 1997, and
the years ended December 31, 1998 and 1999................ F-6
Notes to Financial Statements............................... F-7
PACIFIC CREST NETWORKS, INC. D/B/A THE POND
Report of Independent Accountants........................... F-22
Balance Sheet as of December 31, 1997 and 1998 and June 30,
1999 (unaudited).......................................... F-23
Statement of Operations for the years ended December 31,
1997 and 1998 and the six months ended June 30, 1998 and
1999 (unaudited).......................................... F-24
Statement of Cash Flows for the years ended December 31,
1997 and 1998 and the six months ended June 30, 1998 and
1999 (unaudited).......................................... F-25
Statement of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1997 and 1998 and the six
months ended June 30, 1999 (unaudited).................... F-26
Notes to Financial Statements............................... F-27
STUFF SOFTWARE, INC.
Report of Independent Accountants........................... F-34
Balance Sheet as of December 31, 1997 and 1998 and September
30, 1999 (unaudited)...................................... F-35
Statement of Operations for the years ended December 31,
1997 and 1998 and the nine months ended September 30, 1998
and 1999 (unaudited)...................................... F-36
Statement of Cash Flows for the years ended December 31,
1997 and 1998 and the nine months ended September 30, 1998
and 1999 (unaudited)...................................... F-37
Statement of Changes in Stockholders' Deficit for the years
ended December 31, 1997 and 1998 and the nine months ended
September 30, 1999 (unaudited)............................ F-38
Notes to Financial Statements............................... F-39
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Unaudited Pro Forma Combined Financial Information.......... F-41
Unaudited Pro Forma Combined Statement of Operations for the
year ended December 31, 1999.............................. F-42
Notes to Unaudited Pro Forma Combined Financial
Statements................................................ F-43
</TABLE>
F-1
<PAGE> 78
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Universal Access, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of cash flows and of changes in stockholders' (deficit) equity
present fairly, in all material respects, the financial position of Universal
Access, Inc. at December 31, 1998 and 1999, and the results of its operations
and its cash flows for the period from October 2, 1997 (date of inception)
through December 31, 1997 and the years ended December 31, 1998 and 1999, in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States, 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
Chicago, Illinois
February 17, 2000
F-2
<PAGE> 79
UNIVERSAL ACCESS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------ DECEMBER 31,
1998 1999 1999
------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 844 $ 38,024
Accounts receivable, net.................................. 657 2,996
Prepaid expenses.......................................... 15 1,027
Security deposits......................................... 85 426
Other receivables......................................... -- 447
------- --------
Total current assets................................ 1,601 42,920
Restricted cash............................................. 149 --
Property and equipment, net................................. 219 18,888
Intangible assets, net...................................... -- 2,457
Other....................................................... -- --
------- --------
Total assets........................................ $ 1,969 $ 64,265
======= ========
LIABILITIES, REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable.......................................... $ 577 $ 3,673
Regulatory taxes payable.................................. 28 1,067
Accrued compensation...................................... -- 641
Accrued expenses and other current liabilities............ 47 860
Unearned revenue.......................................... 381 2,113
Notes payable -- shareholders............................. 126 --
Notes payable and current portion of term loans........... -- 1,019
Current obligations under capital leases.................. -- 210
Unissued Series A......................................... 1,004 --
------- --------
Total current liabilities........................... 2,163 9,583
Notes payable and term loans................................ 149 2,246
Obligations under capital leases, net of current portion.... -- 123
Security deposits payable................................... -- 271
------- --------
Total liabilities................................... 2,312 12,223
Commitments and contingencies (Note 7)
Series A Redeemable Cumulative Convertible Preferred Stock,
no par value; 1,000,000 shares authorized; 335,334 shares
issued and outstanding plus accrued dividends of $20
(liquidation value of $903) (Note 12)..................... 903 --
Series A warrants (Note 12)................................. 36 --
------- --------
Total redeemable cumulative convertible preferred
stock............................................... 939 --
------- --------
Stockholders' (deficit) equity:
Preferred Stock:
Series A Cumulative Convertible, $.01 par value;
1,000,000 shares authorized; 772,331 shares issued and
outstanding plus accrued dividends of $196 (liquidation
value of $2,208)....................................... -- 2,208 --
Series A warrants....................................... -- 83 --
Series B Cumulative Convertible, $.01 par value;
2,400,000 shares authorized; 2,233,335 shares issued
and outstanding plus accrued dividends of $298
(liquidation value of $5,531).......................... -- 5,531 --
Series B warrants....................................... -- 500 --
Series C Convertible, $.01 par value; 667,000 shares
authorized; 666,667 shares issued and outstanding
(liquidation value of $1,941).......................... -- 1,941 --
Series D Cumulative Convertible, $.01 par value;
7,058,823 shares authorized; 6,042,697 shares issued
and outstanding plus accrued dividends of $663
(liquidation value of $26,220)......................... -- 26,220 --
Series E Cumulative Convertible, $.01 par value,
1,597,386 shares authorized; 1,557,385 shares issued
and outstanding plus accrued dividends of $50
(liquidation value of $27,954)......................... -- 27,954 --
Series E warrants....................................... -- 136 --
Common stock, $.01 par value; 300,000,000 shares
authorized; 30,300,000 and 31,975,021 shares issued and
outstanding; 74,809,264 December 31, 1999 pro forma
shares issued
and outstanding(1)...................................... 225 2,475 $ 66,329
Common stock warrants..................................... -- 13 732
Additional paid-in-capital................................ 487 6,491 6,491
Deferred stock option plan compensation................... (422) (1,468) (1,468)
Accumulated deficit....................................... (1,572) (18,314) (18,314)
Notes receivable -- employees............................. -- (1,728) (1,728)
------- -------- --------
Total stockholders' (deficit) equity................ (1,282) 52,042 52,042
------- -------- --------
Total liabilities, redeemable cumulative convertible
preferred stock and stockholders' (deficit)
equity.............................................. $ 1,969 $ 64,265
======= ========
</TABLE>
- ---------------
(1) Assumes 3-for-1 Series E Preferred Stock conversion. All other preferred
stock is converted at ratios disclosed in Note 12.
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 80
UNIVERSAL ACCESS, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE
FROM YEAR ENDED
INCEPTION TO DECEMBER 31,
DECEMBER 31, ------------------
1997 1998 1999
------------ ------- --------
<S> <C> <C> <C>
Revenues:
Circuit access.................................... $ 77 $ 1,589 $ 13,360
Universal Transport Exchange...................... -- 40 601
Other............................................. -- -- 298
------- ------- --------
Total revenues............................... 77 1,629 14,259
------- ------- --------
Operating expenses:
Cost of circuit access............................... 66 1,256 12,021
Operations and administration (excluding stock option
plan compensation)................................ 180 1,516 12,725
Operations and administration (stock option plan
compensation)..................................... -- 65 4,927
Depreciation......................................... -- 47 829
------- ------- --------
Total operating expenses..................... 246 2,884 30,502
------- ------- --------
Operating loss............................... (169) (1,255) (16,243)
------- ------- --------
Other (expense) income:
Interest expense..................................... (1) (27) (81)
Interest income...................................... -- 8 739
Other expense........................................ -- (100) 33
------- ------- --------
Total other (expense) income................. (1) (119) 691
------- ------- --------
Net loss............................................... (170) (1,374) (15,552)
Accretion and dividends on redeemable and nonredeemable
cumulative convertible preferred stock............... -- (28) (1,187)
------- ------- --------
Net loss applicable to common stockholders............. $ (170) $(1,402) (16,739)
======= ======= ========
Basic and diluted net loss per share................... $ (0.01) $ (0.05) $ (0.54)
Shares used in computing basic and diluted net loss per
share................................................ 23,799 29,063 31,142
Pro forma basic and diluted net loss per share......... $ (0.05) $ (0.27)
Shares used in computing unaudited pro forma basic and
diluted net loss per share........................... 30,069 56,855
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 81
UNIVERSAL ACCESS, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FROM YEAR ENDED
INCEPTION TO DECEMBER 31,
DECEMBER 31, -----------------------
1997 1998 1999
------------ ------------ --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(170) $(1,374) $(15,552)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation............................................ -- 47 829
Amortization............................................ -- -- 113
Stock option plan compensation.......................... -- 65 4,927
Stock issued for services............................... -- -- 110
Provision for doubtful accounts......................... 4 42 867
Changes in operating assets and liabilities:
Accounts receivable................................... (48) (655) (3,096)
Prepaid expenses and other current assets............. -- (15) (1,051)
Security deposits..................................... (54) (31) (341)
Accounts payable...................................... 56 521 2,314
Accrued expenses and other current liabilities........ 2 73 2,318
Unearned revenue...................................... -- 381 1,669
----- ------- --------
Net cash used for operating activities............. (210) (946) (6,893)
----- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Pacific Crest Networks, Inc................... -- -- (907)
Purchase of Stuff Software, Inc........................... -- -- (930)
Purchase of property and equipment........................ (1) (265) (17,742)
----- ------- --------
Net cash used for investing activities............. (1) (265) (19,579)
----- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on line of credit................................ -- 378 750
Payments on line of credit................................ -- (378) (900)
Proceeds from term loans.................................. 76 199 3,394
Payments on notes payable and term loans.................. -- -- (481)
Payments on capital lease obligations..................... -- -- (84)
Disbursements under note receivable -- employee........... -- -- (200)
Lapse of restriction on cash balance...................... -- -- 149
Proceeds from unissued Series A Preferred Stock........... -- 1,004 --
Proceeds from issuance of Series A Preferred Stock........ -- 875 122
Proceeds from issuance of Series B Preferred Stock........ -- -- 4,565
Proceeds from issuance of Series C Preferred Stock........ -- -- 1,941
Proceeds from issuance of Series D Preferred Stock........ -- -- 25,097
Proceeds from issuance of Series E Preferred Stock........ -- -- 27,904
Proceeds from issuance of common stock.................... 136 89 --
Proceeds from issuance of Series A Preferred Stock
warrants................................................ -- 36 47
Proceeds from issuance of Series B Preferred Stock
warrants................................................ -- -- 1,197
Proceeds from issuance of common stock warrants........... -- -- 13
Proceeds from exercise of Series B Preferred Stock
warrants................................................ -- -- 2
Proceeds from issuance of Series E Preferred Stock
warrants................................................ -- -- 136
Cash deposit to collateralize note payable, net........... -- (149) --
----- ------- --------
Net cash provided by financing activities.......... 212 2,054 63,652
----- ------- --------
Net increase in cash and cash equivalents................... 1 843 37,180
Cash and cash equivalents, beginning of period.............. -- 1 844
----- ------- --------
Cash and cash equivalents, end of period.................... $ 1 $ 844 $ 38,024
===== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 82
UNIVERSAL ACCESS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DEFERRED
PREFERRED STOCK PREFERRED COMMON STOCK COMMON ADDITIONAL STOCK OPTION
------------------- STOCK ------------------- STOCK PAID-IN PLAN
SHARES AMOUNT WARRANTS SHARES AMOUNT WARRANTS CAPITAL COMPENSATION
--------- ------- --------- ---------- ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 2, 1997........ -- $ -- $ -- -- $ -- $-- $ -- $ --
Issuance of common stock.......... -- -- -- 23,799,000 136 -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
--------- ------- ------ ---------- ------ --- ------ -------
Balance at December 31, 1997...... -- -- -- 23,799,000 136 -- -- --
Issuance of common stock.......... 6,201,000 89 -- -- --
Issuance of Series A Preferred
Stock............................ -- -- -- --
Issuance of Series A Preferred
Stock Warrants................... -- -- -- --
Exercise of stock options......... -- -- -- 300,000 -- -- -- --
Deferred stock option plan
compensation..................... -- -- -- -- -- -- 487 (487)
Stock option plan compensation.... -- -- -- -- -- -- -- 65
Net loss.......................... -- -- -- -- -- -- -- --
Accretion and dividends on
Redeemable Series A Preferred
Stock............................ -- -- -- -- -- -- -- --
--------- ------- ------ ---------- ------ --- ------ -------
Balance at December 31, 1998...... -- -- -- 30,300,000 225 -- 487 (422)
Accretion and dividends on
Redeemable Series A
Preferred Stock.................. -- -- -- -- -- -- -- --
Termination of mandatory
redemption feature of Series A
Preferred Stock.................. 335,334 912 36 -- -- -- -- --
Issuance of Series A Preferred
Stock............................ 436,997 1,126 -- -- -- -- -- --
Issuance of Series A Preferred
Stock warrants................... -- -- 47 -- -- -- -- --
Issuance of Series B Preferred
Stock............................ 2,000,000 4,534 -- -- -- -- -- --
Issuance of Series B Preferred
Stock warrants................... -- -- 1,197 -- -- -- -- --
Issuance of Series C Preferred
Stock............................ 666,667 1,941 -- -- -- -- -- --
Issuance of Series D Preferred
Stock............................ 6,042,697 25,557 -- -- -- -- -- --
Issuance of Series E Preferred
Stock............................ 1,557,385 27,904
Issuance of Series E Preferred
Stock warrants................... -- -- 136 -- -- -- -- --
Issuance of common stock.......... -- -- -- 375,021 765 -- -- --
Issuance of common stock
warrants......................... -- -- -- -- -- 13 -- --
Issuance of common stock options
by certain shareholders.......... -- -- -- -- -- -- 31 --
Exercise of Series B Preferred
Stock warrants................... 233,335 699 (697) -- -- -- -- --
Exercise of common stock
options.......................... -- -- -- 1,300,000 1,485 -- -- --
Note receivable -- employee....... -- -- -- -- -- -- -- --
Interest on employee notes........ -- -- -- -- -- -- -- --
Deferred stock option plan
compensation..................... -- -- -- -- -- -- 1,362 (1,362)
Stock option plan compensation.... -- -- -- -- -- -- 4,611 316
Net loss.......................... -- -- -- -- -- -- -- --
Dividends on Series A Preferred
Stock............................ -- 170 -- -- -- -- -- --
Dividends on Series B Preferred
Stock............................ -- 298 -- -- -- -- -- --
Dividends on Series D Preferred
Stock............................ -- 663 -- -- -- -- -- --
Dividends on Series E Preferred
Stock............................ -- 50 -- -- -- -- -- --
--------- ------- ------ ---------- ------ --- ------ -------
Balance at December 31, 1999...... 11,272,415 $63,854 $ 719 31,975,021 $2,475 $13 $6,491 $(1,468)
========= ======= ====== ========== ====== === ====== =======
<CAPTION>
ACCUMULATED NOTES RECEIVABLE --
DEFICIT EMPLOYEES TOTAL
----------- ------------------- -------
<S> <C> <C> <C>
Balance at October 2, 1997........ $ -- $ -- $ --
Issuance of common stock.......... -- -- 136
Net loss.......................... (170) -- (170)
-------- ------- -------
Balance at December 31, 1997...... (170) -- (34)
Issuance of common stock.......... -- -- 89
Issuance of Series A Preferred
Stock............................
Issuance of Series A Preferred
Stock Warrants...................
Exercise of stock options......... -- -- --
Deferred stock option plan
compensation..................... -- -- --
Stock option plan compensation.... -- -- 65
Net loss.......................... (1,374) -- (1,374)
Accretion and dividends on
Redeemable Series A Preferred
Stock............................ (28) -- (28)
-------- ------- -------
Balance at December 31, 1998...... (1,572) -- (1,282)
Accretion and dividends on
Redeemable Series A
Preferred Stock.................. (9) -- (9)
Termination of mandatory
redemption feature of Series A
Preferred Stock.................. -- -- 948
Issuance of Series A Preferred
Stock............................ -- -- 1,126
Issuance of Series A Preferred
Stock warrants................... -- -- 47
Issuance of Series B Preferred
Stock............................ -- -- 4,534
Issuance of Series B Preferred
Stock warrants................... -- -- 1,197
Issuance of Series C Preferred
Stock............................ -- -- 1,941
Issuance of Series D Preferred
Stock............................ -- 25,557
Issuance of Series E Preferred
Stock............................ 27,904
Issuance of Series E Preferred
Stock warrants................... -- -- 136
Issuance of common stock.......... -- -- 765
Issuance of common stock
warrants......................... -- -- 13
Issuance of common stock options
by certain shareholders.......... -- -- 31
Exercise of Series B Preferred
Stock warrants................... -- -- 2
Exercise of common stock
options.......................... -- (1,485) --
Note receivable -- employee....... -- (200) (200)
Interest on employee notes........ -- (43) (43)
Deferred stock option plan
compensation..................... -- -- --
Stock option plan compensation.... -- -- 4,927
Net loss.......................... (15,552) -- (15,552)
Dividends on Series A Preferred
Stock............................ (170) -- --
Dividends on Series B Preferred
Stock............................ (298) -- --
Dividends on Series D Preferred
Stock............................ (663) -- --
Dividends on Series E Preferred
Stock............................ (50) -- --
-------- ------- -------
Balance at December 31, 1999...... $(18,314) $(1,728) $52,042
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 83
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Universal Access, Inc. (the "Company" or "UAI"), was organized and
commenced operations on October 2, 1997 for the purpose of facilitating the
provisioning, installation and servicing of dedicated communications circuits
for service providers who buy network capacity and transport suppliers who sell
network capacity. UAI provides dedicated circuit access and leases space in the
Company's Universal Transport Exchanges, or UTXs, where transport suppliers can
access the network connections of other transport suppliers. UAI operated as a
subchapter S-Corporation until September 27, 1998, at which time it converted to
a C-Corporation.
UNAUDITED PRO FORMA BALANCE SHEET
Upon the closing of UAI's initial public offering, all of the shares of
preferred stock outstanding as of December 31, 1999 will automatically convert
into 42,834,243 shares of common stock and all preferred stock warrants
outstanding as of December 31, 1999 will automatically convert into warrants to
purchase an aggregate of 1,583,400 shares of common stock. These conversions
have been reflected in the unaudited pro forma balance sheet as of December 31,
1999. These conversions contemplate a 3-to-1 conversion ratio for Series E
Cumulative Convertible Preferred Stock and Series E Cumulative Convertible
Preferred Stock Warrants. This conversion ratio is subject to increase as
described in Note 12.
NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding. Diluted loss per share does not differ from
basic loss per share since potential common shares from conversion of preferred
stock, stock options and warrants are anti-dilutive for all periods presented.
Pro forma basic and diluted net loss per share have been calculated assuming the
conversion of all shares of preferred stock outstanding during each period
presented into common shares, as if the shares had converted immediately upon
their issuance.
REVENUE RECOGNITION
The following is UAI's revenue recognition policy for each type of revenue:
Circuit access -- This is revenue earned by providing customers with
dedicated circuit access. Customers subscribe to circuit access services under
contracts ranging from twelve to sixty months. Circuit access is billed in
advance on a monthly basis. UAI recognizes revenue for circuit access as the
service is provided, and advanced billings are recorded as unearned revenue.
Universal Transport Exchange (UTX) -- This is revenue earned by leasing
space in UAI facilities to network service providers and transport suppliers so
that they can place network equipment that may be connected to other network
service providers and transport suppliers in the UTX facility. UTX revenue is
billed in advance on a monthly basis. UAI recognizes UTX revenue on a
straight-line basis over the duration of the UTX lease, and advanced billings
are recorded as unearned revenue.
Installation revenue -- This is revenue earned by installing a customer
circuit or installing customer UTX equipment. Installation revenue that is not a
separate component of the customer contract and that is not billed separately to
the customer will be recognized proportionately over the term of the related
circuit access agreement. Installation revenue that has a separately designated
price in the customer contract and that will be separately billed to the
customer will be recognized when the related installation service is performed.
Through December 31, 1999, no installation revenue has been recognized.
F-7
<PAGE> 84
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, money market funds and all
investments with an initial maturity of three months or less. All cash
equivalents are recorded at cost.
ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $4,000, $46,000 and $649,000 at
December 31, 1997 and 1998 and 1999, respectively.
Financial instruments that could potentially subject UAI to concentration
of credit risk primarily include accounts receivable. As of December 31, 1999,
two customers represented 55% of accounts receivable. During 1999, one customer
represented 38% of total revenues. As of December 31, 1998, two customers
represented 38% of total accounts receivable and an aggregate of 29% of total
revenues during 1998. As of December 31, 1997, three customers represented 94%
of total accounts receivable and 81% of total revenues during 1997. If any of
these individually significant customers are unable to meet their financial
obligations, results of operations of the Company could be adversely affected.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense is recorded for options
issued to employees or directors in fixed amounts and with fixed exercise prices
at least equal to the fair market value of the Company's common stock at the
date of grant. The Company has adopted the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," through disclosure only (Note 10).
All stock-based awards to non-employees are accounted for at their fair value in
accordance with SFAS No. 123.
COMPREHENSIVE INCOME
SFAS No. 130 requires that a full set of general purpose financial
statements include the reporting of "comprehensive income." Comprehensive income
is comprised of two components: net income and other comprehensive income, with
other comprehensive income being comprised of foreign currency items, minimum
pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities. During the periods ended December 31,
1997, 1998 and 1999, comprehensive income was comprised solely of net income. As
a result, the adoption of SFAS No. 130 had no impact on the Company's financial
statements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost with depreciation and
amortization provided for using the straight-line method. Leasehold improvements
are amortized over the life of the lease. Depreciable lives used by the Company
for its classes of assets are as follows:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 3 years
UTX equipment............................................... 7 years
Computer hardware and other equipment....................... 3 years
</TABLE>
Repairs and maintenance, which do not significantly increase the life of
the related assets, are expensed as incurred.
F-8
<PAGE> 85
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SOFTWARE CAPITALIZATION
UAI purchases software and performs certain modification and development
activities on this software. All purchased and developed software is intended
for internal use, and accordingly, UAI accounts for these costs in accordance
with the provisions of SOP 98-1. Software costs are amortized on a straight-line
basis over a period of three years.
INTANGIBLE ASSETS
The excess of purchase price over net assets of acquired businesses is
allocated among the identifiable intangible assets purchased and goodwill.
Intangible assets are amortized on a straight-line basis over their estimated
useful lives, generally five years.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets, including property, equipment
and intangibles, whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The Company estimates the future cash
flows expected to result from the asset, and if the sum of the expected
undiscounted future cash flows is less than the carrying amount of the long-
lived asset, the Company recognizes an impairment loss by reducing the
depreciated cost of the long-lived asset to its estimated fair value. To date,
the Company has not recognized impairment losses on any long-lived assets.
INCOME TAXES
On September 27, 1998, UAI changed status from an S-Corporation to a
C-Corporation. As of this date, the Company established a deferred tax asset
which reflects the tax consequences in future years of differences between the
tax basis of assets and liabilities and their financial reporting amounts. The
deferred tax asset was recorded net of a valuation allowance to reduce the
deferred tax asset to an amount that is more likely than not to be realized.
Prior to September 27, 1998, all attributes for federal income taxes passed
through to the stockholders. Accordingly, no income tax provision or deferred
tax amounts were recorded prior to this date. Had the Company been a
C-Corporation from October 2, 1997 (inception) to September 27, 1998, no income
taxes would have been due since the Company incurred losses during this time
period.
NOTE 2 -- STOCK SPLITS AND DIVIDEND
The Company effected a 500-for-1 common stock split in July 1998, a 2-for-1
common stock split in February 1999, a 3-for-2 common stock split in June 1999
and declared a 1-for-1 stock dividend in September 1999. All share and per share
amounts have been retroactively restated to reflect such splits and the
dividend.
F-9
<PAGE> 86
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- ACQUISITIONS
On July 30, 1999, UAI acquired substantially all of the assets and
liabilities of Pacific Crest Networks, Inc ("PCN") in exchange for $833,000 in
cash, $224,000 in the assumption of debt, and 82,353 shares of Series D
Preferred Stock with a fair market value of $4.25 per share. Assets purchased
included all property and equipment, cash accounts, receivables, software,
customer lists and intellectual property. Also, as part of purchase, UAI assumed
certain liabilities of PCN including $276,000 of accounts payable, $418,000 of
obligations under capital leases, and obligations under operating leases and
vendor contracts. This acquisition was accounted for under the purchase method
of accounting. UAI assigned $1,245,000 to identifiable intangible assets and
goodwill and is amortizing this amount on a straight-line basis over a period of
five years, which represents the estimated useful lives of these intangible
assets.
On November 1, 1999, UAI acquired substantially all of the assets of Stuff
Software, Inc. ("SSI") in exchange for $930,000 in cash and 50,021 shares of UAI
common stock with an estimated fair market value of $6.10 per share. Assets
purchased include accounts receivable, customer lists, software and intellectual
property. This acquisition was accounted for under the purchase method of
accounting. UAI assigned $1,320,000 to identifiable intangible assets and is
amortizing this amount on a straight-line basis over a period of five years. SSI
developed software and databases for the telecommunications industry. UAI will
use the assets acquired from SSI to further enhance the development of Universal
Information Exchange services.
The following unaudited pro forma information presents the results of
operations as if the PCN and SSI acquisitions had occurred at the beginning the
periods shown after taking into account the effect of certain adjustments and
eliminations. This summary is not necessarily indicative of what the results of
operations of UAI, PCN and SSI would have been if they were a single entity
during such periods, nor does it purport to represent results of operations for
any future periods (in thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1998 1999
------ -------
<S> <C> <C>
Revenues.................................................... $2,294 $14,906
Net loss.................................................... $2,369 16,381
Basic and fully diluted loss per share...................... $ 0.08 $ 0.56
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following, stated at cost (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1999
---- -------
<S> <C> <C>
Furniture and fixtures...................................... $119 $ 885
UTX equipment............................................... 85 16,234
Computer hardware and software.............................. -- 2,453
Other equipment............................................. 62 56
---- -------
266 19,628
Less: Accumulated depreciation and amortization............. (47) (740)
---- -------
Property and equipment, net............................... $219 $18,888
==== =======
</TABLE>
F-10
<PAGE> 87
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1999, $403,000 of the gross amount of computer hardware is
subject to capital leases. Accumulated amortization on this equipment was
$70,000 at December 31, 1999.
Software costs capitalized during the period from October 2, 1997, to
December 31, 1997, and during 1998 and 1999 were $0, $0 and $247,000,
respectively. These costs are being amortized on a straight-line basis over a
period of 3 years.
NOTE 5 -- NOTES PAYABLE AND DEBT
Notes payable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1999
---- ------
<S> <C> <C>
Term loans (interest at 14.91%)............................. $ -- $3,188
Note payable -- Bank........................................ 149
Notes payable to shareholders............................... 126 --
Note payable (interest at 10%).............................. -- 20
Note payable -- City of Eugene, OR (interest at 7%)......... -- 57
---- ------
$275 $3,265
==== ======
</TABLE>
In December 1999, the Company entered into three separate term loans in the
aggregate amount of $3,300,000. Equal monthly principal and interest payments
are due commencing on December 15, 1999 and continuing through November 15,
2002. Principal amounts due under this term loan are as follows:
2000 -- $942,000, 2001 -- $1,092,000, 2002 -- $1,154,000. These notes are
collaterized by certain UAI equipment and also require UAI to maintain an
unrestricted cash balance of at least $15 million.
In November 1997 and March 1998, the Company entered into separate note
payable agreements with two of its shareholders in the original principal
amounts of $76,000 and $50,000, respectively. The notes payable bear interest at
rates of 8.25% and 12%, respectively, and are due upon demand. The note with the
original principal amount of $76,000 is collateralized by a $63,000 security
deposit. The $50,000 note payable is unsecured. These notes were repaid in full
during 1999.
In November 1998, the Company entered into a 36-month term loan agreement
with a bank, in the original principal amount of $149,000, for the purchase of
office furniture and equipment. The note payable is collateralized by the
Company's property and equipment, cash deposits and money market accounts with
the Bank. This note was repaid in full during 1999.
In connection with the July 30, 1999 purchase of PCN, UAI assumed the
following debt: $150,000 note payable with a bank, $20,000 note payable to an
individual and a $54,000 note payable to the City of Eugene, OR. The $150,000
note payable to the bank was paid in full prior to December 31, 1999. The other
notes remain outstanding at December 31, 1999. The $20,000 note payable bears
interest at a rate of 10% payable monthly. The entire principal is due on
December 17, 2000. The note can be prepaid by the Company at any time without
penalty. The $54,000 City of Eugene, OR note payable bears interest at 7%. The
entire balance was due on August 1, 1999. This balance was paid in full in
February 2000.
The Company executed unsecured promissory notes with a shareholder dated
December 29, 1998, in the original aggregate principal amount of $100,000. The
notes bear interest at a rate of 10% per year and are due upon demand, after
March 31, 1999. The Company did not receive the proceeds of these promissory
notes until after December 31, 1998; as such the notes payable were offset by
the proceeds receivable at that date for presentation purposes.
F-11
<PAGE> 88
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1999, the Company has two line of credit arrangements to
borrow up to a total of $10,000,000. The line of credit arrangements permit
borrowings of $6,000,000 and $4,000,000 and expire in August of 2000 and April
of 2000, respectively. The available line of credit is reduced by the amount of
outstanding letters of credit. As of December 31, 1999, UAI has outstanding
letters of credit of $3,804,000, resulting in a total available line of credit
of $6,196,000. The $4,000,000 line of credit requires UAI to maintain a cash
balance in a custodial account at an amount not less than the total borrowings
and letters of credit outstanding.
NOTE 6 -- INCOME TAXES
There is no current provision or benefit for income taxes recorded for the
period from September 27, 1998, the date of C-Corporation conversion, to
December 31, 1999, as the Company has generated net operating losses for income
taxes purposes for which there is no carryback potential. There is no deferred
provision or benefit for income taxes recorded as the Company is in a net
deferred tax asset position for which a full valuation allowance has been
recorded due to uncertainty of realization.
The components of the deferred income tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
----- -------
<S> <C> <C>
Net operating loss....................................... $ 93 $ 3,920
Allowance for doubtful accounts.......................... 19 252
Accrued vacation and other............................... 39 55
----- -------
151 4,227
----- -------
Valuation allowance...................................... (151) (4,227)
----- -------
Total.................................................. $ -- $ --
===== =======
</TABLE>
At December 31, 1999, the Company had federal and state net operating loss
carryforwards of $10,091,000. These federal and state net operating loss
carryforwards expire at various dates beginning in 2018. Due to the uncertainty
that UAI will generate future earnings sufficient to realize the benefit of
these net operating loss carryforwards, a valuation allowance for the full
amount of the deferred tax asset has been recorded. Additionally, Section 382 of
the Internal Revenue Code imposes annual limitations on the use of net operating
loss carryforwards if there is a change in ownership, as defined, within any
three-year period. The utilization of certain net operating loss carryforwards
may be limited due to the Company's capital stock transactions.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
The Company leases UTX facilities, office facilities and certain equipment
over periods ranging from two to fifteen years. Total rent expense during 1997,
1998 and 1999 was $0, $46,000 and $832,000, respectively. Future rentals for
operating leases are as follows at December 31, 1999 (in thousands):
F-12
<PAGE> 89
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C>
2000........................................................ $ 2,410
2001........................................................ 2,617
2002........................................................ 2,677
2003........................................................ 2,730
2004........................................................ 2,835
Thereafter.................................................. 18,155
-------
Total minimum lease payments.............................. $31,424
=======
</TABLE>
In addition to the leases, the Company has entered into leased line
agreements with telecommunications vendors for high-capacity bandwidth. These
leases are cancelable at any time with a maximum 30-day notice. The Company, in
turn, contracts with customers for the use of the leased high-capacity
bandwidth. The customer contracts generally provide for cancellation penalties
equal to the sum of all payments due through the remainder of the contract, less
6%.
The Company also leases certain equipment under capital leasing
arrangements with periods ranging from two to five years. Future minimum lease
payments as of December 31, 1999 related to the capital leasing arrangements are
as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 250
2001........................................................ 143
-----
Total minimum capital lease payments........................ 393
Less: imputed interest...................................... (60)
-----
Present value of minimum capital lease payments............. 333
Less: current portion....................................... (210)
-----
Long-term capital lease obligations......................... $ 123
=====
</TABLE>
The Company also has entered into non-cancelable agreements with various
telecommunications vendors to purchase minimum amounts of network services on a
monthly basis. The total amount of these purchase commitments at December 31,
1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 13,356
2001........................................................ 21,065
2002........................................................ 21,043
2003........................................................ 19,025
2004........................................................ 18,001
Thereafter.................................................. 41,250
--------
Total minimum purchase commitments........................ $133,740
========
</TABLE>
UAI has standby letters of credit which have been issued on its behalf
totaling $3,804,000 securing performance of certain contracts with carriers and
landlords. These letters of credit expire in April 2000 and August 2000, in the
amounts of $1,656,000 and $2,148,000, respectively.
In February 2000 UAI received notice of a potential claim. The claim arises
out of a letter of intent that UAI entered into in December 1998 relating to a
potential acquisition. The letter stated that it was not binding on the parties
except with respect to a $250,000 advance to be made by UAI. The letter
contemplated that UAI would undertake a due diligence investigation of the
potential acquiree. After performing the due diligence, UAI determined not to
complete the transaction and entered into a mutual settlement agreement and
release. Subsequently, the potential acquiree ceased doing business. The
claimants contend that the mutual settlement agreement executed by the president
of
F-13
<PAGE> 90
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
potential acquiree was unauthorized. The claimants also contend that had the
terms of the letter of intent been used to close a transaction and had they held
their interest as described in the letter, they would be entitled to over one
million shares of our common stock. UAI believes all legal obligations were
satisfied and intends to vigorously contest any claims relating to this matter.
Accordingly, no amount has been accrued as a liability as of December 31, 1998
and 1999.
The Company is involved in various other legal matters in the ordinary
course of business. In the opinion of management, the ultimate resolution of
these matters will not have a material adverse impact on the Company's financial
position, results of operations or cash flows.
NOTE 8 -- RELATED PARTY TRANSACTIONS
During 1998, UAI entered into certain transactions with shareholders and
directors for the lease of office space and pager equipment. Rent expense for
these leases approximated $65,000 in 1998. There was no related party rent
expense incurred in 1999.
During 1998 and 1999, UAI paid Broadmark Capital Corporation ("Broadmark"),
an entity for which a member of the UAI Board of Directors serves as Chairman,
certain consideration in exchange for services rendered related to the sale of
preferred stock. During 1999, UAI paid cash amounts of $162,000, $200,000 and
$140,000 to Broadmark in connection with the sale of Series A, B and D
Cumulative Convertible Preferred Stock, respectively. These amounts were
recorded as issuance costs, and deducted from the gross proceeds of the
respective preferred stock series. During 1999, UAI issued to Broadmark 360,000
common stock warrants with an exercise price of $.50 in connection with services
rendered related to the issuance of Series B Cumulative Convertible Preferred
Stock ("Series B Preferred Stock"). UAI also issued to Broadmark 77,233 Series A
Cumulative Convertible Preferred Stock Warrants ("Series A Warrants") in
connection with services rendered related to the issuance of Series A Cumulative
Convertible Preferred Stock. UAI issued 33,333 and 43,900 of these Series A
Warrants in 1998 and 1999, respectively. The common stock warrants and the
Series A Warrants were valued at $13,000 and $83,000, respectively, using the
Black-Scholes valuation model. UAI issued $36,000 of the Series A Warrants in
1998 and $47,000 of the Series A Warrants in 1999. Also, in connection with
services rendered related to the sale of Series B Preferred Stock, UAI caused
options to purchase 840,000 shares of common stock at $.50 per share to be
granted by certain principal shareholders of the Company's common stock. The
840,000 common stock options granted by the principal shareholders were valued
at $31,000 using the Black-Scholes valuation model. This amount was recorded as
paid-in capital.
On May 27, 1999, UAI executed a full-recourse promissory note in connection
with a loan to an officer of the Company for a principal amount of $200,000 with
a per annum interest rate of 6%. The promissory note will become immediately due
and payable on April 30, 2004.
On August 4, 1999, three of the Company's officers were granted options to
purchase a total of 1,000,000 shares of common stock at exercise prices ranging
from $1.38 to $1.51 per share. These exercise prices were at or above the fair
market value of the common stock on August 4, 1999. These stock options vested
immediately and were exercised on the date of grant. In connection with the
exercise, the UAI board of directors authorized loans to these officers,
pursuant to non-recourse promissory notes for a total amount of $1,485,000 with
an annual interest rate of 6%. The promissory notes will become immediately due
and payable on August 4, 2004. The issuance of these notes receivable to effect
the exercise of these stock options caused variable plan accounting to apply to
the underlying stock options. Accordingly, during 1999, UAI recorded $4,611,000
of stock option plan compensation expense related to these notes. The terms of
these notes receivable were amended on December 6, 1999 such that no future
stock option plan compensation expense will be recognized related to the stock
options underlying these notes.
F-14
<PAGE> 91
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The company is currently operating under one segment, the provisioning of
network access.
From its inception through December 31, 1999, substantially all of the
Company's identifiable assets were located in the United States. During that
same period, substantially all of the Company's revenues were derived from sales
to customers based in the United States. The Company currently operates under
one operating segment. Operating activities of this segment primarily consist of
the provision of dedicated circuit access and related Universal Transport
Exchange and Universal Information Exchange services.
NOTE 10 -- EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENTS
EMPLOYEE SAVINGS AND BENEFIT PLANS
As of January 1, 1999, UAI implemented a retirement savings plan pursuant
to Section 401(k) of the Internal Revenue Code, which covers substantially all
of the Company's employees. Employer contributions to the retirement savings
plan are discretionary. During 1999, $58,000 of employer contributions were
recorded as an expense.
EMPLOYMENT AGREEMENTS
UAI has entered into employment agreements with several of its key
employees which have initial terms ranging from one to three years, after which
they are renewable for additional one-year periods. The employment agreements
entitle the employee to receive certain severance payments for termination of
employment without cause, as defined by the agreements. These employment
agreements will require UAI to pay these key employees approximately $1.1
million in salary from December 31, 1999 through the end of the respective
agreements. The agreements also provide for the payment of both discretionary
and performance based bonuses.
STOCK OPTION PLANS
In July of 1998, UAI's Board of Directors adopted the 1998 Employee Stock
Option Plan (the "1998 Plan") for the Company's directors, officers, employees
and key advisors. The total number of shares of UAI common stock reserved for
issuance under the Plan is 13,000,000. Awards granted under the plan are at the
discretion of the Company's Board of Directors, or a compensation committee
appointed by the Board of Directors, and may be in the form of either incentive
or nonqualified stock options. At December 31, 1999, 934,250 shares of common
stock were available for additional awards under the plan.
In November 1999, UAI's Board of Directors adopted the 1999 Stock Plan and
the 1999 Director Option Plan. The 1999 Director Option Plan will be effective
on the effective date of a qualified initial public offering. Upon a qualified
initial public offering, no further options will be granted under the 1998 Plan.
The 1999 Stock Plan provides for the grant of incentive stock options to
employees, and the grant of nonstatutory stock options and stock purchase rights
to employees, directors and consultants. As of December 31, 1999, 10,000,000
shares of common stock were reserved for issuance pursuant to the 1999 Stock
Plan. The 1999 Director Option Plan provides for the issuance of options to
purchase 20,000 shares of common stock to each non-employee director upon the
later of (i) the effective date of the 1999 Director Option Plan or (ii) when
such person first becomes a non-employee director, and provides for the issuance
of options to purchase 5,000 shares of common stock to each non-employee
director on June 30 of each year, subject to certain limitations. As of December
31, 1999, 500,000 shares of common stock were reserved for issuance pursuant to
the 1999 Director Option Plan.
F-15
<PAGE> 92
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
If the Company had elected to recognize compensation cost based on the fair
value of the options as prescribed by Statement of Financial Accounting Standard
No. 123, "Accounting for Stock-Based Compensation", the following results would
have occurred using the Black-Scholes option-pricing model with the listed
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------
1998 1999
---------------- ----------------
<S> <C> <C>
Pro forma net loss (in thousands)........... ($1,375) ($15,895)
Pro forma basic and diluted net loss per
share..................................... ($0.05) ($0.55)
Volatility.................................. 0.000000000001% 0.000000000001%
Dividend yield.............................. 0% 0%
Risk-free interest rate..................... 5% 5%
Expected life in years...................... 5.00 4.19
</TABLE>
The Company recognized $65,000 and $4,927,000 of option plan compensation
expense during 1998 and 1999, respectively, and expects to recognize additional
expense of approximately $1,468,000 over the next four years relating to such
options as they vest. The $4,927,000 of option plan compensation expense for
1999 consisted of $316,000 related to the amortization of deferred stock option
plan compensation and $4,611,000 related to the options exercised in exchange
for notes receivable as described in Note 8.
The vesting term of options granted under the Plan shall be fixed by the
Board of Directors, or compensation committee elected by the Board of Directors,
but in no case shall be exercisable for more than 10 years after the date the
option is granted. For option grants to persons owning 10% of the voting power
of all outstanding classes of UAI capital stock, the exercise price may not be
lower than 110% of the fair market value on the date of the grant and the option
term may not exceed 5 years.
The following information relates to stock options with an exercise price
which was less than the fair market value of the underlying stock on the date of
grant:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1999
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of period........ -- -- 2,850,000 $ 0.01
Granted............................. 3,450,000 $ 0.01 2,463,500 0.26667
Exercised........................... (600,000) 0.01 -- --
Forfeited........................... -- -- (263,500) 0.26667
---------- --------- ---------- ---------
Balance at end of period.............. 2,850,000 $ 0.01 5,050,000 $0.116625
========== ========= ========== =========
Weighted average fair value of options
granted during the period........... $ 0.14 $ 0.62
</TABLE>
F-16
<PAGE> 93
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following information relates to stock options with an exercise price
which equaled the fair market value of the underlying common stock on the date
of grant:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1998 1999
--------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period.......... -- -- 648,000 $0.0880
Granted............................... 654,000 $0.0910 5,012,750 2.0120
Exercised............................. -- -- (200,000) 1.3750
Forfeited............................. (6,000) 0.3800 (45,000) 1.6578
-------- ------- ---------- -------
Balance at end of period................ 648,000 $0.0883 5,415,750 $1.8083
======== ======= ========== =======
Weighted average fair value of options
granted during the period............. $ 0.02 $ 0.42
</TABLE>
The following information relates to stock options with an exercise price
which was greater than the fair value of the underlying stock on the date of
grant:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1999
--------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period.......... -- -- -- $ --
Granted............................... -- -- 800,000 1.5125
Exercised............................. -- -- (800,000) 1.5125
Forfeited............................. -- -- -- --
-- -- -------- -------
Balance at end of period................ -- -- -- --
== == ======== =======
Weighted average fair value of options
granted during the period............. $ 0.19
</TABLE>
The following information relates to stock options as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- --------------- ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.01 2,850,000 8.73 $0.01 1,282,000 $0.01
0.07 - 0.11 582,000 8.55 0.07 205,000 0.07
0.25 - 0.27 3,292,000 9.31 0.27 17,000 0.27
1.38 - 1.83 1,594,000 9.59 1.38 300,000 1.38
2.11 - 2.79 1,404,000 9.69 2.73 315,000 2.57
3.21 - 4.25 402,000 9.72 3.38 -- --
5.64 - 7.20 341,750 9.60 6.14 80,000 6.10
</TABLE>
F-17
<PAGE> 94
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During 1998, 600,000 stock options were issued to non-employees for
services rendered during 1998. These options were issued with an exercise price
of $0.01, were immediately exercisable, and comprised $40,000 of the $65,000
stock option plan compensation expense recognized during 1998. During 1998, all
options issued to non-employees were exercised.
The above disclosures include 200,000 options granted on August 4, 1999 to
a non-employee director.
NOTE 11 -- NET LOSS PER SHARE
The Company had securities outstanding which could potentially dilute basic
earnings per share in the future, but were excluded in the computation of
diluted net loss per share in the periods presented, as their effect would have
been anti-dilutive. Such outstanding securities are convertible into the number
of shares of common stock as set forth in the table below at December 31, 1998
and 1999. There were no potentially dilutive securities outstanding from
inception through December 31, 1997.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Series A cumulative convertible preferred stock............. 2,012,004 4,633,986
Series A cumulative convertible preferred stock warrants.... 99,999 463,398
Series B cumulative convertible preferred stock............. -- 13,400,010
Series B cumulative convertible preferred stock warrants.... -- 1,000,002
Series C convertible preferred stock........................ -- 2,000,001
Series D cumulative convertible preferred stock............. -- 18,128,091
Common stock options........................................ 3,498,000 10,465,750
Common stock warrants....................................... -- 360,000
Series E cumulative convertible preferred stock(1).......... -- 4,672,155
Series E cumulative convertible preferred stock
warrants(1)............................................... -- 120,000
---------- ----------
Total potentially dilutive shares of common stock........... 5,610,003 55,243,393
========== ==========
</TABLE>
- ---------------
(1) Assuming 3-to-1 conversion. This conversion rate could increase as described
in Note 12.
NOTE 12 -- CONVERTIBLE PREFERRED STOCK AND WARRANTS
During 1998, UAI issued 335,334 shares of Series A Redeemable Cumulative
Convertible Preferred Stock ("Series A Preferred Stock") for gross proceeds of
$1,006,000. Additionally, UAI received cash and accepted subscription documents
for 385,830 shares of Series A Redeemable Cumulative Convertible Preferred Stock
("Unissued Series A Preferred Stock") for gross proceeds of $1,157,000. This
amount, net of issuance costs of $153,000, was recorded as a liability as of
December 31, 1998. As of December 31, 1998, the Company had authorized 1,000,000
shares of Series A Preferred Stock. On February 8, 1999, UAI issued 436,997
shares of Series A Preferred Stock for gross proceeds of $1,311,000. Included in
this issuance were the 385,830 shares related to the amount presented as
Unissued Series A Preferred Stock at December 31, 1998.
F-18
<PAGE> 95
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In connection with the 1998 sale of Series A Preferred Stock, UAI issued
warrants (the "Series A Warrants") to purchase an additional 33,333 shares of
Series A Preferred Stock at $3.00 per share. These warrants were valued at
$36,000 using the Black-Scholes valuation model. In connection with the February
1999 sale of Series A Preferred Stock UAI issued warrants to purchase 43,900
shares of Series A Preferred Stock at $3.00 per share. These warrants were
valued at $47,000 using the Black-Scholes option valuation model. The Series A
Warrants are exercisable for a period of five years after the issuance date. The
Series A Preferred Stock is shown net of the fair value of the Series A
Warrants.
As of December 31, 1998, the holders of Series A Preferred Stock had the
right to demand the Company to redeem one-third of the shares originally
purchased on each of the fourth, fifth, and sixth anniversaries of the closing
and UAI had the right to redeem not less than all of the outstanding Series A
Preferred Stock between the third and sixth anniversaries of the closing. All
redemptions were to be made at amount equal to the sum of the original purchase
price of the Series A Preferred Stock plus accumulated but unpaid dividends. On
February 3, 1999, the Series A Preferred Stock holders approved an amended
Certificate of Designations, Rights and Preferences whereby this mandatory
redemption feature was terminated. Accordingly, the entire balance of the
redeemable cumulative convertible preferred stock and redeemable cumulative
convertible preferred stock warrants was reclassified to stockholders' equity on
February 3, 1999.
Changes in redeemable cumulative convertible preferred stock and redeemable
cumulative convertible preferred stock warrants are as follows (in thousands,
except share amounts):
<TABLE>
<CAPTION>
REDEEMABLE REDEEMABLE
CUMULATIVE CUMULATIVE
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED
------------------ STOCK
SHARES AMOUNT WARRANTS
-------- ------ -----------
<S> <C> <C> <C>
Balance at December 31, 1997.......................... -- $ -- $ --
Issuance of Series A Preferred Stock.................. 335,334 875 --
Issuance of Series A Preferred Stock warrants......... -- -- 36
Accretion and dividends on Redeemable Series A
Preferred Stock..................................... -- 28 --
-------- ----- ----
Balance at December 31, 1998.......................... 335,334 903 36
Accretion and dividends on Redeemable Series A
Preferred Stock..................................... -- 9 --
Termination of mandatory redemption feature of Series
A
Preferred Stock..................................... (335,334) (912) (36)
-------- ----- ----
Balance at December 31, 1999.......................... -- $ -- $ --
======== ===== ====
</TABLE>
On February 8, 1999, UAI issued 2,000,000 shares of Series B Redeemable
Cumulative Convertible Preferred Stock ("Series B Preferred Stock") for gross
proceeds of $6,000,000. In conjunction with the issuance of the Series B
Preferred Stock, the Company issued warrants to purchase an additional 400,002
shares of Series B Preferred Stock (the "Series B Warrants") at an exercise
price of $0.01 per share and warrants to purchase 360,000 shares of Common Stock
at $.50 per share, and caused options to purchase 840,000 shares of Common Stock
at $.50 per share to be granted by certain principal shareholders of the
Company's Common Stock. The 840,000 common stock options granted by the
principal shareholders were valued at $31,000 using the Black-Scholes valuation
model. This amount was recorded as additional paid-in capital. Series B
F-19
<PAGE> 96
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Preferred Stock is convertible into Common Stock on a 6-for-1 basis. During the
six month period ended June 30, 1999, 233,335 of the Series B Warrants were
exercised.
On May 13, 1999, UAI issued 666,667 shares of Series C Convertible
Preferred Stock ("Series C Preferred Stock") for gross proceeds of $2,000,001.
During the period from June 30, 1999 to September 30, 1999, UAI issued
5,957,611 shares of Series D Cumulative Convertible Preferred Stock ("Series D
Preferred Stock") for gross proceeds of $25,319,847. The Company also issued
82,353 shares valued at $4.25 per share in connection with the purchase of
certain assets of PCN (see Note 3). The Company also issued 2,733 shares of
Series D Preferred Stock on December 6, 1999 for gross proceeds of $50,014.
On November 10, 1999, UAI issued 1,557,385 shares of Series E Cumulative
Convertible Preferred Stock ("Series E Preferred Stock") and warrants to
purchase an additional 40,000 shares of Series E Preferred Stock for gross
proceeds of $28.5 million. Series E Preferred Stock is convertible into Common
stock on a 3-for-1 basis. The conversion ratio for the Series E Preferred Stock
will be multiplied by the quotient of $750 million divided by the product of the
number of fully diluted shares of common stock outstanding immediately before an
initial public offering multiplied by the initial public offering per share
price (such quotient is not to be less than 1). The conversion ratio cannot
exceed 3.75-for-1. The Company's initial public offering (IPO) document
estimates that the IPO price per share will be between $8.00 and $10.00. If the
IPO is ultimately priced at $8.00 per share, the Company will record a "deemed
dividend" at that time in the amount of $2,135,000. The amount of the deemed
dividend will decrease as the IPO price increases above $8.00 per share and will
be zero at an IPO price of $8.60 per share. The Series E Preferred Stock
warrants have an exercise price of $18.30 per share.
Upon liquidation or dissolution, shareholders of Preferred Stock will be
distributed available assets up to the sum of the original purchase price plus
accumulated but unpaid dividends. This distribution has preference over any
distribution to common stock holders.
Holders of the Company's Preferred Stock are entitled to cumulative
dividends (payable in cash or stock at the Company's discretion) and have the
right to convert their shares at any time into shares of UAI Common Stock as
follows:
<TABLE>
<CAPTION>
ANNUAL
DIVIDEND CONVERSION
RATE RATIO
-------- ----------
<S> <C> <C> <C>
Series A.............................. 8% 6-to-1
Series B.............................. 5% 6-to-1
Series C.............................. None 3-to-1
Series D.............................. 6% 3-to-1
3-to-1 (subject
to
Series E.............................. 1.4% adjustment)
</TABLE>
A qualified initial public offering of at least $1 per share triggers a
mandatory conversion of all outstanding Preferred Stock into Common Stock, and
of all outstanding Preferred Stock Warrants into warrants to purchase Common
Stock at the above conversion ratios.
The holders of the Preferred Stock and the holders of Common Stock vote as
one class, subject to certain provisions. Each share of Preferred Stock is
entitled to cast the number of votes equal to the number of Common Shares into
which their preferred stock is convertible.
F-20
<PAGE> 97
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- COMMON STOCK
At December 31, 1999, UAI had authorized 300,000,000 shares of $.01 par
value Common Stock and 31,975,021 shares were issued and outstanding.
The Company has a sufficient number of authorized Common Stock shares
available to issue upon the conversion of the outstanding preferred stock,
warrants and stock options.
As of December 31 1999, Common Stock shares reserved for issuance are as
follows:
<TABLE>
<S> <C>
Series A cumulative convertible preferred stock............. 4,633,986
Series A cumulative convertible preferred stock warrants.... 463,398
Series B cumulative convertible preferred stock............. 13,400,010
Series B cumulative convertible preferred stock warrants.... 1,000,002
Series C convertible preferred stock........................ 2,000,001
Series D cumulative convertible preferred stock............. 18,128,091
Series E cumulative convertible preferred stock(1).......... 4,672,155
Series E cumulative convertible preferred stock
warrants(1)............................................... 120,000
Common stock options........................................ 10,465,750
Common stock warrants....................................... 360,000
</TABLE>
- ---------------
(1) Assuming 3-to-1 conversion.
NOTE 14 -- SUPPLEMENTAL CASH FLOW DISCLOSURE
On July 30, 1999, UAI acquired certain assets and assumed certain
liabilities from Pacific Crest Networks, Inc. Assets acquired included $510,000
of computer hardware subject to capital leases, and liabilities assumed included
$418,000 of obligations under capital leases.
On August 4, 1999, UAI executed notes receivable with three of the
Company's officers in consideration for the exercise of stock options as
described in Note 8.
On August 12, 1999, UAI issued 325,000 shares of common stock in exchange
for UTX equipment. The common stock had a fair market value of $1.42 per share
on the date of issuance.
On September 15, 1999, UAI agreed to issue 35,294 shares of Series D
Preferred Stock at a price below fair market value in exchange for services. UAI
recorded $110,000 of operations and administration expense related to this
transaction.
At December 31, 1999, $518,000 of equipment purchases were included in
accounts payable.
No amounts were paid for income taxes in 1997, 1998 or 1999. UAI paid
interest of $0, $0 and $81,000 in 1997, 1998 and 1999, respectively.
F-21
<PAGE> 98
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Pacific Crest Networks, Inc. d/b/a The Pond
In our opinion, the accompanying balance sheets and the related statements
of operations, of cash flows, and of changes in stockholders' equity (deficit)
present fairly, in all material respects, the financial position of Pacific
Crest Networks, Inc. at December 31, 1997 and 1998, and the results of its
operations and its cash flows for the years then ended 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
Chicago, Illinois
July 30, 1999
F-22
<PAGE> 99
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1997 1998 1999
----- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 12 $ -- $ --
Accounts receivable:
Trade, net of allowance of $6, $1 and $7............. 34 43 97
Other................................................ -- 5 --
Other current assets.................................... -- 10 3
----- ------ -------
Total current assets............................... 46 58 100
Property and equipment, net............................... 160 725 804
Other assets, net......................................... 6 4 1
----- ------ -------
Total assets....................................... $ 212 $ 787 $ 905
===== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank overdraft.......................................... $ -- $ 1 $ 31
Accounts payable........................................ 25 87 186
Accrued expenses........................................ 3 42 --
Notes payable........................................... 18 64 54
Current obligations under capital leases................ 21 185 142
Note payable, shareholder............................... -- 158 369
Due to shareholders..................................... 6 -- --
Line of credit, bank.................................... -- 150 150
Customer deposits....................................... 40 6 9
----- ------ -------
Total current liabilities.......................... 113 693 941
Obligations under capital leases, net of current
portion................................................. 25 342 298
Notes payable, net of current portion..................... 62 20 20
Due to Universal Access, Inc.............................. -- -- 341
----- ------ -------
Total liabilities.................................. 200 1,055 1,600
----- ------ -------
Commitments (Note 5)
Stockholders' equity (deficit):
Common stock, no par value; 100,000,000 shares
authorized; 5,800,000, 13,449,275 and 13,449,275
shares issued and outstanding at December 31, 1997,
1998, and June 30, 1999, respectively................ 100 108 108
Additional paid-in capital.............................. 73 321 321
Accumulated deficit..................................... (161) (697) (1,124)
----- ------ -------
Total stockholders' equity (deficit)............... 12 (268) (695)
----- ------ -------
Total liabilities and stockholders' equity
(deficit)....................................... $ 212 $ 787 $ 905
===== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 100
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
-------------- --------------
1997 1998 1998 1999
---- ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................................ $370 $ 551 $ 260 $ 424
---- ------ ----- -----
Costs and operating expenses:
Cost of revenues...................................... 54 206 85 298
Operations and administration (excluding stock option
plan compensation)................................. 298 498 160 418
Operations and administration (stock option plan
compensation)...................................... 20 248 232 --
Depreciation and amortization......................... 33 91 20 86
---- ------ ----- -----
Total operating expenses........................... 405 1,043 497 802
---- ------ ----- -----
Operating loss........................................ (35) (492) (237) (378)
Interest expense........................................ 11 44 6 49
---- ------ ----- -----
Net loss.............................................. $(46) $ (536) $(243) $(427)
==== ====== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 101
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------- --------------
1997 1998 1998 1999
---- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(46) $(536) $(243) $(427)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Stock option compensation.......................... 20 248 232 --
Depreciation....................................... 27 38 12 36
Amortization....................................... 6 53 8 50
Provision for doubtful accounts.................... 6 (5) -- 6
Loss on disposition of assets...................... -- 1 -- --
Changes in operating assets and liabilities:
Accounts receivable.............................. (11) (4) (5) (60)
Other assets..................................... (3) (15) (4) 15
Accounts payable................................. 8 62 48 99
Accrued expenses................................. 6 39 (3) (42)
Customer deposits................................ 24 (34) 3 3
---- ----- ----- -----
Net cash provided by (used in) operating
activities.................................. 37 (153) 48 (320)
---- ----- ----- -----
Cash flows used in investing activities:
Purchases of property and equipment................... (30) (106) (23) (165)
Proceeds from disposal of equipment................... -- 2 -- --
---- ----- ----- -----
Net cash used in investing activities......... (30) (104) (23) (165)
---- ----- ----- -----
Cash flows from financing activities:
Bank overdraft........................................ -- 1 -- 30
Payments on capital leases............................ (17) (70) (15) (87)
Proceeds from issuance of notes payable............... 20 --
Payments on notes payable............................. (21) (16) (8) (10)
Proceeds from note payable to Universal Access,
Inc................................................ -- -- -- 341
Proceeds from notes payable to and advances from
shareholders....................................... 6 156 -- 211
Payments on notes payable to and advances from
shareholders....................................... -- (4) -- --
Proceeds from line of credit, bank.................... -- 150 -- --
Proceeds from exercise of stock options............... -- 8 -- --
---- ----- ----- -----
Net cash provided by (used in) financing
activities.................................. (32) 245 (23) 485
---- ----- ----- -----
Net increase (decrease) in cash and cash equivalents.... (25) (12) 2 --
Cash and cash equivalents, beginning of year............ 37 12 12 --
---- ----- ----- -----
Cash and cash equivalents, end of year.................. $ 12 $ -- $ 14 $ --
==== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 102
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- ------------------- ADDITIONAL
$1 STATED PAID-IN ACCUMULATED
SHARES VALUE SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- --------- ---------- ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.... 90,000 $ 90 580,000 $ 10 $ -- $ (115) $ (15)
Conversion of preferred stock to
common stock.................. (90,000) (90) 5,220,000 90 -- -- --
Stock option plan
compensation.................. -- -- -- -- 20 -- 20
Conversion of shareholder loan
to additional paid-in
capital....................... -- -- -- -- 53 -- 53
Net loss........................ -- -- -- -- -- (46) (46)
------- ---- ---------- ---- ---- ------- -----
Balance at December 31, 1997.... -- -- 5,800,000 100 73 (161) 12
Stock option plan
compensation.................. -- -- -- -- 248 -- 248
Common stock issued upon
exercise of stock options..... -- -- 7,649,275 8 -- -- 8
Net loss........................ -- -- -- -- -- (536) (536)
------- ---- ---------- ---- ---- ------- -----
Balance at December 31, 1998.... -- -- 13,449,275 108 321 (697) (268)
Net loss (unaudited)............ -- -- -- -- -- (427) (427)
------- ---- ---------- ---- ---- ------- -----
Balance at June 30, 1999
(unaudited)................... -- $ -- 13,449,275 $108 $321 $(1,124) $(695)
======= ==== ========== ==== ==== ======= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 103
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND
NOTES TO FINANCIAL STATEMENTS
INFORMATION FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED
NOTE 1 -- DESCRIPTION OF THE COMPANY
Pacific Crest Networks, Inc. (the "Company" or "PCN"), an Oregon
Corporation, was originally organized in 1995 as Cascade Communications Group
("Cascade"), a partnership, for the purpose of providing internet access
services. In May 1996, the partners of Cascade formed a new corporation, Pacific
Crest Interactive, Inc., and assigned all of the assets and liabilities of
Cascade to the new corporation. During 1997, Pacific Crest Interactive continued
to provide internet access services; however, it also began to focus on the
development and deployment of broadband network access and introduced its core
broadband network products in 1998. In October 1998, the Company changed its
name to Pacific Crest Networks, Inc. The Company presently provides internet
access services to the general public and high-speed broadband network
technologies and data transport services primarily to internet service providers
and business customers. During 1998, all of the Company's customers were located
in the State of Oregon, and in 1999, operations were expanded to the State of
Washington.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying interim financial statements as of June 30, 1999 and for
the six months ended June 30, 1998 and 1999 and the related notes have not been
audited. However, they have been prepared in conformity with the accounting
principles stated in the audited financial statements for the years ended
December 31, 1997 and 1998 and include all adjustments, which were of a normal
and recurring nature, which in the opinion of management are necessary to
present fairly the financial position of the Company and results of operations
and cash flows for the periods presented. The operating results for the interim
periods are not necessarily indicative of results expected for the full years.
REVENUE RECOGNITION
The following describes PCN's revenue recognition policy for each type of
revenue:
Internet access (Pond) -- This revenue relates to internet access service
that PCN provides to business and residential customers. This service is billed
monthly in advance at the beginning of each calendar month. This revenue is then
recognized during the month that the service is provided.
Digital subscriber line (DSL or SNAP) service -- This revenue relates to
the provision of digital subscriber lines to both end users and internet service
providers (ISPs). This service is billed monthly on a calendar month basis in
the month that the service is provided. Revenue is recognized each month as the
service is provided.
DSL service to multi-unit residences (DASH) -- This revenue relates to the
provision of DSL service to multi-unit residences. This service is billed
monthly on a calendar month basis in the month that the service is provided.
Revenue is recognized each month as the service is provided.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, money market funds and all
investments with an initial maturity of three months or less. All cash
equivalents are recorded at cost.
F-27
<PAGE> 104
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense is recorded for options
issued to employees in fixed amounts and with fixed exercise prices at least
equal to the fair market value of the Company's common stock at the date of
grant. The Company has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," through disclosure only (Note 7). All stock-based
awards to non-employees are accounted for at their fair value in accordance with
SFAS No. 123.
COMPREHENSIVE INCOME
SFAS No. 130 requires that a full set of general purpose financial
statements include the reporting of "comprehensive income." Comprehensive income
is comprised of two components: net income and other comprehensive income, with
other comprehensive income being comprised of foreign currency items, minimum
pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities. During the years ended December 31,
1997 and 1998, comprehensive income was comprised solely of net income. As a
result, the adoption of SFAS No. 130 had no impact on the Company's financial
statements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost with depreciation provided for
under the straight-line method. Leasehold improvements are amortized over the
remaining life of the lease. Depreciable lives used by the Company for its
classes of assets are as follows:
<TABLE>
<S> <C>
Furniture and fixtures..................................... 7 years
Computer hardware.......................................... 5 years
Computer software.......................................... 3 years
</TABLE>
Certain property and equipment has been acquired through capital leasing
arrangements. This property and equipment is recorded at the present value of
total lease payments using the rate of interest implicit in the lease. The
recorded amount is then amortized over the lesser of the useful life of the
related asset or the term of the lease.
INCOME TAXES
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis and for tax
carryforwards. Deferred tax assets are offset by a valuation allowance to the
extent it is more likely than not that the future tax benefit of the deferred
tax asset will not be realized.
The Company has established a net deferred tax asset which reflects the tax
consequences in future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts. The deferred tax asset was
recorded net of a valuation allowance to reduce the deferred tax asset to an
amount that is more likely than not going to be realized.
F-28
<PAGE> 105
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment not subject to capital leases consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Office equipment and furniture.............................. $ 4,000 $ 14,000
Leasehold improvements...................................... 4,000 9,000
Computer hardware........................................... 131,000 210,000
Computer software........................................... 8,000 14,000
-------- --------
147,000 247,000
Less: accumulated depreciation.............................. (37,000) (72,000)
-------- --------
Property and equipment, not subject to capital leases,
net....................................................... $110,000 $175,000
======== ========
</TABLE>
Property and equipment subject to capital leases consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------- --------
<S> <C> <C>
Office equipment and furniture.............................. $18,000 $ 18,000
Computer hardware........................................... 38,000 573,000
Computer software........................................... -- 16,000
------- --------
56,000 607,000
Less: accumulated amortization.............................. (6,000) (57,000)
------- --------
Property and equipment subject to capital leases, net....... $50,000 $550,000
======= ========
</TABLE>
Amortization expense on capital leases was $6,000 and $51,000 for the years
ended December 31, 1997 and 1998, respectively.
F-29
<PAGE> 106
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED
NOTE 4 -- DEBT
Debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------- --------
<S> <C> <C>
Current:
Notes payable............................................... $18,000 $ 64,000
Notes payable, shareholders............................... -- 158,000
Due to shareholders......................................... 6,000 --
Line of credit, bank...................................... -- 150,000
------- --------
Total current debt................................ 24,000 372,000
Notes payable, noncurrent................................... 62,000 20,000
------- --------
Total debt........................................ $86,000 $392,000
======= ========
</TABLE>
During 1998, the Company issued an unsecured note payable to an unrelated
individual for $20,000. The note bears interest at a rate of 10% payable
monthly. The entire principal is due on December 17, 2000. The note can be
prepaid by the Company at any time without penalty.
During 1998, the Company obtained an unsecured line of credit of $400,000
from a shareholder. At December 31, 1998, the balance outstanding was $158,000.
The line of credit does not bear interest and all outstanding borrowings are due
on December 31, 1999 or upon the sale of the Company. An interest rate on the
borrowings was imputed at a rate of 12%, which represents management's estimate
of the Company's unsecured borrowing rate. Interest expense on this note was
$2,000 in 1998. The imputed interest is included in the balance of the note
since the Company intends to repay the shareholder the principal balance plus
all imputed interest.
During 1997, two shareholders advanced funds to the Company. As of December
31, 1997, the balance of the outstanding borrowings was $6,000. During 1998,
$4,000 of this balance was paid in full, and the remaining $2,000 was added to
the $158,000 note payable described above. These borrowings were not subject to
any written agreement. The Company did not record imputed interest on these
borrowings since the estimated interest charges were insignificant.
In August 1998, the Company issued a $150,000 note payable to a Bank. This
note bears interest at a rate of prime plus 3% with interest payments due
monthly. The interest rate at December 31, 1998 was 10.75%. The entire balance
of this note is due upon demand with an established final maturity of August 1,
1999. The note is collateralized by substantially all of the assets of the
Company. Further, the entire principal balance of the note and accrued interest
are personally guaranteed by the three stockholders of the Company.
In September 1996, the Company entered into a business loan agreement with
the City of Eugene, Oregon in the amount of $100,000. The note bears interest at
7%. The Company is currently paying monthly interest and principal payments of
approximately $2,000 with a final principal payment of $51,000 due on August 1,
1999. This loan is collateralized by substantially all of the assets of the
Company. In addition, a stockholder of the Company personally guaranteed the
entire loan balance and accrued interest and also pledged certain personal real
property as collateral.
F-30
<PAGE> 107
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED
Debt maturities are as follows:
<TABLE>
<S> <C>
1999........................................................ $372,000
2000........................................................ 20,000
--------
$392,000
========
</TABLE>
NOTE 5 -- COMMITMENTS
The Company leases office facilities over periods of up to three years.
Total rent expense during 1997 and 1998 was $17,000 and $32,000, respectively.
Future rentals for operating leases at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $39,000
2000........................................................ 24,000
2001........................................................ 12,000
-------
Total minimum operating lease payments............ $75,000
=======
</TABLE>
The Company also leases certain equipment under capital leasing
arrangements with periods ranging from two to five years. Future minimum lease
payments as of December 31, 1998 related to the capital leasing arrangements are
as follows:
<TABLE>
<S> <C>
1999........................................................ $ 247,000
2000........................................................ 233,000
2001........................................................ 151,000
---------
Total minimum capital lease payments........................ 631,000
Less: imputed interest...................................... (104,000)
---------
Present value of minimum capital lease payments............. 527,000
Less: current portion....................................... (185,000)
---------
Long-term capital lease obligations......................... $ 342,000
=========
</TABLE>
The Company has entered into non-cancellable contracts with certain vendors
whereby such vendors provide the Company network access, domain name service and
certain other services. Commitments under these contracts are as follows as of
December 31, 1998:
<TABLE>
<S> <C>
1999........................................................ $204,000
2000........................................................ 106,000
2001........................................................ 65,000
2002........................................................ 43,000
2003........................................................ 25,000
Thereafter.................................................. 1,000
--------
$444,000
========
</TABLE>
NOTE 6 -- INCOME TAXES
There is no current provision or benefit for income taxes recorded for the
years ended December 31, 1997 and 1998, as the Company has generated net
operating losses for income tax purposes for which there is no carryback
potential. There is no deferred provision or benefit for
F-31
<PAGE> 108
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED
income taxes recorded as the Company is in a net asset position for which a full
valuation allowance has been recorded due to the uncertainty of realization.
The components of the net deferred income tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Net operating loss carryforwards..................... $ 53,000 $210,000
Basis of property and equipment...................... (10,000) (45,000)
Other................................................ 2,000 4,000
-------- --------
Net deferred tax asset............................... 45,000 169,000
Less: valuation allowance............................ (45,000) (169,000)
-------- --------
Total...................................... $ -- $ --
======== ========
</TABLE>
At December 31, 1997 and 1998, the Company had a federal and state net
operating loss carryforwards of $131,000 and $518,000, respectively. The net
operating losses will expire in 2016 through 2018 for federal purposes, and 2011
through 2013 for state purposes. Upon cumulative ownership changes of more than
50% over a three year period (see Note 10), certain limitations apply to the
amount of net operating loss that can be deducted from taxable income in each
future year. The net operating loss carryforward limitation in each year in the
carryforward period approximates the product of the fair market value of the
Company immediately before ownership transfer multiplied by the long-term
federal interest rate.
NOTE 7 -- STOCK OPTIONS
During 1997 and 1998, the Company's Board of Directors granted stock
options to two individuals who were both employees of the Company and members of
the Board of Directors. The Company does not have a formal stock option plan,
nor are there any shares specifically reserved for stock option grants. All
options issued had an exercise price of $.001, were immediately exercisable, and
expired three years after the date of grant.
During 1997 and 1998, the Company calculated compensation cost based on the
fair value of the underlying Common Stock on the date of grant. The fair value
of the Common Stock was deemed to represent the fair value of the stock options,
since the exercise price of the stock options was de minimis.
During 1997 and 1998, the Company recognized stock option plan compensation
expense of $20,000 and $248,000, respectively.
F-32
<PAGE> 109
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED
The following summarizes stock option activity:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
----------
<S> <C>
Balance at December 31, 1996................................ --
Granted................................................... 664,444
----------
Balance at December 31, 1997................................ 664,444
Granted................................................... 6,984,831
Exercised................................................. (7,649,275)
----------
Balance at December 31, 1998................................ --
==========
</TABLE>
The weighted average fair value of all options granted during 1997 and 1998
was $.0305 and $.0354, respectively.
As set forth in Note 2, the Company accounts for stock based awards to
employees in accordance with APB 25. Compensation cost would remain unchanged
had the Company elected to recognize compensation cost in accordance with SFAS
123.
NOTE 8 -- PREFERRED STOCK CONVERSION
Effective January 1, 1997, the sole shareholder of the Company converted
all of the issued and outstanding preferred stock to common stock. This action
was authorized by the Company's Board of Directors at a conversion rate equal to
the initial issuance price of the common stock.
NOTE 9 -- SUPPLEMENTAL CASH FLOW DISCLOSURES
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Interest paid......................................... $ 27,000 $11,000
======== =======
Property and equipment acquired subject to capital
leases.............................................. $551,000 $56,000
======== =======
</TABLE>
NOTE 10 -- SUBSEQUENT EVENT
On July 30, 1999, substantially all of the assets and liabilities of the
Company were sold to Universal Access, Inc. ("UAI") in exchange for $833,000 in
cash, $224,000 of debt assumed by UAI, and 82,353 shares of UAI Series D
Convertible Preferred Stock ("Series D"). The Series D had a per share value of
$4.25 on the date of sale. Assets sold included all property and equipment,
cash, accounts receivable, software, customer lists and intellectual property.
Also, as part of the sale, UAI assumed certain liabilities of the Company
including $276,000 of accounts payable, obligations under leases and vendor
contracts, and advances made by UAI to the Company during 1999.
F-33
<PAGE> 110
REPORT OF INDEPENDENT ACCOUNTANTS
INFORMATION FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED
To the Board of Directors and
Stockholders of Stuff Software, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' deficit and of cash flows present
fairly, in all material respects, the financial position of Stuff Software, Inc.
at December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended 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
Chicago, Illinois
October 1, 1999
F-34
<PAGE> 111
STUFF SOFTWARE, INC.
BALANCE SHEET
(IN THOUSANDS)
INFORMATION FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1997 1998 1999
---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 1 $ 5 $ 6
Accounts receivable, net................................ 11 16 16
---- ---- ----
Total current assets............................ 12 21 22
---- ---- ----
Total assets.................................... $ 12 $ 21 $ 22
==== ==== ====
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Unearned revenue........................................ $ 29 $ 41 $ 58
Total current liabilities....................... 29 41 58
---- ---- ----
Stockholders' deficit:
Common stock, $.01 par value; 1,000 shares authorized
issued and outstanding............................... -- -- --
Additional paid-in capital.............................. 5 5 5
Accumulated deficit..................................... (22) (25) (41)
---- ---- ----
Total stockholders' deficit..................... (17) (20) (36)
---- ---- ----
Total liabilities and stockholders' deficit..... $ 12 $ 21 $ 22
==== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 112
STUFF SOFTWARE, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
INFORMATION FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------- -------------
1997 1998 1998 1999
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................................. $ 70 $114 $ 56 $113
Operating expenses:
Cost of revenues....................................... (9) (6) (5) (4)
Operations and administration.......................... (20) (23) (16) (33)
---- ---- ---- ----
Total operating expenses............................ (29) (29) (21) (37)
---- ---- ---- ----
Operating income.................................... 41 85 35 76
---- ---- ---- ----
Interest expense......................................... (1) (1) (1) --
---- ---- ---- ----
Net income............................................... $ 40 $ 84 $ 34 $ 76
==== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE> 113
STUFF SOFTWARE, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
INFORMATION FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- --------------
1997 1998 1998 1999
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 40 $ 84 $ 34 $ 76
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in operating assets and liabilities:
Accounts receivable............................ (5) (5) (2) --
Unearned revenue............................... 13 12 6 17
---- ---- ---- ----
Net cash provided by operating activities... 48 91 38 93
---- ---- ---- ----
Cash flows from financing activities:
Distributions to stockholders....................... (50) (87) (34) (92)
---- ---- ---- ----
Net (decrease) increase in cash....................... (2) 4 4 1
Cash, beginning of period............................. 3 1 1 5
---- ---- ---- ----
Cash, end of period................................... $ 1 $ 5 $ 5 $ 6
==== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE> 114
STUFF SOFTWARE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
INFORMATION FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL
PAR PAID-IN ACCUMULATED
SHARES VALUE CAPITAL DEFICIT TOTAL
------ ----- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996.......... 1,000 $-- $5 $(12) $ (7)
Distributions to stockholders......... -- -- -- (50) (50)
Net income............................ -- -- -- 40 40
------ --- -- ---- ----
Balance at December 31, 1997.......... 1,000 -- 5 (22) (17)
Distributions to stockholders......... -- -- -- (87) (87)
Net income............................ -- -- -- 84 84
------ --- -- ---- ----
Balance at December 31, 1998.......... 1,000 -- 5 (25) (20)
Distributions to stockholders
(unaudited)......................... -- -- -- (92) (92)
Net income (unaudited)................ -- -- -- 76 76
------ --- -- ---- ----
Balance at September 30, 1999
(unaudited)......................... 1,000 $-- $5 $(41) $(36)
====== === == ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE> 115
STUFF SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Stuff Software, Inc. (the "Company") operates as a Florida Subchapter S
Corporation. From its inception through November 30, 1998, Stuff Software, Inc.
operated as a sole proprietorship. The November 30, 1998 reorganization is
reflected retroactively throughout the financial statements for all periods
presented. The Company develops software and databases for use in the area of
telecommunications cost and benefit analysis.
BASIS OF PRESENTATION
The accompanying interim financial statements as of September 30, 1999 and
for the nine months ended September 30, 1998 and 1999 and the related notes have
not been audited. However, they have been prepared in conformity with the
accounting principles stated in the audited financial statements for the years
ended December 31, 1997 and 1998 and include all adjustments, which were of a
normal and recurring nature, which in the opinion of management are necessary to
present fairly the financial position of the Company and results of operations
and cash flows for the periods presented. The operating results for the interim
periods are not necessarily indicative of results expected for the full years.
REVENUE RECOGNITION
Substantially all of the Company's revenues are derived from selling
information in a database maintained by the Company, and providing customers
with either quarterly or monthly updates of this database information. The
initial database and subsequent updates are provided to customers on CD-ROM. For
sales of the CD-ROM database that provide for periodic updates, revenue is
recognized on a straight-line basis over the term of the respective customer
contract. For sales of the CD-ROM database where the Company is not obligated to
provide any future updates or services, the entire sale amount is recognized
upon delivery of the CD-ROM database.
ACCOUNTS RECEIVABLE
Financial instruments that could potentially subject Stuff Software to
concentration of credit risk primarily include accounts receivable. As of
December 31, 1998, three customers represented 43% of total accounts receivable
and no customer represented more than 10% of total revenues during 1998. As of
December 31, 1997, no customer represented more than 10% of total accounts
receivable and no customer represented more than 10% of total revenues during
1997. If any of these individually significant customers are unable to meet
their financial obligations, results of operations of the Company could be
adversely affected.
COMPREHENSIVE INCOME
SFAS No. 130 requires that a full set of general purpose financial
statements include the reporting of "comprehensive income." Comprehensive income
is comprised of two components: net income and other comprehensive income, with
other comprehensive income being comprised of foreign currency items, minimum
pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities. During the years ended December 31,
1997 and
F-39
<PAGE> 116
STUFF SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED
1998, comprehensive income was comprised solely of net income. As a result, the
adoption of SFAS No. 130 had no impact on the Company's financial statements.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. For the years ended
December 31, 1997 and 1998, advertising expense totaled $5,000 and $6,000,
respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 -- INCOME TAXES
Stuff Software, Inc. changed status from a sole proprietor to a
S-Corporation on November 30, 1998. For both a sole proprietorship and a
S-Corporation, all attributes for federal and state income taxes pass through to
the stockholder. Accordingly, no income tax provision or deferred tax amounts
have been recorded.
NOTE 3 -- INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
During the years ended December 31, 1997 and 1998, substantially all of the
Company's identifiable assets were located in the United States. During that
same period, substantially all of the Company's revenues were derived from sales
to customers based in the United States.
F-40
<PAGE> 117
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
The following unaudited pro forma combined statement of operations assumes
the acquisitions of Pacific Crest Networks, Inc. d/b/a The Pond ("Pacific Crest
Networks" or "PCN") and Stuff Software, Inc. ("Stuff Software" or "SSI") by
Universal Access, Inc. ("Universal Access" or "UAI") accounted for on the
purchase method of accounting and are based on the respective historical
financial statements and the notes thereto, which are included in this
Registration Statement. No unaudited pro forma balance sheet is presented, as
all assets and liabilities of PCN and SSI are included in the audited balance
sheet of UAI as of December 31, 1999. This unaudited pro forma statement of
operations gives effect to the acquisitions as if they had occurred on January
1, 1999. The unaudited pro forma combined statement of operations for the year
ended December 31, 1999 combines UAI's audited historical results for the year
ended December 31, 1999 with the unaudited historical statements of operations
of Pacific Crest Networks and Stuff Software for the periods from January 1,
1999 to July 30, 1999 and November 1, 1999, the respective acquisition dates.
There were no material differences between the accounting policies of UAI
and those of Pacific Crest Networks and Stuff Software.
The unaudited pro forma information included herein is presented for
illustrative purposes only and is not necessarily indicative of the operating
results that would have occurred had the acquisitions been consummated at the
beginning of the period presented, nor is it necessarily indicative of future
operating results.
These pro forma financial statements are based on, and should be read in
conjunction with, the historical financial statements and the related notes
thereto of Universal Access, Pacific Crest Networks and Stuff Software included
in this Registration Statement.
F-41
<PAGE> 118
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PACIFIC CREST
NETWORKS, INC.
UNIVERSAL D/B/A STUFF PRO FORMA PRO FORMA
ACCESS, INC. THE POND SOFTWARE, INC. ADJUSTMENTS COMBINED
------------ -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Circuit access............... $ 13,360 $ 524 -- $ -- $ 13,884
UTX....................... 601 -- -- -- 601
Other..................... 298 -- 123 -- 421
-------- ------ ---- ----- --------
Total revenues.......... 14,259 524 123 -- 14,906
-------- ------ ---- ----- --------
Operating expenses:
Cost of circuit access....... 12,021 380 4 -- 12,405
Operations and administration
(excluding stock option
plan compensation)........ 12,725 580 33 -- 13,338
Operations and administration
(stock option plan
compensation expense)..... 4,927 -- -- -- 4,927
Depreciation and
amortization.............. 829 113 -- 366(1) 1,308
-------- ------ ---- ----- --------
Total operating
expenses............. 30,502 1,073 37 366 31,978
-------- ------ ---- ----- --------
Operating (loss)
income............... (16,243) (549) 86 (366) (17,072)
-------- ------ ---- ----- --------
Other income (expense):
Interest expense............. (81) -- -- -- (81)
Interest income.............. 739 -- -- -- 739
Other expense................ 33 -- -- -- 33
-------- ------ ---- ----- --------
Total other income
(expense)............ 691 -- -- -- 691
-------- ------ ---- ----- --------
Net (loss) income.............. (15,552) (549) 86 (366) (16,381)
Accretion and dividends on
redeemable and nonredeemable
cumulative convertible
preferred stock.............. (1,187) -- -- -- (1,187)
-------- ------ ---- ----- --------
Net (loss) income applicable to
common stockholders.......... $(16,739) $ (549) $ 86 $(366) $(17,568)
======== ====== ==== ===== ========
Basic and diluted net loss per
share........................ $ (0.54) $ (0.56)
Shares used in computing basic
and diluted net loss per
share........................ 31,142 31,184
</TABLE>
The accompanying note is an integral part of these unaudited pro forma combined
financial statements.
F-42
<PAGE> 119
NOTE TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
(1) To record amortization expense on acquired intangibles. All intangible
assets are being amortized on a straight-line basis over a period of five
years.
The purchase price was assigned as follows (in thousands):
<TABLE>
<CAPTION>
PCN SSI
------ ------
<S> <C> <C>
Property and equipment................................. $ 778 $ --
Accounts receivable.................................... 102 28
Accounts payable....................................... (276) --
Obligations under capital leases....................... (418) --
Other liabilities, net................................. (24) (63)
Intangible assets:
Customer base........................................ -- 840
Databases............................................ 150 --
Software and copyrights.............................. -- 380
Company business name and domain name................ -- 50
Goodwill............................................. 1,095 --
------ ------
Total purchase price................................... $1,407 $1,235
====== ======
</TABLE>
F-43
<PAGE> 120
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 7
Note Regarding Forward-Looking
Statements......................... 19
Use of Proceeds...................... 20
Dividend Policy...................... 20
Capitalization....................... 21
Dilution............................. 23
Selected Financial Data.............. 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 25
Business............................. 33
Management........................... 46
Transactions With Related Parties and
Insiders........................... 59
Principal Stockholders............... 63
Description of Capital Stock......... 66
Shares Eligible for Future Sale...... 69
Underwriting......................... 71
Where You May Find Additional
Information........................ 73
Validity of Common Stock............. 73
Experts.............................. 73
Index to Financial Statements........ F-1
</TABLE>
----------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
10,000,000 Shares
UNIVERSAL ACCESS, INC.
Common Stock
----------------------
UNIVERSAL LOGO
----------------------
GOLDMAN, SACHS & CO.
CHASE H&Q
ROBERTSON STEPHENS
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 121
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Universal Access in
connection with the sale of Common Stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 30,360
NASD filing fee............................................. 12,000
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving costs................................ 230,000
Legal fees and expenses..................................... 600,000
Accounting fees and expenses................................ 500,000
Blue Sky fees and expenses.................................. 5,000
Transfer Agent and Registrar fees........................... 10,000
Miscellaneous expenses...................................... 17,640
----------
Total............................................. $1,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article VIII of Universal Access' Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article VI of Universal Access' Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of Universal Access if
such person acted in good faith and in a manner reasonably believed to be in and
not opposed to the best interest of Universal Access, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his or her conduct was unlawful.
Universal Access has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
Universal Access' Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, Universal Access has issued unregistered
securities to a limited number of persons as described below. The common stock
share information presented below has been adjusted to give effect to the five
hundred-for-one stock split of the Registrant's common stock approved by the
board of directors of the Registrant on July 10, 1998, the two-for-one stock
split of the Registrant's common stock approved by the board of directors of the
Registrant on February 17, 1999, the three-for-two stock split of the
Registrant's common stock approved by the board of directors of the Registrant
on June 23, 1999 and the two-for-one stock split, effected as a stock dividend,
of the Registrant's common stock approved by the board of directors of the
Registrant on September 15, 1999. Our Series A and Series B Preferred Stock are
convertible into 6 shares of our
II-1
<PAGE> 122
common stock. Our Series C, Series D and Series E Preferred Stock are
convertible into 3 shares of our common stock.
1. From inception through December 31, 1999 (the latest practical
date), we granted stock options to purchase an aggregate of 12,380,250
shares of our common stock at exercise prices ranging from $.01 to $7.70
per share to our employees, consultants, and directors pursuant to our 1998
Stock Plan.
2. From inception through December 31, 1999 (the latest practical
date), we issued and sold an aggregate of 1,600,000 shares of our common
stock to employees, consultants and directors for an aggregate
consideration of $1,485,001 pursuant to the exercise of options granted
under the 1998 Stock Plan.
3. During September 1998 and December 1998 and during February of
1999, we sold an aggregate of 772,331 shares of Series A Preferred Stock
for $3.00 per share to private investors for an aggregate purchase price of
$2,316,993.
4. On February 8, 1999, we issued three warrants to purchase an
aggregate of 400,002 shares of our Series B Preferred Stock at an exercise
price of $.01 per share to Communications Ventures III, L.P.,
Communications Venture III CEO & Entrepreneurs' Fund, L.P. and Internet
Capital Group in connection with the Series B Preferred Financing.
5. On February 8, 1999 we sold 2,000,000 shares of Series B Preferred
Stock for $3.00 per share to private investors for an aggregate purchase
price of $6,000,000.
6. On May 13, 1999 we sold 666,667 shares of Series C Preferred Stock
for $3.00 per share to private investors for an aggregate purchase price of
$2,000,001.
7. From June 30, 1999 through September 30, 1999 we sold an aggregate
of 5,957,611 shares of Series D Preferred Stock at a purchase price of
$4.25 per share to private investors for an aggregate purchase price of
$25,319,846.
8. On July 31, 1999, in connection with our acquisition of assets from
Pacific Crest Network, Inc. we issued 82,353 shares of Series D Preferred
Stock with a fair market value of $4.25 per share for an aggregate
valuation of $350,000.
9. On November 1, 1999, in connection with our acquisition of assets
from Stuff Software, Inc., we issued 50,021 shares of our common stock with
a fair market value of $6.10 per share for an aggregate valuation of
$305,128.
10. On November 10, 1999 we sold 1,557,385 shares of Series E
Preferred Stock at a purchase price of $18.30 per share to private
investors for an aggregate purchase price of $28,500,146.
11. On December 6, 1999 we sold 2,733 shares of Series D Preferred
Stock at a purchase price of $18.30 per share to a private investor for an
aggregate purchase price of $50,014.
Broadmark Capital Corporation provided services to us in connection with
the placement of our Series A Preferred Stock, Series B Preferred Stock and
Series D Preferred Stock. As consideration for their services, we paid them
approximately $502,190 and we issued them warrants to purchase 360,000 shares of
our common stock and 77,233 shares of our Series A Preferred Stock. In addition,
they received options to purchase a total of 839,994 shares of our common stock
from three of our stockholders.
Advanced Equities provided services to us in connection with the placement
of our Series E Preferred Stock. We issued Advanced Equities a warrant to
purchase 40,000 shares of Series E Preferred Stock with an exercise price of
$18.30 per share in connection with the November 1999 sale of our Series E
Preferred Stock. In addition, as consideration for their services, we paid them
approximately $385,000.
II-2
<PAGE> 123
Except as indicated above, none of the foregoing transactions involved any
underwriters, underwriting discounts or commissions, or any public offering, and
Universal Access believes that each transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof, Regulation
D promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients in such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationships with Universal Access to
information about Universal Access.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2** Amended and Restated Bylaws of the Registrant.
4.1* Form of Registrant's Common Stock certificate.
4.2 Warrant to purchase shares of Common Stock of the Registrant
issued to Broadmark Capital Corporation.
4.3 Form of warrant to purchase shares of Series A Cumulative
Convertible Preferred Stock of the Registrant issued to
Broadmark Capital Corporation.
4.4 Form of warrant to purchase shares of Series B Cumulative
Convertible Preferred Stock of the Registrant issued to
Internet Capital Group.
4.5** Amended and Restated Registration and Informational Rights
Agreement, dated June 28, 1999.
4.6** Amended and Restated Registration and Informational Rights
Agreement, dated June 30, 1999.
4.7** Registration Rights Agreement, dated November 10, 1999.
4.8 Form of warrant to purchase shares of Series E Cumulative
Convertible Preferred Stock of the Registrant issued to
Advanced Equities.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati Professional
Corporation.
10.1** Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive
officers.
10.2** Amended 1998 Employee Stock Option Plan and forms of
agreements thereunder.
10.3** 1999 Employee Stock Option Plan and forms of agreements
thereunder.
10.4** 1999 Director Option Plan and forms of agreements
thereunder.
10.5** 1999 Employee Stock Purchase Plan.
10.6** Form of Private Line Service Contract.
10.7** Master Loan and Security Agreement with Charter Financial,
Inc. dated December 15, 1999.
10.8** Lease Agreement with One Hundred North Riverside, Inc.,
dated October 30, 1998.
10.8.1** Amended Lease Agreement with One Hundred North Riverside,
Inc., dated July 26, 1999.
10.9** Sublease Agreement with Morton International, Inc. dated May
15, 1999, for property located at 100 N. Riverside Plaza,
22nd Floor-East, Chicago, Illinois.
10.9.1 First Amendment to Sublease Agreement with Morton
International, Inc. dated January 25, 2000, for property
located at 100 N. Riverside Plaza, Chicago, Illinois.
10.10** Lease Agreement with Dallas Carrier Associates, Ltd. dated
May 20, 1999, for property located at 400 S. Akard Street,
Dallas, Texas.
10.11** Lease Agreement with Telecom Center LA, LLC dated March 31,
1999, for property located at 530 W. Sixth Street, Los
Angeles, California.
</TABLE>
II-3
<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
<S> <C>
10.12** Lease Agreement with EWE Office Investments II, Ltd., as
amended on July 20, 1999, for property located at 200 S.E.
First Street, Miami, Florida.
10.13** Lease Agreement with Lafayette Business Park, LLC dated
April 1, 1999, for property located at 1900 Lafayette
Street, Santa Clara, California.
10.14** Lease Agreement with The Cambay Group Inc. dated March 19,
1999, for property located at 200 Paul Avenue, San
Francisco, California.
10.15** Lease Agreement with 1120 Vermont Avenue Associates dated
March 19, 1999, for property located at 1120 Vermont Avenue,
N.W., Washington, D.C.
10.16** Lease Agreement with 601 West Associates LLC dated September
23, 1999, for property located at 601 W. 26th Street, New
York, New York.
10.17** License Agreement for Use of Telecommunications Conduit and
Conduit Interconnection Room with One Wilshire Arcade
Imperial, Ltd. dated July 6, 1999, for property located at
One Wilshire Building, 624 S. Grand Avenue, Los Angeles,
California.
10.18+** Master Service Agreement with IXC Communications Services,
Inc. dated November 6, 1997.
10.18.1+** Amendment No. 1, dated March 23, 1999, to Master Service
Agreement.
10.18.2+** Amendment No. 2, dated July 19, 1999, to Master Service
Agreement.
10.19+** Carrier Services Agreement with Williams Communications,
Inc. d/b/a Williams Network Services, dated June 29, 1998.
10.19.1+** Amendment No. 1, dated March 12, 1999, to Carrier Services
Agreement.
10.19.2+** Amendment No. 2, dated July 1, 1999, to Carrier Services
Agreement.
10.20+** Capacity Agreement with GTE Telecom Incorporated dated
August 20, 1999.
10.21 Employment Agreement with Patrick C. Shutt, dated September
15, 1998.
10.21.1 Amendment to Employment Agreement with Patrick C. Shutt,
dated February 8, 1999.
10.21.2 Amendment to Employment Agreement with Patrick C. Shutt,
dated February 1, 2000.
10.22 Employment Agreement with Robert J. Pommer, Jr., dated
September 15, 1998.
10.22.1 Amendment to Employment Agreement with Robert J. Pommer,
Jr., dated February 8, 1999.
10.22.2 Amendment to Employment Agreement with Robert J. Pommer,
Jr., dated February 1, 2000.
10.23 Employment Agreement with Donna M. Shore, dated November 16,
1998.
10.23.1 Amendment to Employment Agreement with Donna M. Shore, dated
February 1, 2000.
10.24 Employment Agreement with Holly A. Weller, dated August 4,
1999.
10.24.1 Amendment to Employment Agreement with Holly A. Weller,
dated February 1, 2000.
10.25 Employment Agreement with Kenneth A. Napier, dated July 1,
1999.
10.25.1 Amendment to Employment Agreement with Kenneth A. Napier,
dated February 1, 2000.
10.26 Employment Agreement with Mark A. Dickey, dated November 16,
1998.
10.27 Employment Agreement with Scott D. Fehlan, dated September
9, 1999.
10.27.1 Amendment to Employment Agreement with Scott D. Fehlan,
dated February 1, 2000.
10.28 Employment Agreement with George A. King, dated August 27,
1999.
10.28.1 Amendment to Employment Agreement with George A. King, dated
February 1, 2000.
10.29** Promissory Note held by the Registrant for Robert Pommer
dated May 28, 1999.
10.30** Lease Agreement with Lafayette Business Park, LLC dated
August 31, 1999, for property located at 1940 Lafayette
Street, Santa Clara, California.
10.31+** Terms and Conditions for Delivery of Service with Level 3
Communications, LLC dated November 17, 1999.
10.31.1+** Addendum, dated November 17, 1999, to Terms and Conditions
for Delivery of Service.
10.32+ Global Services Agreement with MCI WorldCom Communications,
Inc. dated December 14, 1999.
10.33+ AT&T Master Carrier Agreement with AT&T Corp. dated
September 27, 1999.
10.34 Lease Agreement with La Salle National Bank as Trustee under
Trust Agreement dated April 14, 1978, dated December 13,
1999, for property located at 600-780 South Federal Street,
76 West Polk Street and 75 West Harrison Street, Chicago,
Illinois.
</TABLE>
II-4
<PAGE> 125
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
<S> <C>
10.35 Lease Agreement with Peachtree Kessler Lofts, L.L.C. d/b/a/
Telecom Towers, dated December 14, 1999, for property
located at 56 Marrieta Street, Atlanta, Georgia.
10.35.1* Amended Lease Agreement with Peachtree Kessler Lofts, L.L.C.
dated , 2000.
10.36 Amended and Restated Promissory Note with Patrick Shutt
dated December 6, 1999.
10.37 Amended and Restated Promissory Note with Robert Pommer
dated December 6, 1999.
10.38 Amended and Restated Promissory Note with Donna Shore dated
December 6, 1999.
10.39 Employment Agreement with William J. Coyne III, dated
February 1, 2000.
10.39.1 Amendment to Employment Agreement with William J. Coyne III,
dated February 1, 2000.
10.39.2 Amendment to Employment Agreement with William J. Coyne III,
dated February 15, 2000.
21.1** Subsidiaries of Registrant.
23.1 Consent of independent accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested.
(b) FINANCIAL STATEMENT SCHEDULES
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Stockholders of Universal Access, Inc.
Our audits of the financial statements referred to in our report dated
February 17, 2000 also included an audit of the Financial Statement
Schedule listed in Item 16(b) of the Registration Statement on Form S-1.
In our opinion, based on our audits, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related financial statements.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 17, 2000
II-5
<PAGE> 126
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE PERIOD
OCTOBER 2, 1997 (INCEPTION) TO DECEMBER 31, 1997
(Table 1 of 3)
<TABLE>
<CAPTION>
ADDITIONS
-------------------
BALANCE CHARGED BALANCE
AT TO COSTS CHARGED AT
BEGINNING AND TO OTHER END
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
--------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $0 $4,000 $0 $0 $4,000
</TABLE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEAR ENDED
DECEMBER 31, 1998
(Table 2 of 3)
<TABLE>
<CAPTION>
ADDITIONS
-------------------
BALANCE CHARGED BALANCE
AT TO COSTS CHARGED AT
BEGINNING AND TO OTHER END
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
--------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $4,000 $42,000 $0 $0 $ 46,000
Deferred tax asset valuation
allowance $ 0 $151,000 $0 $0 $151,000
</TABLE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEAR ENDED
DECEMBER 31, 1999
(Table 3 of 3)
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE CHARGED BALANCE
AT TO COSTS CHARGED AT
BEGINNING AND TO OTHER END
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS(1) OF YEAR
--------- ---------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $ 46,000 $ 867,000 $0 $264,000 $ 649,000
Deferred tax asset valuation
allowance $151,000 $4,076,000 $0 $ 0 $4,227,000
</TABLE>
- ---------------
(1) Accounts written off as uncollectible during the period.
ITEM 17. UNDERTAKINGS
Universal Access hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by Universal Access for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Universal Access pursuant to the provisions referenced in
Item 14 of this Registration Statement or otherwise, Universal Access 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 Universal Access of expenses
incurred or paid by a director, officer, or controlling person of Universal
Access in the successful defense of any action, suit or proceeding) is asserted
by a director, officer or controlling
II-6
<PAGE> 127
person in connection with the securities being registered hereunder, Universal
Access will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Universal Access 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 Universal Access pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 128
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO,
STATE OF ILLINOIS, ON THE 18TH DAY OF FEBRUARY, 2000.
UNIVERSAL ACCESS, INC.
By: /s/ PATRICK C. SHUTT
------------------------------------
Patrick C. Shutt
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ PATRICK C. SHUTT President, Chief Executive February 18, 2000
- ----------------------------------------------------- Officer and Director
Patrick C. Shutt (Principal Executive
Officer)
* Chief Operating Officer, February 18, 2000
- ----------------------------------------------------- Chief Technical Officer,
Robert J. Pommer, Jr. Secretary and Director
/s/ DONNA M. SHORE Executive Vice President, February 18, 2000
- ----------------------------------------------------- Chief Financial Officer,
Donna M. Shore Treasurer
(Principal Financial and
Accounting Officer)
* Director February 18, 2000
- -----------------------------------------------------
Thomas Kapsalis
* Director February 18, 2000
- -----------------------------------------------------
Roland A. Van der Meer
</TABLE>
II-8
<PAGE> 129
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
* Director February 18, 2000
- -----------------------------------------------------
Robert A. Pollan
* Director February 18, 2000
- -----------------------------------------------------
Joseph L. Schocken
* Director February 18, 2000
- -----------------------------------------------------
Paolo Guidi
By: /s/ DONNA SHORE Attorney-in-Fact February 18, 2000
-------------------------------------------------
Donna Shore
</TABLE>
II-9
<PAGE> 130
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2** Amended and Restated Bylaws of the Registrant.
4.1* Form of Registrant's Common Stock certificate.
4.2 Warrant to purchase shares of Common Stock of the Registrant
issued to Broadmark Capital Corporation.
4.3 Form of warrant to purchase shares of Series A Cumulative
Convertible Preferred Stock of the Registrant issued to
Broadmark Capital Corporation.
4.4 Form of warrant to purchase shares of Series B Cumulative
Convertible Preferred Stock of the Registrant issued to
Internet Capital Group.
4.5** Amended and Restated Registration and Informational Rights
Agreement, dated June 28, 1999.
4.6** Amended and Restated Registration and Informational Rights
Agreement, dated June 30, 1999.
4.7** Registration Rights Agreement, dated November 10, 1999.
4.8 Form of warrant to purchase shares of Series E Cumulative
Convertible Preferred Stock of the Registrant issued to
Advanced Equities.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati Professional
Corporation.
10.1** Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive
officers.
10.2** Amended 1998 Employee Stock Option Plan and forms of
agreements thereunder.
10.3** 1999 Employee Stock Option Plan and forms of agreements
thereunder.
10.4** 1999 Director Option Plan and forms of agreements
thereunder.
10.5** 1999 Employee Stock Purchase Plan.
10.6** Form of Private Line Service Contract.
10.7** Master Loan and Security Agreement with Charter Financial,
Inc. dated December 15, 1999.
10.8** Lease Agreement with One Hundred North Riverside, Inc.,
dated October 30, 1998.
10.8.1** Amended Lease Agreement with One Hundred North Riverside,
Inc., dated July 26, 1999.
10.9** Sublease Agreement with Morton International, Inc. dated May
15, 1999, for property located at 100 N. Riverside Plaza,
22nd Floor-East, Chicago, Illinois.
10.9.1 First Amendment to Sublease Agreement with Morton
International, Inc. dated January 25, 2000, for property
located at 100 N. Riverside Plaza, Chicago, Illinois.
10.10** Lease Agreement with Dallas Carrier Associates, Ltd. dated
May 20, 1999, for property located at 400 S. Akard Street,
Dallas, Texas.
10.11** Lease Agreement with Telecom Center LA, LLC dated March 31,
1999, for property located at 530 W. Sixth Street, Los
Angeles, California.
10.12** Lease Agreement with EWE Office Investments II, Ltd., as
amended on July 20, 1999, for property located at 200 S.E.
First Street, Miami, Florida.
10.13** Lease Agreement with Lafayette Business Park, LLC dated
April 1, 1999, for property located at 1900 Lafayette
Street, Santa Clara, California.
10.14** Lease Agreement with The Cambay Group Inc. dated March 19,
1999, for property located at 200 Paul Avenue, San
Francisco, California.
10.15** Lease Agreement with 1120 Vermont Avenue Associates dated
March 19, 1999, for property located at 1120 Vermont Avenue,
N.W., Washington, D.C.
10.16** Lease Agreement with 601 West Associates LLC dated September
23, 1999, for property located at 601 W. 26th Street, New
York, New York.
</TABLE>
<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
<S> <C>
10.17** License Agreement for Use of Telecommunications Conduit and
Conduit Interconnection Room with One Wilshire Arcade
Imperial, Ltd. dated July 6, 1999, for property located at
One Wilshire Building, 624 S. Grand Avenue, Los Angeles,
California.
10.18+** Master Service Agreement with IXC Communications Services,
Inc. dated November 6, 1997.
10.18.1+** Amendment No. 1, dated March 23, 1999, to Master Service
Agreement.
10.18.2+** Amendment No. 2, dated July 19, 1999, to Master Service
Agreement.
10.19+** Carrier Services Agreement with Williams Communications,
Inc. d/b/a Williams Network Services, dated June 29, 1998.
10.19.1+** Amendment No. 1, dated March 12, 1999, to Carrier Services
Agreement.
10.19.2+** Amendment No. 2, dated July 1, 1999, to Carrier Services
Agreement.
10.20+** Capacity Agreement with GTE Telecom Incorporated dated
August 20, 1999.
10.21 Employment Agreement with Patrick C. Shutt, dated September
15, 1998.
10.21.1 Amendment to Employment Agreement with Patrick C. Shutt,
dated February 8, 1999.
10.21.2 Amendment to Employment Agreement with Patrick C. Shutt,
dated February 1, 2000.
10.22 Employment Agreement with Robert J. Pommer, Jr., dated
September 15, 1998.
10.22.1 Amendment to Employment Agreement with Robert J. Pommer,
Jr., dated February 8, 1999.
10.22.2 Amendment to Employment Agreement with Robert J. Pommer,
Jr., dated February 1, 2000.
10.23 Employment Agreement with Donna M. Shore, dated November 16,
1998.
10.23.1 Amendment to Employment Agreement with Donna M. Shore, dated
February 1, 2000.
10.24 Employment Agreement with Holly A. Weller, dated August 4,
1999.
10.24.1 Amendment to Employment Agreement with Holly A. Weller,
dated February 1, 2000.
10.25 Employment Agreement with Kenneth A. Napier, dated July 1,
1999.
10.25.1 Amendment to Employment Agreement with Kenneth A. Napier,
dated February 1, 2000.
10.26 Employment Agreement with Mark A. Dickey, dated November 16,
1998.
10.27 Employment Agreement with Scott D. Fehlan, dated September
9, 1999.
10.27.1 Amendment to Employment Agreement with Scott D. Fehlan,
dated February 1, 2000.
10.28 Employment Agreement with George A. King, dated August 27,
1999.
10.28.1 Amendment to Employment Agreement with George A. King, dated
February 1, 2000.
10.29** Promissory Note held by the Registrant for Robert Pommer
dated May 28, 1999.
10.30** Lease Agreement with Lafayette Business Park, LLC dated
August 31, 1999, for property located at 1940 Lafayette
Street, Santa Clara, California.
10.31+** Terms and Conditions for Delivery of Service with Level 3
Communications, LLC dated November 17, 1999.
10.31.1+** Addendum, dated November 17, 1999, to Terms and Conditions
for Delivery of Service.
10.32+ Global Services Agreement with MCI WorldCom Communications,
Inc. dated December 14, 1999.
10.33+ AT&T Master Carrier Agreement with AT&T Corp. dated
September 27, 1999.
10.34 Lease Agreement with La Salle National Bank as Trustee under
Trust Agreement dated April 14, 1978, dated December 13,
1999, for property located at 600-780 South Federal Street,
76 West Polk Street and 75 West Harrison Street, Chicago,
Illinois.
10.35 Lease Agreement with Peachtree Kessler Lofts, L.L.C. d/b/a/
Telecom Towers, dated December 14, 1999, for property
located at 56 Marrieta Street, Atlanta, Georgia.
10.35.1* Amended Lease Agreement with Peachtree Kessler Lofts, L.L.C.
dated , 2000.
10.36 Amended and Restated Promissory Note with Patrick Shutt
dated December 6, 1999.
10.37 Amended and Restated Promissory Note with Robert Pommer
dated December 6, 1999.
</TABLE>
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
<S> <C>
10.38 Amended and Restated Promissory Note with Donna Shore dated
December 6, 1999.
10.39 Employment Agreement with William J. Coyne III, dated
February 1, 2000.
10.39.1 Amendment to Employment Agreement with William J. Coyne III,
dated February 1, 2000.
10.39.2 Amendment to Employment Agreement with William J. Coyne III,
dated February 15, 2000.
21.1** Subsidiaries of Registrant.
23.1 Consent of independent accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested.
<PAGE> 1
UNIVERSAL ACCESS, INC.
COMMON STOCK, $0.01 PAR VALUE
UNDERWRITING AGREEMENT
____________ __, 2000
Goldman, Sachs & Co.,
Chase Securities Inc.,
FleetBoston Robertson Stephens Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
2765 Sand Hill Road,
Menlo Park, California 94025
Ladies and Gentlemen:
Universal Access, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of . . . . . . .shares and, at the election of the Underwriters, up to . . . . .
. additional shares of Common Stock, $0.01 par value ("Stock") of the Company.
The aggregate of . . . . shares to be sold by the Company is herein called the
"Firm Shares" and the aggregate of . . . . . additional shares to be sold by the
Company is herein called the "Optional Shares". The Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof are
herein collectively called the "Shares".
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-....) (the
"Initial Registration Statement") in respect of the Shares has been
filed with the Securities and Exchange Commission (the "Commission");
the Initial Registration Statement and any posteffective amendment
thereto, each in the form heretofore delivered to you, and, excluding
exhibits thereto, to you for each of the other Underwriters, have been
declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission;
and no stop order suspending the effectiveness of the Initial
Registration Statement, any post-effective amendment thereto or the
Rule 462(b) Registration Statement, if any, has been issued and no
proceeding for that purpose has been initiated or threatened by the
Commission (any preliminary prospectus included in the Initial
Registration Statement or filed with the Commission pursuant to Rule
424(a) of the rules and regulations of the Commission under the Act is
hereinafter called a "Preliminary Prospectus"; the various parts of the
Initial Registration Statement and the Rule 462(b) Registration
Statement, if any, including all exhibits thereto and including the
information contained in the form of final prospectus filed with the
Commission pursuant to Rule 424(b) under the Act in accordance
with Section 5(a) hereof and deemed by virtue of Rule 430A under the
Act
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<PAGE> 2
to be part of the Initial Registration Statement at the time it was
declared effective, each as amended at the time such part of the Initial
Registration Statement became effective or such part of the Rule 462(b)
Registration Statement, if any, became or hereafter becomes effective,
are hereinafter collectively called the "Registration Statement"; and
such final prospectus, in the form first filed pursuant to Rule 424(b)
under the Act, is hereinafter called the "Prospectus";
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations
of the Commission thereunder, and did 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, 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 an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(iii) The Registration Statement conforms, and any further
amendments or supplements to the Registration Statement will conform,
in all material respects to the requirements of the Act and the rules
and regulations of the Commission thereunder and do not and will not,
as of the applicable effective date as to the Registration Statement
and any amendment thereto, 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; 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 an Underwriter
through Goldman, Sachs & Co. expressly for use therein;
(iv) The Prospectus and any further amendments or supplements to
the Prospectus will conform in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable filing date as
to the Prospectus and any amendment or supplement thereto, contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein, in 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 an Underwriter through Goldman,
Sachs & Co. expressly for use therein;
(v) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in
the Prospectus 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
Prospectus; and, since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any change in the capital stock or long-term debt of the Company
or any of its subsidiaries 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 subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, except as would not have a material
adverse effect on the current or future consolidated financial
position,
2
<PAGE> 3
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole (a "Material Adverse Effect");
(vi) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(vii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, 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, except where failure to
be so qualified would not have a Material Adverse Effect; and each
subsidiary of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(viii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description of the Stock
contained in the Prospectus; and all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and (except
for directors' qualifying shares and except as set forth in the
Prospectus) are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims;
(ix) The unissued Shares to be issued and sold by the Company to
the Underwriters hereunder have been duly and validly authorized and,
when issued and delivered against payment therefor as provided herein,
will be duly and validly issued and fully paid and non-assessable and
will conform to the description of the Stock contained in the
Prospectus;
(x) The issue and sale of the Shares to be sold by the Company
and the compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions herein contemplated
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any material
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation
of the provisions of the Certificate of Incorporation or Bylaws of the
Company or, to the Company's knowledge, any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties, except where such breach or violation could not
reasonably be expected to have a Material Adverse Effect; 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 Shares or the consummation by the Company
of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state
3
<PAGE> 4
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(xi) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or Bylaws or in default
in the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound,
except where such default would not have a Material Adverse Effect;
(xii) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, and under the caption
"Underwriting", insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate and materially
complete;
(xiii) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would individually
or in the aggregate have a Material Adverse Effect; and, to the best of
the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(xiv) Each of the Company and its subsidiaries is not and, after
giving effect to the offering and sale of the Shares, will not be an
"investment company", as such term is defined in the Investment Company
Act of 1940, as amended (the "Investment Company Act");
(xv) To the Company's knowledge, PricewaterhouseCoopers LLP, who
have certified certain financial statements of the Company and its
subsidiaries, are independent public accountants as required by the Act
and the rules and regulations of the Commission thereunder;
(xvi) The Company has reviewed its operations and that of its
subsidiaries to evaluate the extent to which the business or operations
of the Company or any of its subsidiaries will be affected by the Year
2000 Problem. As a result of such review, the Company has no reason to
believe, and does not believe, that the Year 2000 Problem will have a
Material Adverse Effect. The "Year 2000 Problem" as used herein means
any significant risk that computer hardware or software used in the
receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the case of
dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000;
(xvii) Except as described in the Prospectus, the Company and its
subsidiaries own, possess or have the right to employ sufficient
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, software, systems or
procedures), trademarks, service marks and trade names, inventions,
computer programs, technical data and information (collectively, the
"Intellectual Property Rights") reasonably necessary to conduct their
businesses as now conducted; and the expected expiration of any such
Intellectual Property Rights would not, individually or in the
aggregate, result in a Material Adverse Effect or any development that
could reasonably be expected to result in a Material Adverse Effect.
Except as described in the Prospectus, the Intellectual Property Rights
presently employed by the Company and its subsidiaries in connection
with the businesses now operated by them or which are proposed to be
operated by them, as described in the Prospectus, are owned, to the
Company's knowledge, free and clear of and without violating any right,
claimed rights, charge, encumbrance, pledge, security interest,
restriction or
4
<PAGE> 5
lien of any kind of any other person and neither the Company nor any of
its subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to any of the foregoing
except as would not reasonably be expected to individually or in the
aggregate, result in a Material Adverse Effect, or any development that
could reasonably be expected to result in a Material Adverse Effect,
whether or not arising from transactions in the ordinary course of
business. Except as described in the Prospectus, to the Company's
knowledge, the use of the Intellectual Property in connection with the
business and operations of the Company and its subsidiaries does not
infringe on the rights of any person, except as could not reasonably be
expected to individually or in the aggregate result in a Material
Adverse Effect, or any development that could reasonably be expected to
result in a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business; and
(xviii) To the Company's knowledge, the Company and each of its
subsidiaries have all necessary authorizations, approvals, orders,
consents, certificates, permits, registrations or qualifications of and
from all applicable regulatory authorities to conduct its businesses as
described in the Prospectus, or is subject to no material liability or
disability by reason of the failure to have such authorizations,
approvals, orders, consents, licenses, certificates, permits,
registrations or qualifications; and none of the Company or any of its
subsidiaries has received any notification from any regulatory
authority to the effect that any additional authorization, approval,
order, consent, license, certificate, permit, registration or
qualification from such regulatory authority is needed to be obtained
by any of the Company or its subsidiaries except as would not
reasonably be expected to individually or in the aggregate, result in a
Material Adverse Effect, or any development that could reasonably be
expected to result in a Material Adverse Effect, whether or not arising
from transactions in the ordinary course of business.
5
<PAGE> 6
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at a purchase price per
share of $.............., the number of Firm Shares (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying the aggregate number
of Shares to be sold by the Company by a fraction, the numerator of which is the
aggregate number of Firm Shares to be purchased by such Underwriter as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the aggregate number of Firm Shares to be purchased by all of the
Underwriters from the Company and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase Optional Shares as provided
below, the Company agrees to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
the purchase price per share set forth in clause (a) of this Section 2, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to ................... Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
sales of shares in excess of the number of Firm Shares. Any such election to
purchase Optional Shares may be exercised only by written notice from you to the
Company, given within a period of 30 calendar days after the date of this
Agreement and setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof)
6
<PAGE> 7
or, unless you and the Company otherwise agree in writing, earlier than two or
later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York time, on ............., 2000 or such
other time and date as Goldman, Sachs & Co. and the Company may agree upon in
writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on
the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Company and
may agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(l) hereof, will be delivered at the offices
of Wilson Sonsini Goodrich & Rosati Professional Corporation, 650 Page Mill
Road, Palo Alto, California 94304 (the "Closing Location"), and the Shares will
be delivered at the Designated Office, all at such Time of Delivery. A meeting
will be held at the Closing Location at 3:00 p.m., Pacific time, on the New York
Business Day next preceding such 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 which 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 Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus which shall be
disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any supplement to
the Prospectus or any amended Prospectus has been filed and to furnish you with
copies thereof; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the
7
<PAGE> 8
qualification of the Shares for offering or sale in any jurisdiction, of the
initiation or threatening of any proceeding for any such purpose, or of any
request by the Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and, in the event of the
issuance of any stop order or of any order preventing or suspending the use of
any Preliminary Prospectus or prospectus or suspending any such qualification,
promptly to use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares 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 Shares, 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) Prior to 10:00 A.M., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to time,
to furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of the time a
Prospectus is required to be delivered pursuant to Rule 174 under the Securities
Act and if at such time any events shall have occurred as a result of which the
Prospectus 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 Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary during such period to amend or supplement the
Prospectus in order to comply with the Act, to notify you and upon your request
to prepare and furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct such
statement or omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of the Shares
at any time other than pursuant to Rule 174 under the Securities Act, upon your
request but at the expense of such Underwriter, to prepare and deliver to such
Underwriter as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
of the Commission thereunder (including, at the option of the Company, Rule
158);
(e) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder, any securities of the Company that are substantially similar to the
Shares, including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock plans
existing on, or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, the date of this Agreement), without your prior
written consent;
(f) To furnish to its stockholders 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
8
<PAGE> 9
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 effective date of the Registration Statement), to make
available to its stockholders consolidated summary financial information of the
Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of three years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished 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 national 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 the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ");
(j) To file with the Commission such information on Form 10-Q of
Form 10-K as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of
this Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
6. The Company covenants and agrees with the several Underwriters 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 registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey;
(iv) all fees and expenses in connection with listing the Shares on the NASDAQ;
and the filing fees incident to, and the fees and disbursements of counsel for
the Underwriters in connection with, securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Shares; (v) the cost of preparing stock certificates; (vi) the cost and charges
of any transfer agent or registrar; and (vii) all other costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section.
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<PAGE> 10
It is understood, however, that the Company shall bear the cost of any other
matters not directly relating to the sale and purchase of the Shares pursuant to
this Agreement, and that, except as provided in this Section, and Sections 8 and
11 hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes on resale of any of
the Shares by them, and any advertising expenses connected with any offers they
may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company are, at and as of such 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) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement; no stop order suspending
the effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such written opinion or opinions (a draft of each such opinion
is attached as Annex II(a) hereto), dated such Time of Delivery, with respect 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. In rendering the opinions pursuant to this Section 7(b),
such counsel may rely upon the opinions of Shefsky & Froelich Ltd. delivered
pursuant to Section 7(d) as to matters of Illinois law.
(c) Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel for the Company, shall have furnished to you their written opinion (a
draft of such opinion is attached as Annex II(b) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) 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
Prospectus;
(ii) The Company is duly qualified as a foreign
corporation for the transaction of business in the states
specified in such opinion (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of Swidler
Berlin Shereff Friedman, LLP as well as local counsel and in
respect of matters of fact upon certificates of officers of the
Company, provided that such counsel shall state that they believe
that both you and they are justified in relying upon such
opinions and certificates);
(iii) The Shares have been duly and validly authorized
and issued and are fully paid and non-assessable; the Shares
conform to the description of the Stock contained in the
Prospectus;
(iv) This Agreement has been duly authorized, executed
and delivered by the Company;
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<PAGE> 11
(v) The issue and sale of the Shares being delivered at
such Time of Delivery to be sold by the Company and the
compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions herein
contemplated will not (A) conflict with or result in a breach or
violation 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 contained in a
certificate of an executive officer of the Company setting forth
as of such time of delivery, such agreements or instruments as
are material to the Company, which certificate is attached to
such opinion to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound
or to which any of the property or assets of the Company or any
of its subsidiaries is subject, (B) result in any violation of
any statute or any order, rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any
of their properties; or (C) result in any violation of the
Company's Certificate of Incorporation or Bylaws, except in the
case of clauses (A) and (B), for such breaches, violations and
defaults as would not, individually or in the aggregate, have a
Material Adverse Effect, impair the validity of the Shares, this
Agreement or the transactions contemplated hereby, or hinder or
delay the transactions contemplated hereby;
(vi) 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 Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under the
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 purchase and
distribution of the Shares by the Underwriters (such counsel
being entitled to rely upon the opinion of Swidler Berlin Shereff
Friedman, LLP delivered pursuant to Section 7(e) as to matters
arising under federal and state laws regulating
telecommunications services;
(vii) To such counsel's knowledge, neither the Company
nor any of its subsidiaries is in violation of its Certificate of
Incorporation or Bylaws;
(viii) The statements set forth in the Prospectus under
the caption "Description of Capital Stock", insofar as they
purport to constitute a summary of the terms of the Stock, and
under the caption "Underwriting", insofar as they purport to
describe the provisions of the laws and documents referred to
therein, are accurate and materially complete;
(ix) Each of the Company and its subsidiaries is not an
"investment company", as such term is defined in the Investment
Company Act; and
(x) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act and the rules
and regulations thereunder; although they do not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the
Prospectus, except for those referred to in the opinion in
subsection (viii) of this Section 7(c), they have no reason to
believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made
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<PAGE> 12
by the Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to which
such counsel need express no opinion) contained an untrue
statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or that,
as of such Time of Delivery, either the Registration Statement or
the Prospectus or any further amendment or supplement thereto
made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules therein, as to
which such counsel need express no opinion) contains an untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
they do not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration
Statement or the Prospectus which are not filed or described as
required.
In rendering the opinions pursuant to this Section 7(c), such
counsel may rely upon the opinions of Shefsky & Froelich Ltd. delivered pursuant
to Section 7(d) as to matters of Illinois law.
(d) Shefsky & Froelich Ltd., counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is
attached as Annex II(c) hereto), dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that:
(i) Immediately prior to the merger (the "Merger") of
Universal Access, Inc., an Illinois corporation (the "Illinois
Company"), with and into the Company on June 24, 1999, the
Illinois Company was duly incorporated and was validly existing
as a corporation in good standing under the laws of Illinois,
with power and authority (corporate and other) to own its
properties and conduct its business;
(ii) Immediately prior to the Merger, all of the issued
shares of capital stock of the Illinois Company had been duly and
validly authorized and issued and were fully paid and
nonassessable;
(iii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable; and
(iv) To such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect;
and, to the best of such counsel's knowledge, no such proceedings
are threatened or contemplated by governmental authorities or
threatened by others;
(e) Swidler Berlin Shereff Friedman, LLP, regulatory counsel for
the Company, shall have furnished to you their written opinion (a draft
of such opinion is attached as Annex II(d) hereto), dated such Time of
Delivery, in form and substance reasonably satisfactory to you, to the
effect that:
(i)The Company and its subsidiary have all necessary
authorizations, approvals, orders, consents, certificates,
permits, registrations or qualifications, if any, required by the
Federal Communications Commission ("FCC") and the rules,
regulations and orders of comparable state regulatory commissions
("Applicable State Regulatory Authorities") to conduct their
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<PAGE> 13
businesses as presently conducted, as described in the
Prospectus, or are subject to no material liability or disability
by reason of the failure to have such authorizations, approvals,
orders, consents, licenses, certificates, permits, registrations
or qualifications;
(ii) To such counsel's knowledge, neither the FCC nor any
Applicable State Regulatory Authority has notified the Company or
its subsidiary that any additional authorization, approval,
order, consent, license, certificate, permit, registration or
qualification from such regulatory authority is needed to be
obtained by the Company or its subsidiary except as would not
reasonably be expected to individually or in the aggregate,
result in a Material Adverse Effect; nor has the FCC or any
Applicable State Regulatory Authority notified the Company or its
subsidiary of any complaint, investigation, or proceeding
relating to the Company or its subsidiary that could reasonably
be expected to result in a Material Adverse Effect; and
(iii) The statements set forth in the Prospectus under
the captions "Risk Factors -- The regulatory framework under
which we operate and new regulatory requirements or new
interpretations of existing regulatory requirements could harm
our business", "-- Required regulatory approvals may interfere
with or delay corporate transactions", "-- Telecommunications
regulations of other countries may restrict our operations" and
"Business -- Government Regulation" fairly summarize the matters
relating to the laws and regulatory decisions therein described
and the descriptions of the Telecommunications Act of 1996 and
the rules, regulations and orders of the FCC and Applicable State
Regulatory Authorities.
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<PAGE> 14
(f) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the
effective date of any posteffective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
each Time of Delivery, PricewaterhouseCoopers LLP shall have furnished
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 I hereto (the executed copy of the letter delivered
prior to the execution of this Agreement is attached as Annex I(a)
hereto and a draft of the form of letter to be delivered on the
effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex I(b)
hereto);
(g)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus 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 Prospectus, and (ii) since the respective dates as of which
information is given in the Prospectus there shall not have been any
change in the capital stock or long-term debt of the Company or any of
its subsidiaries 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 subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, 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
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(h) 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 NASDAQ; (ii) a suspension or material
limitation in trading in the Company's securities on NASDAQ; (iii) a
general
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<PAGE> 15
moratorium on commercial banking activities declared by either Federal,
New York or California State authorities; or (iv) 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 (iv) in the judgment
of the Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered
at such Time of Delivery on the terms and in the manner contemplated in
the Prospectus;
(i) The Shares at such Time of Delivery shall have been duly
listed for quotation on NASDAQ;
(j) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each of its directors and officers
and each stockholder listed on Schedule II hereto, substantially to the
effect set forth in subsection 5(e) hereof in form and substance
satisfactory to you;
(k) The Company shall have complied with the provisions of
Section 5(c) hereof with respect to the furnishing of prospectuses on
the New York Business Day next succeeding the date of this Agreement;
and
(l) The Company shall have furnished to you at such 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, and as to such other matters as you may
reasonably request, and the Company shall have furnished or caused to
be furnished certificates as to the matters set forth in subsections
(a) and (g) of this Section.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the 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 Preliminary Prospectus, the Registration
Statement or the Prospectus, 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 will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter 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 any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
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<PAGE> 16
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the 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 Preliminary Prospectus, the Registration Statement or the
Prospectus, 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 any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter 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 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
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<PAGE> 17
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.
(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 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 Underwriters on the other from
the offering of the Shares. 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 Underwriters 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 Underwriters 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 bears to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. 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
Underwriters 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 Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (d) were determined by pro rata
allocation (even if the Underwriters 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 Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the 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.
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<PAGE> 18
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' 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
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters 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 or her consent, is named in the 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 Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirtysix hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, 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 Shares 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 Shares, or the Company notifies you that they have so
arranged for the purchase of such Shares, you or the Company shall have the
right to postpone a 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
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each nondefaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each nondefaulting Underwriter to purchase
its pro rata share (based on the number of Shares which such Underwriter agreed
to purchase hereunder) of the Shares of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one eleventh of the aggregate number of all of the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require nondefaulting
Underwriters to purchase Shares of a defaulting Underwriter or
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<PAGE> 19
Underwriters, then this Agreement (or, with respect to the Second Time of
Delivery, the obligations of the Underwriters to purchase and of the Company to
sell the Optional Shares) shall thereupon terminate, without liability on the
part of any nondefaulting Underwriter or the Company, except for the expenses to
be borne by the Company and the Underwriters as provided in Section 6 hereof and
the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, 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 Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason any Shares are
not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter 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 Underwriters 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, 21st Floor, New York, New York 10005, 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
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire or telex constituting such
Questionnaire, which address will be supplied to the Company by you on request.
Any such statements, requests, notices or agreements shall take effect upon
receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters and 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, any Underwriter, 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 Shares from any Underwriter shall be deemed a successor or assign by
reason
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<PAGE> 20
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
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 counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us seven counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, 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,
Universal Access, Inc.
By:
---------------------------------------
Name:
Title:
Accepted as of the date hereof at
-------------------
Goldman, Sachs & Co.
Chase Securities Inc.
FleetBoston Robertson Stephens Inc.
By:
--------------------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
20
<PAGE> 21
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co.................................................
Chase Securities Inc................................................
FleetBoston Robertson Stephens Inc..................................
Total......................................................
</TABLE>
22
<PAGE> 22
SCHEDULE II
[STOCKHOLDERS SUBJECT TO
LOCK-UP AGREEMENTS
22
<PAGE> 23
ANNEX I
Pursuant to Section 7(g) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim
financial statements, selected financial data, pro forma financial
information, financial forecasts and/or condensed financial statements
derived from audited financial statements of the Company for the
periods specified in such letter, as indicated in their reports
thereon, copies of which have been separately furnished to the
representatives of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus as indicated in their reports thereon copies
of which have been separately furnished to the Representatives and on
the basis of specified procedures including inquiries of officials of
the Company who have responsibility for financial and accounting
matters regarding whether the unaudited condensed consolidated
financial statements referred to in paragraph (vi)(A)(i) below comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations, nothing came to their attention that caused them to
believe that the unaudited condensed consolidated financial statements
do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the
Prospectus agrees with the corresponding amounts (after restatements
where applicable) in the audited consolidated financial statements for
such five fiscal years which were included or incorporated by reference
in the Company's Annual Reports on Form 10K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K
and on the basis of limited procedures specified in such letter nothing
came to their attention as a result of the foregoing procedures that
caused them to believe that this information does not conform in all
material respects with the disclosure requirements of Items 301, 302,
402 and 503(d), respectively, of Regulation S-K;
23
<PAGE> 24
(vi) On the basis of limited procedures, not constituting an
examination 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 and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included in
the Prospectus, inquiries of officials of the Company and its
subsidiaries 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) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of
the Act and the related published rules and regulations, or (ii)
any material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included in the
Prospectus for them to be in conformity with generally accepted
accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated 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 consolidated financial statements included
in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus 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 Prospectus and referred to in clause (B)
were not determined on a basis substantially consistent with the
basis for the audited consolidated financial statements included
in the Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations
thereunder 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
consolidated capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation rights, upon
earnouts 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
Prospectus) or any increase in the consolidated longterm debt of
the Company and its subsidiaries, 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
Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in clause (E) there were any decreases in
consolidated net revenues or operating profit or the total or per
share amounts of
24
<PAGE> 25
consolidated 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 Prospectus
discloses have occurred or may occur or which are described in
such letter; and
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting an examination 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 and its subsidiaries, which appear in the Prospectus, or
in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain
of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries and have found
them to be in agreement.
25
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
UNIVERSAL ACCESS, INC.
Universal Access, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies that:
A. The name of this Corporation is Universal Access, Inc.
B. The date of filing of this Corporation's original Certificate of
Incorporation with the Secretary of State of Delaware was June 24, 1999.
C. Pursuant to Sections 242 and 245 of the Delaware General Corporation
law, this Restated Certificate of Incorporation restates, integrates and amends
the provisions of the Corporation's Amended and Restated Certificate of
Incorporation as follows:
FIRST: The name of this Corporation is Universal Access, Inc.
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The purpose of this Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: This Corporation is authorized to issue two classes of shares to
be designated, respectively, Common Stock and Preferred Stock. The total number
of shares of Common Stock which this corporation is authorized to issue is
1,000,000,000, with a par value of $0.01, and the total number of shares of
Preferred Stock which this corporation is authorized to issue is 20,000,000,
with a par value of $0.01.
The Preferred Stock may be issued from time to time in one or more
series pursuant to a resolution or resolutions providing for such issue duly
adopted by the Board of Directors (authority to do so being hereby expressly
vested in the Board). The Board of Directors is further authorized to determine
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and to fix the number
of shares of any such series of Preferred Stock and the designation of any such
series of Preferred Stock. The Board of Directors is authorized, within the
limits and restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series, to
increase or decrease (but not below the number of shares thereof then
outstanding) the number of shares of any such series subsequent to the issue of
shares of that series, to determine the designation of any series, and to fix
the number of shares of any series.
FIFTH: The Corporation is to have perpetual existence.
<PAGE> 2
SIXTH: Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and before voting
begins or unless the Bylaws of the Corporation shall so provide.
SEVENTH: The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
designated in the Bylaws of the Corporation.
The Board of Directors shall be divided into three classes designated as
Class I, Class II, and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the date
hereof, the term of office of the Class I directors shall expire, and Class I
directors shall be elected for a full term of three years. At the second annual
meeting of stockholders following the date hereof, the term of office of the
Class II directors shall expire, and Class II directors shall be elected for a
full term of three years. At the third annual meeting of stockholders following
the date hereof, the term of office of the Class III directors shall expire, and
Class III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his or her successor is duly elected and qualified or until
his or her death, resignation, or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes shall be filled by
either (i) the affirmative vote of the holders of a majority of the voting power
of the then-outstanding shares of voting stock of the Corporation entitled to
vote generally in the election of directors (the "Voting Stock") voting together
as a single class; or (ii) by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors. Newly created directorships resulting from any increase in the
number of directors shall, unless the Board of Directors determines by
resolution that any such newly created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of the directors then in
office, even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
The affirmative vote of sixty-six and two-thirds percent (66-2/3%) of
the voting power of the then outstanding shares of Voting Stock, voting together
as a single class, shall be required for the adoption, amendment or repeal of
the following sections of the Corporation's Bylaws by the stockholders of the
Corporation: 2.2 (Annual Meeting) and 2.3 (Special Meeting).
No action shall be taken by the stockholders of the Corporation except
at an annual or special meeting of the stockholders called in accordance with
the Bylaws.
-2-
<PAGE> 3
Any director, or the entire Board of Directors, may be removed from
office at any time (i) with cause by the affirmative vote of the holders of at
least a majority of the voting power of all of the then-outstanding shares of
the Voting Stock, voting together as a single class; or (ii) without cause by
the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock.
EIGHTH: A. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, a director of
the Corporation or any subsidiary of the Corporation shall not be personally
liable to the Corporation or its stockholders and shall otherwise be indemnified
by the Corporation for monetary damages for breach of fiduciary duty as a
director of the Corporation, any predecessor of the Corporation or any
subsidiary of the Corporation.
B. The Corporation shall indemnify to the fullest extent
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that he, his testator or intestate is or was a director or
officer of the Corporation, any predecessor of the Corporation or any subsidiary
of the Corporation or serves or served at any other enterprise as a director or
officer at the request of the Corporation, any predecessor to the Corporation or
any subsidiary of the Corporation.
C. Neither any amendment nor repeal of this Article EIGHTH, nor
the adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article EIGHTH, shall eliminate or reduce the effect of
this Article EIGHTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article EIGHTH, would
accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent
provision.
NINTH: Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any rights of designation of Preferred Stock conferred by
the Board of Directors pursuant to Article FOURTH, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Article SEVENTH
or this Article NINTH.
TENTH: 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, except as provided in Article
NINTH of this Certificate, and all rights conferred upon the stockholders herein
are granted subject to this right.
ELEVENTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, alter, amend
or repeal the Bylaws of the Corporation. Exclusive authority to amend the Bylaws
to change the authorized number of Directors shall reside in the Board of
Directors.
-3-
<PAGE> 4
TWELFTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside of the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws of the Corporation.
THIRTEENTH: Advance written notice of new business and stockholder
nominations for the election of directors shall be given in the manner and to
the extent provided in the Bylaws of the Corporation.
FOURTEENTH: Stockholders shall not be entitled to cumulative voting
rights for the election of directors.
This Amended and Restated Certificate of Incorporation has been duly
adopted by the stockholders of the Corporation in accordance with the provisions
of Sections 242 and 245 of the General Corporation Law of the State of Delaware,
as amended.
-4-
<PAGE> 5
IN WITNESS WHEREOF, Universal Access, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by Patrick C. Shutt, its
President, and attested by Robert J. Pommer, Jr., its Secretary, this ____ day
of ________, 2000.
UNIVERSAL ACCESS, INC.
----------------------------------------
Patrick C. Shutt, President
Attested:
- ----------------------------------------
Robert J. Pommer, Jr., Secretary
-5-
<PAGE> 1
EXHIBIT 4.2
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY HAVE BEEN ACQUIRED
SOLELY FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED OR OTHERWISE DISTRIBUTED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL, SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED AND ANY APPLICABLE STATE SECURITIES LAWS.
NO. 1 WARRANT FEBRUARY 8, 1999
TO PURCHASE 60,000 SHARES OF COMMON STOCK OF
UNIVERSAL ACCESS, INC. (THE "COMPANY")
1. Number of Shares; Exercise Price: Term. This certifies that Broadmark
Capital Corporation or its permitted assigns (the "Holder") is entitled, upon
the terms and subject to the conditions hereinafter set forth, at any time after
the date hereof and at or prior to 11:59 p.m. Central Time, on February 8, 2004
(the "Expiration Time"), but not thereafter, to acquire from the Company, in
whole or in part, from time to time, up to 60,000 fully paid and nonassessable
shares (the "Shares") of Common Stock, no par value per share, of the Company
("Common Stock"), at a purchase price of Three Dollars ($3.00) per Share (the
"Exercise Price"). The number of Shares, type of security for which this Warrant
is exercisable and Exercise Price are subject to adjustment as provided herein,
and all references to "Common Stock" and "Exercise Price" herein shall be deemed
to include any such adjustment or series of adjustments.
2. Exercise of Warrant.
(a) In general, the purchase rights represented by this Warrant
are exercisable by the Holder, in whole or in part, at any time, or from time to
time, prior to the Expiration Time, by the surrender of this Warrant and the
Notice of Exercise annexed hereto, all duly completed and executed on behalf of
the Holder, at the office of the Company in Chicago, Illinois, (or such other
office or agency of the Company as it may designate by notice in writing to the
Holder at the address of the Holder appearing on the books of the Company), and
upon payment of the Exercise Price for the Shares thereby purchased (by cash,
certified or cashier's check, or wire transfer payable to the order of the
Company, at the time of exercise in an amount equal to the purchase price of the
Shares thereby purchased, or by net issue exercise pursuant to Section 2(b)
hereof). Thereupon the Holder shall be entitled to receive from the Company a
stock certificate in proper form representing the number of Shares so purchased,
and a new Warrant in substantially identical form and dated as of such exercise
for the purchase of that number of Shares equal to the difference, if any,
between the number of Shares subject hereto and the number of Shares as to which
this Warrant is so exercised.
<PAGE> 2
(b) Net Issue Exercise. Notwithstanding any provisions in this
Warrant to the contrary, if the fair market value of one share of Series A
Preferred Stock is greater than the Exercise Price (at the date of calculation
as set forth below), in lieu of exercising this Warrant by paying the Exercise
Price in cash, the Holder may elect to receive shares equal to the value (as
determined below) of this Warrant (or the portion of the Warrant being exercised
and canceled) by surrender of this Warrant at the principal office of the
Company together with the properly endorsed Notice of Exercise and notice of
such election in which event the Company shall issue to the Holder a number of
shares of Series A Preferred Stock computed using the following formula:
X=Y(A-B) / A
Where X= the number of shares of Series A Preferred Stock to
be issued to the Holder
Y= the number of shares of Series A Preferred Stock
purchasable under the Warrant, or if only a portion
of the Warrant is being exercised, the portion of
the Warrant being exercised and canceled (at the
date of such calculation)
A= the Fair Market Value
B= the Exercise Price
For purposes of the above calculation, Fair Market Value shall be determined by
the Company's Board of Directors in good faith; provided, however, that where
there exists a public market for the Company's Common Stock at the time of such
exercise, the Fair Market Value shall be the average of the closing bid and
asked prices of the Common Stock quoted in the Over-The-Counter Market Summary
or the last reported sale price of the Common Stock or the closing price quoted
on the NASDAQ National Market or on any exchange on which the Common Stock is
listed, whichever is applicable, as published in the Central Edition of The Wall
Street Journal for the five (5) trading days prior to the date of determination
of Fair Market Value. Notwithstanding the foregoing, if the Warrant is exercised
in connection with the Company's initial public offering of Common Stock, the
Fair Market Value shall be the per share offering price to the public of the
Company's initial public offering.
3. Issuance of Shares. Certificates for Shares purchased hereunder shall
be delivered to the Holder within a reasonable time after the date on which this
Warrant shall have been exercised in accordance with the terms hereof. All
Shares that may be issued upon the exercise of this Warrant shall, upon such
exercise, be duly and validly authorized and issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the
issuance thereof (other than liens or charges created by or imposed upon the
Holder or taxes in respect of any transfer occurring contemporaneously or
otherwise specified herein). The Company agrees that the Shares so issued
2
<PAGE> 3
shall be and shall for all purposes be deemed to have been issued to the Holder
as the record owner of such Shares as of the close of business on the date on
which this Warrant shall have been exercised or converted in accordance with the
terms hereof.
4. No Fractional Shares or Scrip. No fractional Shares or scrip
representing fractional Shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional Share to which the Holder would otherwise be
entitled, the Holder shall be entitled, at its option, to receive either (i) a
cash payment equal to the excess of fair market value for such fractional Share
above the Exercise Price for such fractional share (as determined in good faith
by the Company) or (ii) a whole Share if the Holder tenders the Exercise Price
for one whole share.
5. No Rights as Shareholders. This Warrant does not entitle the Holder
to any voting rights or other rights as a shareholder of the Company prior to
the exercise hereof.
6. Charges, Taxes and Expenses. Certificates for Shares issued upon
exercise of this Warrant shall be issued in the name of the Holder. Issuance of
certificates for Shares upon the exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company.
7. Exchange and Registry of Warrant. This Warrant is exchangeable, upon
the surrender hereof by the registered Holder at the office or agency of the
Company referenced in Section 2 above, for a new Warrant on substantially
identical form and dated as of such exchange. The Company shall maintain at the
office or agency referenced in Section 2 above, a registry showing the name and
address of the registered Holder of this Warrant.
This Warrant may be surrendered for exchange or exercise, in accordance
with its terms, at the office of the Company, and the Company shall be entitled
to rely in all respects, prior to written notice to the contrary, upon such
registry.
8. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in the case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation
and reissuance, in lieu of this Warrant.
9. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a Saturday or a Sunday or a legal holiday.
10. Adjustments of Rights. The purchase price per Share and the number
of Shares purchasable hereunder are subject to adjustment from time to time as
follows:
3
<PAGE> 4
(a) Merger or Consolidation. If at any time there shall be a
merger or a consolidation of the Company with or into another corporation when
the Company is not the surviving corporation, then, as a condition of such
merger or consolidation, lawful provision shall be made so that the Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the aggregate Exercise Price then in
effect, the number of shares of stock or other securities or property (including
cash) of the successor corporation resulting from such merger or consolidation,
to which the holder of the stock deliverable upon exercise of this Warrant would
have been entitled in such merger or consolidation if this Warrant had been
exercised immediately before such merger or consolidation. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Warrant with respect to the rights and interests of the Holder after the
merger or consolidation. This provision shall apply to successive mergers or
consolidations.
(b) Reclassification, Recapitalization, etc. If the Company at
any time shall, by subdivision, combination or reclassification of securities,
recapitalization, automatic conversion, or other similar event affecting the
number or character of outstanding Shares, or otherwise, change any of the
securities as to which purchase rights under this Warrant exist into the same or
a different number of securities of any other class or classes, this Warrant
shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities that were subject to the purchase rights under this Warrant
immediately prior to such subdivision, combination, reclassification or other
change.
(c) Split, Subdivision or Combination of Shares. If the Company
at any time while this Warrant remains outstanding and unexpired shall split,
subdivide or combine the securities as to which purchase rights under this
Warrant exist, the Exercise Price shall be proportionately decreased in the case
of a split or subdivision or proportionately increased in the case of a
combination.
(d) Dividends. If the Company at any time while this Warrant is
outstanding and unexpired shall pay a dividend with respect to Common Stock
payable solely in shares of the Company's equity securities, then the Exercise
Price shall be adjusted, from and after the date of determination of the
shareholders entitled to receive such dividend, to that price determined by
multiplying the Exercise Price in effect immediately prior to such date of
determination by a fraction (i) the numerator of which shall be the total number
of shares of Common Stock outstanding immediately prior to such dividend, and
(ii) the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend.
The number of shares of Common Stock at any time outstanding (A) shall
include, in addition to outstanding shares of Common Stock, the number of shares
of Common Stock into which the Series B Cumulative Convertible Preferred Stock,
the Series A Cumulative Convertible Preferred Stock, the Series C Convertible
Preferred Stock, or any of the Company's other equity securities, indebtedness
or other securities are convertible; (B) shall include the number of shares of
Common Stock into which any of the Company's vested options or warrants
(including warrants exercisable
4
<PAGE> 5
for equity securities or indebtedness convertible into Common Stock) are then
convertible; and (C) shall not include treasury shares. This paragraph shall
apply only if and to the extent that, at the time of such event, this Warrant is
then exercisable for Common Stock.
(e) Adjustment of Number of Shares. Upon each adjustment in the
Exercise Price pursuant to 10(c) or 10(d) hereof, the number of Shares
purchasable hereunder shall be adjusted, to the nearest whole Share, to the
product obtained by multiplying the number of Shares purchasable immediately
prior to such adjustment in the Exercise Price by a fraction (i) the numerator
of which shall be the Exercise Price immediately prior to such adjustment, and
(ii) the denominator of which shall be the Exercise Price immediately after such
adjustment.
(f) Dividends. If the Company declares or pays a dividend or
other distribution upon the Common Stock other than a stock dividend payable
solely in shares of the Company's equity securities (a "Dividend"), then the
Company shall pay to the Holder at the time of payment thereof the Dividend
which would have been paid to such Holder if such Holder had held the maximum
number of Shares acquirable upon complete exercise of the outstanding portion of
this Warrant immediately prior to the date on which a record is taken for such
Dividend, or, if no record is taken, the date as of which the record holders of
Common Stock entitled to such dividends are to be determined.
11. Stock to Be Reserved. The Company will at all times reserve and keep
available out of its authorized but unissued Common Stock, solely for the
purpose of issue upon the exercise of it's Warrant as herein provided, such
number of shares of Common Stock as shall be issuable upon Exercise of this
Warrant (the "Reserved Shares"). The Company covenants that, when the Reserved
Shares are issued in accordance with the terms hereof (including payment of the
Exercise Price), the Reserved Shares shall be duly and validly issued and fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof. Without limiting the generality of the foregoing, the
Company covenants that it will from time to time take all such action as may be
reasonably necessary to assure that the par value per share of the Common Stock
at all times shall be equal to or less than the effective Exercise Price.
The Company will take all such action as may be reasonably necessary to
assure that all Reserved Shares may be issued without violation of any
applicable law or regulation, or of any requirements of any national securities
exchange upon which the Common Shares of the Company may be listed. The Company
will not take any action which results in any adjustment of the Exercise Price
if the total number of shares of Common Stock issued and issuable after such
action upon exercise of this Warrant would exceed the total number of shares of
Common Stock then authorized by the Company's Articles of Incorporation. The
Company has not granted and will not grant any right of first refusal or similar
right with respect to Shares issuable upon exercise of this Warrant, and there
are no preemptive rights associated with such Shares.
12. Issue Tax. The issuance of certificates for shares of Common Stock
upon exercise of this Warrant shall be made without charge to the Holder for any
issuance or transfer tax in respect
5
<PAGE> 6
thereof; provided that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than that of the Holder.
13. Closing of Books. The Company will at no time close its transfer
books against the transfer of the shares of Common Stock issued or issuable upon
the exercise of this Warrant in any manner which interferes with the timely
exercise of this Warrant.
14. Notices of Record Dates. If the Company sets a record date for
holders of any class of securities for the purpose of determining the holders
entitled to receive any dividend or other distribution (other than cash
dividends out of earned surplus), or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, then at least twenty (20) days, or such
shorter period as is practicable but in no event less than ten (10) days, before
any such record date, the Company shall give notice (the "Notice") to the Holder
specifying the date on which such record is to be taken. The Notice shall state
whether the record date is subject to the effectiveness of a registration
statement under the Securities Act of 1933, as amended (the "Securities Act") or
to a favorable vote of stockholders, if either is required.
15. Warrant Transferrable. Subject to compliance with applicable state
and federal securities laws, this Warrant and the Holder's rights hereunder are
transferrable, in whole or in part, without charge to the Holder upon surrender
of this Warrant with a properly executed assignment, in form and substance
reasonably acceptable to the Company.
16. Notice of Adjustments; Notices. Whenever the Exercise Price or
number or type of securities issuable hereunder shall be adjusted pursuant to
Section 10 hereof, the Company shall issue and provide to the Holder a
certificate signed by an officer of the Company setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and the Exercise Price and number
of Shares purchasable hereunder after giving effect to such adjustment.
17. Governing Law. This Warrant shall be binding upon any successors or
assigns of the Company. This Warrant shall constitute a contract under the laws
of Illinois and for all purposes shall be construed in accordance with and
governed by the laws of said state, without giving effect to the conflict of
laws principles.
18. Attorneys' Fees. In any litigation, arbitration or court proceeding
between the Company and the Holder relating hereto, the prevailing party shall
be entitled to reasonable attorneys' fees and expenses incurred in enforcing
this Warrant.
19. Amendments. This Warrant may be amended and the observance of any
term of this Warrant may be waived only with the written consent of the Company
and the Holder.
6
<PAGE> 7
20. Notice. Except as otherwise specified herein, any notice, demand or
request required or permitted to be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission (with a hard copy to follow)
on or before 5:00 p.m., central time, on a business day or, if the day is not a
business day, on the next succeeding business day, (ii) on the next business day
after timely delivery to an overnight courier and (iii) on the third business
day after deposit in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed as follows:
If to the Company:
Universal Access, Inc.
100 North Riverside Plaza
Suite 2200 Chicago, IL 60606
Phone: 312-660-5000
Fax: 312-660-5050
With a copy to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, Illinois 60611
Attn: Mitchell D. Goldsmith, Esq.
Phone: 312-836-4006
Fax: 312-527-3194
and if to any Holder, at its address as shown on the stock records of the
Company or such other address as any such party shall deliver to the Company.
21. Entire Agreement. This Warrant and the Notice of Exercise attached
hereto contain the entire agreement between the parties with respect to the
subject matter hereof and supersede all prior and contemporaneous arrangements
or undertakings with respect thereto.
7
<PAGE> 8
IN WITNESS WHEREOF, Universal Access, Inc. has caused this Warrant to be
executed by its duly authorized officer.
Dated: February 8, 1999
UNIVERSAL ACCESS, INC.
By: /s/ PATRICK SHUTT
---------------------
Name: Patrick Shutt
Title: President
8
<PAGE> 9
NOTICE OF EXERCISE
To: Universal Access, Inc.
1. The undersigned hereby elects to purchase ____________________ shares
(the "Shares") of Common Stock, no par value per share, of Universal Access,
Inc. (the "Company") pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price.
2. The Shares to be received by the undersigned upon exercise of the
Warrant are being acquired for its own account, not as a nominee or agent, and
not with a view to resale or distribution of any part thereof, and the
undersigned has no present intention of selling, granting any participation in,
or otherwise distributing the same, except in compliance with applicable federal
and state securities laws. The undersigned further represents that it does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to such person or to any third person,
with respect to the Shares. The undersigned has received all the information it
considers necessary or appropriate for deciding whether to purchase the Shares.
3. The undersigned understands that the Shares are characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in transactions not involving a public offering
and that under such laws and applicable regulations such securities may be
resold without registration under the Securities Act of 1933, as amended (the
"Act"), only in certain limited circumstances. In this connection, the
undersigned represents that it is familiar with Rule 144 of the Act, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
4. The undersigned understands the certificates evidencing the Shares
may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT."
(b) Any legend required by applicable state law.
<PAGE> 10
5. Please issue a certificate or certificates representing said Shares
in the name of the undersigned.
[NAME OF HOLDER]
By:
--------------------------------
Date: Title:
------------------- -----------------------------
6. Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned.
[NAME OF HOLDER]
By:
--------------------------------
Date: Title:
------------------- -----------------------------
2
<PAGE> 1
EXHIBIT 4.3
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY HAVE BEEN ACQUIRED SOLELY
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE DISTRIBUTED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL, SATISFACTORY
IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND ANY APPLICABLE STATE
SECURITIES LAWS.
No. A-2 WARRANT March 8, 1999
To Purchase 43,900 Shares of Series A Cumulative Convertible Preferred Stock of
Universal Access, Inc. (the "Company")
1. Number of Shares; Exercise Price; Term. This certifies that Broadmark
Capital Corporation or its permitted assigns (the "Holder") is entitled, upon
the terms and subject to the conditions hereinafter set forth, at any time
after the date hereof and at or prior to 11:59 p.m. Central Time, on March 8,
2004 (the "Expiration Time"), but not thereafter, to acquire from the Company,
in whole or in part, from time to time, up to 43,900 fully paid and
nonassessable shares (the "Shares") of Series A Cumulative Convertible
Preferred Stock, stated value $3.00 per share, of the Company ("Series A
Preferred Stock"), at a purchase price of $3.00 per Share (the "Exercise
Price"). The number of Shares, type of security for which this Warrant is
exercisable and Exercise Price are subject to adjustment as provided herein,
and all references to "Series A Preferred Stock" and "Exercise Price" herein
shall be deemed to include any such adjustment or series of adjustments.
2. Exercise of Warrant.
(a) In general, the purchase rights represented by this Warrant are
exercisable by the Holder, in whole or in part, at any time, or from time to
time, prior to the Expiration Time, by the surrender of this Warrant and the
Notice of Exercise annexed hereto, all duly completed and executed on behalf of
the Holder, at the office of the Company in Chicago, Illinois, (or such other
office or agency of the Company as it may designate by notice in writing to the
Holder at the address of the Holder appearing on the books of the Company), and
upon payment of the Exercise Price for the Shares thereby purchased (by cash,
certified or cashier's check, or wire transfer payable to the order of the
Company, at the time of exercise in an amount equal to the purchase price of
the Shares thereby purchased, or by net issue exercise pursuant to Section 2(b)
hereof). Thereupon the Holder shall be entitled to receive from the Company a
stock certificate in proper form representing the number of Shares so
purchased, and a new Warrant in substantially identical form and dated as of
such exercise for the purchase of that number of Shares equal to the
difference, if any, between the number of Shares subject hereto and the number
of Shares as to which this Warrant is so exercised.
<PAGE> 2
(b) Net Issue Exercise. Notwithstanding any provisions in this Warrant
to the contrary, if the fair market value of one share of Series A Preferred
Stock is greater than the Exercise Price (at the date of calculation as set
forth below), in lieu of exercising this Warrant by paying the Exercise Price
in cash, the Holder may elect to receive shares equal to the value (as
determined below) of this Warrant (or the portion of the Warrant being
exercised and canceled) by surrender of this Warrant at the principal office of
the Company together with the properly endorsed Notice of Exercise and notice
of such election in which event the Company shall issue to the Holder a number
of shares of Series A Preferred Stock computed using the following formula:
X = Y(A-B)
------
A
Where X = the number of shares of Series A Preferred Stock
to be issued to the Holder
Y = the number of shares of Series A Preferred Stock
purchasable under the Warrant, or if only a
portion of the Warrant is being exercised, the
portion of the Warrant being exercised and
canceled (at the date of such calculation)
A = the Fair Market Value
B = the Exercise Price
For purposes of the above calculation, the Fair Market Value shall be determined
by the Company's Board of Directors in good faith; provided, however, that where
there exists a public market for the Company's common shares, no par value per
share (the "Common Shares") at the time of such exercise, the Fair Market Value
shall be the product of (i) the average of the closing bid and asked prices of
the Common shares quoted in the Over-The-Counter Market Summary or the last
reported sale price of the Common Shares or the closing price quoted on the
NASDAQ National Market or on any exchange on which the Common Shares are listed,
whichever is applicable, as published in the Central Edition of The Wall Street
Journal for the five (5) trading days prior to the date of determination of Fair
Market Value and (ii) the number of Common Shares into which each share of
Series A Preferred Stock is convertible at the time of such exercise.
Notwithstanding the foregoing, if the Warrant is exercised in connection with
the Company's initial public offering of Common Shares, the Fair Market Value
shall be the product of (i) the per share offering price to the public of the
Company's initial public offering, and (ii) the number of Common Shares into
which each shares of Series A Preferred Stock is convertible at the time of such
exercise.
3. Issuance of Shares. Certificates for Shares purchased hereunder
shall be delivered to the Holder within a reasonable time after the date on
which this Warrant shall have been exercised in accordance with the terms
hereof. All Shares that may be issue upon the exercise of this Warrant shall,
upon such exercise, be duly and validly authorized and issued, fully paid and
nonassessable
2
<PAGE> 3
and free from all taxes, liens and charges in respect of the issuance thereof
(other than liens or charges created by or imposed upon the Holder or taxes in
respect of any transfer occurring contemporaneously or otherwise specified
herein). The Company agrees that the Shares so issued shall be and shall for
all purposes be deemed to have been issued to the Holder as the record owner of
such Shares as of the close of business on the date on which this Warrant shall
have been exercised or converted in accordance with the terms hereof.
4. No Fractional Shares or Scrip. No fractional Shares or scrip
representing fractional Shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional Share to which the Holder would otherwise
be entitled, the Holder shall be entitled, at its option, to receive either (i)
a cash payment equal to the excess of fair market value for such fractional
Share above the Exercise Price for such fractional share (as determined in good
faith by the Company) or (ii) a whole Share if the Holder tenders the Exercise
Price for one whole share.
5. No Rights as Shareholders. This Warrant does not entitle the Holder
to any voting rights or other rights as a shareholder of the Company prior to
the exercise hereof.
6. Charges, Taxes and Expenses. Certificates for Shares issued upon
exercise of this Warrant shall be issued in the name of the Holder. Issuance of
certificates for Shares upon the exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificates, all of which taxes and
expenses shall be paid by the Company.
7. Exchange and Registry of Warrant. This Warrant is exchangeable, upon
the surrender hereof by the registered Holder at the office or agency of the
Company referenced in Section 2 above, for a new Warrant on substantially
identical form and dated as of such exchange. The Company shall maintain at the
office or agency referenced in Section 2 above, a registry showing the name and
address of the registered Holder of this Warrant. This Warrant may be
surrendered for exchange or exercise, in accordance with its terms, at the
office of the Company, and the Company shall be entitled to rely in all
respects prior to written notice to the contrary, upon such registry.
8. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in the case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation
and reissuance, in lieu of this Warrant.
9. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a Saturday or a Sunday or a legal holiday.
3
<PAGE> 4
10. Adjustments of Rights. The purchase price per share and the number of
shares purchasable hereunder are subject to adjustment from time to time as
follows:
(a) Merger or Consolidation. If at any time there shall be a merger
or a consolidation of the Company with or into another corporation when the
Company is not the surviving corporation, then, as a condition of such merger
or consolidation, lawful provision shall be made so that the Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the aggregate Exercise Price then in
effect, the number of shares of stock or other securities or property
(including cash) of the successor corporation resulting from such merger or
consolidation, to which the holder of the stock deliverable upon exercise of
this Warrant would have been entitled in such merger or consolidation if this
Warrant had been exercised immediately before such merger or consolidation. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the merger or consolidations.
(b) Reclassification, Recapitalization, etc. If the Company at any
time shall, by subdivision, combination or reclassification of securities,
recapitalization, automatic conversion, or other similar event affecting the
number or character of outstanding Shares, or otherwise, change any of the
securities as to which purchase rights under this Warrant exist into the same
or a different number of securities of any other class or classes, this Warrant
shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with
respect to the securities that were subject to the purchase rights under this
Warrant immediately prior to such subdivision, combination, reclassification or
other change.
(c) Split Subdivision or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall split,
subdivide or combine the securities as to which purchase rights under this
Warrant exist, the Exercise Price shall be proportionately decreased in the
case of a split or subdivision or proportionately increased in the case of a
combination.
(d) Stock Dividends. If the Company at any time while this Warrant
is outstanding and unexpired shall pay a dividend with respect to Series A
Preferred Stock payable solely in shares of the Company's equity securities,
then the Exercise Price shall be adjusted, from and after the date of
determination of the shareholders entitled to receive such dividend, to that
price determined by multiplying the Exercise Price in effect immediately prior
to such date of determination by a fraction (i) the numerator of which shall be
the total number of Common Shares outstanding immediately prior to such
dividend, and (ii) the denominator of which shall be the total number of Common
Shares outstanding immediately after such dividend.
The number of Common Shares at any time outstanding (A) shall include, in
addition to outstanding Common Shares, the number of Common Shares into which
the Series A Preferred
4
<PAGE> 5
Stock, the Series B Cumulative Convertible Preferred Stock, the Series C
Convertible Preferred Stock, or any of the Company's other equity securities,
indebtedness or other securities are convertible; (B) shall include the number
of Common Shares into which any of the Company's vested options or warrants
(including warrants exercisable for equity securities or indebtedness
convertible into Common Shares) are then convertible; and (B) shall not include
treasury shares. This paragraph shall apply only if and to the extent that, at
the time of such event, this Warrant is then exercisable for Preferred Stock.
(e) Adjustment of Number of Shares. Upon each adjustment in the
Exercise Price pursuant to 10(c) or 10(d) hereof, the number of Shares
purchasable hereunder shall be adjusted, to the nearest whole Share, to the
product obtained by multiplying the number of Shares purchasable immediately
prior to such adjustment in the Exercise Price by a fraction (i) the numerator
of which shall be the Exercise Price immediately prior to such adjustment, and
(ii) the denominator of which shall be the Exercise Price immediately after
such adjustment.
(f) Dividends. If the Company declares or pays a dividend or other
distribution upon the Series A Preferred Stock other than a stock dividend
payable solely in shares of the Company's equity securities (a "Dividend"),
then the Company shall pay to the Holder at the time of payment thereof the
Dividend which would have been paid to such Holder if such Holder had held the
maximum number of Shares acquirable upon complete exercise of the outstanding
portion of this Warrant immediately prior to the date on which a record is
taken for such Dividend, or, if no record is taken, the date as of which the
record holders of Series A Preferred Stock entitled to such dividends are to be
determined.
11. Stock to Be Reserved. The Company will at all times reserve and keep
available out of its authorized but unissued Series A Preferred Stock and
Common Shares, solely for the purpose of issue upon the exercise of this
Warrant as herein provided, such number of shares of (a) Series A Preferred
Stock as shall be issuable upon exercise of this Warrant, and (b) Common Shares
as shall be issuable upon conversion of the Series A Preferred Stock issuable
upon exercise of this Warrant (collectively, the "Reserved Shares"). The
Company covenants that, when the Reserved Shares are issued in accordance with
the terms hereof (including payment of the Exercise Price) or the terms of the
Certificate of Designations, Preferences and Rights of the Series A Preferred
Stock (the "Series A Certificate"), as applicable, the Reserved Shares shall be
duly and validly issued and fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof. Without limiting
the generality of the foregoing, the Company covenants that it will from time
to time take all such action as may be reasonably necessary to assure that the
par value per share (as opposed to the Stated Value) of the Shares at all times
equal to or less than the effective Exercise Price.
The Company will take all such action as may be reasonably necessary to
assure that all Reserved Shares may be issued without violation of any
applicable law or regulation, or of any requirements of any national securities
exchange upon which the Common Shares of the Company may be listed. The Company
will not take any action which results in any adjustment of the
5
<PAGE> 6
Exercise Price if the total number of shares of Series A Preferred Stock issued
and issuable after such action upon exercise of this Warrant would exceed the
total number of shares of Series A Preferred Stock then authorized by the
Company's Articles of Incorporation. The Company has not granted and will not
grant any right of first refusal or similar right with respect to Shares
issuable upon exercise of this Warrant, and there are no preemptive rights
associated with such Shares.
12. Issue Tax. The issuance of certificates for shares of Series A
Preferred Stock upon exercise of this Warrant shall be made without charge to
the Holder for any issuance or transfer tax in respect thereof; provided that
the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the Holder.
13. Closing of Books. The Company will at no time close its transfer
books against the transfer of the shares of Series A Preferred Stock issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.
14. Notices of Record Dates. If:
(a) the Company sets a record date for holders of any class of
securities for the purpose of determining the holders entitled to receive any
dividend or other distribution (other than cash dividends out of earned
surplus), or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, or
(b) any Liquidation Event (as defined in the Series A Certificate)
occurs,
then at least twenty (20) days, or such shorter period as is practicable but in
no event less than ten (10) days, before any such record date or Liquidation
Event, the Company shall give notice (the "Notice") to the Holder specifying
(i) the date on which such record is to be taken, and (ii) the date on which
such Liquidation Event is to take place, and the time, if any is to be fixed,
as of which the holders of record of Series A Preferred Stock or Common Shares
will be entitled to exchange their shares of Series A Preferred Stock or Common
Shares, as the case may be, for securities or other property deliverable upon
such Liquidation Event. The Notice shall state whether the Liquidation Event or
the record date is subject to the effectiveness of a registration statement
under the Securities Act of 1933, as amended (the "Securities Act") or to a
favorable vote of stockholders, if either is required.
15. Warrant Transferable; Registration Rights. Subject to compliance with
(i) applicable state and federal securities laws, and (ii) any transfer
restrictions set forth in the Series A Certificate, the Warrant Share
Registration and Informational Rights Agreement dated as of September 21, 1998
between the Holder and the Company (the "Registration Rights Agreement"), and
the Shareholders Agreement dated as of February 8, 1999 among the Company and
the parties thereto (collectively, the "Transaction Documents"), this Warrant
and the Holder's rights hereunder
6
<PAGE> 7
are transferrable, in whole or in part, without charge to the Holder upon
surrender of this Warrant with a properly executed assignment, in form and
substance reasonably acceptable to the Company.
For purposes of the Registration Rights Agreement, the shares of Common
Stock (i) acquired or to be acquired by the Holder pursuant to the conversion
of Shares and (ii) which have not been previously sold pursuant to a
registration statement or Rule 144 promulgated under the Securities Act of
1933, as amended, shall be deemed to constitute "Registrable Securities" as
defined in the Registration Rights Agreement and shall be subject to the
registration rights granted to the Holder under the Registration Rights
Agreement.
16. Notice of Adjustments. Whenever the Exercise Price or number or type
of securities issuable hereunder shall be adjusted pursuant to Section 10
hereof, the Company shall issue and provide to the Holder a certificate signed
by an officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which
such adjustment was calculated and the Exercise Price and number of Shares
purchasable hereunder after giving effect to such adjustment.
17. Governing Law. This Warrant shall be binding upon any successors or
assigns of the Company. This Warrant shall constitute a contract under the laws
of Illinois and for all purposes shall be construed in accordance with and
governed by the laws of said state, without giving effect to the conflict of
laws principles.
18. Attorneys' Fees. In any litigation, arbitration or court proceeding
between the Company and the Holder relating hereto, the prevailing party shall
be entitled to reasonable attorneys' fees and expenses incurred in enforcing
this Warrant.
19. Amendments. This Warrant may be amended and the observance of any
term of this Warrant may be waived only with the written consent of the Company
and the Holder.
20. Notice. Except as otherwise specified herein, any notice, demand or
request required or permitted to be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission (with a hard copy to follow)
on or before 5:00 p.m., central time, on a business day or, if the day is not a
business day, on the next succeeding business day, (ii) on the next business
day after timely delivery to an overnight courier and (iii) on the third
business day after deposit in the U.S. mail (certified or registered mail,
return receipt requested, postage prepaid), addressed as follows:
If to the Company:
Universal Access, Inc.
100 North Riverside Plaza
Suite 2200
7
<PAGE> 8
Chicago, IL 60606
Phone: 312-660-5000
Fax: 312-660-5050
With a copy to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, Illinois 60611
Attn: Mitchell D. Goldsmith, Esq.
Phone: 312-836-4006
Fax: 312-527-3194
and if to any Holder, at its address as shown on the stock records of the
Company or such other address as any such party shall deliver to the Company.
21. Entire Agreement. This Warrant, the Notice of Exercise attached
hereto and the Transaction Documents contain the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or undertakings with respect thereto.
IN WITNESS WHEREOF, Universal Access, Inc. has caused this Warrant to be
executed by its duly authorized officer.
Dated: March 8, 1999
UNIVERSAL ACCESS, INC.
By:
---------------------------
Name: Patrick Shutt
Title: President
8
<PAGE> 9
NOTICE OF EXERCISE
To: Universal Access, Inc.
1. The undersigned hereby elects to purchase _____________ shares (the
"Shares") of Series A Cumulative Convertible Preferred Stock, stated value
$3.00 per share, of Universal Access, Inc. (the "Company") pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price.
2. The Shares to be received by the undersigned upon exercise of the
Warrant are being acquired for its own account, not as a nominee or agent, and
not with a view to resale or distribution of any part thereof, and the
undersigned has no present intention of selling, granting any participation in,
or otherwise distributing the same, except in compliance with applicable
federal and state securities laws. The undersigned further represents that it
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to the Shares. The undersigned has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Shares.
3. The undersigned understands that the Shares are characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in transactions not involving a public offering
and that under such laws and applicable regulations such securities may be
resold without registration under the Securities Act of 1933, as amended (the
"Act"), only in certain limited circumstances. In this connection, the
undersigned represents that it is familiar with Rule 144 of the Act, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
4. The undersigned understands the certificates evidencing the Shares
may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF
SUCH ACT."
(b) Any legend required by applicable state law.
<PAGE> 10
5. Please issue a certificate or certificates representing said
Shares in the name of the undersigned
BROADMARK CAPITAL CORPORATION
By:
------------------------------------
Title:
---------------------------------
- ---------------
Date
6. Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned.
BROADMARK CAPITAL CORPORATION
By:
------------------------------------
Title:
---------------------------------
- ---------------
Date
2
<PAGE> 1
EXHIBIT 4.4
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY HAVE BEEN ACQUIRED
SOLELY FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED OR OTHERWISE DISTRIBUTED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL, SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED AND ANY APPLICABLE STATE SECURITIES LAWS.
NO. B-3 WARRANT FEBRUARY 8, 1999
TO PURCHASE 166,666.6 SHARES OF SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF UNIVERSAL ACCESS, INC. (THE "COMPANY")
1. Number of Shares: Exercise Price: Term. This certifies that ICG
Capital Group, Inc. or its permitted assigns (the "Holder") is entitled, upon
the terms and subject to the conditions hereinafter set forth, at any time after
the date hereof and at or prior to 11:59 p.m. Central Time, on February 8, 2004
(the "Expiration Time"), but not thereafter, to acquire from the Company, in
whole or in part, from time to time, up to 166,666.6 fully paid and
nonassessable shares (the "Shares") of Series B Convertible Preferred Stock, par
value $3.00 per share of the Company ("Series B Preferred Stock"), at a purchase
price of $0.01 (1cents) per Share (the "Exercise Price"). The number of Shares,
type of security for which this Warrant is exercisable and Exercise Price are
subject to adjustment as provided herein, and all references to "Series B
Preferred Stock" and "Exercise Price" herein shall be deemed to include any such
adjustment or series of adjustments.
2. Exercise of Warrant.
(a) In general, the purchase rights represented by this Warrant
are exercisable by the Holder, in whole or in part, at any time, or from time to
time, prior to the Expiration Time, by the surrender of this Warrant and the
Notice of Exercise annexed hereto, all duly completed and executed on behalf of
the Holder, at the office of the Company in Chicago, Illinois, (or such other
office or agency of the Company as it may designate by notice in writing to the
Holder at the address of the Holder appearing on the books of the Company), and
upon payment of the Exercise Price for the Shares thereby purchased (by cash,
certified or cashier's check, or wire transfer payable to the order of the
Company, at the time of exercise in an amount equal to the purchase price of the
Shares thereby purchased or by net issue exercise pursuant to Section 2(b)
hereof). Thereupon the Holder shall be entitled to receive from the Company a
stock certificate in proper form representing the number of Shares so purchased,
and a new Warrant in substantially identical form and dated as of such exercise
for the purchase of that number of Shares equal to the difference, if any,
between the number of Shares subject hereto and the number of Shares as to which
this Warrant is so exercised.
<PAGE> 2
(b) Net Issue Exercise. Notwithstanding any provisions in this
Warrant to the contrary, if the fair market value of one share of Series B
Preferred Stock (the "Fair Market Value") is greater than the Exercise Price (at
the date of calculation as set forth below), in lieu of exercising this Warrant
by paying the Exercise Price in cash, the Holder may elect to receive shares
equal to the value (as determined below) of this Warrant (or the portion of the
Warrant being exercised and canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Notice of
Exercise and notice of such election, in which event the Company shall issue to
the Holder a number of shares of Series B Preferred Stock computed using the
following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Series B Preferred Stock to
be issued to the Holder
Y = the number of shares of Series B Preferred Stock
purchasable under the Warrant, or if only a portion
of the Warrant is being exercised, the portion of
the Warrant being exercised and canceled (at the
date of such calculation)
A = the Fair Market Value
B = the Exercise Price
For purposes of the above calculation, the Fair Market Value shall be determined
by the Company's Board of Directors in good faith; provided, however, that where
there exists a public market for the Company's common shares, no par value per
share (the "Common Shares") at the time of such exercise, the Fair Market Value
shall be the product of (i) the average of the closing bid and asked prices of
the Common Shares quoted in the Over-The-Counter Market Summary or the last
reported sale price of the Common Shares or the closing price quoted on the
NASDAQ National Market or on any exchange on which the Common Shares are listed,
whichever is applicable, as published in the Central Edition of The Wall Street
Journal for the five (5) trading days prior to the date of determination of Fair
Market Value and (ii) the number of Common Shares into which each share of
Series B Preferred Stock is convertible at the time of such exercise.
Notwithstanding the foregoing, if the Warrant is exercised in connection with
the Company's initial public offering of Common Shares, the Fair Market Value
shall be the product of (i) the per share offering price to the public of the
Company's initial public offering, and (ii) the number of Common Shares into
which each share of Series B Preferred Stock is convertible at the time of such
exercise.
3. Issuance of Shares. Certificates for Shares purchased hereunder shall
be delivered to the Holder within a reasonable time after the date on which this
Warrant shall have been exercised in accordance with the terms hereof. All
Shares that may be issued upon the exercise of this Warrant
2
<PAGE> 3
shall, upon such exercise, be duly and validly authorized and issued, fully paid
and nonassessable and free from all taxes, liens and charges in respect of the
issuance thereof (other than liens or charges created by or imposed upon the
Holder or taxes in respect of any transfer occurring contemporaneously or
otherwise specified herein). The Company agrees that the Shares so issued shall
be and shall for all purposes be deemed to have been issued to the Holder as the
record owner of such Shares as of the close of business on the date on which
this Warrant shall have been exercised or converted in accordance with the terms
hereof.
4. No Fractional Shares or Scrip. No fractional Shares or scrip
representing fractional Shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional Share to which the Holder would otherwise be
entitled, the Holder shall be entitled, at its option, to receive either (i) a
cash payment equal to the excess of fair market value for such fractional Share
above the Exercise Price for such fractional share (as determined in good faith
by the Company) or (ii) a whole Share if the Holder tenders the Exercise Price
for one whole share.
5. No Rights as Shareholders. This Warrant does not entitle the Holder
to any voting rights or other rights as a shareholder of the Company prior to
the exercise hereof.
6. Charges, Taxes and Expenses. Certificates for Shares issued upon
exercise of this Warrant shall be issued in the name of the Holder. Issuance of
certificates for Shares upon the exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company.
7. Exchange and Registry of Warrant. This Warrant is exchangeable, upon
the surrender hereof by the registered Holder at the office or agency of the
Company referenced in Section 2 above, for a new Warrant on substantially
identical form and dated as of such exchange. The Company shall maintain at the
office or agency referenced in Section 2 above, a registry showing the name and
address of the registered Holder of this Warrant. This Warrant may be
surrendered for exchange or exercise, in accordance with its terms, at the
office of the Company, and the Company shall be entitled to rely in all
respects, prior to written notice to the contrary, upon such registry.
8. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in the case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation
and reissuance, in lieu of this Warrant.
9. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a Saturday or a Sunday or a legal holiday.
3
<PAGE> 4
10. Adjustments of Rights. The purchase price per Share and the number
of Shares purchasable hereunder are subject to adjustment from time to time as
follows:
(a) Merger or Consolidation. If at any time there shall be a
merger or a consolidation of the Company with or into another corporation when
the Company is not the surviving corporation, then, as a condition of such
merger or consolidation, lawful provision shall be made so that the Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the aggregate Exercise Price then in
effect, the number of shares of stock or other securities or property (including
cash) of the successor corporation resulting from such merger or consolidation,
to which the holder of the stock deliverable upon exercise of this Warrant would
have been entitled in such merger or consolidation if this Warrant had been
exercised immediately before such merger or consolidation. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Warrant with respect to the rights and interests of the Holder after the
merger or consolidation. This provision shall apply to successive mergers or
consolidations.
(b) Reclassification, Recapitalization, etc. If the Company at
any time shall, by subdivision, combination or reclassification of securities,
recapitalization, automatic conversion, or other similar event affecting the
number or character of outstanding Shares, or otherwise, change any of the
securities as to which purchase rights under this Warrant exist into the same or
a different number of securities of any other class or classes, this Warrant
shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities that were subject to the purchase rights under this Warrant
immediately prior to such subdivision, combination, reclassification or other
change.
(c) Split, Subdivision or Combination of Shares. If the Company
at any time while this Warrant remains outstanding and unexpired shall split,
subdivide or combine the securities as to which purchase rights under this
Warrant exist, the Exercise Price shall be proportionately decreased in the case
of a split or subdivision or proportionately increased in the case of a
combination.
(d) Stock Dividends. If the Company at any time while this
Warrant is outstanding and unexpired shall pay a dividend with respect to Series
B Preferred Stock payable solely in shares of the Company's equity securities,
then the Exercise Price shall be adjusted, from and after the date of
determination of the shareholders entitled to receive such dividend, to that
price determined by multiplying the Exercise Price in effect immediately prior
to such date of determination by a fraction (i) the numerator of which shall be
the total number of Common Shares outstanding immediately prior to such
dividend, and (ii) the denominator of which shall be the total number of Common
Shares outstanding immediately after such dividend.
The number of Common Shares at any time outstanding (A) shall include,
in addition to outstanding Common Shares, the number of Common Shares into which
the Series B Preferred Stock, the Series A Cumulative Convertible Preferred
Stock, the Series C Convertible Preferred Stock, or
4
<PAGE> 5
any of the Company's other equity securities, indebtedness or other securities
are convertible; (B) shall include the number of Common Shares into which any of
the Company's vested options or warrants (including warrants exercisable for
equity securities or indebtedness convertible into Common Shares) are then
convertible; and (B) shall not include treasury shares. This paragraph shall
apply only if and to the extent that, at the time of such event, this Warrant is
then exercisable for Series B Preferred Stock.
(e) Adjustment of Number of Shares. Upon each adjustment in the
Exercise Price pursuant to 10(c) or 10(d) hereof, the number of Shares
purchasable hereunder shall be adjusted, to the nearest whole Share, to the
product obtained by multiplying the number of Shares purchasable immediately
prior to such adjustment in the Exercise Price by a fraction (i) the numerator
of which shall be the Exercise Price immediately prior to such adjustment, and
(ii) the denominator of which shall be the Exercise Price immediately after such
adjustment.
(f) Dividends. If the Company declares or pays a dividend or
other distribution upon the Series B Preferred Stock other than a stock dividend
payable solely in shares of the Company's equity securities (a "Dividend"), then
the Company shall pay to the Holder at the time of payment thereof the Dividend
which would have been paid to such Holder if such Holder had held the maximum
number of Shares acquirable upon complete exercise of the outstanding portion of
this Warrant immediately prior to the date on which a record is taken for such
Dividend, or, if no record is taken, the date as of which the record holders of
Series B Preferred Stock entitled to such dividends are to be determined.
11. Stock to Be Reserved. The Company will at all times reserve and keep
available out of its authorized but unissued Series B Preferred Stock and Common
Shares, solely for the purpose of issue upon the exercise of this Warrant as
herein provided, such number of shares of (a) Series B Preferred Stock as shall
be issuable upon exercise of this Warrant, and (b) Common Shares as shall be
issuable upon conversion of the Series B Preferred Stock issuable upon exercise
of this Warrant (collectively, the "Reserved Shares"). The Company covenants
that, when the Reserved Shares are issued in accordance with the terms hereof
(including payment of the Exercise Price) or the terms of the Certificate of
Designations, Preferences and Rights of the Series B Preferred Stock (the
"Series B Certificate"), as applicable, the Reserved Shares shall be duly and
validly issued and fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issue thereof. Without limiting the generality
of the foregoing, the Company covenants that it will from time to time take all
such action as may be reasonably necessary to assure that the par value per
share (as opposed to the Stated Value) of the Shares at all times equal to or
less than the effective Exercise Price.
The Company will take all such action as may be reasonably necessary to
assure that all Reserved Shares may be issued without violation of any
applicable law or regulation, or of any requirements of any national securities
exchange upon which the Common Shares of the Company may be listed. The Company
will not take any action which results in any adjustment of the Exercise Price
if the total number of shares of Series B Preferred Stock issued and issuable
after such action upon exercise of this Warrant would exceed the total number of
shares of Series B Preferred Stock
5
<PAGE> 6
then authorized by the Company's Articles of Incorporation. The Company has not
granted and will not grant any right of first refusal or similar right with
respect to Shares issuable upon exercise of this Warrant, and there are no
preemptive rights associated with such Shares.
12. Issue Tax. The issuance of certificates for shares of Series B
Preferred Stock upon exercise of this Warrant shall be made without charge to
the Holder for any issuance or transfer tax in respect thereof; provided that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the Holder.
13. Closing of Books. The Company will at no time close its transfer
books against the transfer of the shares of Series B Preferred Stock issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.
14. Notices of Record Dates. If:
(a) the Company sets a record date for holders of any class of
securities for the purpose of determining the holders entitled to receive any
dividend or other distribution (other than cash dividends out of earned
surplus), or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, or
(b) any Liquidation Event (as defined in the Series B
Certificate) occurs, then at least twenty (20) days, or such shorter period as
is practicable but in no event less than ten (10) days, before any such record
date or Liquidation Event, the Company shall give notice (the "Notice") to the
Holder specifying (i) the date on which such record is to be taken, and (ii) the
date on which such Liquidation Event is to take place, and the time, if any is
to be fixed, as of which the holders of record of Series B Preferred Stock or
Common Shares will be entitled to exchange their shares of Series B Preferred
Stock or Common Shares, as the case may be, for securities or other property
deliverable upon such Liquidation Event. The Notice shall state whether the
Liquidation Event or the record date is subject to the effectiveness of a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") or to a favorable vote of stockholders, if either is required.
15. Registration Rights. The rights of the Holder with respect to the
registration under the Securities Act of the Common Shares issuable upon
conversion of the Shares are set forth in the Registration and Information
Rights Agreement dated as of the date hereof among the Company and the parties
thereto (the "Registration Rights Agreement").
16. Warrant Transferrable. Subject to compliance with (i) applicable
state and federal securities laws, and (ii) any transfer restrictions set forth
in the Series B Certificate, the Registration Rights Agreement, the Shareholders
Agreement dated as of the date hereof among the Company and the parties thereto,
and the Stock Purchase Agreement dated as of the date hereof among the Company
and the parties thereto (collectively, the "Transaction Documents"), this
Warrant and the Holder's
6
<PAGE> 7
rights hereunder are transferrable, in whole or in part, without charge to the
Holder upon surrender of this Warrant with a properly executed assignment, in
form and substance reasonably acceptable to the Company.
17. Notice of Adjustments: Notices. Whenever the Exercise Price or
number or type of securities issuable hereunder shall be adjusted pursuant to
Section 10 hereof, the Company shall issue and provide to the Holder a
certificate signed by an officer of the Company setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and the Exercise Price and number
of Shares purchasable hereunder after giving effect to such adjustment.
18. Governing Law. This Warrant shall be binding upon any successors or
assigns of the Company. This Warrant shall constitute a contract under the laws
of Illinois and for all purposes shall be construed in accordance with and
governed by the laws of said state, without giving effect to the conflict of
laws principles.
19. Attorneys' Fees. In any litigation, arbitration or court proceeding
between the Company and the Holder relating hereto, the prevailing party shall
be entitled to reasonable attorneys' fees and expenses incurred in enforcing
this Warrant.
20. Amendments. This Warrant may be amended and the observance of any
term of this Warrant may be waived only with the written consent of the Company
and the Holder.
21. Notice. Except as otherwise specified herein, any notice, demand or
request required or permitted to be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission (with a hard copy to follow)
on or before 5:00 p.m., central time, on a business day or, if the day is not a
business day, on the next succeeding business day, (ii) on the next business day
after timely delivery to an overnight courier and (iii) on the third business
day after deposit in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed as follows:
If to the Company:
Universal Access, Inc.
100 North Riverside Plaza
Suite 2200 Chicago, IL 60606
Phone: 312-660-5000
Fax: 312-660-5050
7
<PAGE> 8
With a copy to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, Illinois 60611
Attn: Mitchell D. Goldsmith, Esq.
Phone: 312-836-4006
Fax: 312-527-3194
and if to any Holder, at its address as shown on the stock records of the
Company or such other address as any such party shall deliver to the Company.
22. Entire Agreement. This Warrant, the Notice of Exercise attached
hereto and the Transaction Documents contain the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or undertakings with respect thereto.
IN WITNESS WHEREOF, Universal Access, Inc. has caused this Warrant to be
executed by its duly authorized officer.
Dated: February 5, 1999
UNIVERSAL ACCESS, INC.
By: /s/ PATRICK SHUTT
--------------------------------
Name: Patrick Shutt
Title: President
8
<PAGE> 9
NOTICE OF EXERCISE
To: Universal Access, Inc.
1. The undersigned hereby elects to purchase ____________________ shares
(the "Shares") of Series B Cumulative Convertible Preferred Stock, Stated Value
of $3.00 per shares of Universal Access, Inc. (the "Company") pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price.
2. The Shares to be received by the undersigned upon exercise of the
Warrant are being acquired for its own account, not as a nominee or agent, and
not with a view to resale or distribution of any part thereof, and the
undersigned has no present intention of selling, granting any participation in,
or otherwise distributing the same, except in compliance with applicable federal
and state securities laws. The undersigned further represents that it does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to such person or to any third person,
with respect to the Shares. The undersigned has received all the information it
considers necessary or appropriate for deciding whether to purchase the Shares.
3. The undersigned understands that the Shares are characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in transactions not involving a public offering
and that under such laws and applicable regulations such securities may be
resold without registration under the Securities Act of 1933, as amended (the
"Act"), only in certain limited circumstances. In this connection, the
undersigned represents that it is familiar with Rule 144 of the Act, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
4. The undersigned understands the certificates evidencing the Shares
may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144
OF SUCH ACT."
(b) Any legend required by applicable state law.
<PAGE> 10
5. Please issue a certificate or certificates representing said Shares
in the name of the undersigned.
[NAME OF HOLDER]
By:
- -------------------- -------------------------------------
Date Title:
----------------------------------
6. Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned.
[NAME OF HOLDER]
By:
- -------------------- -------------------------------------
Date Title:
----------------------------------
2
<PAGE> 1
EXHIBIT 4.8
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY HAVE BEEN ACQUIRED SOLELY FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE DISTRIBUTED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL, SATISFACTORY IN
FORM AND SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED AND ANY APPLICABLE STATE SECURITIES LAWS.
No. E-1 November 10, 1999
WARRANT
To Purchase 40,000 Shares of Series E Cumulative Convertible Preferred
Stock of Universal Access, Inc. (the "Company")
1. Number of Shares: Exercise Price; Term. This certifies that Advanced
Equities, Inc. or its permitted assigns (the "Holder") is entitled, upon the
terms and subject to the conditions hereinafter set forth, at any time after the
date hereof and at or prior to 11:59 p.m. Central Time, on November 10, 2004
(the "Expiration Time"), but not thereafter, to acquire from the Company, in
whole or in part, from time to time, up to 40,000 fully paid and non-assessable
shares (the "Shares") of Series E Cumulative Convertible Preferred Stock, par
value $0.01 per share of the Company ("Series E Preferred Stock"), at a purchase
price of Eighteen dollars and thirty cents ($18.30) per Share (the "Exercise
Price"). The number of Shares, type of security for which this Warrant is
exercisable and Exercise Price are subject to adjustment as provided herein, and
all references to "Series E Preferred Stock" and "Exercise Price" herein shall
be deemed to include any such adjustment or series of adjustments.
2. Exercise of Warrant.
(a) In general, the purchase rights represented by this Warrant are
exercisable by the Holder, in whole or in part, at any time, or from time to
time, prior to the Expiration Time, by the surrender of this Warrant and the
Notice of Exercise annexed hereto, all duly completed and executed on behalf of
the Holder, at the office of the Company in Chicago, Illinois, (or such other
office or agency of the Company as it may designate by notice in writing to the
Holder at the address of the Holder appearing on the books of the Company), and
upon payment of the Exercise Price for the Shares thereby purchased (by cash,
certified or cashier's check, or wire transfer payable to the order of the
Company, at the time of exercise in an amount equal to the purchase price of the
Shares thereby purchased or by net issue exercise pursuant to Section 2(b)
hereof). Thereupon the Holder shall be entitled to receive from the Company a
stock certificate in proper form representing the number of Shares so purchased,
and a new Warrant in substantially identical form and dated as of such exercise
for the purchase of that number
<PAGE> 2
X = Y (A-B)
-------
A
Where X= the number of shares of Series E Preferred Stock to be
issued to the Holder
Y= the number of shares of Series E Preferred Stock
purchasable under the Warrant, or if only a portion of
the Warrant is being exercised, the portion of the
Warrant being exercised and canceled (at the date of
such calculation)
A= the Fair Market Value
B= the Exercise Price
of Shares equal to the difference, if any, between the number of Shares subject
hereto and the number of Shares as to which this Warrant is so exercised.
(b) Net Issue Exercise. Notwithstanding any provisions in this Warrant
to the contrary, if the fair market value of one share of Series E Preferred
Stock (the "Fair Market Value") is greater than the Exercise Price (at the date
of calculation as set forth below), in lieu of exercising this Warrant by paying
the Exercise Price in cash, the Holder may elect to receive shares equal to the
value (as determined below) of this Warrant (or the portion of the Warrant being
exercised and canceled) by surrender of this Warrant at the principal office of
the Company together with the properly endorsed Notice of Exercise and notice of
such election, in which event the Company shall issue to the Holder a number of
shares of Series E Preferred Stock computed using the following formula:
For purposes of the above calculation, the Fair Market Value shall be determined
by the Company's Board of Directors in good faith; provided, however, that where
there exists a public market for the Company's common shares, no par value per
share (the "Common Shares") at the time of such exercise, the Fair Market Value
shall be the product of (i) the average of the closing bid and asked prices of
the Common Shares quoted in the Over-The-Counter Market Summary or the last
reported sale price of the Common Shares or the closing price quoted on the
NASDAQ National Market or on any exchange on which the Common Shares are listed,
whichever is applicable, as published in the Central Edition of The Wall Street
Journal for the five (5) trading days prior to the date of determination of Fair
Market Value and (ii) the number of Common Shares into which each share of
Series E Preferred Stock is convertible at the time of such exercise
Notwithstanding the foregoing, if the Warrant is exercised in connection with
the Company's initial public offering of Common Shares, the Fair Market Value
shall be the product of (i) the per share offering price to the public of the
Company's initial public offering, and (ii) the number of Common Shares into
which each share of Series E Preferred Stock is convertible at the time of such
exercise.
<PAGE> 3
3. Issuance of Shares. Certificates for Shares purchased hereunder shall
be delivered to the Holder within a reasonable time after the date on which this
Warrant shall have been exercised in accordance with the terms hereof.
All Shares that may be issued upon the exercise of this Warrant shall, upon such
exercise, be duly and validly authorized and issued, fully paid and
non-assessable and free from all taxes, liens and charges in respect of the
issuance thereof (other-than liens or charges created by or imposed upon the
Holder or taxes in respect of any transfer occurring contemporaneously or
otherwise specified herein). The Company agrees that the Shares so issued shall
be and shall for all purposes be deemed to have been issued to the Holder as the
record owner of such Shares as of the close of business on the date on which
this Warrant shall have been exercised or converted in accordance with the terms
hereof.
4. No Fractional Shares or Scrip. No fractional Shares or scrip
representing fractional Shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional Share to which the Holder would otherwise be
entitled, the Holder shall be entitled, at its option, to receive either (i) a
cash payment equal to the excess of fair market value for such fractional Share
above the Exercise Price for such fractional Share (as determined in good faith
by the Company) or (ii) a whole Share if the Holder tenders the Exercise Price
for one whole share.
5. No Rights as Shareholders. This Warrant does not entitle the Holder
to any voting rights or other rights as a shareholder of the Company prior to
the exercise hereof.
6. Charges. Taxes and Expenses. Certificates for Shares issued upon
exercise of this Warrant shall be issued in the name of the Holder. Issuance of
certificates for Shares upon the exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company.
7. Exchange and Registry of Warrant. This Warrant is exchangeable, upon
the surrender hereof by the registered Holder at the office or agency of the
Company referenced in Section 2 above, for a new Warrant in substantially
identical form and dated as of such exchange. The Company shall maintain at the
office or agency referenced in Section 2 above, a registry showing the name and
address of the registered Holder of this Warrant. This Warrant may be
surrendered for exchange or exercise, in accordance with its terms, at the
office of the Company, and the Company shall be entitled to rely in all
respects, prior to written notice to the contrary, upon such registry.
8. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in the case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this
<PAGE> 4
Warrant, if mutilated, the Company will make and deliver a new Warrant of like
tenor and dated as of such cancellation and reissuance, in lieu of this Warrant.
9. Saturdays, Sundays. Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday. or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a Saturday or a Sunday or a legal holiday.
10. Adjustments of Rights. The purchase price per Share and the number
of Shares purchasable hereunder are subject to adjustment from time to time as
follows:
(a) Merger or Consolidation. If at any time there shall be a
merger or a consolidation of the Company with or into another corporation when
the Company is not the surviving corporation, then, as a condition of such
merger or consolidation, lawful provision shall be made so that the Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the aggregate Exercise Price then in
effect, the number of shares of stock or other securities or property (including
cash) of the successor corporation resulting from such merger or consolidation,
to which the holder of the stock deliverable upon exercise of this Warrant would
have been entitled in such merger or consolidation if this Warrant had been
exercised immediately before such merger or consolidation. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Warrant with respect to the rights and interests of the Holder after the
merger or consolidation. This provision shall apply to successive mergers or
consolidations,
(b) Reclassification, Recapitalization. etc, If the Company at
any time shall, by subdivision, combination or reclassification of securities,
recapitalization, automatic conversion, or other similar event affecting the
number or character of outstanding Shares, or otherwise, change any of the
securities as to which purchase rights under this Warrant exist into the same or
a different number of securities of any other class or classes, this Warrant
shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities that were subject to the purchase rights under this Warrant
immediately prior to such subdivision, combination, reclassification or other
change.
(c) Split, Subdivision or Combination of Shares. If the Company
at any time while this Warrant remains outstanding and unexpired shall split,
subdivide or combine the securities as to which purchase rights under this
Warrant exist, the Exercise Price shall be proportionately decreased in the case
of a split or subdivision or proportionately increased in the case of a
combination.
(d) Stock Dividends. If the Company at any time while this
Warrant is outstanding and unexpired shall pay a dividend with respect to Series
E Preferred Stock payable solely in shares of the Company's equity securities,
then the Exercise Price shall be adjusted, from and after the date of
determination of the shareholders entitled to
<PAGE> 5
receive such dividend, to that price determined by multiplying the Exercise
Price in effect immediately prior to such date of determination by a fraction
(i) the numerator of which shall be the total number of Common Shares
outstanding immediately prior to such dividend, and (ii) the denominator of
which shall be the total number of Common Shares outstanding immediately after
such dividend.
The number of Common Shares at any time outstanding (A) shall include,
in addition to outstanding Common Shares, the number of Common Shares into which
the Series A Preferred Stock, the Series B Cumulative Convertible Preferred
Stock, the Series C Convertible Preferred Stock, the Series D Cumulative
Convertible Preferred Stock, the Series E Preferred Stock or any of the
Company's other equity securities, indebtedness or other securities are
convertible; (B) shall include the number of Common Shares into which any of the
Company's vested options or warrants (including warrants exercisable for equity
securities or indebtedness convertible into Common Shares) are then convertible;
and (B) shall not include treasury shares. This paragraph shall apply only if
and to the extent that, at the time of such event, this Warrant is then
exercisable for Series E Preferred Stock,
(e) Adjustment of Number of Shares. Upon each adjustment in the
Exercise Price pursuant to 10(c) or 10(d) hereof, the number of Shares
purchasable hereunder shall be adjusted, to the nearest whole Share, to the
product obtained by multiplying the number of Shares purchasable immediately
prior to such adjustment in the Exercise Price by a fraction (i) the numerator
of which shall be the Exercise Price immediately prior to such adjustment, and
(ii) the denominator of which shall be the Exercise Price immediately after such
adjustment.
(f) Dividends. If the Company declares or pays a dividend or
other distribution upon the Series E Preferred Stock other than a stock dividend
payable solely in shares of the Company's equity securities (a "Dividend"), then
the Company shall pay to the Holder at the time of payment thereof the Dividend
which would have been paid to such Holder if such Holder had held the maximum
number of Shares acquirable upon complete exercise of the outstanding portion of
this Warrant immediately prior to the date on which a record is taken for such
Dividend, or, if no record is taken, the date as of which the record holders of
Series B Preferred Stock entitled to such dividends are to be determined
11. Stock to Be Reserved. The Company will at all times reserve and keep
available out of its authorized but unissued Series E Preferred Stock and Common
Shares, solely for the purpose of issue upon the exercise of this Warrant as
herein provided, such number of shares of (a) Series E Preferred Stock as shall
be issuable upon exercise of this Warrant, and (b) Common Shares as shall be
issuable upon conversion of the Series E Preferred Stock issuable upon exercise
of this Warrant (collectively, the "Reserved Shares"). The Company covenants
that, when the Reserved Shares are issued in accordance with the terms hereof
(including payment of the Exercise Price) or the terms of the Certificate of
Designations, Preferences and Rights of the Series E Preferred
<PAGE> 6
Stock (the "Series E Certificate"), as applicable, the Reserved Shares shall be
duly and validly issued and fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issue thereof Without limiting the
generality of the foregoing, the Company covenants that it will from time to
time take all such action as may be reasonably necessary to assure that the par
value per share (as opposed to the Stated Value) of the Shares at all times
equal to or less than the effective Exercise Price.
The Company will take all such action as may be reasonably necessary to
assure that all Reserved Shares may be issued without violation of any
applicable law or regulation, or of any requirements of any national securities
exchange upon which the Common Shares of the Company may be listed. The Company
will not take any action which results in any adjustment of the Exercise Price
if the total number of shares of Series E Preferred Stock issued and issuable
after such action upon exercise of this Warrant would exceed the total number of
shares of Series E Preferred Stock then authorized by the Company's Certificate
of Incorporation.
12. Issue Tax. The issuance of certificates for shares of Series E
Preferred Stock upon exercise of this Warrant shall be made without charge to
the Holder for any issuance or transfer tax in respect thereof; provided that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the Holder.
13. Closing of Books. The Company will at no time close its transfer
books against the transfer of the shares of Series E Preferred Stock issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.
14. Notices of Record Dates. If:
(a) the Company sets a record date for holders of any class of
securities for the purpose of determining the holders entitled to receive any
dividend or other distribution (other than cash dividends out of earned
surplus), or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, or
(b) and Liquidation Event (as defined in the Series E
Certificate) occurs,
then at least twenty (20) days, or such shorter period as is practicable but in
no event less than ten (10) days, before any such record date or Liquidation
Event, the Company shall give notice (the "Notice") to the Holder specifying (i)
the date on which such record is to be taken, and (ii) the date on which such
Liquidation Event is to take place, and the time, if any is to be fixed, as of
which the holders of record of Series E Preferred Stock or Common Shares will be
entitled to exchange their shares of Series E Preferred Stock or Common Shares,
as the case may be, for securities or other property deliverable upon such
Liquidation Event. The Notice shall state whether the Liquidation Event or the
<PAGE> 7
record date is subject to the effectiveness of a registration statement under
the Securities Act of 1933, as amended (the "Securities Act") or to a favorable
vote of stockholders, if either is required.
15. Registration Rights. The rights of the Holder with respect to the
registration under the Securities Act of the Common Shares issuable upon
conversion of the Shares are set forth in the Registration Rights Agreement
dated as of the date hereof among the Company and the parties thereto (the
"Registration Rights Agreement").
16. Warrant Transferable. Subject to compliance with (i) applicable
state and federal securities laws, and (ii) any transfer restrictions set forth
in the Series E Certificate, the Registration Rights and the Shareholders
Agreement dated as of the date hereof among the Company and the parties
(collectively, the "Transaction Documents"), this Warrant and the Holder's
rights hereunder are transferable, in whole or in part, without charge to the
Holder upon surrender of this Warrant with a properly executed assignment, in
form and substance reasonably acceptable to the Company.
17. Notice of Adjustments; Notices. Whenever the Exercise Price or
number or type of securities issuable hereunder shall be adjusted pursuant to
Section 10 hereof, the Company shall issue and provide to the Holder a
certificate signed by an officer of the Company setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and the Exercise Price and number
of Shares purchasable hereunder after giving effect to such adjustment.
18. Governing Law. This Warrant shall be binding upon any successors or
assigns of the Company. This Warrant shall constitute a contract under the laws
of Delaware and for all purposes shall be construed in accordance with and
governed by the laws of said state, without giving effect to the conflict of
laws principles.
19. Attorneys' Fees. In any litigation, arbitration or court proceeding
between the Company and the Holder relating hereto, the prevailing party shall
be entitled to reasonable attorneys' fees and expenses incurred in enforcing
this Warrant.
20. Amendments. This Warrant may be amended and the observance of any
term of this Warrant may be waived only with the written consent of the Company
and the Holder.
21. Notice. Except as otherwise specified herein, any notice, demand or
request required or permitted to be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission (with a hard copy to follow)
on or before 5:00 p.m., central time, on a business day or, if the day is not a
business day, on the next succeeding business day, (ii) on the next business day
after timely delivery to an overnight courier and (iii) on the third business
day after deposit in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed as follows:
<PAGE> 8
If to the company:
Universal Access, Inc.
100 North Riverside Plaza
Suite 2200
Chicago, EL 60606
Phone: 312-660-5000
Fax: 312-660-5050
With a copy to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, IL 60611
Attn: Mitchell D. Goldsmith, Esq.
Phone: 312-836-4006
Fax: 312-527-3194
and if to any Holder, at its address as shown on the stock records of the
Company or such other address as any such party shall deliver to the Company.
22. Entire Agreement. This Warrant, the Notice of Exercise attached
hereto and the Transaction Documents contain the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or undertakings with respect thereto.
IN WITNESS WHEREOF, Universal Access, Inc. has caused this Warrant to be
executed by its duly authorized officer.
Dated: November 10, 1999
UNIVERSAL ACCESS, INC.
By: /s/ PATRICK SHUTT
---------------------------------
Name: Patrick Shutt
Title: President and CEO
<PAGE> 1
EXHIBIT 5.1
February 18, 2000
Universal Access, Inc.
100 North Riverside Plaza, Suite 2200
Chicago, Illinois 60606
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you with
the Securities and Exchange Commission on December 17, 1999 (Registration No.
333-93039), as amended (the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of up to 11,500,000
shares of your Common Stock, $0.01 par value per share (the "Shares"). The
Shares include an over-allotment option granted to the underwriters of the
offering to purchase up to 1,500,000 shares. We understand that the Shares are
to be sold to the underwriters of the offering for resale to the public as
described in the Registration Statement. As your legal counsel, we have examined
the proceedings taken, and are familiar with the proceedings proposed to be
taken, by you in connection with the sale and issuance of the Shares to be sold
by you.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, including the proceedings being taken in order to permit such
transaction to be carried out in accordance with applicable state securities
laws, the Shares, when issued and sold in the manner described in the
Registration Statement, will be legally issued, fully paid and non-assessable.
We are members of the Bar of the State of California only and express no
opinion as to any matter relating to the laws of any jurisdiction other than
the laws of the State of California and the federal laws of the United States.
Without limiting the foregoing, we express no opinion as to the securities laws
of the State of Delaware.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
/s/ WILSON SONSINI GOODRICH & ROSATI
-------------------------------------
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
EXHIBIT 10.9.1
FIRST AMENDMENT OF SUBLEASE
This FIRST AMENDMENT OF SUBLEASE (this "AMENDMENT") dated as of
January 25, 2000, by and between MORTON INTERNATIONAL, INC., an Indiana
corporation ("SUBLESSOR") and UNIVERSAL ACCESS, INC., a Delaware corporation
("SUBLESSEE").
WITNESSETH:
WHEREAS, Sublessor and Sublessee entered into a certain Sublease
dated as of May 15, 1999 (the "SUBLEASE") whereby Sublessor leased to Sublessee
a portion of the real estate located on the east side of the 22nd Floor of 100
North Riverside Plaza, Chicago, Illinois (the "BUILDING"), as more fully
described on Exhibit A to the Sublease (the "ORIGINAL PREMISES"); and
WHEREAS, Sublessee desires to sublease approximately 13,036
additional square feet on the 23rd Floor of the Building (the "ADDITIONAL
PREMISES"); and
WHEREAS, Sublessor and Sublessee desire by this instrument to
amend the Sublease to expand the Original Premises by adding the Additional
Premises to the Original Premises, subject to the terms and conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Sublessor and Sublessee agree as follows:
1. Effective as of the 23rd Floor Commencement Date (as
hereinafter defined) the term "Sublease Premises" in the Sublease shall
hereinafter be considered to refer to the Original Premises and the Additional
Premises. From and after the 23rd Floor Commencement Date, for all purposes of
the Sublease, the word "Sublease Premises" as used therein shall be deemed to
mean, collectively, the Original Premises and the Additional Premises.
2. The Term with respect to the Additional Premises shall
commence on February 1, 2000 (the "23RD FLOOR COMMENCEMENT DATE") and shall
terminate on December 31, 2000, unless sooner terminated in accordance with the
Sublease as amended by this Amendment. Notwithstanding anything to the contrary
in the Sublease or this Amendment, Sublessor shall, as of July 1, 2000, have the
right to terminate the Sublease with respect to the Additional Premises at any
time upon 90 days prior written notice to Sublessee.
3. Effective as of the 23rd Floor Commencement Date, the monthly
installments of Gross Base Rent shall be increased by Thirty-Four Thousand Seven
Hundred Sixty-Two and 67/100 Dollars ($34,762.67) per month (the "ADDITIONAL
GROSS BASE RENT"), which Additional Gross Base Rent is attributable to the
Additional Premises. For all purposes of the Sublease, the term "Gross Base
Rent" as used therein shall be deemed to mean Three Hundred Eighty-Two Thousand
Three Hundred Eighty-Nine and 33/100 Dollars ($382,389.33). Sublessee's
obligation to pay the Additional Base Rent shall commence on the 23rd Floor
Commencement Date. Notwithstanding anything to the contrary herein, in the event
Sublessor
1
<PAGE> 2
elects to terminate the Sublease with respect to the Additional Premises prior
to December 31, 2000, in accordance with Paragraph 2 herein, then Sublessee's
obligations to pay the Additional Gross Base Rent from and after the date of
termination shall cease and the Gross Base Rent shall be reduced by an amount
equal to the Additional Gross Base Rent which would have been owed for the
period from and after the date of such termination.
4. As additional security for the faithful and prompt performance
of its obligations under this Amendment, Sublessee has, concurrently with the
execution of this Amendment, paid to Sublessor an amount equal to Thirty-Four
Thousand Seven Hundred Sixty-Two and 67/100 Dollars ($34,762.67) (the
"ADDITIONAL SECURITY DEPOSIT"). From and after the 23rd Floor Commencement Date,
for all purposes of the Sublease, the term "Security Deposit" as used therein
shall be deemed to mean Sixty-Seven Thousand Four Hundred Sixty-One and 34/100
Dollars ($67,461.34). Notwithstanding anything to the contrary in the Sublease,
if Sublessor elects to terminate the Sublease with respect to the Additional
Premises prior to December 31, 2000 in accordance with Paragraph 2 herein, then
the Additional Security Deposit shall be paid to Sublessee subject to the terms
and conditions of Section 18 of the Sublease.
5. Sublessee and Sublessor each represent and warrant unto each
other that it has not dealt with any real estate brokers in connection with this
Amendment except for Binswanger CBB and Dean Topping & Company (collectively,
the "BROKERS") and, to its knowledge, no person other than the Brokers is
entitled to any commission in connection with this Amendment. Each party hereby
indemnifies, defends and holds the other party harmless from and against any and
all claims of any real estate broker for commissions in connection with this
Amendment (other than the Brokers pursuant to Sublessor's written agreement with
Brokers) which claims arise from alleged dealings with such party. Sublessor
shall pay to Brokers any brokerage fee required under the Sublessor's written
agreement with the Brokers.
6. The obligations of Sublessor and Sublessee under this Sublease
are conditioned and contingent upon Landlord's written consent to this
Amendment. In the event that Landlord's consent is not obtained before or on
February 1, 2000, this Amendment shall automatically terminate and become null
and void and Sublessor shall return to Sublessee any Additional Security Deposit
delivered to it and neither Sublessor nor Sublessee shall have any further
obligations or liabilities hereunder to each other with respect to the
Additional Premises. Sublessee shall not be entitled to possession of the
Additional Premises until the Landlord's written consent has been received.
7. Except as in this Amendment specifically provided, the
Sublease shall remain unchanged and in full force and effect, including, without
limitation, the $400,000 limit on aggregate damages recoverable by Sublessee in
accordance with Section 17 of the Sublease.
8. All capitalized terms used in this Amendment but not defined
herein shall have the same meaning ascribed to such terms in the Sublease.
9. This Amendment and the Sublease shall be deemed one instrument
and, in the event of a conflict between this Amendment and the Sublease, the
terms and provisions of this Amendment shall, in all instances and for all
purposes, control.
2
<PAGE> 3
10. For purposes of negotiating and finalizing this Amendment,
transmissions via facsimile shall be treated in all manners and respects as
original documents and any signature thereon shall be considered an original
signature and shall have the same binding legal effect as the original document.
At the request of either party, the other parties shall re-execute this
Amendment.
11. This Amendment may be signed in counterparts, each when taken
together shall constitute one document.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE IMMEDIATELY FOLLOWS]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed or caused to
be executed this First Amendment of Sublease and it shall be effective on the
date first written above.
MORTON INTERNATIONAL, INC., UNIVERSAL ACCESS, INC.,
an Indiana corporation a Delaware corporation
/s/ Rosemary Collins /s/ PATRICK C. SHUTT
- ----------------------------------- -----------------------------------
By: Rosemary Collins By: PATRICK C. SHUTT
-------------------------------- --------------------------------
Its: Vice President Its: President & CEO
------------------------- -------------------------
4
<PAGE> 1
EXHIBIT 10.21
EMPLOYMENT NON-COMPETITION
AND PROPRIETY RIGHTS AGREEMENT
THIS EMPLOYMENT NON-COMPETITION AND PROPRIETY RIGHTS AGREEMENT (the
"AGREEMENT") is made as of this 15th day of September, 1998, by and between
UNIVERSAL ACCESS, INC., an Illinois corporation (the "COMPANY"), and
Mr. Patrick Shutt (the "Employee").
RECITALS:
A. The Company is in the telecommunications business; and,
B. The Company desires to employ the Employee and Employee desires to
be employed by the Company as its President and Chief Executive Officer,
subject to the terms, conditions and covenants hereinafter set forth; and,
C. As a condition of the Company employing Employee, Employee has
agreed not to divulge to the public the Company's confidential information, not
to solicit the Company's vendors, customers or employees and not to compete with
the Company, all upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the agreements,
covenants and conditions set forth herein, the Employee and the Company hereby
agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company hereby employs, engages and hires Employee,
and Employee hereby accepts employment, upon the terms and conditions set forth
in this Agreement. The Employee shall serve as the President and Chief
Executive Officer of the Company. The Employee shall have and fully perform the
duties and responsibilities as may be, from time to time, specified in the
Company's By-laws or as assigned or delegated by the Board of Directors.
1.2 Activities and Duties During Employment. Employee represents and
warrants to the Company that Employee is free to accept employment with the
Company, and that Employee has no prior or other commitments or obligations of
any kind to anyone else which would hinder or interfere with the acceptance of
the obligations under this Agreement.
Employee accepts the employment described in Article 1 of this
Agreement and agrees to devote his full time and efforts to the faithful and
diligent performance of the services described herein, including the
performance of such other services and responsibilities as the Company may,
<PAGE> 2
from time to time, stipulate. Without limiting the generality of the foregoing,
Employee ordinarily shall devote not less than five days per week to his
employment, and shall be present on the Company premises or actively engaged in
service to or on behalf of the Company during normal business hours Monday
through Friday, excluding periods of vacation and sick leave. Notwithstanding
the foregoing, Employee may: (i) serve on the board of directors of other
entities or serve in any capacity with any civic, educational, professional or
charitable organization provided that such service does not materially interfere
or conflict with his duties hereunder; and (ii) make and manage personal
investments of his choice.
ARTICLE II
TERM
2.1 Term. The term of employment under this Agreement shall be three
(3) years, commencing on the date of the Agreement (such term of employment, as
it may be extended or terminated, is herein referred to as the "Employment
Term"), which Employment Term shall automatically renew for additional one (1)
year periods unless terminated by Employee or the Company by written notice not
less than six (6) months prior to expiration of the then-current term.
2.2 Termination. The Employment Term and employment of Employee may
be terminated as follows:
(a) By the Company immediately for "Cause." For the purpose of
this Agreement, "Cause" shall mean (i) conduct amounting to
fraud, embezzlement, or illegal misconduct in connection with
Employee's duties under this Agreement; (ii) the conviction of
Employee by a court of proper jurisdiction of (or his written,
voluntary and freely given confession to) a crime which
constitutes a felony (other than a traffic violation) or an
indictment that results in material injury to the Company's
property, operation or reputation; (iii) the willful failure of
Employee to comply with reasonable directions of the Board after
(a) written notices delivered to the Employee describing such
willful failure and (b) Employee has failed to cure or take
substantial steps to cure such willful failure after a reasonable
time period as determined by the Board in its reasonable
discretion (not to be less than 30 days) unless the Employee,
after discussion with counsel, in good faith believes, that the
directions of the Board (or its actions or inactions in response
to the Employee's written notice) are illegal; or (iv) willful
misconduct or a material default by the Employee in the
performance or observance of any promise or undertaking of
Employee under this Agreement, which willful misconduct or
default has a material adverse effect on the Company and has
continued for a period of ten (10) business days after written
notice thereof from the Company to the Employee; provided, that
if such willful misconduct or default is of a nature that it or
the injury therefrom cannot be reasonably cured within such ten
(10) day period (but is curable), then, if Employee shall have
commenced
2
<PAGE> 3
an attempt to cure such default within such ten (10) day period,
the period to cure the default shall be extended until the
earlier of: (i) the date which is forty-five (45) days after
receipt of notice or (ii) the date that Employee has failed to
diligently continue his efforts in a reasonable manner to cure
his default.
(b) Automatically, without the action of either party, upon the death
of Employee.
(c) By either party upon the Total Disability of the Employee. The
Employee shall be considered to have a Total Disability for
purposes of this Agreement is he is unable by reason of accident
or illness to substantially perform his employment duties, and is
expected to be in such condition for periods totaling six (6)
months (whether or not consecutive) during any period of twelve
(12) months. The determination of whether a Total Disability has
occurred shall be based on the determination of a physician
mutually acceptable to the Company and the Employee. Nothing
herein shall limit the Employee's right to receive any payments
to which Employee may be entitled under any disability or
employee benefit plan of the Company or under any disability or
insurance policy or plan. During a period of Total Disability
prior to termination hereunder, Employee shall continue to
receive his full compensation (including base salary and bonus)
and benefits.
(d) By the Employee upon a Change of Control. For the purpose of
this Agreement, "change of Control" shall mean the occurrence of
any of the following:
1. The Company consummates a merger or consolidation which
results in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) less then fifty percent
(50%) of the total voting power represented by the voting
securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;
2. A plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of (in
one transaction or a series of transactions) all or
substantially all of the Company's assets is consummated;
(e) By the Employee upon ten (10) business days notice to the Company
for Good Reason, which notice shall state the reason for
termination. For the purpose of this Agreement, "Good Reason"
shall mean: (i) a demotion or reduction in the Employee's duties,
responsibilities or authority as CEO or without his written
consent or the assignment to the Employee of duties and
responsibilities inconsistent with his position as CEO of the
Company without his written consent or which diminishes his
authority without his written consent (together, the "Demotion
Actions"), and the Demotion Actions are not cured by the Company
within thirty
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(30) days after written notice of the Demotion Actions from the
Employee; (ii) the relocation of the Employee's principal place
of employment, or the principal offices for the Company to a
location of more than fifty (50) miles from the current location;
or (iii) any material failure by the Company to comply with the
provisions of this Employee Agreement, including but not limited
to, failure to timely pay any part of Employee's compensation
(including salary or bonus) or provide the benefits contemplated
herein, and which is not remedied by the Company within ten (10)
business days after receipt by the Company of written notice
thereof from Employee; provided, that if such default is of a
nature that it cannot be reasonably cured within ten (10) day
period (but is curable), then if the Company shall have commenced
an attempt to cure such default within such ten (10) day period,
the period to cure the default shall be extended until the
earlier of the date which is forty-five (45) days after receipt
of notice or the Company has failed to diligently continue its
efforts in a reasonable manner to cure its default.
(f) By the Employee without Good Reason, and therefore in breach of
this Agreement.
2.3 Cessation of Rights and Obligations: Survival of Certain
Provisions. On the date of expiration or earlier termination of the Employment
Term for any reason, all of the respective rights, duties, obligation and
covenants of the parties, as set forth herein, shall, except as specifically
provided herein to the contrary, cease and become of no further force or effect
as of the date of said termination, and shall only survive as expressly provided
for herein.
2.4 Cessation of Compensation. In lieu of any severance under any
severance plan that the Company may then have in effect, and subject to (i) the
receipt of a full and unconditional release from Employee and (ii) any amounts
owed by the Employee to the Company under any contract, agreement or loan
document entered into after the date hereof which relates solely to his
employment with the Company (including, but not limited to, loans made by the
Company to the Employee), the Company shall pay to the Employee, and the
Employee shall be entitled to receive, the following amounts within thirty (30)
days of the date of a termination of his employment:
(a) Voluntary Termination/Cause/Expiration of Term. Upon (i)
Employee terminating his employment without Good Reason as
provided in Section 2.2(b), (ii) the expiration of the Employment
Term because the Employee elects not extend the Employment Term,
or (iii) a termination of the Employment Term for Cause by the
Company, the Employee shall be entitled to receive his base
salary and expense reimbursements solely through the date of
termination.
(b) Death or Total Disability. Upon the termination of the
Employment Term by reason of the death or Total Disability of the
Employee, the Employee (or, in the case of death, his estate)
shall be entitled to receive in a lump sum his base salary (which
shall include any of his unused vacation pay for the year of such
termination), unpaid bonus based on the portion of the calendar
year through the date the Employment
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Term ends hereunder based on the annual bonus paid in the
immediately preceding calendar year and expense reimbursement
through the date of death or total disability.
(c) Involuntary. Upon the termination of the Employment Term:
(1) by the Company for any reason other than Cause, Death or
Total Disability;
(2) by the Employee for Good Reason,
the Executive shall be entitled to receive in a lump sum the
balance of his base salary and bonus (based on the annual bonus
paid in the immediately preceding calendar year) for the
remaining term of the Employment Term, exclusive of any renewals
of the then existing term, plus prorated vacation pay and expense
reimbursement through the date of termination. In addition, if
permitted under the Company's group health, life and disability
insurance coverage ("Insurance Coverage"), Employee shall be
entitled to continuation of Employee's coverage thereunder
(subject to such changes in coverage as shall apply to Company's
employees generally) for the one (1) year period after the
termination of the Employment Term at the cost of the Company or
if not so permitted, payment by the Company of the premiums for
group health insurance coverage otherwise payable by Employee
under the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"). It shall be a condition to Employee's right to receive
the payments described above that Employee shall be in compliance
with all of the Employee's obligations which survive termination
hereof, including without limitation those arising under Article
IV hereof. The payments described above are intended to be in
lieu of all other payments to which Employee might otherwise be
entitled in respect of termination of Employee's employment
without Cause unless otherwise required by law or under other
agreements between the parties.
2.5 No Offset/No Mitigation of Damages. Notwithstanding anything
herein to the contrary, Employee shall have no obligation to mitigate or seek
other employment with respect to the payments and benefits under this Agreement
and the Company's obligations under this Agreement shall not be subject to any
offset for any counterclaim, recoupment, defense or other right which the
Company may have (other than amounts if any loaned by the Company to the
Employee as a result of his employment with the Company).
2.6 Tax Gross-Up.
(a) The Company shall attempt to satisfy Section 280G(b)(5) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder to the extent such Code Section is
applicable. In the event that the shareholder approval
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requirements under Section 280G(b)(5) of the code and the
regulations thereunder are not satisfied payments by the Company
to the Employee and such payments by the Company to the Employee
("Company Payments") will be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Code (and any similar tax
that may hereafter be imposed), the Company shall have to pay to
the Employee, an additional amount (the "Gross-up Payment") such
that the net amount retained by the Employee, after deduction of
any Excise Tax on the Company Payments and any federal, state and
local income tax and Excise Tax upon the Gross-up Payment
provided for by this Section, but before deduction for any
federal, state or local income tax on the Company Payments, shall
be equal to the Company Payments.
(b) Prior to any change in ownership (as defined under Section 280(G)
of the Code), the Employee and the Company shall select an
independent certified public accountant or qualified tax counsel
(the "Tax Professional") to determine whether any of the Company
Payments and Gross-up Payments (collectively, the "Total
Payments") will be subject to the Excise Tax and the amount of
such Excise Tax taking into account all provisions of the Code,
including but not limited to exemptions contained in Section
280(G) such as those for payments of reasonable compensation for
services actually rendered. In addition, the Tax Professional
shall determine the value of any non-cash benefits or any
deferred payment or benefit for purposes of determining the
amount, if any, of the Excise Tax. It the Employee and the
Company are unable to mutually determine appropriate Tax
Professional, the decision will be made in accordance with the
arbitration procedures in this Agreement.
(c) For purposes of determining the amount of the Gross-up Payment,
the Employee shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar
year in which the Gross-up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in
the state and locality of the Employee's residence for the
calendar year in which the Company Payment is to be made, net of
the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes if paid in
such year.
(d) The Gross-up Payment shall be paid not later than the fifteenth
(15th) day following the final determination of the amount of the
Excise Tax by the Tax Professionals or under the arbitration
procedures.
(e) In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time the
Gross-up Payment is made, Employee shall repay to the Company at
the time that the amount of such reduction in Excise Tax is
finally determined (but, if previously paid to the taxing
authorities, not prior to the time the amount of such reduction
is refunded to Employee or otherwise realized as a benefit by
Employee) the portion of the Gross-up Payment that would not have
been paid if such Excise Tax had been applied to initially
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calculating the Gross-up Payment, plus interest on the amount of
such repayment at the rate provided in Section 2375(b)(2)(B) of
the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time the
Gross-up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of
the Gross-up Payment), the Company shall make an additional
Gross-up Payment and shall indemnify and hold Employee harmless
in respect of such excess (plus any interest and penalties
payable with respect to such excess) at the time that the amount
of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 15th
day (or such earlier date as the Excise Tax becomes due and
payable to the taxing authorities) after it has been determined
that the Total Payments (or any other portion thereof) are
subject to the Excise Tax; provided, however, that if the amount
of such Gross-up Payment or portion thereof cannot be finally
determined on or before such day, the Company shall pay to
Employee on such day an estimate, as determined by the Tax
Professionals, of the minimum amount of such payments and shall
pay the remain of such payments (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the
amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan
by the Company to Employee, payable on the fifth day after demand
by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be
computed so as not to duplicate any prior Gross-up Payment.
Employee shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-up Payment. Such notification
shall be given as soon as practicable but no later than ten (10)
business days after Employee is informed in writing of such claim
and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. Employee shall
not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the company notifies
Employee in writing prior to the expiration of such period that
it desires to contest such claim, Employee shall give the Company
any information reasonably requested by the Company relating to
such claim;
2.7 Business Expenses.
(a) Reimbursement. The Company shall reimburse the Employee for
all reasonable, ordinary, and necessary business expenses
incurred by him in connection with the
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performance of his duties hereunder, including, but not limited
to, ordinary and necessary travel expenses and entertainment
expenses. The reimbursement of business expenses will be governed
by the policies for the Company and the terms otherwise set forth
herein.
(b) Accounting. The Employee shall provide the Company with an
accounting of his expenses, which accounting shall clearly
reflect which expenses were incurred for proper business purposes
in accordance with the policies adopted by the Company and as
such are reimbursable by the Company. The Employee shall provide
the Company with such other supporting documentation and other
substantiation of reimbursable expenses as will conform to
Internal Revenue Service or other requirements. All such
reimbursements shall be payable by the Company to the Employee
within a reasonable time after receipt by the Company of
appropriate documentation therefor.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Compensation. During Employee's employment, the Company shall
pay Employee such salary and bonus as set forth on Exhibit A.
3.2 Payment. All compensation shall be payable in intervals in
accordance with the general payroll payment practice of the Company. The
compensation shall be subject to such withholdings and deductions by the Company
as are required by law.
3.3 Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, stock option, health plan, disability
income, incentive compensation and welfare or any other benefit plan or plans of
the Company which may now or hereafter be in effect and for which the Employee
is eligible or for which all senior executives in general are eligible.
Notwithstanding the forgoing, the Company shall be under no obligation to
institute or continue the existence of any such benefit plan.
ARTICLE IV
CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETE AGREEMENT
4.1 Non-Disclosure of Confidential Information. Employee hereby
acknowledges and agrees that the duties and services to be performed by Employee
under this Agreement are special and unique and that as of a result of the
employment hereunder, Employee will acquire, develop and
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use information of a special and unique nature and value that is not generally
known to the public or to the Company's industry, including but not limited to,
certain records, phone locations, documentation, software programs, price lists,
contract prices for purchase and sale of telephone access and telephone
services, equipment configurations, business plans, ledgers and general
information, employee records, mailing lists, accounts receivable and payable
ledgers, financial and other records of the Company or its affiliates, and other
similar matters (all such information being hereinafter referred to as
"CONFIDENTIAL INFORMATION"). Employee further acknowledges and agrees that the
Confidential Information is of great value to the Company and its affiliates and
that the restrictions and agreements contained in this Agreement are reasonably
necessary to protect the Confidential Information and the goodwill of the
Company. Accordingly, Employee hereby agrees that:
(a) Employee will not, while employed by the Company or at any
time thereafter, directly or indirectly, except in connection
with Employee's performance of the duties under this Agreement,
or as otherwise authorized in writing by the Company for the
benefit of the Company, divulge to any person, firm, corporation,
limited liability company, or organization, other than the
Company (hereinafter referred to as "THIRD PARTIES"), or use or
cause or authorize any Third Parties to use, the Confidential
Information, except as required by law; and
(b) Upon the termination of Employee's employment for any reason
whatsoever, Employee shall deliver or cause to be delivered to
the Company any and all Confidential Information, including
drawings, notebooks, notes, records, keys, data and other
documents and materials belonging to the Company or its
affiliates which is in his possession or under his control
relating to the Company or its affiliates, regardless of the
medium upon which it is stored, and will deliver to the Company
upon such termination of employment any other property of the
Company or its affiliates which is in his possession or control.
4.2 Non-Solicitation Covenant. Employee hereby covenants and agrees
that while employed by the Company and for a period of one (1) year following
the termination of Employee's employment with the Company for any reason,
Employee shall not (i) directly or indirectly, contact, solicit, interfere with,
or endeavor to entice away from the Company or its Affiliates any person, firm,
corporation, limited liability company or other entity that was a
customer of the Company at any time while Employee was an employee of the
Company or its Affiliates or who is a "PROSPECTIVE VENDOR OR CUSTOMER"of the
Company, or (ii) induce, attempt to induce or hire any employee (or any person
who was an employee during the year preceding the date of any solicitation) of
the Company or its Affiliates to leave the employ of the Company or its
Affiliates, or in any way interfere with the relationship between any such
employee and the Company or its Affiliates. For purposes hereof, "PROSPECTIVE
VENDOR OR CUSTOMER" shall mean any person or entity which has been solicited for
business by Employee or any officer or other employee of the Company at any time
during Employee's employment.
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4.3 Non-Competition Covenant. Employee acknowledges that the covenants set
forth in this Section 4.3 are reasonable in scope and essential to the
preservation of the Business of the Company (as defined herein). Employee also
acknowledges that the enforcement of the covenant set forth in this Section 4.3
will not preclude Employee from being gainfully employed in such manner and to
the extent as to provide a standard of living for himself, the members of his
family and the others dependent upon him of at least the level to which he and
they have become accustomed and may expect. In addition, Employee acknowledges
that the Company has obtained an advantage over its competitors as a result of
its name, location and reputation that is characterized by near permanent
relationships with vendors, customers, principals and other contacts which it
has developed at great expense. Furthermore, Employee acknowledges that
competition by him following the termination or expiration of his employment
would impair the operation of the Company beyond that which would arise from the
competition of an unrelated third party with similar skills. Employee hereby
agrees that he shall not, during his employment and for a period of one (1) year
after the end of his employment, directly or indirectly, engage in or become
directly or indirectly interested in any proprietorship, partnership, firm,
trust, company, limited liability company or other entity, other than the
Company (whether as owner, partner, trustee, beneficiary, stockholder, member,
officer, director, employee, independent contractor, agent, servant, consultant,
lessor, lessee or otherwise) that competes with the Company in the Business of
the Company in the Restricted Territory (as defined herein), other than an
interest in a company listed on a recognized stock exchange in an amount which
does not exceed five percent (5%) of the outstanding stock of such corporation.
For purposes of this Agreement, (i) the term "BUSINESS OF THE COMPANY" shall
include all business activities and ventures related to providing high speed
bandwidth telecommunications services in which the Company is engaged, plans to
engage in the next twelve months or has engaged in the prior twelve months, as
determined at any time during the employment of the Employee; and (ii) the term
"RESTRICTED TERRITORY" means the geographical area consisting of Cook County,
Illinois.
4.4 Remedies.
(a) Injunctive Relief. Employee expressly acknowledges and
agrees that the Business of the Company is highly
competitive and that a violation of any of the provisions of
Sections 4.1, 4.2 or 4.3 would cause immediate and
irreparable harm, loss and damage to the Company not
adequately compensable by a monetary award. Employee further
acknowledges and agrees that the time periods and
territorial areas provided for herein are the minimum
necessary to adequately protect the Business of the Company,
the enjoyment of the Confidential Information and the
goodwill of the Company. Without limiting any of the other
remedies available to the Company at law or in equity, or
the Company's right or ability to collect money damages,
Employee agrees that any actual or threatened violation of
any of the provisions of Sections 4.1, 4.2 or 4.3 may be
immediately restrained or enjoined by any court of competent
jurisdiction, and that a temporary restraining order or
emergency, preliminary or final injunction may be issued in
any court of competent jurisdiction, without notice and
without bond. Notwithstanding anything to the contrary
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contained in this Agreement, the provisions of this Section
shall survive the termination of Employee's employment.
(b) Enforcement. It is the desire of the parties that the provisions
of Sections 4.1, 4.2 or 4.3 be enforced to the fullest extent
permissible under the laws and public policies in each
jurisdiction in which enforcement might be sought. Accordingly,
if any particular portion of Sections 4.1, 4.2 or 4.3 shall ever
be adjudicated as invalid or unenforceable, or if the application
thereof to any party or circumstance shall be adjudicated to be
prohibited by or invalidated by such laws or public policies,
such section or sections shall be (i) deemed amended to delete
therefrom such portions so adjudicated or (ii) modified as
determined appropriate by such a court, such deletions or
modifications to apply only with respect to the operation of such
section or sections in the particular jurisdictions so
adjudicating on the parties and under the circumstances as to
which so adjudicated.
(c) Legal Fees. The Employee shall reimburse the Company for all
reasonable costs and expenses, including, but not limited to
attorney's fees, incurred by the Company in connection with the
enforcement of the provisions set forth in this Agreement.
4.5 Company. All references to the Company in this Article 4 shall
include "Affiliates" of the Company, as that term is construed under Rule 405 of
the Securities Act of 1933, as amended.
ARTICLE V
MISCELLANEOUS
5.1 Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be deemed given, delivered and
received (a) when delivered, if delivered personally, (b) four days after
mailing, when sent by registered or certified mail, return receipt requested and
postage prepaid, (c) one business day after delivery to a private courier
service, when delivered to a private courier service providing documented
overnight service, and (d) on the date of delivery if delivered by telecopy,
receipt confirmed, provided that a confirmation copy is sent on the next
business day by first class mail, postage prepaid, in each case addressed as
follows:
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To Employee at his home address.
To Company at: Universal Access, Inc.
Suite 101
1021 West Adams
Chicago, Illinois 60601
Attn.:
Ph: 312-491-1700
Fax: 312-421-9006
With a copy to: Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, IL 60611
Attn.: Mitchell D. Goldsmith
Ph: (312) 836-4006
Fax: (312) 527-5921
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
5.2 Entire Agreement; Amendments, Etc. This Agreement contains the
entire agreement and understanding of the parties hereto, and supersedes all
prior agreements and understandings relating to the subject matter hereof.
Except as provided in Section 4.4(b), no modification, amendment, waiver or
alteration of this Agreement or any provision or term hereof shall in any event
be effective unless the same shall be in writing, executed by both parties
hereto, and any waiver so given shall be effective only in the specific instance
and for the specific purpose for which given.
5.3 Benefit. This Agreement shall be binding upon, and inure to the
benefit of, and shall be enforceable by, the heirs, successors, legal
representatives and permitted assignees of Employee and the successors,
assignees and transferees of the Company. This Agreement or any right or
interest hereunder may not be assigned by Employee without the prior written
consent of the Company.
5.4 No Waiver. No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder or pursuant hereto shall operate
as a waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder or pursuant thereto.
5.5 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law but, if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be
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ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement. If any part of any covenant or other provision in this Agreement is
determined by a court of law to be overly broad thereby making the covenant
unenforceable, the parties hereto agree, and it is their desire, that the court
shall substitute a judicially enforceable limitation in its place, and that as
so modified the covenant shall be binding upon the parties as if originally set
forth herein.
5.6 Compliance and Headings. Time is of the essence of this
Agreement. The headings in this Agreement are intended to be for convenience and
reference only, and shall not define or limit the scope, extent or intent or
otherwise affect the meaning of any portion hereof.
5.7 Governing Law. The parties agree that this Agreement shall be
governed by, interpreted and construed in accordance with the laws of the State
of Illinois, and the parties agree that any suit, action or proceeding with
respect to this Agreement shall be brought in the courts of Lake County in the
State of Illinois or in the U.S. District Court for the Northern District of
Illinois. The parties hereto hereby accept the exclusive jurisdiction of those
courts for the purpose of any such suit, action or proceeding. Venue for any
such action, in addition to any other venue permitted by statute, will be Lake
County, Illinois.
5.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
5.9 Recitals. The Recitals set forth above are hereby incorporated
in and made a part of this Agreement by this reference.
5.10 Arbitration. Except as expressly contemplated by Article IV, any
dispute arising between the parties pursuant to this Agreement shall be
submitted to binding arbitration. Any arbitration proceeding involving any
provision hereof will be conducted in Chicago, Illinois. Except as otherwise
provided in this Agreement, all arbitration proceedings will be conducted in
accordance with the then current National Rules for the Resolution of Employment
Disputes of the American Arbitration Association. Three arbitrators shall
conduct the proceedings. The arbitrators shall allow such discovery as the
arbitrators determine appropriate under the circumstances. The arbitrators shall
determine which party, if either, prevailed and shall award the prevailing party
its costs and reasonable attorneys fees. The award and decision of the
arbitrators shall be conclusive and binding on all parties to this Agreement and
judgment on the award may be entered in any court of competent jurisdiction. The
parties acknowledge and agree that any arbitration award may be enforced against
either or both of them in a court of competent jurisdiction and each waives any
right to contest the validity or enforceability of such award. The parties
further agree to be bound by the provisions of any statute of limitations which
would be applicable in a court of law to the controversy or claim which is the
subject of any arbitration proceeding initiated under this Agreement. The
parties further agree that they are entitled in any arbitration proceeding to
the entry of an order, by a court of competent jurisdiction pursuant to an
opinion of the arbitrator, for specific
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performance of any of the requirements of this Agreement. The parties further
agree that the arbitrators shall provide a statement of reasons explaining the
basis of the decision rendered.
5.11 Indemnification/D&O Insurance. The Company shall indemnify and
hold Employee harmless to the fullest extent permitted by law and under the
Articles and bylaws of the Company as, to and from any and all costs, expenses
(including reasonable attorneys' fees, which shall be paid in advance by the
Company, subject to recoupment in accordance with applicable law) or damages
incurred by Employee as a result of any claim, suit, action or judgment arising
out of the activities of the Company or its Affiliates or the Employee's
activities as an employee, officer or director of the Company or any related
company; provided, however that the Employee shall not be entitled to
indemnification hereunder to the extent the damages are the result of actions or
omissions which have been finally adjudicated by a court of competent
jurisdiction to constitute gross negligence or wilful or intentional misconduct
by the Employee. This provision shall survive the termination of this Agreement.
In addition, the Company shall cover Employee under any directors' and officers'
liability insurance which it may maintain from time to time, both during and for
six (6) years after the Employment Term in the same amount and to the same
extent as the Company covers its other officers and directors, provided,
however, that if no coverage is maintained by the Company, it shall be under no
obligation to maintain coverage for Employee.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered as of the day and year first above
written.
UNIVERSAL ACCESS, INC.
By: /s/ John Drummond
-----------------------------------
Its: Authorized Signatory
-----------------------------------
EMPLOYEE:
/s/ Mr. Patrick Shutt
---------------------------------------
Mr. Patrick Shutt
Address:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
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EXHIBIT A
UNIVERSAL ACCESS, INC./PATRICK SHUTT
A. Compensation.
1. During the Employment Term, the Company shall pay Employee such
salary and benefits as shall be agreed upon each year between
Employee and the Company. For the first year of the Employment
Term, the Company shall pay Employee a base salary of $155,000
(One Hundred Fifty-Five Thousand Dollars) per year. Thereafter,
the Company shall review the Employee's base salary at least
annually, and as a result of such review, can not reduce the
Employee's base salary without his consent. In no event shall any
increases to Employee's base salary be used as a substitute for
the Guaranteed Annual Bonus or used to offset the Company's
obligations to the Employee under this Agreement or otherwise.
2. The Company will, in addition to Employee's base salary, pay
Employee an annual bonus with respect to each calendar year in
the Employment Term based upon two percent (2%) of the
Company's net operating income.
3. Other Benefits. Employee shall be entitled to participate in any
retirement, pensions, profit-sharing, stock option, health plan,
insurance, disability income, incentive compensation, vacation and
welfare or any other benefit plan or plans of the Company which
may now or hereafter be in effect and for which he is eligible or
for which all senior executives in general are eligible.
4. Vacation. Employee shall be entitled to up to four (4) weeks
of non-accruing paid vacation in each calendar year during the
Employment Term, provided, however, that the Employee's 1998
calendar year vacation shall be prorated for the portion of
the calendar year remaining after the date hereof.
15
<PAGE> 1
EXHIBIT 10.21.1
[Letterhead of Universal Access, Inc.]
February 8, 1999
Mr. Patrick Shutt
President
100 North Riverside Plaza
Suite 2200
Chicago, IL 60606
Re: Employment, Non-Competition and Proprietary Rights Agreement
dated as of September 15, 1998 (the "Employment Agreement")
Dear Patrick:
You and the Company have discussed changing certain terms of the
Employment Agreement, and the Company would like to obtain your acknowledgment
and agreement that promptly, and in any case within sixty (60) days, following
the closing of the sale of shares of Series B Cumulative Convertible Preferred
Stock, the Employment Agreement will be amended to include the following terms:
1. The initial term, of employment under the Employment Agreement
will be one year, renewable automatically for additional one-year periods unless
terminated by you or by the Company by written notice not less than three months
before the expiration of the then-current term.
2. Section 2.4(c) will be revised to provide that in lieu of any
severance under any severance plan that the Company may then have in effect, and
subject to the conditions described in Section 2.4, the Company will pay you the
balance of your base salary and bonus for the greater of (i) six months and (ii)
the remaining term of the employment term, excluding any renewals of the
then-current term, plus prorated vacation pay and expense reimbursement through
the date of termination, as well as the "Insurance Coverage" defined in the
Employment Agreement.
3. The base salary and bonus described in Section A(l) and A(2) of
Exhibit A to the Employment Agreement will be determined by a compensation
committee to be established by the board of directors, provided, however, that
your base salary shall be not less than $155,000 per year. By signing below you
will also acknowledge and agree that you shall not be entitled to any bonus
payments under A(2) of Exhibit A to the Employment Agreement, as this provision
is currently drafted, and that you will only be entitled to bonus payments
determined by a compensation committee to be established by the board of
directors.
The remaining provisions of the Employment Agreement shall remain substantially
identical to those
<PAGE> 2
Mr. Patrick Shutt
February 8, 1999
Page 2
currently contained in the Employment Agreement, subject to any changes to which
you and the Company may mutually agree.
Please indicate that you acknowledge and agree to the changes
described in this letter by signing where indicated below.
UNIVERSAL ACCESS, INC.
By: /s/ ROBERT POMMER, JR.
------------------------
Name: Robert Pommer, Jr.
Title: Executive Vice President and
Chief Operating Officer
Acknowledged, Agreed to and Accepted:
/s/ PATRICK SHUTT
- -----------------------------
PATRICK SHUTT
Dated: February 8th, 1999
<PAGE> 1
EXHIBIT 10.21.2
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
Amendment No. 2 dated as of February 1, 2000 (the "Amendment") to the
Employment, Non-Competition and Proprietary Rights Agreement, as amended, and
any exhibits thereto (the "Agreement") by and between Universal Access, Inc., a
Delaware corporation (the "Company") and Patrick C. Shutt (the "Employee"). Any
capitalized terms not defined herein shall have the meanings assigned to those
terms in the Agreement.
RECITALS
A. Company and Employee entered into the Agreement on September 15, 1998
and amended the Agreement by letter agreement dated February 8, 1999.
B. Company and Employee desire to amend the Agreement to reflect certain
changes agreed to by the Company and the Employee.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as
follows:
1. The figure of $155,000 in paragraph A (1) of Exhibit A to the Agreement
shall be deleted and replaced by the figure of $235,000.
2. Section 6.3 of the Agreement is hereby deleted in its entirety and
replaced by the following:
6.3 Entire Agreement; Amendments, Etc. This Agreement and the
Indemnification Agreement dated as of January 7, 2000 between the
Company and Employee (as the Indemnification Agreement may be amended,
restated or otherwise modified) contain the entire agreement and
understanding of the parties hereto, and supersede all prior agreements
and understandings relating to the subject matter hereof and thereof.
Except as provided in Section 4.4(b), no modification, amendment,
waiver or alteration of this Agreement or any provision or term hereof
shall in any event be effective unless the same shall be in writing,
executed by both parties hereto, and any waiver so given shall be
effective only in the specific instance and for the specific purpose
for which given.
<PAGE> 2
3. Miscellaneous. Upon the execution and delivery of this Amendment, the
Agreement shall be amended and supplemented as set forth herein, as fully and
with the same effect as if the amendments and supplements made hereby were set
forth in the Agreement as of the date hereof. This Amendment and the Agreement
shall henceforth be read, taken and construed as one and the same instrument,
but this Amendment shall not operate so as to render invalid or improper any
action previously taken under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of February 1, 2000.
COMPANY: UNIVERSAL ACCESS, INC.,
a Delaware corporation
By: /s/ Robert J. Pommer, Jr.
-----------------------------------
Name: Robert J. Pommer, Jr.
Title: Chief Operating Officer
EMPLOYEE: By: /s/ Patrick C. Shutt
-----------------------------------
Patrick C. Shutt
<PAGE> 1
EXHIBIT 10.22
EMPLOYMENT NON-COMPETITION
AND PROPRIETY RIGHTS AGREEMENT
THIS EMPLOYMENT NON-COMPETITION AND PROPRIETY RIGHTS AGREEMENT (the
"AGREEMENT") is made as of this 15th day of September, 1998, by and between
UNIVERSAL ACCESS, INC., an Illinois corporation (the "COMPANY"), and Mr. Robert
Pommer (the "EMPLOYEE").
RECITALS:
A. The Company is in the telecommunications business;
B. The Company desires to employ Employee and Employee desires to be
employed by the Company as its Vice President and Chief Operating Officer,
subject to the terms, conditions and covenants hereinafter set forth; and
C. As a condition of the Company employing Employee, Employee has
agreed not to divulge to the public the Company's confidential information, not
to solicit the Company's vendors, customers or employees and not to compete with
the Company, all upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the agreements,
covenants and conditions set forth herein, the Employee and the Company hereby
agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company hereby employs, engages and hires
Employee, and Employee hereby accepts employment, upon the terms and conditions
set forth in this Agreement. The Employee shall serve as Vice President and
Chief Operating Officer of the Company. The Employee shall have and fully
perform the duties and responsibilities as may be, from time to time, specified
in the Company's By-laws and assigned or delegated by the Board of Directors.
1.2 Activities and Duties During Employment. Employee represents and
warrants to the Company that Employee is free to accept employment with the
Company, and that Employee has no prior or other commitments or obligations of
any kind to anyone else which would hinder or interfere with the acceptance of
the obligations under this Agreement.
Employee accepts the employment described in Section 1 of this
Agreement and agrees to devote his full time and efforts to the faithful and
diligent performance of the services described therein, including the
performance of such other services and responsibilities as the Company may,
<PAGE> 2
from time to time, stipulate. Without limiting the generality of the foregoing,
Employee ordinarily shall devote not less than five days per week to his
employment, and shall be present on the Company premises or actively engaged in
service to or on behalf of the Company during normal business hours Monday
through Friday, excluding periods of vacation and sick leave. Notwithstanding
the foregoing, Employee may: (i) serve on the board of directors of other
entities or serve in any capacity with any civic, educational, professional or
charitable organization provided that such service does not materially interfere
or conflict with his duties hereunder; and (ii) make and manage personal
investments of his choice.
ARTICLE II
TERM
2.1 Term. The term of employment under this Agreement shall be three
(3) years, commencing on the date of the Agreement (such term of employment, as
it may be extended or terminated, is herein referred to as the "Employment
Term"), which Employment Term shall automatically renew for additional one (1)
year periods unless terminated by Employee or the Company by written notice not
less than six (6) months prior to expiration of the then-current term.
2.2 Termination. The Employment Term and employment of Employee may
be terminated as follows:
(a) By the Company immediately for "Cause." For the purpose of this
Agreement, "Cause" shall mean (i) conduct amounting to fraud,
embezzlement, or illegal misconduct in connection with Employee's
duties under this Agreement; (ii) the conviction of Employee by a
court of proper jurisdiction of (or his written, voluntary and
freely given confession to) a crime which constitutes a felony
(other than a traffic violation) or an indictment that results in
material injury to the Company's property, operation or
reputation; (iii) the willful failure of Employee to comply with
reasonable directions of the Board after (a) written notices
delivered to the Employee describing such willful failure and (b)
Employee has failed to cure or take substantial steps to cure
such willful failure after a reasonable time period as determined
by the Board in its reasonable discretion (not to be less than 30
days) unless the Employee, after discussion with counsel, in good
faith believes, that the directions of the Board (or its actions
or inactions in response to the Employee's written notice) are
illegal; or (iv) willful misconduct or a material default by the
Employee in the performance or observance of any promise or
undertaking of Employee under this Agreement, which willful
misconduct or default has a material adverse effect on the
Company and has continued for a period of ten (10) business days
after written notice thereof from the Company to the Employee;
provided, that if such willful misconduct or default is of a
nature that it or the injury therefrom cannot be reasonably cured
within such ten (10) day period (but is curable), then, if
Employee shall have commenced an attempt to cure such default
within such ten (10) day period, the period to cure the
2
<PAGE> 3
default shall be extended until the earlier of: (i) the date
which is forty-five (45) days after receipt of notice or (ii) the
date that Employee has failed to diligently continue his efforts
in a reasonable manner to cure his default.
(b) Automatically, without the action of either party, upon the death
of Employee.
(c) By either party upon the Total Disability of the Employee. The
Employee shall be considered to have a Total Disability for
purposes of this Agreement is he is unable by reason of accident
or illness to substantially perform his employment duties, and is
expected to be in such condition for periods totaling six (6)
months (whether or not consecutive) during any period of twelve
(12) months. The determination of whether a Total Disability has
occurred shall be based on the determination of a physician
mutually acceptable to the Company and the Employee. Nothing
herein shall limit the Employee's right to receive any payments
to which Employee may be entitled under any disability or
employee benefit plan of the Company or under any disability or
insurance policy or plan. During a period of Total Disability
prior to termination hereunder, Employee shall continue to
receive his full compensation (including base salary and bonus)
and benefits.
(d) By the Employee upon a Change of Control. For the purpose of this
Agreement, "change of Control" shall mean the occurrence of any
of the following:
1. the Company consummates a merger or consolidation which
results in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) less then fifty percent
(50%) of the total voting power represented by the voting
securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;
2. a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of (in
one transaction or a series of transactions) all or
substantially all of the Company's assets is consummated;
3. Company consummates a plan of complete liquidation of the
Company or an agreement for the sale or disposition (in one
transaction or a series of transactions) by the Company of
all or substantially all of the Company's assets;
provided, however, that a public offering of the stock of the
Company irrespective of the amount of voting securities owned by
present Shareholders after such offering shall not be deemed to
constitute a Change of Control.
3
<PAGE> 4
(d) By the Employee upon ten (10) business days notice to the Company
for Good Reason, which notice shall state the reason for
termination. For the purpose of this Agreement, "Good Reason"
shall mean: (i) a demotion or reduction in the Employee's duties,
responsibilities or authority as Vice President and Chief
Operating Officer or without his written consent or the
assignment to the Employee of duties and responsibilities
inconsistent with his position as Vice President and Chief
Operating Officer of the Company without his written consent or
which diminishes his authority without his written consent
(together, the "Demotion Actions"), and the Demotion Actions are
not cured by the Company within thirty (30) days after written
notice of the Demotion Actions from the Employee; (ii) the
relocation of the Employee's principal place of employment, or
the principal offices for the Company to a location of more than
fifty (50) miles from the current location; or (iii) any material
failure by the Company to comply with the provisions of this
Employee Agreement, including but not limited to, failure to
timely pay any part of Employee's compensation (including salary
or bonus) or provide the benefits contemplated herein, and which
is not remedied by the Company within ten (10) business days
after receipt by the Company of written notice thereof from
Employee; provided, that if such default is of a nature that it
cannot be reasonably cured within ten (10) day period (but is
curable), then if the Company shall have commenced an attempt to
cure such default within such ten (10) day period, the period to
cure the default shall be extended until the earlier of the date
which is forty-five (45) days after receipt of notice or the
Company has failed to diligently continue its efforts in a
reasonable manner to cure its default.
(e) By the Employee without Good Reason, and therefore in breach of
this Agreement.
2.3 Cessation of Rights and Obligations: Survival of Certain
Provisions. On the date of expiration or earlier termination of the Employment
Term for any reason, all of the respective rights, duties, obligation and
covenants of the parties, as set forth herein, shall, except as specifically
provided herein to the contrary, cease and become of no further force or effect
as of the date of said termination, and shall only survive as expressly provided
for herein.
2.4 Cessation of Compensation. In lieu of any severance under any
severance plan that the Company may then have in effect, and subject to any
amounts owed by the Employee to the Company under any contract, agreement or
loan document entered into after the date hereof which relates solely to his
employment with the Company (including, but not limited to, loans made by the
Company to the Employee), the Company shall pay to the Employee, and the
Employee shall be entitled to receive, the following amounts within thirty (30)
days of the date of a termination of his employment:
(a) Voluntary Termination/Cause/Expiration of Term. Upon (i) Employee
terminating his employment without Good Reason as provided in
Section II. B.6., (ii) the expiration of the Employment Term
because either the Company or the Employee
4
<PAGE> 5
elects not extend the Employment Term, or (iii) a termination of
the Employment Term for Cause by the Company, the Employee shall
be entitled to receive solely through the date of termination and
expense reimbursement.
(b) Death or Total Disability. Upon the termination of the Employment
Term by reason of the death or Total Disability of the Employee,
the Employee (or, in the case of death, his estate) shall be
entitled to receive in a lump sum his base salary (which shall
include any of his unused vacation pay for the year of such
termination), unpaid bonus based on the portion of the calendar
year through the date the Employment Term ends hereunder using
the greater of the "Guaranteed Annual Bonus" (as defined under
Section III.A.2) or the annual bonus paid in the immediately
preceding calendar year and expense reimbursement through the
date of termination.
(c) Involuntary. Upon the termination of the Employment Term:
(1) by the Company for any reason other than Cause, Death or
Total Disability;
(2) by the Employee for Good Reason,
the Executive shall be entitled to receive in a lump sum the
balance of his base salary and the bonus using the greater of the
Guaranteed Annual Bonus or the annual bonus paid in the
immediately preceding calendar year for the remaining term of the
Employment Term, exclusive of any renewals of the then existing
term, plus prorated vacation pay and expense reimbursement
through the date of termination. The bonus payment to be made
hereunder shall be based on the bonus that would have been paid
through the remainder of the Employment Term based on the greater
of: (i) the Guaranteed Annual Bonus provided for under Section
III.A.2. hereof; or (ii) the annual bonus paid in the immediately
preceding calendar year. In addition, if permitted under the
Company's group health, life and disability insurance coverage
("Insurance Coverage"), Employee shall be entitled to
continuation of Employee's coverage thereunder (subject to such
changes in coverage as shall apply to Company's employees
generally) for the one (1) year period after the termination of
the Employment Term at the cost of the Company or if not so
permitted, payment by the Company of the premiums for group
health insurance coverage otherwise payable by Employee under the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA").
It shall be a condition to Employee's right to receive the
payments described above that Employee shall be in compliance
with all of the Employee's obligations which survive termination
hereof, including without limitation those arising under Article
IV hereof. The payments described above are intended to be in
lieu of all other payments to which Employee might otherwise be
entitled in respect of termination of Employee's employment
without Cause unless otherwise required by law or under other
agreements between the parties.
5
<PAGE> 6
2.5 No Offset/No Mitigation of Damages. Notwithstanding anything
herein to the contrary, Employee shall have no obligation to mitigate or seek
other employment with respect to the payments and benefits under this Agreement
and the Company's obligations under this Agreement shall not be subject to any
offset for any counterclaim, recoupment, defense or other right which the
Company may have (other than amounts if any loaned by the Company to the
Employee as a result of his employment with the Company).
2.6 Tax Gross-Up.
(a) The Company shall attempt to satisfy Section 280G(b)(5) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder to the extent such Code Section is
applicable. In the event that the shareholder approval
requirements under Section 280G(b)(5) of the code and the
regulations thereunder are not satisfied or any other amounts
(whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the company, any person whose
actions result in a change of ownership covered by Code Section
280G(b)(2) or any person affiliated with the company or such
person) as a result of a Change of Control, (collectively the
"Company Payments"), and such Company Payments will be subject to
the tax (the "Excise Tax") imposed by Section 4999 of the Code
(and any similar tax that may hereafter be imposed), the Company
shall have to pay to the Employee, an additional amount (the
"Gross-up Payment") such that the net amount retained by the
Employee, after deduction of any Excise Tax on the Company
Payments and any federal, state and local income tax and Excise
Tax upon the Gross-up Payment provided for by this Section
II.F.1., but before deduction for any federal, state or local
income tax on the Company Payments, shall be equal to the Company
Payments.
(b) Prior to any change in ownership (as defined under Section 280(G)
of the Code), the Employee and the Company shall select an
independent certified public accountant or qualified tax counsel
(the "Tax Professional") to determine whether any of the Company
Payments and Gross-up Payments (collectively, the "Total
Payments") will be subject to the Excise Tax and the amount of
such Excise Tax taking into account all provisions of the Code,
including but not limited to exemptions contained in Section
280(G) such as those for payments of reasonable compensation for
services actually rendered. In addition, the Tax Professional
shall determine the value of any non-cash benefits or any
deferred payment or benefit for purposes of determining the
amount, if any, of the Excise Tax. It the Employee and the
Company are unable to mutually determine appropriate Tax
Professional, the decision will be made in accordance with the
arbitration procedures in this Agreement.
(c) For purposes of determining the amount of the Gross-up Payment,
the Employee shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar
year in which the Gross-up Payment is to be made
6
<PAGE> 7
and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Employee's residence
for the calendar year in which the Company Payment is to be made,
net of the maximum reduction in federal income taxes which could
be obtained from deduction of such state and local taxes if paid
in such year.
(d) The Gross-up Payment shall be paid not later than the fifteenth
(15th) day following the final determination of the amount of the
Excise Tax by the Tax Professionals or under the arbitration
procedures.
(e) In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time the
Gross-up Payment is made, Employee shall repay to the Company at
the time that the amount of such reduction in Excise Tax is
finally determined (but, if previously paid to the taxing
authorities, not prior to the time the amount of such reduction
is refunded to Employee or otherwise realized as a benefit by
Employee) the portion of the Gross-up Payment that would not have
been paid if such Excise Tax had been applied to initially
calculating the Gross-up Payment, plus interest on the amount of
such repayment at the rate provided in Section 2375(b)(2)(B) of
the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time the
Gross-up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of
the Gross-up Payment), the Company shall make an additional
Gross-up Payment and shall indemnify and hold Employee harmless
in respect of such excess (plus any interest and penalties
payable with respect to such excess) at the time that the amount
of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 15th
day (or such earlier date as the Excise Tax becomes due and
payable to the taxing authorities) after it has been determined
that the Total Payments (or any other portion thereof) are
subject to the Excise Tax; provided, however, that if the amount
of such Gross-up Payment or portion thereof cannot be finally
determined on or before such day, the Company shall pay to
Employee on such day an estimate, as determined by the Tax
Professionals, of the minimum amount of such payments and shall
pay the remain of such payments (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the
amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan
by the Company to Employee, payable on the fifth day after demand
by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be
computed so as not to duplicate any prior Gross-up Payment.
7
<PAGE> 8
Employee shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-up Payment. Such notification
shall be given as soon as practicable but no later than ten (10)
business days after Employee is informed in writing of such claim
and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. Employee shall
not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the company notifies
Employee in writing prior to the expiration of such period that
it desires to contest such claim, Employee shall:
(1) give the Company any information reasonably requested by the
Company relating to such claim;
2.7 Payment. All compensation shall be payable in intervals in
accordance with the general payroll payment practice of the Company, but not
less frequently than monthly. The compensation shall be subject to such
withholdings and deductions by the Company as are required by law.
2.8 Business Expenses.
(a) Reimbursement. The Company shall reimburse the Employee for all
reasonable, ordinary, and necessary business expenses incurred by
him in connection with the performance of his duties hereunder,
including, but not limited to, ordinary and necessary travel
expenses and entertainment expenses. The reimbursement of
business expenses will be governed by the policies for the
Company and the terms otherwise set forth herein.
(b) Accounting. The Employee shall provide the Company with an
accounting of his expenses, which accounting shall clearly
reflect which expenses were incurred for proper business purposes
in accordance with the policies adopted by the Company and as
such are reimbursable by the Company. The Employee shall provide
the Company with such other supporting documentation and other
substantiation of reimbursable expenses as will conform to
Internal Revenue Service or other requirements. All such
reimbursements shall be payable by the Company to the Employee
within a reasonable time after receipt by the Company of
appropriate documentation therefor.
8
<PAGE> 9
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Compensation. During Employee's employment, the Company shall pay
Employee such salary and bonus as set forth on Exhibit A.
3.2 Payment. All compensation shall be payable in intervals in
accordance with the general payroll payment practice of the Company. The
compensation shall be subject to such withholdings and deductions by the Company
as are required by law.
3.3 Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, stock option, health plan, incentive
compensation and welfare or any other benefit plan or plans of the Company which
may now or hereafter be in effect and for which the Employee is eligible.
Notwithstanding the forgoing, the Company shall be under no obligation to
institute or continue the existence of any such benefit plan.
ARTICLE IV
CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETE AGREEMENT
4.1 Non-Disclosure of Confidential Information. Employee hereby
acknowledges and agrees that the duties and services to be performed by Employee
under this Agreement are special and unique and that as of a result of the
employment hereunder, Employee will acquire, develop and use information of a
special and unique nature and value that is not generally known to the public or
to the Company's industry, including but not limited to, certain records, phone
locations, documentation, software programs, price lists, contract prices for
purchase and sale of telephone access and telephone services, equipment
configurations, business plans, ledgers and general information, employee
records, mailing lists, lists, accounts receivable and payable ledgers,
financial and other records of the Company or its affiliates, information
regarding other similar matters (all such information being hereinafter referred
to as "CONFIDENTIAL INFORMATION"). Employee further acknowledges and agrees that
the Confidential Information is of great value to the Company and its affiliates
and that the restrictions and agreements contained in this Agreement are
reasonably necessary to protect the Confidential Information and the goodwill of
the Company. Accordingly, Employee hereby agrees that:
(a) Employee will not, while employed by the Company or at any time
thereafter, directly or indirectly, except in connection with
Employee's performance of the duties under this Agreement, or as
otherwise authorized in writing by the Company for the benefit of
the Company, divulge to any person, firm, corporation, limited
liability company, or organization, other than the Company
(hereinafter referred to
9
<PAGE> 10
as "THIRD PARTIES"), or use or cause or authorize any Third
Parties to use, the Confidential Information, except as required
by law; and
(b) Upon the termination of Employee's employment for any reason
whatsoever, Employee shall deliver or cause to be delivered to
the Company any and all Confidential Information, including
drawings, notebooks, notes, records, keys, data and other
documents and materials belonging to the Company or its
affiliates which is in his possession or under his control
relating to the Company or its affiliates, regardless of the
medium upon which it is stored, and will deliver to the Company
upon such termination of employment any other property of the
Company or its affiliates which is in his possession or control.
4.2 Non-Solicitation Covenant. Employee hereby covenants and agrees
that while employed by the Company and for a period of one (1) year following
the termination of Employee's employment with the Company for any reason,
Employee shall not (i) directly or indirectly, contact, solicit, interfere with,
or endeavor to entice away from the Company or its Affiliates any person, firm,
corporation, limited liability company or other entity that was a vendor or
customer of the Company at any time while Employee was an employee of the
Company or its Affiliates or who is a "PROSPECTIVE VENDOR OR CUSTOMER" of the
Company, or (ii) induce, attempt to induce or hire any employee (or any person
who was an employee during the year preceding the date of any solicitation) of
the Company or its Affiliates to leave the employ of the Company or its
Affiliates, or in any way interfere with the relationship between any such
employee and the Company or its Affiliates. For purposes hereof, "PROSPECTIVE
VENDOR OR CUSTOMER" shall mean any person or entity which has been solicited for
business by Employee or any officer or other employee of the Company at any time
during Employee's employment.
4.3 Non-Competition Covenant. Employee acknowledges that the
covenants set forth in this Section 4.3 are reasonable in scope and essential to
the preservation of the Business of the Company (as defined herein). Employee
also acknowledges that the enforcement of the covenant set forth in this Section
4.3 will not preclude Employee from being gainfully employed in such manner and
to the extent as to provide a standard of living for himself, the members of his
family and the others dependent upon him of at least the level to which he and
they have become accustomed and may expect. In addition, Employee acknowledges
that the Company has obtained an advantage over its competitors as a result of
its name, location and reputation that is characterized by near permanent
relationships with vendors, customers, principals and other contacts which it
has developed at great expense. Furthermore, Employee acknowledges that
competition by him following the termination or expiration of his employment
would impair the operation of the Company beyond that which would arise from the
competition of an unrelated third party with similar skills. Employee hereby
agrees that he shall not, during his employment and for a period of one (1) year
after the end of his employment, directly or indirectly, engage in or become
directly or indirectly interested in any proprietorship, partnership, firm,
trust, company, limited liability company or other entity, other than the
Company (whether as owner, partner, trustee, beneficiary, stockholder, member,
officer, director, employee, independent contractor, agent, servant, consultant,
10
<PAGE> 11
lessor, lessee or otherwise) that competes with the Company in the Business of
the Company in the Restricted Territory (as defined herein), other than an
interest in a company listed on a recognized stock exchange in an amount which
does not exceed five percent (5%) of the outstanding stock of such corporation.
For purposes of this Agreement, (i) the term "BUSINESS OF THE COMPANY" shall
include all business activities and ventures related to providing high speed
bandwidth telecommunications in which the Company is engaged, plans to engage in
the next twelve months or has engaged in the prior twelve months, as determined
at any time during the employment of the Employee; and (ii) the term "RESTRICTED
TERRITORY" means the geographical area consisting of Cook County, Illinois.
4.4 Remedies.
(a) Injunctive Relief. Employee expressly acknowledges and agrees
that the Business of the Company is highly competitive and that a
violation of any of the provisions of Sections 4.1, 4.2 or 4.3
would cause immediate and irreparable harm, loss and damage to
the Company not adequately compensable by a monetary award.
Employee further acknowledges and agrees that the time periods
and territorial areas provided for herein are the minimum
necessary to adequately protect the Business of the Company, the
enjoyment of the Confidential Information and the goodwill of the
Company. Without limiting any of the other remedies available to
the Company at law or in equity, or the Company's right or
ability to collect money damages, Employee agrees that any actual
or threatened violation of any of the provisions of Sections 4.1,
4.2 or 4.3 may be immediately restrained or enjoined by any court
of competent jurisdiction, and that a temporary restraining order
or emergency, preliminary or final injunction may be issued in
any court of competent jurisdiction, without notice and without
bond. Notwithstanding anything to the contrary contained in this
Agreement, the provisions of this Section shall survive the
termination of Employee's employment.
(b) Enforcement. It is the desire of the parties that the provisions
of Sections 4.1, 4.2 or 4.3 be enforced to the fullest extent
permissible under the laws and public policies in each
jurisdiction in which enforcement might be sought. Accordingly,
if any particular portion of Sections 4.1, 4.2 or 4.3 shall ever
be adjudicated as invalid or unenforceable, or if the application
thereof to any party or circumstance shall be adjudicated to be
prohibited by or invalidated by such laws or public policies,
such section or sections shall be (i) deemed amended to delete
therefrom such portions so adjudicated or (ii) modified as
determined appropriate by such a court, such deletions or
modifications to apply only with respect to the operation of such
section or sections in the particular jurisdictions so
adjudicating on the parties and under the circumstances as to
which so adjudicated.
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<PAGE> 12
(c) Legal Fees. The Employee shall reimburse the Company for all
reasonable costs and expenses, including, but not limited to
attorney's fees, incurred by the Company in connection with the
enforcement of the provisions set forth in this Agreement.
4.5 Company. All references to the Company in this Article 4 shall
include "Affiliates" of the Company, as that term is construed under Rule 405 of
the Securities Act of 1933, as amended.
ARTICLE V
MISCELLANEOUS
5.1 Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be deemed given, delivered and
received (a) when delivered, if delivered personally, (b) four days after
mailing, when sent by registered or certified mail, return receipt requested and
postage prepaid, (c) one business day after delivery to a private courier
service, when delivered to a private courier service providing documented
overnight service, and (d) on the date of delivery if delivered by telecopy,
receipt confirmed, provided that a confirmation copy is sent on the next
business day by first class mail, postage prepaid, in each case addressed as
follows:
To Employee at his home address.
To Company at: Universal Access, Inc.
Suite 101
1021 West Adams
Chicago, Illinois 60601
Attn.:
Ph: 312-491-1700
Fax: 312-421-9006
With a copy to: Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, IL 60611
Attn.: Mitchell D. Goldsmith
Ph: (312) 836-4006
Fax: (312) 527-5921
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
5.2 Entire Agreement; Amendments, Etc. This Agreement contains the
entire agreement and understanding of the parties hereto, and supersedes all
prior agreements and understandings
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<PAGE> 13
relating to the subject matter hereof. Except as provided in Section 4.4(b), no
modification, amendment, waiver or alteration of this Agreement or any provision
or term hereof shall in any event be effective unless the same shall be in
writing, executed by both parties hereto, and any waiver so given shall be
effective only in the specific instance and for the specific purpose for which
given.
5.3 Benefit. This Agreement shall be binding upon, and inure to the
benefit of, and shall be enforceable by, the heirs, successors, legal
representatives and permitted assignees of Employee and the successors,
assignees and transferees of the Company. This Agreement or any right or
interest hereunder may not be assigned by Employee without the prior written
consent of the Company.
5.4 No Waiver. No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder or pursuant hereto shall operate
as a waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder or pursuant thereto.
5.5 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law but, if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement. If any part of any
covenant or other provision in this Agreement is determined by a court of law to
be overly broad thereby making the covenant unenforceable, the parties hereto
agree, and it is their desire, that the court shall substitute a judicially
enforceable limitation in its place, and that as so modified the covenant shall
be binding upon the parties as if originally set forth herein.
5.6 Compliance and Headings. Time is of the essence of this
Agreement. The headings in this Agreement are intended to be for convenience and
reference only, and shall not define or limit the scope, extent or intent or
otherwise affect the meaning of any portion hereof.
5.7 Governing Law. The parties agree that this Agreement shall be
governed by, interpreted and construed in accordance with the laws of the State
of Illinois, and the parties agree that any suit, action or proceeding with
respect to this Agreement shall be brought in the courts of Lake County in the
State of Illinois or in the U.S. District Court for the Northern District of
Illinois. The parties hereto hereby accept the exclusive jurisdiction of those
courts for the purpose of any such suit, action or proceeding. Venue for any
such action, in addition to any other venue permitted by statute, will be Lake
County, Illinois.
5.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
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<PAGE> 14
5.9 Recitals. The Recitals set forth above are hereby incorporated in
and made a part of this Agreement by this reference.
5.10 Arbitration. Except as expressly contemplated by Article IV, any
dispute arising between the parties pursuant to this Agreement shall be
submitted to binding arbitration. Any arbitration proceeding involving any
provision hereof will be conducted in Chicago, Illinois. Except as otherwise
provided in this Agreement, all arbitration proceedings will be conducted in
accordance with the then current National Rules for the Resolution of Employment
Disputes of the American Arbitration Association. Three arbitrators shall
conduct the proceedings. The arbitrators shall allow such discovery as the
arbitrators determine appropriate under the circumstances. The arbitrators shall
determine which party, if either, prevailed and shall award the prevailing party
its costs and reasonable attorneys fees. The award and decision of the
arbitrators shall be conclusive and binding on all parties to this Agreement and
judgment on the award may be entered in any court of competent jurisdiction. The
parties acknowledge and agree that any arbitration award may be enforced against
either or both of them in a court of competent jurisdiction and each waives any
right to contest the validity or enforceability of such award. The parties
further agree to be bound by the provisions of any statute of limitations which
would be applicable in a court of law to the controversy or claim which is the
subject of any arbitration proceeding initiated under this Agreement. The
parties further agree that they are entitled in any arbitration proceeding to
the entry of an order, by a court of competent jurisdiction pursuant to an
opinion of the arbitrator, for specific performance of any of the requirements
of this Agreement. The parties further agree that the arbitrators shall provide
a statement of reasons explaining the basis of the decision rendered.
5.11 Indemnification/D&O Insurance. The Company shall indemnify and
hold Employee harmless to the fullest extent permitted by law and under the
bylaws of the Company as, to and from any and all costs, expenses (including
reasonable attorneys' fees, which shall be paid in advance by the Company,
subject to recoupment in accordance with applicable law) or damages incurred by
Employee as a result of any claim, suit, action or judgment arising out of the
activities of the Company or its Affiliates or the Employee's activities as an
employee, officer or director of the Company or any related company; provided,
however that the Employee shall not be entitled to indemnification hereunder to
the extent the damages are the result of actions or omissions which have been
finally adjudicated by a court of competent jurisdiction to constitute gross
negligence or wilful or intentional misconduct by the Employee. This provision
shall survive the termination of this Agreement. In addition, the Company shall
cover Employee under any directors' and officers' liability insurance which it
may maintain from time to time, both during and for six (6) years after the
Employment Term in the same amount and to the same extent as the Company covers
its other officers and directors, if no coverage is maintained by the Company,
it shall be under no obligation to maintain coverage for Employee.
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<PAGE> 15
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered as of the day and year first above
written.
UNIVERSAL ACCESS, INC.
By: /s/ John Drummond
------------------------------------
Authorized Signatory
EMPLOYEE:
/s/ Robert Pommer
---------------------------------------
Robert Pommer
Home Address:
1694 Colonial Lane
---------------------------------------
Northfield, Il 60093
---------------------------------------
---------------------------------------
15
<PAGE> 16
EXHIBIT A
UNIVERSAL ACCESS, INC./ROBERT POMMER
A. Compensation.
1. During the Employment Term, the Company shall pay Employee
such salary and benefits as shall be agreed upon each year
between Employee and the Company. For the first year of the
Employment Term, the Company shall pay Employee a base salary
of $150,000 (One Hundred Fifty Thousand Dollars) per year.
Thereafter, the Company shall review salary at least annually,
and as a result of such review, can not reduce the Employee's
base salary without his consent. In no event shall any
increases to Employee's base salary be used as a substitute
for the Guaranteed Annual Bonus or used to offset the
Company's obligations to the Employee under this Agreement or
otherwise.
2. The Company will, in addition to Employee's base salary, pay
Employee an annual bonus with respect to each calendar year in
the Employment Term based upon two percent (2%) of the
Company's net operating income.
3. Other Benefits. Employee shall be entitled to participate in
any retirement, pensions, profit-sharing, stock option, health
plan, incentive compensation, vacation and welfare or any
other benefit plan or plans of the Company which may now or
hereafter be in effect and for which he is eligible or for
which all senior executives in general are eligible.
4. Vacation. Employee shall be entitled to up to four (4) weeks
of non-accruing paid vacation in each calendar year during the
Employment Term, provided, however, that the Employee's 1998
calendar year vacation shall be prorated for the portion of
the calendar year remaining after the date hereof.
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<PAGE> 1
EXHIBIT 10.22.1
[Letterhead of Universal Access, Inc.]
February 8, 1999
Mr. Robert Pommer, Jr.
Executive Vice President and
Chief Operating Officer
100 North Riverside Plaza
Suite 2200
Chicago, IL 60606
Re: Employment, Non-Competition and Proprietary Rights Agreement
dated as of September 15, 1998 (the "Employment Agreement")
Dear Bob:
You and the Company have discussed changing certain terms of the
Employment Agreement, and the Company would like to obtain your acknowledgment
and agreement that promptly, and in any case within sixty (60) days, following
the closing of the sale of shares of Series B Cumulative Convertible Preferred
Stock, the Employment Agreement will be amended to include the following terms:
1. The initial term of employment under the Employment Agreement
will be one year, renewable automatically for additional one-year periods unless
terminated by you or by the Company by written notice not less than three months
before the expiration of the then-current term.
2. Section 2.4(c) will be revised to provide that in lieu of any
severance under any severance plan that the Company may then have in effect, and
subject to the conditions described in Section 2.4, the Company will pay you the
balance of your base salary and bonus for the greater of (i) six months and (ii)
the remaining term of the employment term, excluding any renewals of the
then-current term, plus prorated vacation pay and expense reimbursement through
the date of termination, as well as the "Insurance Coverage" defined in the
Employment Agreement.
3. The base salary and bonus described in Section A(l) and A(2) of
Exhibit A to the Employment Agreement will be determined by a compensation
committee to be established by the board of directors, provided, however, that
your base salary shall be not less than $150,000 per year. By signing below you
will also acknowledge and agree that you shall not be entitled to any bonus
payments under A(2) of Exhibit A to the Employment Agreement, as this provision
is currently drafted, and that you will only be entitled to bonus payments
determined by a compensation committee to be established by the board of
directors.
<PAGE> 2
Mr. Patrick Shutt
February 8, 1999
Page 2
The remaining provisions of the Employment Agreement shall remain substantially
identical to those currently contained in the Employment Agreement, subject to
any changes to which you and the Company may mutually agree.
Please indicate that you acknowledge and agree to the changes
described in this letter by signing where indicated below.
UNIVERSAL ACCESS, INC.
By: /s/ PATRICK SHUTT
------------------------
Name: Patrick Shutt
Title: President
Acknowledged, Agreed to and Accepted:
/s/ ROBERT POMMER
- ------------------------
ROBERT POMMER, JR.
Dated: February 8th, 1999
<PAGE> 1
Exhibit 10.22.2
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
Amendment No. 2 dated as of February 1, 2000 (the "Amendment") to the
Employment, Non-Competition and Proprietary Rights Agreement, as amended, and
any exhibits thereto (the "Agreement") by and between Universal Access, Inc., a
Delaware corporation (the "Company") and Robert J. Pommer, Jr. (the
"Employee"). Any capitalized terms not defined herein shall have the meanings
assigned to those terms in the Agreement.
RECITALS
A. Company and Employee entered into the Agreement on September 15, 1998
and amended the Agreement by letter agreement dated February 8, 1999.
B. Company and Employee desire to amend the Agreement to reflect certain
changes agreed to by the Company and the Employee.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as
follows:
1. All references in the Agreement to Vice President and Chief Operating
Officer shall be deleted and replaced by references to Chief Operating Officer,
Chief Technical Officer and Secretary.
2. The figure of $150,000 in paragraph A (1) of Exhibit A to the
Agreement shall be deleted and replaced by the figure of $215,000.
3. Section 6.3 of the Agreement is hereby deleted in its entirety and
replaced by the following:
6.3 Entire Agreement; Amendments, Etc. This Agreement and the
Indemnification Agreement dated as of January 7, 2000 between the
Company and Employee (as the Indemnification Agreement may be amended,
restated or otherwise modified) contain the entire agreement and
understanding of the parties hereto, and supersede all prior
agreements and understandings relating to the subject matter hereof
and thereof. Except as provided in Section 4.4(b), no modification,
amendment, waiver or alteration of this Agreement or any provision or
term hereof shall in any event be effective unless the same shall be
in writing, executed by both parties hereto, and any waiver so given
shall be effective only in the specific instance and for the specific
purpose for which given.
<PAGE> 2
4. Miscellaneous. Upon the execution and delivery of this Amendment, the
Agreement shall be amended and supplemented as set forth herein, as fully and
with the same effect as if the amendments and supplements made hereby were set
forth in the Agreement as of the date hereof. This Amendment and the Agreement
shall henceforth be read, taken and construed as one and the same instrument,
but this Amendment shall not operate so as to render invalid or improper any
action previously taken under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of February 1, 2000.
COMPANY: UNIVERSAL ACCESS, INC.,
a Delaware corporation
By: /s/ Patrick C. Shutt
-----------------------------------
Name: Patrick C. Shutt
Title: President and CEO
EMPLOYEE: By: /s/ Robert J. Pommer, Jr.
-----------------------------------
Robert J. Pommer, Jr.
<PAGE> 1
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made as of this 16 day of
November, 1998, by and between UNIVERSAL ACCESS, INC., an Illinois corporation
(the "COMPANY"), and Donna Shore (the "EMPLOYEE").
RECITALS:
A. The Company is in the telecommunications business.
B. The Company desires to employ the Employee and Employee desires to be
employed by the Company as its Vice President of Finance, subject to the terms,
conditions and covenants hereinafter set forth.
C. As a condition of the Company employing the Employee, and to the Company's
agreement to grant stock options to the Employee pursuant to the Company's stock
option plan, Employee has agreed not to divulge to the public the Company's
confidential information, not to solicit the Company's vendors, customers or
employees and not to compete with the Company, all upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the agreements,
covenants and conditions set forth herein, the Employee and the Company hereby
agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company hereby employs, engages and hires Employee, and
Employee hereby accepts employment, upon the terms and conditions set forth in
this Agreement. The Employee shall serve as the Vice President of Finance of the
Company. The Employee shall have and fully perform the duties and
responsibilities required for such job title and position and to perform such
additional services and discharge such other responsibilities as may be, from
time to time, assigned or delegated by the Company.
1.2 Activities and Duties During Employment. Employee represents and warrants to
the Company that Employee is free to accept employment with the Company and that
Employee has no prior or other commitments or obligations of any kind to anyone
else which would hinder or interfere with the performance of this Agreement.
Employee accepts the employment described in Article I of this Agreement and
agrees to devote his or her full time and efforts to the faithful and diligent
performance of the services described herein, including the performance of such
other services and responsibilities as the Company may, from time to time,
stipulate. Without limiting the generality of the foregoing,
<PAGE> 2
Employee shall devote not less than five (5) days per week to this employment,
and shall be present on the Company premises or actively engaged in service to
or on behalf of the Company during normal business hours Monday through Friday,
excluding periods of vacation and sick leave.
ARTICLE II
TERM
2.1 Term. The term of employment under this Agreement shall be three (3) years
(the "Initial Term"), commencing on the date of the Agreement. This Agreement
shall automatically renew for successive one year terms thereafter (each a
"Renewal Term") unless either party delivers notice of termination to the other
party not less than fifteen (15) days prior to the end of the Initial Term or
Renewal Term in question. The Initial Term and any Renewal Terms shall herein be
referred to as the "Employment Term".
2.2 Termination. The Employment Term and employment of Employee may be
terminated as follows:
(a) By the Company immediately for "Cause." For the purpose of this
Agreement, "Cause" shall mean (i) conduct amounting to fraud,
embezzlement, or illegal misconduct in connection with Employee's duties
under this Agreement; (ii) the conviction of Employee by a court of
proper jurisdiction of (or his or her written, voluntary and freely
given confession to) a crime which constitutes a felony (other than a
traffic violation) or an indictment that results in material injury to
the Company's property, operation or reputation; (iii) the willful
failure of Employee to comply with reasonable directions of the Company
or any of the policies of the Company after (a) written notice is
delivered to the Employee describing such willful failure and (b)
Employee has failed to cure or take substantial steps to cure such
willful failure after a reasonable time period as determined by the
Company in its reasonable discretion (not to be less than 15 days)
unless the Employee, after discussion with counsel, in good faith
believes, that the directions of the Company (or its actions or
inactions in response to the Employee's written notice) are illegal; or
(iv) willful misconduct or a material default by the Employee in the
performance or observance of any promise or undertaking of Employee
under this Agreement, which willful misconduct or default has continued
for a period of ten (10) business days after written notice thereof from
the Company to the Employee.
(b) Automatically, without the action of either party, upon the death of
Employee ("Death").
(c) By either party upon the Total Disability of the Employee. The Employee
shall be considered to have a Total Disability for purposes of this
Agreement if he or she is
2
<PAGE> 3
unable by reason of accident or illness to substantially perform his or
her employment duties, and is expected to be in such condition for
periods totaling six (6) months (whether or not consecutive) during any
period of twelve (12) months. The determination of whether a Total
Disability has occurred shall be determined by the Company, in good
faith, at its sole discretion. Nothing herein shall limit the Employee's
right to receive any payments to which Employee may be entitled under
any disability or employee benefit plan of the Company or under any
disability or insurance policy or plan. During a period of disability
prior to termination hereunder, Employee shall continue to receive his
or her full compensation (including base salary and bonus) and benefits,
subject to offset to the extent of any disability insurance payments
received by the Employee pursuant to any disability insurance policy
maintained by or paid for by the Company.
(d) By the Employee upon ten (10) business days notice to the Company for
Good Reason, which notice shall state the reason for termination. For
the purpose of this Agreement, "Good Reason" shall mean any "Change in
Control" (as hereinafter defined) or any material failure by the Company
to comply with the provisions of this Employment Agreement, including
but not limited to, failure to timely pay any part of Employee's
compensation (including salary or bonus) or provide the benefits
contemplated herein, and which is not remedied by the Company within ten
(10) business days after receipt by the Company of written notice
thereof from Employee; provided, that if such default is of a nature
that it cannot be reasonably cured within ten (10) day period (but is
curable), then if the Company shall have commenced an attempt to cure
such default within such ten (10) day period, the period to cure the
default shall be extended until the earlier of the date which is
forty-five (45) days after receipt of notice or the Company has failed
to diligently continue its efforts in a reasonable manner to cure its
default.
For purposes hereof, the term "Change in Control" shall mean the
occurrence of any of the following:
(1) the Company: (a) consummates a merger or consolidation which results
in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) less than fifty percent (50%) of the total voting
power represented by the voting securities of the Company of such
surviving entity outstanding immediately after such merger or
consolidation; and (b) following such event, the successor entity
fails to employ Employee as follows (hereinafter, the "Same Terms"):
on substantially identical terms as are required per this Agreement
for the remaining Employment Term, and the successor entity further
continues to employ Employee in the same city and with job
responsibilities of a level substantially equivalent to or greater
than those presently in force and effect; and with job
responsibilities of a level substantially equivalent to or greater
than those presently in force and effect;
3
<PAGE> 4
(2) a plan of complete liquidation of the Company or an agreement for
the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all of the Company's
assets is consummated, and following such event the successor entity
(if any) fails to employ Employee on the Same Terms; or
(3) Company consummates a plan of complete liquidation of the Company or
an agreement for the sale or disposition (in one transaction or a
series of transactions) by the Company of all or substantially all
of the Company's assets, and following such event the successor
entity (if any) fails to employ Employee on the Same Terms;
provided, however, that a public offering of the stock of the Company
irrespective of the amount of voting securities owned by present
shareholders after such offering shall not be deemed to constitute a
Change of Control; and provided further that if Employee agrees to be
employed by a successor entity on the Same Terms and the successor
entity fails to do so, a Change in Control shall be deemed to have
occurred.
(e) By the Employee without Good Reason, and therefore in breach of this
Agreement.
(f) By the Company other than for Cause, Death or Total Disability, in which
event Employee's sole remedy and compensation as a result of such
termination shall be as set forth in Section 2.4(c) below.
2.3 Cessation of Rights and Obligations: Survival of Certain Provisions. On the
date of expiration or earlier termination of the Employment Term for any reason,
all of the respective rights, duties, obligation and covenants of the parties,
as set forth herein, shall, except as specifically provided herein to the
contrary, cease and become of no further force or effect as of the date of said
termination, and shall only survive as expressly provided for herein.
2.4 Cessation of Compensation. In lieu of any severance under any severance plan
that the Company may then have in effect, and subject to (i) the receipt of a
full and unconditional release from Employee and (ii) any amounts owed by the
Employee to the Company under any contract, agreement or loan document entered
into after the date hereof which relates solely to his or her employment with
the Company (including, but not limited to, loans made by the Company to the
Employee), the Company shall pay to the Employee, and the Employee shall be
entitled to receive, the following amounts within thirty (30) days of the date
of a termination of his or her employment:
(a) Voluntary Termination/Cause/Expiration of Term. Upon (i) Employee
terminating his or her employment without Good Reason as provided in
Section 2.2(e), (ii) the expiration of the Employment Term because the
Employee or the Company elects to not extend the Employment Term, or
(iii) a termination of the Employment Term
4
<PAGE> 5
for Cause by the Company as provided in Section 2.2(a), the Employee
shall be entitled to receive his or her or her base salary (which shall
include any of his or her unused vacation pay for the year of such
termination) and expense reimbursements solely through the date of
termination.
(b) Death or Total Disability. Upon the termination of the Employment Term
by reason of the Death or Total Disability of the Employee, the Employee
(or, in the case of Death, his or her estate) shall be entitled to
receive his or her base salary (which shall include any of his or her
unused vacation pay for the year of such termination) and expense
reimbursements solely through the date of termination.
(c) Involuntary. Upon the termination of the Employment Term:
(1) by the Company for any reason other than Cause, Death or Total
Disability, or
(2) by the Employee for Good Reason,
the Employee shall be entitled to receive in a lump sum the balance of
his or her base salary for the lesser of the remaining term of the
Employment Term (exclusive of any renewals of the then existing term) or
a period of six (6) months (the "Severance Term"), together with
prorated vacation pay and expense reimbursement through the date of
termination. In addition, Employee shall be entitled to payment by the
Company of the premiums for group health insurance coverage otherwise
payable by Employee under the Consolidated Omnibus Budget Reconciliation
Act of 1985 ("COBRA") for the Severance Term. It shall be a condition to
Employee's right to receive the payments described above that Employee
shall be in compliance with all of the Employee's obligations which
survive termination hereof, including without limitation those arising
under Articles IV and V hereof. The payments described above are
intended to be in lieu of all other payments to which Employee might
otherwise be entitled in respect of termination of Employee's employment
without Cause unless otherwise required by law or under other agreements
between the parties. Notwithstanding anything to the contrary contained
herein, to the extent Employee receives any direct or indirect
compensation, consulting fees or health insurance from any Third Parties
(as hereinafter defined) during the Severance Term or with respect to
services performed during the Severance Term such compensation shall be
credited dollar for dollar against the Severance Term payment
obligations of Company under this Section 2.4(c).
2.5 Business Expenses.
(a) Reimbursement. The Company shall reimburse the Employee for all
reasonable, ordinary, and necessary business expenses incurred by
him or her in connection with
5
<PAGE> 6
the performance of his or her duties hereunder, including, but not
limited to, ordinary and necessary travel expenses and entertainment
expenses. The reimbursement of business expenses will be governed by
the policies of the Company from time-to-time and the terms
otherwise set forth herein.
(b) Accounting. The Employee shall provide the Company with an
accounting of his or her expenses, which accounting shall clearly
reflect which expenses were incurred for proper business purposes in
accordance with the policies adopted by the Company and as such are
reimbursable by the Company. The Employee shall provide the Company
with such other supporting documentation and other substantiation of
reimbursable expenses as will conform to Internal Revenue Service or
other requirements. All such reimbursements shall be payable by the
Company to the Employee within a reasonable time after receipt by
the Company of appropriate documentation therefor.
2.6 Sole Compensation. Employee shall not be entitled to any other compensation
from the Company than as set forth in Article II hereof as a result of
termination of Employee's employment.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Compensation. During the Employment Term of this Agreement, the Company
shall pay Employee such salary and bonus as set forth on Exhibit A.
3.2 Payment. All compensation shall be payable in intervals in accordance with
the general payroll payment practice of the Company. The compensation shall be
subject to such withholdings and deductions by the Company as are required by
law. On termination of the Employment Term, the Company shall be entitled to set
off against any monies owing by the Company to Employee the amount of any monies
owing from Employee to the Company.
3.3 Other Benefits. Employee shall be entitled to participate in any retirement,
pension, profit-sharing, stock option, health plan, insurance, disability
income, incentive compensation and welfare or any other benefit plan or plans of
the Company which may now or hereafter be in effect and for which the Employee
is eligible. Notwithstanding the forgoing, the Company shall be under no
obligation to institute or continue the existence of any such benefit plan.
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<PAGE> 7
ARTICLE IV
CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETE AGREEMENT
4.1 Non-Disclosure of Confidential Information. Employee hereby acknowledges and
agrees that the duties and services to be performed by Employee under this
Agreement are special and unique and that as of a result of the employment
hereunder, Employee will acquire, develop and use information of a special and
unique nature and value that is not generally known to the public or to the
Company's industry, including but not limited to, certain records, phone
locations, documentation, software programs, price lists, contract prices for
purchase and sale of telephone access and telephone services, customer lists,
prospect lists, pricing on business proposals to new and existing customers,
network configuration, supplier pricing, equipment configurations, business
plans, ledgers and general information, employee records, mailing lists,
accounts receivable and payable ledgers, financial and other records of the
Company or its Affiliates, and other similar matters (all such information being
hereinafter referred to as "CONFIDENTIAL INFORMATION"). Employee further
acknowledges and agrees that the Confidential Information is of great value to
the Company and its Affiliates and that the restrictions and agreements
contained in this Agreement are reasonably necessary to protect the Confidential
Information and the goodwill of the Company. Accordingly, Employee hereby agrees
that:
(a) Employee will not, while employed by the Company or at any time
thereafter, directly or indirectly, except in connection with Employee's
performance of the duties under this Agreement, or as otherwise
authorized in writing by the Company for the benefit of the Company,
divulge to any person, firm, corporation, limited liability company, or
organization, other than the Company (hereinafter referred to as "THIRD
PARTIES"), or use or cause or authorize any Third Parties to use, the
Confidential Information, except as required by law; and
(b) Upon the termination of Employee's employment for any reason whatsoever,
Employee shall deliver or cause to be delivered to the Company any and
all Confidential Information or documents containing Confidential
Information, including notes, drawings, notebooks, notes, records, keys,
data and other documents and materials belonging to the Company or its
affiliates which is in his or her possession or under his or her control
relating to the Company or its affiliates, regardless of the medium upon
which it is stored, and will deliver to the Company upon such
termination of employment any other property of the Company or its
Affiliates which is in his or her possession or control.
4.2 Non-Solicitation Covenant. Employee hereby covenants and agrees that while
employed by the Company and for a period of one (1) year following the
termination of Employee's employment with the Company for any reason, Employee
shall not (i) directly or indirectly, contact, solicit, interfere with, or
endeavor to entice away from the Company or its Affiliates any person, firm,
corporation, limited liability company or other entity that was a customer of
the Company at
7
<PAGE> 8
any time while Employee was an employee of the Company or its Affiliates or who
is a "prospective customer"of the Company, or (ii) induce, attempt to induce or
hire any employee (or any person who was an employee during the year preceding
the date of any solicitation) of the Company or its Affiliates to leave the
employ of the Company or its Affiliates, or in any way interfere with the
relationship between any such employee and the Company or its Affiliates. For
purposes hereof, "prospective customer" shall mean any person or entity which
has been solicited for business by Employee or any officer or other employee of
the Company during the one year period preceding the date of termination of
Employee's employment with the Company, or if Employee is still employed by the
Company within the one year period preceding the event in question.
4.3 Non-Competition Covenant. Employee acknowledges that the covenants set forth
in this Section 4.3 are reasonable in scope and essential to the preservation of
the Business of the Company (as defined herein). Employee also acknowledges that
the enforcement of the covenant set forth in this Section 4.3 will not preclude
Employee from being gainfully employed in such manner and to the extent as to
provide a standard of living for himself or herself, the members of his or her
family and the others dependent upon Employee of at least the level to which
Employee and they have become accustomed and may expect. In addition, Employee
acknowledges that the Company has obtained an advantage over its competitors as
a result of its name, location and reputation that is characterized by near
permanent relationships with vendors, customers, principals and other contacts
which it has developed at great expense. Furthermore, Employee acknowledges that
competition by him or her following the termination or expiration of his or her
employment would impair the operation of the Company beyond that which would
arise from the competition of an unrelated third party with similar skills.
Employee hereby agrees that he or she shall not, during his or her employment
and for a period of one (1) year after the end of his or her employment,
directly or indirectly, engage in or become directly or indirectly interested in
any proprietorship, partnership, firm, trust, company, limited liability company
or other entity, other than the Company (whether as owner, partner, trustee,
beneficiary, stockholder, member, officer, director, employee, independent
contractor, agent, servant, consultant, lessor, lessee or otherwise) that
competes with the Company in the Business of the Company in the Restricted
Territory (as defined herein), other than owning an interest in a company listed
on a recognized stock exchange in an amount which does not exceed five percent
(5%) of the outstanding stock of such corporation. For purposes of this
Agreement, (i) the term "Business of the Company" shall include all business
activities and ventures related to providing telecommunications services or
products in which the Company is engaged, plans to engage in the next twelve
(12) months following termination of Employee's employment or has engaged in
during the prior twelve (12) months, as determined at any time during the
employment of the Employee; and (ii) the term "Restricted Territory" means the
geographical area consisting of a seventy mile radius surrounding each city (and
including such city) in which the Company maintains either an office or a
telecommunications facility.
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<PAGE> 9
4.4 Remedies.
(a) Injunctive Relief. Employee expressly acknowledges and agrees that the
Business of the Company is highly competitive and that a violation of
any of the provisions of Sections 4.1, 4.2 or 4.3 would cause immediate
and irreparable harm, loss and damage to the Company not adequately
compensable by a monetary award. Employee further acknowledges and
agrees that the time periods and territorial areas provided for herein
are the minimum necessary to adequately protect the Business of the
Company, the enjoyment of the Confidential Information and the goodwill
of the Company. Without limiting any of the other remedies available to
the Company at law or in equity, or the Company's right or ability to
collect money damages, Employee agrees that any actual or threatened
violation of any of the provisions of Sections 4.1, 4.2 or 4.3 may be
immediately restrained or enjoined by any court of competent
jurisdiction, and that a temporary restraining order or emergency,
preliminary or final injunction may be issued in any court of competent
jurisdiction, without notice and without bond.
(b) Enforcement. It is the desire of the parties that the provisions of
Sections 4.1, 4.2 or 4.3 be enforced to the fullest extent permissible
under the laws and public policies in each jurisdiction in which
enforcement might be sought. Accordingly, if any particular portion of
Sections 4.1, 4.2 or 4.3 shall ever be adjudicated as invalid or
unenforceable, or if the application thereof to any party or
circumstance shall be adjudicated to be prohibited by or invalidated by
such laws or public policies, such section or sections shall be (i)
deemed amended to delete therefrom such portions so adjudicated or (ii)
modified as determined appropriate by such a court, such deletions or
modifications to apply only with respect to the operation of such
section or sections in the particular jurisdictions so adjudicating on
the parties and under the circumstances as to which so adjudicated.
(c) Legal Fees. The Employee shall reimburse the Company for all reasonable
costs and expenses, including, but not limited to, attorney's fees,
incurred by the Company in connection with the enforcement of the
provisions set forth in this Agreement.
4.5 Company. All references to the Company in this Article IV shall include
"Affiliates" of the Company, as that term is construed under Rule 405 of the
Securities Act of 1933, as amended.
4.6 Consideration. The undertakings of Employee pursuant to Sections 4.2 and 4.3
hereof are given to the Company in consideration for the payments, if any, to be
made pursuant to Section 2.4 hereof and the grant of the stock options
referenced in Exhibit A.
9
<PAGE> 10
ARTICLE V
ASSIGNMENT OF INTELLECTUAL PROPERTY
5.1 If Employee, during the course of his or her employment with the Company,
creates or discovers any patentable or potentially patentable invention or
design, within the meaning of Title 35 of the United States Code, any utility or
design patent that may be derived from any such invention or design created or
discovered by Employee during the course of his or her employment with the
Company shall be assigned to the Company. Employee agrees to fully cooperate
with the Company in obtaining any such patents, and Employee further agrees to
execute any and all documents the Company may deem necessary to obtain such
patent or to document such assignment to the Company. Employee hereby designates
the Company as his/her attorney-in-fact to execute any such documents relating
to any such patent or assignment thereof to the Company;
5.2 Employee agrees that any original work of authorship fixed in a tangible
medium of expression, including but not limited to literary works; computer
programs, software or other associated intangible property; network
configuration; musical works, including any accompanying words; dramatic works,
including any accompanying music; pantomimes and choreographic works; pictorial,
graphic and sculptural works; motion pictures and other audiovisual works; sound
recordings; and architectural works, within the meaning of Title 17 of the
United States Code, created during the course of his or her employment with the
Company shall be a "work for hire" within the meaning of Section 201(b) of the
Copyright Act, 17 U.S.C. Section 201(b), and that all ownership rights comprised
in the copyright shall vest exclusively in the Company. Employee agrees to fully
cooperate with the Company in obtaining registration of any such copyright,
except that the Company will be responsible for any and all fees and costs
associated with obtaining any such copyright registration;
5.3 If Employee, during the course of his/her employment with the Company,
discovers, invents, or produces, without limitation, any information, computer
programs, software or other associated intangible property; network
configuration, formulae, product, device, system, technique, drawing, program or
process which is a "trade secret" as defined in his/her Employment Agreement or
within the meaning of the Illinois Trade Secret Act (irrespective of where
Employee is employed), such information, formulae, product, device, system,
technique, drawing, program or process shall be assigned to the Company.
Employee agrees to fully cooperate with the Company in protecting the value and
secrecy of any such trade secret, and further agrees to execute any and all
documents the Company deems necessary to document any such assignment to the
Company. Employee appoints the Company as his/her attorney-in-fact to execute
any documents the Company may deem necessary that relates to any such trade
secret or assignment thereof to the Company;
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<PAGE> 11
ARTICLE VI
MISCELLANEOUS
6.1 Notices. All notices or other communications required or permitted hereunder
shall be in writing and shall be deemed given, delivered and received (a) when
delivered, if delivered personally, (b) four days after mailing, when sent by
registered or certified mail, return receipt requested and postage prepaid, (c)
one business day after delivery to a private courier service, when delivered to
a private courier service providing documented overnight service, and (d) on the
date of delivery if delivered by telecopy, receipt confirmed, provided that a
confirmation copy is sent on the next business day by first class mail, postage
prepaid, in each case addressed as follows:
To Employee at his or her home address as set forth on the books and
records of the Company.
To Company at: Universal Access, Inc.
100 North Riverside Drive - Suite 2200(1)
Chicago, Illinois 60606
Attn.: President
Ph: 312-660-5000
Fax: 312-660-5050
With a copy to: Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, IL 60611
Attn.: Mitchell D. Goldsmith
Ph: (312) 836-4006
Fax: (312) 527-5921
(1) After December 20, 1998; prior to such date, at 1021 W. Adams, Chicago,
Illinois 60606 (312-491-1700).
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
6.2 Entire Agreement; Amendments, Etc. This Agreement contains the entire
agreement and understanding of the parties hereto, and supersedes all prior
agreements and understandings relating to the subject matter hereof. Except as
provided in Section 4.4(b), no modification, amendment, waiver or alteration of
this Agreement or any provision or term hereof shall in any event be effective
unless the same shall be in writing, executed by both parties hereto, and any
waiver so given shall be effective only in the specific instance and for the
specific purpose for which given.
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<PAGE> 12
6.3 Benefit. This Agreement shall be binding upon, and inure to the benefit of,
and shall be enforceable by, the heirs, successors, legal representatives and
permitted assignees of Employee and the successors, assignees and transferees of
the Company. This Agreement or any right or interest hereunder may not be
assigned by Employee without the prior written consent of the Company. No
implication shall be drawn in favor or against either party based upon the role
of such party's counsel in the drafting of this Agreement.
6.4 No Waiver. No failure or delay on the part of any party hereto in exercising
any right, power or remedy hereunder or pursuant hereto shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder or pursuant thereto.
6.5 Severability. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law
but, if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement. If any part of any covenant or
other provision in this Agreement is determined by a court of law to be overly
broad thereby making the covenant unenforceable, the parties hereto agree, and
it is their desire, that the court shall substitute a judicially enforceable
limitation in its place, and that as so modified the covenant shall be binding
upon the parties as if originally set forth herein.
6.6 Compliance and Headings. Time is of the essence of this Agreement. The
headings in this Agreement are intended to be for convenience and reference
only, and shall not define or limit the scope, extent or intent or otherwise
affect the meaning of any portion hereof.
6.7 Governing Law. The parties agree that this Agreement shall be governed by,
interpreted and construed in accordance with the laws of the State of Illinois,
and the parties agree that any suit, action or proceeding with respect to this
Agreement shall be brought in the courts of Cook County in the State of Illinois
or in the U.S. District Court for the Northern District of Illinois. The parties
hereto hereby accept the exclusive jurisdiction of those courts for the purpose
of any such suit, action or proceeding. Venue for any such action, in addition
to any other venue permitted by statute, will be Cook County, Illinois. The
parties hereby waive their right to trial by jury on any such action.
6.8 Counterparts. This Agreement may be executed in one or more counterparts,
whether by original, photocopy or facsimile, each of which will be deemed an
original and all of which together will constitute one and the same instrument.
6.9 Recitals. The Recitals set forth above are hereby incorporated in and made a
part of this Agreement by this reference.
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<PAGE> 13
6.10 Arbitration. Except as expressly contemplated by Article IV, any dispute
arising between the parties pursuant to this Agreement shall be submitted to
binding arbitration. Any arbitration proceeding involving any provision hereof
will be conducted in Chicago, Illinois. Except as otherwise provided in this
Agreement, all arbitration proceedings will be conducted in accordance with the
then current National Rules for the Resolution of Employment Disputes of the
American Arbitration Association ("AAA"). One arbitrator shall conduct the
proceedings, and shall be elected in accordance with the procedures of the AAA.
The arbitrator shall allow such discovery as the arbitrator determines
appropriate under the circumstances. The arbitrator shall determine which party,
if either, prevailed and shall award the prevailing party its costs. Each party
shall bear his, her or its respective legal fees. The award and decision of the
arbitrator shall be conclusive and binding on all parties to this Agreement and
judgment on the award may be entered in any court of competent jurisdiction. The
parties acknowledge and agree that any arbitration award may be enforced against
either or both of them in a court of competent jurisdiction and each waives any
right to contest the validity or enforceability of such award. The parties
further agree to be bound by the provisions of any statute of limitations which
would be applicable in a court of law to the controversy or claim which is the
subject of any arbitration proceeding initiated under this Agreement. The
parties further agree that they are entitled in any arbitration proceeding to
the entry of an order, by a court of competent jurisdiction pursuant to an
opinion of the arbitrator, for specific performance of any of the requirements
of this Agreement. The parties further agree that the arbitrator shall provide a
statement of reasons explaining the basis of the decision rendered.
6.11 Survival. Notwithstanding anything to the contrary contained herein, the
terms of Articles III, IV, V and VI hereof shall survive any termination of this
Agreement and remain in full force and effect thereafter.
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<PAGE> 14
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered as of the day and year first above written.
UNIVERSAL ACCESS, INC.
By: /s/ PATRICK C. SHUTT
--------------------------------
Its: President and CEO
EMPLOYEE:
/s/ DONNA SHORE
-----------------------------------
DONNA SHORE
14
<PAGE> 15
EXHIBIT A - ECONOMIC TERMS OF EMPLOYMENT AGREEMENT
UNIVERSAL ACCESS, INC./DONNA SHORE
A. Compensation.
1. During the Employment Term, the Company shall pay Employee such
salary and benefits as shall be agreed upon each year between
Employee and the Company. For the Initial Term, the Company
shall pay Employee a base salary of $125,000 (One Hundred
Twenty-Five Thousand Dollars) per year. Thereafter, the Company
shall review the Employee's base salary annually.
2. Bonus. The Company may, at the Company's sole discretion, in
addition to Employee's base salary, pay Employee an annual bonus
with respect to each calendar year in the Employment Term.
3. Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, stock option, health plan,
insurance, disability income, incentive compensation, vacation
and welfare or any other benefit plan or plans of the Company
which may now or hereafter be in effect and for which he or she
is eligible.
4. Vacation. Employee shall be entitled to up to three (3) weeks of
paid vacation in each calendar year during the Employment Term,
provided, however, that the Employee's 1999 calendar year
vacation shall be prorated for the portion of the calendar year
remaining after the date hereof; Employee shall be entitled to
carry forward from one calendar year during the Employment Term
to the next calendar year up to one additional week's vacation,
to the extent it was accrued and not taken in the previous year
(i.e. not more than 4 week's total vacation can be taken in any
year).
5. Stock Options. Employee shall be entitled to options to purchase
up to 75,000 shares of the Company's common stock at $0.01 per
share in accordance with the Company's stock option plan, as
further specified in the form of stock option agreement between
Employee and the Company.
15
<PAGE> 1
Exhibit 10.23.1
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Amendment No. 1 dated as of February 1, 2000 (the "Amendment") to the
Employment Agreement and any exhibits thereto (the "Agreement") by and between
Universal Access, Inc., a Delaware corporation (the "Company") and Donna Shore
(the "Employee"). Any capitalized terms not defined herein shall have the
meanings assigned to those terms in the Agreement.
RECITALS
A. Company and Employee entered into the Agreement on November 16, 1998.
B. Company and Employee desire to amend the Agreement to reflect certain
changes agreed to by the Company and the Employee.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as
follows:
1. All references in the Agreement to "Vice President of Finance" shall
be deleted and replaced by references to "Executive Vice President, Chief
Financial Officer and Treasurer".
2. The figure of $125,000 in paragraph A (1) of Exhibit A to the
Agreement shall be deleted and replaced by the figure of $ 175,000.
3. Section 6.3 of the Agreement is hereby deleted in its entirety and
replaced by the following:
6.3 Entire Agreement; Amendments, Etc. This Agreement and the
Indemnification Agreement dated as of January 7, 2000 between the
Company and Employee (as the Indemnification Agreement may be
amended, restated or otherwise modified) contain the entire
agreement and understanding of the parties hereto, and supersede all
prior agreements and understandings relating to the subject matter
hereof and thereof. Except as provided in Section 4.4(b), no
modification, amendment, waiver or alteration of this Agreement or
any provision or term hereof shall in any event be effective unless
the same shall be in writing, executed by both parties hereto, and
any waiver so given shall be effective only in the specific instance
and for the specific purpose for which given.
<PAGE> 2
4. Miscellaneous. Upon the execution and delivery of this Amendment, the
Agreement shall be amended and supplemented as set forth herein, as fully and
with the same effect as if the amendments and supplements made hereby were set
forth in the Agreement as of the date hereof. This Amendment and the Agreement
shall henceforth be read, taken and construed as one and the same instrument,
but this Amendment shall not operate so as to render invalid or improper any
action previously taken under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of February 1, 2000.
COMPANY: UNIVERSAL ACCESS, INC.,
a Delaware corporation
By: /s/ PATRICK C. SHUTT
------------------------
Name: Patrick C. Shutt
Title: President and CEO
EMPLOYEE: By: /s/ DONNA SHORE
------------------------
Donna Shore
<PAGE> 1
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made as of this 4th day
of August 1999, by and between UNIVERSAL ACCESS, INC., a Delaware corporation
(the "COMPANY"), and Holly Weller (the "EMPLOYEE").
RECITALS:
A. The Company is in the telecommunications business.
B. The Company desires to employ the Employee and Employee desires to be
employed by the Company as its Executive Vice President of Marketing, subject to
the terms, conditions and covenants hereinafter set forth.
C. As a condition of the Company employing the Employee, and to the
Company's agreement to grant stock options to the Employee pursuant to the
Company's stock option plan, Employee has agreed not to divulge to the public
the Company's confidential information, not to solicit the Company's vendors,
customers or employees and not to compete with the Company, all upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the agreements,
covenants and conditions set forth herein, the Employee and the Company hereby
agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company hereby employs, engages, and hires Employee,
and Employee hereby accepts employment, upon the terms and conditions set forth
in this Agreement. The Employee shall serve as the Executive Vice President of
Marketing of the Company. The Employee shall have and fully perform the duties
and responsibilities required for such job title and position and to perform
such additional services and discharge such other responsibilities as may be,
from time to time, assigned or delegated by the Company.
1.2 Activities and Duties During Employment. Employee represents and
warrants to the Company that Employee is free to accept employment with the
Company and that Employee has no prior or other commitments or obligations of
any kind to anyone else which would hinder or interfere with the performance of
this Agreement.
1.3 Employee accepts the employment described in Article I of this
Agreement and agrees to devote his or her full time and efforts to the faithful
and diligent performance of the services described herein, including the
performance of such other services and responsibilities
<PAGE> 2
as the Company may, from time to time, stipulate. Without limiting the
generality of the foregoing, Employee shall devote not less than five (5) days
per week to this employment, and shall be present on the Company premises or
actively engaged in service to or on behalf of the Company during normal
business hours Monday through Friday, excluding periods of vacation and sick
leave.
ARTICLE II
TERM
2.1 Term. The term of employment under this Agreement shall be one (1)
year (the "Initial Term"), commencing on the date of the Agreement. This
Agreement shall automatically renew for successive one year terms thereafter
(each a "Renewal Term") unless either party delivers notice of termination to
the other party not less than fifteen (15) days prior to the end of the Initial
Term or Renewal Term in question. The Initial Term and any Renewal Terms shall
herein be referred to as the "Employment Term".
2.2 Termination. The Employment Term and employment of Employee may be
terminated as follows:
(a) By the Company immediately for "Cause." For the purpose of this
Agreement, "Cause" shall mean (i) conduct amounting to fraud,
embezzlement, or illegal misconduct in connection with Employee's
duties under this Agreement; (ii) the conviction of Employee by a
court of proper jurisdiction of (or his or her written, voluntary
and freely given confession to) a crime which constitutes a felony
(other than a traffic violation) or an indictment that results in
material injury to the Company's property, operation or reputation;
(iii) the willful failure of Employee to comply with reasonable
directions of the Company or any of the policies of the Company
after (a) written notice is delivered to the Employee describing
such willful failure and (b) Employee has failed to cure or take
substantial steps to cure such willful failure after a reasonable
time period as determined by the Company in its reasonable
discretion (not to be less than 15 days) unless the Employee, after
discussion with counsel, in good faith believes, that the directions
of the Company (or its actions or inactions in response to the
Employee's written notice) are illegal; or (iv) willful misconduct
or a material default by the Employee in the performance or
observance of any promise or undertaking of Employee under this
Agreement, which willful misconduct or default has continued for a
period of ten (10) business days after written notice thereof from
the Company to the Employee.
(b) Automatically, without the action of either party, upon the death of
Employee ("Death").
<PAGE> 3
(c) By either party upon the Total Disability of the Employee. The
Employee shall be considered to have a Total Disability for purposes
of this Agreement if he or she is unable by reason of accident or
illness to substantially perform his or her employment duties, and
is expected to be in such condition for periods totaling six (6)
months (whether or not consecutive) during any period of twelve (12)
months. The determination of whether a Total Disability has occurred
shall be determined by the Company, in good faith, at its sole
discretion. Nothing herein shall limit the Employee's right to
receive any payments to which Employee may be entitled under any
disability or employee benefit plan of the Company or under any
disability or insurance policy or plan. During a period of
disability prior to termination hereunder, Employee shall continue
to receive his or her full compensation (including base salary and
bonus) and benefits, subject to offset to the extent of any
disability insurance payments received by the Employee pursuant to
any disability insurance policy maintained by or paid for by the
Company.
(d) By the Employee upon ten (10) business days notice to the Company
for Good Reason, which notice shall state the reason for
termination. For the purpose of this Agreement, "Good Reason" shall
mean any "Change in Control" (as hereinafter defined) or any
material failure by the Company to comply with the provisions of
this Employment Agreement, including but not limited to, failure to
timely pay any part of Employee's compensation (including salary or
bonus) or provide the benefits contemplated herein, and which is not
remedied by the Company within ten (10) business days after receipt
by the Company of written notice thereof from Employee; provided,
that if such default is of a nature that it cannot be reasonably
cured within ten (10) day period (but is curable), then if the
Company shall have commenced an attempt to cure such default within
such ten (10) day period, the period to cure the default shall be
extended until the earlier of the date which is forty-five (45) days
after receipt of notice or the Company has failed to diligently
continue its efforts in a reasonable manner to cure its default.
For purposes hereof, the term "Change in Control" shall mean the
occurrence of any of the following:
(1) the Company: (a) consummates a merger or consolidation which
results in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) less than fifty percent
(50%) of the total voting power represented by the voting
securities of the Company of such surviving entity outstanding
immediately after such merger or consolidation; and (b)
following such
<PAGE> 4
event, the successor entity fails to employ Employee as follows
(hereinafter, the "Same Terms"): on substantially identical
terms as are required per this Agreement for the remaining
Employment Term, and the successor entity further continues to
employ Employee in the same city and with job responsibilities
of a level substantially equivalent to or greater than those
presently in force and effect;
(2) a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially
all of the Company's assets is consummated, and following such
event the successor entity (if any) fails to employ Employee on
the Same Terms; or
(3) Company consummates a plan of complete liquidation of the
Company or an agreement for the sale or disposition (in one
transaction or a series of transactions) by the Company of all
or substantially all of the Company's assets, and following such
event the successor entity (if any) fails to employ Employee on
the Same Terms;
provided, however, that a public offering of the stock of the
Company irrespective of the amount of voting securities owned by
present shareholders after such offering shall not be deemed to
constitute a Change of Control; and provided further that if
Employee agrees to be employed by a successor entity on the Same
Terms and the successor entity fails to do so, a Change in Control
shall be deemed to have occurred.
(e) By the Employee without Good Reason, and therefore in breach of this
Agreement.
(f) By the Company other than for Cause, Death or Total Disability, in
which event Employee's sole remedy and compensation as a result of
such termination shall be as set forth in Section 2.4(c) below.
2.3 Cessation of Rights and Obligations: Survival of Certain Provisions.
On the date of expiration or earlier termination of the Employment Term for any
reason, all of the respective rights, duties, obligation and covenants of the
parties, as set forth herein, shall, except as specifically provided herein to
the contrary, cease and become of no further force or effect as of the date of
said termination, and shall only survive as expressly provided for herein.
2.4 Cessation of Compensation. In lieu of any severance under any
severance plan that the Company may then have in effect, and subject to (i) the
receipt of a full and unconditional release from Employee and (ii) any amounts
owed by the Employee to the Company under any
<PAGE> 5
contract, agreement or loan document entered into after the date hereof which
relates solely to his or her employment with the Company (including, but not
limited to, loans made by the Company to the Employee), the Company shall pay to
the Employee, and the Employee shall be entitled to receive, the following
amounts within thirty (30) days of the date of a termination of his or her
employment:
(a) Voluntary Termination/Cause/Expiration of Term. Upon (i) Employee
terminating his or her employment without Good Reason as provided in
Section 2.2(e), (ii) the expiration of the Employment Term because
the Employee or the Company elects to not extend the Employment
Term, or (iii) a termination of the Employment Term for Cause by the
Company as provided in Section 2.2(a), the Employee shall be
entitled to receive his or her or her base salary (which shall
include any of his or her unused vacation pay for the year of such
termination) and expense reimbursements solely through the date of
termination.
(b) Death or Total Disability. Upon the termination of the Employment
Term by reason of the Death or Total Disability of the Employee, the
Employee (or, in the case of Death, his or her estate) shall be
entitled to receive his or her base salary (which shall include any
of his or her unused vacation pay for the year of such termination)
and expense reimbursements solely through the date of termination.
(c) Involuntary. Upon the termination of the Employment Term:
(1) by the Company for any reason other than Cause, Death or Total
Disability, or
(2) by the Employee for Good Reason,
the Employee shall be entitled to receive in a lump sum the balance
of his or her base salary for the lesser of the remaining term of
the Employment Term (exclusive of any renewals of the then existing
term) or a period of six (6) months (the "Severance Term"), together
with prorated vacation pay and expense reimbursement through the
date of termination. In addition, Employee shall be entitled to
payment by the Company of the premiums for group health insurance
coverage otherwise payable by Employee under the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") for the
Severance Term. It shall be a condition to Employee's right to
receive the payments described above that Employee shall be in
compliance with all of the Employee's obligations which survive
termination hereof, including without limitation those arising under
Articles IV and V hereof. The payments described above are intended
to be in lieu of all other payments to which Employee might
<PAGE> 6
otherwise be entitled in respect of termination of Employee's
employment without Cause unless otherwise required by law or under
other agreements between the parties. Notwithstanding anything to
the contrary contained herein, to the extent Employee receives any
direct or indirect compensation, consulting fees or health insurance
from any Third Parties (as hereinafter defined) during the Severance
Term or with respect to services performed during the Severance Term
such compensation shall be credited dollar for dollar against the
Severance Term payment obligations of Company under this Section
2.4(c).
2.5 Business Expenses.
(a) Reimbursement. The Company shall reimburse the Employee for all
reasonable, ordinary, and necessary business expenses incurred by
him or her in connection with the performance of his or her duties
hereunder, including, but not limited to, ordinary and necessary
travel expenses and entertainment expenses. The reimbursement of
business expenses will be governed by the policies of the Company
from time-to-time and the terms otherwise set forth herein.
(b) Accounting. The Employee shall provide the Company with an
accounting of his or her expenses, which accounting shall clearly
reflect which expenses were incurred for proper business purposes in
accordance with the policies adopted by the Company and as such are
reimbursable by the Company. The Employee shall provide the Company
with such other supporting documentation and other substantiation of
reimbursable expenses as will conform to Internal Revenue Service or
other requirements. All such reimbursements shall be payable by the
Company to the Employee within a reasonable time after receipt by
the Company of appropriate documentation therefor.
2.6 Sole Compensation. Employee shall not be entitled to any other
compensation from the Company than as set forth in Article II hereof as a result
of termination of Employee's employment.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Compensation. During the Employment Term of this Agreement, the
Company shall pay Employee such salary and bonus as set forth on Exhibit A.
3.2 Payment. All compensation shall be payable in intervals in
accordance with the general payroll payment practice of the Company. The
compensation shall be subject to such
<PAGE> 7
withholdings and deductions by the Company as are required by law. On
termination of the Employment Term, the Company shall be entitled to set off
against any monies owing by the Company to Employee the amount of any monies
owing from Employee to the Company.
3.3 Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, stock option, health plan, insurance,
disability income, incentive compensation and welfare or any other benefit plan
or plans of the Company which may now or hereafter be in effect and for which
the Employee is eligible. Notwithstanding the forgoing, the Company shall be
under no obligation to institute or continue the existence of any such benefit
plan.
ARTICLE IV
CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETE AGREEMENT
4.1 Non-Disclosure of Confidential Information. Employee hereby
acknowledges and agrees that the duties and services to be performed by Employee
under this Agreement are special and unique and that as of a result of the
employment hereunder, Employee will acquire, develop and use information of a
special and unique nature and value that is not generally known to the public or
to the Company's industry, including but not limited to, certain records, phone
locations, documentation, software programs, price lists, contract prices for
purchase and sale of telephone access and telephone services, customer lists,
prospect lists, pricing on business proposals to new and existing customers,
network configuration, supplier pricing, equipment configurations, business
plans, ledgers and general information, employee records, mailing lists,
accounts receivable and payable ledgers, financial and other records of the
Company or its Affiliates, and other similar matters (all such information being
hereinafter referred to as "CONFIDENTIAL INFORMATION"). Employee further
acknowledges and agrees that the Confidential Information is of great value to
the Company and its Affiliates and that the restrictions and agreements
contained in this Agreement are reasonably necessary to protect the Confidential
Information and the goodwill of the Company. Accordingly, Employee hereby agrees
that:
(a) Employee will not, while employed by the Company or at any time
thereafter, directly or indirectly, except in connection with
Employee's performance of the duties under this Agreement, or as
otherwise authorized in writing by the Company for the benefit of
the Company, divulge to any person, firm, corporation, limited
liability company, or organization, other than the Company
(hereinafter referred to as "THIRD PARTIES"), or use or cause or
authorize any Third Parties to use, the Confidential Information,
except as required by law; and
(b) Upon the termination of Employee's employment for any reason
whatsoever, Employee shall deliver or cause to be delivered to the
Company any and all Confidential Information or documents containing
Confidential Information, including notes, drawings, notebooks,
notes, records, keys, data and other documents and materials
<PAGE> 8
belonging to the Company or its affiliates which is in his or her
possession or under his or her control relating to the Company or
its affiliates, regardless of the medium upon which it is stored,
and will deliver to the Company upon such termination of employment
any other property of the Company or its Affiliates which is in his
or her possession or control.
4.2 Non-Solicitation Covenant. Employee hereby covenants and agrees that
while employed by the Company and for a period of one (1) year following the
termination of Employee's employment with the Company for any reason, Employee
shall not (i) directly or indirectly, contact, solicit, interfere with, or
endeavor to entice away from the Company or its Affiliates any person, firm,
corporation, limited liability company or other entity that was a customer of
the Company at any time while Employee was an employee of the Company or its
Affiliates or who is a "prospective customer" of the Company, or (ii) induce,
attempt to induce or hire any employee (or any person who was an employee during
the year preceding the date of any solicitation) of the Company or its
Affiliates to leave the employ of the Company or its Affiliates, or in any way
interfere with the relationship between any such employee and the Company or its
Affiliates. For purposes hereof, "prospective customer" shall mean any person or
entity which has been solicited for business by Employee or any officer or other
employee of the Company during the one year period preceding the date of
termination of Employee's employment with the Company, or if Employee is still
employed by the Company within the one year period preceding the event in
question.
4.3 Non-Competition Covenant. Employee acknowledges that the covenants
set forth in this Section 4.3 are reasonable in scope and essential to the
preservation of the Business of the Company (as defined herein). Employee also
acknowledges that the enforcement of the covenant set forth in this Section 4.3
will not preclude Employee from being gainfully employed in such manner and to
the extent as to provide a standard of living for himself or herself, the
members of his or her family and the others dependent upon Employee of at least
the level to which Employee and they have become accustomed and may expect. In
addition, Employee acknowledges that the Company has obtained an advantage over
its competitors as a result of its name, location and reputation that is
characterized by near permanent relationships with vendors, customers,
principals and other contacts which it has developed at great expense.
Furthermore, Employee acknowledges that competition by him or her following the
termination or expiration of his or her employment would impair the operation of
the Company beyond that which would arise from the competition of an unrelated
third party with similar skills. Employee hereby agrees that he or she shall
not, during his or her employment and for a period of one (1) year after the end
of his or her employment, directly or indirectly, engage in or become directly
or indirectly interested in any proprietorship, partnership, firm, trust,
company, limited liability company or other entity, other than the Company
(whether as owner, partner, trustee, beneficiary, stockholder, member, officer,
director, employee, independent contractor, agent, servant, consultant, lessor,
lessee or otherwise) that competes with the Company in the Business of the
Company in the Restricted Territory (as defined herein), other than owning an
interest in a
<PAGE> 9
company listed on a recognized stock exchange in an amount which does not exceed
five percent (5%) of the outstanding stock of such corporation. For purposes of
this Agreement, (i) the term "Business of the Company" shall include all
business activities and ventures related to providing telecommunications
services or products in which the Company is engaged, plans to engage in the
next twelve (12) months following termination of Employee's employment or has
engaged in during the prior twelve (12) months, as determined at any time during
the employment of the Employee; and (ii) the term "Restricted Territory" means
the geographical area consisting of a seventy mile radius surrounding each city
(and including such city) in which the Company maintains either an office or a
telecommunications facility.
4.4 Remedies.
(a) Injunctive Relief. Employee expressly acknowledges and agrees that
the Business of the Company is highly competitive and that a
violation of any of the provisions of Sections 4.1, 4.2 or 4.3 would
cause immediate and irreparable harm, loss and damage to the Company
not adequately compensable by a monetary award. Employee further
acknowledges and agrees that the time periods and territorial areas
provided for herein are the minimum necessary to adequately protect
the Business of the Company, the enjoyment of the Confidential
Information and the goodwill of the Company. Without limiting any of
the other remedies available to the Company at law or in equity, or
the Company's right or ability to collect money damages, Employee
agrees that any actual or threatened violation of any of the
provisions of Sections 4.1, 4.2 or 4.3 may be immediately restrained
or enjoined by any court of competent jurisdiction, and that a
temporary restraining order or emergency, preliminary or final
injunction may be issued in any court of competent jurisdiction,
without notice and without bond.
(b) Enforcement. It is the desire of the parties that the provisions of
Sections 4.1, 4.2 or 4.3 be enforced to the fullest extent
permissible under the laws and public policies in each jurisdiction
in which enforcement might be sought. Accordingly, if any particular
portion of Sections 4.1, 4.2 or 4.3 shall ever be adjudicated as
invalid or unenforceable, or if the application thereof to any party
or circumstance shall be adjudicated to be prohibited by or
invalidated by such laws or public policies, such section or
sections shall be (i) deemed amended to delete therefrom such
portions so adjudicated or (ii) modified as determined appropriate
by such a court, such deletions or modifications to apply only with
respect to the operation of such section or sections in the
particular jurisdictions so adjudicating on the parties and under
the circumstances as to which so adjudicated.
<PAGE> 10
(c) Legal Fees. The Employee shall reimburse the Company for all
reasonable costs and expenses, including, but not limited to,
attorney's fees, incurred by the Company in connection with the
enforcement of the provisions set forth in this Agreement.
4.5 Company. All references to the Company in this Article IV shall
include "Affiliates" of the Company, as that term is construed under Rule 405 of
the Securities Act of 1933, as amended.
4.6 Consideration. The undertakings of Employee pursuant to Sections 4.2
and 4.3 hereof are given to the Company in consideration for the payments, if
any, to be made pursuant to Section 2.4 hereof and the grant of the stock
options referenced in Exhibit A.
ARTICLE V
ASSIGNMENT OF INTELLECTUAL PROPERTY
5.1 If Employee, during the course of his or her employment with the
Company, creates or discovers any patentable or potentially patentable invention
or design, within the meaning of Title 35 of the United States Code, any utility
or design patent that may be derived from any such invention or design created
or discovered by Employee during the course of his or her employment with the
Company shall be assigned to the Company. Employee agrees to fully cooperate
with the Company in obtaining any such patents, and Employee further agrees to
execute any and all documents the Company may deem necessary to obtain such
patent or to document such assignment to the Company. Employee hereby designates
the Company as his/her attorney-in-fact to execute any such documents relating
to any such patent or assignment thereof to the Company;
5.2 Employee agrees that any original work of authorship fixed in a
tangible medium of expression, including but not limited to literary works;
computer programs, software or other associated intangible property; network
configuration; musical works, including any accompanying words; dramatic works,
including any accompanying music; pantomimes and choreographic works; pictorial,
graphic and sculptural works; motion pictures and other audiovisual works; sound
recordings; and architectural works, within the meaning of Title 17 of the
United States Code, created during the course of his or her employment with the
Company shall be a "work for hire" within the meaning of Section 201(b) of the
Copyright Act, 17 U.S.C. Section 201(b), and that all ownership rights comprised
in the copyright shall vest exclusively in the Company. Employee agrees to fully
cooperate with the Company in obtaining registration of any such copyright,
except that the Company will be responsible for any and all fees and costs
associated with obtaining any such copyright registration;
<PAGE> 11
5.3 If Employee, during the course of his/her employment with the
Company, discovers, invents, or produces, without limitation, any information,
computer programs, software or other associated intangible property; network
configuration, formulae, product, device, system, technique, drawing, program or
process which is a "trade secret" as defined in his/her Employment Agreement or
within the meaning of the Illinois Trade Secret Act (irrespective of where
Employee is employed), such information, formulae, product, device, system,
technique, drawing, program or process shall be assigned to the Company.
Employee agrees to fully cooperate with the Company in protecting the value and
secrecy of any such trade secret, and further agrees to execute any and all
documents the Company deems necessary to document any such assignment to the
Company. Employee appoints the Company as his/her attorney-in-fact to execute
any documents the Company may deem necessary that relates to any such trade
secret or assignment thereof to the Company;
ARTICLE VI
MISCELLANEOUS
6.1 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given, delivered and received
(a) when delivered, if delivered personally, (b) four days after mailing, when
sent by registered or certified mail, return receipt requested and postage
prepaid, (c) one business day after delivery to a private courier service, when
delivered to a private courier service providing documented overnight service,
and (d) on the date of delivery if delivered by telecopy, receipt confirmed,
provided that a confirmation copy is sent on the next business day by first
class mail, postage prepaid, in each case addressed as follows:
To Employee at his or her home address as set forth on the books and
records of the Company.
To Company at: Universal Access, Inc.
100 North Riverside Drive - Suite 2200
Chicago, Illinois 60606
Attn.: President
Ph: 312-660-5000
Fax: 312-660-5050
With a copy to: Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, IL 60611
Attn.: Mitchell D. Goldsmith
Ph: (312) 836-4006
Fax: (312) 527-5921
<PAGE> 12
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
6.2 Entire Agreement; Amendments, Etc. This Agreement contains the
entire agreement and understanding of the parties hereto, and supersedes all
prior agreements and understandings relating to the subject matter hereof.
Except as provided in Section 4.4(b), no modification, amendment, waiver or
alteration of this Agreement or any provision or term hereof shall in any event
be effective unless the same shall be in writing, executed by both parties
hereto, and any waiver so given shall be effective only in the specific instance
and for the specific purpose for which given.
6.3 Benefit. This Agreement shall be binding upon, and inure to the
benefit of, and shall be enforceable by, the heirs, successors, legal
representatives and permitted assignees of Employee and the successors,
assignees and transferees of the Company. This Agreement or any right or
interest hereunder may not be assigned by Employee without the prior written
consent of the Company. No implication shall be drawn in favor or against either
party based upon the role of such party's counsel in the drafting of this
Agreement.
6.4 No Waiver. No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder or pursuant hereto shall operate
as a waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder or pursuant thereto.
6.5 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law but, if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement. If any part of any
covenant or other provision in this Agreement is determined by a court of law to
be overly broad thereby making the covenant unenforceable, the parties hereto
agree, and it is their desire, that the court shall substitute a judicially
enforceable limitation in its place, and that as so modified the covenant shall
be binding upon the parties as if originally set forth herein.
6.6 Compliance and Headings. Time is of the essence of this Agreement.
The headings in this Agreement are intended to be for convenience and reference
only, and shall not define or limit the scope, extent or intent or otherwise
affect the meaning of any portion hereof.
<PAGE> 13
6.7 Governing Law. The parties agree that this Agreement shall be
governed by, interpreted and construed in accordance with the laws of the State
of Illinois, and the parties agree that any suit, action or proceeding with
respect to this Agreement shall be brought in the courts of Cook County in the
State of Illinois or in the U.S. District Court for the Northern District of
Illinois. The parties hereto hereby accept the exclusive jurisdiction of those
courts for the purpose of any such suit, action or proceeding. Venue for any
such action, in addition to any other venue permitted by statute, will be Cook
County, Illinois. The parties hereby waive their right to trial by jury on any
such action.
6.8 Counterparts. This Agreement may be executed in one or more
counterparts, whether by original, photocopy or facsimile, each of which will be
deemed an original and all of which together will constitute one and the same
instrument.
6.9 Recitals. The Recitals set forth above are hereby incorporated in
and made a part of this Agreement by this reference.
6.10 Arbitration. Except as expressly contemplated by Article IV, any
dispute arising between the parties pursuant to this Agreement shall be
submitted to binding arbitration. Any arbitration proceeding involving any
provision hereof will be conducted in Chicago, Illinois. Except as otherwise
provided in this Agreement, all arbitration proceedings will be conducted in
accordance with the then current National Rules for the Resolution of Employment
Disputes of the American Arbitration Association ("AAA"). One arbitrator shall
conduct the proceedings, and shall be elected in accordance with the procedures
of the AAA. The arbitrator shall allow such discovery as the arbitrator
determines appropriate under the circumstances. The arbitrator shall determine
which party, if either, prevailed and shall award the prevailing party its
costs. Each party shall bear his, her or its respective legal fees. The award
and decision of the arbitrator shall be conclusive and binding on all parties to
this Agreement and judgment on the award may be entered in any court of
competent jurisdiction. The parties acknowledge and agree that any arbitration
award may be enforced against either or both of them in a court of competent
jurisdiction and each waives any right to contest the validity or enforceability
of such award. The parties further agree to be bound by the provisions of any
statute of limitations which would be applicable in a court of law to the
controversy or claim which is the subject of any arbitration proceeding
initiated under this Agreement. The parties further agree that they are entitled
in any arbitration proceeding to the entry of an order, by a court of competent
jurisdiction pursuant to an opinion of the arbitrator, for specific performance
of any of the requirements of this Agreement. The parties further agree that the
arbitrator shall provide a statement of reasons explaining the basis of the
decision rendered.
6.11 Survival. Notwithstanding anything to the contrary contained
herein, the terms of Articles III, IV, V and VI hereof shall survive any
termination of this Agreement and remain in full force and effect thereafter.
<PAGE> 14
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered as of the day and year first above written.
UNIVERSAL ACCESS, INC.
By: /s/ PATRICK C. SHUTT
--------------------------------
Its: CEO
EMPLOYEE:
/s/ HOLLY A. WELLER
-----------------------------------
NAME: Holly A. Weller
<PAGE> 15
EXHIBIT A - ECONOMIC TERMS OF EMPLOYMENT AGREEMENT
UNIVERSAL ACCESS, INC./HOLLY WELLER
A. Compensation.
1. During the Employment Term, the Company shall pay Employee such
salary and benefits as shall be agreed upon each year between
Employee and the Company. For the Initial Term, the Company shall
pay Employee a base salary of $155,000.00 (one hundred fifty-five
thousand dollars) per year. Thereafter, the Company shall review
the Employee's base salary annually.
2. Bonus. Employee may, at the sole discretion of the Company, be
eligible for a quarterly bonus, based on MBO's, for up to fifteen
thousand dollars ($15,000) per quarter. Upon notification to the
Employee, the Company may pay such bonuses on an annual or
semi-annual basis with respect to each calendar in the Employment
Term.
3. Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, stock option, health plan,
insurance, disability income, incentive compensation, vacation
and welfare or any other benefit plan or plans of the Company
which may now or hereafter be in effect and for which he or she
is eligible.
4. Vacation. Employee shall be entitled to up to three (3) weeks of
paid vacation in each calendar year during the Employment Term,
provided, however, that the Employee's 1999 calendar year
vacation shall be prorated for the portion of the calendar year
remaining after the date hereof; Employee shall be entitled to
carry forward from one calendar year during the Employment Term
to the next calendar year up to one additional week's vacation,
to the extent it was accrued and not taken in the previous year
(i.e. not more than 4 week's total vacation can be taken in any
year).
5. Stock Options. Employee shall be entitled to options to purchase
up to two hundred fifty thousand (250,000) shares of the
Company's common stock at $2.75 per share in accordance with the
Company's stock option plan, as further specified in the form of
stock option agreement between Employee and the Company.
<PAGE> 1
Exhibit 10.24.1
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Amendment No. 1 dated as of February 1, 2000 (the "Amendment") to the
Employment Agreement and any exhibits thereto (the "Agreement") by and between
Universal Access, Inc., a Delaware corporation (the "Company") and Holly Weller
(the "Employee"). Any capitalized terms not defined herein shall have the
meanings assigned to those terms in the Agreement.
RECITALS
A. Company and Employee entered into the Agreement on August 4, 1999.
B. Company and Employee desire to amend the Agreement to reflect certain
changes agreed to by the Company and the Employee.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as
follows:
1. Section 6.3 of the Agreement is hereby deleted in its entirety and
replaced by the following:
6.3 Entire Agreement; Amendments, Etc. This Agreement and the
Indemnification Agreement dated as of January 7, 2000 between the
Company and Employee (as the Indemnification Agreement may be amended,
restated or otherwise modified) contain the entire agreement and
understanding of the parties hereto, and supersede all prior agreements
and understandings relating to the subject matter hereof and thereof.
Except as provided in Section 4.4(b), no modification, amendment, waiver
or alteration of this Agreement or any provision or term hereof shall in
any event be effective unless the same shall be in writing, executed by
both parties hereto, and any waiver so given shall be effective only in
the specific instance and for the specific purpose for which given.
2. Miscellaneous. Upon the execution and delivery of this Amendment, the
Agreement shall be amended and supplemented as set forth herein, as fully and
with the same effect as if the amendments and supplements made hereby were set
forth in the Agreement as of the date hereof. This Amendment and the Agreement
shall henceforth be read, taken and construed as one and the same instrument,
but this Amendment shall not operate so as to render invalid or improper any
action previously taken under this Agreement.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of February 1, 2000.
COMPANY: UNIVERSAL ACCESS, INC.,
a Delaware corporation
By: /s/ PATRICK C. SHUTT
------------------------
Name: Patrick C. Shutt
Title: President and CEO
EMPLOYEE: By: /s/ HOLLY WELLER
------------------------
Holly Weller
<PAGE> 1
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made as of this 1st day
of July, 1999, by and between UNIVERSAL ACCESS, INC., an Illinois corporation
(the "COMPANY"), and Kenneth A. Napier (the "EMPLOYEE").
RECITALS:
A. The Company is in the telecommunications business.
B. The Company desires to employ the Employee and Employee desires to be
employed by the Company as its Executive Vice President of Client Services,
subject to the terms, conditions and covenants hereinafter set forth.
C. As a condition of the Company employing the Employee, and to the Company's
agreement to grant stock options to the Employee pursuant to the Company's stock
option plan, Employee has agreed not to divulge to the public the Company's
confidential information, not to solicit the Company's vendors, customers or
employees and not to compete with the Company, all upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the agreements,
covenants and conditions set forth herein, the Employee and the Company hereby
agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company hereby employs, engages, and hires Employee, and
Employee hereby accepts employment, upon the terms and conditions set forth in
this Agreement. The Employee shall serve as the Executive Vice President of
Client Services of the Company. The Employee shall have and fully perform the
duties and responsibilities required for such job title and position and to
perform such additional services and discharge such other responsibilities as
may be, from time to time, assigned or delegated by the Company.
1.2 Activities and Duties During Employment. Employee represents and warrants to
the Company that Employee is free to accept employment with the Company and that
Employee has no prior or other commitments or obligations of any kind to anyone
else which would hinder or interfere with the performance of this Agreement.
1.3 Employee accepts the employment described in Article I of this Agreement and
agrees to devote his or her full time and efforts to the faithful and diligent
performance of the services described herein, including the performance of such
other services and responsibilities as the Company may, from time to time,
stipulate. Without limiting the generality of the foregoing, Employee shall
devote not less than five (5) days per week to this employment, and
<PAGE> 2
shall be present on the Company premises or actively engaged in service to or on
behalf of the Company during normal business hours Monday through Friday,
excluding periods of vacation and sick leave.
ARTICLE II
TERM
2.1 Term. The term of employment under this Agreement shall be one (1) year (the
"Initial Term"), commencing on the date of the Agreement. This Agreement shall
automatically renew for successive one year terms thereafter (each a "Renewal
Term") unless either party delivers notice of termination to the other party not
less than fifteen (15) days prior to the end of the Initial Term or Renewal Term
in question. The Initial Term and any Renewal Terms shall herein be referred to
as the "Employment Term".
2.2 Termination. The Employment Term and employment of Employee may be
terminated as follows:
(a) By the Company immediately for "Cause." For the purpose of this
Agreement, "Cause" shall mean (i) conduct amounting to fraud,
embezzlement, or illegal misconduct in connection with Employee's duties
under this Agreement; (ii) the conviction of Employee by a court of
proper jurisdiction of (or his or her written, voluntary and freely
given confession to) a crime which constitutes a felony (other than a
traffic violation) or an indictment that results in material injury to
the Company's property, operation or reputation; (iii) the willful
failure of Employee to comply with reasonable directions of the Company
or any of the policies of the Company after (a) written notice is
delivered to the Employee describing such willful failure and (b)
Employee has failed to cure or take substantial steps to cure such
willful failure after a reasonable time period as determined by the
Company in its reasonable discretion (not to be less than 15 days)
unless the Employee, after discussion with counsel, in good faith
believes, that the directions of the Company (or its actions or
inactions in response to the Employee's written notice) are illegal; or
(iv) willful misconduct or a material default by the Employee in the
performance or observance of any promise or undertaking of Employee
under this Agreement, which willful misconduct or default has continued
for a period of ten (10) business days after written notice thereof from
the Company to the Employee.
(b) Automatically, without the action of either party, upon the death of
Employee ("Death").
(c) By either party upon the Total Disability of the Employee. The Employee
shall be considered to have a Total Disability for purposes of this
Agreement if he or she is
<PAGE> 3
unable by reason of accident or illness to substantially perform his or
her employment duties, and is expected to be in such condition for
periods totaling six (6) months (whether or not consecutive) during any
period of twelve (12) months. The determination of whether a Total
Disability has occurred shall be determined by the Company, in good
faith, at its sole discretion. Nothing herein shall limit the Employee's
right to receive any payments to which Employee may be entitled under
any disability or employee benefit plan of the Company or under any
disability or insurance policy or plan. During a period of disability
prior to termination hereunder, Employee shall continue to receive his
or her full compensation (including base salary and bonus) and benefits,
subject to offset to the extent of any disability insurance payments
received by the Employee pursuant to any disability insurance policy
maintained by or paid for by the Company.
(d) By the Employee upon ten (10) business days notice to the Company for
Good Reason, which notice shall state the reason for termination. For
the purpose of this Agreement, "Good Reason" shall mean any "Change in
Control" (as hereinafter defined) or any material failure by the Company
to comply with the provisions of this Employment Agreement, including
but not limited to, failure to timely pay any part of Employee's
compensation (including salary or bonus) or provide the benefits
contemplated herein, and which is not remedied by the Company within ten
(10) business days after receipt by the Company of written notice
thereof from Employee; provided, that if such default is of a nature
that it cannot be reasonably cured within ten (10) day period (but is
curable), then if the Company shall have commenced an attempt to cure
such default within such ten (10) day period, the period to cure the
default shall be extended until the earlier of the date which is
forty-five (45) days after receipt of notice or the Company has failed
to diligently continue its efforts in a reasonable manner to cure its
default.
For purposes hereof, the term "Change in Control" shall mean the
occurrence of any of the following:
(1) the Company: (a) consummates a merger or consolidation which
results in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) less than fifty percent
(50%) of the total voting power represented by the voting
securities of the Company of such surviving entity outstanding
immediately after such merger or consolidation; and (b)
following such event, the successor entity fails to employ
Employee as follows (hereinafter, the "Same Terms"): on
substantially identical terms as are required per this Agreement
for the remaining Employment Term, and the successor entity
further continues to employ Employee in the same city
<PAGE> 4
and with job responsibilities of a level substantially
equivalent to or greater than those presently in force and
effect;
(2) a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially
all of the Company's assets is consummated, and following such
event the successor entity (if any) fails to employ Employee on
the Same Terms; or
(3) Company consummates a plan of complete liquidation of the
Company or an agreement for the sale or disposition (in one
transaction or a series of transactions) by the Company of all
or substantially all of the Company's assets, and following such
event the successor entity (if any) fails to employ Employee on
the Same Terms;
provided, however, that a public offering of the stock of the
Company irrespective of the amount of voting securities owned by
present shareholders after such offering shall not be deemed to
constitute a Change of Control; and provided further that if
Employee agrees to be employed by a successor entity on the Same
Terms and the successor entity fails to do so, a Change in
Control shall be deemed to have occurred.
(e) By the Employee without Good Reason, and therefore in breach of this
Agreement.
(f) By the Company other than for Cause, Death or Total Disability, in which
event Employee's sole remedy and compensation as a result of such
termination shall be as set forth in Section 2.4(c) below.
2.3 Cessation of Rights and Obligations: Survival of Certain Provisions. On the
date of expiration or earlier termination of the Employment Term for any reason,
all of the respective rights, duties, obligation and covenants of the parties,
as set forth herein, shall, except as specifically provided herein to the
contrary, cease and become of no further force or effect as of the date of said
termination, and shall only survive as expressly provided for herein.
2.4 Cessation of Compensation. In lieu of any severance under any severance plan
that the Company may then have in effect, and subject to (i) the receipt of a
full and unconditional release from Employee and (ii) any amounts owed by the
Employee to the Company under any contract, agreement or loan document entered
into after the date hereof which relates solely to his or her employment with
the Company (including, but not limited to, loans made by the Company to the
Employee), the Company shall pay to the Employee, and the Employee shall be
entitled to receive, the following amounts within thirty (30) days of the date
of a termination of his or her employment:
<PAGE> 5
(a) Voluntary Termination/Cause/Expiration of Term. Upon (i) Employee
terminating his or her employment without Good Reason as provided in
Section 2.2(e), (ii) the expiration of the Employment Term because the
Employee or the Company elects to not extend the Employment Term, or
(iii) a termination of the Employment Term for Cause by the Company as
provided in Section 2.2(a), the Employee shall be entitled to receive
his or her or her base salary (which shall include any of his or her
unused vacation pay for the year of such termination) and expense
reimbursements solely through the date of termination.
(b) Death or Total Disability. Upon the termination of the Employment Term
by reason of the Death or Total Disability of the Employee, the Employee
(or, in the case of Death, his or her estate) shall be entitled to
receive his or her base salary (which shall include any of his or her
unused vacation pay for the year of such termination) and expense
reimbursements solely through the date of termination.
(c) Involuntary. Upon the termination of the Employment Term:
(1) by the Company for any reason other than Cause, Death or Total
Disability, or
(2) by the Employee for Good Reason,
the Employee shall be entitled to receive in a lump sum the
balance of his or her base salary for the lesser of the
remaining term of the Employment Term (exclusive of any renewals
of the then existing term) or a period of six (6) months (the
"Severance Term"), together with prorated vacation pay and
expense reimbursement through the date of termination. In
addition, Employee shall be entitled to payment by the Company
of the premiums for group health insurance coverage otherwise
payable by Employee under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") for the Severance Term. It
shall be a condition to Employee's right to receive the payments
described above that Employee shall be in compliance with all of
the Employee's obligations which survive termination hereof,
including without limitation those arising under Articles IV and
V hereof. The payments described above are intended to be in
lieu of all other payments to which Employee might otherwise be
entitled in respect of termination of Employee's employment
without Cause unless otherwise required by law or under other
agreements between the parties. Notwithstanding anything to the
contrary contained herein, to the extent Employee receives any
direct or indirect compensation, consulting fees or health
insurance from any Third Parties (as hereinafter defined) during
the Severance Term or with respect to services performed during
the Severance Term such compensation shall be
<PAGE> 6
credited dollar for dollar against the Severance Term payment
obligations of Company under this Section 2.4(c).
2.5 Business Expenses.
(a) Reimbursement. The Company shall reimburse the Employee for all
reasonable, ordinary, and necessary business expenses incurred by him or
her in connection with the performance of his or her duties hereunder,
including, but not limited to, ordinary and necessary travel expenses
and entertainment expenses. The reimbursement of business expenses will
be governed by the policies of the Company from time-to-time and the
terms otherwise set forth herein.
(b) Accounting. The Employee shall provide the Company with an accounting of
his or her expenses, which accounting shall clearly reflect which
expenses were incurred for proper business purposes in accordance with
the policies adopted by the Company and as such are reimbursable by the
Company. The Employee shall provide the Company with such other
supporting documentation and other substantiation of reimbursable
expenses as will conform to Internal Revenue Service or other
requirements. All such reimbursements shall be payable by the Company to
the Employee within a reasonable time after receipt by the Company of
appropriate documentation therefor.
2.6 Sole Compensation. Employee shall not be entitled to any other compensation
from the Company than as set forth in Article II hereof as a result of
termination of Employee's employment.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Compensation. During the Employment Term of this Agreement, the Company
shall pay Employee such salary and bonus as set forth on Exhibit A.
3.2 Payment. All compensation shall be payable in intervals in accordance with
the general payroll payment practice of the Company. The compensation shall be
subject to such withholdings and deductions by the Company as are required by
law. On termination of the Employment Term, the Company shall be entitled to set
off against any monies owing by the Company to Employee the amount of any monies
owing from Employee to the Company.
3.3 Other Benefits. Employee shall be entitled to participate in any retirement,
pension, profit-sharing, stock option, health plan, insurance, disability
income, incentive compensation and welfare or any other benefit plan or plans of
the Company which may now or hereafter be in
<PAGE> 7
effect and for which the Employee is eligible. Notwithstanding the forgoing, the
Company shall be under no obligation to institute or continue the existence of
any such benefit plan.
ARTICLE IV
CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETE AGREEMENT
4.1 Non-Disclosure of Confidential Information. Employee hereby acknowledges and
agrees that the duties and services to be performed by Employee under this
Agreement are special and unique and that as of a result of the employment
hereunder, Employee will acquire, develop and use information of a special and
unique nature and value that is not generally known to the public or to the
Company's industry, including but not limited to, certain records, phone
locations, documentation, software programs, price lists, contract prices for
purchase and sale of telephone access and telephone services, customer lists,
prospect lists, pricing on business proposals to new and existing customers,
network configuration, supplier pricing, equipment configurations, business
plans, ledgers and general information, employee records, mailing lists,
accounts receivable and payable ledgers, financial and other records of the
Company or its Affiliates, and other similar matters (all such information being
hereinafter referred to as "CONFIDENTIAL INFORMATION"). Employee further
acknowledges and agrees that the Confidential Information is of great value to
the Company and its Affiliates and that the restrictions and agreements
contained in this Agreement are reasonably necessary to protect the Confidential
Information and the goodwill of the Company. Accordingly, Employee hereby agrees
that:
(a) Employee will not, while employed by the Company or at any time
thereafter, directly or indirectly, except in connection with Employee's
performance of the duties under this Agreement, or as otherwise
authorized in writing by the Company for the benefit of the Company,
divulge to any person, firm, corporation, limited liability company, or
organization, other than the Company (hereinafter referred to as "THIRD
PARTIES"), or use or cause or authorize any Third Parties to use, the
Confidential Information, except as required by law; and
(b) Upon the termination of Employee's employment for any reason whatsoever,
Employee shall deliver or cause to be delivered to the Company any and
all Confidential Information or documents containing Confidential
Information, including notes, drawings, notebooks, notes, records, keys,
data and other documents and materials belonging to the Company or its
affiliates which is in his or her possession or under his or her control
relating to the Company or its affiliates, regardless of the medium upon
which it is stored, and will deliver to the Company upon such
termination of employment any other property of the Company or its
Affiliates which is in his or her possession or control.
4.2 Non-Solicitation Covenant. Employee hereby covenants and agrees that while
employed by the Company and for a period of one (1) year following the
termination of Employee's
<PAGE> 8
employment with the Company for any reason, Employee shall not (i) directly or
indirectly, contact, solicit, interfere with, or endeavor to entice away from
the Company or its Affiliates any person, firm, corporation, limited liability
company or other entity that was a customer of the Company at any time while
Employee was an employee of the Company or its Affiliates or who is a
"prospective customer" of the Company, or (ii) induce, attempt to induce or hire
any employee (or any person who was an employee during the year preceding the
date of any solicitation) of the Company or its Affiliates to leave the employ
of the Company or its Affiliates, or in any way interfere with the relationship
between any such employee and the Company or its Affiliates. For purposes
hereof, "prospective customer" shall mean any person or entity which has been
solicited for business by Employee or any officer or other employee of the
Company during the one year period preceding the date of termination of
Employee's employment with the Company, or if Employee is still employed by the
Company within the one year period preceding the event in question.
4.3 Non-Competition Covenant. Employee acknowledges that the covenants set forth
in this Section 4.3 are reasonable in scope and essential to the preservation of
the Business of the Company (as defined herein). Employee also acknowledges that
the enforcement of the covenant set forth in this Section 4.3 will not preclude
Employee from being gainfully employed in such manner and to the extent as to
provide a standard of living for himself or herself, the members of his or her
family and the others dependent upon Employee of at least the level to which
Employee and they have become accustomed and may expect. In addition, Employee
acknowledges that the Company has obtained an advantage over its competitors as
a result of its name, location and reputation that is characterized by near
permanent relationships with vendors, customers, principals and other contacts
which it has developed at great expense. Furthermore, Employee acknowledges that
competition by him or her following the termination or expiration of his or her
employment would impair the operation of the Company beyond that which would
arise from the competition of an unrelated third party with similar skills.
Employee hereby agrees that he or she shall not, during his or her employment
and for a period of one (1) year after the end of his or her employment,
directly or indirectly, engage in or become directly or indirectly interested in
any proprietorship, partnership, firm, trust, company, limited liability company
or other entity, other than the Company (whether as owner, partner, trustee,
beneficiary, stockholder, member, officer, director, employee, independent
contractor, agent, servant, consultant, lessor, lessee or otherwise) that
competes with the Company in the Business of the Company in the Restricted
Territory (as defined herein), other than owning an interest in a company listed
on a recognized stock exchange in an amount which does not exceed five percent
(5%) of the outstanding stock of such corporation. For purposes of this
Agreement, (i) the term "Business of the Company" shall include all business
activities and ventures related to providing telecommunications services or
products in which the Company is engaged, plans to engage in the next twelve
(12) months following termination of Employee's employment or has engaged in
during the prior twelve (12) months, as determined at any time during the
employment of the Employee; and (ii) the term "Restricted Territory" means the
geographical area consisting of a seventy mile radius surrounding each city (and
including such city) in which the Company maintains either an office or a
telecommunications facility.
<PAGE> 9
4.4 Remedies.
(a) Injunctive Relief. Employee expressly acknowledges and agrees that the
Business of the Company is highly competitive and that a violation of
any of the provisions of Sections 4.1, 4.2 or 4.3 would cause immediate
and irreparable harm, loss and damage to the Company not adequately
compensable by a monetary award. Employee further acknowledges and
agrees that the time periods and territorial areas provided for herein
are the minimum necessary to adequately protect the Business of the
Company, the enjoyment of the Confidential Information and the goodwill
of the Company. Without limiting any of the other remedies available to
the Company at law or in equity, or the Company's right or ability to
collect money damages, Employee agrees that any actual or threatened
violation of any of the provisions of Sections 4.1, 4.2 or 4.3 may be
immediately restrained or enjoined by any court of competent
jurisdiction, and that a temporary restraining order or emergency,
preliminary or final injunction may be issued in any court of competent
jurisdiction, without notice and without bond.
(b) Enforcement. It is the desire of the parties that the provisions of
Sections 4.1, 4.2 or 4.3 be enforced to the fullest extent permissible
under the laws and public policies in each jurisdiction in which
enforcement might be sought. Accordingly, if any particular portion of
Sections 4.1, 4.2 or 4.3 shall ever be adjudicated as invalid or
unenforceable, or if the application thereof to any party or
circumstance shall be adjudicated to be prohibited by or invalidated by
such laws or public policies, such section or sections shall be (i)
deemed amended to delete therefrom such portions so adjudicated or (ii)
modified as determined appropriate by such a court, such deletions or
modifications to apply only with respect to the operation of such
section or sections in the particular jurisdictions so adjudicating on
the parties and under the circumstances as to which so adjudicated.
(c) Legal Fees. The Employee shall reimburse the Company for all reasonable
costs and expenses, including, but not limited to, attorney's fees,
incurred by the Company in connection with the enforcement of the
provisions set forth in this Agreement.
4.5 Company. All references to the Company in this Article IV shall include
"Affiliates" of the Company, as that term is construed under Rule 405 of the
Securities Act of 1933, as amended.
4.6 Consideration. The undertakings of Employee pursuant to Sections 4.2 and 4.3
hereof are given to the Company in consideration for the payments, if any, to be
made pursuant to Section 2.4 hereof and the grant of the stock options
referenced in Exhibit A.
<PAGE> 10
ARTICLE V
ASSIGNMENT OF INTELLECTUAL PROPERTY
5.1 If Employee, during the course of his or her employment with the Company,
creates or discovers any patentable or potentially patentable invention or
design, within the meaning of Title 35 of the United States Code, any utility or
design patent that may be derived from any such invention or design created or
discovered by Employee during the course of his or her employment with the
Company shall be assigned to the Company. Employee agrees to fully cooperate
with the Company in obtaining any such patents, and Employee further agrees to
execute any and all documents the Company may deem necessary to obtain such
patent or to document such assignment to the Company. Employee hereby designates
the Company as his/her attorney-in-fact to execute any such documents relating
to any such patent or assignment thereof to the Company;
5.2 Employee agrees that any original work of authorship fixed in a tangible
medium of expression, including but not limited to literary works; computer
programs, software or other associated intangible property; network
configuration; musical works, including any accompanying words; dramatic works,
including any accompanying music; pantomimes and choreographic works; pictorial,
graphic and sculptural works; motion pictures and other audiovisual works; sound
recordings; and architectural works, within the meaning of Title 17 of the
United States Code, created during the course of his or her employment with the
Company shall be a "work for hire" within the meaning of Section 201(b) of the
Copyright Act, 17 U.S.C. Section 201(b), and that all ownership rights comprised
in the copyright shall vest exclusively in the Company. Employee agrees to fully
cooperate with the Company in obtaining registration of any such copyright,
except that the Company will be responsible for any and all fees and costs
associated with obtaining any such copyright registration;
5.3 If Employee, during the course of his/her employment with the Company,
discovers, invents, or produces, without limitation, any information, computer
programs, software or other associated intangible property; network
configuration, formulae, product, device, system, technique, drawing, program or
process which is a "trade secret" as defined in his/her Employment Agreement or
within the meaning of the Illinois Trade Secret Act (irrespective of where
Employee is employed), such information, formulae, product, device, system,
technique, drawing, program or process shall be assigned to the Company.
Employee agrees to fully cooperate with the Company in protecting the value and
secrecy of any such trade secret, and further agrees to execute any and all
documents the Company deems necessary to document any such assignment to the
Company. Employee appoints the Company as his/her attorney-in-fact to execute
any documents the Company may deem necessary that relates to any such trade
secret or assignment thereof to the Company;
<PAGE> 11
ARTICLE VI
MISCELLANEOUS
6.1 Notices. All notices or other communications required or permitted hereunder
shall be in writing and shall be deemed given, delivered and received (a) when
delivered, if delivered personally, (b) four days after mailing, when sent by
registered or certified mail, return receipt requested and postage prepaid, (c)
one business day after delivery to a private courier service, when delivered to
a private courier service providing documented overnight service, and (d) on the
date of delivery if delivered by telecopy, receipt confirmed, provided that a
confirmation copy is sent on the next business day by first class mail, postage
prepaid, in each case addressed as follows:
To Employee at his or her home address as set forth on the books and
records of the Company.
To Company at: Universal Access, Inc.
100 North Riverside Drive - Suite 2200
Chicago, Illinois 60606
Attn.: President
Ph: 312-660-5000
Fax: 312-660-5050
With a copy to: Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, IL 60611
Attn.: Mitchell D. Goldsmith
Ph: (312) 836-4006
Fax: (312) 527-5921
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
6.2 Entire Agreement; Amendments, Etc. This Agreement contains the entire
agreement and understanding of the parties hereto, and supersedes all prior
agreements and understandings relating to the subject matter hereof. Except as
provided in Section 4.4(b), no modification, amendment, waiver or alteration of
this Agreement or any provision or term hereof shall in any event be effective
unless the same shall be in writing, executed by both parties hereto, and any
waiver so given shall be effective only in the specific instance and for the
specific purpose for which given.
<PAGE> 12
6.3 Benefit. This Agreement shall be binding upon, and inure to the benefit of,
and shall be enforceable by, the heirs, successors, legal representatives and
permitted assignees of Employee and the successors, assignees and transferees of
the Company. This Agreement or any right or interest hereunder may not be
assigned by Employee without the prior written consent of the Company. No
implication shall be drawn in favor or against either party based upon the role
of such party's counsel in the drafting of this Agreement.
6.4 No Waiver. No failure or delay on the part of any party hereto in exercising
any right, power or remedy hereunder or pursuant hereto shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder or pursuant thereto.
6.5 Severability. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law
but, if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement. If any part of any covenant or
other provision in this Agreement is determined by a court of law to be overly
broad thereby making the covenant unenforceable, the parties hereto agree, and
it is their desire, that the court shall substitute a judicially enforceable
limitation in its place, and that as so modified the covenant shall be binding
upon the parties as if originally set forth herein.
6.6 Compliance and Headings. Time is of the essence of this Agreement. The
headings in this Agreement are intended to be for convenience and reference
only, and shall not define or limit the scope, extent or intent or otherwise
affect the meaning of any portion hereof.
6.7 Governing Law. The parties agree that this Agreement shall be governed by,
interpreted and construed in accordance with the laws of the State of Illinois,
and the parties agree that any suit, action or proceeding with respect to this
Agreement shall be brought in the courts of Cook County in the State of Illinois
or in the U.S. District Court for the Northern District of Illinois. The parties
hereto hereby accept the exclusive jurisdiction of those courts for the purpose
of any such suit, action or proceeding. Venue for any such action, in addition
to any other venue permitted by statute, will be Cook County, Illinois. The
parties hereby waive their right to trial by jury on any such action.
6.8 Counterparts. This Agreement may be executed in one or more counterparts,
whether by original, photocopy or facsimile, each of which will be deemed an
original and all of which together will constitute one and the same instrument.
6.9 Recitals. The Recitals set forth above are hereby incorporated in and made a
part of this Agreement by this reference.
<PAGE> 13
6.10 Arbitration. Except as expressly contemplated by Article IV, any dispute
arising between the parties pursuant to this Agreement shall be submitted to
binding arbitration. Any arbitration proceeding involving any provision hereof
will be conducted in Chicago, Illinois. Except as otherwise provided in this
Agreement, all arbitration proceedings will be conducted in accordance with the
then current National Rules for the Resolution of Employment Disputes of the
American Arbitration Association ("AAA"). One arbitrator shall conduct the
proceedings, and shall be elected in accordance with the procedures of the AAA.
The arbitrator shall allow such discovery as the arbitrator determines
appropriate under the circumstances. The arbitrator shall determine which party,
if either, prevailed and shall award the prevailing party its costs. Each party
shall bear his, her or its respective legal fees. The award and decision of the
arbitrator shall be conclusive and binding on all parties to this Agreement and
judgment on the award may be entered in any court of competent jurisdiction. The
parties acknowledge and agree that any arbitration award may be enforced against
either or both of them in a court of competent jurisdiction and each waives any
right to contest the validity or enforceability of such award. The parties
further agree to be bound by the provisions of any statute of limitations which
would be applicable in a court of law to the controversy or claim which is the
subject of any arbitration proceeding initiated under this Agreement. The
parties further agree that they are entitled in any arbitration proceeding to
the entry of an order, by a court of competent jurisdiction pursuant to an
opinion of the arbitrator, for specific performance of any of the requirements
of this Agreement. The parties further agree that the arbitrator shall provide a
statement of reasons explaining the basis of the decision rendered.
6.11 Survival. Notwithstanding anything to the contrary contained herein, the
terms of Articles III, IV, V and VI hereof shall survive any termination of this
Agreement and remain in full force and effect thereafter.
<PAGE> 14
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered as of the day and year first above written.
UNIVERSAL ACCESS, INC.
By: /s/ PATRICK C. SHUTT
---------------------------------
Its: President & CEO
--------------------------------
EMPLOYEE:
/s/ KEN NAPIER
------------------------------------
NAME: Ken Napier 12/13/99
-------------------------------
<PAGE> 15
EXHIBIT A - ECONOMIC TERMS OF EMPLOYMENT AGREEMENT
UNIVERSAL ACCESS, INC./KENNETH A. NAPIER
A. Compensation.
1. During the Employment Term, the Company shall pay Employee such
salary and benefits as shall be agreed upon each year between
Employee and the Company. For the Initial Term, the Company shall
pay Employee a base salary of $145,000 per year. Thereafter, the
Company shall review the Employee's base salary annually.
2. Bonus. The Company may, at the Company's sole discretion, in
addition to Employee's base salary, pay Employee an annual bonus
with respect to each calendar year in the Employment Term.
3. Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, stock option, health plan,
insurance, disability income, incentive compensation, vacation
and welfare or any other benefit plan or plans of the Company
which may now or hereafter be in effect and for which he or she
is eligible.
4. Vacation. Employee shall be entitled to up to three (3) weeks of
paid vacation in each calendar year during the Employment Term,
provided, however, that the Employee's 1999 calendar year
vacation shall be prorated for the portion of the calendar year
remaining after the date hereof; Employee shall be entitled to
carry forward from one calendar year during the Employment Term
to the next calendar year up to one additional week's vacation,
to the extent it was accrued and not taken in the previous year
(i.e. not more than 4 week's total vacation can be taken in any
year).
5. Stock Options. Employee shall be entitled to options to purchase
up to 200,000 shares of the Company's common stock at an
exercise price per share equal to the fair market value of the
common stock as of the date of grant, in accordance with the
Company's stock option plan, as further specified in the form of
stock option agreement between Employee and the Company.
<PAGE> 1
Exhibit 10.25.1
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Amendment No. 1 dated as of February 1, 2000 (the "Amendment") to the
Employment Agreement and any exhibits thereto (the "Agreement") by and between
Universal Access, Inc., a Delaware corporation (the "Company") and Kenneth A.
Napier (the "Employee"). Any capitalized terms not defined herein shall have the
meanings assigned to those terms in the Agreement.
RECITALS
A. Company and Employee entered into the Agreement on July 1, 1999.
B. Company and Employee desire to amend the Agreement to reflect certain
changes agreed to by the Company and the Employee.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as
follows:
1. All references in the Agreement to "Executive Vice President of
Client Services" shall be deleted and replaced by references to "Executive Vice
President, Operations".
2. Section 6.3 of the Agreement is hereby deleted in its entirety and
replaced by the following:
6.3 Entire Agreement; Amendments, Etc. This Agreement and the
Indemnification Agreement dated as of January 7, 2000 between the
Company and Employee (as the Indemnification Agreement may be amended,
restated or otherwise modified) contain the entire agreement and
understanding of the parties hereto, and supersede all prior agreements
and understandings relating to the subject matter hereof and thereof.
Except as provided in Section 4.4(b), no modification, amendment, waiver
or alteration of this Agreement or any provision or term hereof shall in
any event be effective unless the same shall be in writing, executed by
both parties hereto, and any waiver so given shall be effective only in
the specific instance and for the specific purpose for which given.
3. Miscellaneous. Upon the execution and delivery of this Amendment, the
Agreement shall be amended and supplemented as set forth herein, as fully and
with the same effect as if the amendments and supplements made hereby were set
forth in the Agreement as of the date hereof. This Amendment and the Agreement
shall henceforth be read, taken and construed as one and the same instrument,
but this Amendment shall not operate so as to render invalid or improper any
action previously taken under this Agreement.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of February 1, 2000.
COMPANY: UNIVERSAL ACCESS, INC.,
a Delaware corporation
By: /s/ PATRICK C. SHUTT
------------------------
Name: Patrick C. Shutt
Title: President and CEO
EMPLOYEE: By: /s/ KENNETH A. NAPIER
------------------------
Kenneth A. Napier
<PAGE> 1
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made as of this 16th day
of November, 1998, by and between UNIVERSAL ACCESS, INC., an Illinois
corporation (the "COMPANY"), and Mark Dickey (the "EMPLOYEE").
RECITALS:
A. The Company is in the telecommunications business.
B. The Company desires to employ the Employee and Employee desires to be
employed by the Company as its Senior Vice President of Sales and Marketing,
subject to the terms, conditions and covenants hereinafter set forth.
C. As a condition of the Company employing the Employee, and to the
Company's agreement to grant stock options to the Employee pursuant to the
Company's stock option plan, Employee has agreed not to divulge to the public
the Company's confidential information, not to solicit the Company's vendors,
customers or employees and not to compete with the Company, all upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the agreements,
covenants and conditions set forth herein, the Employee and the Company hereby
agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company hereby employs, engages and hires Employee,
and Employee hereby accepts employment, upon the terms and conditions set forth
in this Agreement. The Employee shall serve as the Senior Vice President of
Sales and Marketing of the Company. The Employee shall have and fully perform
the duties and responsibilities required for such job title and position and to
perform such additional services and discharge such other responsibilities as
may be, from time to time, assigned or delegated by the Company.
1.2 Activities and Duties During Employment. Employee represents and
warrants to the Company that Employee is free to accept employment with the
Company and that Employee has no prior or other commitments or obligations of
any kind to anyone else which would hinder or interfere with the performance of
this Agreement.
Employee accepts the employment described in Article I of this Agreement
and agrees to devote his or her full time and efforts to the faithful and
diligent performance of the services described herein, including the performance
of such other services and responsibilities as the Company may, from time to
time, stipulate. Without limiting the generality of the foregoing, Employee
shall devote
<PAGE> 2
not less than five (5) days per week to this employment, and shall be present on
the Company premises or actively engaged in service to or on behalf of the
Company during normal business hours Monday through Friday, excluding periods of
vacation and sick leave. Employee further agrees that his marketing plan for
1999 is as set forth in Exhibit 1 to Exhibit A, the terms of which are
incorporated by reference herein.
ARTICLE II
TERM
2.1 Term. The term of employment under this Agreement shall be one (1)
year (the "Initial Term"), commencing on the date of the Agreement. This
Agreement shall automatically renew for successive one year terms thereafter
(each a "Renewal Term") unless either party delivers notice of termination to
the other party not less than fifteen (15) days prior to the end of the Initial
Term or Renewal Term in question. The Initial Term and any Renewal Terms shall
herein be referred to as the "Employment Term".
2.2 Termination. The Employment Term and employment of Employee may be
terminated as follows:
(a) By the Company immediately for "Cause." For the purpose of this
Agreement, "Cause" shall mean (i) conduct amounting to fraud,
embezzlement, or illegal misconduct in connection with
Employee's duties under this Agreement; (ii) the conviction of
Employee by a court of proper jurisdiction of (or his or her
written, voluntary and freely given confession to) a crime which
constitutes a felony (other than a traffic violation) or an
indictment that results in material injury to the Company's
property, operation or reputation; (iii) the willful failure of
Employee to comply with reasonable directions of the Company or
any of the policies of the Company after (a) written notice is
delivered to the Employee describing such willful failure and
(b) Employee has failed to cure or take substantial steps to
cure such willful failure after a reasonable time period as
determined by the Company in its reasonable discretion (not to
be less than 15 days) unless the Employee, after discussion with
counsel, in good faith believes, that the directions of the
Company (or its actions or inactions in response to the
Employee's written notice) are illegal; (iv) willful misconduct
or a material default by the Employee in the performance or
observance of any promise or undertaking of Employee under this
Agreement, which willful misconduct or default has continued for
a period of ten (10) business days after written notice thereof
from the Company to the Employee; or (v) Employee has, for any
period of three (3) consecutive months (the "Period"), failed to
generate at least $200,000 in new monthly recurring revenue for
each month within the Period from all Company distribution
channels, including without limitation subsidiaries, holding
companies and joint ventures that the Company may develop.
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<PAGE> 3
(b) Automatically, without the action of either party, upon the
death of Employee ("Death").
(c) By either party upon the Total Disability of the Employee. The
Employee shall be considered to have a Total Disability for
purposes of this Agreement if he or she is unable by reason of
accident or illness to substantially perform his or her
employment duties, and is expected to be in such condition for
periods totaling six (6) months (whether or not consecutive)
during any period of twelve (12) months. The determination of
whether a Total Disability has occurred shall be determined by
the Company, in good faith, at its sole discretion. Nothing
herein shall limit the Employee's right to receive any payments
to which Employee may be entitled under any disability or
employee benefit plan of the Company or under any disability or
insurance policy or plan. During a period of disability prior to
termination hereunder, Employee shall continue to receive his or
her full compensation (including base salary and bonus) and
benefits, subject to offset to the extent of any disability
insurance payments received by the Employee pursuant to any
disability insurance policy maintained by or paid for by the
Company.
(d) By the Employee upon ten (10) business days notice to the
Company for Good Reason, which notice shall state the reason for
termination. For the purpose of this Agreement, "Good Reason"
shall mean any "Change in Control" (as hereinafter defined) or
any material failure by the Company to comply with the
provisions of this Employment Agreement, including but not
limited to, failure to timely pay any part of Employee's
compensation (including salary or bonus) or provide the benefits
contemplated herein, and which is not remedied by the Company
within ten (10) business days after receipt by the Company of
written notice thereof from Employee; provided, that if such
default is of a nature that it cannot be reasonably cured within
ten (10) day period (but is curable), then if the Company shall
have commenced an attempt to cure such default within such ten
(10) day period, the period to cure the default shall be
extended until the earlier of the date which is forty-five (45)
days after receipt of notice or the Company has failed to
diligently continue its efforts in a reasonable manner to cure
its default.
For purposes hereof, the term "Change in Control" shall mean the
occurrence of any of the following:
(1) the Company: (a) consummates a merger or consolidation
which results in the voting securities of the Company
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving
entity) less than fifty percent (50%) of the total
voting power represented by the voting securities of the
Company of such surviving entity outstanding immediately
after such merger
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<PAGE> 4
or consolidation; and (b) following such event, the
successor entity fails to employ Employee as follows
(hereinafter, the "Same Terms"): on substantially
identical terms as are required per this Agreement for
the remaining Employment Term, and the successor entity
further continues to employ Employee in the same city
and with job responsibilities of a level substantially
equivalent to or greater than those presently in force
and effect;
(2) a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of
(in one transaction or a series of transactions) all or
substantially all of the Company's assets is
consummated, and following such event the successor
entity (if any) fails to employ Employee on the Same
Terms; or
(3) Company consummates a plan of complete liquidation of
the Company or an agreement for the sale or disposition
(in one transaction or a series of transactions) by the
Company of all or substantially all of the Company's
assets, and following such event the successor entity
(if any) fails to employ Employee on the Same Terms;
provided, however, that a public offering of the stock of the
Company irrespective of the amount of voting securities owned by
present shareholders after such offering shall not be deemed to
constitute a Change of Control; and provided further that if
Employee agrees to be employed by a successor entity on the Same
Terms and the successor entity fails to do so, a Change in
Control shall be deemed to have occurred.
(e) By the Employee without Good Reason, and therefore in breach of
this Agreement.
(f) By the Company other than for Cause, Death or Total Disability,
in which event Employee's sole remedy and compensation as a
result of such termination shall be as set forth in Section
2.4(c) below.
2.3 Cessation of Rights and Obligations: Survival of Certain Provisions.
On the date of expiration or earlier termination of the Employment Term for any
reason, all of the respective rights, duties, obligation and covenants of the
parties, as set forth herein, shall, except as specifically provided herein to
the contrary, cease and become of no further force or effect as of the date of
said termination, and shall only survive as expressly provided for herein.
2.4 Cessation of Compensation. In lieu of any severance under any
severance plan that the Company may then have in effect, and subject to (i) the
receipt of a full and unconditional release from Employee and (ii) any amounts
owed by the Employee to the Company under any contract, agreement or loan
document entered into after the date hereof which relates solely to his or her
employment with the Company (including, but not limited to, loans made by the
Company to the
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<PAGE> 5
Employee), the Company shall pay to the Employee, and the Employee shall be
entitled to receive, the following amounts within thirty (30) days of the date
of a termination of his or her employment:
(a) Voluntary Termination/Cause/Expiration of Term. Upon (i)
Employee terminating his or her employment without Good Reason
as provided in Section 2.2(e), (ii) the expiration of the
Employment Term because the Employee or the Company elects to
not extend the Employment Term, or (iii) a termination of the
Employment Term for Cause by the Company as provided in Section
2.2(a), the Employee shall be entitled to receive his or her or
her base salary (which shall include any of his or her unused
vacation pay for the year of such termination) and expense
reimbursements solely through the date of termination.
(b) Death or Total Disability. Upon the termination of the
Employment Term by reason of the Death or Total Disability of
the Employee, the Employee (or, in the case of Death, his or her
estate) shall be entitled to receive his or her base salary
(which shall include any of his or her unused vacation pay for
the year of such termination) and expense reimbursements solely
through the date of termination.
(c) Involuntary. Upon the termination of the Employment Term:
(1) by the Company for any reason other than Cause, Death or
Total Disability, or
(2) by the Employee for Good Reason,
the Employee shall be entitled to receive in a lump sum the
balance of his or her base salary for the lesser of the
remaining term of the Employment Term (exclusive of any renewals
of the then existing term) or a period of four (4) months (the
"Severance Term"), together with prorated vacation pay and
expense reimbursement through the date of termination and the
commissions, if any, payable pursuant to Item 3(g) of Exhibit 1
to Exhibit A to this Agreement. In addition, Employee shall be
entitled to payment by the Company of the premiums for group
health insurance coverage otherwise payable by Employee under
the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") for the Severance Term. It shall be a condition to
Employee's right to receive the payments described above that
Employee shall be in compliance with all of the Employee's
obligations which survive termination hereof, including without
limitation those arising under Articles IV and V hereof. The
payments described above are intended to be in lieu of all other
payments to which Employee might otherwise be entitled in
respect of termination of Employee's employment without Cause
unless otherwise required by law or under other agreements
between the parties. Notwithstanding anything to the contrary
contained herein, to the extent Employee receives any direct or
indirect compensation, consulting fees or health insurance from
any Third Parties (as hereinafter defined)
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<PAGE> 6
during the Severance Term or with respect to services performed
during the Severance Term such compensation shall be credited
dollar for dollar against the Severance Term payment obligations
of Company under this Section 2.4(c).
2.5 Business Expenses.
(a) Reimbursement. The Company shall reimburse the Employee for all
reasonable, ordinary, and necessary business expenses incurred
by him or her in connection with the performance of his or her
duties hereunder, including, but not limited to, ordinary and
necessary travel expenses and entertainment expenses. The
reimbursement of business expenses will be governed by the
policies of the Company from time-to-time and the terms
otherwise set forth herein.
(b) Accounting. The Employee shall provide the Company with an
accounting of his or her expenses, which accounting shall
clearly reflect which expenses were incurred for proper business
purposes in accordance with the policies adopted by the Company
and as such are reimbursable by the Company. The Employee shall
provide the Company with such other supporting documentation and
other substantiation of reimbursable expenses as will conform to
Internal Revenue Service or other requirements. All such
reimbursements shall be payable by the Company to the Employee
within a reasonable time after receipt by the Company of
appropriate documentation therefor.
2.6 Sole Compensation. Employee shall not be entitled to any other
compensation from the Company than as set forth in Article II hereof as a result
of termination of Employee's employment.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Compensation. During the Employment Term of this Agreement, the
Company shall pay Employee such salary and bonus as set forth on Exhibit A.
3.2 Payment. All compensation shall be payable in intervals in
accordance with the general payroll payment practice of the Company. The
compensation shall be subject to such withholdings and deductions by the Company
as are required by law. On termination of the Employment Term, the Company shall
be entitled to set off against any monies owing by the Company to Employee the
amount of any monies owing from Employee to the Company.
3.3 Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, stock option, health plan, insurance,
disability income, incentive compensation and
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<PAGE> 7
welfare or any other benefit plan or plans of the Company which may now or
hereafter be in effect and for which the Employee is eligible. Notwithstanding
the forgoing, the Company shall be under no obligation to institute or continue
the existence of any such benefit plan.
ARTICLE IV
CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETE AGREEMENT
4.1 Non-Disclosure of Confidential Information. Employee hereby
acknowledges and agrees that the duties and services to be performed by Employee
under this Agreement are special and unique and that as of a result of the
employment hereunder, Employee will acquire, develop and use information of a
special and unique nature and value that is not generally known to the public or
to the Company's industry, including but not limited to, certain records, phone
locations, documentation, software programs, price lists, contract prices for
purchase and sale of telephone access and telephone services, customer lists,
prospect lists, pricing on business proposals to new and existing customers,
network configuration, supplier pricing, equipment configurations, business
plans, ledgers and general information, employee records, mailing lists,
accounts receivable and payable ledgers, financial and other records of the
Company or its Affiliates, and other similar matters (all such information being
hereinafter referred to as "CONFIDENTIAL INFORMATION"). Employee further
acknowledges and agrees that the Confidential Information is of great value to
the Company and its Affiliates and that the restrictions and agreements
contained in this Agreement are reasonably necessary to protect the Confidential
Information and the goodwill of the Company. Accordingly, Employee hereby agrees
that:
(a) Employee will not, while employed by the Company or at any time
thereafter, directly or indirectly, except in connection with
Employee's performance of the duties under this Agreement, or as
otherwise authorized in writing by the Company for the benefit
of the Company, divulge to any person, firm, corporation,
limited liability company, or organization, other than the
Company (hereinafter referred to as "THIRD PARTIES"), or use or
cause or authorize any Third Parties to use, the Confidential
Information, except as required by law; and
(b) Upon the termination of Employee's employment for any reason
whatsoever, Employee shall deliver or cause to be delivered to
the Company any and all Confidential Information or documents
containing Confidential Information, including notes, drawings,
notebooks, notes, records, keys, data and other documents and
materials belonging to the Company or its affiliates which is in
his or her possession or under his or her control relating to
the Company or its affiliates, regardless of the medium upon
which it is stored, and will deliver to the Company upon such
termination of employment any other property of the Company or
its Affiliates which is in his or her possession or control.
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<PAGE> 8
4.2 Non-Solicitation Covenant. Employee hereby covenants and agrees that
while employed by the Company and for a period of one (1) year following the
termination of Employee's employment with the Company for any reason, Employee
shall not (i) directly or indirectly, contact, solicit, interfere with, or
endeavor to entice away from the Company or its Affiliates any person, firm,
corporation, limited liability company or other entity that was a customer of
the Company at any time while Employee was an employee of the Company or its
Affiliates or who is a "prospective customer"of the Company, or (ii) induce,
attempt to induce or hire any employee (or any person who was an employee during
the year preceding the date of any solicitation) of the Company or its
Affiliates to leave the employ of the Company or its Affiliates, or in any way
interfere with the relationship between any such employee and the Company or its
Affiliates. For purposes hereof, "prospective customer" shall mean any person or
entity which has been solicited for business by Employee or any officer or other
employee of the Company during the one year period preceding the date of
termination of Employee's employment with the Company, or if Employee is still
employed by the Company within the one year period preceding the event in
question.
4.3 Non-Competition Covenant. Employee acknowledges that the covenants
set forth in this Section 4.3 are reasonable in scope and essential to the
preservation of the Business of the Company (as defined herein). Employee also
acknowledges that the enforcement of the covenant set forth in this Section 4.3
will not preclude Employee from being gainfully employed in such manner and to
the extent as to provide a standard of living for himself, the members of his
family and the others dependent upon him of at least the level to which he and
they have become accustomed and may expect. In addition, Employee acknowledges
that the Company has obtained an advantage over its competitors as a result of
its name, location and reputation that is characterized by near permanent
relationships with vendors, customers, principals and other contacts which it
has developed at great expense. Furthermore, Employee acknowledges that
competition by him following the termination or expiration of his employment
would impair the operation of the Company beyond that which would arise from the
competition of an unrelated third party with similar skills. Employee hereby
agrees that he shall not, during his employment and for a period of one (1) year
after the end of his employment, directly or indirectly, engage in or become
directly or indirectly interested in any proprietorship, partnership, firm,
trust, company, limited liability company or other entity, other than the
Company (whether as owner, partner, trustee, beneficiary, stockholder, member,
officer, director, employee, independent contractor, agent, servant, consultant,
lessor, lessee or otherwise) that competes with the Company in the Business of
the Company in the Restricted Territory (as defined herein), other than an
interest in a company listed on a recognized stock exchange in an amount which
does not exceed five percent (5%) of the outstanding stock of such corporation.
For purposes of this Agreement, (i) the term "BUSINESS OF THE COMPANY" shall
include all business activities and ventures related to providing high speed
bandwidth telecommunications services in which the Company is engaged, plans to
engage in the next twelve months or has engaged in the prior twelve months, as
determined at any time during the employment of the Employee; and (ii) the term
"RESTRICTED TERRITORY" means the geographical area consisting of the State of
Illinois.
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<PAGE> 9
4.4 Remedies.
(a) Injunctive Relief. Employee expressly acknowledges and agrees
that the Business of the Company is highly competitive and that
a violation of any of the provisions of Sections 4.1, 4.2 or 4.3
would cause immediate and irreparable harm, loss and damage to
the Company not adequately compensable by a monetary award.
Employee further acknowledges and agrees that the time periods
and territorial areas provided for herein are the minimum
necessary to adequately protect the Business of the Company, the
enjoyment of the Confidential Information and the goodwill of
the Company. Without limiting any of the other remedies
available to the Company at law or in equity, or the Company's
right or ability to collect money damages, Employee agrees that
any actual or threatened violation of any of the provisions of
Sections 4.1, 4.2 or 4.3 may be immediately restrained or
enjoined by any court of competent jurisdiction, and that a
temporary restraining order or emergency, preliminary or final
injunction may be issued in any court of competent jurisdiction,
without notice and without bond.
(b) Enforcement. It is the desire of the parties that the provisions
of Sections 4.1, 4.2 and 4.3 be enforced to the fullest extent
permissible under the laws and public policies in each
jurisdiction in which enforcement might be sought. Accordingly,
if any particular portion of Sections 4.1, 4.2 or 4.3 shall ever
be adjudicated as invalid or unenforceable, or if the
application thereof to any party or circumstance shall be
adjudicated to be prohibited by or invalidated by such laws or
public policies, such section or sections shall be (i) deemed
amended to delete therefrom such portions so adjudicated or (ii)
modified as determined appropriate by such a court, such
deletions or modifications to apply only with respect to the
operation of such section or sections in the particular
jurisdictions so adjudicating on the parties and under the
circumstances as to which so adjudicated.
4.5 Company. All references to the Company in this Article IV shall
include "Affiliates" of the Company, as that term is construed under Rule 405 of
the Securities Act of 1933, as amended.
4.6 Consideration. The undertakings of Employee pursuant to Section 4.1,
4.2 and 4.3 hereof are given to the Company in consideration for the payments,
if any, to be made pursuant to Section 2.4 hereof and the grant of the stock
options referenced on Exhibit A.
ARTICLE V
ASSIGNMENT OF INTELLECTUAL PROPERTY
5.1 If Employee, during the course of his or her employment with the
Company, creates or discovers any patentable or potentially patentable invention
or design, within the meaning of Title 35 of the United States Code, any utility
or design patent that may be derived from any such invention
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<PAGE> 10
or design created or discovered by Employee during the course of his or her
employment with the Company shall be assigned to the Company. Employee agrees to
fully cooperate with the Company in obtaining any such patents, and Employee
further agrees to execute any and all documents the Company may deem necessary
to obtain such patent or to document such assignment to the Company. Employee
hereby designates the Company as his/her attorney-in-fact to execute any such
documents relating to any such patent or assignment thereof to the Company;
5.2 Employee agrees that any original work of authorship fixed in a
tangible medium of expression, including but not limited to literary works;
computer programs, software or other associated intangible property; network
configuration; musical works, including any accompanying words; dramatic works,
including any accompanying music; pantomimes and choreographic works; pictorial,
graphic and sculptural works; motion pictures and other audiovisual works; sound
recordings; and architectural works, within the meaning of Title 17 of the
United States Code, created during the course of his or her employment with the
Company shall be a "work for hire" within the meaning of Section 201(b) of the
Copyright Act, 17 U.S.C. Section 201(b), and that all ownership rights comprised
in the copyright shall vest exclusively in the Company. Employee agrees to fully
cooperate with the Company in obtaining registration of any such copyright,
except that the Company will be responsible for any and all fees and costs
associated with obtaining any such copyright registration;
5.3 If Employee, during the course of his/her employment with the
Company, discovers, invents, or produces, without limitation, any information,
computer programs, software or other associated intangible property; network
configuration, formulae, product, device, system, technique, drawing, program or
process which is a "trade secret" as defined in his/her Employment Agreement or
within the meaning of the Illinois Trade Secret Act (irrespective of where
Employee is employed), such information, formulae, product, device, system,
technique, drawing, program or process shall be assigned to the Company.
Employee agrees to fully cooperate with the Company in protecting the value and
secrecy of any such trade secret, and further agrees to execute any and all
documents the Company deems necessary to document any such assignment to the
Company. Employee appoints the Company as his/her attorney-in-fact to execute
any documents the Company may deem necessary that relates to any such trade
secret or assignment thereof to the Company;
ARTICLE VI
MISCELLANEOUS
6.1 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given, delivered and received
(a) when delivered, if delivered personally, (b) four days after mailing, when
sent by registered or certified mail, return receipt requested and postage
prepaid, (c) one business day after delivery to a private courier service, when
delivered to a private courier service providing documented overnight service,
and (d) on the date of delivery if delivered by telecopy, receipt confirmed,
provided that a confirmation copy is sent on the next business day by first
class mail, postage prepaid, in each case addressed as follows:
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To Employee at his or her home address as set forth on the books and records of
the Company.
To Company at: Universal Access, Inc.
100 North Riverside Drive - Suite 2200 (1)
Chicago, Illinois 60606
Attn.: President
Ph: 312-660-5000
Fax: 312-660-5050
With a copy to: Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, IL 60611
Attn.: Mitchell D. Goldsmith
Ph: (312) 836-4006
Fax: (312) 527-5921
(1) After December 20, 1998; prior to such date, at 1021 W. Adams, Chicago,
Illinois 60606 (312-491-1700).
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
6.2 Entire Agreement; Amendments, Etc. This Agreement contains the
entire agreement and understanding of the parties hereto, and supersedes all
prior agreements and understandings relating to the subject matter hereof.
Except as provided in Section 4.4(b), no modification, amendment, waiver or
alteration of this Agreement or any provision or term hereof shall in any event
be effective unless the same shall be in writing, executed by both parties
hereto, and any waiver so given shall be effective only in the specific instance
and for the specific purpose for which given.
6.3 Benefit. This Agreement shall be binding upon, and inure to the
benefit of, and shall be enforceable by, the heirs, successors, legal
representatives and permitted assignees of Employee and the successors,
assignees and transferees of the Company. This Agreement or any right or
interest hereunder may not be assigned by Employee without the prior written
consent of the Company. No implication shall be drawn in favor or against either
party based upon the role of such party's counsel in the drafting of this
Agreement.
6.4 No Waiver. No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder or pursuant hereto shall operate
as a waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder or pursuant thereto.
11
<PAGE> 12
6.5 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law but, if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement. If any part of any
covenant or other provision in this Agreement is determined by a court of law to
be overly broad thereby making the covenant unenforceable, the parties hereto
agree, and it is their desire, that the court shall substitute a judicially
enforceable limitation in its place, and that as so modified the covenant shall
be binding upon the parties as if originally set forth herein.
6.6 Compliance and Headings. Time is of the essence of this Agreement.
The headings in this Agreement are intended to be for convenience and reference
only, and shall not define or limit the scope, extent or intent or otherwise
affect the meaning of any portion hereof.
6.7 Governing Law. The parties agree that this Agreement shall be
governed by, interpreted and construed in accordance with the laws of the State
of Illinois, and the parties agree that any suit, action or proceeding with
respect to this Agreement shall be brought in the courts of Cook County in the
State of Illinois or in the U.S. District Court for the Northern District of
Illinois. The parties hereto hereby accept the exclusive jurisdiction of those
courts for the purpose of any such suit, action or proceeding. Venue for any
such action, in addition to any other venue permitted by statute, will be Cook
County, Illinois. The parties hereby waive their right to trial by jury on any
such action.
6.8 Counterparts. This Agreement may be executed in one or more
counterparts, whether by original, photocopy or facsimile, each of which will be
deemed an original and all of which together will constitute one and the same
instrument.
6.9 Recitals. The Recitals set forth above are hereby incorporated in
and made a part of this Agreement by this reference.
6.10 Arbitration. Except as expressly contemplated by Article IV, any
dispute arising between the parties pursuant to this Agreement shall be
submitted to binding arbitration. Any arbitration proceeding involving any
provision hereof will be conducted in Chicago, Illinois. Except as otherwise
provided in this Agreement, all arbitration proceedings will be conducted in
accordance with the then current National Rules for the Resolution of Employment
Disputes of the American Arbitration Association ("AAA"). One arbitrator shall
conduct the proceedings, and shall be elected in accordance with the procedures
of the AAA. The arbitrator shall allow such discovery as the arbitrator
determines appropriate under the circumstances. The arbitrator shall determine
which party, if either, prevailed and shall award the prevailing party its
costs. Each party shall bear his, her or its respective legal fees. The award
and decision of the arbitrator shall be conclusive and binding on all parties to
this Agreement and judgment on the award may be entered in any court of
competent jurisdiction. The parties acknowledge and agree that any arbitration
award may be enforced against
12
<PAGE> 13
either or both of them in a court of competent jurisdiction and each waives any
right to contest the validity or enforceability of such award. The parties
further agree to be bound by the provisions of any statute of limitations which
would be applicable in a court of law to the controversy or claim which is the
subject of any arbitration proceeding initiated under this Agreement. The
parties further agree that they are entitled in any arbitration proceeding to
the entry of an order, by a court of competent jurisdiction pursuant to an
opinion of the arbitrator, for specific performance of any of the requirements
of this Agreement. The parties further agree that the arbitrator shall provide a
statement of reasons explaining the basis of the decision rendered.
6.11 Survival. Notwithstanding anything to the contrary contained
herein, the terms of Articles III, IV, V and VI hereof shall survive any
termination of this Agreement and remain in full force and effect thereafter.
13
<PAGE> 14
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered as of the day and year first above written.
UNIVERSAL ACCESS, INC.
By: /s/ PATRICK SHUTT
------------------------------
Name: Patrick Shutt
Title: President and CEO
EMPLOYEE:
/s/ MARK DICKEY
----------------------------------
MARK DICKEY
14
<PAGE> 15
EXHIBIT A - ECONOMIC TERMS OF EMPLOYMENT AGREEMENT
UNIVERSAL ACCESS, INC./MARK DICKEY
A. Compensation.
1. During the Employment Term, the Company shall pay Employee such
salary and benefits as shall be agreed upon each year between
Employee and the Company. For the Initial Term, the Company
shall pay Employee a base salary of $120,000 (One Hundred Twenty
Thousand Dollars) per year. Thereafter, the Company shall review
the Employee's base salary annually.
2. Bonus. The Company may, at the Company's sole discretion, in
addition to Employee's base salary, pay Employee an annual bonus
with respect to each calendar year in the Employment Term.
3. Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, stock option, health plan,
insurance, disability income, incentive compensation, vacation
and welfare or any other benefit plan or plans of the Company
which may now or hereafter be in effect and for which he or she
is eligible.
4. Vacation. Employee shall be entitled to up to three (3) weeks of
paid vacation in each calendar year during the Employment Term,
provided, however, that the Employee's 1999 calendar year
vacation shall be prorated for the portion of the calendar year
remaining after the date hereof; Employee shall be entitled to
carry forward from one calendar year during the Employment Term
to the next calendar year up to one additional week's vacation,
to the extent it was accrued and not taken in the previous year
(i.e. not more than 3 week's total vacation can be taken in any
year).
5. Stock Options. Employee shall be entitled to options to purchase
up to 75,000 shares of the Company's common stock at $0.01 per
share in accordance with the Company's stock option plan, as
further specified in the form of stock option agreement between
Employee and the Company.
<PAGE> 16
EXHIBIT 1 TO EXHIBIT A TO
EMPLOYMENT AGREEMENT
UNIVERSAL ACCESS, INC./MARK DICKEY
1. EXPECTATIONS:
(a) The target market for Employee will be Internet Service
Providers, Telephone Companies and Content providers requiring
local and long haul private line services, DS-1 and higher.
Acquiring these customers should be done in harmony with
Company's "one to many" sales strategy. An "Anchor Tenant" is
defined as a company that will order high volumes of private
line network services on an ongoing basis for the connection of
their network to end users;
(b) Employee will be responsible for generating $200,000 in new
monthly recurring revenue ("MRR") per month from all the
Company's distribution channels, including but not limited to
subsidiaries, holding companies and joint venture revenues that
Company may develop;
(c) A weekly update of all sales activity should be provided in all
staff meetings;
(d) Weekly paperwork as required by Company will be submitted upon
request, but usually by noon of the last day of the work week;
(e) Month end paperwork will be submitted in an accurate fashion on
the second day of the new month for the subsequent month. This
paperwork will include an accurate 30, 60 and 90 day forecast;
(f) All pricing will be quoted in an ethical and approved manner to
Company standard practices;
(g) Employee will be responsible for the timely turnaround of quote
request by all clients;
(h) The margin made on circuits is the sole responsibility of
Employee within the guidelines established by Company;
(i) The development of all marketing collateral, brochures,
advertising and branding programs should be developed in
conjunction with the Company's executive team.
2. SALES PROCESS:
(a) Employee is responsible for the timely turnaround of quote
requests by all current and prospective customers (collectively,
"Customers");
(b) Quick quotes are to be returned within 24 hours and competitive
quotes are to be returned to Customers within 72 hours;
<PAGE> 17
(c) Mark up of circuits is the sole responsibility of Employee
within the guidelines established by Company; variation from
guidelines requires approval by the President, Chief Operating
Officer, Chief Financial Officer or Executive Vice President of
the Company;
(d) Customers will be solicited by Employee via telephone calls,
direct prospecting and trade shows or other methods as
appropriate;
(e) Accurate and complete order information should be submitted to
the provisioning department for contract completion;
(f) Employee is responsible for delivering and explaining the first
Company invoice in person or on the phone to new Customers;
(g) All quote requests received from Customers will be directed to
the Company's web page for timely response and tracking
purposes.
3. COMMISSIONS:
(a) An order will be deemed an order when all necessary paperwork is
complete, including: Master Service Agreement or Service
Supplement, Feature Sheet, Credit Application and such other
documents required by Company from time-to-time;
(b) Orders will be considered orders after Customer passes credit
requirements;
(c) Company will accept all orders by counter signing and
commissions will be paid after Customer pays first invoice;
(d) Company will use good faith efforts to bill all Customers by the
8th of every month;
(e) Commissions will be paid as a percentage of gross margins on all
Company sales. Margin is calculated by subtracting the Company's
buy price from the Company's invoice price to the Customer. The
difference will be considered gross margin for commission
purposes;
(f) Employee will be paid 21% of all gross commissions paid to all
Company sales channels for the first year of each order
generated by Employee. This includes all subsidiaries and agents
that are secured by the Company;
4. ADDITIONAL QUALIFIERS:
(a) All commissions will be paid on the 15th day of the month
immediately following the end of the quarter;
<PAGE> 18
(b) Employee's compensation plan per this Schedule 1 to Exhibit A is
effective as of January 1, 1999 and will remain in effect until
changed in writing by Company in its sole discretion;
(c) In the event of a change in the Plan all future commissions will
be calculated in accordance with the Plan as amended and paid in
a lump sum commission payment;
(d) In the event of the purchase of the Company by an independent
third party or the merger of the Company into an entity where
the Company does not survive such merger, or the termination of
employment without cause, all commissions will be calculated and
paid within two weeks of the event date. Such commissions will
be calculated and include all contracted services to date, and
anniversary annuity payments for the life of all Company
contracts then in place.
5. BONUS STRUCTURE:
(a) A first quarter bonus is available for February, March and April
of 1999. If $336,000 in new monthly recurring revenue is sold
(i.e., $1,008,000 in aggregate new monthly recurring revenue for
all three months combined) an additional grant of 75,000 shares
of Company common stock will be granted pursuant to the
Company's stock option plan containing substantially the same
terms and conditions as Employee's original grant, except that
the strike price will be equal to the fair market value per
share of the common stock as of the grant date. Additionally if
this objective is hit a $20,000 bonus will be paid at the end of
1999.
(b) Each year that the Company hits its revenue objectives as set by
the Company in its sole discretion, provided Employee is still
employed by the Company, an additional stock option may be
granted by the Company in is sole discretion, pursuant to the
Company's stock option plan.
<PAGE> 1
EXHIBIT 10.27
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made as of this 9th day
of September 1999, by and between UNIVERSAL ACCESS, INC., a Delaware corporation
(the "COMPANY"), and Scott Fehlan (the "EMPLOYEE").
RECITALS:
A. The Company is in the telecommunications business.
B. The Company desires to employ the Employee and Employee desires to be
employed by the Company as its General Counsel and Assistant Secretary subject
to the terms, conditions and covenants hereinafter set forth.
C. As a condition of the Company employing the Employee, and to the Company's
agreement to grant stock options to the Employee pursuant to the Company's stock
option plan, Employee has agreed not to divulge to the public the Company's
confidential information, not to solicit the Company's vendors, customers or
employees and not to compete with the Company, all upon the terms and conditions
hereinafter set forth.
D. NOW, THEREFORE, in consideration of the foregoing and the agreements,
covenants and conditions set forth herein, the Employee and the Company hereby
agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company hereby employs, engages, and hires Employee, and
Employee hereby accepts employment, upon the terms and conditions set forth in
this Agreement. The Employee shall serve as the General Counsel and Assistant
Secretary of the Company. The Employee shall have and fully perform the duties
and responsibilities required for such job title and position and to perform
such additional services and discharge such other responsibilities as may be,
from time to time, assigned or delegated by the Company.
1.2 Activities and Duties During Employment. Employee represents and warrants to
the Company that Employee is free to accept employment with the Company and that
Employee has no prior or other commitments or obligations of any kind to anyone
else which would hinder or interfere with the performance of this Agreement.
1.3 Employee accepts the employment described in Article I of this Agreement and
agrees to devote his or her full time and efforts to the faithful and diligent
performance of the services described herein, including the performance of such
other services and responsibilities as the Company may, from time to time,
stipulate. Without limiting the generality of the
<PAGE> 2
foregoing, Employee shall devote not less than five (5) days per week to this
employment, and shall be present on the Company premises or actively engaged in
service to or on behalf of the Company during normal business hours Monday
through Friday, excluding periods of vacation and sick leave.
ARTICLE II
TERM
2.1 Term. The term of employment under this Agreement shall be one (1) year (the
"Initial Term"), commencing on the date of the Agreement. This Agreement shall
automatically renew for successive one year terms thereafter (each a "Renewal
Term") unless either party delivers notice of termination to the other party not
less than fifteen (15) days prior to the end of the Initial Term or Renewal Term
in question. The Initial Term and any Renewal Terms shall herein be referred to
as the "Employment Term".
2.2 Termination. The Employment Term and employment of Employee may be
terminated as follows:
(a) By the Company immediately for "Cause." For the purpose of this
Agreement, "Cause" shall mean (i) conduct amounting to fraud,
embezzlement, or illegal misconduct in connection with Employee's duties
under this Agreement; (ii) the conviction of Employee by a court of
proper jurisdiction of (or his or her written, voluntary and freely
given confession to) a crime which constitutes a felony (other than a
traffic violation) or an indictment that results in material injury to
the Company's property, operation or reputation; (iii) the willful
failure of Employee to comply with reasonable directions of the Company
or any of the policies of the Company after (a) written notice is
delivered to the Employee describing such willful failure and (b)
Employee has failed to cure or take substantial steps to cure such
willful failure after a reasonable time period as determined by the
Company in its reasonable discretion (not to be less than 15 days)
unless the Employee, after discussion with counsel, in good faith
believes, that the directions of the Company (or its actions or
inactions in response to the Employee's written notice) are illegal; or
(iv) willful misconduct or a material default by the Employee in the
performance or observance of any promise or undertaking of Employee
under this Agreement, which willful misconduct or default has continued
for a period of ten (10) business days after written notice thereof from
the Company to the Employee.
(b) Automatically, without the action of either party, upon the death of
Employee ("Death").
<PAGE> 3
(c) By either party upon the Total Disability of the Employee. The Employee
shall be considered to have a Total Disability for purposes of this
Agreement if he or she is unable by reason of accident or illness to
substantially perform his or her employment duties, and is expected to
be in such condition for periods totaling six (6) months (whether or not
consecutive) during any period of twelve (12) months. The determination
of whether a Total Disability has occurred shall be determined by the
Company, in good faith, at its sole discretion. Nothing herein shall
limit the Employee's right to receive any payments to which Employee may
be entitled under any disability or employee benefit plan of the Company
or under any disability or insurance policy or plan. During a period of
disability prior to termination hereunder, Employee shall continue to
receive his or her full compensation (including base salary and bonus)
and benefits, subject to offset to the extent of any disability
insurance payments received by the Employee pursuant to any disability
insurance policy maintained by or paid for by the Company.
(d) By the Employee upon ten (10) business days notice to the Company for Good
Reason, which notice shall state the reason for termination. For the
purpose of this Agreement, "Good Reason" shall mean any "Change in
Control" (as hereinafter defined) or any material failure by the Company
to comply with the provisions of this Employment Agreement, including
but not limited to, failure to timely pay any part of Employee's
compensation (including salary or bonus) or provide the benefits
contemplated herein, and which is not remedied by the Company within ten
(10) business days after receipt by the Company of written notice
thereof from Employee; provided, that if such default is of a nature
that it cannot be reasonably cured within ten (10) day period (but is
curable), then if the Company shall have commenced an attempt to cure
such default within such ten (10) day period, the period to cure the
default shall be extended until the earlier of the date which is
forty-five (45) days after receipt of notice or the Company has failed
to diligently continue its efforts in a reasonable manner to cure its
default.
For purposes hereof, the term "Change in Control" shall mean the
occurrence of any of the following:
(1) the Company: (a) consummates a merger or consolidation which
results in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) less than fifty percent
(50%) of the total voting power represented by the voting
securities of the Company of such surviving entity outstanding
immediately after such merger or consolidation; and (b)
following such event, the successor entity fails to employ
Employee as follows (hereinafter, the "Same Terms"): on
substantially identical terms as are required per this Agreement
for the remaining Employment Term, and the
<PAGE> 4
successor entity further continues to employ Employee in the
same city and with job responsibilities of a level substantially
equivalent to or greater than those presently in force and
effect;
(2) a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially
all of the Company's assets is consummated, and following such
event the successor entity (if any) fails to employ Employee on
the Same Terms; or
(3) Company consummates a plan of complete liquidation of the
Company or an agreement for the sale or disposition (in one
transaction or a series of transactions) by the Company of all
or substantially all of the Company's assets, and following such
event the successor entity (if any) fails to employ Employee on
the Same Terms;
provided, however, that a public offering of the stock of the
Company irrespective of the amount of voting securities owned by
present shareholders after such offering shall not be deemed to
constitute a Change of Control; and provided further that if
Employee agrees to be employed by a successor entity on the Same
Terms and the successor entity fails to do so, a Change in
Control shall be deemed to have occurred.
(e) By the Employee without Good Reason, and therefore in breach of this
Agreement.
(f) By the Company other than for Cause, Death or Total Disability, in which
event Employee's sole remedy and compensation as a result of such
termination shall be as set forth in Section 2.4(c) below.
2.3 Cessation of Rights and Obligations: Survival of Certain Provisions. On the
date of expiration or earlier termination of the Employment Term for any reason,
all of the respective rights, duties, obligation and covenants of the parties,
as set forth herein, shall, except as specifically provided herein to the
contrary, cease and become of no further force or effect as of the date of said
termination, and shall only survive as expressly provided for herein.
2.4 Cessation of Compensation. In lieu of any severance under any severance plan
that the Company may then have in effect, and subject to (i) the receipt of a
full and unconditional release from Employee and (ii) any amounts owed by the
Employee to the Company under any contract, agreement or loan document entered
into after the date hereof which relates solely to his or her employment with
the Company (including, but not limited to, loans made by the Company to the
Employee), the Company shall pay to the Employee, and the Employee shall be
entitled to receive, the following amounts within thirty (30) days of the date
of a termination of his or her employment:
<PAGE> 5
(a) Voluntary Termination/Cause/Expiration of Term. Upon (i) Employee
terminating his or her employment without Good Reason as provided in
Section 2.2(e), (ii) the expiration of the Employment Term because the
Employee or the Company elects to not extend the Employment Term, or
(iii) a termination of the Employment Term for Cause by the Company as
provided in Section 2.2(a), the Employee shall be entitled to receive
his or her or her base salary (which shall include any of his or her
unused vacation pay for the year of such termination) and expense
reimbursements solely through the date of termination.
(b) Death or Total Disability. Upon the termination of the Employment Term by
reason of the Death or Total Disability of the Employee, the Employee
(or, in the case of Death, his or her estate) shall be entitled to
receive his or her base salary (which shall include any of his or her
unused vacation pay for the year of such termination) and expense
reimbursements solely through the date of termination.
(c) Involuntary. Upon the termination of the Employment Term:
(1) by the Company for any reason other than Cause, Death or Total
Disability, or
(2) by the Employee for Good Reason,
the Employee shall be entitled to receive in a lump sum the
balance of his or her base salary for the lesser of the
remaining term of the Employment Term (exclusive of any renewals
of the then existing term) or a period of 6 months (the
"Severance Term"), together with prorated vacation pay and
expense reimbursement through the date of termination. In
addition, Employee shall be entitled to payment by the Company
of the premiums for group health insurance coverage otherwise
payable by Employee under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") for the Severance Term. It
shall be a condition to Employee's right to receive the payments
described above that Employee shall be in compliance with all of
the Employee's obligations which survive termination hereof,
including without limitation those arising under Articles IV and
V hereof. The payments described above are intended to be in
lieu of all other payments to which Employee might otherwise be
entitled in respect of termination of Employee's employment
without Cause unless otherwise required by law or under other
agreements between the parties. Notwithstanding anything to the
contrary contained herein, to the extent Employee receives any
direct or indirect compensation, consulting fees or health
insurance from any Third Parties (as hereinafter defined) during
the Severance Term or with respect to
<PAGE> 6
services performed during the Severance Term such compensation
shall be credited dollar for dollar against the Severance Term
payment obligations of Company under this Section 2.4(c).
2.5 Business Expenses.
(a) Reimbursement. The Company shall reimburse the Employee for all reasonable,
ordinary, and necessary business expenses incurred by him or her in
connection with the performance of his or her duties hereunder,
including, but not limited to, ordinary and necessary travel expenses
and entertainment expenses. The reimbursement of business expenses will
be governed by the policies of the Company from time-to-time and the
terms otherwise set forth herein.
(b) Accounting. The Employee shall provide the Company with an accounting of his
or her expenses, which accounting shall clearly reflect which expenses
were incurred for proper business purposes in accordance with the
policies adopted by the Company and as such are reimbursable by the
Company. The Employee shall provide the Company with such other
supporting documentation and other substantiation of reimbursable
expenses as will conform to Internal Revenue Service or other
requirements. All such reimbursements shall be payable by the Company to
the Employee within a reasonable time after receipt by the Company of
appropriate documentation therefor.
2.6 Sole Compensation. Employee shall not be entitled to any other compensation
from the Company than as set forth in Article II hereof as a result of
termination of Employee's employment.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Compensation. During the Employment Term of this Agreement, the Company
shall pay Employee such salary and bonus as set forth on Exhibit A.
3.2 Payment. All compensation shall be payable in intervals in accordance with
the general payroll payment practice of the Company. The compensation shall be
subject to such withholdings and deductions by the Company as are required by
law. On termination of the Employment Term, the Company shall be entitled to set
off against any monies owing by the Company to Employee the amount of any monies
owing from Employee to the Company.
3.3 Other Benefits. Employee shall be entitled to participate in any retirement,
pension, profit-sharing, stock option, health plan, insurance, disability
income, incentive compensation and welfare or any other benefit plan or plans of
the Company which may now or hereafter be in
<PAGE> 7
effect and for which the Employee is eligible. Notwithstanding the forgoing, the
Company shall be under no obligation to institute or continue the existence of
any such benefit plan.
ARTICLE IV
CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETE AGREEMENT
4.1 Non-Disclosure of Confidential Information. Employee hereby acknowledges and
agrees that the duties and services to be performed by Employee under this
Agreement are special and unique and that as of a result of the employment
hereunder, Employee will acquire, develop and use information of a special and
unique nature and value that is not generally known to the public or to the
Company's industry, including but not limited to, certain records, phone
locations, documentation, software programs, price lists, contract prices for
purchase and sale of telephone access and telephone services, customer lists,
prospect lists, pricing on business proposals to new and existing customers,
network configuration, supplier pricing, equipment configurations, business
plans, ledgers and general information, employee records, mailing lists,
accounts receivable and payable ledgers, financial and other records of the
Company or its Affiliates, and other similar matters (all such information being
hereinafter referred to as "CONFIDENTIAL INFORMATION"). Employee further
acknowledges and agrees that the Confidential Information is of great value to
the Company and its Affiliates and that the restrictions and agreements
contained in this Agreement are reasonably necessary to protect the Confidential
Information and the goodwill of the Company. Accordingly, Employee hereby agrees
that:
(a) Employee will not, while employed by the Company or at any time thereafter,
directly or indirectly, except in connection with Employee's performance
of the duties under this Agreement, or as otherwise authorized in
writing by the Company for the benefit of the Company, divulge to any
person, firm, corporation, limited liability company, or organization,
other than the Company (hereinafter referred to as "THIRD PARTIES"), or
use or cause or authorize any Third Parties to use, the Confidential
Information, except as required by law; and
(b) Upon the termination of Employee's employment for any reason whatsoever,
Employee shall deliver or cause to be delivered to the Company any and
all Confidential Information or documents containing Confidential
Information, including notes, drawings, notebooks, notes, records, keys,
data and other documents and materials belonging to the Company or its
affiliates which is in his or her possession or under his or her control
relating to the Company or its affiliates, regardless of the medium upon
which it is stored, and will deliver to the Company upon such
termination of employment any other property of the Company or its
Affiliates which is in his or her possession or control.
4.2 Non-Solicitation Covenant. Employee hereby covenants and agrees that while
employed by the Company and for a period of one (1) year following the
termination of Employee's
<PAGE> 8
employment with the Company for any reason, Employee shall not (i) directly or
indirectly, contact, solicit, interfere with, or endeavor to entice away from
the Company or its Affiliates any person, firm, corporation, limited liability
company or other entity that was a customer of the Company at any time while
Employee was an employee of the Company or its Affiliates or who is a
"prospective customer" of the Company, or (ii) induce, attempt to induce or hire
any employee (or any person who was an employee during the year preceding the
date of any solicitation) of the Company or its Affiliates to leave the employ
of the Company or its Affiliates, or in any way interfere with the relationship
between any such employee and the Company or its Affiliates. For purposes
hereof, "prospective customer" shall mean any person or entity which has been
solicited for business by Employee or any officer or other employee of the
Company during the one year period preceding the date of termination of
Employee's employment with the Company, or if Employee is still employed by the
Company within the one year period preceding the event in question.
4.3 Non-Competition Covenant. Employee acknowledges that the covenants set forth
in this Section 4.3 are reasonable in scope and essential to the preservation of
the Business of the Company (as defined herein). Employee also acknowledges that
the enforcement of the covenant set forth in this Section 4.3 will not preclude
Employee from being gainfully employed in such manner and to the extent as to
provide a standard of living for himself or herself, the members of his or her
family and the others dependent upon Employee of at least the level to which
Employee and they have become accustomed and may expect. In addition, Employee
acknowledges that the Company has obtained an advantage over its competitors as
a result of its name, location and reputation that is characterized by near
permanent relationships with vendors, customers, principals and other contacts
which it has developed at great expense. Furthermore, Employee acknowledges that
competition by him or her following the termination or expiration of his or her
employment would impair the operation of the Company beyond that which would
arise from the competition of an unrelated third party with similar skills.
Employee hereby agrees that he or she shall not, during his or her employment
and for a period of one (1) year after the end of his or her employment,
directly or indirectly, engage in or become directly or indirectly interested in
any proprietorship, partnership, firm, trust, company, limited liability company
or other entity, other than the Company (whether as owner, partner, trustee,
beneficiary, stockholder, member, officer, director, employee, independent
contractor, agent, servant, consultant, lessor, lessee or otherwise) that
competes with the Company in the Business of the Company in the Restricted
Territory (as defined herein), other than owning an interest in a company listed
on a recognized stock exchange in an amount which does not exceed five percent
(5%) of the outstanding stock of such corporation. For purposes of this
Agreement, (i) the term "Business of the Company" shall include all business
activities and ventures related to providing telecommunications services or
products in which the Company is engaged, plans to engage in the next twelve
(12) months following termination of Employee's employment or has engaged in
during the prior twelve (12) months, as determined at any time during the
employment of the Employee; and (ii) the term "Restricted Territory" means the
geographical area consisting of a seventy mile radius surrounding each city (and
including such city) in which the Company maintains either an office or a
telecommunications facility.
<PAGE> 9
4.4 Remedies.
(a) Injunctive Relief. Employee expressly acknowledges and agrees that the
Business of the Company is highly competitive and that a violation of
any of the provisions of Sections 4.1, 4.2 or 4.3 would cause immediate
and irreparable harm, loss and damage to the Company not adequately
compensable by a monetary award. Employee further acknowledges and
agrees that the time periods and territorial areas provided for herein
are the minimum necessary to adequately protect the Business of the
Company, the enjoyment of the Confidential Information and the goodwill
of the Company. Without limiting any of the other remedies available to
the Company at law or in equity, or the Company's right or ability to
collect money damages, Employee agrees that any actual or threatened
violation of any of the provisions of Sections 4.1, 4.2 or 4.3 may be
immediately restrained or enjoined by any court of competent
jurisdiction, and that a temporary restraining order or emergency,
preliminary or final injunction may be issued in any court of competent
jurisdiction, without notice and without bond.
(b) Enforcement. It is the desire of the parties that the provisions of Sections
4.1, 4.2 or 4.3 be enforced to the fullest extent permissible under the
laws and public policies in each jurisdiction in which enforcement might
be sought. Accordingly, if any particular portion of Sections 4.1, 4.2
or 4.3 shall ever be adjudicated as invalid or unenforceable, or if the
application thereof to any party or circumstance shall be adjudicated to
be prohibited by or invalidated by such laws or public policies, such
section or sections shall be (i) deemed amended to delete therefrom such
portions so adjudicated or (ii) modified as determined appropriate by
such a court, such deletions or modifications to apply only with respect
to the operation of such section or sections in the particular
jurisdictions so adjudicating on the parties and under the circumstances
as to which so adjudicated.
(c) Legal Fees. The Employee shall reimburse the Company for all reasonable
costs and expenses, including, but not limited to, attorney's fees,
incurred by the Company in connection with the enforcement of the
provisions set forth in this Agreement.
4.5 Company. All references to the Company in this Article IV shall include
"Affiliates" of the Company, as that term is construed under Rule 405 of the
Securities Act of 1933, as amended.
4.6 Consideration. The undertakings of Employee pursuant to Sections 4.2 and 4.3
hereof are given to the Company in consideration for the payments, if any, to be
made pursuant to Section 2.4 hereof and the grant of the stock options
referenced in Exhibit A.
<PAGE> 10
ARTICLE V
ASSIGNMENT OF INTELLECTUAL PROPERTY
5.1 If Employee, during the course of his or her employment with the Company,
creates or discovers any patentable or potentially patentable invention or
design, within the meaning of Title 35 of the United States Code, any utility or
design patent that may be derived from any such invention or design created or
discovered by Employee during the course of his or her employment with the
Company shall be assigned to the Company. Employee agrees to fully cooperate
with the Company in obtaining any such patents, and Employee further agrees to
execute any and all documents the Company may deem necessary to obtain such
patent or to document such assignment to the Company. Employee hereby designates
the Company as his/her attorney-in-fact to execute any such documents relating
to any such patent or assignment thereof to the Company;
5.2 Employee agrees that any original work of authorship fixed in a tangible
medium of expression, including but not limited to literary works; computer
programs, software or other associated intangible property; network
configuration; musical works, including any accompanying words; dramatic works,
including any accompanying music; pantomimes and choreographic works; pictorial,
graphic and sculptural works; motion pictures and other audiovisual works; sound
recordings; and architectural works, within the meaning of Title 17 of the
United States Code, created during the course of his or her employment with the
Company shall be a "work for hire" within the meaning of Section 201(b) of the
Copyright Act, 17 U.S.C. Section 201(b), and that all ownership rights comprised
in the copyright shall vest exclusively in the Company. Employee agrees to fully
cooperate with the Company in obtaining registration of any such copyright,
except that the Company will be responsible for any and all fees and costs
associated with obtaining any such copyright registration;
5.3 If Employee, during the course of his/her employment with the Company,
discovers, invents, or produces, without limitation, any information, computer
programs, software or other associated intangible property; network
configuration, formulae, product, device, system, technique, drawing, program or
process which is a "trade secret" as defined in his/her Employment Agreement or
within the meaning of the Illinois Trade Secret Act (irrespective of where
Employee is employed), such information, formulae, product, device, system,
technique, drawing, program or process shall be assigned to the Company.
Employee agrees to fully cooperate with the Company in protecting the value and
secrecy of any such trade secret, and further agrees to execute any and all
documents the Company deems necessary to document any such assignment to the
Company. Employee appoints the Company as his/her attorney-in-fact to execute
any documents the Company may deem necessary that relates to any such trade
secret or assignment thereof to the Company;
<PAGE> 11
ARTICLE VI
MISCELLANEOUS
6.1 Notices. All notices or other communications required or permitted hereunder
shall be in writing and shall be deemed given, delivered and received (a) when
delivered, if delivered personally, (b) four days after mailing, when sent by
registered or certified mail, return receipt requested and postage prepaid, (c)
one business day after delivery to a private courier service, when delivered to
a private courier service providing documented overnight service, and (d) on the
date of delivery if delivered by telecopy, receipt confirmed, provided that a
confirmation copy is sent on the next business day by first class mail, postage
prepaid, in each case addressed as follows:
To Employee at his or her home address as set forth on the books and
records of the Company.
To Company at: Universal Access, Inc.
100 North Riverside Drive - Suite 2200
Chicago, Illinois 60606
Attn.: President
Ph: 312-660-5000
Fax: 312-660-5050
With a copy to: Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, IL 60611
Attn.: Mitchell D. Goldsmith
Ph: (312) 836-4006
Fax: (312) 527-5921
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
6.2 Entire Agreement; Amendments, Etc. This Agreement contains the entire
agreement and understanding of the parties hereto, and supersedes all prior
agreements and understandings relating to the subject matter hereof. Except as
provided in Section 4.4(b), no modification, amendment, waiver or alteration of
this Agreement or any provision or term hereof shall in any event be effective
unless the same shall be in writing, executed by both parties hereto, and any
waiver so given shall be effective only in the specific instance and for the
specific purpose for which given.
<PAGE> 12
6.3 Benefit. This Agreement shall be binding upon, and inure to the benefit of,
and shall be enforceable by, the heirs, successors, legal representatives and
permitted assignees of Employee and the successors, assignees and transferees of
the Company. This Agreement or any right or interest hereunder may not be
assigned by Employee without the prior written consent of the Company. No
implication shall be drawn in favor or against either party based upon the role
of such party's counsel in the drafting of this Agreement.
6.4 No Waiver. No failure or delay on the part of any party hereto in exercising
any right, power or remedy hereunder or pursuant hereto shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder or pursuant thereto.
6.5 Severability. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law
but, if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement. If any part of any covenant or
other provision in this Agreement is determined by a court of law to be overly
broad thereby making the covenant unenforceable, the parties hereto agree, and
it is their desire, that the court shall substitute a judicially enforceable
limitation in its place, and that as so modified the covenant shall be binding
upon the parties as if originally set forth herein.
6.6 Compliance and Headings. Time is of the essence of this Agreement. The
headings in this Agreement are intended to be for convenience and reference
only, and shall not define or limit the scope, extent or intent or otherwise
affect the meaning of any portion hereof.
6.7 Governing Law. The parties agree that this Agreement shall be governed by,
interpreted and construed in accordance with the laws of the State of Illinois,
and the parties agree that any suit, action or proceeding with respect to this
Agreement shall be brought in the courts of Cook County in the State of Illinois
or in the U.S. District Court for the Northern District of Illinois. The parties
hereto hereby accept the exclusive jurisdiction of those courts for the purpose
of any such suit, action or proceeding. Venue for any such action, in addition
to any other venue permitted by statute, will be Cook County, Illinois. The
parties hereby waive their right to trial by jury on any such action.
6.8 Counterparts. This Agreement may be executed in one or more counterparts,
whether by original, photocopy or facsimile, each of which will be deemed an
original and all of which together will constitute one and the same instrument.
6.9 Recitals. The Recitals set forth above are hereby incorporated in and made a
part of this Agreement by this reference.
<PAGE> 13
6.10 Arbitration. Except as expressly contemplated by Article IV, any dispute
arising between the parties pursuant to this Agreement shall be submitted to
binding arbitration. Any arbitration proceeding involving any provision hereof
will be conducted in Chicago, Illinois. Except as otherwise provided in this
Agreement, all arbitration proceedings will be conducted in accordance with the
then current National Rules for the Resolution of Employment Disputes of the
American Arbitration Association ("AAA"). One arbitrator shall conduct the
proceedings, and shall be elected in accordance with the procedures of the AAA.
The arbitrator shall allow such discovery as the arbitrator determines
appropriate under the circumstances. The arbitrator shall determine which party,
if either, prevailed and shall award the prevailing party its costs. Each party
shall bear his, her or its respective legal fees. The award and decision of the
arbitrator shall be conclusive and binding on all parties to this Agreement and
judgment on the award may be entered in any court of competent jurisdiction. The
parties acknowledge and agree that any arbitration award may be enforced against
either or both of them in a court of competent jurisdiction and each waives any
right to contest the validity or enforceability of such award. The parties
further agree to be bound by the provisions of any statute of limitations which
would be applicable in a court of law to the controversy or claim which is the
subject of any arbitration proceeding initiated under this Agreement. The
parties further agree that they are entitled in any arbitration proceeding to
the entry of an order, by a court of competent jurisdiction pursuant to an
opinion of the arbitrator, for specific performance of any of the requirements
of this Agreement. The parties further agree that the arbitrator shall provide a
statement of reasons explaining the basis of the decision rendered.
6.11 Survival. Notwithstanding anything to the contrary contained herein, the
terms of Articles III, IV, V and VI hereof shall survive any termination of this
Agreement and remain in full force and effect thereafter.
<PAGE> 14
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered as of the day and year first above written.
UNIVERSAL ACCESS, INC.
By: /s/ PATRICK SHUTT
---------------------------------
Its: CEO
--------------------------------
EMPLOYEE:
/s/ SCOTT D. FEHLAN
------------------------------------
NAME: Scott D. Fehlan
-------------------------------
<PAGE> 15
EXHIBIT A - ECONOMIC TERMS OF EMPLOYMENT AGREEMENT
UNIVERSAL ACCESS, INC./
A. Compensation.
1. During the Employment Term, the Company shall pay Employee such
salary and benefits as shall be agreed upon each year between
Employee and the Company. For the Initial Term, the Company
shall pay Employee a base salary of $155,000.00 per year.
Thereafter, the Company shall review the Employee's base salary
annually.
2. Bonus. The Company may, at the Company's sole discretion, in
addition to Employee's base salary, pay Employee a quarterly
bonus, based on MBOs for up to ten thousand dollars ($10,000)
per calendar quarter.
3. Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, stock option, health plan,
insurance, disability income, incentive compensation, vacation
and welfare or any other benefit plan or plans of the Company
which may now or hereafter be in effect and for which he or she
is eligible.
4. Vacation. Employee shall be entitled to up to three (3) weeks of
paid vacation in each calendar year during the Employment Term,
provided, however, that the Employee's 1999 calendar year
vacation shall be prorated for the portion of the calendar year
remaining after the date hereof; Employee shall be entitled to
carry forward from one calendar year during the Employment Term
to the next calendar year up to one additional week's vacation,
to the extent it was accrued and not taken in the previous year
(i.e. not more than 4 week's total vacation can be taken in any
year).
5. Stock Options. Employee shall be entitled to options to purchase
up to 250,000 shares of the Company's common stock at $ 2.75 an
exercise price per share equal to the fair market value as of
the date of this agreement, in accordance with the Company's
stock option plan, as further specified in the form of stock
option agreement between Employee and the Company.
<PAGE> 1
Exhibit 10.27.1
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Amendment No. 1 dated as of February 1, 2000 (the "Amendment") to the
Employment Agreement and any exhibits thereto (the "Agreement") by and between
Universal Access, Inc., a Delaware corporation (the "Company") and Scott Fehlan
(the "Employee"). Any capitalized terms not defined herein shall have the
meanings assigned to those terms in the Agreement.
RECITALS
A. Company and Employee entered into the Agreement on September 9,
1999.
B. Company and Employee desire to amend the Agreement to reflect
certain changes agreed to by the Company and the Employee.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as
follows:
1. Section 6.3 of the Agreement is hereby deleted in its entirety and
replaced by the following:
6.3 Entire Agreement; Amendments, Etc. This Agreement and
the Indemnification Agreement dated as of January 7, 2000 between
the Company and Employee (as the Indemnification Agreement may be
amended, restated or otherwise modified) contain the entire
agreement and understanding of the parties hereto, and supersede all
prior agreements and understandings relating to the subject matter
hereof and thereof. Except as provided in Section 4.4(b), no
modification, amendment, waiver or alteration of this Agreement or
any provision or term hereof shall in any event be effective unless
the same shall be in writing, executed by both parties hereto, and
any waiver so given shall be effective only in the specific instance
and for the specific purpose for which given.
2. Miscellaneous. Upon the execution and delivery of this Amendment,
the Agreement shall be amended and supplemented as set forth herein, as fully
and with the same effect as if the amendments and supplements made hereby were
set forth in the Agreement as of the date hereof. This Amendment and the
Agreement shall henceforth be read, taken and construed as one and the same
instrument, but this Amendment shall not operate so as to render invalid or
improper any action previously taken under this Agreement.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of February 1, 2000.
COMPANY: UNIVERSAL ACCESS, INC.,
a Delaware corporation
By: /s/ PATRICK C. SHUTT
-----------------------------------
Name: Patrick C. Shutt
Title: President and CEO
EMPLOYEE: By: /s/ SCOTT FEHLAN
-----------------------------------
Scott Fehlan
<PAGE> 1
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made as of this 27th day of
August, 1999, by and between UNIVERSAL ACCESS, INC., an Illinois corporation
(the "COMPANY"), and George King (the "EMPLOYEE").
RECITALS:
A. The Company is in the telecommunications business.
B. The Company desires to employ the Employee and Employee desires to be
employed by the Company as its Senior Vice President of Corporate Development,
subject to the terms, conditions and covenants hereinafter set forth.
C. As a condition of the Company employing the Employee, and to the Company's
agreement to grant stock options to the Employee pursuant to the Company's stock
option plan, Employee has agreed not to divulge to the public the Company's
confidential information, not to solicit the Company's vendors, customers or
employees and not to compete with the Company, all upon the terms and conditions
hereinafter set forth.
D. NOW, THEREFORE, in consideration of the foregoing and the agreements,
covenants and conditions set forth herein, the Employee and the Company hereby
agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company hereby employs, engages, and hires Employee, and
Employee hereby accepts employment, upon the terms and conditions set forth in
this Agreement. The Employee shall serve as the Senior Vice President of
Corporate Development of the Company. The Employee shall have and fully perform
the duties and responsibilities required for such job title and position and to
perform such additional services and discharge such other responsibilities as
may be, from time to time, assigned or delegated by the Company.
1.2 Activities and Duties During Employment. Employee represents and warrants to
the Company that Employee is free to accept employment with the Company and that
Employee has no prior or other commitments or obligations of any kind to anyone
else which would hinder or interfere with the performance of this Agreement.
1.3 Employee accepts the employment described in Article I of this Agreement and
agrees to devote his or her full time and efforts to the faithful and diligent
performance of the services described herein, including the performance of such
other services and responsibilities
<PAGE> 2
as the Company may, from time to time, stipulate. Without limiting the
generality of the foregoing, Employee shall devote not less than five (5) days
per week to this employment, and shall be present on the Company premises or
actively engaged in service to or on behalf of the Company during normal
business hours Monday through Friday, excluding periods of vacation and sick
leave.
ARTICLE II
TERM
2.1 Term. The term of employment under this Agreement shall be one (1) year (the
"Initial Term"), commencing on the date of the Agreement. This Agreement shall
automatically renew for successive one year terms thereafter (each a "Renewal
Term") unless either party delivers notice of termination to the other party not
less than fifteen (15) days prior to the end of the Initial Term or Renewal Term
in question. The Initial Term and any Renewal Terms shall herein be referred to
as the "Employment Term".
2.2 Termination. The Employment Term and employment of Employee may be
terminated as follows:
(a) By the Company immediately for "Cause." For the purpose of this Agreement,
"Cause" shall mean (i) conduct amounting to fraud, embezzlement, or
illegal misconduct in connection with Employee's duties under this
Agreement; (ii) the conviction of Employee by a court of proper
jurisdiction of (or his or her written, voluntary and freely given
confession to) a crime which constitutes a felony (other than a traffic
violation) or an indictment that results in material injury to the
Company's property, operation or reputation; (iii) the willful failure of
Employee to comply with reasonable directions of the Company or any of the
policies of the Company after (a) written notice is delivered to the
Employee describing such willful failure and (b) Employee has failed to
cure or take substantial steps to cure such willful failure after a
reasonable time period as determined by the Company in its reasonable
discretion (not to be less than 15 days) unless the Employee, after
discussion with counsel, in good faith believes, that the directions of
the Company (or its actions or inactions in response to the Employee's
written notice) are illegal; or (iv) willful misconduct or a material
default by the Employee in the performance or observance of any promise or
undertaking of Employee under this Agreement, which willful misconduct or
default has continued for a period of ten (10) business days after written
notice thereof from the Company to the Employee.
(b) Automatically, without the action of either party, upon the death of
Employee ("Death").
<PAGE> 3
(c) By either party upon the Total Disability of the Employee. The Employee
shall be considered to have a Total Disability for purposes of this
Agreement if he or she is unable by reason of accident or illness to
substantially perform his or her employment duties, and is expected to be
in such condition for periods totaling six (6) months (whether or not
consecutive) during any period of twelve (12) months. The determination of
whether a Total Disability has occurred shall be determined by the
Company, in good faith, at its sole discretion. Nothing herein shall limit
the Employee's right to receive any payments to which Employee may be
entitled under any disability or employee benefit plan of the Company or
under any disability or insurance policy or plan. During a period of
disability prior to termination hereunder, Employee shall continue to
receive his or her full compensation (including base salary and bonus) and
benefits, subject to offset to the extent of any disability insurance
payments received by the Employee pursuant to any disability insurance
policy maintained by or paid for by the Company.
(d) By the Employee upon ten (10) business days notice to the Company for Good
Reason, which notice shall state the reason for termination. For the
purpose of this Agreement, "Good Reason" shall mean any "Change in
Control" (as hereinafter defined) or any material failure by the Company
to comply with the provisions of this Employment Agreement, including but
not limited to, failure to timely pay any part of Employee's compensation
(including salary or bonus) or provide the benefits contemplated herein,
and which is not remedied by the Company within ten (10) business days
after receipt by the Company of written notice thereof from Employee;
provided, that if such default is of a nature that it cannot be reasonably
cured within ten (10) day period (but is curable), then if the Company
shall have commenced an attempt to cure such default within such ten (10)
day period, the period to cure the default shall be extended until the
earlier of the date which is forty-five (45) days after receipt of notice
or the Company has failed to diligently continue its efforts in a
reasonable manner to cure its default.
For purposes hereof, the term "Change in Control" shall mean the
occurrence of any of the following:
(1) the Company: (a) consummates a merger or consolidation which results
in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) less than fifty percent (50%) of the total voting
power represented by the voting securities of the Company of such
surviving entity outstanding immediately after such merger or
consolidation; and (b) following such event, the successor entity
fails to employ Employee as follows (hereinafter, the "Same Terms"):
on substantially identical terms as are required per this Agreement
for the remaining Employment Term, and the
<PAGE> 4
successor entity further continues to employ Employee in the same
city and with job responsibilities of a level substantially
equivalent to or greater than those presently in force and effect;
(2) a plan of complete liquidation of the Company or an agreement for
the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all of the Company's
assets is consummated, and following such event the successor entity
(if any) fails to employ Employee on the Same Terms; or
(3) Company consummates a plan of complete liquidation of the Company or
an agreement for the sale or disposition (in one transaction or a
series of transactions) by the Company of all or substantially all
of the Company's assets, and following such event the successor
entity (if any) fails to employ Employee on the Same Terms;
provided, however, that a public offering of the stock of the
Company irrespective of the amount of voting securities owned by
present shareholders after such offering shall not be deemed to
constitute a Change of Control; and provided further that if
Employee agrees to be employed by a successor entity on the Same
Terms and the successor entity fails to do so, a Change in Control
shall be deemed to have occurred.
(e) By the Employee without Good Reason, and therefore in breach of this
Agreement.
(f) By the Company other than for Cause, Death or Total Disability, in which
event Employee's sole remedy and compensation as a result of such
termination shall be as set forth in Section 2.4(c) below.
2.3 Cessation of Rights and Obligations: Survival of Certain Provisions. On the
date of expiration or earlier termination of the Employment Term for any reason,
all of the respective rights, duties, obligation and covenants of the parties,
as set forth herein, shall, except as specifically provided herein to the
contrary, cease and become of no further force or effect as of the date of said
termination, and shall only survive as expressly provided for herein.
2.4 Cessation of Compensation. In lieu of any severance under any severance plan
that the Company may then have in effect, and subject to (i) the receipt of a
full and unconditional release from Employee and (ii) any amounts owed by the
Employee to the Company under any contract, agreement or loan document entered
into after the date hereof which relates solely to his or her employment with
the Company (including, but not limited to, loans made by the Company to the
Employee), the Company shall pay to the Employee, and the Employee shall be
entitled to receive, the following amounts within thirty (30) days of the date
of a termination of his or her employment:
<PAGE> 5
(a) Voluntary Termination/Cause/Expiration of Term. Upon (i) Employee
terminating his or her employment without Good Reason as provided in
Section 2.2(e), (ii) the expiration of the Employment Term because the
Employee or the Company elects to not extend the Employment Term, or (iii)
a termination of the Employment Term for Cause by the Company as provided
in Section 2.2(a), the Employee shall be entitled to receive his or her or
her base salary (which shall include any of his or her unused vacation pay
for the year of such termination) and expense reimbursements solely
through the date of termination.
(b) Death or Total Disability. Upon the termination of the Employment Term by
reason of the Death or Total Disability of the Employee, the Employee (or,
in the case of Death, his or her estate) shall be entitled to receive his
or her base salary (which shall include any of his or her unused vacation
pay for the year of such termination) and expense reimbursements solely
through the date of termination.
(c) Involuntary. Upon the termination of the Employment Term:
(1) by the Company for any reason other than Cause, Death or Total
Disability, or
(2) by the Employee for Good Reason,
the Employee shall be entitled to receive in a lump sum the balance
of his or her base salary for the lesser of the remaining term of
the Employment Term (exclusive of any renewals of the then existing
term) or a period of 6 months (the "Severance Term"), together with
prorated vacation pay and expense reimbursement through the date of
termination. In addition, Employee shall be entitled to payment by
the Company of the premiums for group health insurance coverage
otherwise payable by Employee under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") for the Severance Term. It
shall be a condition to Employee's right to receive the payments
described above that Employee shall be in compliance with all of the
Employee's obligations which survive termination hereof, including
without limitation those arising under Articles IV and V hereof. The
payments described above are intended to be in lieu of all other
payments to which Employee might otherwise be entitled in respect of
termination of Employee's employment without Cause unless otherwise
required by law or under other agreements between the parties.
Notwithstanding anything to the contrary contained herein, to the
extent Employee receives any direct or indirect compensation,
consulting fees or health insurance from any Third Parties (as
hereinafter defined) during the Severance Term or with respect to
<PAGE> 6
services performed during the Severance Term such compensation shall
be credited dollar for dollar against the Severance Term payment
obligations of Company under this Section 2.4(c).
2.5 Business Expenses.
(a) Reimbursement. The Company shall reimburse the Employee for all
reasonable, ordinary, and necessary business expenses incurred by him or
her in connection with the performance of his or her duties hereunder,
including, but not limited to, ordinary and necessary travel expenses and
entertainment expenses. The reimbursement of business expenses will be
governed by the policies of the Company from time-to-time and the terms
otherwise set forth herein.
(b) Accounting. The Employee shall provide the Company with an accounting of
his or her expenses, which accounting shall clearly reflect which expenses
were incurred for proper business purposes in accordance with the policies
adopted by the Company and as such are reimbursable by the Company. The
Employee shall provide the Company with such other supporting
documentation and other substantiation of reimbursable expenses as will
conform to Internal Revenue Service or other requirements. All such
reimbursements shall be payable by the Company to the Employee within a
reasonable time after receipt by the Company of appropriate documentation
therefor.
2.6 Sole Compensation. Employee shall not be entitled to any other compensation
from the Company than as set forth in Article II hereof as a result of
termination of Employee's employment.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Compensation. During the Employment Term of this Agreement, the Company
shall pay Employee such salary and bonus as set forth on Exhibit A.
3.2 Payment. All compensation shall be payable in intervals in accordance with
the general payroll payment practice of the Company. The compensation shall be
subject to such withholdings and deductions by the Company as are required by
law. On termination of the Employment Term, the Company shall be entitled to set
off against any monies owing by the Company to Employee the amount of any monies
owing from Employee to the Company.
3.3 Other Benefits. Employee shall be entitled to participate in any retirement,
pension, profit-sharing, stock option, health plan, insurance, disability
income, incentive compensation and welfare or any other benefit plan or plans of
the Company which may now or hereafter be in
<PAGE> 7
effect and for which the Employee is eligible. Notwithstanding the forgoing, the
Company shall be under no obligation to institute or continue the existence of
any such benefit plan.
ARTICLE IV
CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETE AGREEMENT
4.1 Non-Disclosure of Confidential Information. Employee hereby acknowledges and
agrees that the duties and services to be performed by Employee under this
Agreement are special and unique and that as of a result of the employment
hereunder, Employee will acquire, develop and use information of a special and
unique nature and value that is not generally known to the public or to the
Company's industry, including but not limited to, certain records, phone
locations, documentation, software programs, price lists, contract prices for
purchase and sale of telephone access and telephone services, customer lists,
prospect lists, pricing on business proposals to new and existing customers,
network configuration, supplier pricing, equipment configurations, business
plans, ledgers and general information, employee records, mailing lists,
accounts receivable and payable ledgers, financial and other records of the
Company or its Affiliates, and other similar matters (all such information being
hereinafter referred to as "CONFIDENTIAL INFORMATION"). Employee further
acknowledges and agrees that the Confidential Information is of great value to
the Company and its Affiliates and that the restrictions and agreements
contained in this Agreement are reasonably necessary to protect the Confidential
Information and the goodwill of the Company. Accordingly, Employee hereby agrees
that:
(a) Employee will not, while employed by the Company or at any time
thereafter, directly or indirectly, except in connection with Employee's
performance of the duties under this Agreement, or as otherwise authorized
in writing by the Company for the benefit of the Company, divulge to any
person, firm, corporation, limited liability company, or organization,
other than the Company (hereinafter referred to as "THIRD PARTIES"), or
use or cause or authorize any Third Parties to use, the Confidential
Information, except as required by law; and
(b) Upon the termination of Employee's employment for any reason whatsoever,
Employee shall deliver or cause to be delivered to the Company any and all
Confidential Information or documents containing Confidential Information,
including notes, drawings, notebooks, notes, records, keys, data and other
documents and materials belonging to the Company or its affiliates which
is in his or her possession or under his or her control relating to the
Company or its affiliates, regardless of the medium upon which it is
stored, and will deliver to the Company upon such termination of
employment any other property of the Company or its Affiliates which is in
his or her possession or control.
4.2 Non-Solicitation Covenant. Employee hereby covenants and agrees that while
employed by the Company and for a period of one (1) year following the
termination of Employee's
<PAGE> 8
employment with the Company for any reason, Employee shall not (i) directly or
indirectly, contact, solicit, interfere with, or endeavor to entice away from
the Company or its Affiliates any person, firm, corporation, limited liability
company or other entity that was a customer of the Company at any time while
Employee was an employee of the Company or its Affiliates or who is a
"prospective customer" of the Company, or (ii) induce, attempt to induce or hire
any employee (or any person who was an employee during the year preceding the
date of any solicitation) of the Company or its Affiliates to leave the employ
of the Company or its Affiliates, or in any way interfere with the relationship
between any such employee and the Company or its Affiliates. For purposes
hereof, "prospective customer" shall mean any person or entity which has been
solicited for business by Employee or any officer or other employee of the
Company during the one year period preceding the date of termination of
Employee's employment with the Company, or if Employee is still employed by the
Company within the one year period preceding the event in question.
4.3 Non-Competition Covenant. Employee acknowledges that the covenants set forth
in this Section 4.3 are reasonable in scope and essential to the preservation of
the Business of the Company (as defined herein). Employee also acknowledges that
the enforcement of the covenant set forth in this Section 4.3 will not preclude
Employee from being gainfully employed in such manner and to the extent as to
provide a standard of living for himself or herself, the members of his or her
family and the others dependent upon Employee of at least the level to which
Employee and they have become accustomed and may expect. In addition, Employee
acknowledges that the Company has obtained an advantage over its competitors as
a result of its name, location and reputation that is characterized by near
permanent relationships with vendors, customers, principals and other contacts
which it has developed at great expense. Furthermore, Employee acknowledges that
competition by him or her following the termination or expiration of his or her
employment would impair the operation of the Company beyond that which would
arise from the competition of an unrelated third party with similar skills.
Employee hereby agrees that he or she shall not, during his or her employment
and for a period of one (1) year after the end of his or her employment,
directly or indirectly, engage in or become directly or indirectly interested in
any proprietorship, partnership, firm, trust, company, limited liability company
or other entity, other than the Company (whether as owner, partner, trustee,
beneficiary, stockholder, member, officer, director, employee, independent
contractor, agent, servant, consultant, lessor, lessee or otherwise) that
competes with the Company in the Business of the Company in the Restricted
Territory (as defined herein), other than owning an interest in a company listed
on a recognized stock exchange in an amount which does not exceed five percent
(5%) of the outstanding stock of such corporation. For purposes of this
Agreement, (i) the term "Business of the Company" shall include all business
activities and ventures related to providing telecommunications services or
products in which the Company is engaged, plans to engage in the next twelve
(12) months following termination of Employee's employment or has engaged in
during the prior twelve (12) months, as determined at any time during the
employment of the Employee; and (ii) the term "Restricted Territory" means the
geographical area consisting of a seventy mile radius surrounding each city (and
including such city) in which the Company maintains either an office or a
telecommunications facility.
<PAGE> 9
4.4 Remedies.
(a) Injunctive Relief. Employee expressly acknowledges and agrees that the
Business of the Company is highly competitive and that a violation of any
of the provisions of Sections 4.1, 4.2 or 4.3 would cause immediate and
irreparable harm, loss and damage to the Company not adequately
compensable by a monetary award. Employee further acknowledges and agrees
that the time periods and territorial areas provided for herein are the
minimum necessary to adequately protect the Business of the Company, the
enjoyment of the Confidential Information and the goodwill of the Company.
Without limiting any of the other remedies available to the Company at law
or in equity, or the Company's right or ability to collect money damages,
Employee agrees that any actual or threatened violation of any of the
provisions of Sections 4.1, 4.2 or 4.3 may be immediately restrained or
enjoined by any court of competent jurisdiction, and that a temporary
restraining order or emergency, preliminary or final injunction may be
issued in any court of competent jurisdiction, without notice and without
bond.
(b) Enforcement. It is the desire of the parties that the provisions of
Sections 4.1, 4.2 or 4.3 be enforced to the fullest extent permissible
under the laws and public policies in each jurisdiction in which
enforcement might be sought. Accordingly, if any particular portion of
Sections 4.1, 4.2 or 4.3 shall ever be adjudicated as invalid or
unenforceable, or if the application thereof to any party or circumstance
shall be adjudicated to be prohibited by or invalidated by such laws or
public policies, such section or sections shall be (i) deemed amended to
delete therefrom such portions so adjudicated or (ii) modified as
determined appropriate by such a court, such deletions or modifications to
apply only with respect to the operation of such section or sections in
the particular jurisdictions so adjudicating on the parties and under the
circumstances as to which so adjudicated.
(c) Legal Fees. The Employee shall reimburse the Company for all reasonable
costs and expenses, including, but not limited to, attorney's fees,
incurred by the Company in connection with the enforcement of the
provisions set forth in this Agreement.
4.5 Company. All references to the Company in this Article IV shall include
"Affiliates" of the Company, as that term is construed under Rule 405 of the
Securities Act of 1933, as amended.
4.6 Consideration. The undertakings of Employee pursuant to Sections 4.2 and 4.3
hereof are given to the Company in consideration for the payments, if any, to be
made pursuant to Section 2.4 hereof and the grant of the stock options
referenced in Exhibit A.
<PAGE> 10
ARTICLE V
ASSIGNMENT OF INTELLECTUAL PROPERTY
5.1 If Employee, during the course of his or her employment with the Company,
creates or discovers any patentable or potentially patentable invention or
design, within the meaning of Title 35 of the United States Code, any utility or
design patent that may be derived from any such invention or design created or
discovered by Employee during the course of his or her employment with the
Company shall be assigned to the Company. Employee agrees to fully cooperate
with the Company in obtaining any such patents, and Employee further agrees to
execute any and all documents the Company may deem necessary to obtain such
patent or to document such assignment to the Company. Employee hereby designates
the Company as his/her attorney-in-fact to execute any such documents relating
to any such patent or assignment thereof to the Company;
5.2 Employee agrees that any original work of authorship fixed in a tangible
medium of expression, including but not limited to literary works; computer
programs, software or other associated intangible property; network
configuration; musical works, including any accompanying words; dramatic works,
including any accompanying music; pantomimes and choreographic works; pictorial,
graphic and sculptural works; motion pictures and other audiovisual works; sound
recordings; and architectural works, within the meaning of Title 17 of the
United States Code, created during the course of his or her employment with the
Company shall be a "work for hire" within the meaning of Section 201(b) of the
Copyright Act, 17 U.S.C. Section 201(b), and that all ownership rights comprised
in the copyright shall vest exclusively in the Company. Employee agrees to fully
cooperate with the Company in obtaining registration of any such copyright,
except that the Company will be responsible for any and all fees and costs
associated with obtaining any such copyright registration;
5.3 If Employee, during the course of his/her employment with the Company,
discovers, invents, or produces, without limitation, any information, computer
programs, software or other associated intangible property; network
configuration, formulae, product, device, system, technique, drawing, program or
process which is a "trade secret" as defined in his/her Employment Agreement or
within the meaning of the Illinois Trade Secret Act (irrespective of where
Employee is employed), such information, formulae, product, device, system,
technique, drawing, program or process shall be assigned to the Company.
Employee agrees to fully cooperate with the Company in protecting the value and
secrecy of any such trade secret, and further agrees to execute any and all
documents the Company deems necessary to document any such assignment to the
Company. Employee appoints the Company as his/her attorney-in-fact to execute
any documents the Company may deem necessary that relates to any such trade
secret or assignment thereof to the Company;
<PAGE> 11
ARTICLE VI
MISCELLANEOUS
6.1 Notices. All notices or other communications required or permitted hereunder
shall be in writing and shall be deemed given, delivered and received (a) when
delivered, if delivered personally, (b) four days after mailing, when sent by
registered or certified mail, return receipt requested and postage prepaid, (c)
one business day after delivery to a private courier service, when delivered to
a private courier service providing documented overnight service, and (d) on the
date of delivery if delivered by telecopy, receipt confirmed, provided that a
confirmation copy is sent on the next business day by first class mail, postage
prepaid, in each case addressed as follows:
To Employee at his or her home address as set forth on the books and
records of the Company.
To Company at: Universal Access, Inc.
100 North Riverside Drive - Suite 2200
Chicago, Illinois 60606
Attn.: President
Ph: 312-660-5000
Fax: 312-660-5050
With a copy to: Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, IL 60611
Attn.: Mitchell D. Goldsmith
Ph: (312) 836-4006
Fax: (312) 527-5921
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
6.2 Entire Agreement; Amendments, Etc. This Agreement contains the entire
agreement and understanding of the parties hereto, and supersedes all prior
agreements and understandings relating to the subject matter hereof. Except as
provided in Section 4.4(b), no modification, amendment, waiver or alteration of
this Agreement or any provision or term hereof shall in any event be effective
unless the same shall be in writing, executed by both parties hereto, and any
waiver so given shall be effective only in the specific instance and for the
specific purpose for which given.
<PAGE> 12
6.3 Benefit. This Agreement shall be binding upon, and inure to the benefit of,
and shall be enforceable by, the heirs, successors, legal representatives and
permitted assignees of Employee and the successors, assignees and transferees of
the Company. This Agreement or any right or interest hereunder may not be
assigned by Employee without the prior written consent of the Company. No
implication shall be drawn in favor or against either party based upon the role
of such party's counsel in the drafting of this Agreement.
6.4 No Waiver. No failure or delay on the part of any party hereto in exercising
any right, power or remedy hereunder or pursuant hereto shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder or pursuant thereto.
6.5 Severability. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law
but, if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement. If any part of any covenant or
other provision in this Agreement is determined by a court of law to be overly
broad thereby making the covenant unenforceable, the parties hereto agree, and
it is their desire, that the court shall substitute a judicially enforceable
limitation in its place, and that as so modified the covenant shall be binding
upon the parties as if originally set forth herein.
6.6 Compliance and Headings. Time is of the essence of this Agreement. The
headings in this Agreement are intended to be for convenience and reference
only, and shall not define or limit the scope, extent or intent or otherwise
affect the meaning of any portion hereof.
6.7 Governing Law. The parties agree that this Agreement shall be governed by,
interpreted and construed in accordance with the laws of the State of Illinois,
and the parties agree that any suit, action or proceeding with respect to this
Agreement shall be brought in the courts of Cook County in the State of Illinois
or in the U.S. District Court for the Northern District of Illinois. The parties
hereto hereby accept the exclusive jurisdiction of those courts for the purpose
of any such suit, action or proceeding. Venue for any such action, in addition
to any other venue permitted by statute, will be Cook County, Illinois. The
parties hereby waive their right to trial by jury on any such action.
6.8 Counterparts. This Agreement may be executed in one or more counterparts,
whether by original, photocopy or facsimile, each of which will be deemed an
original and all of which together will constitute one and the same instrument.
6.9 Recitals. The Recitals set forth above are hereby incorporated in and made a
part of this Agreement by this reference.
<PAGE> 13
6.10 Arbitration. Except as expressly contemplated by Article IV, any dispute
arising between the parties pursuant to this Agreement shall be submitted to
binding arbitration. Any arbitration proceeding involving any provision hereof
will be conducted in Chicago, Illinois. Except as otherwise provided in this
Agreement, all arbitration proceedings will be conducted in accordance with the
then current National Rules for the Resolution of Employment Disputes of the
American Arbitration Association ("AAA"). One arbitrator shall conduct the
proceedings, and shall be elected in accordance with the procedures of the AAA.
The arbitrator shall allow such discovery as the arbitrator determines
appropriate under the circumstances. The arbitrator shall determine which party,
if either, prevailed and shall award the prevailing party its costs. Each party
shall bear his, her or its respective legal fees. The award and decision of the
arbitrator shall be conclusive and binding on all parties to this Agreement and
judgment on the award may be entered in any court of competent jurisdiction. The
parties acknowledge and agree that any arbitration award may be enforced against
either or both of them in a court of competent jurisdiction and each waives any
right to contest the validity or enforceability of such award. The parties
further agree to be bound by the provisions of any statute of limitations which
would be applicable in a court of law to the controversy or claim which is the
subject of any arbitration proceeding initiated under this Agreement. The
parties further agree that they are entitled in any arbitration proceeding to
the entry of an order, by a court of competent jurisdiction pursuant to an
opinion of the arbitrator, for specific performance of any of the requirements
of this Agreement. The parties further agree that the arbitrator shall provide a
statement of reasons explaining the basis of the decision rendered.
6.11 Survival. Notwithstanding anything to the contrary contained herein, the
terms of Articles III, IV, V and VI hereof shall survive any termination of this
Agreement and remain in full force and effect thereafter.
<PAGE> 14
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered as of the day and year first above written.
UNIVERSAL ACCESS, INC.
By: /s/ PATRICK C. SHUTT
-----------------------------------
Its: CEO
-----------------------------------
EMPLOYEE:
/s/ GEORGE A. KING
----------------------------------------
NAME: George A. King
----------------------------------
<PAGE> 15
EXHIBIT A - ECONOMIC TERMS OF EMPLOYMENT AGREEMENT
UNIVERSAL ACCESS, INC./
A. Compensation.
1. During the Employment Term, the Company shall pay Employee such
salary and benefits as shall be agreed upon each year between
Employee and the Company. For the Initial Term, the Company shall
pay Employee a base salary of $135,000 per year. Thereafter, the
Company shall review the Employee's base salary annually.
2. Bonus. The Company may, at the Company's sole discretion, in
addition to Employee's base salary, pay Employee an annual bonus
with respect to each calendar year in the Employment Term.
3. Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, stock option, health plan,
insurance, disability income, incentive compensation, vacation and
welfare or any other benefit plan or plans of the Company which may
now or hereafter be in effect and for which he or she is eligible.
4. Vacation. Employee shall be entitled to up to three (3) weeks of
paid vacation in each calendar year during the Employment Term,
provided, however, that the Employee's 1999 calendar year vacation
shall be prorated for the portion of the calendar year remaining
after the date hereof; Employee shall be entitled to carry forward
from one calendar year during the Employment Term to the next
calendar year up to one additional week's vacation, to the extent it
was accrued and not taken in the previous year (i.e. not more than 4
week's total vacation can be taken in any year).
5. Stock Options. Employee shall be entitled to options to purchase up
to 50,000 shares of the Company's common stock at (TBD) per share in
accordance with the Company's stock option plan, as further
specified in the form of stock option agreement between Employee and
the Company.
<PAGE> 1
Exhibit 10.28.1
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Amendment No. 1 dated as of February 1, 2000 (the "Amendment") to the
Employment Agreement and any exhibits thereto (the "Agreement") by and between
Universal Access, Inc., a Delaware corporation (the "Company") and George A.
King (the "Employee"). Any capitalized terms not defined herein shall have the
meanings assigned to those terms in the Agreement.
RECITALS
A. Company and Employee entered into the Agreement on August 27, 1999.
B. Company and Employee desire to amend the Agreement to reflect certain
changes agreed to by the Company and the Employee.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as
follows:
1. Section 6.3 of the Agreement is hereby deleted in its entirety and
replaced by the following:
6.3 Entire Agreement; Amendments, Etc. This Agreement and the
Indemnification Agreement dated as of January 7, 2000 between the
Company and Employee (as the Indemnification Agreement may be
amended, restated or otherwise modified) contain the entire
agreement and understanding of the parties hereto, and supersede all
prior agreements and understandings relating to the subject matter
hereof and thereof. Except as provided in Section 4.4(b), no
modification, amendment, waiver or alteration of this Agreement or
any provision or term hereof shall in any event be effective unless
the same shall be in writing, executed by both parties hereto, and
any waiver so given shall be effective only in the specific instance
and for the specific purpose for which given.
2. Miscellaneous. Upon the execution and delivery of this Amendment, the
Agreement shall be amended and supplemented as set forth herein, as fully and
with the same effect as if the amendments and supplements made hereby were set
forth in the Agreement as of the date hereof. This Amendment and the Agreement
shall henceforth be read, taken and construed as one and the same instrument,
but this Amendment shall not operate so as to render invalid or improper any
action previously taken under this Agreement.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of February 1, 2000.
COMPANY: UNIVERSAL ACCESS, INC.,
a Delaware corporation
By: /s/ PATRICK C. SHUTT
----------------------------------------
Name: Patrick C. Shutt
Title: President and CEO
EMPLOYEE: By: /s/ GEORGE A. KING
----------------------------------------
George A. King
<PAGE> 1
EXHIBIT 10.32
[MCI WORLDCOM LOGO]
CARRIER GLOBAL SERVICES AGREEMENT
<TABLE>
<CAPTION>
UNIVERSAL ACCESS, INC. MCI WORLDCOM COMMUNICATIONS, INC.
<S> <C>
/s/ Robert Pommer /s/ Frank Glloky
- ----------------------------------- -----------------------------------
Company Representative Signature MCIWC Signature
COO VP Marketing
- ----------------------------------- -----------------------------------
Title - Please Print Title
Company Representative Name-Please Name
- ----------------------------------- -----------------------------------
Print
9/24/99 2/14/99
- ----------------------------------- -----------------------------------
Date Date
- ----------------------------------- -----------------------------------
Company Address (for notice purposes) Company Address (for notice purposes)
( )
------ --------------------------- -----------------------------------
Main Telephone Number Billing ID
</TABLE>
This Global Services Agreement, (the "Agreement" or "GSA"), is made by and
between MCI WORLDCOM COMMUNICATIONS, INC., a Delaware corporation with offices
at 575 East Amite Street, Jackson, Mississippi 39201, ("MCI WORLDCOM") and
UNIVERSAL ACCESS, INC., a corporation with offices at 100 N. Riverside Plaza,
Suite 2200, Chicago, Illinois 60606 ("Customer"). WTI is acting on behalf of
each MCIWC affiliate (other than MCI Systemhouse) to the extent that services
referred to in this Agreement are provided by one or more such affiliates. This
Agreement incorporates by reference the attached schedules (referred to
collectively herein as the "GSA Schedules"). MCI WORLDCOM or the providing
affiliate shall provide to Customer and Customer shall purchase from MCI
WORLDCOM those service(s) and associated equipment (the "Services") described in
Schedule Three through Schedule Eight of this Agreement (the "Service
Schedules") at the rates, discounts, and other terms and conditions described in
the Service Schedule for the applicable Service. By signing this cover sheet,
MCI WORLDCOM and Customer agree to be bound to all the terms and conditions of
this Agreement.
The GSA Schedules attached to this Agreement are as follows (check appropriate
boxes):
<TABLE>
<S> <C> <C>
[x] Schedule One Term, Global Volumes and Discounts
[x] Schedule Two Master Terms and Conditions
[x] Schedule Three United States Tariffed Services
[x] Schedule Four Non-Tariffed Services
</TABLE>
This Agreement shall be of no force and effect and the offer contained herein
shall be withdrawn unless this Agreement is executed by Customer and delivered
to MCI WORLDCOM on or before SEPTEMBER 30, 1999.
MCI WORLDCOM CONFIDENTIAL
1
<PAGE> 2
SCHEDULE ONE
TERM, GLOBAL VOLUMES AND DISCOUNTS
1. Term. The "Term" of this Agreement will begin upon the Commencement Date and
continue for a period of [***] following the conclusion of the Ramp Period.
The rates, charges, credits and discounts for the Services contained herein
will be effective the first day of the second full billing cycle following
the execution and delivery of this Agreement by Customer to MCI WORLDCOM
(the "Services Effective Date"). The "Ramp Period" shall commence on the
Commencement Date and continue for a period of [***] following the Services
Effective Date. Customer will not be subject to any minimum usage
requirements during the Ramp Period.
2. Selected Definitions.
2.1 "Base Rates" shall mean (i) for Services based on standard Tariff rates,
the Tariff rates as reduced by the discounts (if any) provided to
Customer pursuant to this Agreement; (ii) for non-Tariffed Services, the
MCI WORLDCOM standard rates as reduced by the discounts (if any)
provided to Customer pursuant to this Agreement; (iii) for Services as
to which a specific rate is set forth herein, such rate; or (iv) for
Services for which no specific rates or discounts are set forth herein,
the rates set forth in the Tariffs following application of all
applicable Tariffed discounts, or MCI WORLDCOM's standard rates, if no
rate is set forth in the Tariff, following application of all applicable
standard discounts.
2.2 "Commencement Date" shall mean the date on which Customer signs this
Agreement.
2.3 "Monthly Period" shall mean the monthly billing period for Services
under this Agreement.
2.4 "Total Usage Charges" shall mean Customer's Usage Charges for all
Services provided under this Agreement.
2.5 "Tariff" shall mean the public tariffs on file with the Federal
Communications Commission or state public utilities commissions or other
domestic or foreign governmental bodies governing the rates and/or terms
ands conditions of Services that are subject to tariff filings.
2.6 "Usage Charges" shall mean Customer's recurring usage charges for one or
more Services provided under this Agreement calculated at Base Rates.
Usage Charges do not include the following: (i) taxes and tax related
surcharges; (ii) charges for equipment and collocation, including
charges for Services under Schedule Seven - Equipment; (iii) charges
incurred where MCI WORLDCOM or an MCI WORLDCOM affiliate acts as agent
for Customer in the acquisition of goods or services; (iv) standard
non-recurring charges; (v) calling card surcharges (except as otherwise
expressly provided for herein); (vi) monthly recurring non-usage
charges; (vii) other Tariffed charges; and (viii) other charges
expressly excluded in the applicable Schedule to the Agreement.
3. Minimum Volume Requirement. During each Monthly Period of the Term,
Customer's Total Usage Charges under this Agreement must equal or exceed
[***] (the "Monthly Minimum").
4. Underutilization. If, in any Monthly Period, Customer's Total Usage Charges
are less than the Monthly Minimum, then Customer will pay: (1) all accrued
but unpaid Usage Charges and other charges incurred by Customer; and (2) an
underutilization charge (which Customer hereby agrees is reasonable) equal
to the difference between the Monthly Minimum and Customer's Total Usage
Charges during such Monthly Period.
5. Rates and Discounts for the Services. Rates and discounts for specific
Services are provided in the applicable Service Schedule. Except as
expressly provided to the contrary, the rates set forth are in lieu of, and
not in
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
MCI WORLDCOM CONFIDENTIAL
1
<PAGE> 3
addition to, any discounts, promotions and/or credits (Tariffed or
otherwise). Any rates that are specifically designated as "postalized" will
not increase or decrease during the Term. For Services not specifically set
forth, including but not limited to, all dedicated access and egress charges
and all other charges related to said access and egress not specifically set
forth, Customer will be charged MCI WORLDCOM's standard rates. References in
this Agreement to standard Tariffed rates and/or discounts refer to the
corresponding standard rates and/or discounts set forth in the applicable
Tariffs for such Service(s). Unless otherwise specified in this Agreement,
the rates set forth in this Agreement do not include, and the discounts set
forth in this Agreement do not apply to, the following: (i) access or egress
(or related) charges imposed by third parties; (ii) standard non-recurring
charges and monthly recurring non-usage charges; (iii) calling card
surcharges (unless expressly provided for herein); (iv) taxes or tax-like
surcharges; (v) other Tariffed charges; and (vi) other charges expressly
excluded in the applicable GSA Schedule.
6. Termination Liability. If (1) Customer terminates this Agreement during the
Term for reasons other than (i) to take service under another arrangement
with MCI WORLDCOM having equal or greater term and volume requirements or
(ii) for "Cause" (as hereinafter defined), or (2) MCI WORLDCOM terminates
this Agreement in accordance with Section 7.2(f) or (g) of Schedule Two,
Customer will pay: (a) all accrued but unpaid Usage Charges and other
charges incurred through the date of such termination; (b) an amount (which
Customer hereby agrees is reasonable) equal to [***] of the aggregate of the
Monthly Minimum(s) (and [***] of a pro rata portion thereof for any partial
Monthly Period) that would have been applicable for the remaining unexpired
portion of the Term on the date of such termination; (c) any and all credits
received by Customer hereunder (unless otherwise specified), in full,
without setoff or deduction plus (d) the aggregate termination charges,
payable to any third party suppliers, if any, for which MCI WORLDCOM is or
becomes contractually liable in connection with such termination. As used in
this Agreement, "Cause" shall mean a failure to perform a material
obligation under this Agreement which failure is not remedied within thirty
(30) days of the defaulting party's receipt of written notice thereof, given
by the terminating party in accordance with Section 12.7 of Schedule Two of
this Agreement.
7. Competitive Evaluation. If at any time beginning with the [***] month
following the Effective Date, Customer receives a bona fide offer from
another telecommunications company to provide a package of
telecommunications services that is substantially similar to the range of
MCI WORLDCOM services offered under this Agreement, including, without
limitation, revenue commitments, term, volume, product mix, functionality,
features, credits offered, level of service and geographic breadth (a
"Competitive Offer"), and such Competitive Offer would result in an overall
cost savings to Customer greater than [***] over the then remaining Term of
this Agreement when compared to the effective rates charged by MCI WORLDCOM
hereunder, then MCI WORLDCOM agrees to either match the Competitive Offer or
to release Customer from this Agreement. [***] If MCI WORLDCOM does not
elect to match the Competitive Offer within sixty (60) days after it is
presented to MCI WORLDCOM by Customer in writing (with sufficient
documentation of the Competitive Offer), [***] whichever is earlier, and (2)
no termination or similar charges, including without limitation early
termination charges contained in the Tariffs, shall be owed by Customer to
MCI WORLDCOM.
8. Credit Allowances for Service Interruptions.
8.1 MCI WORLDCOM will grant a credit allowance whenever an interruption
occurs because of a failure of any component furnished by MCI WORLDCOM
under this Agreement. An interruption period begins when Customer
reports a service, facility or circuit to be interrupted and releases it
for testing and repair. An interruption period ends when the service,
facility or circuit is operative. If Customer reports a service,
facility or circuit to be inoperative but declines to release it for
testing and repair, it is considered to be impaired, but not
interrupted.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
MCI WORLDCOM CONFIDENTIAL
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8.2 A credit allowance will be given for interruptions of fifteen (15)
minutes or more. Credit allowances shall be calculated as follows:
8.2.1 Interruptions of 24 Hours or Less
<TABLE>
<CAPTION>
Length of Interruption Interruption Period To be Credited
---------------------- ----------------------------------
<S> <C>
Less than 15 minutes [***]
15 minutes - 2 hours, 59minutes [***]
3 hours - 5 hours, 59 minutes [***]
6 hours - 8 hours, 59 minutes [***]
9 hours - 11 hours, 59 minutes [***]
12 hours - 14 hours, 59 minutes [***]
15 hours - 23 hours, 59 minutes [***]
</TABLE>
*Two or more interruptions of 15 minutes or more during any one 24-hour
period shall be considered as one interruption.
8.2.2 Interruptions Over 24 Hours and Less Than 72 Hours. [***] No more
than one full day's credit will be allowed for any period of 24
hours.
8.2.2 Interruptions Over 72 Hours. [***]
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
MCI WORLDCOM CONFIDENTIAL
3
<PAGE> 5
SCHEDULE TWO
MASTER TERMS AND CONDITIONS
1. Services. MCI WORLDCOM shall provide to Customer the Services described in
the Service Schedules attached to the Agreement at the applicable rates,
discounts, and other terms and conditions described in the applicable Service
Schedule. Certain Services are provided by MCI WORLDCOM to Customer pursuant to
a Tariff filed by MCI WORLDCOM in the local jurisdiction where such Service is
provided ("Tariffed Services"). This Agreement incorporates by reference the
terms of each such Tariff as they apply to such Tariffed Services. For Tariffed
Services, in the event of conflict between the terms of the applicable Tariff
and this Agreement, the order of precedence shall be: the applicable Service
Schedule, this Schedule Two, and then the applicable Tariff. For Services not
provided by MCI WORLDCOM pursuant to a Tariff, such Services shall be provided
in accordance with the terms and conditions of this Agreement. To the extent
that such terms and conditions are not provided in this Agreement, the terms and
conditions set forth in the US Tariff (as defined in Schedule Three) shall be
incorporated herein with respect to such Service if there is a US Tariffed
Service that corresponds to the non-Tariffed Service to the extent permissible
and not superseded by applicable local law and regulations. Customer is a resale
common carrier subject to the Communications Act of 1934, as amended. The
Agreement is entered into pursuant to Section 211 of the Communications Act of
1934, as amended. For non-Tariffed Services, in the event of conflict between
this Agreement and the US Tariff, the order of precedence shall be: the
applicable Service Schedule, this Schedule Two, and then the applicable US
Tariff. Notwithstanding anything in this Agreement to the contrary, MCI WORLDCOM
may adjust its rates or charges, or impose additional rates and charges, in
order to recover amounts it may be required by governmental or
quasi-governmental authorities to collect from or pay to others to support
statutory or regulatory programs during the course of this Agreement.
1.1 Detariffing. If, prior to the expiration of the Term of this Agreement,
MCI WORLDCOM voluntarily or involuntarily, as a result of government or judicial
action, cancels, in whole or in part, any Tariff on file, where the affected
provisions prior to such cancellation applied to any service(s) MCI WORLDCOM
provides under this Agreement, then effective on such cancellation and for the
remainder of the Term, this Agreement shall consist of the following, in order
of precedence from (a) through (c):
(a) MCI WORLDCOM Tariff provisions that remain in effect ("Effective
Tariffs"), as MCI WORLDCOM may amend from time to time in accordance with law;
and
(b) Specific provisions contained in this Agreement that expressly apply in
lieu of, or that apply in addition to, provisions contained in Effective Tariffs
and/or in MCI WORLDCOM's standard Guide to Services and Pricing ("Price Guide");
and
(c) Provisions contained in the Price Guide to the extent that (a) and (b)
above are not applicable. MCI WORLDCOM may amend the Price Guide from time to
time and will maintain the Price Guide open for public inspection at one or more
offices during normal business hours. Immediately prior to the cancellation of
any Tariff provisions applicable to service(s) provided under this Agreement,
MCI WORLDCOM shall incorporate such provisions into the Price Guide and if MCI
WORLDCOM fails to incorporate any such provisions, such provisions shall be
deemed incorporated into this Agreement as if MCI WORLDCOM had so incorporated
such provisions in the Price Guide.
In all events, the applicable rates and rate schedules shall continue to be
subject to any discounts, waivers, credits, or restrictions on rate changes that
may be contained in this Agreement for Tariffed Services. Where rate and/or
discount adjustments would have been made by reference to any canceled Tariff
rate, rate schedule, discount and/or discount schedule, these adjustments shall
instead be made by reference to the Price Guide. To the extent that any
adjustment to Tariffed rates, rate schedules, discounts and/or discount
schedules is permitted under this Agreement, such adjustment may be made by MCI
WORLDCOM to its Price Guide.
1.2 Effect of Tariffing. If, at any time during the Term, MCI WORLDCOM
tariffs any of the non-Tariffed Services provided to Customer under this
Agreement (each a "Newly Tariffed Service"), Customer agrees that the Tariff
shall govern with respect to the Newly Tariffed Service and to incorporate such
Newly Tariffed Service into the appropriate Service Schedule. Such Service
Schedule shall contain the same rates, charges, discounts, term commitment, and
volume commitment for the Newly Tariffed Service as set forth herein.
2. Payment of MCI WORLDCOM Invoices. Unless otherwise specified in an GSA
Schedule attached hereto, all amounts due for Services shall be billed in U.S.
Dollars. Customer is required to pay MCI WORLDCOM for Services, including any
applicable underutilization charges and/or early termination charges, within
thirty (30) days after the date of MCI WORLDCOM's invoice. Amounts not paid
within thirty (30) days after the date of the invoice will be considered past
due and a failure to perform a material obligation under this Agreement, and MCI
WORLDCOM may terminate this Agreement or the applicable GSA Schedule immediately
upon written notice of any sum past due or pursuant to the terms of any
applicable Tariff. Independent of such payment obligations, Customer shall make
a separate claim in writing, with adequate support, for any credit for service
interruption to which Customer believes itself entitled hereunder, and MCI
WORLDCOM and Customer will promptly address such claim. If Customer does not
give MCI WORLDCOM written notice of a dispute with respect to any charges within
six (6) months of the date an invoice was rendered, such invoice shall be deemed
to be correct and binding. Failure of MCI WORLDCOM to invoice Customer in a
timely manner for any amounts due hereunder shall not be deemed a waiver by MCI
WORLDCOM of its rights to payment therefor. Where an element of a Service is
considered to be rendered directly from a third party carrier to Customer and
where said carrier does not have a one-stop billing arrangement with MCI
WORLDCOM that allows MCI WORLDCOM to bill Customer on behalf of such third
party, Customer agrees to pay for said element directly to such third party
carrier.
3. Taxes and Access Charges.
3.1 Domestic and International Taxes
MCI WORLDCOM CONFIDENTIAL
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(a) All charges are exclusive of federal, state, local, and foreign sales,
use, excise, utility, gross receipts, value added taxes (VAT), other similar
tax-like charges and tax-related surcharges as provided in MCI WORLDCOM's F.C.C.
and state tariffs, and other similar tax-like charges levied by any duly
constituted authority, which Customer agrees to pay.
(b) In the event that Customer provides MCI WORLDCOM with a duly authorized
exemption certificate, MCI WORLDCOM agrees to exempt Customer from such taxes if
and as provided by applicable law, effective on the date the exemption
certificate is received by MCI WORLDCOM.
(c) Taxes based on MCI WORLDCOM's net income shall be the sole
responsibility of MCI WORLDCOM; provided that, if Customer is required by the
laws of any foreign tax jurisdiction to withhold income or profits taxes from
any payment, Customer shall, within 90 days of the date of such withholding,
provide to MCI WORLDCOM official tax certificates documenting remittance of such
taxes to the relevant tax authorities. Such tax certificates shall be in a form
sufficient under the U.S. Internal Revenue Code to document the qualification of
such income or profits tax for the foreign tax credit allowable against MCI
WORLDCOM's U.S. corporation income tax, and shall be accompanied by an English
translation. Upon receipt of such certificates, MCI WORLDCOM will issue Customer
a billing credit for the amounts represented thereby.
3.2 Pass-Through Charges. Unless otherwise provided for in the applicable
product description contained in a GSA Schedule, MCI WORLDCOM will pass through
to Customer, and Customer shall be solely responsible for, any charges
(including, without limitation, installation charges), fees, taxes and terms and
conditions of service imposed by domestic and international access/egress
service suppliers in relation to the provision of Services, including, but not
limited to, rate fluctuations in tariffs, communications charges and access
charges that are imposed or enacted by access suppliers after the Service
Effective Date. Customer shall be responsible for any gains or losses associated
with fluctuations in the exchange rate and/or timing of payment where access
charges are billed in non-U.S. currency and are to be paid by Customers in U.S.
Dollars.
4. Customer Obligations. In addition to the other obligations of Customer
contained in this Agreement, including, but not limited to, any specific
Customer obligations contained in a GSA Schedule, Customer shall be responsible
for the following obligations.
4.1 Customer-Obtained Facilities. Customer is responsible for obtaining,
installing, and maintaining all equipment, software, wiring, power sources,
telephone connections and/or communications services necessary for
inter-connection with MCI WORLDCOM's network or otherwise for use in conjunction
with the applicable Services ("Facilities"). Customer is responsible for
ensuring that such Facilities are compatible with MCI WORLDCOM's requirements
and that they continue to be compatible with subsequent revision levels of MCI
WORLDCOM-provided equipment, software and services. MCI WORLDCOM is not
responsible for the availability, capacity and/or condition of any Facilities
not provided by MCI WORLDCOM. The Customer shall obtain and hereby grants to MCI
WORLDCOM all licenses, waivers, consents, or registrations necessary to deliver,
install, and keep installed at the Customer site the MCI WORLDCOM equipment.
4.2 Security. Customer shall, at its own expense, take all reasonable
physical and information systems security measures necessary to protect all
equipment, software, data and systems located on Customer's premises or
otherwise in Customer's control and used in connection with the Services,
whether owned by Customer, MCI WORLDCOM, or MCI WORLDCOM's subcontractors.
Customer acknowledges and agrees that MCI WORLDCOM is not liable, either in
contract or in tort, for any loss resulting from any unauthorized access to or
alteration of, theft, destruction, corruption, or use of, Facilities used in
connection with the Services.
4.3 Customer Sites. Customer agrees to provide MCI WORLDCOM and its
subcontractors and their respective employees and agents access to Customer's
sites where any Services are provided (including access to associated equipment)
as necessary for MCI WORLDCOM and its subcontractors to perform the Services.
5. Software and Documentation. Software and related documentation provided by
MCI WORLDCOM to Customer in connection with the Services and not otherwise
subject to either a separate written agreement executed between MCI WORLDCOM and
Customer or to an accompanying shrink wrap license (collectively the "Software")
is subject to the following:
(a) In consideration for payment of any applicable fees, Customer is
granted a personal, non-exclusive, non-transferable license to use the Software,
in object code form only, solely in connection with the Services for Customer's
internal business purposes on Customer-owned or Customer-leased equipment (the
"License"). Customer shall not use the Software (i) in connection with the
products and/or services of any third party, or (ii) to provide services for the
benefit of any third party, including without limitation as a service bureau.
(b) Customer may make one copy of the Software, other than the
documentation, for archival or back-up purposes only, provided that any
copyright and other proprietary rights notices are reproduced on such copy.
Customer shall not make any copies of documentation provided as part of the
Software.
(c) Customer shall not: (i) attempt to reverse engineer, decompile,
disassemble or otherwise translate or modify the Software in any manner; or (ii)
sell, assign, license, sublicense or otherwise transfer, transmit or convey
Software, or any copies or modifications thereof, or any interest therein, to
any third party.
(d) All rights in the Software, including without limitation any patents,
copyrights and any other intellectual property rights therein, shall remain the
exclusive property of MCI WORLDCOM and/or its licensors. Customer agrees that
the Software is the proprietary and confidential information of MCI WORLDCOM
and/or its licensors subject to the provisions of Section 6 ("Confidential
Information") below.
(e) Except to the extent otherwise expressly agreed by the parties in
writing, MCI WORLDCOM has no obligation to provide maintenance or other support
of any kind for the Software, including without limitation any error
corrections, updates, enhancements or other modifications.
(f) The License shall immediately terminate upon the earlier of: (i)
termination or expiration of this Agreement; (ii) termination of the Service(s)
with which the Software is intended
MCI WORLDCOM CONFIDENTIAL
2
<PAGE> 7
for use; or (iii) failure of Customer to comply with any provisions of this
Section. Upon termination of any License, at MCI WORLDCOM's option, Customer
shall promptly either (i) destroy all copies of the Software in its possession,
or (ii) return all such copies to MCI WORLDCOM, and in either event provide a
written officer's certification confirming the same.
6. Confidential Information.
6.1 Obligations. The recipient party shall protect all information received
from the disclosing party or otherwise discovered by the recipient party during
the course of this Agreement, including without limitation all information
relating to the other party's technology, research and development, business
affairs, pricing, the terms of this Agreement, or such information of the other
party that may be reasonably understood from legends, the nature of such
information itself and/or the circumstances of such information's disclosure, to
be confidential and/or proprietary to the owning party or to third parties to
which a party owes a duty of non-disclosure (collectively the "Confidential
Information") from disclosure to others, using the same degree of care used to
protect it's own proprietary information of like importance, but in any case
using no less than a reasonable degree of care, and shall further use such
Confidential Information only for the purpose of this Agreement. Confidential
Information may be disclosed in written or other tangible form (including on
magnetic media) or by oral, visual or other means. Except as otherwise provided
in Section 5 ("Software and Documentation"), the recipient party may make such
copies of Confidential Information in tangible form as are reasonably required
in connection with its use as permitted under this paragraph.
6.2 Exceptions. The foregoing restrictions on use and disclosure of
Confidential Information do not apply to information that: (i) is publicly known
at the time of the owning party's communication thereof to the recipient party;
(ii) is, or becomes publicly known, through no fault of the recipient party
subsequent to the time of owning party's communication thereof to the recipient
party; (iii) is received by the recipient party free of any obligation of
confidence prior to the time such information is received by the recipient
party; provided however, that the recipient party immediately informs the owning
party in writing to establish the recipient party's prior possession; (iv) is
developed independently by the recipient party independently of, and without
reference to, the Confidential Information or other information of the owning
party; (v) is rightfully obtained by the recipient party from third parties
authorized to make such disclosure without restriction; or (vi) is identified in
writing by the owning party as no longer proprietary or confidential.
6.3 Required Disclosures. In the event a party is required by law,
regulation or court order to disclose any Confidential Information, the party
required to make such disclosure will promptly notify the owning party in
writing prior to making any such disclosure in order to facilitate the owning
party seeking a protective order or other appropriate remedy from the
appropriate body. Each party agrees to cooperate with the other party in seeking
such order or other remedy. Additionally, if the owning party is not successful
in precluding the requesting legal body from requiring the disclosure of the
Confidential Information, the party required to make such disclosure will
furnish only that portion of the Confidential Information which is legally
required and will exercise all reasonable efforts to obtain reliable assurances
that confidential treatment will be accorded the Confidential Information.
6.4 Destruction of Information. At the owning party's option, the recipient
party shall promptly either destroy all Confidential Information in tangible
form in its possession, or return all such copies to the owning party, and in
either event provide a written officer's certification confirming the same,
promptly upon the earlier of: (i) the owning party's written request; or (ii)
the expiration or earlier termination of this Agreement.
6.5 Remedies. The parties acknowledge that Confidential Information is
unique and valuable to the owning party, and that disclosure in breach of this
Agreement will result in irreparable injury to the owning party for which
monetary damages alone would not be an adequate remedy. Therefore, Customer
agrees that in the event of a breach or threatened breach of confidentiality,
the owning party shall be entitled to specific performance and injunctive or
other equitable relief as a remedy for any such breach or anticipated breach
without the necessity of posting a bond. Any such relief shall be in addition to
and not in lieu of any appropriate relief in the way of monetary damages.
7. Termination.
7.1 Discontinuation of Business. Either party may terminate this Agreement
immediately upon written notice to the other party if such other party
dissolves, discontinues or terminates its business operations to which this
Agreement pertains or such other party makes any assignment for the benefit of
creditors.
7.2 Termination by MCI WORLDCOM. MCI WORLDCOM may terminate this Agreement
(or the applicable portion thereof) immediately upon notice to Customer if (a)
MCI WORLDCOM is unable to obtain or maintain any U.S. or foreign governmental
license, waiver, consent, registration or approval needed to provide any
facility or Service hereunder; (b) the continued provision of a facility or
Service would contravene any local, state, national, foreign or international
regulation, law, or tariff or violate any policy of any MCI WORLDCOM
correspondent or interconnected carrier; (c) interruption or termination of a
Service is necessary to prevent or protect against fraud or otherwise protect
MCI WORLDCOM's personnel, agents, facilities, or services; (d) MCI WORLDCOM is
unable to continue to provide a third-party subcontractor's, vendor's or
interconnected carrier's facility, component of equipment, or service for any
reason, provided, however, that where such third party has ceased to provide any
facility, equipment, or service, MCI WORLDCOM will exercise commercially
reasonable efforts to continue to provide to Customer a comparable facility,
equipment, or service by or through another vendor under comparable terms and
conditions; (e) MCI WORLDCOM discovers that Customer provided false information
to MCI WORLDCOM regarding Customer's identity, credit-worthiness, or its planned
use of the Service(s); (f) Customer fails to perform a material obligation under
this Agreement, other than non-payment of Service, which failure is not remedied
within thirty (30) days of Customer's receipt of written notice thereof; or (g)
Customer fails to pay an invoice for Services under this Agreement within thirty
(30) days after Customer's receipt of MCI WORLDCOM's invoice.
7.3 Termination of a Service Schedule. Either party may terminate a Service
Schedule in accordance with the termination provisions of the applicable Service
Schedule.
MCI WORLDCOM CONFIDENTIAL
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7.4 Customer's Termination Liability. If (a) Customer terminates this
Agreement during the Term, for reasons other than to take service under another
arrangement with MCI WORLDCOM having equal or greater term and volume
requirements; or (b) MCI WORLDCOM terminates this Agreement in accordance with
Sections 7.2(f) or (g), then Customer will pay termination charges in accordance
with Schedule One. If Customer terminates a Service Schedule other than in
accordance with that Schedule; or (b) MCI WORLDCOM terminates a Service Schedule
in accordance with that Schedule, then Customer will pay termination charges in
accordance with the applicable Schedule.
7.5 Service Orders. Customer shall request the delivery of dedicated local
access services by executing a service order in form and substance satisfactory
to MCI WORLDCOM (the "Service Order"). The Service Order sets forth the place of
delivery, circuit contracted term, pricing and other details. All Service Orders
are subject to the terms and conditions of this Agreement. A separate Service
Order must be completed for each circuit ordered. Customer will be responsible
for payment of the rates and charges for the contracted term, as set forth in
each Service Order. Each Service Order shall survive the termination or
expiration of this Agreement; provided, however, that MCI WORLDCOM may terminate
one or more Service Orders if MCI WORLDCOM terminates this Agreement pursuant to
Section 7 hereof. If Customer terminates a Service Order prior to the end of
[***] (the "Minimum Installation Period") for reasons other than for "Cause" (as
defined in Section 6 of Schedule One) or if MCI WORLDCOM terminates a Service
Order for Cause prior to the Minimum Installation Period for any circuit, then
Customer will pay within thirty (30) days after such termination: [***]
Notwithstanding a termination of a Service Order, the Agreement and other
Service Orders will remain in full force and effect unless expressly terminated
as permitted by this Agreement.
8. Indemnification. Each party agrees to defend, at its own expense, and
indemnify and hold harmless the other party and its subcontractors (collectively
the "Indemnitees"), from and against any claims, suits, damages and expenses for
personal property, death or bodily harm, brought by a third party and asserted
against or incurred by any of the Indemnitees arising out of or relating to: (a)
either party's acts, omissions and/or breach of its obligations under this
Agreement. In addition, Customer agrees to defend, at its own expense, and
indemnify and hold harmless MCI WORLDCOM and its Indemnities from and against
any claims, suits, damages and expenses asserted by a third party against or
incurred by any of the MCI WORLDCOM Indemnities arising out of or relating to:
(a) use of any Services or related products and documentation provided to
Customer hereunder; (b) Customer's connection of any MCI WORLDCOM product or
service to any third party service or network, including without limitation,
damages resulting from unauthorized use of, or access to, MCI WORLDCOM's
network, (c) the violation of any FCC or other applicable international,
federal, state or local law or regulation by Customer; and (d) the accuracy of
or authorization for any service orders submitted by Customer hereunder. In
accordance with the indemnifications set forth in this Section, each party shall
pay all damages, settlements, expenses and costs, including costs of
investigation, court costs and reasonable attorneys' fees and costs (including
allocable costs of in-house counsel) incurred by the other party's Indemnitees,
including, without limitation, reasonable attorneys' fees and costs (including
allocable costs of in-house counsel) incurred in enforcing this Agreement.
Customer shall be fully responsible to MCI WORLDCOM for all acts or omissions of
Customer's employees, customers, end-users (whether authorized users or
otherwise), vendors, subcontractors, and agents with respect to the ordering or
use of the Services provided hereunder, or in any respect related to the
provisions or subject matter of this Agreement.
9. Disclaimer of Certain Damages/ of MCI WORLDCOM's Liability.
9.1 Disclaimer of Warranties. EXCEPT AS SPECIFICALLY SET FORTH IN THIS
AGREEMENT AND THE GSA SCHEDULES, MCI WORLDCOM MAKES NO WARRANTIES, EXPRESS OR
IMPLIED, AS TO ANY MCI WORLDCOM SERVICES, RELATED PRODUCT OR DOCUMENTATION. MCI
WORLDCOM SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING
WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, OR TITLE OR NONINFRINGEMENT OF THIRD PARTY RIGHTS.
9.2 Disclaimer of Certain Damages. NEITHER PARTY SHALL BE LIABLE TO THE
OTHER FOR ANY INDIRECT, CONSEQUENTIAL, EXEMPLARY, SPECIAL, INCIDENTAL OR
PUNITIVE DAMAGES, INCLUDING WITHOUT LIMITATION LOSS OF USE OR LOST BUSINESS,
REVENUE, PROFITS, OR GOODWILL, ARISING IN CONNECTION WITH THIS AGREEMENT, THE
SERVICES, RELATED PRODUCTS, DOCUMENTATION AND/OR THE INTENDED USE THEREOF, UNDER
ANY THEORY OF TORT, CONTRACT, WARRANTY, STRICT LIABILITY OR NEGLIGENCE, EVEN IF
THE PARTY HAS BEEN ADVISED, KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH
DAMAGES.
9.3 Limitation of MCI WORLDCOM's Liability. WITHOUT LIMITATION OF THE
PROVISIONS OF SECTION 9.2 ABOVE, THE TOTAL LIABILITY OF MCI WORLDCOM TO CUSTOMER
IN CONNECTION WITH THIS AGREEMENT SHALL BE LIMITED TO THE LESSER OF (A) DIRECT
DAMAGES PROVEN BY CUSTOMER OR (B) THE AGGREGATE AMOUNTS PAID BY CUSTOMER TO MCI
WORLDCOM UNDER THIS AGREEMENT FOR THE ONE (1) MONTH PERIOD PRIOR TO ACCRUAL OF
SUCH CAUSE OF ACTION FOR THE SPECIFIC PRODUCT OR SERVICE WHICH FORMS THE BASIS
FOR SUCH CAUSE OF ACTION. THE FOREGOING LIMITATION APPLIES TO ALL CAUSES OF
ACTIONS AND CLAIMS, INCLUDING, WITHOUT LIMITATION, BREACH OF CONTRACT, BREACH OF
WARRANTY, NEGLIGENCE, STRICT LIABILITY, MISREPRESENTATION AND OTHER TORTS.
FURTHER, MCI WORLDCOM'S LIABILITY WITH RESPECT TO INDIVIDUAL MCI WORLDCOM
SERVICES MAY ALSO BE LIMITED PURSUANT TO THE TERMS AND CONDITIONS OF THE
APPLICABLE GSA SCHEDULE. CUSTOMER ACKNOWLEDGES AND ACCEPTS THE REASONABLENESS OF
THE FOREGOING DISCLAIMERS AND LIMITATIONS OF LIABILITY.
10. Compliance with Laws. All Services are provided subject to applicable local
laws and regulation, including the applicable Tariffs and price lists of MCI
WORLDCOM, in the countries in which Service is provided. Customer is responsible
for complying with all laws and regulations including, without limitation, (i)
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
MCI WORLDCOM CONFIDENTIAL
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local license or permit requirements, (ii) export, import and customs laws and
regulations (such as the export and re-export controls under the U.S. Export
Administration Regulations and/or similar regulations of the U.S. or any other
country) which may apply to certain equipment, software and technical data
provided hereunder, and (iii) foreign corrupt practices acts. Notwithstanding
the foregoing, MCI WORLDCOM does not represent that any necessary import, export
or customs licenses or approvals will be granted with respect to Services
provided hereunder.
11. Resale of MCI WORLDCOM Services.
11.1 In reselling Services under this Agreement, Customer agrees to sell
and bill its own services under Customer's own name, identity or mark, and
Customer further agrees not to reference MCI WORLDCOM name or marks in any
context involving Customer's furnishing of services to the public. In addition
to other applicable remedies, MCI WORLDCOM shall be entitled to seek injunctive
relief with respect to any violation of this Paragraph 11. Any opportunity to
cure a breach of this Paragraph shall be subject to MCI WORLDCOM's reasonable
satisfaction as to the curability of the original injury caused by such breach
and the effectiveness of any attempted cure. MCI WORLDCOM's right to enforce
this Paragraph as a material provision of this Agreement shall not in any manner
require a showing of financial, legal or other loss or injury to MCI WORLDCOM of
any kind
11.2 Customer agrees that it will obtain and maintain any and all approvals
to resell the Services hereunder from the FCC, including requirements imposed by
Section 214 of the Communications Act of 1934, as amended, and state regulatory
bodies. In the event Customer fails to obtain or maintain the appropriate
approvals, MCI WORLDCOM shall not be liable for any suspension of service or
other delay or failure to provide the Services.
11.3 Customer shall have sole responsibility for interacting with its
customers in all matters pertaining to service, including the placing and
handling of service orders, service installation, operation and termination,
dispute handling and resolution, and billing and collection matters. MCI
WORLDCOM shall incur no obligation, nor shall it be deemed to have any
obligation, to interact with Customer's customers and end users ("End Users")
for any reason or purpose. Customer shall cooperate with MCI WORLDCOM as
necessary to address and resolve service-related issues and problems and shall
impose upon its customers an obligation to cooperate with Customer in addressing
and resolving service-related issues and problems.
11.4 Customer understands and accepts that, as part of MCI WORLDCOM's
normal business policy and practices and its obligations under law, MCI WORLDCOM
will engage in extensive marketing efforts in an attempt to sell its services to
the public and that such efforts will result in active competition with Customer
for the business of users who are Customer's End Users or prospects, provided
MCI WORLDCOM will not use Confidential Information to actively compete with
Customer. Under no circumstance shall any inference be derived that MCI
WORLDCOM's entry into this Agreement with Customer means that MCI WORLDCOM will
restrict its efforts to compete against Customer in any way.
11.5 Customer understands and accepts that no fiduciary relationship arises
by virtue of this Agreement and that, accordingly, MCI WORLDCOM incurs none of
the obligations that arise in such relationship as an incident of its fulfilling
its obligations under this Agreement. Further, Customer understands and accepts
that MCI WORLDCOM neither insures the profits for Customer nor guarantees the
success of Customer's business as a result of Customer's receipt of Services
under this Agreement.
12. Miscellaneous.
12.1 Assignment. Neither party may assign this Agreement or any of its
rights hereunder without the prior written consent of the other party, which
consent shall not be unreasonably withheld; provided however that either party
may assign this Agreement or any of its rights hereunder to an affiliate without
the written consent of the other party. Subject to the foregoing, in the event
of any assignment of this Agreement or any rights hereunder by either party, the
assigning party shall remain liable for the performance of its obligations
hereunder. Any attempted transfer or assignment of this Agreement by either
party not in accordance with the terms of this Section 12.1 shall be null and
void. MCI WORLDCOM will not withhold consent in the event of a merger, sale or
change or transfer of controlling interest to another entity provided such
entity meets MCI WORLDCOM's credit approval.
12.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Illinois without regard to its
choice of law principles, except to the extent the Communications Act of 1934,
as amended, applies.
12.3 English Language. In the event of a conflict between this Agreement
and any subsequent translations, this English language version shall prevail.
12.4 Arbitration. Not withstanding Tariffed rules for the arbitration of
Customer payment disputes, any and all disputes arising out of or related to
this Agreement, including, but not limited to, tort claims, shall be submitted
to J.A.M.S./ENDISPUTE for final and binding arbitration pursuant to the
J.A.M.S./ENDISPUTE Arbitration Rules and Procedures in effect on the date of
commencement of arbitration, and as modified by this Section. The arbitration
shall be conducted in accordance with the United States Arbitration Act, 9
U.S.C. 1 et seq. ("USAA"), notwithstanding any choice of law provision in this
Agreement. Each party shall bear the fees and costs it incurs in preparing and
presenting its own case. The parties agree that Chicago, Illinois shall be the
location for the arbitration hearing. Any controversy over whether an issue is
arbitrable shall be determined by the arbitrator. The arbitrator shall have no
authority to award punitive or exemplary damages. The award may be confirmed and
enforced in any court of competent jurisdiction. All post-award proceedings
shall be governed by the USAA.
12.5 Enforceability. If any paragraph or clause of this Agreement shall be
held to be invalid or unenforceable by any body or entity of competent
jurisdiction, then the remainder of the Agreement shall remain in full force and
effect and the parties shall promptly negotiate a replacement provision or agree
that no replacement is necessary.
12.6 No Waiver. Neither party's failure, at any time, to enforce any right
or remedy available to it under this Agreement shall be construed to be a waiver
of such party's right to enforce each and every provision of this Agreement in
the future.
12.7 Notice. Any notice required to be given under this Agreement shall be
in writing, in English, and transmitted via facsimile, overnight courier, hand
delivery or certified or
MCI WORLDCOM CONFIDENTIAL
5
<PAGE> 10
registered mail, postage prepaid and return receipt requested, to the parties at
the addresses on the signature page of this Agreement or such other addresses as
may be specified by written notice. Notice sent in accordance with this Section
shall be deemed effective when received. A Party may from time to time designate
another address or addresses by notice to the other party in compliance with
this Section.
12.8 Force Majeure. Any delay in or failure of performance by either party
under this Agreement shall not be considered a breach of this Agreement if and
to the extent caused by events beyond the reasonable control of the party
affected, including but not limited to acts of God, embargoes, governmental
restrictions, strikes (other than those only affecting Customer), riots, wars or
other military action, civil disorders, rebellion, fires, floods, vandalism, or
sabotage. Market conditions and/or fluctuations (including a downturn of
Customer's business) shall not be deemed force majeure events. The party whose
performance is affected by such events shall promptly notify the other party,
giving details of the force majeure circumstances, and the obligations of the
party giving such notice shall be suspended to the extent caused by the force
majeure and so long as the force majeure continues, and the time for performance
of the affected obligation hereunder shall be extended by the time of the delay
caused by the force majeure event.
12.9 Use of Facilities and Equipment. MCI WORLDCOM's obligation under this
Agreement is to furnish services consisting of facilities and equipment that is
exclusively of MCI WORLDCOM's choosing. Unless otherwise provided for in this
Agreement, MCI WORLDCOM may substitute facilities or equipment used to furnish
the Services or substitute comparable service for any Service furnished under
this Agreement, at any time.
12.10 Survival. The provisions of this Agreement which by their nature are
intended to survive this agreement shall survive the termination or expiration
of this Agreement.
12.11 Entire Agreement. This Agreement, including the Tariffs and GSA
Schedules, constitutes the entire agreement between the parties with respect to
its subject matter, and as to all other representations, understandings or
agreements which are not fully expressed herein. No amendment to this Agreement
shall be valid unless in writing and signed by both parties; provided however,
that MCI WORLDCOM may modify its Tariffs from time to time in accordance with
law and thereby affect the services furnished to Customer. Section titles or
references used in this Agreement shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreements among the
parties evidenced hereby.
12.12 Signature Authorization. The parties have duly executed and agreed to
be bound by this Agreement as evidenced by the signatures of their authorized
representatives. Each party represents and warrants to the other that the
signatory identified beneath its name has full authority to execute this
Agreement on its behalf.
MCI WORLDCOM CONFIDENTIAL
6
<PAGE> 11
SCHEDULE THREE
UNITED STATES TARIFFED SERVICES
1. Service Provisioning and Receipt. MCI WORLDCOM will provide to Customer, as
applicable, international, interstate, intrastate telecommunications service(s)
pursuant to the applicable tariffs and price lists of MCI WORLDCOM and its
U.S.-based affiliates (individually, a "US Tariff" and collectively, the "US
Tariffs"), each as supplemented by this Schedule Three to the extent permitted
by law. This Schedule Three incorporates by reference the terms of each such US
Tariff. Notwithstanding anything in this Agreement to the contrary, MCI WORLDCOM
may modify its Tariffs from time to time in accordance with law and thereby
affect the services furnished to Customer. This Schedule Three is a "Specialized
Customer Arrangement" as defined in Section B-17.03 of the MCI WORLDCOM Network
Services, Inc. Tariff FCC No. 1.
2. Services. Attachment 3-1, attached hereto and incorporated by reference,
contains additional rates, discounts and certain other provisions applicable to
the Services provided to Customer pursuant to this Schedule Three and the US
Tariffs (the "US Tariffed Services").
3. Tariff Option. MCI WORLDCOM shall, if required, file a Tariff Option
consistent with the terms of this Attachment 3-1.
4. Definitions Capitalized terms not otherwise defined in this Agreement shall
have the definition given to them in MCI FCC Tariff No. 1 and other filed and
effective tariffs of MCI WORLDCOM affiliates.
MCI WORLDCOM CONFIDENTIAL
1
<PAGE> 12
ATTACHMENT 3-1
1. RATES AND DISCOUNTS FOR THE SERVICES. Customer will pay the below rates and
receive the below discounts, if any, for the Services specified below.
References in this Attachment 3-1 to standard Tariffed rates and/or
discounts refer to the corresponding standard MCI WORLDCOM On-Net Service
rates and/or discounts set forth in the applicable US Tariffs for such
service(s), as MCI may amend from time to time. All references to
"intrastate" and "interstate" contained herein shall refer to domestic US
Tariffed Services only. For any Postalized Rates which fluctuate with
changes in the Tariffs, those Postalized Rates will be adjusted on the first
day of each January during each calendar year of the Term by an amount equal
to the same percentage by which the corresponding standard Tariffed rates
were adjusted during the immediately preceding calendar year. The rates set
forth in Sections 1.1 and 1.2 will remain fixed for the Term. [***] MCI
WORLDCOM will bill Customer the then-tariffed installation charges at the
time of termination.
1.1 DOMESTIC PRIVATE LINE SERVICE (OPTION 1). For domestic Private Line
Service, Customer will pay the following mileage-based monthly recurring
charges for DS-3, OC-3, and OC-12 circuits. If the Voice Grade
Equivalent (VGE) mileage rate for any circuit is less that the minimum
monthly recurring charges set forth below, Customer will pay the minimum
monthly recurring charge in lieu of the VGE mileage rate.
<TABLE>
<CAPTION>
Circuit Type Voice Grade Equivalent Mileage Rate Minimum Monthly Recurring Charge
- ------------ ----------------------------------- --------------------------------
<S> <C> <C>
DS-1 [***] [***]
DS-3 [***] [***]
OC-3 [***] [***]
OC-12 [***] [***]
</TABLE>
1.2 METRO PRIVATE LINE SERVICE (TYPE 1).
1.2.1 Customer will pay the monthly recurring charges for DS-1 and DS-3
circuits as set forth below for On-Net Metro Private Line Service
based upon the incumbent local exchange carrier (ILEC) region.
Dedicated access charges are included in the monthly recurring
charges:
<TABLE>
<CAPTION>
CIRCUIT TYPE AMERITECH BELL ATLANTIC BELL SOUTH NYNEX-NY
- ------------ --------- ------------- ---------- --------
<S> <C> <C> <C> <C>
DS-1
0 Mile [***] [***] [***] [***]
1 Mile [***] [***] [***] [***]
Each Add'l Mile [***] [***] [***] [***]
DS-3
0 Mile [***] [***] [***] [***]
1 Mile [***] [***] [***] [***]
Each Add'l Mile [***] [***] [***] [***]
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
CIRCUIT TYPE NYNEX PACIFIC BELL SNET SW BELL US WEST
</TABLE>
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
MCI WORLDCOM CONFIDENTIAL
1
<PAGE> 13
<TABLE>
DS-1
<S> <C> <C> <C> <C> <C>
0 Mile [***] [***] [***] [***] [***]
1 Mile [***] [***] [***] [***] [***]
Each Add'l Mile [***] [***] [***] [***] [***]
DS-3
0 Mile [***] [***] [***] [***] [***]
1 Mile [***] [***] [***] [***] [***]
Each Add'l Mile [***] [***] [***] [***] [***]
</TABLE>
1.2.2 On-Net DS-3 Hubs. For On-Net DS-3 Hubs (Type 1 only), Customer
will pay a monthly recurring charge equal to [***] per mile per
DS-3 Hub. Customer will pay a one-time installation charge of
[***] per DS-3 Hub. Dedicated access charges are included in the
monthly recurring charge.
1.2.3 On-Net DS-1 End Links. For On-Net DS-1 End Links (Type 1 only),
Customer will pay a monthly recurring charge of [***] per mile
for each DS-1 End Link. Dedicated access charges are include in
the monthly recurring charge.
1.2.4 On-Net Sonet Inter Office Channels. For On-Net Sonet Inter-Office
Channels (Type 1 only), Customer will pay a monthly recurring
charge per circuit equal to [***] for such Inter-Office Channel.
1.3 METRO PRIVATE LINE SERVICE (TYPE 2). For Metro Private Line Service
(Type 2) for DS-0 and DS-1 circuits, Customer will pay a monthly
recurring charge per circuit equal to the greater of: (i) [***] off the
ILEC rate for such circuit or (ii) the offnet cost plus twenty five
percent (25%). For Metro Private Line Service (Type 2) for DS-3
circuits, Customer will pay a monthly recurring charge per circuit equal
to the greater of: (i) [***] rate for such circuit or (ii) the offnet
cost plus [***].
2. LOCAL LOOP FACILITIES. MCI WorldCom shall, on behalf and upon Customer's
request, obtain telecommunications facilities ("Local Loop Facilities")
connecting Customer with a LEC or CLEC to an MCI WorldCom Point of Presence
(POP). Customer will execute a Letter of Agency authorizing MCI WorldCom to
interact directly with the provider(s) of these access telecommunications
facilities on behalf of Customer. When MCI WorldCom acts as Customer's
agent, Customer is responsible for charges, including without limitation,
monthly charges, usage charges, installation charges, non-recurring charges,
or applicable termination/cancellation liabilities, of the provider(s) of
Local Loop facilities to MCI WorldCom's POP. In obtaining Local Loop
Facilities on behalf of the Customer, MCI WorldCom shall be responsible for
provisioning and the initial testing of an interconnection (reasonably
coordinated with the in-service date) between such inter-exchange service
set forth in the order and a designated Customer termination point ("Local
Access"). [***]
3. SERVICE MIGRATION. In the event Customer has multiple DS-1's, DS-3's, OC-3's
or OC-12's between the same two city pairs, Customer has the option of
ordering a larger level of service (e.g., DS-3, OC-3, OC-12, or OC-48), and
migrate the existing circuits onto the larger bandwidth. Customer agrees to
pay for the entire amount of the larger bandwidth at the time of
installation of the new order. [***]
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
MCI WORLDCOM CONFIDENTIAL
2
<PAGE> 14
[***]
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
MCI WORLDCOM CONFIDENTIAL
3
<PAGE> 15
SCHEDULE FOUR
NON-TARIFFED SERVICES
This Schedule Four, along with the Schedule One and Schedule Two, comprises the
non-tariffed services portion of this Agreement and contains additional rates,
discounts and certain other provisions applicable to the Services provided to
Customer pursuant to this Schedule Four. "Non-Tariffed Services means non-United
States services and "enhanced services" and associated equipment provided by MCI
WORLDCOM to Customer pursuant to this Agreement. Each Non-Tariffed Service
provided hereunder has a corresponding Attachment specifying the applicable
rates, discounts, and other terms and conditions according to which MCI WORLDCOM
will provide the Non-Tariffed Service. To the extent that the terms and
conditions of any Attachment hereunder are inconsistent with the terms and
conditions of any other portion of the GSA, the Attachment governs with respect
to the corresponding Non-Tariffed Service.
MCI WORLDCOM CONFIDENTIAL
4
<PAGE> 16
ATTACHMENT 4-1
UUDIRECT(SM) T1 SCHEDULE
<TABLE>
<CAPTION>
SERVICE(1) MONTHLY FEE START-UP CHARGE(2)
- ---------- ----------- ------------------
<S> <C> <C>
|_| T1 Burstable(3) [***]
|_| 0 - 128 Kbps sustained use [***]
|_| 128.01 - 256 Kbps sustained use [***]
|_| 256.01 - 384 Kbps sustained use [***]
|_| 384.01 - 512 Kbps sustained use [***]
|_| Over 512 Kbps sustained use [***]
|_| T1 Price-Protected(4) [***] [***]
|_| Double T(SM),(4) [***] [***]
|_| Diverse T(SM),(4) [***] [***]
</TABLE>
PRICES ABOVE DO NOT INCLUDE ANY TELCO LINE CHARGES, EQUIPMENT COSTS, OR NETWORK
APPLICATIONS FEES.(5)
TERM COMMITMENT(6) The term of this Schedule will be coterminous with the Global
Service Agreement between Customer and MCI WORLDCOM, Inc. (the "GSA").
DISCOUNT Customer will receive a [***] off monthly recurring charges on ports
only.
<TABLE>
<CAPTION>
DISCOUNTED EQUIPMENT(7) (available only with service) PRICE
- ----------------------------------------------------- -----
<S> <C>
|_| OpenROUTE GTX 1000 router with internal T1 CSU/DSU [***]
|_| Additional OpenROUTE internal T1 CSU/DSU [***]
|_| Cisco 2610 router with internal T1 CSU/DSU [***]
</TABLE>
- --------
1 Connectivity is provided to Customer's organization only. Resale to or use by
persons or entities outside of Customer's organization is prohibited. UUNET
may suspend the service or terminate this Schedule effective upon notice for
a violation of this prohibition.
2 To ensure proper installation, UUNET will order all telco lines. A $500
surcharge applies to Customer-ordered lines. Installation may be scheduled
between the hours of 8AM and 7PM ET Monday through Friday (excluding
holidays). If Customer requires installation outside of these hours UUNET
will charge an additional $500 fee.
3 With T1 Burstable service, Customer receives full T1 access to UUNET and can
burst to the full 1.5 Mbps at any time. Monthly billing is based on the level
of sustained use during the month, as determined by traffic samples taken
every five minutes. The level under which 95% of the samples fall is the
sustained use. Customer may move to a lower burstable service level if the
sustained use is at or below such burstable service level for at least two
consecutive months and Customer thereafter notifies UUNET in writing of its
intent to move to such lower burstable service level.
4 Minimum one (1) year Term Commitment is required, but Term Commitment
discounts do not apply.
5 Descriptions of the domain name, mail, news services, and other network
applications available in connection with this service, and the pricing and
additional terms applicable to these services, are set forth in the Network
Applications Fee Schedule available at www.uu.net/terms. UUNET reserves the
right to change the Network Applications Fee Schedule from time to time,
effective upon posting of the changes to that URL or other notice to
Customer.
6 Discount applicable only to Monthly Fee. At the conclusion of the Term
Commitment, this Schedule shall continue in effect on a month-to-month basis
at UUNET's then-current list price for the service.
7 UUNET is acting only as a reseller with respect to the hardware and software
offered under this Schedule ("Equipment"), which was manufactured by a third
party ("Manufacturer"). UUNET will provide first -level support for
Equipment, but will not repair or replace Equipment. Customer's use of the
Equipment is subject to the terms and conditions of the Manufacturer's end
user agreement. Should Customer purchase Equipment from UUNET, UUNET will
ship the current UUNET-tested version of the Equipment to the Customer.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 17
<TABLE>
<CAPTION>
<S> <C>
|_| Cisco 3640 router with internal T1 CSU/DSU [***]
|_| Additional Cisco internal T1 CSU/DSU [***]
</TABLE>
PAYMENT If Purchase Order is required, return PO with this form and provide
PO#:
---------------------------
PLEASE SIGN THIS SCHEDULE WHERE INDICATED.
Additional Terms and Conditions
1. UUNET Technologies, Inc. ("UUNET") exercises no control over, and accepts no
responsibility for, the content of the information passing through UUNET's
host computers, network hubs and points of presence (the "UUNET Network").
EXCEPT AS EXPRESSLY SET FORTH IN SECTION 7 BELOW, UUNET (a) MAKES NO
WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, FOR THE SERVICES AND
EQUIPMENT IT IS PROVIDING, AND (b) DISCLAIMS ANY WARRANTY OF TITLE,
MERCHANTABILITY, NON-INFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE. Use
of any information obtained via the UUNET Network is at Customer's own risk.
UUNET specifically denies any responsibility for the accuracy or quality of
information obtained through its services. UUNET shall not be liable for any
delay or failure in performance due to Force Majeure, which shall include
without limitation acts of God, earthquake, labor disputes, changes in law,
regulation or government policy, riots, war, fire, epidemics, acts or
omissions of vendors or suppliers, equipment failures, transportation
difficulties, or other occurrences which are beyond UUNET's reasonable
control.
2. All use of the UUNET Network and the service must comply with the
then-current version of the UUNET Acceptable Use Policy ("Policy") which is
made a part of this Schedule and is available at the following URL:
www.uu.net/terms. UUNET reserves the right to amend the Policy from time to
time, effective upon posting of the revised Policy at the URL or other
notice to Customer. UUNET reserves the right to suspend the service or
terminate this Schedule effective upon notice for a violation of the Policy.
Customer agrees to indemnify and hold harmless UUNET from any losses,
damages, costs or expenses resulting from any third party claim or
allegation ("Claim") arising out of or relating to use of the service,
including any Claim which, if true, would constitute a violation of the
Policy.
3. NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL,
PUNITIVE OR CONSEQUENTIAL DAMAGES THAT RESULT FROM CUSTOMER'S OR CUSTOMER'S
USERS' USE OF THE UUNET NETWORK AND THE SERVICE INCLUDING, WITHOUT
LIMITATION, ANY SUCH DAMAGES FOR LOSS OF DATA RESULTING FROM DELAYS,
NON-DELIVERIES, MISDELIVERIES OR SERVICE INTERRUPTIONS. Notwithstanding
anything to the contrary stated in this Schedule or in the GSA, Customer's
sole remedies for any claims relating to this service or the UUNET Network
are set forth in Section 7 below.
4. Networks assigned from a UUNET net-block are non-portable. Network space
allocated by UUNET must be returned to UUNET in the event Customer
discontinues service.
5. Payment terms shall be as set forth in the GSA. Fees paid by Customer under
this Agreement for UUNET services will count towards Customer's Annual
Minimum under its existing MCI WorldCom GSA. The amount to be applied will
be that actually paid by Customer, net of any discounts or applicable
credits, and excluding any amount paid for taxes or tax-like surcharges or
fees.
6. Billing for UUNET service will commence when a UUNET hub and a functioning
telephone circuit are prepared to route IP packets to Customer's site. The
Start-up Charge is invoiced upon acceptance of this Schedule by UUNET.
Charges for Equipment shall be invoiced upon shipment. Service is invoiced
monthly in advance, and may be canceled only by 60 days' advance written
notice. [***] UUNET reserves the right to change the rates by notifying
Customer 60 days in advance of the effective date of the change.
7. The Service Level Agreement ("SLA") for this service, which is made a part
of this Schedule, is set forth at www.uu.net/terms and applies only to
customers agreeing to a Term Commitment of at least one year. UUNET reserves
the right to amend the SLA from time to time effective upon posting of the
revised SLA to the URL or other notice to Customer; provided, that in the
event of any amendment resulting in a material reduction of the SLA's
service levels or credits, Customer may terminate this Schedule without
penalty by providing UUNET written notice of termination during the 30 days
following notice of such amendment. The SLA sets forth Customer's sole
remedies for any claim relating to this service or the UUNET Network,
including any failure to meet any guarantee set forth in the SLA. UUNET's
records and data shall be the basis for all SLA calculations and
determinations. Notwithstanding anything to the contrary, the maximum amount
of credit in any calendar month under the SLA shall not exceed the Monthly
Fee and/or Start-up Charge which, absent the credit, would
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 18
have been charged for UUNET service that month (collectively the "UUNET
Fees"); provided, that the maximum amount of credit for failure to meet the
Availability Guarantee shall not exceed the sum of (a) the UUNET Fees, plus
(b) the telephone company line charge which, absent the credit, would have
been charged for such month.
8. Neither party may use the other party's name, trademarks, tradenames or
other proprietary identifying symbols without the prior written approval of
the other party. Neither party may assign or transfer any of its rights or
obligations under this Schedule without the express, prior written consent
of the other party; provided, that either party may assign or transfer this
Schedule to any affiliate of such party upon advance written notice to the
other party. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the exercise of
any other right or remedy granted hereby or by law.
9. MCI WORLDCOM, Inc. or its affiliates or subcontractors may perform some or
all of UUNET's duties and/or obligations hereunder.
10. This Schedule is in addition to and subject to the GSA. To the extent this
Schedule conflicts with any provision of the GSA, this Schedule shall
prevail. Activation of service shall indicate UUNET's acceptance of this
Schedule. Use of the UUNET Network constitutes acceptance of this Schedule.
AGREED AND ACCEPTED BY CUSTOMER:
Signature: Company Name:
------------------------- -----------------------
Printed Name: Address:
---------------------- ----------------------------
Title:
----------------------------- ------------------------------------
Date: Telephone Fax
------------------------------ ---------- -------------
<PAGE> 19
ATTACHMENT 4-2
UUDIRECT(SM) T3 BURSTABLE SCHEDULE
<TABLE>
<CAPTION>
SERVICE(1) MONTHLY FEE START-UP CHARGE(2)
- ------- ----------- ------------------
<S> <C> <C>
[***]
|_| 0 Mbps - 3 Mbps sustained use [***]
|_| 3.01 Mbps - 6 Mbps sustained use [***]
|_| 6.01 Mbps - 7.5 Mbps sustained use [***]
|_| 7.51 Mbps - 9 Mbps sustained use [***]
|_| 9.01 Mbps - 10.5 Mbps sustained use [***]
|_| 10.51 Mbps - 12 Mbps sustained use [***]
|_| 12.01 Mbps - 13.5 Mbps sustained use [***]
|_| 13.51 Mbps - 15 Mbps sustained use [***]
|_| 15.01 Mbps - 16.5 Mbps sustained use [***]
|_| 16.51 Mbps - 18 Mbps sustained use [***]
|_| 18.01 Mbps - 19.5 Mbps sustained use [***]
|_| 19.51 Mbps - 21 Mbps sustained use [***]
|_| 21.01 Mbps - 45 Mbps sustained use [***]
</TABLE>
PRICES ABOVE DO NOT INCLUDE ANY TELCO LINE CHARGES, EQUIPMENT COSTS(3), OR
NETWORK APPLICATIONS FEES.(4)
TERM COMMITMENT(5) Unless a different Term is selected below, the Term of this
Schedule will be coterminous with the Global Service Agreement as currently in
effect between Customer and MCI WORLDCOM, Inc. (the "GSA").
Customer shall receive a [***] off its monthly recurring charges on ports only.
PAYMENT
If a Purchase Order is required, return the PO with this form and provide
PO#:
----------------------------
PLEASE SIGN THIS SCHEDULE WHERE INDICATED AFTER READING THE TERMS
AND CONDITIONS.
- --------
1 With T3 Burstable service, Customer receives full T3 access to UUNET and can
burst to the full 45 Mbps at any time. Monthly billing is based on the level
of sustained use during the month, as determined by traffic samples taken
every five minutes. The level under which 95% of the samples fall is the
sustained use. Customer may move to a lower burstable service level if the
sustained use is at or below such burstable service level for at least two
consecutive months and Customer thereafter notifies UUNET in writing of its
intent to move to such lower burstable service level.
2 To ensure proper installation, UUNET will order all telco lines. A $500
surcharge applies to Customer-ordered lines. Installation may be scheduled
between the hours of 8AM and 7PM ET Monday through Friday (excluding
holidays). If Customer requires installation outside of these hours UUNET
will charge an additional $500 fee.
3 UUNET is acting only as a reseller with respect to the hardware and software
offered under this Schedule ("Equipment"), which was manufactured by a third
party ("Manufacturer"). UUNET will provide first level support for Equipment,
but will not repair or replace Equipment unless Customer has purchased CPE
Maintenance from UUNET. Customer's use of the Equipment is subject to the
terms and conditions of the Manufacturer's end user agreement. Should
Customer purchase Equipment from UUNET, UUNET will ship the current
UUNET-tested version of the Equipment to the Customer.
4 Descriptions of the domain name, mail, news services, and other network
applications available in connection with this service, and the pricing and
additional terms applicable to these services, are set forth in the Network
Applications Fee Schedule available at www.uu.net/terms. UUNET reserves the
right to change the Network Applications Fee Schedule from time to time,
effective upon posting of the changes to that URL or other notice to
Customer.
5 Discount applicable only to Monthly Fees. At the conclusion of the Term
Commitment, this Schedule shall continue in effect on a month-to-month basis
at UUNET's then-current list price for the service.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 20
ADDITIONAL TERMS AND CONDITIONS
1. UUNET Technologies, Inc. ("UUNET") exercises no control over, and accepts no
responsibility for, the content of the information passing through UUNET's
host computers, network hubs and points of presence (the "UUNET Network").
EXCEPT AS EXPRESSLY SET FORTH IN SECTION 7 BELOW, UUNET (a) MAKES NO
WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, FOR THE SERVICES AND
EQUIPMENT IT IS PROVIDING, AND (b) DISCLAIMS ANY WARRANTY OF TITLE,
MERCHANTABILITY, NON-INFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE. Use
of any information obtained via the UUNET Network is at Customer's own risk.
UUNET specifically denies any responsibility for the accuracy or quality of
information obtained through its services. UUNET shall not be liable for any
delay or failure in performance due to Force Majeure, which shall include
without limitation acts of God, earthquake, labor disputes, changes in law,
regulation or government policy, riots, war, fire, epidemics, acts or
omissions of vendors or suppliers, equipment failures, transportation
difficulties, or other occurrences which are beyond UUNET's reasonable
control.
2. All use of the UUNET Network and the service must comply with the
then-current version of the UUNET Acceptable Use Policy ("Policy") which is
made a part of this Schedule and is available at the following URL:
www.uu.net/terms. UUNET reserves the right to amend the Policy from time to
time, effective upon posting of the revised Policy at the URL or other
notice to Customer. UUNET reserves the right to suspend the service or
terminate this Schedule effective upon notice for a violation of the Policy.
Customer agrees to indemnify and hold harmless UUNET from any losses,
damages, costs or expenses resulting from any third party claim or
allegation ("Claim") arising out of or relating to use of the service,
including any Claim which, if true, would constitute a violation of the
Policy.
3. NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL,
PUNITIVE OR CONSEQUENTIAL DAMAGES THAT RESULT FROM CUSTOMER'S OR CUSTOMER'S
USERS' USE OF THE UUNET NETWORK AND THE SERVICE INCLUDING, WITHOUT
LIMITATION, ANY SUCH DAMAGES FOR LOSS OF DATA RESULTING FROM DELAYS,
NON-DELIVERIES, MISDELIVERIES OR SERVICE INTERRUPTIONS. Notwithstanding
anything to the contrary stated in this Schedule or in the GSA, Customer's
sole remedies for any claims relating to this service or the UUNET Network
are set forth in Section 7 below.
4. Networks assigned from a UUNET net-block are non-portable. Network space
allocated by UUNET must be returned to UUNET in the event Customer
discontinues service.
5. Payment terms shall be as set forth in the GSA. Fees paid by Customer under
this Agreement for UUNET services will count towards Customer's Annual
Minimum under its existing MCI WorldCom GSA. The amount to be applied will
be that actually paid by Customer, net of any discounts or applicable
credits, and excluding any amount paid for taxes or tax-like surcharges or
fees.
6. Billing for UUNET service will commence when a UUNET hub and a functioning
telephone circuit are prepared to route IP packets to Customer's site. The
Start-up Charge is invoiced upon acceptance of this Schedule by UUNET.
Charges for Equipment shall be invoiced upon shipment. Service is invoiced
monthly in advance, and may be canceled only by 60 days' advance written
notice. [***] UUNET reserves the right to change the rates by notifying
Customer 60 days in advance of the effective date of the change.
7. The Service Level Agreement ("SLA") for this service, which is made a part
of this Schedule, is set forth at www.uu.net/terms and applies only to
customers agreeing to a Term Commitment of at least one year. UUNET reserves
the right to amend the SLA from time to time effective upon posting of the
revised SLA to the URL or other notice to Customer; provided, that in the
event of any amendment resulting in a material reduction of the SLA's
service levels or credits, Customer may terminate this Schedule without
penalty by providing UUNET written notice of termination during the 30 days
following notice of such amendment. The SLA sets forth Customer's sole
remedies for any claim relating to this service or the UUNET Network,
including any failure to meet any guarantee set forth in the SLA. UUNET's
records and data shall be the basis for all SLA calculations and
determinations. Notwithstanding anything to the contrary, the maximum amount
of credit in any calendar month under the SLA shall not exceed the Monthly
Fee and/or Start-up Charge which, absent the credit, would have been charged
for UUNET service that month (collectively the "UUNET Fees"); provided, that
the maximum amount of credit for failure to meet the Availability Guarantee
shall not exceed the sum of (a) the UUNET Fees, plus (b) the telephone
company line charge which, absent the credit, would have been charged for
such month.
8. Neither party may use the other party's name, trademarks, tradenames or
other proprietary identifying symbols without the prior written approval of
the other party. Neither party may assign or transfer any of its rights or
obligations under this Schedule without the express, prior written consent
of the other party; provided, that either party may assign or transfer this
Schedule to any affiliate of such party upon advance written notice to the
other party. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of any right or remedy
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 21
hereunder preclude any other or further exercise thereof or the exercise of
any other right or remedy granted hereby or by law.
9. MCI WORLDCOM, Inc. or its affiliates or subcontractors may perform some or
all of UUNET's duties and/or obligations hereunder.
10. This Schedule is in addition to and subject to the GSA. To the extent this
Schedule conflicts with any provision of the GSA, this Schedule shall
prevail. Activation of service shall indicate UUNET's acceptance of this
Schedule. Use of the UUNET Network constitutes acceptance of this Schedule.
AGREED AND ACCEPTED BY CUSTOMER:
Signature: Company Name:
------------------------- -----------------------
Printed Name: Address:
---------------------- ----------------------------
Title:
----------------------------- Date: Telephone
--------- -----------
<PAGE> 22
ATTACHMENT 4-3
UUDIRECT(SM) T3 TIERED SCHEDULE
<TABLE>
<CAPTION>
SERVICE(1) MONTHLY FEE START-UP CHARGE(2)
- ---------- ----------- ------------------
<S> <C> <C>
[***]
|_| 3 Mbps port [***]
|_| 6 Mbps port [***]
|_| 9 Mbps port [***]
|_| 12 Mbps port [***]
|_| 15 Mbps port [***]
|_| 18 Mbps port [***]
|_| 21 Mbps port [***]
|_| 24 Mbps port [***]
|_| 27 Mbps port [***]
|_| 30 Mbps port [***]
|_| 33 Mbps port [***]
|_| 36 Mbps port [***]
|_| 39 Mbps port [***]
|_| 45 Mbps port [***]
</TABLE>
PRICES ABOVE DO NOT INCLUDE ANY TELCO LINE CHARGES, EQUIPMENT COSTS(3), OR
NETWORK APPLICATIONS FEES.(4)
TERM COMMITMENT(5) Unless a different term is selected below, the term of this
Schedule will be coterminous with the Global Service Agreement as currently in
effect between Customer and MCI WORLDCOM, Inc. (the "GSA").
Customer shall receive a [***] off its monthly recurring charges on ports only.
PLEASE SIGN THIS SCHEDULE ON THE NEXT PAGE.
- --------
1 Customer must provide 60 days' prior written notice to UUNET before
downgrading service to a lower tier. While Customer can resell Internet
connectivity, Customer cannot resell the service in its entirety to another
person or entity without the express prior written consent of UUNET. If
Customer resells Internet connectivity to end users, Customer is responsible
for: (i) providing the first point of contact for end user support inquiries;
(ii) providing software fulfillment to end users; (iii) running its own
primary and secondary domain name service ("DNS") for end users; (iv)
registering end users' domain names; (v) using BGP routing to the UUNET
Network, if requested by UUNET; (vi) collecting route additions and changes,
and providing them to UUNET; and (vii) registering with the appropriate agency
all IP addresses provided by UUNET to Customer that are allocated to end
users.
2 To ensure proper installation, UUNET will order all telco lines. A $500
surcharge applies to Customer-ordered lines. Installation may be scheduled
between the hours of 8AM and 7PM ET Monday through Friday (excluding
holidays). If Customer requires installation outside of these hours UUNET will
charge an additional $500 fee.
3 UUNET is acting only as a reseller with respect to the hardware and software
offered under this Schedule ("Equipment"), which was manufactured by a third
party ("Manufacturer"). UUNET will provide first level support for Equipment,
but will not repair or replace Equipment. Customer's use of the Equipment is
subject to the terms and conditions of the Manufacturer's end user agreement.
Should Customer purchase Equipment from UUNET, UUNET will ship the current
UUNET-tested version of the Equipment to the Customer.
4 Descriptions of the domain name, mail, news services, and other network
applications available in connection with this service, and the pricing and
additional terms applicable to these services, are set forth in the Network
Applications Fee Schedule available at www.uu.net/terms. UUNET reserves the
right to change the Network Applications Fee Schedule from time to time,
effective upon posting of the changes to that URL or other notice to Customer.
5 Discount applicable only to Monthly Fee. At the conclusion of the Term
Commitment, this Schedule shall continue in effect on a month-to-month basis
at UUNET's then-current list price for the service.
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 23
ADDITIONAL TERMS AND CONDITIONS
1. UUNET Technologies, Inc. ("UUNET") exercises no control over, and accepts no
responsibility for, the content of the information passing through UUNET's
host computers, network hubs and points of presence (the "UUNET Network").
EXCEPT AS EXPRESSLY SET FORTH IN SECTION 7 BELOW, UUNET (a) MAKES NO
WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, FOR THE SERVICES AND
EQUIPMENT IT IS PROVIDING, AND (b) DISCLAIMS ANY WARRANTY OF TITLE,
MERCHANTABILITY, NON-INFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE. Use
of any information obtained via the UUNET Network is at Customer's own risk.
UUNET specifically denies any responsibility for the accuracy or quality of
information obtained through its services. UUNET shall not be liable for any
delay or failure in performance due to Force Majeure, which shall include
without limitation acts of God, earthquake, labor disputes, changes in law,
regulation or government policy, riots, war, fire, epidemics, acts or
omissions of vendors or suppliers, equipment failures, transportation
difficulties, or other occurrences which are beyond UUNET's reasonable
control.
2. All use of the UUNET Network and the service must comply with the
then-current version of the UUNET Acceptable Use Policy ("Policy") which is
made a part of this Schedule and is available at the following URL:
www.uu.net/terms. UUNET reserves the right to amend the Policy from time to
time, effective upon posting of the revised Policy at the URL or other
notice to Customer. UUNET reserves the right to suspend the service or
terminate this Schedule effective upon notice for a violation of the Policy.
Customer agrees to indemnify and hold harmless UUNET from any losses,
damages, costs or expenses resulting from any third party claim or
allegation ("Claim") arising out of or relating to use of the service,
including any Claim which, if true, would constitute a violation of the
Policy.
3. NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL,
PUNITIVE OR CONSEQUENTIAL DAMAGES THAT RESULT FROM CUSTOMER'S OR CUSTOMER'S
USERS' USE OF THE UUNET NETWORK AND THE SERVICE INCLUDING, WITHOUT
LIMITATION, ANY SUCH DAMAGES FOR LOSS OF DATA RESULTING FROM DELAYS,
NON-DELIVERIES, MISDELIVERIES OR SERVICE INTERRUPTIONS. Notwithstanding
anything to the contrary stated in this Schedule or in the GSA, Customer's
sole remedies for any claims relating to this service or the UUNET Network
are set forth in Section 7 below.
4. Networks assigned from a UUNET net-block are non-portable. Network space
allocated by UUNET must be returned to UUNET in the event Customer
discontinues service.
5. Payment terms shall be as set forth in the GSA. Fees paid by Customer under
this Agreement for UUNET services will count towards Customer's Annual
Minimum under its existing MCI WorldCom GSA. The amount to be applied will
be that actually paid by Customer, net of any discounts or applicable
credits, and excluding any amount paid for taxes or tax-like surcharges or
fees.
6. Billing for UUNET service will commence when a UUNET hub and a functioning
telephone circuit are prepared to route IP packets to Customer's site. The
Start-up Charge is invoiced upon acceptance of this Schedule by UUNET.
Charges for Equipment shall be invoiced upon shipment. Service is invoiced
monthly in advance, and may be canceled only by 60 days' advance written
notice. [***] UUNET reserves the right to change the rates by notifying
Customer 60 days in advance of the effective date of the change.
7. The Service Level Agreement ("SLA") for this service, which is made a part
of this Schedule, is set forth at www.uu.net/terms and applies only to
customers agreeing to a Term Commitment of at least one year. UUNET reserves
the right to amend the SLA from time to time effective upon posting of the
revised SLA to the URL or other notice to Customer; provided, that in the
event of any amendment resulting in a material reduction of the SLA's
service levels or credits, Customer may terminate this Schedule without
penalty by providing UUNET written notice of termination during the 30 days
following notice of such amendment. The SLA sets forth Customer's sole
remedies for any claim relating to this service or the UUNET Network,
including any failure to meet any guarantee set forth in the SLA. UUNET's
records and data shall be the basis for all SLA calculations and
determinations. Notwithstanding anything to the contrary, the maximum amount
of credit in any calendar month under the SLA shall not exceed the Monthly
Fee and/or Start-up Charge which, absent the credit, would have been charged
for UUNET service that month (collectively the "UUNET Fees"); provided, that
the maximum amount of credit for failure to meet the Availability Guarantee
shall not exceed the sum of (a) the UUNET Fees, plus (b) the telephone
company line charge which, absent the credit, would have been charged for
such month.
8. Neither party may use the other party's name, trademarks, tradenames or
other proprietary identifying symbols without the prior written approval of
the other party. Neither party may assign or transfer any of its rights or
obligations under this Schedule without the express, prior written consent
of the other party; provided, that either party may assign or transfer this
Schedule to any affiliate of such party upon advance written notice to the
other party. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of any right or remedy
*** Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 24
hereunder preclude any other or further exercise thereof or the exercise of
any other right or remedy granted hereby or by law.
9. MCI WORLDCOM, Inc. or its affiliates or subcontractors may perform some or
all of UUNET's duties and/or obligations hereunder.
10. This Schedule is in addition to and subject to the GSA. To the extent this
Schedule conflicts with any provision of the GSA, this Schedule shall
prevail. Activation of service shall indicate UUNET's acceptance of this
Schedule. Use of the UUNET Network constitutes acceptance of this Schedule.
AGREED AND ACCEPTED BY CUSTOMER:
Signature: Company Name:
------------------------- -----------------------
Printed Name: Address:
---------------------- ----------------------------
Title: Date:
----------------------------- -------------------------------
<PAGE> 1
Exhibit 10.33
AT&T
AT&T Master Carrier Agreement
<TABLE>
<S> <C> <C>
CUSTOMER Name (Full Legal Name): AT&T Sales Representative:
Universal Access, Inc AT&T Corp., Doug Marshall
("CUSTOMER") a New York corporation ("AT&T")
CUSTOMER Name (and Title) for Notice: AT&T Name (and Title) for Notice: AT&T Contact Telephone Number:
Pam Whitehead Carol Hawkins 314 275 3086
CUSTOMER Address: AT&T Address: Initial Deposit Amount Required:
100 N. Riverside Plaza 300 Atrium Drive [***]
Suite 2200 Room 3W101
City State Zip Code City State Zip Code
Chicago IL 60606 Somerset NJ 08873
CUSTOMER Fax number for Notice: AT&T Fax number for Notice:
312 660 5050 732 805 5727
</TABLE>
This Master Carrier Agreement shall be legally binding when signed by both
parties and shall continue in effect until the end of the longest term specified
in the Attachment(s), or until otherwise terminated as provided in accordance
with this Agreement. The rates and commitments provided in the Attachments shall
be effective as provided in each Attachment.
This Master Carrier Agreement consists of this Cover Sheet, the attached Terms
and Conditions, and the Attachment(s) listed below (these documents together are
collectively referred to as the "Agreement"). In the event of any inconsistency
between these documents, precedence will be given to the documents in the
following order: (1) this Cover Sheet; (2) Attachment(s); (3) the Terms and
Conditions. In the event of any inconsistency between the terms of this
Agreement and the terms of an applicable Tariff, the terms of the Agreement
shall prevail.
<TABLE>
<CAPTION>
TITLE Doc. ID Date/time stamp
- ----- ------- ---------------
<S> <C> <C>
Master Carrier Agreement - Terms and Conditions MCA 990816.doc 08/16/99 3:42 pm
Supplemental Terms and Conditions MCA_supp.doc 8/17/1999 11:02
AM
Data Service Terms and Pricing UAccess-D990902.doc 9/2/1999 10:55AM
</TABLE>
CUSTOMER'S SIGNATURE BELOW ACKNOWLEDGES THAT CUSTOMER HAS READ, UNDERSTANDS AND
AGREES TO EACH OF THE TERMS AND CONDITIONS OF THIS AGREEMENT AND THAT THE
INDIVIDUAL SIGNING THIS AGREEMENT IS DULY AUTHORIZED TO DO SO.
CUSTOMER AT&T Corp.
By: /s/ ROBERT J. POMMER By: /s/ JAMES M. DOWNEY, JR.
------------------------------- -------------------------------
(Authorized Customer Signature) (Authorized AT&T Signature)
Robert J. Pommer James M. Downey, Jr.
- ----------------------------------- -----------------------------------
(Typed or Printed Name and Title) (Typed or Printed Name and Title)
Date: 9/27/99 Date: 10/12/99
------- -----------------------------
- ----------
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
Not for Publication - All Rights Reserved
<PAGE> 2
MASTER CARRIER AGREEMENT - TERMS AND CONDITIONS Page 1
1. PROVISION OF SERVICES. CUSTOMER hereby orders and AT&T hereby agrees to
provide the AT&T services described in the Attachment(s) to this Agreement (the
"Services"). Jurisdictionally intrastate services may be provided pursuant to an
Attachment to this Agreement, pursuant to applicable state tariffs, or as
otherwise permitted by applicable state law. AT&T is not responsible for the
quality of transmission or signaling on CUSTOMER's side of the network interface
between AT&T and CUSTOMER. Service is furnished subject to the availability of
the service components required, and subject to operational and systems
constraints.
2. BILLING AND PAYMENT FOR THE SERVICES. Except as may be provided in an
Attachment, AT&T will send a single monthly bill for each of the Services to one
location designated by CUSTOMER. CUSTOMER is liable for all amounts due to AT&T
under this Agreement. Payment is due upon presentation of a bill. Payment will
be considered timely if made to AT&T within thirty days after the bill date (for
voice services, the bill date is the day after the end of the usage period
covered by the bill; for data services, the bill date is the first day of the
service period covered by the bill). Any charges not paid to AT&T within such
period will be considered past due.
3. NON-PAYMENT. At AT&T's option, interest charges may be added to any past due
amounts at the lower of 12.0% per year or the maximum rate allowed by law.
CUSTOMER shall reimburse AT&T for reasonable attorney's fees and any other costs
associated with collecting delinquent or dishonored payments. Restrictive
endorsements or other statements on checks accepted by AT&T will not apply.
4. BILLING DISPUTES. If CUSTOMER wishes to dispute a charge on a bill, CUSTOMER
must identify the specific charge in dispute and provide a full written
explanation of the basis for the dispute using a standard AT&T billing dispute
form within 90 days after the bill date. CUSTOMER may withhold payment of a
charge subject to a good faith dispute provided: (a) CUSTOMER submits the
billing dispute, using a standard AT&T billing dispute form, before making
payment of the disputed charge; (b) CUSTOMER pays the undisputed portion of all
charges; and (c) CUSTOMER cooperates reasonably with AT&T's efforts to
investigate and resolve the dispute. If AT&T determines that a disputed charge
was billed in error, AT&T shall issue a credit to reverse the amount incorrectly
billed. If AT&T determines that a disputed charge was billed correctly, payment
shall be due from CUSTOMER within five days after AT&T advises CUSTOMER in
writing that the dispute is denied.
5. DEPOSITS. Using its Deposit standards, AT&T has assessed and CUSTOMER shall
pay the Initial Deposit amount specified on the Cover Sheet before Services are
provided. AT&T may require CUSTOMER, during the term of this Agreement, to
tender a deposit in an amount to be determined by AT&T in its reasonable
discretion. AT&T will rely upon commercially reasonable factors to determine the
need for and amount of any deposit. These factors may include, but are not
limited to, payment history, number of years in business, history of service
with AT&T, bankruptcy history, current account treatment status, financial
statement analysis, and commercial credit bureau rating, as well as commitment
levels and anticipated monthly charges. Any deposit will be held by AT&T as a
guarantee for the payment of charges (including but not limited to potential
shortfall charges). A deposit does not relieve CUSTOMER of the responsibility
for the prompt payment of bills. Interest (at the rate of 6% per year) will be
paid to CUSTOMER for any period that a cash deposit is held by AT&T. A failure
of CUSTOMER to post a deposit as required by AT&T pursuant to this paragraph
shall constitute a material breach of this Agreement by CUSTOMER.
6. OBLIGATIONS REGARDING TAXES. CUSTOMER shall pay any applicable local, state
and federal taxes, levied upon the sale, installation, use or provision of the
Services, except to the extent customer provides a valid tax exemption
certificate to AT&T prior to the delivery of Services. Gross Receipts Taxes will
be charged to CUSTOMER as provided in AT&T Tariff F.C.C. No. 1, Section 2.5.14,
as amended from time to time.
7. CUSTOMER IS A CARRIER. CUSTOMER certifies it is a "common carrier" as defined
in the Communications Act of 1934 (see sections 153(10) and 211), with all
required state and federal operating authority.
8. RESPONSIBILITIES OF CUSTOMER. CUSTOMER is responsible for interfacing and
communicating with its End Users, for placing any orders, and for assuring that
it and its Intermediate Resellers (if any) comply with the provisions of this
Agreement and with all applicable federal and state laws and regulatory
requirements with respect to the resale of Services provided under this
Agreement. CUSTOMER is responsible for arranging premises access at any
reasonable time so that AT&T personnel may install, repair, maintain, inspect or
remove service components.
9. ABUSE OF SERVICE. The abuse of Service is prohibited. Using Service or
permitting Service to be used in the following ways constitutes abuse: (a)
making calls that might reasonably be expected to frighten, abuse, torment, or
harass another; (b) carrying calls that originate on the network of a
facilities-based interexchange carrier other than AT&T and terminate
disproportionately to domestic locations for which AT&T's cost of terminating
switched access (based on the published access rates of the incumbent local
exchange companies) is above AT&T's price for the call under this Agreement
(after application of discounts); (c) interfering unreasonably with the use of
AT&T service by others or the operation of the AT&T network; (d) subjecting AT&T
Not for Publication - All Rights Reserved
<PAGE> 3
MASTER CARRIER AGREEMENT - TERMS AND CONDITIONS Page 2
personnel or non-AT&T personnel to hazardous conditions; (e) transmitting any
message or code, locating a person, or otherwise giving or obtaining
information, without payment for the Services; or (f) attempting to avoid the
payment, in whole or in part, of any charges by any means or device (non-payment
of billed charges will not be considered abuse of service for purposes of this
Section). In any instance in which AT&T believes in good faith that there is
abuse of Service as set forth above, AT&T may immediately restrict, suspend or
discontinue providing Service, without liability on the part of AT&T, and then
notify CUSTOMER of the action that AT&T has taken and the reason for such
action. To the extent doing so does not interfere with its ability to prevent
abuse of Service (to be determined in AT&T's reasonable judgment), AT&T will
attempt to limit any restriction, suspension or discontinuance under this
Section to the locations, phone numbers, or Services with respect to which the
abuse is taking place.
10. DEFAULT. If a party breaches any material term of this Agreement and the
breach continues unremedied for 60 days after written notice of default, the
other party may terminate for cause any Attachment materially affected by the
breach. If CUSTOMER is in breach of its payment obligations (including failure
to pay a required deposit), and fails to make payment in full within 5 days
after receipt of written notice of default, AT&T may, at its option, terminate
the Agreement, terminate affected Attachments, suspend Service under the
affected Attachments, and/or require a deposit, advanced payment, or other
satisfactory assurances in connection with any or all Attachments as a condition
of continuing to provide Services; except that AT&T will not take any such
action as a result of CUSTOMER's non-payment of a charge subject to a timely
billing dispute, unless AT&T has reviewed the dispute and determined that the
charge is correct. An Attachment may be terminated by either party immediately
upon written notice if the other party has become insolvent or involved in a
liquidation or termination of its business, or adjudicated bankrupt, or been
involved in an assignment for the benefit of its creditors. CUSTOMER shall be
liable to AT&T for Termination Charges, as specified in a terminated Attachment,
in the event that AT&T terminates an Attachment as a result of a breach by
CUSTOMER. Termination by either party of an Attachment does not waive any other
rights or remedies it may have under this Agreement.
11. NO WARRANTIES. AT&T MAKES NO WARRANTIES, EXPRESS OR IMPLIED, UNDER THIS
AGREEMENT AND SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE. AT&T DOES NOT WARRANT THAT THE SERVICES WILL BE
UNINTERRUPTED OR ERROR-FREE, OR THAT THE SERVICES WILL MEET CUSTOMER'S
REQUIREMENTS OR THAT THE SERVICES WILL PREVENT UNAUTHORIZED ACCESS BY THIRD
PARTIES. AT&T DOES NOT AUTHORIZE ANYONE TO MAKE A WARRANTY OF ANY KIND ON ITS
BEHALF AND CUSTOMER SHOULD NOT RELY ON ANYONE MAKING SUCH STATEMENTS.
12. LIMITATION OF LIABILITY. THE LIABILITY OF AT&T ASSOCIATED WITH THE
INSTALLATION, PROVISION, USE, MAINTENANCE, REPAIR, TERMINATION OR RESTORATION OF
SERVICE PROVIDED PURSUANT TO THIS AGREEMENT SHALL NOT EXCEED AN AMOUNT EQUAL TO
THE INITIAL PERIOD CHARGE FOR AFFECTED CALLS (FOR CALLS SUBJECT TO MEASURED
CHARGES) OR THE CHARGES FOR AFFECTED SERVICE FOR THE PERIOD DURING WHICH THAT
SERVICE WAS AFFECTED (FOR ALL OTHER SERVICES). IN NO EVENT SHALL AT&T BE LIABLE
FOR: (A) ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, RELIANCE OR SPECIAL
DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR LOST PROFITS, ADVANTAGE,
SAVINGS OR REVENUES OF ANY KIND, OR INCREASED COST OF OPERATIONS, WHETHER OR NOT
AT&T HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; OR (B) ANY CLAIM OR
DAMAGES CAUSED BY OR ARISING OUT OF (i) ANY ACT OR OMISSION (INCLUDING WITHOUT
LIMITATION UNAUTHORIZED USE, THEFT, OR ALTERATION OF SERVICE, OR INTERFERENCE
WITH SERVICE) BY CUSTOMER, AN INTERMEDIATE RESELLER, AN END USER, OR ANOTHER
THIRD PARTY, (ii) SERVICE INTERRUPTIONS, OR (iii) INTEROPERABILITY, INTERACTION
OR INTERCONNECTION OF THE SERVICES PROVIDED UNDER THIS AGREEMENT WITH
APPLICATIONS, EQUIPMENT, SERVICES OR NETWORKS PROVIDED BY CUSTOMER OR THIRD
PARTIES. THE LIMITATIONS OF LIABILITY SET FORTH IN THIS AGREEMENT SHALL SURVIVE
FAILURE OF AN EXCLUSIVE REMEDY, AND SHALL APPLY REGARDLESS OF THE FORM OF
ACTION, WHETHER IN CONTRACT, TORT, WARRANTY, STRICT LIABILITY, OR NEGLIGENCE
(INCLUDING WITHOUT LIMITATION ACTIVE AND PASSIVE NEGLIGENCE).
13. FORCE MAJEURE. Neither party nor its Affiliates, subsidiaries, or
subcontractors shall be liable to the other party for any delay, failure in
performance, loss or damage due to force majeure conditions such as fire,
explosion, power blackout, earthquake, volcanic action, flood, hurricane, the
elements, strike, embargo, labor disputes, civil or military authority, war,
acts of God, acts or omissions of other carriers (except, for CUSTOMER, the acts
of omissions of its Intermediate Resellers), acts of regulatory or governmental
agencies, or other causes beyond their reasonable control, except that
CUSTOMER's obligation to pay for services provided
Not for Publication - All Rights Reserved
<PAGE> 4
MASTER CARRIER AGREEMENT - TERMS AND CONDITIONS Page 3
shall not be excused. Changes in economic, business or competitive conditions
are not force majeure conditions. If CUSTOMER is unable to meet its commitments
as a direct result of a force majeure condition, CUSTOMER may suspend its
commitments for one full billing month (or longer, with AT&T's written consent,
which shall not be unreasonably withheld). The effect of such a suspension of
commitment will be to exclude the affected month(s) from all calculations
affecting the CUSTOMER's commitments and to extend the term of this Agreement by
the same number of months. CUSTOMER must provide notice to AT&T of the force
majeure condition giving rise to the right to suspend commitments within 30 days
after its occurrence.
14. INDEMNIFICATION. CUSTOMER shall indemnify, defend, and hold harmless AT&T
and its directors, officers, employees, agents, subsidiaries, affiliates,
successors and assigns from any and all claims, damages and expenses whatsoever
(including reasonable attorneys' fees) arising on account of or in connection
with CUSTOMER's use, resale or sharing of the Services provided under this
Agreement, including but not limited to: (a) claims for libel, slander, invasion
of privacy; (b) claims for infringement of copyright arising from any
communication; (c) claims arising from any failure, breakdown, interruption or
deterioration of service provided by AT&T to CUSTOMER or by CUSTOMER to End
Users or Intermediate Resellers; (d) claims arising from CUSTOMER's marketing
efforts, including but not limited to CUSTOMER's violation of laws and
regulations applicable to the authorization and proof of authorization necessary
to convert an End User to CUSTOMER's service; and (e) claims of patent
infringement arising from combining or using services or equipment furnished by
AT&T in connection with services or equipment furnished by others. AT&T shall
indemnify, defend, and hold harmless CUSTOMER and its directors, officers,
employees, agents, subsidiaries, affiliates, successors, and assigns from all
claims of patent infringement arising solely from the use of the Services.
CUSTOMER's indemnification obligations do not apply to claims for damages to
real or tangible personal property or for bodily injury or death negligently
caused by AT&T.
15. USE OF MARKS. Nothing in this Agreement creates in a party any rights in the
other party's trade names, trademarks, service marks or any other intellectual
property. Either party may use the other party's trade names, trademarks, or
service marks only to the extent such use is not prohibited by this Agreement
and is otherwise permitted by law (including but not limited to the Lanham Act).
In no event shall either party use or display, in advertising or otherwise, any
of the other party's logos, trade dress, trade devices or other indicia of
origin, or any confusingly similar logos, trade dress, trade devices or indicia
of origin. CUSTOMER will not conduct business under any AT&T corporate or trade
name, trademark, service mark, logo, trade dress, trade device, indicia of
origin or other symbol that serves to identify and distinguish AT&T from its
competitors, or under any confusingly similar corporate or trade name,
trademark, service mark, logo, trade dress, trade device, indicia of origin or
other symbol. CUSTOMER will not indicate or imply to any other party that
CUSTOMER is affiliated with AT&T, that CUSTOMER is authorized by AT&T to sell or
provide service to them, that CUSTOMER is providing (or will provide) service to
such party jointly or in collaboration or partnership with AT&T, or as the agent
of AT&T, or that service provided by CUSTOMER or another carrier is provided by
AT&T. Except to the limited extent (if any) as may be required under law,
neither CUSTOMER nor an Intermediate Reseller shall indicate or imply to any
existing or potential End User (or Intermediate Reseller) that any portion of
the service provided to the End User (or Intermediate Reseller) by CUSTOMER or
the Intermediate Reseller is provided by AT&T or is carried over the AT&T
network or AT&T facilities.
16. RELATIONSHIP OF THE PARTIES. The relationship between the parties shall be
that of independent contractors and not of principal and agent, employer and
employee, franchiser and franchisee, partners or joint venturers. This Agreement
does not establish CUSTOMER as a dealer, distributor or franchisee of AT&T, and
no fee is being paid to AT&T to enter into this Agreement.
17. ACKNOWLEDGMENT OF RIGHT TO COMPETE. Each party acknowledges that nothing in
this Agreement diminishes or restricts in any way the rights of the parties to
engage in competition with each other. Each party acknowledges that it remains
at all times solely responsible for the success and profits of its own business.
18. USE OF MARKETING INFORMATION. Either party may use for its own marketing
purposes any and all information that it lawfully obtains from sources other
than the other party, including but not limited to information that either party
may have as a result of the sale by that party of telecommunications services or
equipment to End Users.
19. CONFIDENTIAL INFORMATION DEFINED. "Confidential Information" consists of the
following: all information disclosed by one party or its agent or representative
(the "Disclosing Party") to the other party or its agent or representative (the
"Receiving Party") in connection with this Agreement regarding the
telecommunications needs of CUSTOMER and/or the telecommunications offerings of
AT&T, to the extent that (a) for information disclosed in written, graphic or
other tangible form, it is designated by appropriate markings to be confidential
or proprietary or (b) for information disclosed orally, it is both identified as
proprietary or confidential at the time of disclosure and
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<PAGE> 5
MASTER CARRIER AGREEMENT - TERMS AND CONDITIONS Page 4
summarized in a writing so marked within 15 business days following the oral
disclosure. Notwithstanding the foregoing, all written or oral pricing,
contract, and tariff proposals exchanged between the parties shall be
Confidential Information, whether or not so designated. Confidential Information
is the property of the Disclosing Party and shall be returned to the Disclosing
Party upon request. This Agreement is Confidential Information as to which each
party is both a Disclosing Party and a Receiving Party. Information made known
to the public by the Disclosing Party or a third party, or previously known to
the Receiving Party free of any obligation to keep it confidential, or
independently developed by the Receiving Party, shall not be Confidential
Information.
20. CONFIDENTIALITY OBLIGATIONS. A Receiving Party shall hold all Confidential
Information in confidence from the time of disclosure until at least 2 years
following the termination of this Agreement. During that period, the Receiving
Party: (a) shall use such Confidential Information only for the purposes of
performing this Agreement and using the Services; (b) shall reproduce such
Confidential Information only to the extent necessary for such purposes; (c)
shall restrict disclosure of such Confidential Information to employees that
have a need to know for such purposes; (d) shall advise those employees of the
obligations of this Agreement; (e) shall not disclose Confidential Information
to any third party without prior written approval of the Disclosing Party except
as expressly provided in this Agreement; and (f) shall use at least the same
degree of care (in no-event less than reasonable care) as it uses with regard to
its own proprietary or confidential information to prevent the disclosure,
unauthorized use or publication of Confidential Information.
21. PUBLICITY. No public statements or announcements relating to this Agreement
shall be issued by either party without the prior written consent of the other
party.
22. ALTERNATIVE DISPUTE RESOLUTION. The parties will attempt to settle any claim
for non-payment of charges or recovery of overpayment of charges for the
Services provided under this Agreement (hereinafter a "Billing Dispute"),
through good faith negotiations. The parties may agree to submit a Billing
Dispute to non-binding mediation. At any time, the party seeking payment may
submit a notice of arbitration of a Billing Dispute for arbitration under the
United States Arbitration Act pursuant to the terms of this Section and the
Non-Administered Arbitration Rules of the CPR Institute for Dispute Resolution
("CPR"), to the extent such rules do not conflict. The Arbitration will be held
in New York, New York, or any other location selected by mutual agreement of the
parties. The arbitrator shall not have the power to award any damages in excess
of the limits set forth in or excluded under the limitations of liability
provided in this Agreement. The arbitrator may not limit, expand or otherwise
modify the terms of this Agreement. The arbitrator shall strictly limit
discovery to the production of documents directly relevant to the facts alleged
in the notices of arbitration and defense. If depositions are required, the
arbitrator shall permit each Party to conduct an equal number of depositions
(not to exceed five per side), with equal limits on the number of deposition
hours for each Party (not to exceed 7 per deposition). If an evidentiary hearing
is held, each Party's presentation of its case shall be limited to three (3)
days. Requests for temporary injunctive relief may be submitted to a court of
competent jurisdiction if the arbitrator has not yet been appointed, but the
arbitrator shall have the authority to modify any injunctive relief granted by
such a court. The arbitration award shall be made final within eight months of
filing of the notice of arbitration and judgment upon the award may be entered
in any court having competent jurisdiction. All participants and the arbitrator
shall hold the existence, content and results of mediation and arbitration in
confidence, except as necessary to enforce a final settlement agreement or to
enforce an arbitration award. Each party shall bear its own expenses and equally
share expenses related to the compensation of the arbitrator. The arbitrator's
award shall be in writing and shall state the reasons for the award.
23. TIME TO BRING CLAIMS. Any initial demand for arbitration pursuant to this
Agreement, and any legal action arising under this Agreement, must be initiated
within two years after the cause of action arises.
24. NOTICES. All notices under this Agreement shall be in writing and shall be
made: (a) by personal delivery; (b) by certified or registered mail, postage
prepaid return receipt requested, (c) by overnight delivery, or (d) by facsimile
transmission. Notice shall be sent to the individuals identified on the Cover
Sheet (at the address and/or fax number designated for notice), or to such other
individual, address or fax number as a party may designate by notice to the
other party.
25. EQUIPMENT. AT&T shall retain title to all of its equipment and facilities
used to provide service under this Agreement. CUSTOMER is liable to AT&T for the
replacement cost of any AT&T-provided equipment installed at CUSTOMER's premises
in the event of loss of said equipment for any reason, including but not limited
to theft.
26. EXPORT REGULATIONS. The parties acknowledge that any products, software, and
technical information (including, but not limited to, services and training)
provided under this Agreement are subject to U.S. export laws and regulations
and any use of or transfer of such products, software and technical information
must be authorized under those regulations. CUSTOMER agrees that it will not use
distribute, transfer or transmit the products, software or technical information
(even if incorporated into other products) except in compliance
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<PAGE> 6
MASTER CARRIER AGREEMENT - TERMS AND CONDITIONS Page 5
with U.S. export regulations. If requested by AT&T, CUSTOMER also agrees to sign
written assurances and other export-related documents as may be required for
AT&T to comply with U.S. export regulations.
27. QUALITY MONITORING. CUSTOMER authorizes AT&T to monitor and record calls to
AT&T concerning the Services for training and quality control purposes.
28. ASSIGNMENT. This Agreement may not be assigned by either party except that
either party may assign its rights or delegate its duties under this Agreement
to an Affiliate of that party.
29. NO THIRD PARTY BENEFICIARIES. This Agreement does not expressly or
implicitly provide any third party (including End Users) with any remedy, claim,
liability, reimbursement, cause of action or other right or privilege.
30. NON-WAIVER. The failure of a party to enforce any right under this Agreement
at any particular point in time shall not constitute a continuing waiver of any
such right with respect to the remaining term of this Agreement, or the waiver
of any other right under this Agreement.
31. SEVERABILITY. If any portion of this Agreement is found to be invalid or
unenforceable, the remaining provisions shall remain in effect and the parties
shall immediately begin negotiations to replace any invalid or unenforceable
portions that are essential parts of this Agreement.
32. SURVIVAL OF TERMS. The rights and obligations of either party that by their
nature would continue beyond the termination or expiration of this Agreement
shall survive termination or expiration of this Agreement. For example, the
provisions of this Agreement regarding Confidentiality shall remain in effect
for 2 years following termination of this Agreement and the provisions of this
Agreement regarding arbitration, indemnification, and/or limitation of liability
shall survive termination of this Agreement as to any cause of action arising
under the Agreement.
33. CHOICE OF LAW. The domestic law of the State of New York, except its
conflict-of-laws rules, shall govern the construction, interpretation, and
performance of this Agreement, except to the extent superceded by federal law.
34. AMENDMENT. No amendment, supplement, modification or waiver of any provision
of this Agreement shall be effective unless in writing and signed by authorized
representatives of both parties.
35. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties with respect to the Services. This Agreement supersedes all prior
agreements, proposals, representations, statements or understandings, whether
written or oral, concerning the Services or the parties' rights or obligations
relating to the Services. Any prior representations, promises, inducements or
statements of intent regarding the Services that are not embodied in this
Agreement are of no effect.
36. DEFINITIONS. The following definitions apply in addition to the definitions
set forth elsewhere in this Agreement:
"Affiliate" - any entity that controls, is controlled by or is under common
control with a party.
"End User" - the entity that actually uses the service resold by CUSTOMER.
"Intermediate Reseller" - any reseller or other intermediary (other than
CUSTOMER or its agents or employees) In the sales chain between CUSTOMER and an
End User.
"Tariff" - the AT&T Tariffs identified in the Attachments; and the successor
documents of general applicability that replace such tariffs in the event of
detariffing.
If not otherwise defined, capitalized terms shall be defined as provided in
AT&T's Tariffs.
End of Terms and Conditions
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<PAGE> 7
Supplemental Terms and Conditions Page 1 of 1
ATTACHMENT TO AT&T MASTER CARRIER AGREEMENT
CUSTOMER Name (Full Legal Name): Universal Access, Inc.
Date of execution of Master Carrier Agreement:
/s/ ROBERT J. POMMER
(by CUSTOMER)
--------------------
/s/ JAMES M. DOWNEY, JR. (by AT&T)
--------------------
The Terms and Conditions of the AT&T Master Carrier Agreement are hereby revised
as follows:
1. The second sentence of SECTION 10 is amended with the following italicized
language:
If CUSTOMER is in breach of its payment obligations (including
failure to pay a required deposit), and fails to make payment in
full within ten (10) days after receipt of written notice of
default...
3. The last sentence of SECTION 14 is amended to add the following at the end of
the sentence:
...its employees, agents, subsidiaries, affiliates, successors
and assigns.
4. The following sentence is added at the end of SECTION 22:
This Section shall not limit a party's right to commence legal
action with respect to any dispute that does not concern a
Billing Dispute.
End of Attachment
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<PAGE> 8
Data Service Terms and Pricing Page 1 of 11
ATTACHMENT TO AT&T MASTER CARRIER AGREEMENT
CUSTOMER Name (Full Legal Name): Universal Access, Inc.
Date of execution of Master Carrier Attachment:
/s/ ROBERT J. POMMER
--------------------
/s/ JAMES M. DOWNEY, JR. (by AT&T)
--------------------
1. SERVICES PROVIDED. AT&T will provide the following Services to CUSTOMER
under this Attachment and pursuant to the terms of the Master Carrier
Agreement and the applicable Tariffs specified below.
A. AT&T PRIVATE LINE SERVICES. AT&T Private Line Services (AT&T
Tariff F.C.C. No. 9, as amended from time to time) consisting of:
1. AT&T ACCUNET(R) Spectrum of Digital Services
2. AT&T DATAPHONE Digital Service
3. AT&T ACCUNET T1.5 Service
4. AT&T ACCUNET T45 Service
5. AT&T ACCUNET Fractional T45 Service
6. AT&T ACCUNET SONET T155 Service
7. AT&T International ACCUNET Spectrum of Digital
Services-Canada
8. AT&T International ACCUNET Spectrum of Digital
Services-Mexico
9. AT&T International ACCUNET T1.5 Service-Canada
10. AT&T International ACCUNET T1.5 Service-Mexico
11. AT&T International DATAPHONE Digital Service-Canada
12. AT&T International DATAPHONE Digital Service-Mexico
13. AT&T International ACCUNET Digital Services
14. AT&T International ACCUNET Digital Direct Link Service
15. AT&T International ACCUNET 2.048 Mbps Service-Mexico
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<PAGE> 9
Data Service Terms and Pricing Page 2 of 11
16. AT&T International ACCUNET T45 Service-Canada
17. AT&T International ACCUNET T45 Service-Overseas
B. AT&T 1.544 MBPS ECHO CANCELLATION - AT&T 1.544 Mbps Echo
Cancellation is an Office Function providing non-frequency
selective echo cancellation in AT&T's central office to improve
the quality of an AT&T T1.5 Inter Office Channel used for voice
transmissions. Echo cancellation is disruptive to data
transmissions, and is only available on an AT&T T1.5 Inter Office
Channel that is designated by CUSTOMER for use for voice
transmissions.
C. AT&T LOCAL CHANNEL SERVICES. AT&T Local Channel Services (AT&T
Tariff F.C.C. No.11, as amended from time to time) consisting of:
1. AT&T TERRESTRIAL 1.544 Mbps Local Channel Services
2. AT&T TERRESTRIAL 45 Mbps Local Channel Services
3. AT&T Voice Grade Local Channel Service
4. AT&T Digital Data Local Channel Service
5. AT&T ACCUNET Generic Digital Access Services
D. AT&T SATELLITE SERVICES (AT&T Tariff F.C.C. No. 7, as amended
from time to time) consisting of:
1. AT&T International Satellite Shared Earth Station Service
2. AT&T International Satellite Shared Earth Station Direct
Link Service
E. AT&T INTERSPAN(R) FRAME RELAY SERVICES. AT&T InterSpan Frame
Relay Services (AT&T Tariff F.C.C. No. 4, as amended from time to
time) consisting of:
1. AT&T InterSpan Frame Relay Service
2. AT&T International InterSpan Frame Relay Service
2. TERM. The Term of this Attachment is [***] Months. This Attachment will
be extended for additional [***] upon CUSTOMER's written request to AT&T
60 days prior to this Attachment expiration date. For each service
provided under this Attachment, the Term begins on the first day of the
first full billing month for the first service provided under this
Attachment, which day is referred to as the Customer's Initial Service
Date (CISD). Different Services may have different billing cycles, and
so the billing months may be
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<PAGE> 10
Data Service Terms and Pricing Page 3 of 11
staggered. For each service, however, the Term will begin within one
month after the Term begins for the first service provided under this
Agreement.
3. MINIMUM REVENUE COMMITMENTS (MRC). The following Minimum Revenue
Commitments apply under this Attachment. For each Minimum Revenue
Commitment, CUSTOMER commits that the Eligible Charges it incurs during
each Commitment Period will equal or exceed the amount of the
commitment. If CUSTOMER fails to meet any Minimum Revenue Commitment in
a Commitment Period, then CUSTOMER will pay a Shortfall Charge equal to
the difference between the Minimum Revenue Commitment and the amount of
Eligible Charges for that Minimum Revenue Commitment incurred during the
Commitment Period. [***]
A. ADJUSTABLE MINIMUM MONTHLY REVENUE COMMITMENTS (MMRCS).
1. At any time during the Term, CUSTOMER may elect to
increase any Adjustable MMRC to an amount that is less
than or equal to the CUSTOMER's billed MMRC Eligible
Charges for the most recent billing month, by providing
written notice to AT&T at least 30 days prior to the
beginning of the billing month for which the new MMRC will
apply.
B. ADJUSTABLE PRIVATE LINE AND SATELLITE MMRC.
1. For Months [***] of the Term, the initial Private Line and
Satellite MMRC is [***] Dollars. Beginning in Month [***]
through Month [***] of the Term, the initial Private Line
and Satellite MMRC is [***] Dollars. The Private Line and
Satellite MMRC is an adjustable MMRC described above. Each
month of the Term is a Commitment Period.
2. The Private Line and Satellite MMRC applies to the
following Services provided under this Attachment, except
it does not apply to Services to which another Adjustable
MMRC applies under this Attachment.
(a) Services provided under this Agreement that if
provided under AT&T Tariff F.C.C. No. 9 would be
eligible to receive discount under the AT&T Tariff
F.C.C. No. 9 Multiservice Volume Pricing Plan
(b) AT&T ACCUNET SONET T155 Service;
(c) AT&T International ACCUNET Spectrum of Digital
Services-Canada
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<PAGE> 11
Data Service Terms and Pricing Page 4 of 11
(d) AT&T International ACCUNET Spectrum of Digital
Services-Mexico
(e) AT&T International ACCUNET T1.5 Service-Canada
(f) AT&T International ACCUNET T1.5 Service-Mexico
(g) AT&T International DATAPHONE Digital Service-Canada
(h) AT&T International DATAPHONE Digital Service-Mexico
(i) AT&T International ACCUNET Digital Services
(j) AT&T International ACCUNET Digital Direct Link
Service
(k) AT&T International ACCUNET 2.048 Mbps
Service-Mexico
(l) AT&T International ACCUNET T45 Service-Canada
(m) AT&T International ACCUNET T45 Service-Overseas
(n) AT&T International Satellite Shared Earth Station
Service
(o) AT&T International Satellite Shared Earth Station
Direct Link Service
3. The Eligible Charges for the Private Line and Satellite
MMRC consist of the net Monthly Recurring Charges for
these services, after the application of any discounts or
credits.
C. ADJUSTABLE FRAME RELAY MMRC.
1. The initial Frame Relay MMRC is [***] Dollars. The Frame
Relay MMRC is an adjustable MMRC described above. Each
month of the Term is a Commitment Period.
2. The Frame Relay-MRC applies to the Services provided under
this Attachment that if provided under AT&T Tariff F.C.C.
No. 4 would be eligible to receive discount under the AT&T
Tariff F.C.C. No. 4 Frame Relay Volume Pricing Plan.
3. The Eligible Charges for the Frame Relay MMRC consist of
the net Monthly Recurring charges for these services,
after the application of any discounts or credits.
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<PAGE> 12
Data Service Terms and Pricing Page 5 of 11
D. ADJUSTABLE LOCAL CHANNEL MMRC.
1. The initial Local Channel MMRC is [***] Dollars. The Local
Channel MMRC is an adjustable MMRC as described above.
Each month of the Term is a Commitment Period.
2. The Local Channel MMRC applies to the Services provided
under this Agreement that if provided under AT&T Tariff
F.C.C. No. 11 would be eligible to receive discount under
the AT&T Tariff F.C.C. No. 11 Multiservice Volume Pricing
Plan.
3. The Eligible Charges for the Local Channel MMRC consist of
the net Monthly Recurring charges for these services,
after the application of any discounts or credits.
4. RATES AND CHARGES. The Recurring and Nonrecurring Rates and Charges for
the Services provided under this Attachment are the same as the
undiscounted Recurring and Nonrecurring Rates and Charges under the
applicable Tariffs, as amended from time to time, except as specified in
this Attachment. AT&T reserves the right to increase from time to time
the rates for Services under this Agreement, regardless of any
provisions that would otherwise stabilize rates or limit rate increases,
relating to charges or payment obligations imposed on AT&T stemming from
an order, rule or regulation of the Federal Communications Commission or
a court of competent jurisdiction, concerning universal service fund
("USF") charges, or as otherwise needed to recover amounts it is
required by governmental or quasi-governmental authorities to collect
from or pay to others in support of statutory or regulatory programs.
AT&T will make rate adjustments under this provision as necessary.
A. The Monthly Recurring Charge for an AT&T ACCUNET T1.5 Service IOC
and its associated Access Connections and Function Connections is
as follows. The Nonrecurring Installation Charge for the IOC is
[***].
<TABLE>
<CAPTION>
Monthly Charge
--------------
Mileage Band Fixed Per Mile
------------ ----- --------
<S> <C> <C>
0-100 [***] [***]
101+ [***] [***]
</TABLE>
B. The Monthly Recurring Charge for an AT&T ACCUNET T45 Service IOC
and its associated Access Connections and Function Connections is
as follows. The Nonrecurring Installation Charge for the IOC is
$0.00.
<TABLE>
<CAPTION>
Monthly Charge
--------------
Mileage Band Fixed Per Mile
------------ ----- --------
<S> <C> <C>
0-100 [***] [***]
101+ [***] [***]
</TABLE>
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<PAGE> 13
Data Service Terms and Pricing Page 6 of 11
C. The Monthly Recurring Charge for an AT&T ACCUNET SONET T155
Service IOC and its associated Access Connections and Function
Connections is as follows. The Nonrecurring Installation Charge
for the IOC is [***]. A twelve-month Minimum In-Service Period
applies for each AT&T ACCUNET SONET T155 Service IOC installed.
If any such AT&T ACCUNET SONET T155 Service IOC is disconnected
prior to the end of the Minimum In-Service Period, CUSTOMER will
be billed for the remaining Minimum In-Service period times the
Monthly Recurring Charges of SONET T155 Service plus the
Nonrecurring Installation Charge for the IOC of [***].
<TABLE>
<CAPTION>
Monthly Charge
--------------
Mileage Band Fixed Per Mile
------------ ----- --------
<S> <C> <C>
0-100 [***] [***]
101+ [***] [***]
</TABLE>
D. When AT&T 1.544 Mbps Echo Cancellation is associated with an AT&T
ACCUNET T1.5 IOC, the Monthly Charge is [***] per IOC and the
Non-recurring Installation Charge is [***] per IOC.
5. DISCOUNTS. The following monthly discounts are the only discounts for
the Services provided under this Attachment. No other discounts apply.
A. PRIVATE LINE AND SATELLITE SERVICES. A discount will be applied
each month, as specified following, to the Monthly Recurring
Charges for the Services to which the Private Line and Satellite
MMRC applies.
1. AT&T Private Line Services.
(a) AT&T ACCUNET T1.5 Service IOCs- [***] Discount.
(b) AT&T ACCUNET T45 Service IOC - [***] Discount.
(c) AT&T ACCUNET SONET T155 Service IOC - [***]
Discount.
(d) For all other domestic AT&T Private Line Services,
the amount of the discount is the same as the
discount specified in AT&T Tariff F.C.C. No. 9, for
a three (3) year Multi-Service Volume Pricing Plan
("MSVPP") with the highest MMRC equal to or less
than the Private Line and Satellite MMRC that
applies under this Agreement for that month.
2. AT&T International Private Line Services. A discount will
be applied each month to the Monthly Recurring charges for
the following AT&T International Private Line Services.
The amount of the discount will be determined each month
based on the Private Line and Satellite MMRC Eligible
Charges for that month, as specified in the following
table:
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<PAGE> 14
Data Service Terms and Pricing Page 7 of 11
Service Discount
AT&T International ACCUNET Spectrum of [***]
Digital Services
-Canada and Mexico
-Speeds equal to and less
than 64Kbps
AT&T International ACCUNET Spectrum of [***]
Digital Services
-Canada and Mexico
-Speeds equal to and greater than 128Kbps
AT&T International ACCUNET T1.5 Service- [***]
Canada and Mexico
AT&T International DATAPHONE Digital [***]
Service
-Canada and Mexico
AT&T International ACCUNET Digital Services [***]
AT&T International ACCUNET Digital Direct [***]
Link Service
AT&T International ACCUNET 2.048 Mbps [***]
Service
-Mexico
AT&T International ACCUNET T45 Service [***]
-Canada
AT&T International ACCUNET T45 Service [***]
-Overseas
3. AT&T Satellite Services. A discount will be applied each
month to the Monthly Recurring charges for the following
AT&T International Satellite Services. The amount of the
discount will be determined each month based on the
Private Line and Satellite MMRC Eligible Charges for that
month, as specified in the following table:
Service Discount
AT&T International Satellite [***]
Services
-Shared Earth Station, and
-Shared Earth Station Direct Link
Service
B. LOCAL CHANNEL SERVICES. A discount will be applied each month to
the Monthly Recurring Charges for the Services to which the Local
Channel MMRC applies
1. AT&T TERRESTRIAL T1.5 Local Channel Service - [***]
Discount.
2. AT&T TERRESTRIAL T45 Local Channel Service - [***]
Discount.
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<PAGE> 15
Data Service Terms and Pricing Page 8 of 11
3. For all other AT&T Local Channel Services, the amount of
the discount is the same as the discount specified in AT&T
Tariff F.C.C. No. 11, for a three (3) year Multi-Service
Volume Pricing Plan with the highest MMRC equal to or less
than the Local Channel MMRC that applies under this
Agreement for that month.
C. AT&T FRAME RELAY SERVICES. A discount will be applied each month
to the Monthly Recurring Charges for the Frame Relay Services
that, if provided under AT&T Tariff F.C.C. No. 4, as amended from
time to time, would be eligible to receive discount under the
Frame Relay Volume Pricing Plan.
6. CREDITS AND WAIVERS. The following credits and waivers are the only
credits and waivers that apply to the Services provided under this
Attachment. No other promotions, credits or waivers apply. The maximum
combined value of the credits that will be applied and the Nonrecurring
Installation charges that will be waived under this Section 6 shall not
exceed [***] during the Term of this Attachment.
A. CREDIT FOR INSTALLATION OF LOCAL CHANNELS SUBJECT TO AVA OR AVP.
AT&T will apply a credit to offset the amount of Installation
Charges incurred by CUSTOMER under Tariff F.C.C. No. 11, as
amended from time to time, for the installation of 1.544 Mbps or
45 Mbps Local Channels under a Tariff 11 Access Value Arrangement
(AVA) or Access Value Plan (AVP) for use in connection with
another Service provided under this Attachment. No credit applies
with respect to Local Channels that are disconnected and
reconnected after this Attachment is made part of the Agreement.
1. Minimum In-Service Period. A twelve-month Minimum
In-Service Period applies for any Local Channels with
respect to which such a credit is applied. If any such
Local Channel is disconnected prior to the end of the
Minimum In-Service Period, CUSTOMER will be billed an
amount equal to the credit previously applied with respect
to that Local Channel.
B. [***]
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[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
Not for Publication - All Rights Reserved
<PAGE> 16
Data Service Terms and Pricing Page 9 of 11
[***]
(a) AT&T MSVPP-Eligible Private Line Services -
Installation Charges for AT&T Private Line Services
provided under this Attachment that, if provided
under AT&T Tariff F.C.C. No. 9, as amended from
time to time, would be eligible to receive discount
under the Tariff 9 Multiservice Volume Pricing
Plan. This Installation Charge Waiver does not
apply to any Access Connection or Function
Connection which provides the physical connection
to (i) Custom Network Service obtained from AT&T
Tariff F.C.C. No. 1, (ii) AT&T MultiQuest Service
obtained from AT&T Tariff F.C.C. No. 1, or (iii)
Custom 800 Service obtained from AT&T Tariff F.C.C.
No. 2;
(b) AT&T FRVPP-Eligible Frame Relay Services -
Installation Charges for AT&T Frame Relay Services
provided under this Attachment that, if provided
under AT&T Tariff F.C.C. No. 4, as amended from
time to time, would be eligible to receive discount
under the Tariff 4 Frame Relay Volume Pricing Plan;
(c) AT&T International ACCUNET Spectrum of Digital
Services-Canada
(d) AT&T International ACCUNET Spectrum of Digital
Services-Mexico
(e) AT&T International ACCUNET T1.5 Service-Canada
(f) AT&T International ACCUNET T1.5 Service-Mexico
(g) AT&T International DATAPHONE Digital Service-Canada
(h) AT&T International DATAPHONE Digital Service-Mexico
(i) AT&T International ACCUNET Digital Services
(j) AT&T International ACCUNET Digital Direct Link
Service
(k) AT&T International ACCUNET 2.048 Mbps
Service-Mexico
(l) AT&T International ACCUNET T45 Service-Canada
(m) AT&T International ACCUNET T45 Service-Overseas
- --------
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
Not for Publication - All Rights Reserved
<PAGE> 17
Data Service Terms and Pricing Page 10 of 11
(n) AT&T International Satellite Shared Earth Station
Service
(o) AT&T International Satellite Shared Earth Station
Direct Link Service
(p) AT&T MSVPP-Eligible Local Channel Services -
Installation Charges for AT&T Local Channel
Services provided under this Attachment that, if
provided under AT&T Tariff F.C.C. No. 11, as
amended from time to time, would be eligible to
receive discount under the Tariff 11 Multiservice
Volume Pricing Plan; and
(q) AT&T ACCUNET Service Office Connections, Channel
Options and Office
Functions - Installation Charges for the following
AT&T ACCUNET Service Office Connections, Channel
Options and Office Functions, when associated with
Inter Office Channels installed under this
Agreement. This Installation Charge Waiver does not
apply to any Access Connection or Function
Connection which provides the physical connection
to (i) Custom Network Service obtained from AT&T
Tariff F.C.C. No. 1, (ii) AT&T MultiQuest Service
obtained from AT&T Tariff F.C.C. No. 1, or (iii)
Custom 800 Service obtained from AT&T Tariff F.C.C.
No. 2.
(1) AT&T ACCUNET T1.5 Service Access Connections
(USOC O41AC)
(2) AT&T ACCUNET T1.5 Service Function
Connections (USOC NRZFC)
(3) AT&T ACCUNET T1.5 Service Enhanced Diversity
Routing (USOC DY7D1)
(4) AT&T ACCUNET T1.5 Service Specified Routing
and Avoidance (USOC DY7AS)
(5) AT&T ACCUNET T45 Service Access Connections
(USOC O41AC)
(6) AT&T ACCUNET T45 Service Function
Connections (USOC NRZFC)
(7) AT&T ACCUNET T45 Service Enhanced Diversity
Routing (USOC DY7D1)
(8) AT&T ACCUNET T45 Service Specified Routing
and Avoidance (USOC DY7AS)
Not for Publication - All Rights Reserved
<PAGE> 18
Data Service Terms and Pricing Page 11 of 11
(9) AT&T ACCUNET T45 Service M28 Multiplexing
(USOC M2X)
(10) AT&T ACCUNET SONET T155 Service Access
Connections (USOC 041AC)
(11) AT&T ACCUNET SONET T155 Service Function
Connections (USOC NRZFC)
(12) AT&T 1.544 Mbps Echo Cancellation
7. CLASSIFICATIONS, PRACTICES AND REGULATIONS. Except as otherwise provided
in this Attachment, the rates and regulations that apply to the Services
provided under this Attachment are as set forth in the applicable
Tariffs.
A. DETARIFFING. If, during the Term of this Attachment, any of the
tariffs of AT&T referenced herein are canceled, in whole or in
part, pursuant to a statutory change, order or requirement of a
governmental or judicial authority of competent jurisdiction
requiring detariffing, then, following such cancellation, any
rates, terms and conditions of such tariffs that had been
applicable to the Services provided under this Agreement will
continue to apply, based on the language of the tariffs in effect
as of the date of cancellation.
B. DEFINITIONS. Terms not otherwise defined in this Attachment or in
the Agreement have the meanings provided in the applicable
Tariffs.
8. TERMINATION CHARGE. The following provision applies in lieu of any
Discontinuance With or Without Liability provisions specified in the
applicable Tariffs.
[***]
End of Attachment
- --------
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
Not for Publication - All Rights Reserved
<PAGE> 1
EXHIBIT 10.34
PRINTERS' SQUARE LEASE
<PAGE> 2
LEASE
1. BASIC LEASE PROVISIONS AND IDENTIFICATION OF EXHIBITS
1.1 Basic Lease Provisions.
(A) Buildings and Address:
Printers' Square
600-780 South Federal Street,
76 West Polk Street and
75 West Harrison Street
Chicago, Illinois 60605
(B) Landlord and Address:
LaSalle Bank National
Association formerly known as
LaSalle National Bank, LaSalle National Trust N.A.,
not personally, but solely as Trustee under Trust Agreement dated
April 14, 1978 and known as Trust Number 54214
c/o Anvan Realty & Management
1901 South Meyers Road, Suite 220
Oakbrook Terrace, IL 60181
(C) Tenant and Current Address:
Universal Access, Inc.
100 North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
(D) Date of Lease: December 13, 1999
(E) Lease Term: Ten (10) Years and Seventeen (17) Days
(F) Commencement Date of Term: December 15, 1999
(G) Expiration Date of Term: December 31, 2009
(H) Monthly Base Rent:
Suite 121 (891 RSF)
<TABLE>
<CAPTION>
Annual Base Rent in Monthly Base Rent in Rental Rate
Period U.S. Dollars U.S. Dollars PSF
------ ------------------- -------------------- -----------
<S> <C> <C> <C>
12/15/99 - 3/31/00 $15,574.68 $1,297.89 $17.48
4/1/00 - 3/31/01 16,046.88 1,337.24 18.01
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Annual Base Rent in Monthly Base Rent in Rental Rate
Period U.S. Dollars U.S. Dollars PSF
------ ------------------- -------------------- -----------
<S> <C> <C> <C>
4/1/01 - 12/31/02 20,047.56 1,670.63 22.50
1/1/03 - 12/31/03 24,342.12 2,028.51 27.32
1/1/04 - 12/31/04 25,072.74 2,089.40 28.14
1/1/05 - 12/31/05 25,821.18 2,151.77 28.98
1/1/06 - 12/31/06 26,596.32 2,216.36 29.85
1/1/07 - 12/31/07 27,398.28 2,283.19 30.75
1/1/08 - 12/31/08 28,218.00 2,351.50 31.67
1/1/09 - 12/31/09 29,064.48 2,422.04 32.62
</TABLE>
Suite 123 (1,807 RSF)
<TABLE>
<CAPTION>
Annual Base Rent in Monthly Base Rent in Rental Rate
Period U.S. Dollars U.S. Dollars PSF
------ ------------------- -------------------- -----------
<S> <C> <C> <C>
12/15/99 -3/14/00 0* 0* 0*
3/15/00 - 12/31/00 $45,174.96 $3,764.58 $25.00
1/1/01 - 12/31/01 46,530.24 3,877.52 25.75
1/1/02 - 12/31/02 47,921.64 3,993.47 26.52
1/1/03 - 12/31/03 49,367.28 4,113.94 27.32
1/1/04 - 12/31/04 50,849.04 4,237.42 28.14
1/1/05 - 12/31/05 52,366.92 4,363.91 28.98
1/1/06 - 12/31/06 53,938.92 4,494.91 29.85
1/1/07 - 12/31/07 55,565.28 4,630.44 30.75
1/1/08 - 12/31/08 57,227.64 4,768.97 31.67
1/1/09 - 12/31/09 58,944.36 4,912.03 32.62
</TABLE>
- --------
* Provided no Event of Default has occurred (and if such Event of
Default occurs Tenant shall pay Base Rent for such 3-month period in the amount
of $3,764.58 per month).
3
<PAGE> 4
EQUIPMENT SPACES:
<TABLE>
<CAPTION>
ANNUAL RENTAL RATE PER USABLE
PERIOD SQUARE FOOT IN U.S. DOLLARS
------ -----------------------------
<S> <C>
12/15/99 - 12/31/00 $12.50
1/1/01 - 12/31/01 12.88
1/1/02 - 12/31/02 13.26
1/1/03 - 12/31/03 13.66
1/1/04 - 12/31/04 14.07
1/1/05 - 12/31/05 14.49
1/1/06 - 12/31/06 14.93
1/1/07 - 12/31/07 15.37
1/1/08 - 12/31/08 15.83
1/1/09 - 12/31/09 16.31
</TABLE>
The actual amount of Monthly Base Rent payable for any Equipment Space
shall be determined based upon the rates listed above when the exact size of
such space is determined and a Space Acceptance Agreement is fully executed.
(I) Rentable Area Of The Premises
(i) Suite 121 - 891 rentable square feet
(ii) Suite 123 - 1,807 rentable square feet
(iii) Equipment Spaces - To be determined prior to the
Commencement Date pursuant to section 2 hereof
(a) Generator Space - approximately 242 rentable square
feet (to be determined in accordance with Space
Acceptance Agreement)
(b) Antenna Space - square footage shall be in
accordance with the Space Acceptance Agreements to
be executed pursuant to the terms hereof
(c) HVAC Space - square footage shall be in accordance
with the Space Acceptance Agreements to be executed
pursuant to the terms hereof
(J) Security Deposit: $14,256
(K) Floor: First Floor
(L) Options:
4
<PAGE> 5
(i) Options to renew as set forth in section 29 below
(ii) Right of First Opportunity as set forth in section 30
below
1.2 Identification of Exhibits. The exhibits set forth below and
attached to this Lease are incorporated in this Lease by this reference:
EXHIBIT A - Plan of Premises
EXHIBIT B - Intentionally Omitted
EXHIBIT C - Pathway Use Fees
EXHIBIT D - Pathway Confirmation Agreement Form
EXHIBIT E - Space Acceptance Agreement
EXHIBIT F - Plan of Option Space
2. PREMISES AND TERM
2.1 Lease of Premises; Description of Complex. Landlord leases to Tenant
and Tenant leases from Landlord the premises known as Suite 121 and Suite 123
(collectively, the "Premises") shown on Exhibit A, which are or will be
contained in the Buildings (the "Buildings") located at the address stated in
l.l.A., which Buildings are part of an office, commercial and apartment building
complex known as Printers' Square and located at 600-780 South Federal Street,
76 West Polk Street and 75 West Harrison Street, Chicago, Illinois, upon the
following terms and conditions. For purposes of this Lease, "Complex" shall mean
all land, buildings and improvements, including the "Common Areas" (hereinafter
defined) comprising Printers' Square.
(A) The office and commercial area of the Complex means:
(1) The entire first floor of the entire Complex with
entrance ways at the following addresses: 76 West Polk, 700 South
Federal, 620 South Federal, 600 South Federal and 75 West
Harrison Streets.
(2) The entire second and third floors at 600 South
Federal, 620 South Federal and 640 South Federal Streets.
(3) The entire fourth floor at 600 South Federal and 620
South Federal Streets.
(4) The entire fifth, sixth, seventh and eighth floors at
620 South Federal Street.
(B) The residential area of the Complex means:
(1) The entire second floor at 780 South Federal Street,
740 South Federal Street and 680 South Federal Street.
(2) The entire third floor at 780 South Federal Street,
740 South Federal Street and 680 South Federal Street.
(3) The entire fourth floor at 780 South Federal Street,
740 South Federal Street, 680 South Federal Street and 640 South
Federal Street.
5
<PAGE> 6
(4) The entire fifth, sixth, seventh and eighth floors at
780 South Federal Street, 740 South Federal Street, 680 South
Federal Street and 640 South Federal Street.
(5) The entire ninth floor at 780 South Federal Street,
740 South Federal Street and 680 South Federal Street.
(6) The entire tenth, eleventh and twelfth floors at 780
South Federal Street and 740 South Federal Street.
2.2 Term. The term of this Lease (the "Term") shall commence on the date
(the "Commencement Date"), which is the earlier to occur of the date stated in
section 1.1.F. or the date Tenant first occupies all or part of the Premises for
the conduct of business. The Term shall expire on the date (the "Expiration
Date") stated in section l.l.G, unless sooner terminated, as otherwise provided
in this Lease.
3. RENT. Tenant agrees to pay to Landlord at the office of the managing agent
(the "Manager") of the beneficiary of Landlord (the "Beneficiary"), or at such
other place designated by Landlord, without any prior notice or demand and
without any deduction or set off whatsoever, base rent at the initial monthly
rate stated in section l.l.H ("Monthly Base Rent"). Monthly Base Rent is subject
to adjustment pursuant to section 22.2, and as adjusted is called "Adjusted
Monthly Base Rent." Adjusted Monthly Base Rent shall be paid monthly in advance
on the first day of each month of the Term, except that the first installment of
Monthly Base Rent shall be paid by Tenant to Landlord upon execution of this
Lease by Tenant. Adjusted Monthly Base Rent shall be prorated for partial months
within the Term. All charges, costs and sums required to be paid by Tenant to
Landlord under this Lease in addition to Adjusted Monthly Base Rent shall be
considered additional rent, and Adjusted Monthly Base Rent and additional rent
shall be collectively called "Rent." Tenant's covenant to pay Rent shall be
independent of every other covenant in this Lease. In the event Tenant desires
to interconnect its telecommunications equipment with the telecommunications
equipment of other tenants in the Building, Tenant may, upon obtaining
Landlord's written approval, which approval shall not be unreasonably withheld
or delayed, do so in accordance with the terms and conditions of this Lease,
specifically including the terms of section 10 hereof. Notwithstanding the
foregoing, Landlord shall perform all work necessary to effectuate such
interconnections at commercially reasonable rates and Tenant shall reimburse
Landlord for the costs of such work within ten (10) business days after receipt
of an invoice from Landlord for same. The pathways granted hereunder shall not
be considered a part of the Premises and shall be granted as an irrevocable
license (except upon an Event of Default hereunder) for use in common with
Landlord and other tenants of the Building which license shall be coterminous
with the Term of this Lease. Notwithstanding anything contained herein to the
contrary, if any license granted by Landlord to Tenant hereunder or under a
Pathway Confirmation Agreement or Space Acceptance Agreement is revoked or
terminated by Landlord except in connection with an Event of Default under this
Lease, Rent due under this Lease shall abate commencing as the date of such
revocation and continuing until such license is restored or until Landlord has
provided Tenant with substitute space in the Building. The pathway use fees
shall be as set forth on Exhibit C attached hereto.
4. SECURITY DEPOSIT. As security for the performance of its obligations under
this Lease, Tenant, upon its execution of this Lease, has paid to Landlord a
security deposit (the "Security Deposit") in the amount stated in section l.l.J.
The Security Deposit may be applied by Landlord to cure any default of Tenant
under this Lease, and upon notice by Landlord of such application, Tenant shall
replenish the Security Deposit in full by promptly paying to Landlord the amount
so applied. Landlord shall not pay any interest on the Security Deposit. Within
forty-five (45) days after the Expiration Date, Landlord shall return to
6
<PAGE> 7
Tenant the balance, if any, of the Security Deposit. The Security Deposit shall
not be deemed an advance payment of Rent or a measure of damages for any default
by Tenant under this Lease, nor shall it be a bar or defense to any action which
Landlord may at any time commence against Tenant.
5. SERVICES.
5.1 Landlord's General Services. Landlord shall provide the following
services:
(A) Intentionally Deleted;
(B) city water from the regular Buildings fixtures for drinking,
lavatory and toilet purposes only;
(C) Intentionally Deleted;
(D) customary cleaning, mowing, groundskeeping, snow removal and
trash removal in the "Common Areas" (hereinafter defined);
(E) washing of windows in the Premises, inside and outside at
reasonable intervals;
(F) adequate passenger elevator service in common with other
tenants of the Buildings and freight elevator service subject to
scheduling by Landlord;
(G) heating, air-conditioning and lighting of Common Areas (House
Meter); and
(H) security services, the nature and extent of which shall be
determined by Landlord in its sole discretion.
5.2 Additional and After-Hour Services. Landlord shall not be obligated
to furnish any services or utilities, other than those stated in section 5.1
above. If Landlord elects to furnish services or utilities requested by Tenant
in addition to those listed in section 5.1 or at times other than those stated
in section 5.1, Tenant shall pay to Landlord the prevailing charges for such
services and utilities within ten (10) days after billing. If Tenant fails to
make any such payment, Landlord may, without notice to Tenant and in addition to
Landlord's other remedies under this Lease, discontinue any or all of such
additional or after-hour services. No such discontinuance of any service shall
result in any liability of Landlord to Tenant or be considered an eviction or a
disturbance of Tenant's use of the Premises.
5.3 Delays in Furnishing Services. If, as a result of any failure to
furnish or delay in furnishing any of the services described in section 5.1, the
Premises are rendered substantially untenantable for a period of 72 consecutive
hours and the Tenant is unable to occupy the Premises due to such
untenantability, then, commencing upon the expiration of said 72-hour period,
Rent shall abate for the duration of such untenantability until normal services
are resumed. Tenant agrees that Landlord shall not be liable for damages for
failure to furnish or delay in furnishing any service if attributable to any of
the causes described in section 26.7. In addition, no such failure or delay
shall be considered to be an eviction or disturbance of Tenant's use or
possession of the Premises, or relieve Tenant from its obligation to pay all
Rent when due or from any other obligations of Tenant under this Lease, except
as stated in the first sentence of this section.
7
<PAGE> 8
5.4 Tenant's Utilities. Tenant shall make arrangements directly with the
telephone company and the public utility electric company servicing the
Buildings for telephone service and all electric power or current in the
Premises desired by Tenant. Tenant shall pay for all telephone and electric
service (other than for the services provided under section 5.1.A) used or
consumed in the Premises, including the cost of installation of any separate
meters. Tenant shall also pay for the maintenance and replacement of all light
fixtures, electrical switches, electrical outlets, lamps, bulbs, tubes, ballasts
and starters located in the Premises.
6. POSSESSION, USE AND ENJOYMENT.
6.1 Possession and Use of Premises. Tenant shall be entitled to
possession of the Premises as of the Commencement Date. Tenant shall occupy and
use the Premises only as a telecommunications center, including switching, line
wholesaling, co-location facilities provider and licensor, and for ancillary
uses thereto, and for no other use or purpose. Tenant shall not occupy or use
the Premises or permit the use or occupancy of the Premises for any purpose or
in any manner which:
(A) is unlawful or in violation of any applicable legal,
governmental or quasi- governmental requirement, ordinance or rule
(including the Board of Fire Underwriters);
(B) may be dangerous to persons or property;
(C) may invalidate or increase the amount of premiums for any
policy of insurance affecting the Buildings or the Complex, and if any
additional amounts of insurance premium are so incurred, Tenant shall
pay to Landlord the additional amounts on demand; or
(D) may create a nuisance, disturb any other tenant of the
Buildings or the Complex or the occupants of neighboring property or
injure the reputation of the Buildings or the Complex.
6.2 Quiet Enjoyment. So long as Tenant is not in default under this
Lease, Tenant shall be entitled to peaceful and quiet enjoyment of the Premises,
subject to the terms of this Lease.
6.3 Common Areas.
(A) For purposes of this Lease "Common Areas " shall mean all
areas, improvements, space, equipment and special services in or at the
Complex provided by Landlord for the common or joint use and benefit of
tenants, customers, and other invitees, including, without limitation,
driveways, entrances and exits, retaining walls, landscaped areas, truck
serviceways or tunnels, loading docks, pedestrian walkways, walls,
malls, courtyards, concourses, stairs, ramps, sidewalks, washrooms,
signs identifying or advertising the Complex, maintenance and utility
room and closets, hallways, lobbies, elevators and their housing and
rooms, common window areas, walls and ceiling in Common Areas, and trash
or rubbish areas.
(B) Provided Tenant is not in default under this Lease, Tenant
shall be entitled to use, in common with others entitled thereto, the
Common Areas as may be designated from time to time by Landlord, subject
to the terms and conditions of this Lease and to the rules and
regulations for the use thereof as may be reasonably prescribed from
time to time by Landlord. If the size or configuration of the Common
Areas is diminished or altered, Landlord shall not be liable to Tenant
8
<PAGE> 9
therefor, nor shall Tenant be entitled to any compensation or diminution
or abatement of Adjusted Monthly Base Rent, nor shall such diminution or
alteration of the Common Areas be considered a constructive or actual
eviction.
7. CONDITION OF PREMISES. Tenant shall notify Landlord in writing within thirty
(30) days after Tenant takes possession of the Premises of any defects in the
Premises claimed by Tenant. Except for defects stated in such notice and latent
defects, Tenant shall be conclusively presumed to have accepted the Premises in
the condition existing on the date Tenant first takes possession, and to have
waived all claims relating to the condition of the Premises. No agreement of
Landlord to alter, remodel, decorate, clean or improve the Premises, the
Buildings, the Common Areas or the Complex and no representation regarding the
condition of the Premises, the Buildings, the Common Areas or the Complex has
been made by or on behalf of Landlord to Tenant, except as stated in this Lease.
8. ASSIGNMENT AND SUBLETTING.
8.1 Assignment and Subletting. Without the prior written consent of
Landlord, Tenant shall not sublease the Premises, or assign, mortgage, pledge,
hypothecate or otherwise transfer or permit the transfer of this Lease or the
interest of Tenant in this Lease, in whole or in part, by operation of law or
otherwise. Landlord's consent to a proposed assignment (other than an assignment
to be given for collateral purposes) or for a proposed sublease shall not be
unreasonably withheld, conditioned or delayed. If Tenant desires to assign this
Lease or enter into any sublease of the Premises, Tenant shall deliver written
notice of such intent to Landlord, together with a copy of the proposed
assignment or sublease at least forty-five (45) days prior to the effective date
of the proposed assignment or commencement date of the term of the proposed
sublease. Any approved sublease shall be expressly subject to the terms and
conditions of this Lease, and Tenant shall pay Landlord on the first day of each
month during the term of the sublease fifty percent (50%) of the excess of all
rent and other consideration attributable to the sublease if and when received
from the subtenant for each month over that portion of the Adjusted Monthly Base
Rent due under this Lease for said month, which is allocable on a square footage
basis to the space sublet. In the event of any approved sublease or assignment,
Tenant shall not be released or discharged from any liability, whether past,
present or future, under this Lease, including any renewal term of this Lease.
For purposes of this Section, an assignment shall be considered to include a
change in the majority ownership or control of Tenant if Tenant is a partnership
or a corporation whose shares of stock are not traded publicly.
(A) Notwithstanding anything to the contrary herein, Tenant shall
not be required to obtain Landlord's consent to any assignment of this
Lease or sublease of the Premises, or any portion thereof, (x) to an
organization that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control
with Tenant (y) in conjunction with a transaction wherein Tenant becomes
an entity whose shares of stock or other ownership interests are,
directly or indirectly, sold on a national exchange or an inter-dealer
quotation system (and in the event the foregoing transaction has
occurred, any subsequent sale of ownership interests or issuance of new
ownership interests, directly or indirectly in Tenant), or (z) in
conjunction with the merger, consolidation or amalgamation of Tenant
with a third party or the sale of all, or substantially all, of the
assets used by Tenant in the conduct of its business at the Premises;
provided, that except in the instance described in section 8.1(A)(y),
Tenant shall comply with the following requirements: (a) Landlord
receives at least 10 days', prior written notice of any such assignment
or sublease, (b) such entity has a good reputation and operates a
substantially similar type of business to that of Tenant, (c) the
minimum net worth of assignee or sublessee is equal to or greater than
the net worth of
9
<PAGE> 10
Tenant immediately prior to such assignment or sublease, as evidenced to
Landlord's reasonable satisfaction by financial statements of such
assignee or sublessee delivered to, and approved in writing by, Landlord
prior to such assignment or sublease, (d) in the event of an assignment,
the assignee shall assume the obligations of the tenant under this Lease
by a written assumption agreement delivered to Landlord prior to the
effective date of such assignment, and (e) Tenant shall not be released
from any liability, whether past, present or future, under this Lease,
[including any renewal term or for any expansion space, generator space,
antenna space or HVAC space], by reason of such assignment or sublease.
A Transfer pursuant to the proviso in the immediately preceding sentence
is herein called a "Permitted Transfer." The word "control," as used
herein, shall mean the power to direct or cause the direction of the
management and policies of the controlled entity through ownership of
more than fifty percent (50%) of the voting securities in such
controlled entity; and
(B) Landlord acknowledges that Tenant's permitted use requires
the installation in the Premises of certain telecommunications equipment
owned by customers, licensees and co-locators of Tenant ("Tenant
Customers") in order for such Tenant Customers to interconnect with
Tenant's equipment or to permit Tenant to manage or operate such Tenant
Customers' equipment. Notwithstanding anything to the contrary provided
herein, Landlord approves such use of portions of the Premises by Tenant
Customers for such purposes without Landlord's further consent. All use
or occupancy of the Premises by said Tenant Customers shall comply with
any and all applicable governmental laws, rules, or regulations, and the
provisions of this Lease. Notwithstanding the foregoing to the contrary,
Landlord agrees not to charge Tenant for any portion of fees received by
Tenant from Tenant's Customers or to exercise any rights of recapture
otherwise available to Landlord hereunder.
8.2 Recapture Agreement. If Tenant desires to enter into any sublease of
the Premises, Landlord shall have the option to exclude from the Premises
covered by this Lease, the space proposed to be sublet by Tenant, effective as
of the proposed commencement date of sublease of said space by Tenant. Landlord
may exercise said option by giving Tenant written notice within fifteen (15)
days after receipt by Landlord of Tenant's notice of the proposed sublease. If
Landlord exercises said option, Tenant shall surrender possession of the
proposed sublease space to Landlord on the effective date of exclusion of said
space from the Premises covered by this Lease, and neither party hereto shall
have any further rights or liabilities with respect to said space under this
Lease. Effective as of the date of exclusion of any portion of the Premises
covered by this Lease pursuant to this paragraph (i) the Monthly Base Rent
specified in section 1.1.H shall be reduced in the same proportion as the number
of square feet of the rentable area contained in the portion of the Premises so
excluded bears to the number of square feet of rentable area contained in the
Premises immediately prior to such exclusion, and (ii) the rentable area of the
Premises specified in section 1.1.1 shall be decreased by the number of square
feet of rentable area contained in the portion of the Premises so excluded, for
all purposes under this Lease.
9. MAINTENANCE.
9.1 Landlord's Maintenance. Landlord, at its expense, shall maintain and
make necessary repairs to the structural elements and exterior windows of the
buildings and the Common Areas, and, subject to section 5.4, the electrical,
plumbing, heating, ventilation and air-conditioning system therein, except that:
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(A) Landlord shall not be responsible for the maintenance, or
replacement of any such systems which are located within the Premises
and are supplemental or special to the Buildings' standard system, or
floor or wall coverings in the Premises; and
(B) The cost of performing any of said maintenance or repairs
caused by the negligence of Tenant, its employees, agents, servants,
licensees, subtenants, contractors or invitees, or the failure of Tenant
to perform its obligations under this Lease shall be paid by Tenant,
except to the extent of insurance proceeds, if any, actually collected
by Landlord with regard to the damage necessitating such repairs.
9.2 Tenant's Maintenance. Tenant, at its expense, shall keep and
maintain the Premises in good order, condition and repair and in accordance with
all applicable legal, governmental and quasi-governmental requirements,
ordinances and rules (including the Board of Fire Underwriters). Notwithstanding
anything contained in this Lease to the contrary, Tenant shall not be required
to make any structural repairs or alterations to the Premises which may be
required by law (whether presently existing or hereafter enacted), insurance
regulations or otherwise, except as may be required solely by Tenant's or
Tenant's Customers' use of the Premises.
9.3 Maintenance of Common Areas. The Common Areas shall at all times be
subject to the exclusive control, management, operation and maintenance of
Landlord. Landlord shall have the right from time to time and in reasonable
manner to establish, modify and enforce rules and regulations with respect to
the Common Areas. Landlord agrees to apply any such rules and regulations in a
reasonably non- discriminatory manner. Tenant agrees to comply with such rules
and regulations, to cause its officers, agents, contractors and employees to so
comply. Landlord shall have the right to construct, maintain and operate
lighting facilities in and on the Common Areas; to police the same; from time to
time to change the area, level, location or arrangement of parking areas,
loading docks, pedestrian walkways, walls, malls, concourses, stairs, ramps,
washrooms and other facilities located in the Common Areas to close all or any
portion of the Common Areas to such extent as may, in the opinion of Landlord,
be legally sufficient to prevent a dedication thereof or accrual of any rights
to any person or the public therein; to close temporarily all or any part of the
parking areas or parking facilities; and to do and perform such other acts in
and to the Common Areas as, in the exercise of good business judgment, Landlord
shall determine to be advisable. Landlord will operate and maintain the Common
Areas in such manner as Landlord, in its sole discretion, shall determine from
time to time.
10. ALTERATIONS AND IMPROVEMENTS.
10.1 Tenant's Alterations. Tenant shall not, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld,
conditioned or delayed, make or cause to be made any alterations, improvements,
additions or installations in or to the Premises or the Buildings. Before
commencement of any such work or delivery of any materials into the Premises or
the Building, Tenant shall furnish to Landlord for approval: architectural plans
and specifications, names and addresses of all contractors, contracts, necessary
permits and licenses, certificates of insurance and instruments of
indemnification against any and all claims, costs, expenses, damages and
liabilities which may arise in connection with such work, all in such form and
amount as may be reasonably satisfactory to Landlord. In addition, prior to
commencement of any such work or delivery of any materials into the Premises,
Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord
of Tenant's ability to pay for such work and materials in full, and, if
requested by Landlord, shall deposit with Landlord (or a third party
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escrowee, at Tenant's expense) at such time such security for the payment of
said work and materials as Landlord may require. Tenant agrees to hold Landlord,
the Beneficiary, the Manager and their respective agents and employees forever
harmless against all claims and liabilities of every kind, nature and
description which may arise out of or in any way be connected with such work.
All such work shall be done only by contractors or mechanics reasonably approved
by Landlord and at such time and in such manner as Landlord may from time to
time designate. Tenant shall pay the cost of all such work. Upon completion of
such work, Tenant shall furnish Landlord with contractor's affidavits and full
and final waivers of lien and receipted bills covering all labor and materials
expended. All such work shall be in compliance with all applicable legal,
governmental and quasi governmental requirements, ordinances and rules
(including the Board of Fire Underwriters), and all requirements of applicable
insurance companies. All such work shall be done in a good and Workmanlike
manner and with the use of good grades of materials. Tenant shall permit
Landlord, if Landlord so desires, to supervise construction operations in
connection with such work; provided, however, that such supervision or right to
supervise by Landlord shall not constitute any warranty by Landlord to Tenant of
the adequacy of the design, Workmanship or quality of such work or materials for
Tenant's intended use or impose any liability upon Landlord in connection with
the performance of such work. Tenant shall reimburse Landlord for Landlord's
reasonable out-of-pocket costs associated with the review and approval of
Tenant's alterations. All alterations, improvements, additions and installations
to or on the Premises shall (subject to section 13) become part of the Premises
at the time of their installation and shall in the Premises at the expiration or
termination of Tenant's right of possession of the Premises, without
compensation or credit to Tenant. Notwithstanding the foregoing to the contrary,
Tenant may make non-structural alterations without Landlord's prior written
consent if Tenant provides Landlord with reasonable prior written notice of such
alterations and such alterations (a) do not cost more than $10,000 in the
aggregate during any year of the Term to perform, (b) do not materially
adversely affect the base building mechanical, electrical or plumbing systems or
equipment in the Building, (c) do not require the issuance of a building permit,
and (d) are not visible from the exterior of the Premises.
10.2 Liens. Tenant shall not permit any lien or claim for lien of any
mechanic, laborer or supplier or any other lien to be filed against the Complex,
the Buildings, the Common Areas, the land which comprises the Complex, the
Premises or any part of such property arising out of work performed, or alleged
to have been performed by, or at the direction of, or on behalf of Tenant. If
any such lien or claim for lien is filed, Tenant shall have fifteen (15) days
after such filing to either have such lien or claim for lien released of record
or shall deliver to Landlord a bond or other security in form, content, amount
and issued by a company reasonably satisfactory to Landlord indemnifying
Landlord, the Beneficiary and others designated by Landlord against all costs
and liabilities resulting from such lien or claim for lien and the foreclosure
or attempted foreclosure thereof. If Tenant fails to have such lien or claim for
lien so released or to deliver such bond to Landlord, Landlord, without
investigating the validity of such lien, may pay or discharge the same and
Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord,
including Landlord's expenses and reasonable attorneys' fees.
11. WAIVER OF CLAIMS AND INDEMNITY.
11.1 Waiver. To the full extent permitted by law, Tenant hereby releases
and waives all claims against Landlord, the Beneficiary, the Manager and their
respective agents and employees for injury or damage to person, property or
business sustained in or about the Complex, the Buildings or the Premises by
Tenant, its agent or employees other than damage caused by the negligence of
Landlord, the Beneficiary, the Manager or their respective agents or employees.
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11.2 Indemnification. Tenant agrees to indemnify and hold harmless
Landlord, the Beneficiary, the Manager and their respective agents and
employees, from and against any and all liabilities, claims, demands, costs and
expenses of every kind and nature (including reasonable attorneys' fees),
including those arising from any injury or damage to any person, property or
business for which Landlord is not reimbursed by insurance, (i) sustained in or
about the Premises, (ii) resulting from the negligence of Tenant, its employees,
agents, servants, invitees, licensees or subtenants, or (iii) resulting from the
failure of Tenant to perform its obligations under this Lease; provided,
however, Tenant's obligations under this Section shall not apply to injury or
damage resulting from the negligence of Landlord, the Beneficiary, the Manager
or their respective agents or employees. If any such proceeding is brought
against Landlord, the Beneficiary, the Manager or their respective agents or
employees, Tenant covenants to defend such proceeding at its sole cost by legal
counsel reasonably satisfactory to Landlord, if requested by Landlord. The
indemnity herein set forth shall apply, without limitation, to the performance
of Tenant's Alterations subsequent to initial occupancy set forth in section
10.1.
12. LANDLORD'S REMEDIES.
12.1 Events of Default. Each of the following shall constitute an "Event
of Default" by Tenant under this Lease:
Tenant fails to pay any Rent, or any installment of Rent, within five
(5) days after written notice from Landlord provided, however, in no event shall
Landlord be obligated to provide such notice more than once during any year of
the Term; Tenant fails to observe or perform any of the other covenants,
conditions or provisions of this Lease or to be observed or performed by Tenant
and fails to cure such default within fifteen (15) business days after written
notice to Tenant provided, however, that if the default is of such a nature that
it cannot be cured within fifteen (15) business days, no Event of Default shall
be deemed to have occurred by reason of the default if cure is commenced within
said fifteen (15) business day period and diligently pursued to completion and
is completed or cured in no event more than one hundred twenty (120) days after
the occurrence of such default; the interest of Tenant in this Lease is levied
upon under execution or other legal process; a petition is filed by or against
Tenant to declare Tenant bankrupt or seeking a plan of reorganization or
arrangement under any Chapter of the Bankruptcy Code, or any amendment,
replacement or substitution therefor, or to delay payment of, reduce or modify
Tenant's debts, or any petition is filed or other action taken to reorganize or
modify Tenant's capital structure or upon the dissolution of Tenant and any of
the foregoing proceedings remain undismissed after a period of ninety (90) days;
Tenant is declared insolvent by law or any assignment of Tenant's property is
made for the benefit of creditors; a receiver is appointed for Tenant or
Tenant's property.
12.2 Landlord's Remedies. Upon the occurrence of an Event of Default by
Tenant under this Lease, Landlord, at its option, without further notice or
demand to Tenant, may, in addition to all other rights and remedies provided in
this Lease, at law or in equity:
(A) Terminate this Lease and Tenant's right of possession of the
Premises, and recover all damages to which Landlord is entitled under
law, specifically including, without limitation, all Landlord's expenses
of reletting (including repairs, alterations, improvements, additions,
decorations, reasonable legal fees and brokerage commissions).
(B) Terminate Tenant's right of possession of the Premises
without terminating this Lease, in which event Landlord may, but shall
not be obligated to, relet the Premises, or any part
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thereof for the account of the Tenant, for such rent and term and upon
such terms and conditions as are acceptable to Landlord. For purposes of
such reletting, Landlord is authorized to decorate, repair, alter and
improve the Premises to the extent reasonably necessary. If Landlord
does not relet the Premises, then Tenant shall pay Landlord monthly on
the first day of each month during the period that Tenant's right of
possession is terminated, a sum equal to the amount of Rent due under
this Lease for such month (less any amount which Landlord could have
realized if Landlord relet the Premises to a reputable, creditworthy
substitute tenant which substitute tenant was ready, willing and able to
lease the entire Premises from Landlord.) If the Premises are relet and
a sufficient sum is not realized from such reletting after payment of
all Landlord's expenses of reletting (including repairs, alterations,
improvements, additions, decorations, legal fees and brokerage
commissions) to satisfy the payment of Rent due under this Lease for any
month, Tenant shall pay Landlord any such deficiency monthly upon
demand. Tenant agrees that Landlord may file suit to cover any sums due
to Landlord under this Section from time to time and that such suit or
recovery or any amount due Landlord shall not be any defense to any
subsequent action brought for any amount not previously reduced to
judgment in favor of Landlord. If Landlord elects to terminate Tenant's
right to possession only without terminating this Lease, Landlord may,
at its option, enter into the Premises, remove Tenant's signs and other
evidences of tenancy, and take and hold possession thereof, as stated in
section 13; provided however, that such entry and possession shall not
terminate this Lease or release Tenant, in whole or in part, from
Tenant's obligation to pay the Rent reserved hereunder for the full Term
or from any other obligation of Tenant under this Lease.
(C) In the event a petition is filed by or against Tenant seeking
a plan of reorganization or arrangement under Chapter 9, 11 or 13 of the
Bankruptcy Code, Landlord and Tenant agree, to the extent permitted by
law, that the trustee in bankruptcy shall determine within sixty (60)
days after commencement of the case, whether to assume or reject this
Lease.
12.3 Attorneys' Fees. If either Landlord or Tenant brings an action or
proceeding to enforce the terms hereof or declare rights hereunder, the
prevailing party (as hereinafter defined) in any such proceeding, action or
appeal thereon, shall be entitled to reasonable attorney's fees. Such fees may
be awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term "prevailing
party" shall include, without limitation, a party who has substantially attained
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other party of its claim or
defense.
13. SURRENDER OF PREMISES. Upon the expiration or termination of this Lease or
termination of Tenant's right of possession of the Premises, Tenant shall
surrender and vacate the Premises immediately and deliver possession thereof to
Landlord in a clean, good and tenantable condition, ordinary wear and tear,
condemnation, fire or other casualty and repairs which are Landlord's obligation
hereunder excepted. Upon any termination, Tenant shall be entitled to remove
from the Premises all movable trade fixtures and personal property of Tenant
(including, but not limited to, wall and floor mounted cabinets, computer and
telecommunications equipment, generator, antennae batteries and other trade
fixtures) without credit or compensation from Landlord, provided Tenant
immediately shall repair all damage resulting from such removal and shall
restore the Premises to a tenantable condition. In the event possession of the
Premises is not immediately delivered to Landlord or if Tenant shall fail to
remove any movable trade fixtures or personal property which Tenant is entitled
to remove, Landlord may remove same without any liability to Tenant. Any movable
trade fixtures and personal property which may be removed from the Premises by
Tenant, but which are not so removed, shall be conclusively presumed to have
been abandoned by Tenant
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and title to such property shall pass to Landlord without any payment or credit,
and Landlord may, at its option and at Tenant's expense, store and/or dispose of
such property. Upon Tenant's written request, Landlord agrees to subordinate any
statutory landlord lien rights it may have against the equipment or trade
fixtures of Tenant located in the Building, to the rights of any existing or
future lender of Tenant, provided such subordination agreement is in form and
substance reasonably acceptable to Landlord.
14. HOLDING OVER. Tenant shall pay Landlord one hundred fifty percent (150%) of
the Adjusted Monthly Base Rent then applicable for each month or partial month
during which Tenant retains possession of the Premises, or any part of the
Premises, after the expiration or termination of this Lease. Tenant shall
indemnify Landlord against all liabilities and damages sustained by Landlord by
reason of such retention of possession. The provisions of this section shall not
constitute a waiver by Landlord of any re-entry rights of Landlord available
under this Lease or by law. If Tenant retains possession of the Premises, or any
part of the Premises, for thirty (30) days after the expiration or the
termination of this Lease, then at the sole option of Landlord expressed by
written notice to Tenant, but not otherwise, such holding over shall constitute
a renewal of this Lease for a period of one year on the same covenants, terms,
and conditions.
15. DAMAGE BY FIRE OR OTHER CASUALTY
15.1 Substantial Untenantability. If either the Premises or the
particular building in which it is located, is rendered substantially
untenantable by fire or other casualty, Landlord may elect by giving Tenant
written notice ("Landlord's Casualty Notice") within one hundred twenty (120)
days after the date of said fire or casualty, either to:
(A) terminate this Lease as of the date of the fire or other
casualty; or
(B) proceed to repair or restore the Premises, the Buildings or
the Complex other than leasehold improvements and personal property
installed by Tenant, to substantially the same condition as existed
immediately prior to such fire or casualty.
If Landlord elects to proceed pursuant to subsection B above, Landlord's
Casualty Notice shall contain Landlord's reasonable estimate of the time
required to substantially complete such repair or restoration. If such estimate
indicates that the time so expired will exceed one hundred eighty (180) days
from the date of Landlord's Casualty Notice, then Tenant shall have the right to
terminate this Lease as of the date of such casualty by giving written notice to
Landlord not later than twenty (20) days after the date of Landlord's Casualty
Notice. If Landlord's estimate indicates that the repair or restoration can be
substantially completed within 180 days, or if Tenant fails to exercise its said
right to terminate this Lease, this Lease shall remain in full force and effect.
15.2 Insubstantial Untenantability. If either the Premises or the
particular building in which it is located, is damaged by fire or other
casualty, but is not rendered substantially untenantable, then Landlord shall
diligently proceed to repair and restore the damaged portions thereof, other
than the leasehold improvements and personal property installed by Tenant, to
substantially the same condition as existed immediately prior to such fire or
casualty, unless such damage occurs during the last twelve (12) months of the
Term, in which event Landlord shall have the right to terminate this Lease as of
the date of such fire or other casualty by giving written notice to Tenant
within thirty (30) days after the date of such fire or other casualty.
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15.3 Rent Abatement. If all or any part of the Premises is damaged by
fire or other casualty and this Lease is not terminated, Adjusted Monthly Base
Rent shall abate for all or that part of the Premises which is untenantable on a
per diem and proportionate area basis from the date of the fire or other
casualty until Landlord has substantially completed the repair and restoration
work in the Premises, which it is required to perform, provided, that as a
result of such fire or other casualty, Tenant does not occupy the portion of the
Premises which is untenantable during such period.
15.4 Tenant's Restoration. If all or any part of the Premises are
damaged by fire or other casualty and this Lease is not terminated, Tenant shall
promptly and with due diligence repair and restore the leasehold improvements
and personal property previously installed by Tenant pursuant to this Lease.
16. EMINENT DOMAIN.
16.1 Substantial Taking. If all or any part of the Premises, the
particular building in which it is located, or the Complex is permanently taken
or condemned by any competent authority for any public use or purpose (including
a deed given in lieu of condemnation), which renders the Premises substantially
untenantable, this Lease shall terminate as of the date title vests in such
authority, and Adjusted Monthly Base Rent shall be apportioned as of such date.
16.2 Insubstantial Taking. If any part of the Premises, the particular
building in which it is located, or the Complex is taken or condemned for any
public use or purpose (including a deed given in lieu of condemnation) and this
Lease is not terminated pursuant to section 16.1, Adjusted Monthly Base Rent
shall be reduced for the period of such taking by an amount which bears the same
ratio to Adjusted Monthly Base Rent then in effect as the number of square feet
of rentable area in the Premises so taken or condemned, if any, bears to the
number of square feet of rentable area specified in section 1.1.I. Landlord,
upon receipt and to the extent of the award in condemnation or proceeds of sale,
shall make necessary repairs and restorations (exclusive of leasehold
improvements and personal property installed by Tenant) to restore the Premises
remaining to as near its former condition as circumstances will permit, and to
the Buildings and Complex to the extent necessary to constitute the portion of
same not so taken or condemned as a complete architectural unit. In the event of
any taking or condemnation described in this section 16.2, the rentable area of
the Premises stated in section l.l.I, and the rentable area of the Complex as
specified in this Lease shall be reduced, respectively, for all purposes under
this Lease by the number of square feet of rentable area of the Premises, if
any, and the Complex, if any, so taken or condemned.
16.3 Compensation. Landlord shall be entitled to receive the entire
price or award from any such sale, taking or condemnation without any payment to
Tenant, and Tenant hereby assigns to Landlord Tenant's interest, if any, in such
award; provided, however, Tenant shall have the right separately to pursue
against the condemning authority an award in respect of the loss, if any, to
leasehold improvements paid for by Tenant without any credit or allowance from
Landlord.
17. TENANT'S INSURANCE. Tenant, at its expense, shall maintain in force during
the Term;
(A) Commercial general liability insurance, which shall include
coverage for personal liability, contractual liability, tenant's legal
liability, business interruption, bodily injury, death and property
damage, all on an occurrence basis with respect to the business carried
on, in, or from the Premises and Tenant's use and occupancy of the
Premises, with coverage for injury or death of any one person in an
amount of not less than $2,000,000 and for injury or death of more than
any one
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person in any one occurrence in an amount of not less than $5,000,000
and for damage to property of not less than $500,000 or such other
amounts as Landlord may reasonably require upon not less than sixty (60)
days, prior written notice, which insurance shall include Landlord, the
Beneficiary, the Manager, or their respective agents and employees as
named insureds and shall protect them in respect of claims by Tenant as
if they separately insured; and
(B) Insurance against such other perils and in such amounts as
Landlord may from time to time reasonably require upon not less than
thirty (30) days' prior written notice, such requirement to be made on
the basis that the required insurance is customary at the time for
prudent tenants of properties similar to the Complex in the Chicago,
Illinois area.
Tenant shall have the right to maintain the required liability
insurance in the form of a blanket policy covering other business
locations of Tenant in addition to the Premises; provided, however, that
Tenant shall provide Landlord with a certificate of insurance
specifically naming the location of the Premises and naming Landlord as
required in this Article, the limits of which coverage are to be in the
amounts set forth in this Article.
All insurance required to be maintained by Tenant shall be on
terms and with insurers reasonably acceptable to Landlord. Each policy
shall contain an undertaking by the insurer that no material change
adverse to Landlord or Tenant will be made, and the policy will not
lapse or be canceled, except after not less than thirty (30) days' prior
written notice to Landlord of the intended change, lapse or
cancellation. Tenant shall furnish to Landlord, if and whenever
requested by it, certificates or other evidences acceptable to Landlord
as to insurance from time to time effected by Tenant and its renewal or
continuation in force.
Landlord and Tenant each agree that neither Landlord, the
Beneficiary, the Manager nor Tenant (nor their respective successors and
assignees) will have any claim against the other for any loss, damage or
injury which is covered by casualty insurance carried by either party
and for which recovery from such insurer is made, notwithstanding the
negligence of either party in causing the loss. This waiver shall (a) be
valid only if the insurance policy in question expressly permits waiver
of subrogation or if the insurer agrees in writing that such waiver of
subrogation will not affect coverage under said policy, and (b) exclude
any claim brought by any third-party against either Tenant or Landlord
which results from the breach or default by either party in the
performance of its obligations under this Lease.
Landlord agrees to maintain, throughout the Term of this Lease,
property insurance at least equal to the full replacement cost of the
Building (excluding foundations), the cost of which shall be includable
in "Operating Expenses," as defined in section 22 below, or, in the
alternative, Landlord may elect to self-insure against casualty risks to
the Building.
18. RULES AND REGULATIONS. Tenant agrees for itself and for its subtenants,
employees, agents and invitees to comply with the following rules and
regulations and with all reasonable modifications and additions thereto which
Landlord may from time to time:
(A) Any sign, lettering, picture, notice or advertisement
installed within the Premises, which is visible from the public
corridors within the Buildings, shall be installed in such manner and be
of such character and style as Landlord shall approve in writing. No
sign, lettering, picture,
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notice or advertisement shall be placed on any outside window or in a
position to be visible from outside the Buildings;
(B) Tenant shall not use the name "Printers' Square" for any
purpose other than Tenant's business address;
(C) Tenant shall not use the name "Printer's Square" for Tenant's
business address after Tenant vacates the Premises;
(D) Sidewalks, entrances, passages, courts, corridors, halls,
elevators and stairways in and about the Premises shall not be
obstructed nor shall objects are placed against glass partitions, doors
or windows which would be unsightly from the corridors of the Buildings
or from the exterior of the Buildings;
(E) No animals, pets, bicycles or other vehicles shall be brought
or permitted to be brought in the Buildings or the Premises;
(F) Room to room canvasses to solicit business from other tenants
of the Complex are not permitted;
(G) Tenants shall not waste electricity, water or air
conditioning and shall cooperate fully with Landlord to assure the most
effective and efficient operation of the heating and air conditioning
system of the Buildings. All controls shall be adjusted only by
authorized building personnel;
(H) All corridor doors shall remain closed at all times;
(I) No locks or similar devices shall be attached to any door
except by Landlord and Landlord shall have the right to retain a key to
all such locks. Notwithstanding the foregoing, Tenant shall have the
right to install its own security in the Premises provided that Tenant
provides Landlord with the keys or combination to allow Landlord (and
emergency personnel) access to the Premises in the event of an emergency
or in the event access is required to facilitate any Landlord repairs to
Building systems upon reasonable advance notice to Tenant;
(J) Tenant assumes full responsibility for protecting the
Premises from theft, robbery and pilferage. Except during Tenant's
normal business hours, Tenant shall keep all doors to the Premises
locked and other means of entry to the Premises closed and secured;
(K) Only machinery or mechanical devices of a nature directly
related to Tenant's ordinary use of the Premises shall be installed,
placed or used in the Premises and the Installation and use of all such
machinery and mechanical devices is subject to the other rules contained
in this 18. and the other portions of this Lease;
(L) Intentionally Deleted.
(M) Safes, furniture, equipment, machines and other large or
bulky articles shall be brought to the Buildings and into and out of the
Premises at such times and in such manner as
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Landlord shall direct (including the designation of elevators) and at
Tenant's sole risk and cost. Prior to Tenant's removal of such articles
from the Buildings, shall obtain written authorization of the office of
the Buildings and shall present such authorization to a designated
employee of Landlord;
(N) Tenant shall not in any manner deface or damage the Buildings
or the Complex;
(O) Inflammables such as gasoline, kerosene, naphtha and benzene,
or explosives or any other articles of an intrinsically dangerous nature
are not permitted in the Buildings or Premises;
(P) Tenant shall ascertain from Landlord the maximum amount of
electrical current which can safely be used in the Premises, taking into
account the capacity of the electric wiring of the Buildings and the
Premises and the needs of other tenants, and shall not use more than
such safe capacity. Notwithstanding the foregoing, Landlord agrees to
permit Tenant, at Tenant's sole cost and expense, to draw up to 500 amps
of 480, 3-phase power from the Commonwealth Edison Service vault.
Landlord's consent to the installation of electrical equipment shall not
relieve Tenant from the obligation not to use more electricity than such
safe capacity.
(Q) To the extent permitted by law, Tenant shall not permit
picketing or other union activity involving its employees in the
Buildings or the Complex, except in those locations and subject to time
and other limitations as to which Landlord may give prior written
consent;
(R) Except as permitted herein, Tenant shall not enter into or
upon the roof or basement of the Buildings or any storage, heating,
ventilation, air conditioning, mechanical or elevator machinery housing
areas;
(S) Tenant shall not distribute literature, flyers, handouts or
pamphlets of any type in any of the common areas of the Buildings,
without the prior written consent of Landlord;
(T) Tenant shall not cook, otherwise prepare, sell or dispense
any food or beverages in or from the Premises;
(U) Tenant shall not permit the use of any apparatus for sound
production or transmission in such manner that the sound so transmitted
or produced shall be audible or vibrations therefrom shall be detectable
beyond the Premises;
(V) Tenant shall keep all electrical and mechanical apparatus
free of vibration, noise and air waves which may be transmitted beyond
the Premises;
(W) Tenant shall not permit objectionable odors or vapors to
emanate from the Premises;
(X) Tenant shall not place a load upon any floor of the Premises
exceeding the floor load capacity for which such floor was designed or
allowed by law to carry; and
(Y) No floor covering shall be affixed to any floor in the
Premises by means of glue or other adhesive, unless the installation
procedure is approved by Landlord.
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Landlord shall not be responsible for the violation of any of the
foregoing rules and regulations by other tenants of the Buildings or the Complex
and shall not be obligated to enforce the same against other tenants.
19. LANDLORD'S RIGHTS. Landlord shall have the following rights exercisable
without notice (except as expressly provided to the contrary) and without being
deemed an eviction or disturbance of Tenant's use or possession of the Premises
or giving rise to any claim for set-off or abatement of Rent:
(A) To change the name or street address of the Buildings or the
Complex, upon thirty (30) days' prior written notice to Tenant;
(B) To install, affix and maintain all signs on the exterior
and/or interior of the Buildings and in and about the Complex;
(C) To designate and/or approve prior to installation, all types
of signs, window shades, blinds, drapes, awnings or other similar items,
and all internal lighting that may be visible from the exterior of the
Premises;
(D) To display the Premises to prospective tenants at reasonable
hours during the last twelve (12) months of the Term;
(E) To change the arrangement of entrances, doors, corridors,
elevators and stairs in the Buildings and Complex, provided that no such
change shall materially adversely affect access to the Premises;
(F) To grant to any party the exclusive right to conduct any
business or render any service in or to the Buildings, provided such
exclusive right shall not operate to prohibitTenant from using the
Premises for the purposes permitted hereunder;
(G) To prohibit the placing of vending or dispensing machines of
any kind in or about the Premises other than for use by Tenant's
employees;
(H) To have access for Landlord and other tenants of Buildings to
any mail chutes and boxes located in or on the Premises according to the
rules of the United States Post Office;
(I) To close the Buildings and Complex after normal business
hours, except that Tenant and its employees and invitees shall be
entitled to admission at all times, under such regulations as Landlord
prescribes for security purposes;
(J) To take any and all reasonable measures, including
inspections and repairs to the Premises of the Buildings, as may be
necessary or desirable in the operation or protection thereof;
(K) To retain at all times master keys or pass keys to the
Premises;
(L) To install, operate and maintain security system which
monitor, by closed circuit television or otherwise, all persons entering
and leaving the Buildings or the Complex; and
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(M) To install (in existing chases and risers) and maintain
pipes, ducts, conduits, wires and structural elements located in the
Premises which serve other parts or other tenants of the Buildings.
20. ESTOPPEL CERTIFICATE. Tenant shall, from time to time, upon not less than
ten (10) days prior written request by Landlord or any mortgagee or ground
lessor of the Complex, deliver to Landlord or such mortgagee or ground lessor, a
statement in writing certifying to the extent accurate:
(A) That this Lease is unmodified and in full force and effect
or, if there have been modifications, that this Lease, as modified, is
in full force and effect;
(B) The amount of Adjusted Monthly Base Rent then payable under
this Lease and the date to which rent has been paid;
(C) That, to Tenant's knowledge, Landlord is not in default under
this Lease or, if in default, a detailed description of such default(s);
(D) That Tenant is or is not in possession of the Premises, as
the case may be; and
(E) Such other information as may be reasonably requested.
21. INTENTIONALLY DELETED
22. ADJUSTMENTS TO MONTHLY BASE RENT.
22.1 Definitions. For the purpose of this section 22, the following
words, terms and phrases shall have the following meanings:
(A) "Adjustment Date" shall mean (i) January 1, 2000 and each
January 1st thereafter occurring during the Term.
(B) "Adjustment Year" shall mean each calendar year during which
an Adjustment Date occurs.
(C) Intentionally Omitted.
(D) "Operating Expenses" shall mean all costs, expenses and
disbursements of every kind and nature which Landlord shall pay or
become obligated to pay in connection with the management, operation,
maintenance and repair of all Buildings and improvements comprising the
Complex and of the personal property, fixtures, machinery, equipment,
systems and apparatus located in or used in connection therewith,
including (without limitation) the cost of security and security devices
and systems, snow and ice and trash removal, cleaning and sweeping,
planting and replacing decorations, flowers and landscaping,
maintenance, repair and replacement of utility system, elevators and
escalators, electricity, steam, water, sewers, fuel, heating, lighting,
air conditioning, window cleaning, janitorial service, insurance,
including but not limited to, fire, extended coverage, all risk,
liability, workmen's compensation, elevator, or any other insurance
carried by the Landlord and applicable to the Complex, painting,
uniforms, management fees,
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supplies, sundries, sales or use taxes on supplies or services, cost of
wages and salaries of all persons engaged in the operation, management,
maintenance and repair of the Complex, and so-called fringe benefits,
including social security taxes, unemployment insurance taxes, cost for
providing coverage for disability benefits, cost of any pensions,
hospitalization, welfare or retirement plans, or any other similar or
like expenses incurred under the provisions of any collective bargaining
agreement, or any other cost or expense which Landlord pays or incurs to
provide benefits for employees so engaged in the operation, management,
maintenance and repair of the Complex, the charges of any independent
contractor who, under contract with the Landlord or its representatives,
does any of the work of operating, managing, maintaining or repairing of
the Complex, legal and accounting expenses, or any other expense or
charge, whether or not heretofore mentioned, which, in accordance with
generally accepted accounting and management principles, would be
considered as an expense of managing, operating, maintaining or
repairing the Complex. Operating Expenses shall not include the
following: costs of improvement of the Premises and the premises of
other tenants of the Buildings; charges for depreciation of the
Buildings and improvements comprising the Complex; interest and
principal payments on mortgages; real estate brokerage and leasing
commissions; salaries and other compensation of executive officers of
the Manager senior to the individual Building or Complex manager; any
expenditures for which Landlord has been reimbursed (other than pursuant
to rent adjustment and escalation provisions provided in leases);
capital improvements to the Complex; and all taxes and assessments other
than sales, use and payroll taxes. Specifically excluded from Operating
Expenses shall be the following:
(1) Taxes (as defined in section 22.1(F) below);
(2) Wages, salaries and other compensation paid to clerks
or attendants in commercial concessions, including the parking
facility operated by Landlord;
(3) Costs of repairs, alterations or replacements caused
by casualty losses;
(4) Costs of repairs, alterations or replacements caused
by the exercise of the rights of eminent domain;
(5) Costs and expenses incurred in connection with leasing
space in the Complex, such as legal fees for the preparation of
leases, tenant allowances, space planner fees, advertising and
promotional expenses and expenses of any leasing office incurred
with regard to leasing the Complex or portions thereof;
(6) Court costs and legal fees incurred with regard to
enforcing the obligations of tenants under other leases;
(7) Costs incurred due to the proven or admitted violation
by Landlord of any lease for space in the Complex or any
indemnity payments made by Landlord pursuant to any such lease
because of a proven or admitted violation by Landlord under such
lease, and which costs would not have been incurred but for such
violation;
(8) Any payments made to subsidiaries of Landlord or
entities under common control with Landlord except if such
payments are for services or goods on, to or for the Complex;
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(9) Accounting fees (including those for the preparation
of Landlord's income taxes), except reasonable accounting fees
incurred in connection with the operation and management of the
Complex;
(10) Costs of abating, removing or remediating asbestos or
any other environmental contamination which is present as of the
Commencement Date due to no fault of Tenant;
(11) Costs relating to relocating existing tenants in the
Complex;
(12) Costs arising as a result of Landlord's proven or
admitted gross negligence or wilful misconduct or the proven or
admitted gross negligence or wilful misconduct of Landlord's
agents or employees; and which costs would not have been incurred
but for such gross negligence or willful misconduct; and
(14) Ground lease payments, if any, except for ground
lease payments which represent direct pass-throughs of Taxes,
Operating Expenses, or any component thereof.
For purposes of determining Tenant's prorata share of Operating
Expenses, Operating Expenses are divided into five (5) categories;
namely, Insurance, Water, Outside Maintenance Costs, Inside Maintenance
Costs and Other Operating Expenses. Outside Maintenance Costs shall
include all charges for exterior maintenance and upkeep, including, but
not limited to, snow removal, loading docks, roofs, shrubs and general
exterior maintenance. Inside Maintenance Costs shall include all charges
for interior maintenance upkeep, including, but not limited to, lobbies,
corridors, rest rooms, elevators, receiving rooms and vestibules in the
office and commercial areas. Operating Expenses which, in Landlord's
sole and absolute judgment, do not fall into any one of the categories
of Insurance, Water, Outside Maintenance Costs or Inside Maintenance
Costs shall be included in other Operating Costs. Notwithstanding the
foregoing, Operating Expenses for any Adjustment Year shall not include
the costs of janitorial service to tenant spaces within the Building or
tenant spaces within the Complex (as opposed to the costs of janitorial
service for Common Areas) or heating, ventilation and air conditioning
services to the Premises provided Tenant has not utilized such services
during any respective such Adjustment Year.
(E) "Per Square Foot Operating Expenses" shall mean the total
amount of Operating Expenses for any Adjustment Year relating to
Insurance, Water, Outside Maintenance Costs, Inside Maintenance Costs
and Other Operating Expenses and shall be determined as follows:
(1) For that portion of the Operating Expenses relating to
Insurance, the total insurance premium shall be divided by
523,686* square feet;
(2) For that portion of the Operating Expenses relating to
Water, the product of twenty-five (0.25) percent** of the total
water bill shall be divided by 161,770* square feet;
(3) For that portion of the Operating Expenses relating to
Outside Maintenance Costs, the total outside Maintenance Costs
shall be divided by 523,686* square feet;
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(4) For that portion of the Operating Expenses relating to
Inside Maintenance Costs, the total Inside Maintenance Costs
shall be divided by 161,770* square feet;
(5) For that portion of the Operating Expenses relating to
Other Operating Costs, the total Other Operating Costs shall be
divided by 523,686* square feet;
(F) "Taxes" shall mean all federal, state and local governmental
taxes, assessments and charges (including transit or transit district
taxes or assessments) of every kind or nature, whether general, special,
ordinary or extraordinary, which Landlord shall pay or become obligated
to pay because of or in connection with the ownership, leasing,
management, control or operation of all Buildings, improvements and land
comprising the Complex, or of the personal property, fixtures,
machinery, equipment, systems and apparatus located therein or used in
connection therewith (including any rental or similar taxes levied in
lieu of or in addition to general real and/or personal property taxes).
For purposes hereof, Taxes for any year shall be Taxes which are due for
payment or paid in that year, rather than Taxes which are assessed or
become a lien during such year. There shall be included in Taxes for any
year the amount of all fees, costs and expenses (including reasonable
attorneys' fees) paid by Landlord during such year in seeking or
obtaining any refund or reduction of Taxes. Taxes in any year shall be
reduced by the amount of any tax refund received by Landlord during such
year. If a special assessment payable in installments is levied against
the Complex, Taxes for any year shall include only the installment of
such assessment and any interest payable or paid during such year. Taxes
shall not include any federal state or local sales, use, franchise,
capital stock, inheritance, general income, payroll, gift or estate
taxes, except that if a change occurs in the method of taxation
resulting in whole or in part in the substitution of any such taxes, or
any other assessment, for any Taxes as above defined, such substituted
taxes or assessments shall be included in the Taxes nor shall Taxes
include interest and penalties incurred as a result of any late payment
by Landlord.
(G) "Per Square Foot Taxes" shall (i) the product of (a) the
amount of Taxes for which payment is due or made in any Adjustment Year
multiplied by (b) thirty-four and ninety-one/one hundredths (.3491)
percent, divided by (ii) 161,770* square feet.
(H) "Base Year" shall mean the calendar year 1999.
* For purposes of determining Tenant's Share of Operating
Expenses and Taxes, Landlord and Tenant agree that the total rentable
office and commercial area of the Complex consists of 161,770 square
feet and the total rentable office, commercial and residential area of
the Complex consists of 523,686 square feet.
** For purposes of determining Tenant's Share of that portion of
the operating Expenses relating to water, Landlord and Tenant agree that
the office and commercial tenants of the Complex will use twenty-five
(0.25) percent of the total water that will be metered coming into the
Complex.
22.2 Adjustments to Monthly Base Rent. Effective as of each Adjustment
Date, Monthly Base Rent shall be increased by an amount equal to one-twelfth
(1/12) of the product of:
(A) The rentable area of the Premises stated in section l.I.I
multiplied by;
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(B) the amount by which the sum of the Per Square Foot Operating
Expenses and Per Square Foot Taxes for the Adjustment Year in which such
Adjustment Date occurs exceeds the sum of the Per Square Foot Operating
Expenses and the Per Square Foot Taxes for the Base Year.
22.3 Projections. For purposes of calculating Taxes and Operating
Expenses for any Adjustment Year, Landlord may make reasonable estimates,
forecasts or projections (collectively, the "Projections") of Taxes and
Operating Expenses for such Adjustment Year. Not less than fifteen (15) days
prior to each Adjustment Date, Landlord shall deliver to Tenant a written
statement setting forth the amount of the Projections of Operating Expenses and
Taxes Per Square Foot for the Adjustment Year in which such Adjustment Date
occurs and providing a calculation of the increase in installments of Monthly
Base Rent to become effective as of said Adjustment Date; provided, however,
that the failure of Landlord to provide any such statement shall not relieve
Tenant from its obligation to continue to pay Adjusted Monthly Base Rent at the
rate then in effect under this Lease, and if and when Tenant receives such
statement from Landlord, Tenant shall pay any increases in Monthly Base Rent
reflected thereby effective retroactively to the most recently preceding
Adjustment Date.
22.4 Readjustments. On or about April lst following the end of each
Adjustment Year, or at such later time as Landlord shall be able to determine
the actual amounts of Operating Expenses and Taxes for the Adjustment Year last
ended, Landlord shall notify Tenant in writing of such actual amounts. If such
actual amounts exceed the Projections for such Adjustment Year, then Tenant
shall, within thirty (30) days after the date of such written notice from
Landlord pay to Landlord an amount equal to the excess of the Adjusted Monthly
Base Rent payable for the Adjustment Year last ended based upon actual Operating
Expenses and Taxes for such year over the total Adjusted Monthly Base Rent paid
by Tenant during such Adjustment Year. The obligation to make such payments
shall survive the expiration or earlier termination of the Term. If the total
Adjusted Monthly Base Rent paid by Tenant during such Adjustment Year exceeds
the amount thereof payable for such year based upon actual Operating Expenses
and Taxes for such Adjustment Year, then Landlord shall credit such excess to
installments of Adjusted Monthly Base Rent payable after the date of Landlord's
notice until such excess has been exhausted, or if this Lease shall expire prior
to full application of such excess, Landlord shall, within thirty (30) days
after such written notice, pay to Tenant the balance thereof not theretofore
applied against Rent. No interest or penalties shall accrue on any amounts which
Landlord is obligated to credit or pay to Tenant by reason of this Section.
22.5 Partial Occupancy. For purposes of determining adjustments to
installments of Monthly Base Rent for any Adjustment Year in which the Complex
is less than 95% occupied by tenants, the amount of Operating Expenses for such
Adjustment Year and the Base Year shall be appropriately adjusted by the
Landlord to the amount that would have been payable or incurred by the Landlord
had the Complex been 95% occupied during such Adjustment Year and the Base Year.
The aforesaid adjustment shall apply only to Operating Expenses which are
variable depending upon occupancy.
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22.6 Books and Records. Landlord shall maintain books and records
showing Operating Expenses and Taxes in accordance with sound accounting and
management practices. The books and records shall be available to Tenant for
inspection during normal business hours upon prior reasonable notice.
Provided that no Event of Default then exists, Tenant shall have the
right, during Landlord's normal business hours, within ninety (90) days
following the furnishing by Landlord of any statement of actual Operating
Expenses for Adjustment Year, and upon not less than fifteen (15) days' prior
written notice to Landlord, to hire an independent certified public accountant
to inspect and audit during Landlord's normal business hours that portion of
Landlord's books and records showing Operating Expenses. The charges of such
accounting firm shall be borne solely by Tenant, except that if the audit
conclusively establishes (i.e. establishes to the written satisfaction of
Landlord or as established pursuant to a final, unappealable court order) that
Tenant has overpaid the total Operating Expenses by more than six percent (6%)
or more for any Adjustment Year, then Landlord shall reimburse Tenant for the
reasonable, documented, out-of-pocket charges of said accounting firm.
Notwithstanding the foregoing, in no event will Landlord reimburse Tenant for
any charges of an outside accounting firm retained by Tenant if such firm's
compensation is based in whole or in part on contingency fees or other
compensation based on the amount of discrepancies discovered. Any overpayment by
Tenant of Operating Expenses shall be handled as set forth above.
22.7 No Decreases in Monthly Base Rent. Notwithstanding anything to the
contrary contained in this Lease, Monthly Base Rent shall not be adjusted or
decreased below that set forth in section l.l.H.
23. REAL ESTATE BROKERS. Landlord and Tenant represent to each other that,
except for Anvan/Midwest Realty Management Co. and Dean Topping & Company
(collectively, the "Brokers"), neither Landlord nor Tenant has not dealt with
any real estate broker, salesperson, or finder in connection with this Lease,
and no such person initiated or participated in the negotiation of this Lease,
or (with respect to Tenant as the representing party) showed the Premises to
Tenant. Landlord and Tenant agree to indemnify and hold harmless the other (and
with respect to Tenant as the indemnifying party, the Beneficiary and the
Manager) from and against any and all liabilities and claims for commissions and
fees arising out of breach of the foregoing representation. Landlord shall be
responsible for the payment of all commissions to the Brokers, specified in this
Section 23, based upon the leasing commission policy of Landlord applicable to
the Complex as of the date of this Lease.
24. SUBORDINATION AND ATTORNMENT.
24.1 Subordination. This Lease and the rights of Tenant hereunder are
expressly subject and subordinate to any ground lease of the land comprising the
Complex now or hereafter existing and all amendments, renewals and modifications
and extensions of and to any said ground lease, and to the lien of any mortgage
now or hereafter existing encumbering the Complex, or any part thereof, or said
ground leasehold estate, and all amendments, renewals and modifications and
extensions of and to any said mortgage, and to all advances made or hereafter to
be made upon the security of said mortgage. Tenant agrees to execute and deliver
such further instruments subordinating this Lease to any such ground lease or to
the lien of any such mortgage as may be requested in writing by Landlord from
time to time.
24.2 Attornment. In the event of the cancellation or termination of any
such ground lease in accordance with its terms or by the surrender of such
ground leasehold estate, whether voluntary, involuntary or by operation of law,
or by summary proceedings, or the foreclosure of any such mortgage by voluntary
agreement or otherwise, or the commencement of any judicial action seeking such
foreclosure, Tenant, at
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the request of the then Landlord, shall attorn to and recognize such ground
lessor, mortgagee or purchaser in foreclosure as Tenant's Landlord under this
Lease. Tenant agrees to execute and deliver at any time upon request of such
ground lessor, mortgagee, purchaser, or their successors, any instrument to
further evidence such attornment.
25. NOTICES. All notices required or permitted under this Lease shall be in
writing and shall be deemed given and delivered, whether or not received, when
deposited in the United States Mail, postage prepaid and properly addressed,
certified mail, return receipt requested, at the following addresses:
To Landlord: LaSalle National Bank, f/k/a LaSalle National Trust N.A.,
not personally, but as Trustee under Trust Agreement dated
April 14, 1978 and known as Trust 54214 c/o Anvan Realty &
Management Company 1901 South Meyers Road, Suite 220
Oakbrook Terrace, Illinois 60181 Attention: Mr. Cary J.
Kerger
or such other address as Landlord shall designate by written notice to
Tenant; and
To Tenant: Universal Access, Inc.
100 North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
Attn: Robert Pommer, COO
or such other address as Tenant shall designate by written notice to
Landlord.
26. MISCELLANEOUS.
26.1 Late Charges. All delinquent Rent shall bear interest at the rate
permitted by law or fifteen (15%) percent per annum, whichever is less, from the
date due until paid.
26.2 Entire Agreement. This Lease and the Exhibits attached hereto
contain the entire agreement between Landlord and Tenant concerning the Premises
and there are no other agreements, either oral or written.
26.3 No Option. The execution of this Lease by Tenant and delivery of
same to Landlord or Manager does not constitute a reservation of or option for
the Premises or an agreement to enter into a lease. This Lease shall become
effective only if and when Landlord executes and delivers same to Tenant;
provided, however, the execution and delivery by Tenant of this Lease to
Landlord or the Manager shall constitute an irrevocable offer by Tenant to lease
the Premises on the terms and conditions herein contained, which offer may not
be withdrawn or revoked for fifteen (15) days after such execution and delivery.
If Tenant is a corporation, it shall deliver to Landlord concurrently with the
delivery to Landlord of an executed Lease, if requested by it, a certified
resolution of Tenant's directors authorizing execution and delivery of this
Lease and the performance by Tenant of its obligations hereunder.
26.4 Accord and Satisfaction. No payment by Tenant or receipt by
Landlord of a lesser amount than any installment or payment of Rent due shall be
deemed to be other than on account of the amount due,
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and no endorsement or statement on any check or any letter accompanying any
check or payment of Rent shall be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such installments or payment of Rent or pursue any
other remedies available to Landlord. No receipt of money by Landlord from
Tenant after the termination of this Lease or Tenant's right of possession of
the Premises shall reinstate, continue or extend the Term.
26.5 Landlord's Obligations on Sale of Building. In the event of any
sale or other transfer of the Complex or the Buildings, Landlord and the seller
or transferor (and the beneficiaries of any selling or transferring land trust)
shall be entirely free and relieved of all agreements and obligations of
Landlord hereunder accruing or to be performed after the date of such sale or
transfer.
26.6 Binding Effect. This Lease shall be binding upon and inure to the
benefit of Landlord and Tenant and their respective heirs, legal
representatives, successors and permitted assigns.
26.7 Force Majeure. Landlord shall not be deemed in default with respect
to any of the terms, covenants and conditions of this Lease on Landlord's part
to be performed, if Landlord fails to timely perform same and such failure is
due in whole or in part to any strike, lockout, labor trouble (whether legal or
illegal), civil disorder, inability to procure materials, failure of power,
restrictive governmental laws and regulations, riots, insurrections, war, fuel
shortages, accidents, casualties, Acts of God, acts caused directly or
indirectly by Tenant (or Tenant's agents, employees or invitees) or any other
cause beyond the reasonable control of Landlord.
26.8 Captions. The article and section captions in this Lease are
inserted only as a matter of convenience and in no way define, limit, construe,
or describe the scope or intent of such articles or sections.
26.9 Applicable Law. This Lease shall be construed in accordance with
the laws of the State of Illinois.
26.10 Time. Time is of the essence of this Lease and the performance of
all obligations hereunder.
26.11 Landlord's Right to Perform Tenant's Duties. If Tenant fails
timely to perform any of its duties under this Lease, Landlord shall have the
right (but not the obligation) after the expiration of any grace period
elsewhere under this Lease or expressly granted to Tenant for the performance of
such duty, to perform such duty on a behalf and at the expense of Tenant without
further prior notice to Tenant, and all sums expended or expenses incurred by
Landlord in performing such duty shall be deemed to be additional Rent under
this Lease and shall be due and payable upon demand by Landlord.
26.12 Riders. All Riders attached hereto and executed by both Landlord
and Tenant shall be deemed to be a part hereof and are hereby incorporated
herein.
27. PARKING. A parking garage is located within the Complex. The parking garage
and garage access road are not included in the Common Areas. Should Tenant
desire to have parking privileges in the parking garage, Tenant should make the
necessary arrangements therefor with the operator of the parking garage.
28. EXCULPATION. This Lease is executed by LaSalle National Bank, f/k/a LaSalle
National Trust N.A., not personally, but as Trustee as aforesaid in the exercise
of the power and authority conferred upon and vested in it as such Trustee and
it is expressly understood and agreed that nothing herein contained shall
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be construed as creating any liability on said LaSalle National Bank, f/k/a
LaSalle National Trust N.A. or any person interested beneficially or otherwise
in said Trust Agreement establishing Trust No. 54214 personally to pay any sums
owing hereunder or to perform any covenant either express or implied herein
contained, all such liability, if any, being expressly waived by Tenant, and the
heirs, personal representatives, successors and assigns of Tenant, and so far as
said LaSalle National Bank, f/k/a LaSalle National Trust N.A. and any person
interested beneficially or otherwise in said Trust Agreement establishing Trust
No. 54214 are concerned, Tenant, and the heirs, personal representatives,
successors and assigns of Tenant, shall look solely to the property specifically
described in said Trust Agreement establishing Trust No. 54214 for the payment
of any sums owing hereunder or the enforcement of any covenant either express or
implied herein contained.
29. OPTION TO RENEW.
29.1 Renewal Options. Tenant shall have two (2) successive options (each
a "Renewal Option") to renew the Term with respect to all (but not less than
all) of the Premises demised under this Lease as of the Expiration Date of the
then current Term for two (2) separate, successive additional terms (each a
"Renewal Term") of five (5) years each, commencing on the day immediately after
the applicable Expiration Date of the then current Term, subject to the
following terms and conditions:
(A) Tenant gives Landlord written notice of its election to
exercise the Renewal Option not later than the date (the "Notice Date")
which is nine (9) months prior to the Expiration Date of the then
current Term;
(B) Tenant submits current audited financial statements of Tenant
to Landlord concurrently with Tenant's notice exercising a Renewal
Option and such financial statements are approved in writing by
Landlord; and
(C) No Event of Default exists under this Lease either on the
date Tenant exercises a Renewal Option, or unless waived in writing by
Landlord, on the Expiration Date of the then current Term.
29.2 Terms. If Tenant exercises a Renewal Option:
(A) The Rent payable for the applicable Renewal Term shall be at
a rate equal to the "market rate of rent," but in no event shall the
initial annual rate of gross rent per square foot of rentable area
payable for the Renewal Term be less than the annual rate of gross rent
per square foot of rentable area payable under this Lease as of the
Expiration Date of the then current Term. For purposes of the preceding
sentence, "market rate of rent" shall mean the total annual gross rate
of rent per rentable square foot (including all fixed and/or indexed
rental adjustments and all adjustments for operating expenses and real
estate taxes for the Building together with corresponding base years and
taking into account all prevailing market rate tenant concessions (e.g.,
rental abatements and tenant improvements)), if any, as reasonably
determined by Landlord which Landlord is offering to third party tenants
for gross leases with 5-year lease terms commencing on or about the
commencement date of the applicable Renewal Term for office space in the
Building which is comparable to the Premises in condition, area and
improvement. Prior to a Renewal Option, Tenant may request Landlord's
determination of market rate of rent by giving Landlord written notice
requesting Landlord's designation of the market rate of rent, which
notice shall be
29
<PAGE> 30
given not earlier than the date which is 90 days prior to the Notice
Date nor later than the date which is 45 days prior to the Notice Date.
If Tenant timely gives the aforesaid notice, Landlord thereupon agrees
to give Tenant written notice ("Landlord's Notice) setting forth the
market rate of rent, which notice shall be given not later than the date
which is 30 days prior to the Notice Date. Tenant's request for
Landlord's determination of market rate of rent shall not be deemed as
an exercise by Tenant of a Renewal Option.
(B) Tenant shall have no further options to renew the Term of
this Lease beyond the Expiration Date of the second Renewal Term;
(C) Tenant shall not be entitled to any rental abatement for
either Renewal Term, except as otherwise set forth in Landlord's Notice;
and
(D) Tenant shall accept the Premises on the commencement date of
the applicable Renewal Term in an "as-is", "where-is" condition, without
any representation, credit or allowance from Landlord with respect to
the condition or improvement thereof, except as otherwise set forth in
Landlord's Notice.
Except as hereinabove provided, all of the terms and provisions of this Lease
shall apply to the applicable Renewal Term.
29.3 Amendment. If Tenant exercises a Renewal Option, Landlord and
Tenant shall execute and deliver an amendment to this Lease reflecting the lease
of the Premises by Landlord to Tenant for the Renewal Term on the terms provided
above, which amendment shall be executed and delivered within 30 days after
Tenant exercises the such Renewal Option.
29.4 Termination. Each Renewal Option shall automatically terminate and
become null and void upon the earlier to occur of
(A) The expiration or termination of this Lease;
(B) The termination of Tenant's right to possession of the
Premises;
(C) The assignment of this Lease by Tenant, in whole or in
part, except as permitted in section 8.1(A);
(D) The sublease by Tenant of the Premises, or any portion
thereof, except as permitted in section 8.1(A);
(E) The recapture by Landlord of any space under section 8.2
above; or
(F) The failure of Tenant to timely or properly exercise
either Renewal Option.
30. RIGHT OF FIRST OPPORTUNITY.
30.1 Option Space. For purposes of this Lease, "Option Space" shall mean
as of any date, that certain space located on the first floor of the Building
(Suite 117) and containing approximately 1,257 square
30
<PAGE> 31
feet of rentable area, as shown on Exhibit F attached hereto, less such portions
of said space, if any, which are leased by Tenant as of such date.
30.2 Right of First Opportunity. With respect to the first lease and
only the first lease which Landlord hereafter intends to enter into with a
third-party tenant for either (i) all or any portion of the Option Space, or
(ii) the space described in clause (i) above plus any other space in the
Building (for purposes hereof, any such other space shall be deemed to be part
of the Option Space) and which has a lease term commencing at any time prior to
January 1, 2007 (but excluding any new or renewal lease or lease expansion with
any then existing tenant of all or any portion of the Option Space), Landlord
shall give Tenant written notice of such intent ("Landlord's Notice") prior to
Landlord entering into such lease. The Landlord's Notice shall specify (i) the
location and rentable area of the portion of the Option Space which Landlord
desires to lease (which is hereinafter referred to as the "Actual Option
Space"), (ii) the proposed lease term for the Actual Option Space, (iii) the
date upon which the Actual Option Space shall be available for occupancy, (iv)
the annual rate of base rent per square foot of rentable area which Landlord
desires to charge for the Actual Option Space, (v) the amount of all rent
adjustments which Landlord desires to charge for the Actual Option Space,
including, without limitation, fixed and/or indexed rent adjustments and rent
adjustments for operating expenses and real estate taxes for the Building [and
corresponding base amounts], and (vi) the tenant concessions (e.g., rent
abatements and tenant improvement allowances), if any, which Landlord would be
willing to provide to lease the Actual Option Space; it being agreed that items
(iv) through (vi) above shall be quoted by Landlord in Landlord's Notice for a
hypothetical lease having a lease term which would expire on the Expiration Date
of the Term of this Lease. Tenant shall thereupon have a one-time right (the
"Right of Opportunity") to lease all, but not less than all, of the Actual
Option Space, subject to the following terms and conditions:
(A) Tenant gives Landlord a written notice of its election to
exercise the Right of Opportunity within five (5) days after Landlord
gives Tenant Landlord's Notice for such Right of Opportunity;
(B) Tenant submits current audited financial statements of Tenant
to Landlord concurrently with Tenant's Notice exercising the Right of
Opportunity and such financial statements are approved in writing by
Landlord;
(C) No Event of Default exists under this Lease either on the
date Tenant exercises such Right of Opportunity or, unless waived in
writing by Landlord, on the proposed commencement date of the lease term
for the Actual Option Space; and
(D) No other tenant in the Building has exercised a right to
lease the Actual Option Space as specified in Landlord's Notice, which
right exists in favor of such tenant as of the date of execution of this
Lease.
In the event that Tenant does not timely or properly exercise the Right of
Opportunity, Landlord may at any time thereafter lease the Actual Option Space
to any third-party tenant on such terms and provisions as Landlord may elect
without again complying with the provisions of this section 30.
30.3 Terms. If Tenant exercises the Right of Opportunity, the following
terms and provisions shall apply:
31
<PAGE> 32
(A) Landlord shall lease the Actual Option Space to Tenant for a
lease term commencing on the availability date specified in Landlord's
Notice and expiring on the Expiration Date of the Term of this Lease;
(B) The base rent and rental adjustments payable for the Actual
Option Space shall be as set forth in Landlord's Notice;
(C) Tenant shall not be entitled to any rental abatement for the
Actual Option Space except as otherwise set forth in Landlord's Notice;
(D) Tenant shall accept the Actual Option Space in an "as-is",
"where-is" condition from Landlord, without any agreement,
representation, credit or allowance from Landlord with respect to the
improvement or condition thereof except as otherwise set forth in
Landlord's Notice; and
(E) All of the terms and provisions of this Lease shall apply
with respect to the Actual Option Space, except as otherwise provided in
this Section 30 or except as same may be inconsistent with the
provisions of this Section 30.
30.4 Amendment. If Tenant exercises the Right of Opportunity, Landlord
and Tenant shall execute and deliver an amendment to this Lease reflecting the
lease of the Actual Option Space by Landlord to Tenant on the terms herein
provided, which amendment shall be executed within thirty (30) days after Tenant
exercises the such Right of Opportunity.
30.5 Termination. The Right of Opportunity shall automatically terminate
and become null and void upon the earlier to occur of:
(A) The expiration or termination of this Lease;
(B) The termination by Landlord of Tenant's right to
possession of the Premises;
(C) The assignment of this Lease by Tenant, in whole or in
part, except as permitted in section 8.1(A);
(D) The sublease by Tenant of the Premises, or any part
thereof, except as permitted in section 8.1(A);
(E) The recapture by Landlord of any space under section 8.2
above;
(F) The failure of Tenant to timely or properly exercise the
Right of Opportunity.
31. ADDITIONAL RIGHTS OF TENANT.
(A) Conduit Fees. Landlord shall permit Tenant to use vertical
and horizontal pathways outside of the Premises and within the Complex,
provided that: (i) prior to utilizing such pathways, Tenant executes a
Pathway Confirmation Agreement in the form attached hereto as Exhibit
"D"; and (ii) Tenant pays to Landlord the pathway use fees set forth in
Exhibit "D" attached hereto, as additional rent due hereunder.
32
<PAGE> 33
(B) Equipment Space (Generator). Landlord shall provide Tenant
with an Equipment Space consisting of approximately 400 usable square
feet of outside loading dock space and shall permit Tenant, at its
expense, to install a generator and diesel fuel tank in such area
provided that: (i) prior to utilizing such Equipment Space, Tenant
executes a Space Acceptance Agreement in the form attached as Exhibit
"E" attached hereto;(ii) Tenant pays to Landlord the Equipment Space
rental rates set forth in section 1.1(H) of this Lease as additional
rent due hereunder, and (iii) such installation is made in accordance
with section 10 above.
(C) Equipment Space (Antennae). Landlord shall permit Tenant, at
its expense to install standard data antennae in an Equipment Space area
designated by Landlord on the roof of the Building, provided that: (i)
prior to installing such antenna, Tenant executes a Space Acceptance
Agreement in the form attached hereto as Exhibit "E"; (ii) Tenant pays
to Landlord, the Equipment Space rental rates set forth in section
1.1(H) of this Lease as additional rent due hereunder; and (iii) such
installation is made in accordance with section 10.
(D) Equipment Space (HVAC). Landlord shall permit Tenant to
install its own heating, ventilation and air conditioning equipment
within the Premises and Landlord shall provide an Equipment Space in an
area designated by Landlord, either inside or outside of the Building,
for the installation of glycol lines to the rooftop of the Building,
provided that: (i) prior to installing such glycol lines, Tenant
executes a Space Acceptance Agreement in the form attached hereto as
Exhibit "E"; (ii) Tenant pays to Landlord, the Equipment Space rental
rates set forth in section 1.1(H) of this Lease as additional rent due
hereunder; and (iii) such installation is made in accordance with
section 10 above.
(E) Fire Suppression. Landlord shall permit Tenant, at its
expense, to install within the Premises its choice of a pre-action or
FM200 fire suppression system with Landlord's consent, which consent
shall not be unreasonably withheld, conditioned or delayed provided that
such installation is made in accordance with section 10 above.
32. CONDITION.
This Lease is expressly subject to and conditioned upon Landlord and
Best Communications, Inc. ("Best"), an existing tenant of the Building, entering
into a lease termination agreement (the "Best Termination Agreement"), on terms
and provisions acceptable to Landlord, whereby Landlord shall terminate that
certain office lease dated March, 1996 entered into by and between Landlord and
Best (the "Best Lease"), effective as of November 14, 1999. If the Best
Termination Agreement is not fully executed on or before November 14, 1999, for
any reason whatsoever, then either party may terminate this Agreement by giving
written notice of termination to the other party at any time after November 14,
1999, but prior to the date, if any, upon which the Best Termination Agreement
is fully executed, in which event neither party shall have any further rights or
obligations under this Agreement and the Best Lease shall continue in full force
and effect for the full stated Term, subject to the terms and provisions of the
Best Lease.
33
<PAGE> 34
IN WITNESS WHEREOF, this Lease has been executed as of the date set
forth in section l.lD hereof.
LANDLORD: TENANT:
LaSalle Bank National
Association formerly known as
LASALLE NATIONAL BANK, f/k/a UNIVERSAL ACCESS, INC., a Delaware
LASALLE NATIONAL TRUST N.A., not corporation
personally, but solely as Trustee
under Trust Agreement dated
April 14, 1978 and known as
Trust Number 54214
By: /s/ ROBERT POMMER
--------------------------------
Its: COO
-------------------------------
By: /s/ ROSEMARY COLLINS
--------------------------------
Its: VICE PRESIDENT
-------------------------------
ATTEST:
By: /s/ DEBORAH BERG
--------------------------------
Its: Assistant Secretary
-------------------------------
34
<PAGE> 35
EXHIBIT A-1 PLAN OF PREMISES
[FLOOR PLAN]
<PAGE> 36
EXHIBIT A-2 PLAN OF PREMISES
[FLOOR PLAN]
<PAGE> 37
Exhibit C-1 - Pathway Use Fees
HORIZONTAL PATHWAY USE FEES
<TABLE>
<CAPTION>
================================================================================
FOR BASEMENT (GARAGE) LEVEL ONLY
================================================================================
TYPE RATE PER YEARLY RATE PER
HORIZONTAL PATHWAY FOOT
PATHWAY FOOT PER
MONTH
- --------------------------------------------------------------------------------
<S> <C> <C>
1 INCH $.26 $3.12
1 1/4 INCH $.35 $4.20
2 INCH $.42 $5.04
3 INCH $.51 $6.12
4 INCH $.60 $7.20
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
FOR FLOORS 1 THROUGH 8
================================================================================
TYPE RATE PER YEARLY RATE PER
HORIZONTAL PATHWAY FOOT
PATHWAY FOOT PER
MONTH
- --------------------------------------------------------------------------------
<S> <C> <C>
1 INCH $1.50 $18.00
1 1/4 INCH $2.00 $24.00
2 INCH $2.50 $30.00
3 INCH $3.00 $36.00
4 INCH $3.50 $42.00
- --------------------------------------------------------------------------------
</TABLE>
The above fees are current as of the date indicated below. The fees are to be
increased annually by an amount which is the greater of: a) the increase in the
Consumer Price Index (Chicago-Gary-Kenosha SMSA) for all Urban Consumers; or b)
four percent (4%).
<PAGE> 38
Exhibit C-2 - Pathway Use Fees
VERTICAL PATHWAY USE FEES
FOR PATHWAY FROM BASEMENT TO EIGHTH FLOOR
<TABLE>
<CAPTION>
================================================================================
INNERDUCT INSTALLED WITHIN 4" CONDUIT
================================================================================
TYPE RATE PER VERTICAL YEARLY RATE PER
PATHWAY PER MONTH PATHWAY
- --------------------------------------------------------------------------------
<S> <C> <C>
1 INCH $150.00 $1,800.00
1 1/4 INCH $170.00 $2,040.00
2 INCH $200.00 $2,400.00
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
EXCLUSIVE USE OF ENTIRE CONDUIT
================================================================================
TYPE RATE PER VERTICAL YEARLY RATE PER
PATHWAY PER MONTH PATHWAY
- --------------------------------------------------------------------------------
<S> <C> <C>
2 INCH $350.00 $4,200.00
4 INCH $500.00 $6,000.00
- --------------------------------------------------------------------------------
</TABLE>
All rates above are for connecting any floor to any other floor (i.e., rate
would not differentiate between a two floor access run and an eight floor access
run).
The above fees are current as of the date indicated below. The fees are to be
increased annually by an amount which is the greater of: a) the increase in the
Consumer Price Index (Chicago-Gary-Kenosha SMSA) for all Urban Consumers; or b)
four percent (4%).
<PAGE> 39
EXHIBIT D
PATHWAY CONFIRMATION AGREEMENT NO. UAI99001
THIS PATHWAY CONFIRMATION AGREEMENT, made this 15th day of December,
1999 by and between LASALLE NATIONAL BANK, f/k/a LaSalle National Trust, N.A.,
not personally, but solely as Trustee under Trust Agreement dated April 14, 1978
and known as Trust Number 54214 ("Landlord"), and UNIVERSAL ACCESS, INC., a
Delaware corporation ("Tenant")
WITNESSETH:
WHEREAS, Landlord and Tenant did enter into that certain Lease (the
"Lease"), dated December 13, 1999 for the demise of (i) certain space situated
on the first floor (Suites 121 and 123) of the Building located at 700 South
Federal Street, Chicago, Illinois and (ii) certain equipment space located on
the loading dock of the Building (each an "Equipment Space") for the
installation by Tenant of certain equipment; and
WHEREAS, all terms defined in the Lease shall have the same meanings
when referred to herein; and
WHEREAS, Landlord has requested that Tenant acknowledge and confirm each
use by Tenant of certain horizontal and/or vertical pathways in the Building,
pursuant to and in accordance with Section 2 of the Lease, and Landlord has
further requested Tenant to acknowledge and confirm its obligations attendant
upon each such use, pursuant to and in accordance with Section 2 of the Lease;
and
WHEREAS, Tenant has agreed to acknowledge said use and obligations in
connection therewith, each of the Pathway Confirmation Agreements executed to
date being part of the total Pathway obligations due to Landlord.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants herein contained, Landlord and Tenant hereby agree as follows:
(1) The horizontal pathways used by Tenant and the fees payable
therefor are as follows:
<TABLE>
<CAPTION>
Monthly Annual
Pathway Fee Pathway Fee
Description in U.S. Dollars in U.S. Dollars
----------- --------------- ---------------
<S> <C> <C>
See Attached Exhibit D-1 $835.40 $10,024.80
</TABLE>
(2) The vertical pathways used by Tenant and the fees payable
therefor are as follows:
<TABLE>
<CAPTION>
Monthly Annual
Pathway Fee Pathway Fee
Description in U.S. Dollars in U.S. Dollars
----------- --------------- ---------------
<S> <C> <C>
See Attached Exhibit D-1 $2,000.00 $24,000.00
</TABLE>
36
<PAGE> 40
(3) Tenant agrees to pay to Landlord the additional monthly Pathway
Fees as determined under Paragraphs 1 and 2 above at the times
and in the manner set forth in Section 3 of the Lease, in
accordance with the terms and provisions.
EXCEPT as hereby modified and amended, all other terms, provisions,
covenants and conditions of the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Commencement
Date Agreement to be executed by their duly authorized representatives on the
day and year above written.
LANDLORD: TENANT:
LaSalle Bank National Association
formerly known as
LASALLE NATIONAL BANK, f/k/a UNIVERSAL ACCESS, INC., a Delaware
LASALLE NATIONAL TRUST N.A., not corporation
personally, but solely as Trustee
under Trust Agreement dated
April 14, 1978 and known as Trust
Number 54214
By: /s/ ROSEMARY COLLINS By: /s/ ROBERT POMMER
-------------------------------- --------------------------------
Its: VICE PRESIDENT Its: COO
------------------------------- -------------------------------
ATTEST:
By: /s/ DEBORAH BERG
--------------------------------
Its: ASSISTANT SECRETARY
-------------------------------
37
<PAGE> 41
PRINTERS SQUARE PATHWAY USE FEE CALCULATION
UNIVERSAL ACCESS, INC PATHWAY CONFIRMATION AGREEMENT NO. UA199001
Fees are to be increased annually by 4% on the anniversary date of this Pathway
Confirmation Agreement.
HORIZONTAL PATHWAYS
<TABLE>
<CAPTION>
MONTHLY
RATE PER
PATHWAY MONTHLY ANNUAL
NO. OF FOOT IN PATHWAY PATHWAY
PATHWAY U.S. FEE IN U.S. FEE IN U.S.
FLOOR TYPE FEET DOLLARS DOLLARS DOLLARS DESCRIPTION (IDENTIFICATION NO.)
----- ---- ------- -------- ----------- ----------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basement 4" horizontal 151 $0.60 $ 90.60 $ 1,087.20 To 620 east stairwell/Williams (UAI99001-1)
Sixth 4" horizontal 85 $3.50 $297.50 $ 3,570.00 To 620 east stairwell/Williams (UAI99001-1)
Basement 4" horizontal 200 $0.60 $120.00 $ 1,440.00 Suite 121 to Bell Canada (UAI99001-2)
First 2" horizontal 189 $0.42 $ 79.38 $ 952.56 Suite 121 to Netpop (UAI99001-3)
Basement 4" horizontal 124 $0.60 $ 74.40 $ 892.80 To 620 east stairwell/Worldcom (UAI99001-4)
Basement 4" horizontal 124 $0.60 $ 74.40 $ 892.80 To 620 east stairwell/Worldcom (UAI99001-5)
Basement 2" horizontal 236 $0.42 $ 99.12 $ 1,189.44 To 620 east stairwell/Worldcom (UAI99001-6)
$ -- $ --
$ -- $ --
$ -- $ --
$ -- $ --
TOTAL HORIZONTAL FEES $835.40 $10,024.80
</TABLE>
VERTICAL PATHWAYS
<TABLE>
<CAPTION>
MONTHLY ANNUAL
PATHWAY PATHWAY
FEE IN U.S. FEE IN U.S.
DESCRIPTION (IDENTIFICATION NO.) DOLLARS DOLLARS
- ------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
One 4" vertical in 620 east stairwell to Williams (UAI99001-1) $ 500.00 $ 6,000.00
One 4" vertical in 620 east stairwell to Worldcom (UAI99001-4) $ 500.00 $ 6,000.00
One 4" vertical in 620 east stairwell to Worldcom (UAI99001-5) $ 500.00 $ 6,000.00
One 4" vertical in 620 east stairwell to Worldcom (UAI99001-6) $ 500.00 $ 6,000.00
$ --
$ --
$ --
$ --
$ --
$ --
$ --
TOTAL VERTICAL FEES $2,000.00 $24,000.00
</TABLE>
<PAGE> 42
EXHIBIT E
SPACE ACCEPTANCE AGREEMENT
THIS AGREEMENT, made this 15th day of December, 1999 by and between
LASALLE NATIONAL BANK, f/k/a LaSalle National Trust, N.A., not personally, but
solely as Trustee under Trust Agreement dated April 14, 1978 and known as Trust
Number 54214 ("Landlord"), and UNIVERSAL ACCESS, INC., a Delaware corporation
("Tenant")
W I T N E S S E T H:
WHEREAS, Landlord and Tenant did enter into that certain Lease with
Tenant (the "Lease") dated December 13, 1999 for the demise of (i) certain
space (Suite 121 and 123) on the first floor of the building (the "Building")
located at 700 South Federal Street, Chicago, Illinois and (ii) certain
equipment space located on the loading dock of the Building (each an "Equipment
Space") for the installation by Tenant of certain equipment; and
WHEREAS, all terms defined in the Lease shall have the same meanings
when referred to herein; and
WHEREAS, Landlord has requested that Tenant acknowledge and confirm the
actual size of and Monthly Base Rent payable for the Equipment Space, pursuant
to and in accordance with Section 2.1 of the Lease; and
WHEREAS, Tenant has agreed to acknowledge said information.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants herein contained, Landlord and Tenant hereby agree as follows:
1. The area comprising the Equipment Space for the generator
("Generator Space") shall be an area of 11'x22' containing 242
usable square feet as shown on Exhibit E-1 attached hereto. The
area is described as follows: Starting at the point of beginning
("POB") being the center of column G12, go South 11', thence east
11', thence north 22', thence west 11', thence south 11' to the
POB. The area comprising the Equipment Space for the HVAC
equipment ("HVAC Space") shall be an area of 5'x22' containing
110 usuable square feet as shown on Exhibit E-2 attached hereto.
The area of the HVAC Space is described as follows: The area
encompassed within the upper walkway of the loading dock
(approximately 5' in width) being 11' north of and 11' south of
the center line of column line 12.
2. Effective as of the Commencement Date, the Monthly Base Rent for
the Equipment Space shall be payable in the following amounts for
the following periods based on a total area of 352 usable square
feet:
38
<PAGE> 43
<TABLE>
<CAPTION>
MONTHLY BASE RENT
PERIOD IN U.S. DOLLARS
------ -----------------
<S> <C>
12/15/99 - 12/31/00 $366.67
1/1/01 - 12/31/01 $377.81
1/1/02 - 12/31/02 $388.96
1/1/03 - 12/31/03 $400.69
1/1/04 - 12/31/04 $412.72
1/1/05 - 12/31/05 $425.04
1/1/06 - 12/31/06 $437.95
1/1/07 - 12/31/07 $450.85
1/1/08 - 12/31/08 $464.35
1/1/09 - 12/31/09 $478.43
</TABLE>
EXCEPT as hereby modified and amended, all other terms, provisions,
covenants and conditions of the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Agreement to be
executed by their duly authorized representatives on the day and year above
written.
TENANT: LANDLORD: LaSalle Bank National
Association formerly
known as
UNIVERSAL ACCESS, INC., a Delaware LASALLE NATIONAL BANK, NOT
corporation PERSONALLY, BUT SOLELY AS TRUSTEE
AS AFORESAID
BY: /s/ ROBERT POMMER BY: /s/ Rosemary Collins
-------------------------------- --------------------------------
- ----------------------------------- -----------------------------------
TITLE: COO TITLE: PRESIDENT
----------------------------- -----------------------------
39
<PAGE> 44
[FLOOR PLAN]
EXHIBIT E-1
EQUIPMENT SPACE
GENERATOR SPACE
Letters and numbers in circles indicate building column lines as established in
building architectural drawings available for inspection by Tenant upon request.
<PAGE> 45
[FLOOR PLAN]
EXHIBIT E-2
EQUIPMENT SPACE
HVAC SPACE
Letters and numbers in circles indicate building column lines as established in
building architectural drawings available for inspection by Tenant upon request.
<PAGE> 46
[FLOOR PLAN]
EXHIBIT F - PLAN OF OPTION SPACE
<PAGE> 1
EXHIBIT 10.35
EXHIBIT "B"
56 MARIETTA STREET
LEASE AGREEMENT - UNIVERSAL ACCESS, INC.,
THIS LEASE, made and entered into as of this 14th day of December, 1999,
by and between PEACHTREE KESSLER LOFTS, LLC d/b/a TELECOM TOWER (hereinafter
referred to as the "Landlord"), and UNIVERSAL ACCESS, INC., a Delaware
corporation (hereinafter referred to as the "Tenant").
WITNESSETH:
1.
DEMISE
The Landlord, for and in consideration of the rents, covenants,
agreements, and stipulations hereafter set forth, has leased and rented, unto
Tenant, and Tenant hereby agrees to lease and take upon the terms and conditions
hereinafter set forth, certain space in Landlord's building known generally as
the 56 Marietta Street Building (hereinafter referred to as the "Building"),
located at 56 Marietta Street, Atlanta, Georgia 30303 comprising approximately
8,183 rentable square feet on the second floor of the Building, approximately
500 rentable square feet of space on the roof above the second floor of the
Building (the "Roof Space"), and approximately 365 square feet of space in the
basement of the Building (the "Basement Space"), all as shown in Exhibit "A"
attached hereto, (such space is collectively referred to herein as the
"Premises.") A legal description of the real property wherein the Premises is
located is shown on Exhibit "B" attached hereto and by reference made a part
hereof.
At all times during the term of this Lease, Landlord shall have access
to the Corridor depicted on Exhibit "A" for purposes of accessing the chases
depicted on Exhibit "A".
2.
TERM
THIS LEASE shall be for a term of (10) ten years and two (2) months
beginning on December 1, 1999 (the "Commencement Date") and ending at midnight
on January 31, 2010, unless sooner terminated as hereinafter provided. For
purposes of this Lease, the term "Lease Year" shall mean the 12-month period
beginning on the Commencement Date and each 12-month period thereafter.
Notwithstanding the foregoing, subject to Landlord's reasonable approval and as
long as Tenant, its employees, agents and contractors do not interfere with any
work being performed by Landlord, Tenant may be permitted to occupy the Premises
on a date prior to the Commencement Date for purposes of making improvements and
alterations to the Premises which are otherwise permitted by the terms and
conditions hereof. Any such early occupancy shall be subject to all terms and
conditions of this Lease other than Section 3.
3.
RENT
Tenant hereby covenants and agrees to pay to Landlord at its office or
at such place Landlord may designate, in lawful money of the United States,
without demand, set off or deduction, during the term of this Lease or any
extension or renewal hereof, rent as follows:
(a) Fixed Minimum Rent:
From and after January 15, 2000 (the "Rent Commencement Date"), Tenant
shall pay Fixed Minimum Rent during the term of this lease, which shall
be payable in advance in equal monthly installments on the first day of
each and every calendar month included in the term of this Lease as
follows:
1
<PAGE> 2
<TABLE>
<CAPTION>
Lease Year Monthly Fixed Minimum Rent
- ---------- --------------------------
<S> <C>
1 $15,474
2 $16,092
3 $16,736
4 $17,406
5 $18,102
6 $18,826
7 $19,579
8 $20,362
9 $21,177
Beginning of 10th Lease Year through $22,024
end of initial Lease term
</TABLE>
Upon execution of this Lease, Tenant shall pay $23,211.00 to Landlord which
represents the installment of Fixed Minimum Rent for the period beginning on the
Rent Commencement Date and ending on February 28, 2000.
(b) Taxes:
From and after the Rent Commencement Date, if any governmental authority having
jurisdiction now or hereafter imposes upon Landlord, pursuant to statute,
ordinance, regulation, order or otherwise, a tax levy or other imposition based
upon the gross rentals received by Landlord under the terms of this Lease,
Tenant shall, within 30 days of written demand, pay to Landlord the amount
thereof at the time or times the same may fall due with respect to the term of
this Lease. The tax, levy or imposition to which reference is herein above made
shall include sales, excise, use or similar taxes but shall not include any
income, franchise, capital stock, estate or inheritance taxes imposed upon
Landlord.
(c) Late Charges:
In addition to all other payments owing hereunder, when any amount due from
Tenant to Landlord under the provisions of this Lease is not paid when due,
Tenant shall pay to Landlord upon receipt of written notice a late charge in the
amount of five percent (5%) of the amount so payable to Landlord for each month
or fraction thereof for which such payment is late, or one hundred dollars
($100.00), whichever is greater. All such interest or late charges described in
this sub-paragraph shall be considered additional rent hereunder.
(d) Cure of Breach:
In the event of any default hereunder by Tenant (beyond any applicable notice
and cure provision of Section 14 hereof), Landlord may at any time, cure such
breach for the account of and at the expense of Tenant. Any sums expended by
Landlord to cure any such breach shall be paid to Landlord by Tenant within ten
(10) days after demand as additional rent.
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4.
USE OF PREMISES
The Premises shall be used only for the installation, operation,
modification and maintenance of equipment and facilities in connection with
Tenant"s telecommunication business including but not limited to switching
equipment. Further, Tenant shall have the right to transmit data, video, voice
and other transmissions from the Premises. Tenant shall also have the right to
use the Premises for the installation of certain communications equipment owned
by customers (and co-locators) of Tenant in order for such customers (and
co-locators) to interconnect with Tenant"s facilities. Landlord agrees that
Tenant may license the use of portions of the Premises to its customers (and
co-locators) for such purposes without Landlord"s consent; provided, however,
the use of the Premises by any such customers (and co-locators) shall be subject
to such reasonable security rules and regulations as Landlord may deem necessary
or appropriate. Tenant shall comply with any and all applicable laws, rules and
regulations relating to the exercise by Tenant of the rights described in the
previous sentence, and Tenant shall indemnify, defend and hold Landlord harmless
from and against any and all loss, cost, expense or claim (including, without
limitation, attorney"s fees) resulting from or arising out of the exercise by
Tenant of any rights described in the previous sentence. Notwithstanding the
foregoing, Tenant may use the Roof Space only for dry coolers for Tenant's HVAC
system and may use the Basement Space only for Tenant's generator. The Premises
shall not be used for any illegal purposes, nor in any manner to create any
nuisance or trespass, nor in any manner to vitiate the insurance or increase the
rate of insurance on the Premises.
5.
OPERATION OF BUSINESS
Intentionally Deleted
6.
DEVELOPMENT PLAN
Landlord shall have the right, in addition to any other specific rights
reserved elsewhere in this Lease, to change the development plan for the
Building in such manner as Landlord, in its sole discretion, may from time to
time find proper, provided such changes do not unreasonably interfere with
Tenant"s use of the Premises for the purposes permitted by Section 4 hereof.
Landlord shall have the right to make changes to the Building or any lands added
thereto, including but not limited to, construct additional buildings or
improvements and make alterations thereto, build additional stories or any
buildings, construct multi-story or elevated parking facilities, rearrange
drives and parking areas and construct roofs, walls, and any other improvements
over, to or in connection with any part of, or all of, the foregoing.
Landlord shall not exercise any right of Landlord to reduce, interrupt
or cease service of the heating, air conditioning, ventilation, plumbing,
electrical systems, telephone systems, and/or utilities services of the leased
Premises or the Building, without having met with Tenant in advance to advise
Tenant of Landlord"s requirements so that Landlord and Tenant may devise a
procedure for accomplishing Landlord"s goals and eliminate (or minimize to the
greatest extent reasonably possible) the interruption to Tenant"s use,
possession and occupancy of the leased Premises for the purpose of conducting
its business on a continuing basis.
Notwithstanding anything to the contrary in this Lease, in the event
Tenant is prevented from conducting business in the Premises and does not
conduct business in the Premises as a direct result of (i) any failure by
Landlord to keep the Building"s, common areas, structural components or water,
sewer and fire suppression systems in good order (exclusive of the failure to
repair damage to such common areas, systems and components which arises out of
any negligent or willful act or omission of Tenant or Tenant"s agents,
representatives, contractors, employees or licensees); (ii) Landlord disrupting
Tenant"s business operations as a result of repairs, maintenance or alterations
undertaken by Landlord; or (iii) Landlord terminating either of the licenses
granted to Tenant pursuant to Section 48 below if such termination does not
result from the failure (beyond any applicable notice and cure period) by Tenant
to perform or satisfy any term, provision, condition or covenant hereunder to be
performed or satisfied by Tenant, then Fixed Minimum Rent shall be
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abated during such period that Tenant continues to be so prevented from
conducting business in the Premises.
7.
INDEMNITY AND INSURANCE
Tenant agrees to indemnify, defend and hold harmless Landlord, its
agents, servants, employees and the holder of any deed to secure debt or ground
lessor of and from any loss, reasonable attorney's fees, expenses or claims for
which Landlord is not reimbursed by any insurance maintained or required to be
maintained hereunder (i) occurring in the Premises, unless caused by the
negligence or willful misconduct of Landlord, its agents, employees or
contractors, (ii) arising out of any and all defaults (beyond any applicable
notice and cure period) by Tenant, its agents, employees or contractors under
this Lease or (iii) arising out of any negligent or willful act or omission of
Tenant, its agents, employees or contractors. Landlord agrees to indemnify,
defend and hold harmless Tenant, its agents, servants and employees and its
permitted successors and assigns of and from any loss, reasonable attorney's
fees, expenses or claims for which Tenant is not reimbursed by any insurance
maintained or require to be maintained hereunder (i) arising out of any and all
defaults (beyond any applicable notice and cure period) by Landlord under this
Lease, or (ii) arising out of any negligent or willful act or omission of
Landlord, its agents, employees or contractors. In no event shall either party
be liable for any consequential damages (including, without limitation, lost
rental income or lost profits) suffered by the other party as a result of any
default hereunder. Tenant agrees that at all times during the term of this Lease
Tenant shall maintain insurance covering the Premises and naming Landlord as an
additional insured, with limits as follows:
(i) Commercial general liability insurance for bodily, personal
injury, and property damage, not less than two million dollars
($2,000,000) Combined Single Limit in the event of any one
occurrence (with a general liability umbrella of not less than
three million dollars ($3,000,000); and
(ii) Worker's compensation and employer's liability insurance covering
all of Tenant's employees working in and about the Premises, with
coverage limits not less than the minimum limits allowable under
all applicable laws.
(iii) Property insurance providing 100% replacement cost coverage for
Tenant's leasehold improvements, equipment, inventory, and other
personal property.
Tenant shall provide Landlord with a certificate of such insurance
coverage (with a copy of the endorsements naming Landlord as an additional
insured being attached), which certificate shall bear an endorsement stating
that the insurer shall notify Landlord not less than ten (10) days in advance of
any material modification or cancellation thereof. Any insurance required to be
carried by Tenant hereunder will be issued through insurance carriers licensed
to do business in Georgia with a rating of Best"s Insurance Guide A/VIII and/or
Standard & Poor Insurance Solvency Review A-, or better.
Tenant shall have the right to maintain the required liability insurance
in the form of a blanket policy covering other locations of Tenant in addition
to the Premises; provided, however, that (i) Tenant shall provide Landlord with
a certificate of insurance specifically naming the location of the Premises and
naming Landlord as required in this Section, the limits of which coverage are to
be in the amounts set forth in this Section, and (ii) claims made as to other
locations covered by such blanket policy shall not affect coverage as to the
Premises.
Notwithstanding anything to the contrary contained herein, Tenant or any
successor to Tenant or sublessee or assignee of Tenant shall have the right to
self-insure all or any part of any of said insurance coverages, in Tenant's sole
discretion, so long as such self-insuring party maintains a tangible net worth
of not less than Seventy-Five Million Dollars ($75,000,000.00), as determined
pursuant to generally accepted accounting principles. In the event that Tenant
elects to self-insure all or any part of any risk that would be insured under
the policies and limits described above, and an event occurs where insurance
proceeds would
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have been available but for the election to self-insure, Tenant shall
immediately make funds available to the same extent that they would have been
available had such insurance policy been carried.
Landlord agrees to maintain, throughout the term of the Lease, property
insurance at least equal to eighty percent (80%) of the full replacement cost of
the Building, exclusive of any improvements thereto by any tenants.
Landlord and Tenant each hereby release and relieve the other, and waive
their entire right of recovery against the other for loss or damage arising out
of or incident to the perils insured against, or required to be insured against
pursuant to the terms hereof, which perils occur in, or about the Premises or
Building, whether due to the negligence of Landlord or Tenant, or their agents,
employees, contractors, and/or invitees. Landlord and Tenant shall, upon
obtaining the policies of insurance required, give notice to the insurance
carrier or carriers that the foregoing mutual waiver of subrogation is contained
in this Lease.
8.
REPAIRS BY LANDLORD
From and after the Commencement Date, Landlord"s maintenance and repair
obligations as to the Building shall be as follows:
(a) Landlord shall have no maintenance or repair obligations as to
the Premises or any portions of Building systems (including,
without limitation, the Building"s water, sewer, electrical,
heating, plumbing, fire suppression, ventilation and
air-conditioning systems) which are located entirely within the
Premises or which serve the Premises exclusively, except that
Landlord, at Landlord"s sole cost and expense shall keep in good
order, condition and repair all structural components of the
Premises;
(b) Subject to Section 8(a) above, Landlord, at Landlord"s sole cost
and expense shall (i) be responsible for lighting the common
areas of the Building and washing the exteriors of windows on the
Building in a manner that such services are customarily furnished
to similar buildings in the area where the Building is located;
(ii) keep in good order, condition and repair (1) the elevators,
(2) the Building"s water, sewer, electrical, heating, plumbing,
fire suppression, ventilation and air-conditioning systems, (3)
the common areas of the Building, (4) structural components of
the Building, and (5) the roof of the Building.
(c) Notwithstanding anything to the contrary in Sections 8(a) and (b)
above, Tenant shall cause a contractor reasonably approved by
Landlord to make such repairs as may be made necessary by any
willful or negligent act or omission of Tenant or its employees,
agents, customers, invitees, licensees or contractors, and the
cost of such repairs shall be borne by Tenant.
Landlord shall be under no obligation to make any inspection of the
Premises or to make any repairs until after written notice from Tenant to
Landlord of the need thereof. As soon as reasonably practical, Tenant shall
report in writing to Landlord any defective condition known to Tenant which
Landlord is required to repair. Tenant hereby specifically waives any applicable
law requiring inspection of the Premises by Landlord. Landlord shall in no event
be liable for any lost business, lost profits or consequential damages resulting
from Landlord's failure to make repairs or otherwise.
9.
REPAIRS BY TENANT: ALTERATIONS
Tenant shall keep and maintain the non-structural elements of the
Premises, and every part thereof including, without limitation, the portions of
the Building"s water, sewer, electrical, heating, plumbing, fire suppression,
ventilation and air-conditioning systems located entirely within or exclusively
serving the
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Premises, in good order, condition and repair. Trash will be disposed of by
Tenant. All parts of the interior of the Premises shall be painted, wallpapered,
varnished or otherwise redecorated at Tenant"s own expense and at Tenant"s
discretion. Tenant agrees to return the Premises to Landlord at the expiration
or earlier termination of this Lease in good condition and repair as when first
received, normal wear and tear , damage from casualty, and condemnation and
repairs which are Landlord's obligation to make pursuant to the terms and
conditions of this Lease excepted.
Tenant shall make no alterations, additions, or improvements
(collectively, "Alterations") to the Premises, except repairs and replacements
of trade fixtures or equipment with new fixtures or equipment of equal or
greater value, without the prior written consent of Landlord, which consent
shall not be unreasonably withheld, conditioned or delayed, and Landlord may
impose, as a condition of such consent, such requirements as are reasonable
including, without limiting the generality of the foregoing, requirements as to
the manner in which, the time or times at which such work shall be done. Tenant
agrees to indemnify, defend and hold Landlord harmless from and against any and
all claims from mechanics or material men or other liens in connection with any
Alterations made by or on behalf of Tenant, and Tenant will, if required by
Landlord, furnish such waiver or waivers of lien in form satisfactory to
Landlord, as Landlord may require in connection with making Alterations to the
Premises. Tenant will promptly bond or discharge any liens which may be filed in
connection with Alterations, additions, repairs, or improvements to the Premises
within thirty (30) days after written notice from Landlord. Tenant shall be
responsible for complying with all applicable laws, codes and ordinances when
making Alterations to the Premises. Landlord reserves the right to enter the
Premises for the purpose of posting notices of non-responsibility as may be
permitted by law or desired by Landlord. Notwithstanding anything to the
contrary herein, on or before the expiration or earlier termination of this
Lease, Tenant shall remove from the Premises, its equipment, including without
limitation its generators, dry coolers and fuel tanks, telecommunications
equipment, trade fixtures and other personal property. Tenant shall repair all
damage resulting from any such removal.
Landlord hereby waives any rights, statutory or otherwise, to any lien
(other than any judgment lien which Landlord may hereafter obtain) on Tenant's
equipment and other personal property in the Premises.
In making any alterations, repairs or improvements to the Premises and
in installing and operating its equipment (or the equipment of any customer or
co-locator in the Premises), Tenant shall not disturb or interfere (whether by
the emission of radio frequency, electromagnetic field or otherwise) with the
operations of any other tenant in the Building.
10.
RIGHT TO RELOCATE
Intentionally Deleted
11.
UTILITIES
Electricity will be directly metered and billed by the utility provider
to Tenant at Tenant"s expense. Landlord shall furnish water, at Landlord"s
expense for use in Tenant"s restroom (s) and lighting, for common corridor
areas. Tenant"s electrical power requirements are 277/480 volt, 4-wire, 3 phase,
800 AMPs service (the "Promised Usage"). Landlord, at Landlord's sole cost and
expense, shall construct a power vault to deliver the Promised Usage to the
Premises, 24 hours per day, seven days per week. If the applicable utility
provider (the "Utility Provider") requires that the users of such power vault
use no less than a specified amount of power (the "Minimum Power Usage"), and
the Tenant"s actual usage of power (which actual usage of power shall be
calculated by averaging Tenant's actual usage of power for the first three
months of 2001) is less than the Promised Usage, Tenant shall pay a share of any
costs or fees imposed upon Landlord by the Utility Provider as a result of not
attaining the Minimum Power Usage, which share shall be based upon the following
formula: 9% x (1-(Tenant"s actual power usage/60% of Promised Usage)) x "the
amount of any such cost of fees imposed upon Landlord"; provided, however,
Tenant's share of such costs shall not exceed $34,470.00. Tenant shall pay to
Landlord any sums required under this Section as additional rent hereunder
within thirty
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(30) days of demand from Landlord. Tenant shall have the option, and at its sole
cost and expense, to install a transformer, tying into the Property"s bus duct
system to obtain the electrical supply of the Premises (such installation and
connection to the Base Building Bus Duct shall require Landlord"s approval) and
to separately meter Tenant"s electrical power usage at the Premises. If Tenant
determines that the Building"s electrical system does not have sufficient
capacity to accommodate Tenant"s needs, Tenant at its sole cost and expense may
coordinate directly with the Utility Provider to provide additional power to the
Premises. The location and manner of installation of any equipment or facilities
to provide such additional power shall be subject to Landlord"s approval. Tenant
shall contract directly with the Utility Provider to pay for such additional
power. If Tenant requires additional space in the Building in order to obtain
such additional power, Landlord agrees to negotiate in good faith to lease
additional space, if available, to Tenant.
12.
ANTENNAE
Except as expressly set forth in this Lease to the contrary, Tenant
shall have no right to go upon, occupy or use all or any portion of the roof of
the Building for any purpose. All of such rights are hereby reserved by and to
Landlord. Notwithstanding the foregoing, Landlord grants Tenant the right, in
common with Landlord and any other tenants of the Building, to install, operate
and maintain, at Tenant's sole expense and risk and subject to any applicable
laws, regulations, codes or ordinances, one (1) global positioning system (GPS)
antenna (hereinafter referred to as the "Antennae Equipment") within the portion
of the Premises which is located on the roof of the Building, so long as (a)
such Antennae Equipment is no taller than 3 feet and requires no more than one
2" conduit from such base site cabinets to the telecommunication entrance of the
Building or to the Premises, (b) Landlord reasonably determines that space is
available for such Antennae Equipment, and (c) Tenant installs such Antennae
Equipment on or before December 31, 2000. Upon installing any Antennae
Equipment, Tenant shall pay to Landlord an additional $500 per month in fixed
minimum rent. Any such installation shall be subject to Landlord's reasonable
approval of the size, design, installation and appearance of the Antennae
Equipment. Any Antennae Equipment installed by Tenant shall be erected so as not
to interfere with the operation of any other antennae, satellite dish or other
similar equipment then existing on the roof. Tenant shall obtain all necessary
municipal, state and federal permits and authorizations required to install,
maintain and operate the Antennae Equipment and pay any charges levied by
government agencies with respect thereto. At the conclusion of the term of this
Lease, Tenant shall remove the Antennae Equipment and surrender and restore the
space occupied thereby to Landlord in as good as condition as when entered,
except for loss or damage resulting from casualty, condemnation, Act of God or
ordinary wear and tear. Prior to installing or placing any Antennae Equipment on
the roof, Tenant shall submit plans and specifications to Landlord for
Landlord"s approval, which approval shall not be unreasonably withheld,
conditioned or delayed. If Landlord fails to disapprove of such plans and
specifications within ten (10) days of receipt, Landlord shall be deemed to have
approved such plans and specifications. No approval by Landlord of any such
plans and specifications shall constitute any representation or warranty by
Landlord of any kind or nature.
13.
SIGNS
All rights to advertise on the Premises or place signs on the exterior thereof
shall be reserved to Landlord, and Tenant may not advertise or place signs on
the Premises without the prior written consent of Landlord, which consent may be
granted or withheld in Landlord's sole discretion.
14.
DEFAULT
Should Tenant's interest herein, or any part thereof, be assigned or transferred
either voluntarily or by operation of law (except as expressly permitted
herein), including, without limitation, filing of a petition by or against
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Tenant under any insolvency or bankruptcy law which, as to involuntary
insolvency or bankruptcy filings only, are not dismissed within ninety (90) days
of filing; or if Tenant should make a general assignment or any assignment for
the benefit of its creditors; or if Tenant should, after written notice, fail to
remedy any default (i) in the payment of any sum of money due under this Lease
for ten (10) days, or (ii) in the keeping of any other term, covenant, or
condition herein for thirty (30) days (provided, if such failure cannot by its
nature be cured within such 30 day period, Tenant shall have a reasonable period
of time not to exceed 120 days in order to complete such cure so long as Tenant
promptly commences such cure within such 30 day period and thereafter diligently
prosecutes such cure to completion) then, in any of such events, Landlord shall
have the right, at its option, in addition to any other remedy Landlord may have
hereunder or by operation of law, without any further demand or notice, to
re-enter the Premises and eject all persons therefrom, using all force which is
reasonably necessary (other than locking Tenant out) to do so, and either (a)
declare this Lease at an end, in which event Tenant shall immediately pay
Landlord a sum of money equal to the amount, if any, by which the then cash
value (determined using a discount rate of seven percent (7%) per annum) of the
Fixed Minimum Rent reserved hereunder for the balance of the term of this Lease
exceeds the then cash reasonable rental value of the Premises for the balance of
said, term, or (b) without terminating this Lease may re-let the Premises, or
any part thereof, as the agent and for the account of Tenant upon such terms and
conditions as Landlord may deem advisable, in which event the rent received on
such re-letting shall be applied first to the expense of such re-letting,
including necessary renovation and alteration of the Premises, any real estate
commissions paid, and all other expenses of preparing the Premises for occupancy
by the new tenant, and thereafter toward payment of all sums due or to become
due hereunder. If a sufficient sum shall not be thus realized to pay all sums
owing by Tenant hereunder, Tenant shall pay Landlord any deficiency monthly,
rental stipulated in this Lease in previous or subsequent months, and Landlord
may bring an action therefor as such monthly deficiency shall arise. Any such
re-entry shall be allowed by Tenant without let or hindrance, and Landlord shall
not be liable in damages for any such re-entry, or guilty of trespass or
forcible entry provided it has not used willful misconduct. Landlord agrees to
use reasonable efforts to relet the Premises at fair market rental rates and to
otherwise mitigate any damages arising out of a default (beyond any applicable
notice and cure period) on the part of Tenant; provided, however, that (i)
Landlord shall have no obligation to treat preferentially the Premises compared
to other premises Landlord has available for leasing within the Building or in
other properties owned or managed by Landlord; (ii) Landlord shall not be
obligated to expend any efforts or any monies beyond those Landlord would expend
in the ordinary course of leasing space within the Building; and (iii) in
evaluating a prospective reletting of the Premises, the term, rental, use and
the reputation, experience and financial standing of prospective tenants are
factors which Landlord may properly consider.
15.
COMPLIANCE WITH REGULATIONS
Tenant agrees that it shall promptly comply at its sole cost with all
requirements of any legally constituted public authority made necessary by
reason of Tenant's specific use or manner of use of the Premises. Landlord
agrees promptly to comply at its sole cost with any such requirements if not
made necessary by reason of Tenant's specific use or manner of use of the
Premises.
16.
LATE DELIVERY
If Landlord is prevented by law or through no fault of Landlord from
giving possession of the Premises on the date herein provided, there shall be no
liability for damages of any kind resulting from such failure.
Landlord shall deliver possession of the Premises to Tenant on or before
December 15, 1999. If Landlord's Work (as hereinafter defined) is not
substantially completed on or before December 15, 1999, or Landlord is otherwise
unable to deliver possession of the Premises on such date for any reason, then
Tenant shall be entitled to a rent abatement commencing on the Rent Commencement
Date, in an amount equal to one day of rent for each day Landlord's Work is not
substantially completed or possession is not delivered past
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December 15, 1999; provided further, however, that if Landlord's Work is not
completed on or before January 31, 2000, Tenant may terminate all of its
obligations under this Lease. For purposes hereof, the Landlord's Work is
"substantially complete" if all portions of Landlord's Work are complete except
for such items which are of an immaterial nature and do not unreasonably
interfere with Tenant's work during the early occupancy period.
17.
RE-LEASING
Landlord may enter the Premises at reasonable times and with reasonable
notice to exhibit the same to prospective purchasers or lenders or, during the
last twelve months of the Lease term, to prospective tenants, and to make
repairs required of Landlord under the terms hereof, and to make repairs to
Landlord's adjoining property. If Landlord enters the Premises for purposes of
making repairs or performing maintenance, Landlord will use commercially
reasonable efforts not to disrupt the operation of Tenant's business in the
Premises.
18.
EARLY TERMINATION
No termination of this Lease prior to the normal expiration thereof,
shall affect Landlord's right to collect rent which has accrued for the period
prior to termination.
19.
CONDITION OF PREMISES AT TIME OF DELIVERY
Landlord shall deliver to Tenant possession of the Premises
substantially in their condition as of the date hereof, and Tenant shall accept
possession of the Premises in such condition, except as otherwise provided
herein.
20.
ASSIGNMENT
Except as otherwise specified in this Section 20, Tenant shall not
sublet said Premises or any part thereof nor assign this Lease, without in each
case the prior written consent of Landlord not to be unreasonably withheld,
conditioned or delayed. In determining the reasonableness of Landlord"s decision
to withhold or grant its consent to any proposed assignment or sublease,
Landlord may take into consideration all relevant factors surrounding the
proposed assignment or sublease, including, without limitation, the following:
1. The business reputation of the proposed subtenant or assignee and
its officers or directors.
2. The nature of the business and the proposed use of the Premises
by the proposed subtenant or assignee in relation to
restrictions, if any, contained in other leases or agreements
affecting the Building.
3. The proposed subtenant or assignee shall not be a tenant of other
space in the Building or a party with whom Landlord is then
negotiating regarding the lease of space in the Building.
4. The financial condition of the proposed subtenant or assignee.
Any transfer of this Lease from Tenant by merger, consolidation,
liquidation, or otherwise by operation of law shall constitute an assignment for
the purpose of this Lease and, except as otherwise specified in this Section 20,
shall require the written consent of the Landlord. Except as otherwise specified
in this Section 20, Tenant shall not permit any business to be operated in or
from the Premises by any concessionaire or licensee without the prior written
consent of Landlord. In the event that Tenant shall seek Landlord's permission
to assign this Lease or sublet the Premises, Tenant shall provide to Landlord
the name, address and
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financial statement of the proposed assignee or sub-lessee and such other
information concerning such proposed assignee or sub-lessee as Landlord may
require. It shall be a condition to any consent by Landlord to an assignment or
subletting that Tenant shall accompany such request with a certified check in
the amount of One Thousand and Five Hundred Dollars ($1,500.00) to reimburse
Landlord for administrative and legal expense for the review and preparation of
necessary documents. Any consent by Landlord to any assignment or subletting, or
to the operation by a concessionaire or licensee, shall not constitute a waiver
of the necessity for such consent to any subsequent assignment or subletting, or
operation by a concessionaire or licensee. In the event that Tenant shall at any
time, during the term of the Lease, sublet all or any part of said Premises or
assign this Lease, either with the consent of Landlord as hereinbefore provided
or without the consent of Landlord, then, in such event, it is hereby mutually
agreed that Tenant shall nevertheless remain fully liable under all of the
terms, covenants and conditions of this Lease. If this Lease is assigned, or if
the Premises or any part thereof is subleased or occupied by any person or
entity other than Tenant or Tenant"s permitted assigns, Landlord may upon a
monetary default by Tenant, collect from assignee, sub-lessee or occupant any
rent or other charges payable by Tenant under this lease, and apply the amount
collected to the rent and other charges herein reserved, but such collection by
Landlord shall not be deemed as acceptance of the assignee, sub-lessee or
occupant as a tenant nor release of Tenant from the performance by Tenant under
this Lease. Notwithstanding the foregoing, Tenant shall have the right to assign
this Lease or sublet the Premises or any potion thereof to an Affiliate (as
hereinafter defined) without the consent of Landlord. Tenant shall promptly
notify Landlord of any such assignment or subletting, and no such assignment or
subletting shall release Tenant from liability for any of its obligations
hereunder. For purposes of this Lease, the term "Affiliate" shall mean (i) any
person or entity which controls, is controlled by or is under common control
with Universal Access Inc., so long as such persons or entity continues to
control, be controlled by or be under common control with Universal Access Inc.,
(ii) any entity into which or with which Tenant consolidates or merges if such
entity has a tangible net worth at the time of such assignment or subletting
which is equal to or greater than the net worth of Tenant as of the date hereof
and (iii) any person or entity which acquires all or substantially all of the
assets of Tenant, if such acquiring person or entity has a tangible net worth at
the time of such assignment subletting which is equal to or greater than the net
worth of Tenant as of the date hereof. For purposes hereof, a person or entity
"controls" another person or entity if such person or entity owns more than
fifty percent (50%) of the ownership, partnership or beneficial interests of the
other person or entity. Notwithstanding anything contained herein to the
contrary, none of the following, or any changes, assignments or transfers
resulting from the following, shall require Landlord"s prior written consent,
the payment by Tenant of any fees or charges of any kind, or give rise to any
right of Landlord to cancel or recapture all or any part of the Premises:
i. a transaction in which Tenant becomes an entity whose shares
of stock or other ownership interests are, directly or indirectly, sold
on a national stock exchange or an inter-dealer quotation system; and in
the event the foregoing transaction has occurred, any subsequent sale of
ownership interests or issuance of new ownership interests, directly or
indirectly, in Tenant; and
ii. any license or co-location agreement of portions of the
Premises which is otherwise permitted hereunder..
21.
DESTRUCTION OF PREMISES
If the Building or the Premises are totally destroyed by storm, fire,
lightning, earthquake, flood or other casualty, this Lease shall terminate as of
the date of such destruction, and rental shall be accounted for between Landlord
and Tenant as of such date. If the Premises are damaged but not wholly destroyed
by any such casualties, rental shall abate in such proportion as use of the
Premises has been destroyed, and Landlord shall restore the Premises to
substantially the same condition as before such damage as speedily as
practicable, but Landlord shall not be required to expend any amount greater
than insurance proceeds received by Landlord (together with the amount of the
applicable deductibles maintained by Landlord) arising out of such damage to the
Premises, whereupon Tenant shall resume payment of the full rent owing
hereunder. In the event of total destruction of the Premises and termination of
this Lease, Tenant shall be entitled to retain proceeds of Tenant's
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insurance. If, as a result of any casualty which does not arise out of any
negligent or willful act or omission of Tenant or its employees, agents or
contractors, the Premises remains untenantable for a continuous period in excess
of one hundred eighty (180) days, Tenant shall have the right to terminate this
Lease by written notice given to Landlord .
22.
EMINENT DOMAIN
In the event the Premises or any part thereof shall be taken or
condemned either permanently or temporarily for any public use or purpose by any
competent authority by right of eminent domain, the entire compensation award
therefor, including, but not limited to all damages and compensation for the
reversion and fee, shall belong to the Landlord without deduction therefrom for
any present or future estate of Tenant, and Tenant hereby assigns to Landlord
all its rights, title and interest to any such award. Tenant shall have the
right to claim and recover from the condemning authority, but not from Landlord,
such compensation as may be separately awarded or recoverable by Tenant in
Tenant's own right on account of any and all damage to Tenant's business and
leasehold estate by reason of the condemnation and for or on account of any cost
or loss to which Tenant might be put in removing Tenant's merchandise,
furniture, fixtures and equipment. In such event, this Lease shall terminate as
of the day possession shall be taken by such public authority, and Tenant shall
pay rent up to such date.
23.
PARTNERSHIP
This Lease shall not be construed as making Landlord in any manner or
for any purpose a partner of Tenant in its business or otherwise, or a joint
venturer or member of any joint enterprise with Tenant.
24.
NOTICES
All notices or consents required or permitted to be given hereunder
shall be in writing and shall be deemed to be duly given if sent by (i)
facsimile, (ii) certified mail, return receipt requested, postage prepaid, or
(iii) by nationally recognized overnight courier service, and addressed as
follows:
IF TO TENANT: Universal Access, Inc.
100 N. Riverside Plaza, Suite 2200
Chicago, IL 60606
Attn: Robert Pommer
Fax: 312-660-5050
IF TO LANDLORD: PEACHTREE KESSLER LOFTS, LLC
dba TELECOM TOWER
3101 Towercreek Pkwy. #560
Atlanta, Georgia 30339
Attn: Don A. Thomas
Fax: 770-953-6579
With a copy to: Sutherland, Asbill & Brennan, LLP
999 Peachtree Street, NE
Atlanta, Georgia 30309-3996
Attn: James B. Jordan, Esq.
Fax: 404-853-8806
Any notice given in the manner set forth above shall be
deemed to be received by the party to whom such notice is
addressed upon the earlier to occur of (i)
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actual receipt, or (ii) five (5) business days after the
sending thereof. Either party may change the address or
fax number to which notices to such party shall be sent by
giving written notice thereof to the other party. In the
case of notices delivered by facsimile, notice shall be
deemed to have been given at the time of receipt set forth
on the confirmation generated by the transmitting
facsimile machine, provided that a copy of such notice is
delivered to the receiving party by one of the methods
described in clauses (ii) or (iii) above within five (5)
business days thereafter.
25.
USUFRUCT ONLY
This Lease Agreement shall create the relationship of landlord and tenant only
as between Landlord and Tenant. No estate shall pass out of the Landlord
hereunder. Tenant shall have only a usufruct, not subject to levy and sale, and
not assignable by Tenant except as otherwise provided herein.
26.
SUBORDINATION/NON-DISTURBANCE
This Lease shall be subordinate to any ground lease, mortgage, deed to secure
debt or trust, or any other hypothecation for security (hereinafter referred to
as a "Security Instrument"), now or hereafter placed upon the real property of
which the Building and Premises are a part, and to any and all advances made on
the security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof; provided, however, the subordination of
this Lease to any Security Instrument shall be subject to Tenant"s receipt of
commercially reasonable subordination, non-disturbance and attornment agreement
from the holder of any such Security Instrument. Tenant agrees to execute any
such commercially, reasonable subordination, non-disturbance and attornment
agreement which may be required to effectuate such subordination, within fifteen
(15) business days after written demand. Landlord shall provide Tenant with a
commercially reasonable subordination non-disturbance and attornment agreement
from any holder of any existing Security Instrument within fifteen (15) business
days after the execution of this Lease.
27.
NAME OF BUILDING
Tenant shall not use the name of the Building for any purpose other than the
address of the business to be conducted by Tenant in the Premises. Tenant shall
not use any picture of the Building in any advertising, stationery nor in any
other manner without Landlord's prior written consent. Landlord expressly
reserves the right at any time to change the name of the Building without, in
any manner, being liable to Tenant therefore.
28.
RECORDING
The parties hereto agree that this Lease shall not be recorded in any public
records.
29.
BROKER'S COMMISSION
Each party represents and warrants to the other that such party has not employed
the services of any broker or finder in connection with this Lease, and each
party shall indemnify and hold the other harmless against any liability for any
brokers commission or finders fee claimed by any broker or finder alleging to
have dealt with such party except Terminus Real Estate, Inc. (hereinafter
referred to as "Terminus") which represented the Landlord in this Lease and Dean
Topping & Company which represented Tenant in this Lease. Any broker commission
due Terminus or Dean Topping & Company by virtue of such representation shall be
paid by Landlord under the terms of a separate agreement.
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30.
ESTOPPEL CERTIFICATE
At any time and from time to time, Tenant agrees, within fifteen (15) days after
any request from Landlord to execute, acknowledge and deliver to Landlord, or to
such person as Landlord may request, a statement in writing certifying the
following (to the extent accurate):
(a) That this Lease constitutes the entire agreement between Landlord and Tenant
and is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modification);
(b) The date to which the fixed minimum rent and any other rent owing hereunder
has been paid, and the amount of security deposited with Landlord;
(c) That Tenant has accepted possession, that the lease term has commenced, that
Tenant is occupying the Premises and whether Tenant knows of any default under
the Lease by Landlord and any defaults or offsets which Tenant has against
enforcement of this Lease by Landlord;
(d) The actual Commencement Date of the Lease and the expiration date of the
Lease; and
(e) That the Tenant's business is open for business
31.
LIMITATION OF LANDLORD'S LIABILITY
If Landlord shall fail to perform any covenant, term or condition of
this Lease upon Landlord's part to be performed, Tenant hereby releases Landlord
from any personal liability for such default and should Tenant, as a consequence
of such default, recover a money judgment against Landlord, such judgment shall
be satisfied only out of (i) the proceeds of sale produced upon execution of
such judgment, and levy thereon, (ii) the rents or other income from such
property receivable by Landlord, and (iii) the consideration received by
Landlord's interest in such property, and Landlord shall not be liable for any
deficiency. The provisions of this paragraph are not designated to relieve
Landlord from the performance of any of its obligations hereunder, but rather to
limit Landlord's liability in the case of the recovery of a judgment against it,
as aforesaid, nor shall any of the provisions of this Section be deemed to limit
or otherwise affect Tenant's right to obtain injunctive relief or specific
performance or to avail itself of any other right or remedy which may be
accorded Tenant by law or this Lease. In the event of sale or other transfer of
Landlord's right, title and interest in the Building and an assumption of this
Lease by the purchaser or transferee, Landlord shall thereafter be released from
all liability and obligations hereunder which accrue subsequent to the date of
such transfer; provided, that the provisions of this Section 31 shall inure to
the benefit of any such purchaser or transferee.
32.
SECURITY DEPOSIT
Tenant has deposited with Landlord a security deposit of Fifteen
Thousand Four Hundred and Seventy Four Dollars ($15,474.00), receipt of which is
hereby acknowledged by the Landlord. Said deposit shall be held by Landlord
without liability for interest as security for the faithful performance by
Tenant of all of the terms of this Lease by Tenant to be observed and performed.
Landlord shall have no obligation to maintain such deposit in a segregated
account and may use or commingle the same with other funds. If any of the rents
herein reserved or any other sum payable by Tenant to Landlord shall be overdue
and unpaid, or should Landlord make payments on behalf of Tenant, or Tenant
shall fail to perform any of the terms of this Lease after the giving of notice
and the expiration of any applicable cure periods, then Landlord may, at its
option and without prejudice to any other remedy which Landlord may have on
account thereof, appropriate and apply said security deposit or so much thereof
as may be necessary to compensate Landlord toward the
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payment of rent or additional rent loss or damage sustained by Landlord due to
such breach on the part of Tenant. Tenant shall forthwith upon demand restore
said security deposit to the original sum deposited. The balance of said deposit
(to the extent not applied in accordance herewith) shall be returned in full to
Tenant within thirty (30) days after the expiration or earlier termination of
this Lease.
33.
HOLDING OVER
If Tenant shall remain in possession after expiration of the term
hereof, with Landlord's acquiescence and without any express agreement of the
parties, Tenant shall be a Tenant from month to month at a fixed minimum rental
rate equal to one hundred fifty percent (150%) of the fixed minimum rental rate
in effect at the end of the Lease, and all of the other terms and conditions of
this Lease, including the provision relating to other rent, shall continue in
full force and effect, and there shall be no renewal of this Lease by operation
of law. In the event that Tenant so becomes a Tenant from month to month, either
party may terminate this Lease upon thirty (30) days prior written notice to the
other party.
34.
RULES AND REGULATIONS
Landlord shall have the right to promulgate reasonable rules and
regulations for the benefit of Landlord and all of the tenants of the Building.
Any such rules and regulations shall apply to all of the tenants of the Building
and shall be enforced in a non-discriminatory manner. Tenant agrees to comply
with all such rules and regulations after Landlord gives notice of same. The
present rules and regulations of the Building are described within Exhibit "C".
35.
RIGHTS CUMULATIVE
All rights, powers and privileges of Landlord hereunder shall be
cumulative of each other and of any rights, powers and privileges provided by
law.
36.
NO WAIVER
The waiver of any breach of any provision of this Lease Agreement by
Landlord, and any failure of Landlord to exercise any power given Landlord
hereunder, or to insist upon strict compliance by Tenant with its obligations
hereunder, and no custom or practice of the parties at variance with the term
hereof, shall constitute a waiver of Landlord's right to demand strict
compliance with the exact terms hereof. Landlord does not authorize any agent to
waive any of the provisions of this Lease Agreement.
37.
TIME OF ESSENCE
Time is of the essence of this Lease Agreement.
38.
PARTIES BOUND
This Lease shall be binding upon and inure to the benefit of Landlord
and its heirs, representatives, successors and assigns. This Lease shall be
binding upon and inure to the benefit of Tenant and its heirs, representatives,
successors and if this Lease shall be validly assigned or sublet, it shall be
binding upon and inure to the benefit of Tenant's assignees or subletees as to
Premises covered by such assignment or sublease. Whenever the singular number is
used in this Lease, and when required by context, the same shall include the
plural, and the masculine gender shall include the feminine and neuter genders,
and vise versa, and the word
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"person" shall include corporations, partnerships and other associations, all
where the context so requires.
39.
CAPTIONS
The captions, headings and sub-headings set forth in this Lease
Agreement are for the convenience of reference only, and shall not be used in
interpreting this Agreement.
40.
ENTIRE AGREEMENT
This Lease contains the entire Agreement between the parties with
respect to the subject matter hereof, and no representations, inducements,
promises or agreements, oral or otherwise, between the parties not embodied
herein, shall be of any force or effect.
41.
DISCLOSURE
For the purposes of disclosure Don A. Thomas and Mark Swiecichowski,
principals of Landlord, are licensed real estate brokers in the State of
Georgia.
42.
SUBMISSION OF LEASE
The submission of this Lease for examination does not constitute an
option nor offer for the Premises, and this Lease shall become effective only
when fully executed counterparts of this Lease have been executed and delivered
by both Landlord and Tenant.
43.
ENVIRONMENTAL PROVISION
(a) Tenant will not use or permit any hazardous or toxic waste,
substance, contaminant, asbestos, oil, radioactive or other material, the
removal of which is required or the maintenance or storage of which is
prohibited, regulated, or penalized by any local, state, or federal agency,
authority, or governmental unit (collectively and hereinafter referred to as
"Hazardous Substances"), to be brought onto the Premises or if so brought or
found located thereon, shall cause the same to be immediately removed, unless
the storage, use, treatment, and disposal of same is in full compliance with all
applicable federal, state and local laws and regulations pertaining thereto, and
Tenant's obligation to so remove shall survive the termination of this Lease.
Tenant will not use or suffer the use of the Premises in any manner other than
in full compliance with all applicable federal, state and local environmental
laws and regulations. Tenant shall indemnify, defend, and hold Landlord harmless
from and against any and all costs, damages, and expenses, including without
limitation reasonable attorney"s fees, resulting, directly or indirectly, from
any Hazardous Substances introduced in, on or under the Premises by or on behalf
of Tenant, its agents, representatives, employees or contractors. This indemnity
shall survive the expiration or earlier termination of this Lease.
Notwithstanding anything to the contrary herein, Tenant shall have no obligation
to indemnify, defend or hold Landlord harmless for claims arising out of the
presence of Hazardous Materials which were not introduced by Tenant or any
employee, contractor, representative, agent or licensee of Tenant.
(b) Landlord hereby represents and warrants to Tenant that to the best
of its knowledge, there are no Hazardous Substances in the Premises at levels or
in concentrations which violate any applicable law, code, regulation or
ordinance. In the event that the foregoing representation an warranty is
determined to be untrue, upon notice from Tenant, Landlord shall diligently
cause the same to be removed, contained or remediated in accordance with all
applicable laws, codes, regulations and ordinances.
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44.
AMERICANS WITH DISABILITIES ACT PROVISION
The parties acknowledge that the Americans with Disabilities Act of 1990
(42 U.S.C. Section 12101 et seq.) and regulations and guidelines promulgated
thereunder, as all of the same may be amended and supplemented from time to time
(collectively referred to herein as the "ADA") establish requirements for
business operations, accessibility and barrier removal, and that such
requirements may or may not apply to the Premises and Building depending on
among other things: (i) whether Tenant's business is deemed a "public
accommodation" or "commercial facility"; (ii) whether such requirements are
"readily achievable"; and (iii) whether a given alteration affects a "primary
function" or triggers "path of travel" requirements. The parties hereby agree
that: (i) Landlord shall be responsible for ADA Title III compliance in the
Common Areas, and (ii) Tenant shall be responsible for the ADA Title III
compliance in the Premises, including any leasehold improvements or other work
to be performed in the Premises under or in connection with this Lease. Tenant
and Landlord hereby agree to indemnify and hold harmless the non-defaulting
party from and against any and all claims, demands, actions, damages, fines,
judgments, penalties, costs (including reasonable attorneys' fees and
consultants' fees), liabilities and losses resulting from the other's failure to
make alterations required by the ADA, as now or hereafter amended, and the rules
and regulations promulgated thereunder.
45.
NO REMEASUREMENT
The Premises shall not be remeasured nor shall the rent be adjusted
based upon the actual square footage of the Premises.
46.
SPECIAL STIPULATIONS
1. Landlord is to turn the premises over to the Tenant in "as is"
condition, without any representation or warranty, except for latent
defects in Landlord's Work of which Tenant notifies Landlord in writing
within six (6) months after the Commencement Date or as otherwise
specified herein.
2. Tenant shall be responsible for the construction of any and all walls
inside of Tenant"s Premises, and dry pipe fire suppression system.
3. Notwithstanding anything to the contrary herein, Tenant shall coordinate
and obtain Landlord"s reasonable approval of all conduit routing and
connections of fiber, telephone, data, mechanical, power, etc., to main
building system with Landlord. From and after March 1, 2000, in
connection with any requested approval, Tenant shall be responsible for
reimbursing Landlord for the out of pocket expenses paid by Landlord to
Landlord"s engineering consultant and/or construction manager in order
to review all items necessary for Landlord to grant or withhold such
consent.
4. Landlord shall provide a ground bar located in generator room connected
to main building ground.
5. Tenant shall be responsible for the construction of all demising walls
in the Premises. Tenant shall also be required to construct a 2-hour
rated demising wall, approximately 48' long as per the drawing attached
hereto as Exhibit C, which is required by the City of Atlanta Building
Authority. Such construction shall be performed by a licensed contractor
in a good, workmanlike and lien free manner. The location and manner of
construction of such demising wall shall be subject to Landlord"s
reasonable approval.
6. Removal of Electrical and Telecommunications Wire:
a. Landlord May Elect to Either Remove or Keep Wires. On or before
the date which is ten
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(10) days after the expiration or sooner termination of the
Lease, Landlord may elect ("Election Right") by written notice to
Tenant to:
(i) Retain any or all wiring, cables, risers and similar
installations appurtenant thereto installed by Tenant in
the risers of the Building and all cable, wiring,
connecting lines and other installations or property
installed or placed in the Meet Me Room (hereinafter
collectively referred to as "Wiring") and pay Tenant
$50,000.00 for such Wiring;
(ii) Remove any or all such Wiring and restore the Premises and
risers to their condition existing prior to the
installation of the Wiring (herein after referred to as
"Wire Restoration Work"). Landlord shall perform such Wire
Restoration Work at Tenant"s sole cost and expense; or
(iii) Require Tenant to perform the Wire Restoration Work within
thirty (30) days after receipt of Landlord's Election
Right notice at Tenant"s sole cost and expense.
b. Survival. The provisions of this subparagraph 6a shall survive
the expiration or sooner termination of this Lease.
c. Conditioning of Wiring. In the event Landlord elects to retain
the Wiring (pursuant to Paragraph a(i) hereof), Tenant covenants
that:
(i) Tenant shall be the sole owner of such Wiring, that Tenant
shall have the right to surrender such Wiring, and that
such Wiring shall be free of all liens encumbrances; and
shall be left in as-is condition, properly labeled at each
end and in each telecommunications/electrical closet and
junction box, and in safe condition.
d. Landlord Retains Security Deposit. Notwithstanding anything to
the contrary in this Lease, Landlord may retain Tenant"s Security
Deposit after the expiration or sooner termination of the Lease
until the earliest of the following events:
(i) Landlord elects to retain the Wiring pursuant to Paragraph
6(a)(i):
(ii) Landlord elects to perform the Wiring Restoration Work
pursuant to Paragraph 6(a)(ii) and the Wiring Restoration
Work is complete and Tenant has fully reimbursed Landlord
for all costs related thereto; or
(iii) Landlord elects to require the Tenant to perform the
Wiring Restoration Work pursuant to Paragraph 6(a)(iii)
and the Wiring Restoration Work is complete and Tenant has
paid for all costs related thereto;
e. Landlord Can Apply Security Deposit. In the event Tenant fails or
refuses to pay all costs of the Wiring Restoration Work within 30
days of Tenant"s receipt of Landlord"s notice requesting Tenant"s
reimbursement for or payment of such costs, Landlord may apply
all or any portion of Tenant"s Security Deposit toward the
payment of such unpaid costs relative to the Wiring Restoration
Work.
f. No Limit on Right to Sue. The retention or application of such
Security Deposit by Landlord pursuant to this Clause does not
constitute a limitation on or waiver of Landlord"s right to seek
further remedy under law or equity.
g. If Landlord fails to give Tenant the Election Right notice within
ten (10) days after the expiration or sooner termination of this
Lease, Landlord shall be deemed to have elected the course of
action described in Paragraph 6(a)(iii).
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7. Other Special Stipulations
Taxes: Within thirty (30) days after written demand therefore, Tenant shall pay
to Landlord, as additional rent hereunder, its pro-rata share (i.e., 9%) of
those Taxes which exceed the 2000 base year. "Taxes" mean all federal, state,
local, governmental, special district and special service area taxes (including,
without limitation, any traffic improvement district taxes), fees, improvement
bond, charges, assessments and any other government charges, surcharges and
levies, general and special, ordinary or extraordinary, including state or local
imposed sales taxes on rent of any kind whatsoever (including interest thereon
whenever same may be payable in installments) which Landlord shall pay or be
obligated to pay arising out of the use, occupancy, ownership, leasing,
management, repair or replacement of the Building, any appurtenance thereto or
any property, fixtures or equipment thereon. Taxes also include the costs
(including, without limitation, fees of attorneys, consultants or appraisers) of
any negotiation, contest or appeal pursued by or on behalf of Landlord and
relating to the Building. Taxes exclude any income, transfer, profit,
inheritance or franchise tax which may be imposed upon Landlord. Landlord shall
pay all Taxes in installments over the maximum period of time permitted by law,
and all interest payments thereon shall be included within Taxes for purposes
hereof. Notwithstanding anything to the contrary herein, Taxes shall not include
any penalties or interest imposed or charged as a result of late payment of
Taxes by Landlord.
Floor Load: Structural tests indicate that the building floor load capacity is
not less than 135 lb live load. Ceiling Height: The Premises shall have a
minimum height from "slab to slab" of no less than 10' 6".
Roof Access: Tenant shall be granted access to the Roof Space 24 hours per day.
Landlord shall make arrangements for immediate access during normal business
hours (i.e., 9AM - 5PM, Monday through Friday, holidays excluded). Landlord
shall provide a telephone contact to Tenant for the arranging of immediate
access after normal business hours and on weekends.
Equipment Removal: Tenant shall have the right to remove any or all of its
equipment, HVAC, batteries, UPS systems, etc., at any time during the term of
the lease.
Fire Suppression: Landlord shall install a Wet Sprinkler System. On or before
the date which is the earlier to occur of (i) March 1, 1999, or (ii) the date
Tenant commences the installation of its equipment and gear in the Premises,
Tenant shall install a pre-action fire suppression system in the Premises.
8. From and after the Commencement Date, so long as Landlord is contracting with
a third party to provide 24 hour security services (which shall consist of one
unarmed guard for the Building), to the Building, Tenant shall pay to Landlord,
as additional rent, $518.00 per month, which sum represents Tenant"s pro rata
share of the cost of such security services. Such sum shall be due and payable
on the first day of each month during the term of this Lease. Landlord reserves
the right to cancel such security services upon 30 days notice to Tenant. In
addition, Tenant shall have the right to install its own security in the
Premises provided that Tenant provides Landlord with the information necessary
to allow Landlord (and emergency personnel) access to the Premises in the event
of an emergency.
9. Attorney"s Fees. If either party hereto brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action or proceeding shall be entitled to receive reasonable attorney"s
fees actually incurred if such action or proceeding is pursued to decision or
judgment.
10. Quiet Enjoyment. Landlord covenants and agrees with Tenant that so long as
Tenant continues to pay all rent and other sums when due and to observe and
perform all the terms, covenants and conditions of this Lease on Tenant"s part
to be observed and performed, Tenant may peaceably and quietly enjoy the
Premises hereby demised, subject, nevertheless to the terms and conditions of
this Lease.
11. Consent/Approval. Wherever consent or approval of the Landlord is required
under the Lease, Landlord agrees not to unreasonably withhold, condition or
delay such consent or approval. If, in this Lease, it is provided that
Landlord's consent or approval as to any matter will not be unreasonably
withheld, and it
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is established by a court or body having final jurisdiction thereover that
Landlord has been unreasonable the only effect of such finding shall be that
Landlord shall be deemed to have given its consent or approval; but Landlord
shall not be liable to Tenant in any respect for money damages by reason of
withholding its consent unless Landlord withholds such consent in bad faith.
12. Landlord"s Work. On or before December 15, 1999, Landlord through its
designated contractor shall perform the following work (collectively "Landlord
Work"), in a good and workmanlike manner, at Landlord"s sole cost and expense:
a. demolition of existing walls, ceiling, lighting fixtures, etc.
per Tenant"s approved plans;
b. construction of power vault and power requirements set forth in
Section 11;
c. removal of all asbestos within the Premises, the auxiliary space
and the riser shafts required for Tenant"s conduit;
d. provide a relatively smooth concrete floor (within industry
tolerances for a building of an age similar to that of the
Building);
e. provide water supply and water drainage lines to Premises;
f. install new wet-type sprinkler system in accordance with City
ordinance; and
g. install double door leading from elevator lobby to Corridor (as
described on Exhibit A attached hereto)
13. No Exclusive Carrier. Landlord agrees that it will not grant any carrier the
exclusive right to be the only carrier in the Building.
47.
RENEWAL OPTION
Tenant shall have the right to renew the Term of this Lease for two (2)
additional terms of five (5) years (hereafter referred to as the "Renewal Term")
by giving Landlord prior written notice nine (9) months prior to the expiration
of the initial Term or the prior Renewal Term, as applicable, and that Tenant
has exercised such renewal right, subject to the following conditions:
(a) Tenant shall not be in default under any of the terms or
provisions of this Lease at the time such notice is given or at
the time of the commencement of the applicable Renewal Term.
(b) Tenant shall occupy the Premises during the Renewal Term under
the same terms and conditions as specified in this Lease, except
Tenant shall lease the Premises in their then "as-is" condition,
with Tenant not having any right to require any improvements be
made to the Premises, and the Base Rent for any Renewal Term
shall be ninety-five percent (95%) of the then Market Rate, but
not less than the Base Rent for the Premises in effect
immediately prior to the commencement of such Renewal Term.
(c) As used herein, the term "Market Rate" shall be initially
determined by Landlord as the amount of base annual rent per
square foot then being charged in comparable office buildings
located in the Atlanta, Georgia market (the "Comparable
Buildings") for space comparable to the Premises and taking into
consideration all other relevant factors establishing similarity
or dissimilarity between the comparable lease and the leasing of
the Premises to Tenant for the Renewal Term, including without
limitation, the inherent value of the Premises to tenants in the
telecommunication business because of the ready availability of
fiber optics, access to diesel fuel storage, adequate chaseways
and floor loads,
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<PAGE> 20
escalations (including type, base year and stop), concessions,
length of lease term, size and location of the Premises, building
standard work letter and/or tenant improvement allowances,
quality and quantity of any existing tenant improvements, quality
and creditworthiness of Tenant, amenities offered, location of
building, the cost and provision of parking spaces, and other
generally applicable concessions, allowances, terms and
conditions of tenancy. In determining Market Rate, Landlord shall
be entitled to accord the greatest weight to recent transactions
in the Building. The reference to the foregoing factors is
illustrative only and the presence or absence of such factors
shall be taken into account in determining Market Rate.
(d) Within thirty (30) days after Landlord receives the notice of
Tenant"s exercise of the renewal option, Landlord shall notify
Tenant of the proposed Market Rate, as well as the rate of
escalation applicable to the Renewal Term; provided, however,
Landlord shall not be required to respond to any such notice more
than 1 year before the expiration of the term or then current
Renewal Term, as applicable. In the event that Landlord and
Tenant are not able to agree as to the Market Rate and the
applicable escalation rate within sixty (60) days of good faith
negotiation, Tenant"s right of renewal as provided herein shall
terminate.
(e) Tenant shall not be entitled to more than two (2) renewal
options.
(f) In the event Tenant fails to timely notify Landlord in the manner
herein specified, Tenant shall be conclusively deemed to have
waived its right to enter into any Renewal Term.
(g) This renewal right shall be subject to Tenant"s financial
condition at the time of exercise being comparable, as determined
by Landlord, in all material respects to or better than that as
exists on the Commencement Date. In determining whether the
requirements of this provision are satisfied, all aspects of
Tenants financial condition (including, without limitation, net
worth, liquidity, and credit ratings by recognized rating
agencies) shall be examined by Landlord.
48.
MEET ME ROOM
Commencing on the date hereof and continuing until the expiration or
earlier termination of this Lease (including any validly exercised options to
renew or extend this Lease), Landlord grants to Tenant an exclusive license,
which shall be irrevocable (unless Tenant fails, beyond any applicable notice
and cure periods, to perform or satisfy any term, condition, provision or
covenant which Tenant is obligated to perform or satisfy pursuant to the terms
hereof) and coupled with Tenant"s interest in the Lease, to use approximately
232 square feet of space in the "meet me" Room of the Building (the "Meet Me
Room") which is more particularly described on Exhibit "A" hereto and a
non-exclusive license, which shall be irrevocable (unless Tenant fails, beyond
any applicable notice and cure periods, to perform or satisfy any term,
condition, provision or covenant which Tenant is obligated to perform or satisfy
pursuant to the terms hereof) and coupled with Tenant"s interest in the Lease,
to use the Meet Me Facilities (as hereinafter defined), all on the following
terms and conditioned:
(a) Commencing on the Rent Commencement Date, Tenant shall pay to
Landlord, at the same time that Landlord installments of Fixed Minimum Rent are
due, a License Fee in the following amount:
<TABLE>
<CAPTION>
Lease Year Monthly License Fee
---------- -------------------
<S> <C>
1 $2,000.00
2 $2,080.00
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
3 $2,163.00
4 $2,250.00
5 $2,340.00
6 $2,434.00
7 $2,532.00
8 $2,633.00
9 $2,738.00
10 $2,848.00
</TABLE>
(b) On the date hereof, Tenant shall pay to Landlord a one-time fee of
$2,500.00, which Landlord shall use to convert the existing fire suppression
system in the Meet Me Room into a preaction system.
(c) In connection with Tenant"s use of the Meet Me Room, Landlord shall
provide Tenant with and be responsible for maintaining and repairing the
following items (the "Meet Me Facilities"): (i) overhead lighting of the Meet Me
Room; (ii) fire suppression system for the Meet Me Room, which fire suppression
system Landlord will covert to a preaction system; (iii) 3, 20-Amp single pole,
120 volt or 208 volt single phase service circuits, backed up by the Landlord"s
generator (Landlord providing no representation or warranty as to such
generator); and (iv) ventilation and air conditioning of the Meet Me Room.
Landlord shall provide no other facilities, equipment or services in connection
with Tenant"s use of the Meet Me Room. To the extent Landlord is not reimbursed
by insurance, Tenant shall reimburse Landlord for any repairs or maintenance for
which Landlord is responsible if the need for such repairs or maintenance arises
out of or results from any negligent or willful act or omission of Tenant or any
employee, representative, contractor or invitee of Tenant. Tenant shall pay to
Landlord, as additional rent hereunder, Tenant"s pro rata share of the costs
incurred by Landlord in repairing and maintaining Landlord"s generator for the
Meet Me Room and supplying fuel for such generator. Tenant"s pro rata share of
such costs shall be based equal to ten percent (10%); provided, however,
Tenant's pro rata share of the costs of maintaining and repairing such generator
shall not exceed $1,000.00 in any Lease year.
(d) Tenant acknowledges that other tenants and licensees will also be
using similar Meet Me Facilities in the Meet Me Room. Tenant agrees to use the
Meet Me Room only for the purpose of facilitating interconnections between
Tenant"s telecommunications system and the telecommunications systems of other
tenants and licensees of Landlord who reserve Meet Me Facilities in the Meet Me
Room and who consent to such interconnections in writing. Landlord shall have no
obligation with respect to such interconnections. Tenant agrees not to store,
install or use any equipment, conduit, cable, wiring, connecting lines or other
property of Tenant in the Meet Me Room for any other purpose. Tenant also
acknowledges that Landlord reserves the right to run conduits, cables and wiring
along and adjacent to the ceiling within Tenant's space within the Meet Me Room;
provided, however, Landlord shall not exercise the foregoing right in a manner
that materially restricts or impairs Tenant"s ability to run conduits, cables or
wiring within Tenant"s space within the Meet Me Room or Tenant"s ability to run
conduits, cables or wiring into or out of Tenant"s space within the Meet Me
Room. Tenant shall cooperate in keeping the Meet Me Room locked and in
restricting access to the Meet Me Room to employees, contractors and other
persons who need access in order to facilitate such interconnections. In no
event shall Tenant cause (or permit its employees, representatives, contractors
or invitees to cause) any interference with or damage to the Meet Me Facilities,
equipment, conduits, cable, wiring or connecting lines owned or used by other
tenants or licensees of the Meet Me Room.
(e) The installation of any equipment, conduits, cabling, wiring and
connecting lines in the Meet Me Room shall be subject to the review and
reasonable approval of Landlord"s engineer. Landlord shall also
21
<PAGE> 22
have the right to enforce such security measures as it deems reasonably
necessary. Notwithstanding anything to the contrary herein, Tenant shall not
have the right to penetrate the exterior walls of the Building.
(f) Tenant shall indemnify, defend and hold harmless Landlord from and
against any and all loss, cost, damage or claim (including but not limited to
reasonable attorney"s fees) arising out of Tenant"s use of the Meet Me Room.
(g) The licences contained in this Section 48 are personal to Tenant and
may not be assigned, sublicensed or otherwise transferred in any fashion,
regardless of whether such an arrangement is called an assignment, a sublicense,
a collocation agreement or any other name. Notwithstanding the foregoing, the
licenses contained in this Section 48 shall be assigned to any party to whom
Tenant assigns all of its right, title and interest in and to this Lease
pursuant to the terms and conditions of Section 20. Licensee agrees not to
permit any third party to place, use or operate their own equipment, wiring,
cabling or connecting lines in or about Tenant"s Meet Me Facilities.
(h) All cable, wiring, connecting lines and other installations,
equipment or property installed or placed by or for Tenant in the Meet Me Room
(other than Meet Me Facilities, which shall remain the property of Landlord)
shall be included within the meaning of "Wiring" for purposes of Section 46 of
the Lease.
(i) Tenant"s designated space within the Meet Me Room shall be part of
the "Premises" for purposes of Sections 3(b)-(d), 7, 14, 15, 17, 19, 21, 22, 24,
26, 29, 30, 31, 32, 33, 34, 43 and 47 of the Lease, items 6, 10 and 11 of
Section 46 of the Lease and for no other portions of the Lease.
IN WITNESS WHEREOF, the parties have caused this Lease Agreement to be
executed by their duly authorized representatives as of the day and year first
written above.
LANDLORD: PEACHTREE KESSLER LOFTS, LLC
d/b/a TELECOM TOWER
By: /s/ DON A THOMAS
----------------------------
Name: DON A THOMAS
--------------------------
Title: MANAGER
-------------------------
CORPORATE SEAL:
TENANT: UNIVERSAL ACCESS, INC.
By: /s/ ROBERT POMMER
----------------------------
Name: Robert Pommer
--------------------------
Title: COO
-------------------------
By: /s/ FRED E. FARE
----------------------------
Name: Fred E. Fare
--------------------------
Title: SR. VP OPS
-------------------------
CORPORATE SEAL:
22
<PAGE> 23
EXHIBIT "A"
[FLOOR PLAN]
Page 1
<PAGE> 24
EXHIBIT "A"
[FLOOR PLAN]
Page 2
<PAGE> 25
EXHIBIT "A"
[FLOOR PLAN]
Page 3
<PAGE> 26
EXHIBIT "B"
LEGAL DESCRIPTION
All that tract or parcel of land lying and being in the city of Atlanta
in Land Lot 78 of the 14th District of Fulton County, Georgia.
Beginning at the southwest corner of the intersection of Marietta Street
and Forsyth Street running thence along the west side of Marietta Street a
distance of 150 feet to a point; thence running southwest a distance of 100 feet
the northeasterly side of an alley; thence running southeast along the northeast
side of said alley a distance of 150 feet to the north side of Forsyth Street;
thence running northeast along the northerly side of Forsyth Street a distance
of 100 feet to the point of Beginning.
Said property is improved by a multi-story office building known as 56
Marietta Street according to the present system of numbering in the city of
Atlanta, Georgia.
24
<PAGE> 27
EXHIBIT "C"
RULES & REGULATIONS
(1) The sidewalks, corridors, halls, and stairways in and adjacent to the
Building shall not be obstructed by Tenant or used by Tenant for any
purpose other than those of ingress or egress. The floor and windows
that reflect or admit light into any place in the Building shall not be
covered or obstructed by Tenant. The rest rooms and plumbing facilities
shall not be used for any purpose other than those for which they were
constructed and no sweepings, rubbish, or other obstructing or injurious
substance shall be thrown therein. Nothing shall be thrown out of the
windows or doors or down the elevator shafts or stairways of the
Building.
(2) No awnings, curtains, blinds, shades or screens shall be attached to or
hung in or used in connection with any window or door of the Building
without the prior written consent of the Landlord, which consent must
include approval by the Landlord of the quality, type, design, color,
texture, and manner attached.
(3) The Premises shall not be occupied or used for sleeping or lodging at
any time, nor shall any cooking be done in the Premises, nor shall
vending machines of any kind be installed or used in any part of the
Premises, except those for exclusive use of Tenant's employees and
Tenant's customers. Nor shall any intoxicating beverages be sold or
consumed in the Premises, without the prior written approval of the
Landlord. No gambling, immoral or other unlawful conduct shall be
permitted on or about the Premises. The use of a microwave oven for
warming snacks and lunches of Tenant's employees shall be permitted.
(4) Tenant shall not do or permit to be done any act on or about the
property which will obstruct or interfere with the rights of other
tenants of Landlord or annoy them in any way, including but not limited
to, the using of any musical instruments, making loud noises, or
singing. No bicycles, vehicles, animals (other than service animals such
as seeing eye dogs), birds or reptiles of any kind shall be brought into
the Building.
(5) No additional locks or latches shall be placed upon any door without the
written consent of Landlord, such consent not to be reasonably withheld,
and Tenant, upon the termination of this Lease, shall return to Landlord
all keys to doors in the Building possessed by Tenant at that time.
(6) Landlord shall have the right to reasonably prescribe the weight,
position and manner of installation of heavy articles, machinery and
equipment, including, but not limited to, safes, batteries, business
machines, and computer equipment, which Tenant may desire to install in
the Premises. No batteries, safes, furniture, boxes, large parcels or
other kinds of freight shall be taken to or from the Premises nor
allowed in any elevator, hall or corridor without prior approval of
Landlord, and then only under supervision of the Building Maintenance
Manager. All such moving shall be done in the elevator and during the
hours specified by said Manager. No weight shall be place upon the floor
of the Premises in excess of 100 pounds per square foot of floor space
without the prior written approval of Landlord. Tenant shall not be
required to obtain the consent of Landlord prior to placing equipment in
the Premises which does not exceed 100 pounds per square foot of floor
space.
(7) Tenant shall not cause or permit any unusual or objectionable odors to
be produced upon or permeate from the property, and no flammable,
combustible or explosive fluid, chemical or substance shall be brought
into the Building.
(8) Tenant shall have 24 hour access to the Premises. Landlord shall not be
liable for admission of any person to the Building at any time, or for
damages or loss or theft resulting therefrom to any person
25
<PAGE> 28
including Tenant.
(9) Landlord reserves the right, from time to time, to amend any one or more
of the above Rules and Regulations and to make such other reasonable
rules and regulations as in its judgment may be needed from time to time
for the security, safety, care and cleanliness of the Premises, the
Building, and the entire complex. No such amendment or modification to
these Rules and Regulations will materially affect the rights and
obligations of the parties hereunder.
(10) The main lobby area of the Building is not to be used as a place of
business by contractors (filling out forms, telephone calls) or a "drop
off" and "pick-up" point for messengers or delivery men. Landlord"s
staff is not authorized to accept any packages for tenants or
contractors.
(11) No contractor is to enter any space in the Building, other than spaces
that he was given specific access to by Landlord without contacting the
Landlord for access to the additional area(s).
(12) Access to roof, mechanical rooms, telephone and electrical closets will
be provided through the Landlord.
(13) Tenant, and any contractors engaged by Tenant, must properly label, to
the reasonable satisfaction (based upon industry standards, if any) of
the Landlord, all refrigerant, water, sanitary, electric, communication
lines, etc. being installed.
(14) If any of Tenant"s contractors wishes to work on Saturday or Sunday or a
holiday, arrangements must be made with Landlord for no later than
Thursday of said week.
(15) Tenant, and any contractors engaged by Tenant, will protect the roof
surface with plywood at all working areas.
(16) No less than forty-eight (48) hours in advance, Tenant and any
contractors engaged by Tenant, shall supply Landlord in writing with the
names and companies of all workers expected to be in the Building after
hours. Access will be denied to those not on the list.
(17) All keying will be handled through the locksmith company designated by
Landlord. No exceptions.
(18) Tenant must deliver one set of fully updated as-built drawings to
Landlord with ten (10) days of receipt of the related Certificate of
Occupancy.
(19) Any and all work on the roof must be pre-approved by the Landlord.
(20) Tenant, and any contractors engaged by Tenant, shall comply with all
OSHA regulations, as well as all federal, state and local district codes
related to workers' safety. Tenant shall be responsible for reviewing
the job site and job organization for total compliance to these rules an
regulations on a daily basis.
(21) All major deliveries shall be prearranged with the Landlord at least
twenty-four (24) hours in advance.
(22) No materials or tools are to be taken in the passenger elevators.
(23) A reasonable charge for elevator service may be assessed to the Tenant.
26
<PAGE> 29
EXHIBIT "D"
TECHNICAL REQUIREMENTS
1. The Landlord will provide the following items to the Tenant according to
the listed schedule:
a) Tenant may install in the portion of the Premises in the basement
up to a 500 KW diesel generator, related pumps, piping and may
connect to Landlord"s fuel tank at in the basement at Tenant"s
expense. Landlord may coordinate with Tenant to install the
aforementioned piping, and if Landlord installs such piping,
Tenant shall reimburse Landlord for the reasonable cost of such
installation. Tenant shall pay for its own generator, and its own
fuel consumption and expenses. The manner of such installation
and connection shall be subject to Landlord"s reasonable
approval.
b) Landlord shall provide access to connect to the Bus Duct to
access 800 amps, 480 volts, three-phase A/C of electric capacity
dedicated to Tenant. Landlord shall provide space and access
within the Building required to construct the required electrical
conduits and piping necessary to connect the Tenants generator,
HVAC equipment and fiber optic cable connections. The cost of
such conduits, piping, and installation of such are to be paid by
Tenant and Tenant shall be entitled to no more than the
following;
Electrical: Two 1" and two 4" conduits for the Tenant"s
generator power/grounding/control wiring.
HVAC Equipment: Tenant may install up to 120 tons of
self-contained HVAC equipment in the
Premises and locate such equipment on the
portion of the Premises on the 2nd floor
roof-top. Tenant shall be granted up to an
equivalent of 4 - 2" conduits running from
the Premises to the HVAC installation on the
roof. Tenant shall have the right to remove
or cap any heating system in the Premises.
Fiber: Tenant shall have the right to install 2 -
4" conduits ("Main Conduit") which shall run
from the Meet Me Room in the basement to the
Premises and 2 - 4" inch conduits to run the
entire length of the Building (in the
electrical room and/or fiber room and/or
exterior of the Building) to connect
Tenant"s telecommunications facility to
other tenants in the Building. It is
understood that all of Tenant"s vertical
conduit shall run to the electrical room
and/or fiber room of the Building. Tenant
shall also have the right to run feeder
conduit to connect to each
telecommunications tenant on each floor as
long as such feeder conduit runs in the 4"
conduits otherwise permitted in this
paragraph. There shall be no additional
compensation payable by Tenant for such
right to use and place conduit and cable.
There shall be no cost for any
telecommunications service provider that is
a tenant in the Building to provide fiber
connectivity to Tenant; however all such
connections shall require Landlord"s
approval and Landlord"s approval shall not
be unreasonably withheld, conditioned or
delayed.
Telecom Ground: One 2" conduit from main building ground at
sub-grade to the Tenant"s space.
27
<PAGE> 30
e) Landlord to provide Tenant 4,000 Amp 277/480 volt, 3 phase, 4
wire at electrical room on Tenant"s Floor - the "Base Building
Bus Duct". Tenant shall be allowed to use no more than 800 Amps
of the Base Building Bus-Duct. Tenant shall access their own
power from Landlord"s provided bus duct located at the electrical
room on Tenant"s floor.
f) A pass card security entry system for all elevators opening onto
Tenant"s floor.
g) Access to standpipe on Tenant floor.
h) Provision of a freight elevator for the Tenant improvement
process.
i) A drain is to be located in new pre-action system room.
j) A building fire alarm system with a Tenant tie-in location at the
first floor.
l) A location to connect the Tenant"s HVAC condensation drain at
Tenant"s floor.
m) A location to connect the Tenants HVAC make-up water to the
buildings domestic water system at Tenant"s floor.
28
<PAGE> 1
EXHIBIT 10.36
AMENDED AND RESTATED
PROMISSORY NOTE
$756,250.00 Chicago, Illinois
Effective as of August 4, 1999
Executed December 6, 1999
FOR VALUE RECEIVED, Patrick C. Shutt (Borrower") promises to pay to
Universal Access, Inc. (the "Lender") or order, at 100 North Riverside Plaza,
Suite 2200, Chicago, Illinois 60606, or such other place as the Lender or holder
hereof may from time to time designate, the principal sum of SEVEN HUNDRED
FIFTY-SIX THOUSAND TWO HUNDRED FIFTY Dollars ($756,250.00).
1. Interest Rate. Interest shall accrue on the unpaid principal portion of
this Note at the rate of six percent (6%) per annum, simple interest.
2. Payment Schedule. Principal and accrued and unpaid interest, if any, shall
be due and payable on August 4, 2004 (the "Maturity Date").
3. Repayment of Indebtedness. On or before the Maturity Date, Borrower shall
repay the entire principal and interest owing under this Note by one of the
following methods (or, with respect to principal, the method described in
the following sentence), to be selected in Borrower's sole discretion: (i)
in cash or immediately available funds; or (ii) if the shares (the
"Shares") of common stock (the "Common Stock") of Lender are no longer
subject to the restrictions on transfer (the "Transfer Restrictions") set
forth in the Amended and Restated Shareholders Agreement dated as of June
30, 1999 by and among Lender and other parties thereto (as amended, the
"Shareholders Agreement"), by delivering and transferring to Lender the
number of shares of Common Stock whose Fair Market Value equals the entire
principal and interest owing under this Note as of the Maturity Date. In
addition to the repayment methods described in the previous sentence,
Borrower may repay the entire principal amount owing under this Note by
delivering and transferring to Lender 250,000 Shares, so long as the Shares
are no longer subject to the Transfer Restrictions set forth in the
Shareholders Agreement.
The Fair Market Value of the Common Stock shall be determined (i) by
reference to the national securities market or exchange on which the Common
Stock is traded on the Maturity Date, or (ii) if the Common Stock is not
traded on a national securities market or exchange on the Maturity Date, by
the board of directors of Lender acting in good faith based upon a
valuation report prepared by an independent valuation firm or consultant.
Notwithstanding any provision of this Note, the Lender shall not be
required to accept Shares or Common Stock in repayment of amounts due
hereunder if the Lender is restricted by law or written agreement from
doing so. The number of Shares referred to above shall be
<PAGE> 2
adjusted to give effect to any stock split, stock dividend or combination
of the Common Stock occurring after the date hereof. With respect to
principal owing under this Note, this Note is with recourse to Borrowers'
interest in the Shares but without recourse to Borrower personally. With
respect to interest owing under this Note, this Note is recourse to
Borrower personally.
Any repayment under this paragraph 3 which is made in Shares shall include
only Shares owned by Borrower for six months or more prior to the date of
repayment (and shall not include any Shares acquired upon the exercise of
any stock options granted to Borrower as of the date hereof), provided,
however, that if such Shares were acquired pursuant to an incentive stock
option plan as defined in Code Sections 422 or prior Code Section 422A of
the Lender or any affiliate including any qualified stock option plan as
defined in prior Code Section 422, then the applicable holding period
requirements of said Sections 422 and 422A shall have been met with respect
to such Shares.
4. Prepayment. Borrower shall have the right to prepay all or any part of the
unpaid balance hereof at any time, without premium or penalty.
5. Security. Borrower agrees that at such time at the Shares are no longer
subject to the transfer restrictions set forth in the Shareholders
Agreement, or, if earlier, at such time as Borrower has obtained a waiver
by the other parties to the Shareholders Agreement of the transfer
restrictions on the Shares, then Borrower shall execute and deliver to
Lender a Stock Pledge Agreement pursuant to which Borrower will pledge the
Shares to Lender as a collateral security (the "Collateral") for the
principal owing under this Note. Unless and until Borrower delivers to
Lender a Stock Pledge Agreement, the Shares shall not be deemed to have
been pledged or otherwise transferred to Lender. Borrower and Lender agree
that the reference to the Shares set forth in this paragraph shall not
constitute a "Transfer" as defined in the Shareholders Agreement.
6. Amendment of Note. This Note may be terminated or amended only by prior
written consent of Lender and Borrower. This Note amends and restates in
its entirety, effective as of August 4, 1999, the Promissory Note dated
August 4, 1999 delivered by Borrower to Lender.
7. Governing Law. This Note shall be governed by and construed in accordance
with the internal laws of the State of Illinois, without giving effect to
the conflict of law principles thereof, in which state it shall be
performed, and shall be binding upon Borrower and his heirs and assigns.
<PAGE> 3
BORROWER:
/s/ PATRICK C. SHUTT
----------------------------------------
Patrick C. Shutt
LENDER:
UNIVERSAL ACCESS, INC.
By: /s/ ROBERT POMMER
-------------------------------------
Name: Robert C. Pommer
Title: Chief Operating Officer
100 North Riverside Plaza
Suite 2200
Chicago, IL 60606
<PAGE> 1
EXHIBIT 10.37
AMENDED AND RESTATED
PROMISSORY NOTE
$453,750.00 Chicago, Illinois
Effective as of August 4, 1999
Executed December 6, 1999
FOR VALUE RECEIVED, Robert J. Pommer, Jr. (Borrower") promises to pay to
Universal Access, Inc. (the "Lender") or order, at 100 North Riverside Plaza,
Suite 2200, Chicago, Illinois 60606, or such other place as the Lender or holder
hereof may from time to time designate, the principal sum of FOUR HUNDRED
FIFTY-THREE THOUSAND SEVEN HUNDRED FIFTY Dollars ($453,750.00).
1. Interest Rate. Interest shall accrue on the unpaid principal portion of
this Note at the rate of six percent (6%) per annum, simple interest.
2. Payment Schedule. Principal and accrued and unpaid interest, if any, shall
be due and payable on August 4, 2004 (the "Maturity Date").
3. Repayment of Indebtedness. On or before the Maturity Date, Borrower shall
repay the entire principal and interest owing under this Note by one of the
following methods (or, with respect to principal, the method described in
the following sentence), to be selected in Borrower's sole discretion: (i)
in cash or immediately available funds; or (ii) if the shares (the
"Shares") of common stock (the "Common Stock") of Lender are no longer
subject to the restrictions on transfer (the "Transfer Restrictions") set
forth in the Amended and Restated Shareholders Agreement dated as of June
30, 1999 by and among Lender and other parties thereto (as amended, the
"Shareholders Agreement"), by delivering and transferring to Lender the
number of shares of Common Stock whose Fair Market Value equals the entire
principal and interest owing under this Note as of the Maturity Date. In
addition to the repayment methods described in the previous sentence,
Borrower may repay the entire principal amount owing under this Note by
delivering and transferring to Lender 150,000 Shares, so long as the Shares
are no longer subject to the Transfer Restrictions set forth in the
Shareholders Agreement.
The Fair Market Value of the Common Stock shall be determined (i) by
reference to the national securities market or exchange on which the Common
Stock is traded on the Maturity Date, or (ii) if the Common Stock is not
traded on a national securities market or exchange on the Maturity Date, by
the board of directors of Lender acting in good faith based upon a
valuation report prepared by an independent valuation firm or consultant.
Notwithstanding any provision of this Note, the Lender shall not be
required to accept Shares or Common Stock in repayment of amounts due
hereunder if the Lender is restricted by law or written agreement from
doing so. The number of Shares referred to above shall be
<PAGE> 2
adjusted to give effect to any stock split, stock dividend or combination
of the Common Stock occurring after the date hereof. With respect to
principal owing under this Note, this Note is with recourse to Borrowers'
interest in the Shares but without recourse to Borrower personally. With
respect to interest owing under this Note, this Note is recourse to
Borrower personally.
Any repayment under this paragraph 3 which is made in Shares shall include
only Shares owned by Borrower for six months or more prior to the date of
repayment (and shall not include any Shares acquired upon the exercise of
any stock options granted to Borrower as of the date hereof), provided,
however, that if such Shares were acquired pursuant to an incentive stock
option plan as defined in Code Sections 422 or prior Code Section 422A of
the Lender or any affiliate including any qualified stock option plan as
defined in prior Code Section 422, then the applicable holding period
requirements of said Sections 422 and 422A shall have been met with respect
to such Shares.
4. Prepayment. Borrower shall have the right to prepay all or any part of the
unpaid balance hereof at any time, without premium or penalty.
5. Security. Borrower agrees that at such time at the Shares are no longer
subject to the transfer restrictions set forth in the Shareholders
Agreement, or, if earlier, at such time as Borrower has obtained a waiver
by the other parties to the Shareholders Agreement of the transfer
restrictions on the Shares, then Borrower shall execute and deliver to
Lender a Stock Pledge Agreement pursuant to which Borrower will pledge the
Shares to Lender as a collateral security (the "Collateral") for the
principal owing under this Note. Unless and until Borrower delivers to
Lender a Stock Pledge Agreement, the Shares shall not be deemed to have
been pledged or otherwise transferred to Lender. Borrower and Lender agree
that the reference to the Shares set forth in this paragraph shall not
constitute a "Transfer" as defined in the Shareholders Agreement.
6. Amendment of Note. This Note may be terminated or amended only by prior
written consent of Lender and Borrower. This Note amends and restates in
its entirety, effective as of August 4, 1999, the Promissory Note dated
August 4, 1999 delivered by Borrower to Lender.
7. Governing Law. This Note shall be governed by and construed in accordance
with the internal laws of the State of Illinois, without giving effect to
the conflict of law principles thereof, in which state it shall be
performed, and shall be binding upon Borrower and his heirs and assigns.
<PAGE> 3
BORROWER:
/s/ ROBERT J. POMMER, JR.
----------------------------------------
Robert J. Pommer, Jr.
LENDER:
UNIVERSAL ACCESS, INC.
By: /s/ PATRICK C. SHUTT
-------------------------------------
Name: Patrick C. Shutt
Title: President and Chief Executive
Officer
100 North Riverside Plaza
Suite 2200
Chicago, IL 60606
<PAGE> 1
EXHIBIT 10.38
AMENDED AND RESTATED
PROMISSORY NOTE
$275,000.00 Chicago, Illinois
Effective as of August 4, 1999
Executed December 6, 1999
FOR VALUE RECEIVED, Donna M. Shore ("Borrower") promises to pay to
Universal Access, Inc. (the "Lender") or order, at 100 North Riverside Plaza,
Suite 2200, Chicago, Illinois 60606, or such other place as the Lender or holder
hereof may from time to time designate, the principal sum of TWO HUNDRED
SEVENTY-FIVE THOUSAND Dollars ($275,000.00).
1. Interest Rate. Interest shall accrue on the unpaid principal portion of
this Note at the rate of six percent (6%) per annum, simple interest.
2. Payment Schedule. Principal and accrued and unpaid interest, if any, shall
be due and payable on August 4, 2004 (the "Maturity Date").
3. Repayment of Indebtedness. On or before the Maturity Date, Borrower shall
repay the entire principal and interest owing under this Note by one of the
following methods (or, with respect to principal, the method described in
the following sentence), to be selected in Borrower's sole discretion: (i)
in cash or immediately available funds; or (ii) if the shares (the
"Shares") of common stock (the "Common Stock") of Lender are no longer
subject to the restrictions on transfer (the "Transfer Restrictions") set
forth in the Amended and Restated Shareholders Agreement dated as of June
30, 1999 by and among Lender and other parties thereto (as amended, the
"Shareholders Agreement"), by delivering and transferring to Lender the
number of shares of Common Stock whose Fair Market Value equals the entire
principal and interest owing under this Note as of the Maturity Date. In
addition to the repayment methods described in the previous sentence,
Borrower may repay the entire principal amount owing under this Note by
delivering and transferring to Lender 100,000 Shares, so long as the Shares
are no longer subject to the Transfer Restrictions set forth in the
Shareholders Agreement.
The Fair Market Value of the Common Stock shall be determined (i) by
reference to the national securities market or exchange on which the Common
Stock is traded on the Maturity Date, or (ii) if the Common Stock is not
traded on a national securities market or exchange on the Maturity Date, by
the board of directors of Lender acting in good faith based upon a
valuation report prepared by an independent valuation firm or consultant.
Notwithstanding any provision of this Note, the Lender shall not be
required to accept Shares or Common Stock in repayment of amounts due
hereunder if the Lender is restricted by law or written agreement from
doing so. The number of Shares referred to above shall be adjusted to give
effect to any stock split, stock dividend or combination of the
<PAGE> 2
Common Stock occurring after the date hereof. With respect to principal
owing under this Note, this Note is with recourse to Borrowers' interest in
the Shares but without recourse to Borrower personally. With respect to
interest owing under this Note, this Note is recourse to Borrower
personally.
Any repayment under this paragraph 3 which is made in Shares shall include
only Shares owned by Borrower for six months or more prior to the date of
repayment (and shall not include any Shares acquired upon the exercise of
any stock options granted to Borrower as of the date hereof), provided,
however, that if such Shares were acquired pursuant to an incentive stock
option plan as defined in Code Sections 422 or prior Code Section 422A of
the Lender or any affiliate including any qualified stock option plan as
defined in prior Code Section 422, then the applicable holding period
requirements of said Sections 422 and 422A shall have been met with respect
to such Shares.
4. Prepayment. Borrower shall have the right to prepay all or any part of the
unpaid balance hereof at any time, without premium or penalty.
5. Security. Borrower agrees that at such time at the Shares are no longer
subject to the transfer restrictions set forth in the Shareholders
Agreement, or, if earlier, at such time as Borrower has obtained a waiver
by the other parties to the Shareholders Agreement of the transfer
restrictions on the Shares, then Borrower shall execute and deliver to
Lender a Stock Pledge Agreement pursuant to which Borrower will pledge the
Shares to Lender as a collateral security (the "Collateral") for the
principal owing under this Note. Unless and until Borrower delivers to
Lender a Stock Pledge Agreement, the Shares shall not be deemed to have
been pledged or otherwise transferred to Lender. Borrower and Lender agree
that the reference to the Shares set forth in this paragraph shall not
constitute a "Transfer" as defined in the Shareholders Agreement.
6. Amendment of Note. This Note may be terminated or amended only by prior
written consent of Lender and Borrower. This Note amends and restates in
its entirety, effective as of August 4, 1999, the Promissory Note dated
August 4, 1999 delivered by Borrower to Lender.
7. Governing Law. This Note shall be governed by and construed in accordance
with the internal laws of the State of Illinois, without giving effect to
the conflict of law principles thereof, in which state it shall be
performed, and shall be binding upon Borrower and his heirs and assigns.
<PAGE> 3
BORROWER:
/s/ DONNA M. SHORE
----------------------------------------
Donna M. Shore
LENDER:
UNIVERSAL ACCESS, INC.
By: /s/ PATRICK C. SHUTT
-------------------------------------
Name: Patrick C. Shutt
Title: President and Chief Executive
Officer
100 North Riverside Plaza
Suite 2200
Chicago, IL 60606
<PAGE> 1
EXHIBIT 10.39
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made as of this 1st day of
February 2000, by and between UNIVERSAL ACCESS, INC., a Delaware corporation
(the "COMPANY"), and William J. Coyne III (the "EMPLOYEE").
RECITALS:
A. The Company is in the telecommunications business.
B. The Company desires to employ the Employee and Employee desires to be
employed by the Company as its Executive Vice President Sales, subject to the
terms, conditions and covenants hereinafter set forth.
C. As a condition of the Company employing the Employee, and to the Company's
agreement to grant stock options to the Employee pursuant to the Company's stock
option plan, Employee has agreed not to divulge to the public the Company's
confidential information, not to solicit the Company's vendors, customers or
employees and not to compete with the Company, all upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the agreements,
covenants and conditions set forth herein, the Employee and the Company hereby
agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company hereby employs, engages, and hires Employee, and
Employee hereby accepts employment, upon the terms and conditions set forth in
this Agreement. The Employee shall serve as the Executive Vice President Sales
of the Company. The Employee shall have and fully perform the duties and
responsibilities required for such job title and position and to perform such
additional services and discharge such other responsibilities as may be, from
time to time, assigned or delegated by the Company.
1.2 Activities and Duties During Employment. Employee represents and warrants
to the Company that Employee is free to accept employment with the Company and
that Employee has no prior or other commitments or obligations of any kind to
anyone else which would hinder or interfere with the performance of this
Agreement.
1.3 Employee accepts the employment described in Article I of this Agreement
and agrees to devote his or her full time and efforts to the faithful and
diligent performance of the services described herein, including the performance
of such other services and responsibilities as the Company may, from time to
time, stipulate. Without limiting the generality of the
<PAGE> 2
foregoing, Employee shall devote not less than five (5) days per week to this
employment, and shall be present on the Company premises or actively engaged in
service to or on behalf of the Company during normal business hours Monday
through Friday, excluding periods of vacation and sick leave.
ARTICLE II
TERM
2.1 Term. The term of employment under this Agreement shall be one (1) year
(the "Initial Term"), commencing on the date of the Agreement. This Agreement
shall automatically renew for successive one year terms thereafter (each a
"Renewal Term") unless either party delivers notice of termination to the other
party not less than fifteen (15) days prior to the end of the Initial Term or
Renewal Term in question. The Initial Term and any Renewal Terms shall herein be
referred to as the "Employment Term".
2.2 Termination. The Employment Term and employment of Employee may be
terminated as follows:
(a) By the Company immediately for "Cause." For the purpose of this
Agreement, "Cause" shall mean (i) conduct amounting to fraud,
embezzlement, or illegal misconduct in connection with Employee's
duties under this Agreement; (ii) the conviction of Employee by a
court of proper jurisdiction of (or his or her written, voluntary
and freely given confession to) a crime which constitutes a felony
(other than a traffic violation) or an indictment that results in
material injury to the Company's property, operation or reputation;
(iii) the willful failure of Employee to comply with reasonable
directions of the Company or any of the policies of the Company
after (a) written notice is delivered to the Employee describing
such willful failure and (b) Employee has failed to cure or take
substantial steps to cure such willful failure after a reasonable
time period as determined by the Company in its reasonable
discretion (not to be less than 15 days) unless the Employee, after
discussion with counsel, in good faith believes, that the directions
of the Company (or its actions or inactions in response to the
Employee's written notice) are illegal; or (iv) willful misconduct
or a material default by the Employee in the performance or
observance of any promise or undertaking of Employee under this
Agreement, which willful misconduct or default has continued for a
period of ten (10) business days after written notice thereof from
the Company to the Employee.
(b) Automatically, without the action of either party, upon the death of
Employee ("Death").
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<PAGE> 3
(c) By either party upon the Total Disability of the Employee. The
Employee shall be considered to have a Total Disability for purposes
of this Agreement if he or she is unable by reason of accident or
illness to substantially perform his or her employment duties, and
is expected to be in such condition for periods totaling six (6)
months (whether or not consecutive) during any period of twelve (12)
months. The determination of whether a Total Disability has occurred
shall be determined by the Company, in good faith, at its sole
discretion. Nothing herein shall limit the Employee's right to
receive any payments to which Employee may be entitled under any
disability or employee benefit plan of the Company or under any
disability or insurance policy or plan. During a period of
disability prior to termination hereunder, Employee shall continue
to receive his or her full compensation (including base salary and
bonus) and benefits, subject to offset to the extent of any
disability insurance payments received by the Employee pursuant to
any disability insurance policy maintained by or paid for by the
Company.
(d) By the Employee upon ten (10) business days notice to the Company
for Good Reason, which notice shall state the reason for
termination. For the purpose of this Agreement, "Good Reason" shall
mean any "Change in Control" (as hereinafter defined) or any
material failure by the Company to comply with the provisions of
this Employment Agreement, including but not limited to, failure to
timely pay any part of Employee's compensation (including salary or
bonus) or provide the benefits contemplated herein, and which is not
remedied by the Company within ten (10) business days after receipt
by the Company of written notice thereof from Employee; provided,
that if such default is of a nature that it cannot be reasonably
cured within ten (10) day period (but is curable), then if the
Company shall have commenced an attempt to cure such default within
such ten (10) day period, the period to cure the default shall be
extended until the earlier of the date which is forty-five (45) days
after receipt of notice or the Company has failed to diligently
continue its efforts in a reasonable manner to cure its default.
For purposes hereof, the term "Change in Control" shall mean the
occurrence of any of the following:
(1) The Company: (a) consummates a merger or consolidation which
results in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) less than fifty percent
(50%) of the total voting power represented by the voting
securities of the Company of such surviving entity outstanding
immediately after such merger or consolidation; and (b)
following such event, the successor entity fails to employ
Employee as follows (hereinafter, the "Same Terms"): on
substantially identical terms as are required per this
Agreement for the remaining Employment Term, and the
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<PAGE> 4
successor entity further continues to employ Employee in the
same city and with job responsibilities of a level
substantially equivalent to or greater than those presently in
force and effect;
(2) A plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially
all of the Company's assets is consummated, and following such
event the successor entity (if any) fails to employ Employee
on the Same Terms; or
(3) Company consummates a plan of complete liquidation of the
Company or an agreement for the sale or disposition (in one
transaction or a series of transactions) by the Company of all
or substantially all of the Company's assets, and following
such event the successor entity (if any) fails to employ
Employee on the Same Terms;
provided, however, that a public offering of the stock of the
Company irrespective of the amount of voting securities owned
by present shareholders after such offering shall not be
deemed to constitute a Change of Control; and provided further
that if Employee agrees to be employed by a successor entity
on the Same Terms and the successor entity fails to do so, a
Change in Control shall be deemed to have occurred.
(e) By the Employee without Good Reason, and therefore in breach of this
Agreement.
(f) By the Company other than for Cause, Death or Total Disability, in
which event Employee's sole remedy and compensation as a result of
such termination shall be as set forth in Section 2.4(c) below.
2.3 Cessation of Rights and Obligations: Survival of Certain Provisions. On
the date of expiration or earlier termination of the Employment Term for any
reason, all of the respective rights, duties, obligation and covenants of the
parties, as set forth herein, shall, except as specifically provided herein to
the contrary, cease and become of no further force or effect as of the date of
said termination, and shall only survive as expressly provided for herein.
2.4 Cessation of Compensation. In lieu of any severance under any severance
plan that the Company may then have in effect, and subject to (i) the receipt of
a full and unconditional release from Employee and (ii) any amounts owed by the
Employee to the Company under any contract, agreement or loan document entered
into after the date hereof which relates solely to his or her employment with
the Company (including, but not limited to, loans made by the Company to the
Employee), the Company shall pay to the Employee, and the Employee shall be
entitled to receive, the following amounts within thirty (30) days of the date
of a termination of his or her employment:
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<PAGE> 5
(a) Voluntary Termination/Cause/Expiration of Term. Upon (i) Employee
terminating his or her employment without Good Reason as provided in
Section 2.2(e), (ii) the expiration of the Employment Term because
the Employee or the Company elects to not extend the Employment
Term, or (iii) a termination of the Employment Term for Cause by the
Company as provided in Section 2.2(a), the Employee shall be
entitled to receive his or her or her base salary (which shall
include any of his or her unused vacation pay for the year of such
termination) and expense reimbursements solely through the date of
termination.
(b) Death or Total Disability. Upon the termination of the Employment
Term by reason of the Death or Total Disability of the Employee, the
Employee (or, in the case of Death, his or her estate) shall be
entitled to receive his or her base salary (which shall include any
of his or her unused vacation pay for the year of such termination)
and expense reimbursements solely through the date of termination.
(c) Involuntary. Upon the termination of the Employment Term:
(1) by the Company for any reason other than Cause, Death or Total
Disability, or
(2) by the Employee for Good Reason,
the Employee shall be entitled to receive in a lump sum the
balance of his or her base salary for the lesser of the
remaining term of the Employment Term (exclusive of any
renewals of the then existing term) or a period of six (6)
months (the "Severance Term"), together with prorated vacation
pay and expense reimbursement through the date of termination.
In addition, Employee shall be entitled to payment by the
Company of the premiums for group health insurance coverage
otherwise payable by Employee under the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") for the Severance
Term. It shall be a condition to Employee's right to receive
the payments described above that Employee shall be in
compliance with all of the Employee's obligations which
survive termination hereof, including without limitation those
arising under Article IV hereof. The payments described above
are intended to be in lieu of all other payments to which
Employee might otherwise be entitled in respect of termination
of Employee's employment without Cause unless otherwise
required by law or under other agreements between the parties.
Notwithstanding anything to the contrary contained herein, to
the extent Employee receives any direct or indirect
compensation, consulting fees or health insurance from any
Third Parties (as hereinafter defined) during the Severance
Term or with respect to
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<PAGE> 6
services performed during the Severance Term such compensation
shall be credited dollar for dollar against the Severance Term
payment obligations of Company under this Section 2.4(c).
2.5 Business Expenses.
(a) Reimbursement. The Company shall reimburse the Employee for all
reasonable, ordinary, and necessary business expenses incurred by
him or her in connection with the performance of his or her duties
hereunder, including, but not limited to, ordinary and necessary
travel expenses and entertainment expenses. The reimbursement of
business expenses will be governed by the policies of the Company
from time-to-time and the terms otherwise set forth herein.
(b) Accounting. The Employee shall provide the Company with an
accounting of his or her expenses, which accounting shall clearly
reflect which expenses were incurred for proper business purposes in
accordance with the policies adopted by the Company and as such are
reimbursable by the Company. The Employee shall provide the Company
with such other supporting documentation and other substantiation of
reimbursable expenses as will conform to Internal Revenue Service or
other requirements. All such reimbursements shall be payable by the
Company to the Employee within a reasonable time after receipt by
the Company of appropriate documentation therefor.
2.6 Sole Compensation. Employee shall not be entitled to any other
compensation from the Company than as set forth in Article II hereof as a result
of termination of Employee's employment.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Compensation. During the Employment Term of this Agreement, the Company
shall pay Employee such salary and bonus as set forth on Exhibit A.
3.2 Payment. All compensation shall be payable in intervals in accordance with
the general payroll payment practice of the Company. The compensation shall be
subject to such withholdings and deductions by the Company as are required by
law. On termination of the Employment Term, the Company shall be entitled to set
off against any monies owing by the Company to Employee the amount of any monies
owing from Employee to the Company.
3.3 Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, stock option, health plan, insurance,
disability income, incentive compensation and welfare or any other benefit plan
or plans of the Company, which may now or hereafter be in
6
<PAGE> 7
effect and for which the Employee is eligible. Notwithstanding the forgoing, the
Company shall be under no obligation to institute or continue the existence of
any such benefit plan.
ARTICLE IV
CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETE AGREEMENT
4.1 Non-Disclosure of Confidential Information. Employee hereby acknowledges
and agrees that the duties and services to be performed by Employee under this
Agreement are special and unique and that as of a result of the employment
hereunder, Employee will acquire, develop and use information of a special and
unique nature and value that is not generally known to the public or to the
Company's industry, including but not limited to, certain records, phone
locations, documentation, software programs, price lists, contract prices for
purchase and sale of telephone access and telephone services, customer lists,
prospect lists, pricing on business proposals to new and existing customers,
network configuration, supplier pricing, equipment configurations, business
plans, ledgers and general information, employee records, mailing lists,
accounts receivable and payable ledgers, financial and other records of the
Company or its Affiliates, and other similar matters (all such information being
hereinafter referred to as "CONFIDENTIAL INFORMATION"). Employee further
acknowledges and agrees that the Confidential Information is of great value to
the Company and its Affiliates and that the restrictions and agreements
contained in this Agreement are reasonably necessary to protect the Confidential
Information and the goodwill of the Company. Accordingly, Employee hereby agrees
that:
(a) Employee will not, while employed by the Company or at any time
thereafter, directly or indirectly, except in connection with
Employee's performance of the duties under this Agreement, or as
otherwise authorized in writing by the Company for the benefit of
the Company, divulge to any person, firm, corporation, limited
liability company, or organization, other than the Company
(hereinafter referred to as "THIRD PARTIES"), or use or cause or
authorize any Third Parties to use, the Confidential Information,
except as required by law; and
(b) Upon the termination of Employee's employment for any reason
whatsoever, Employee shall deliver or cause to be delivered to the
Company any and all Confidential Information or documents containing
Confidential Information, including notes, drawings, notebooks,
notes, records, keys, data and other documents and materials
belonging to the Company or its affiliates which is in his or her
possession or under his or her control relating to the Company or
its affiliates, regardless of the medium upon which it is stored,
and will deliver to the Company upon such termination of employment
any other property of the Company or its Affiliates which is in his
or her possession or control.
4.2 Non-Solicitation Covenant. Employee hereby covenants and agrees that while
employed by the Company and for a period of one (1) year following the
termination of Employee's
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<PAGE> 8
employment with the Company for any reason, Employee shall not (i) directly or
indirectly, contact, solicit, interfere with, or endeavor to entice away from
the Company or its Affiliates any person, firm, corporation, limited liability
company or other entity that was a customer of the Company at any time while
Employee was an employee of the Company or its Affiliates or who is a
"prospective customer" of the Company, or (ii) induce, attempt to induce or hire
any employee (or any person who was an employee during the year preceding the
date of any solicitation) of the Company or its Affiliates to leave the employ
of the Company or its Affiliates, or in any way interfere with the relationship
between any such employee and the Company or its Affiliates. For purposes
hereof, "prospective customer" shall mean any person or entity which has been
solicited for business by Employee or any officer or other employee of the
Company during the one year period preceding the date of termination of
Employee's employment with the Company, or if Employee is still employed by the
Company within the one year period preceding the event in question.
4.3 Non-Competition Covenant. Employee acknowledges that the covenants set
forth in this Section 4.3 are reasonable in scope and essential to the
preservation of the Business of the Company (as defined herein). Employee also
acknowledges that the enforcement of the covenant set forth in this Section 4.3
will not preclude Employee from being gainfully employed in such manner and to
the extent as to provide a standard of living for himself or herself, the
members of his or her family and the others dependent upon Employee of at least
the level to which Employee and they have become accustomed and may expect. In
addition, Employee acknowledges that the Company has obtained an advantage over
its competitors as a result of its name, location and reputation that is
characterized by near permanent relationships with vendors, customers,
principals and other contacts which it has developed at great expense.
Furthermore, Employee acknowledges that competition by him or her following the
termination or expiration of his or her employment would impair the operation of
the Company beyond that which would arise from the competition of an unrelated
third party with similar skills. Employee hereby agrees that he or she shall
not, during his or her employment and for a period of one (1) year after the end
of his or her employment, directly or indirectly, engage in or become directly
or indirectly interested in any proprietorship, partnership, firm, trust,
company, limited liability company or other entity, other than the Company
(whether as owner, partner, trustee, beneficiary, stockholder, member, officer,
director, employee, independent contractor, agent, servant, consultant, lessor,
lessee or otherwise) that competes with the Company in the Business of the
Company in the Restricted Territory (as defined herein), other than owning an
interest in a company listed on a recognized stock exchange in an amount which
does not exceed five percent (5%) of the outstanding stock of such corporation.
For purposes of this Agreement, (i) the term "Business of the Company" shall
include all business activities and ventures related to providing
telecommunications services or products in which the Company is engaged, plans
to engage in the next twelve (12) months following termination of Employee's
employment or has engaged in during the prior twelve (12) months, as determined
at any time during the employment of the Employee; and (ii) the term "Restricted
Territory" means the geographical area consisting of a seventy mile radius
surrounding each city (and including such city) in which the Company maintains
either an office or a telecommunications facility.
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<PAGE> 9
4.4 Remedies.
(a) Injunctive Relief. Employee expressly acknowledges and agrees that
the Business of the Company is highly competitive and that a
violation of any of the provisions of Sections 4.1, 4.2 or 4.3 would
cause immediate and irreparable harm, loss and damage to the Company
not adequately compensable by a monetary award. Employee further
acknowledges and agrees that the time periods and territorial areas
provided for herein are the minimum necessary to adequately protect
the Business of the Company, the enjoyment of the Confidential
Information and the goodwill of the Company. Without limiting any of
the other remedies available to the Company at law or in equity, or
the Company's right or ability to collect money damages, Employee
agrees that any actual or threatened violation of any of the
provisions of Sections 4.1, 4.2 or 4.3 may be immediately restrained
or enjoined by any court of competent jurisdiction, and that a
temporary restraining order or emergency, preliminary or final
injunction may be issued in any court of competent jurisdiction,
without notice and without bond.
(b) Enforcement. It is the desire of the parties that the provisions of
Sections 4.1, 4.2 or 4.3 be enforced to the fullest extent
permissible under the laws and public policies in each jurisdiction
in which enforcement might be sought. Accordingly, if any particular
portion of Sections 4.1, 4.2 or 4.3 shall ever be adjudicated as
invalid or unenforceable, or if the application thereof to any party
or circumstance shall be adjudicated to be prohibited by or
invalidated by such laws or public policies, such section or
sections shall be (i) deemed amended to delete therefrom such
portions so adjudicated or (ii) modified as determined appropriate
by such a court, such deletions or modifications to apply only with
respect to the operation of such section or sections in the
particular jurisdictions so adjudicating on the parties and under
the circumstances as to which so adjudicated.
(c) Legal Fees. The Employee shall reimburse the Company for fifty
percent (50%) of all reasonable costs and expenses, including, but
not limited to, attorney's fees, incurred by the Company in
connection with the enforcement of the provisions set forth in this
Agreement.
4.5 Company. All references to the Company in this Article IV shall include
"Affiliates" of the Company, as that term is construed under Rule 405 of the
Securities Act of 1933, as amended.
4.6 Consideration. The undertakings of Employee pursuant to Sections 4.2 and
4.3 hereof are given to the Company in consideration for the payments, if any,
to be made pursuant to Section 2.4 hereof and the grant of the stock options
referenced in Exhibit A.
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<PAGE> 10
ARTICLE V
MISCELLANEOUS
5.1 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given, delivered and received
(a) when delivered, if delivered personally, (b) four days after mailing, when
sent by registered or certified mail, return receipt requested and postage
prepaid, (c) one business day after delivery to a private courier service, when
delivered to a private courier service providing documented overnight service,
and (d) on the date of delivery if delivered by telecopy, receipt confirmed,
provided that a confirmation copy is sent on the next business day by first
class mail, postage prepaid, in each case addressed as follows:
To Employee at his or her home address as set forth on the books and
records of the Company.
To Company at: Universal Access, Inc.
100 North Riverside Drive - Suite 2200
Chicago, Illinois 60606
Attn.: President
Tel: 312-660-5000
Fax: 312-660-5050
With a copy to: Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, IL 60611
Attn.: Mitchell D. Goldsmith
Tel: 312-836-4006
Fax: 312-527-5921
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
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5.2 Entire Agreement; Amendments, Etc. This Agreement contains the entire
agreement and understanding of the parties hereto, and supersedes all prior
agreements and understandings relating to the subject matter hereof. Except as
provided in Section 4.4(b), no modification, amendment, waiver or alteration of
this Agreement or any provision or term hereof shall in any event be effective
unless the same shall be in writing, executed by both parties hereto, and any
waiver so given shall be effective only in the specific instance and for the
specific purpose for which given.
5.3 Benefit. This Agreement shall be binding upon, and inure to the benefit
of, and shall be enforceable by, the heirs, successors, legal representatives
and permitted assignees of Employee and the successors, assignees and
transferees of the Company. This Agreement or any right or interest hereunder
may not be assigned by Employee without the prior written consent of the
Company. No implication shall be drawn in favor or against either party based
upon the role of such party's counsel in the drafting of this Agreement.
5.4 No Waiver. No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder or pursuant hereto shall operate
as a waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder or pursuant thereto.
5.5 Severability. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law
but, if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement. If any part of any covenant or
other provision in this Agreement is determined by a court of law to be overly
broad thereby making the covenant unenforceable, the parties hereto agree, and
it is their desire, that the court shall substitute a judicially enforceable
limitation in its place, and that as so modified the covenant shall be binding
upon the parties as if originally set forth herein.
5.6 Compliance and Headings. Time is of the essence of this Agreement. The
headings in this Agreement are intended to be for convenience and reference
only, and shall not define or limit the scope, extent or intent or otherwise
affect the meaning of any portion hereof.
5.7 Governing Law. The parties agree that this Agreement shall be governed by,
interpreted and construed in accordance with the laws of the State of Illinois,
and the parties agree that any suit, action or proceeding with respect to this
Agreement shall be brought in the courts of Cook County in the State of Illinois
or in the U.S. District Court for the Northern District of Illinois. The parties
hereto hereby accept the exclusive jurisdiction of those courts for the purpose
of any such suit, action or proceeding. Venue for any such action, in addition
to any other venue permitted by statute, will be Cook County, Illinois. The
parties hereby waive their right to trial by jury on any such action.
11
<PAGE> 12
5.8 Counterparts. This Agreement may be executed in one or more counterparts,
whether by original, photocopy or facsimile, each of which will be deemed an
original and all of which together will constitute one and the same instrument.
5.9 Recitals. The Recitals set forth above are hereby incorporated in and made
a part of this Agreement by this reference.
5.10 Arbitration. Except as expressly contemplated by Article IV, any dispute
arising between the parties pursuant to this Agreement shall be submitted to
binding arbitration. Any arbitration proceeding involving any provision hereof
will be conducted in Chicago, Illinois. Except as otherwise provided in this
Agreement, all arbitration proceedings will be conducted in accordance with the
then current National Rules for the Resolution of Employment Disputes of the
American Arbitration Association ("AAA"). One arbitrator shall conduct the
proceedings, and shall be elected in accordance with the procedures of the AAA.
The arbitrator shall allow such discovery as the arbitrator determines
appropriate under the circumstances. The arbitrator shall determine which party,
if either, prevailed and shall award the prevailing party its costs. Each party
shall bear his, her or its respective legal fees. The award and decision of the
arbitrator shall be conclusive and binding on all parties to this Agreement and
judgment on the award may be entered in any court of competent jurisdiction. The
parties acknowledge and agree that any arbitration award may be enforced against
either or both of them in a court of competent jurisdiction and each waives any
right to contest the validity or enforceability of such award. The parties
further agree to be bound by the provisions of any statute of limitations, which
would be applicable in a court of law to the controversy or claim which is the
subject of any arbitration proceeding initiated under this Agreement. The
parties further agree that they are entitled in any arbitration proceeding to
the entry of an order, by a court of competent jurisdiction pursuant to an
opinion of the arbitrator, for specific performance of any of the requirements
of this Agreement. The parties further agree that the arbitrator shall provide a
statement of reasons explaining the basis of the decision rendered.
5.11 Survival. Notwithstanding anything to the contrary contained herein, the
terms of Articles III, IV, and V hereof shall survive any termination of this
Agreement and remain in full force and effect thereafter.
12
<PAGE> 13
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered as of the day and year first above written.
UNIVERSAL ACCESS, INC.
By: /s/ PATRICK C. SHUTT
-----------------------------------
Its: CEO
EMPLOYEE:
/s/ WILLIAM J. COYNE III
--------------------------------------
NAME: William J. Coyne III
13
<PAGE> 14
EXHIBIT A - ECONOMIC TERMS OF EMPLOYMENT AGREEMENT
UNIVERSAL ACCESS, INC.
A. Compensation.
1. During the Employment Term, the Company shall pay Employee such
salary and benefits as shall be agreed upon each year between
Employee and the Company. For the Initial Term, the Company shall
pay Employee a base salary of $185,000 per year. Thereafter, the
Company shall review the Employee's base salary annually.
2. Bonus. The Company may, at the Company's sole discretion, in
addition to Employee's base salary, pay Employee an annual bonus
with respect to each calendar year in the Employment Term up to
$100,000 upon achieving standard sales objectives.
3. Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, stock option, health plan,
insurance, disability income, incentive compensation, vacation and
welfare or any other benefit plan or plans of the Company which may
now or hereafter be in effect and for which he or she is eligible.
4. Vacation. Employee shall be entitled to up to four (4) weeks of paid
vacation in each calendar year during the Employment Term, provided,
however, that the Employee's 2000 calendar year vacation shall be
prorated for the portion of the calendar year remaining after the
date hereof; Employee shall be entitled to carry forward from one
calendar year during the Employment Term to the next calendar year
up to one additional week's vacation, to the extent it was accrued
and not taken in the previous year (i.e. not more than five week's
total vacation can be taken in any year).
5. Stock Options. Employee shall be entitled to options to purchase up
to 450,000 shares of the Company's common stock at fair market value
per share in accordance with the Company's stock option plan, as
further specified in the form of stock option agreement between
Employee and the Company.
14
<PAGE> 1
Exhibit 10.39.1
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Amendment No. 1 dated as of February 1, 2000 (the "Amendment") to the
Employment Agreement and any exhibits thereto (the "Agreement") by and between
Universal Access, Inc., a Delaware corporation (the "Company") and William J.
Coyne III (the "Employee"). Any capitalized terms not defined herein shall have
the meanings assigned to those terms in the Agreement.
RECITALS
A. Company and Employee entered into the Agreement on February 1, 2000.
B. Company and Employee desire to amend the Agreement to reflect certain
changes agreed to by the Company and the Employee.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as
follows:
1. Section 6.3 of the Agreement is hereby deleted in its entirety and
replaced by the following:
6.3 Entire Agreement; Amendments, Etc. This Agreement and the
Indemnification Agreement dated as of February 1, 2000 between the
Company and Employee (as the Indemnification Agreement may be amended,
restated or otherwise modified) contain the entire agreement and
understanding of the parties hereto, and supersede all prior agreements
and understandings relating to the subject matter hereof and thereof.
Except as provided in Section 4.4(b), no modification, amendment, waiver
or alteration of this Agreement or any provision or term hereof shall in
any event be effective unless the same shall be in writing, executed by
both parties hereto, and any waiver so given shall be effective only in
the specific instance and for the specific purpose for which given.
2. Miscellaneous. Upon the execution and delivery of this Amendment, the
Agreement shall be amended and supplemented as set forth herein, as fully and
with the same effect as if the amendments and supplements made hereby were set
forth in the Agreement as of the date hereof. This Amendment and the Agreement
shall henceforth be read, taken and construed as one and the same instrument,
but this Amendment shall not operate so as to render invalid or improper any
action previously taken under this Agreement.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of February 1, 2000.
COMPANY: UNIVERSAL ACCESS, INC.,
a Delaware corporation
By: /s/ PATRICK C. SHUTT
---------------------------------
Name: Patrick C. Shutt
Title: President and CEO
EMPLOYEE: By: /s/ WILLIAM J. COYNE III
---------------------------------
William J. Coyne III
<PAGE> 1
EXHIBIT 10.39.2
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
Amendment No. 2 dated as of February 15, 2000 (the "Amendment") to the
Employment Agreement and any exhibits thereto (the "Agreement") by and between
Universal Access, Inc., a Delaware corporation (the "Company") and William J.
Coyne III (the "Employee"). Any capitalized terms not defined herein shall have
the meanings assigned to those terms in the Agreement.
RECITALS
A. Company and Employee entered into the Agreement on February 1, 2000.
B. Company and Employee desire to amend the Agreement to reflect certain
changes agreed to by the Company and the Employee.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as
follows:
1. Effective as of February 1, 2000, all references in the Agreement to
"Executive Vice President, Sales" shall be deleted and replaced by references
to "Executive Vice President, Client Services".
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of February 15, 2000.
COMPANY: UNIVERSAL ACCESS, INC.,
a Delaware corporation
By: /s/ Patrick C. Shutt
--------------------------
Name: Patrick C. Shutt
Title: President and CEO
EMPLOYEE: By: /s/ William J. Coyne III
--------------------------
Name: William J. Coyne III
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated February 17, 2000 relating to the financial statements and
financial statement schedules of Universal Access, Inc., our report dated July
30, 1999 relating to the financial statements of Pacific Crest Networks, Inc.,
and our report dated October 1, 1999 relating to the financial statements of
Stuff Software, Inc., all of of which appear in such Registration Statement. We
also consent to the references to us under the heading "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Chicago, Illinois
February 18, 2000
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