<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 2000
REGISTRATION NO. 333-93039
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
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. [ ]
------------------------
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 MARCH 13, 2000.
11,000,000 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. Our common stock has been approved for
quotation on the Nasdaq National Market under the symbol "UAXS".
See "Risk Factors" beginning on page 8 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 11,000,000 shares, the
underwriters have the option to purchase up to an additional 1,650,000 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 an integrated communications network solution."
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 an integrated communications network solution."
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.
LOWER RIGHT: Picture of employees utilizing the databases and interfacing with
clients; text: "Our Universal Information Exchange, or UIX, databases enable us
to provide more efficient and cost-effective circuit access using information
from multiple suppliers."
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 Local Segment - UTX--Vendor 2 Intercity Segments - UTX--Vendor 3 -
Vendor 4 - Local Segment - End Customer Washington, D.C.; Through our Universal
Transport Exchange, or UTX, facilities we connect multiple suppliers and
service providers."
UPPER CENTER: Diagram of UIX databases overlaying United States map; text: "UIX
- - Quoting - Order Processing - installation - Supplier Data - Network Management
- - Network Planning"
REAR COVER
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]
<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 buying and
selling of capacity on communications networks. We facilitate the process
through which users of communications circuits obtain circuits dedicated for
their specific use from multiple vendors. We refer to this process as
"provisioning a circuit." We also facilitate the installation and servicing of
these dedicated circuits. Our clients are communications service providers, such
as telecommunications service providers, internet service providers and
application service providers, who buy capacity on communications circuits for
use by their customers. We obtain the communications capacity from transport
suppliers, who are the owners of the communications infrastructure over which
information is transmitted.
Through our services, we provide our clients with an outsourced, integrated
solution to obtaining communications network capacity within a fragmented
network services market. The services we provide include:
- assembling detailed information about available network capacity from
multiple suppliers;
- operating facilities where communications networks can be physically
interconnected;
- providing ongoing access to dedicated circuits; and
- providing client support services.
We offer our clients the ability to obtain pricing quotes and circuit
availability information and to order circuits over the Internet. We intend to
expand our Internet 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 assemble
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. It is difficult to connect these networks together
due to the fact that transport suppliers and service providers do
3
<PAGE> 6
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. 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.
Communications service providers and transport suppliers face a number of
challenges, as outlined below, due to the number of vendors in the market.
<TABLE>
<CAPTION>
CHALLENGES FOR SERVICE PROVIDERS CHALLENGES FOR TRANSPORT SUPPLIERS
-------------------------------- ----------------------------------
<S> <C>
- - significant time and expense related to - inability to efficiently fulfill customer
pricing, obtaining and installing demand for dedicated circuits due to the
circuits; limited coverage 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 - inability to provide a consistent level of
orders and possibly lost revenues; and 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 Supplying and Installing Circuits and
Providing Network Management Services. As a third-party provider, we
allow our clients to outsource the obtaining, installing and providing 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 Provision and Installation of Circuits Across
Multiple Vendor Networks. We use 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 Coverage. Our clients are able to easily extend
the coverage of their networks by purchasing dedicated circuits from us
which access 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.
4
<PAGE> 7
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;
- optimize circuit configurations to gain efficiencies;
- expand UIX, UTX and client support services internationally; and
- enhance capabilities through acquisitions and partnerships.
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.
We do not intend for information contained on our website,
www.universalaccess.net, to 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.................................. 11,000,000 shares
Common stock which will be outstanding after the
offering(1)......................................... 85,809,264 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>
At our request the underwriters have reserved at the initial public
offering price up to 2,300,000 shares of our common stock for sale to an
existing stockholder of Universal Access.
- ---------------
(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
5
<PAGE> 8
- 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.
6
<PAGE> 9
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 3,508 5,090 34,603 36,079
---- ------- ------- -------- --------
Operating loss............... (169) (1,879) (2,796) (20,344) (21,173)
---- ------- ------- -------- --------
Net loss......................... (170) (1,998) (2,960) (19,653) (20,482)
Pro forma basic and diluted net
loss per share................. $ (0.07) $ (0.35)
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 11,000,000 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........................................................ $128,594
Total assets................................................ 154,835
Total long-term debt, net of current portion................ 2,369
Total stockholders' equity.................................. 142,612
</TABLE>
7
<PAGE> 10
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 $23.0 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, we
may continue to incur operating losses and net losses.
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.
For example, from time to time we enter into long-term agreements with
communications transport suppliers for the supply and installation of
communications network capacity. These
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<PAGE> 11
agreements generally provide for monthly minimum revenue commitments from us,
which we must negotiate based on forecasts of our future network capacity
requirements. As of March 10, 2000, we were party to contracts that will impose
minimum purchase commitments that we anticipate will total approximately $1.8
million per month by September 2000. If we fail to forecast our network capacity
requirements accurately or fail to accurately forecast other aspects of our
business, it will be difficult for us to become profitable, and you may lose
part or all of your investment.
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 the obtaining of circuits;
- our ability to market our services effectively; and
- the growth of the Internet.
We may not be able to execute our business model 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. IF WE
CANNOT INCREASE THE SCOPE AND ACCURACY OF THESE DATABASES AS PLANNED, OUR
ABILITY TO COST-EFFECTIVELY FACILITATE THE OBTAINING OF CIRCUITS FOR OUR CLIENTS
WILL BE AT RISK.
To be successful, we must increase and update information about pricing,
capacity, availability and location of circuits contained in our databases. Our
ability to cost effectively facilitate the supplying of 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, we may be unable to increase
our revenues or to cost-effectively facilitate the supplying of the circuits,
and we may never achieve profitability.
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 ability to
generate revenues 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.
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<PAGE> 12
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 March 7, 2000, we had two operational UTX sites and seven UTX
clients. However, these clients may terminate their UTX contracts at any time,
and our ability to generate revenues will suffer if we fail to maintain our
existing clients and to attract new clients for our UTX services.
CONSTRUCTION OF UTX FACILITIES IS EXPENSIVE AND TIME-CONSUMING AND WILL CAUSE A
SIGNIFICANT STRAIN ON THE CAPITAL RESOURCES AND OPERATION OF 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, 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 ability to generate revenues.
10
<PAGE> 13
IF WE CANNOT SUCCESSFULLY IMPLEMENT OUR NETWORK OPERATIONS CENTER, WE WILL BE
UNABLE TO PROVIDE MONITORING, MAINTENANCE AND RESTORATION SERVICES TO OUR
CLIENTS.
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.
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 us to lose clients and make it
difficult for us to attract new clients.
ALTHOUGH WE PLAN TO EXPAND INTERNATIONAL OPERATIONS, WE HAVE NO EXPERIENCE
OPERATING INTERNATIONALLY.
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 ability to
attract new clients and retain existing clients.
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
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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 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;
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- 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.
IF WE HAVE DIFFICULTIES OR DELAYS IN DELIVERING CIRCUITS TO OUR CLIENTS, OUR
ABILITY TO GENERATE REVENUE WILL SUFFER AND WE MAY LOSE EXISTING AND POTENTIAL
NEW CLIENTS.
It typically takes 30 to 90 days to supply 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 facilitate the supply of a circuit for
a client, we negotiate with one or more transport suppliers and manage the
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 facilitating the supply of circuits if our transport
suppliers run out of capacity, forcing us to look for alternative sources of
capacity at the last minute. If we are unable to facilitate the supply of 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 supplying 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 construction 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.
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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;
- 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 make
it difficult for us to retain and attract clients.
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.
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OUR CLIENTS MAY FAIL TO PAY OR BE UNABLE TO PAY THEIR OBLIGATIONS TO US IN A
TIMELY MANNER OR AT ALL.
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 REQUIRE
SUBSTANTIAL TIME AND RESOURCES FOR COMPLIANCE, WHICH COULD MAKE IT DIFFICULT FOR
US TO OPERATE 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.
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 flexibility in operating our business will be limited. If our
flexibility is limited, we may not be able to optimize our operating results.
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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 INCUR OPERATIONAL AND MANAGEMENT INEFFICIENCIES WHEN WE ACQUIRE NEW
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;
- 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 ABILITY TO EXPAND 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.
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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.
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 services in
facilitating the supply of circuits;
- 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 ABILITY TO INCREASE OUR SERVICES
AND CLIENT BASE 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 March 13, 2000, we had approximately 250
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
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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.
IF WE FAIL TO SUCCESSFULLY COMPLETE THE IMPLEMENTATION OF OUR MANAGEMENT
INFORMATION SYSTEMS OUR ABILITY TO EXPAND OUR BUSINESS COULD SUFFER.
We are in the process of augmenting our management information systems to
facilitate management of client orders, client service, billing and financial
applications. Our ability to manage 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 ability to efficiently operate our business could suffer
if the software which runs our information systems malfunctions.
WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET, AND OUR ABILITY TO GENERATE REVENUES 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 February 2000, 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 limit our ability to
generate revenues.
BECAUSE WE HAVE NO PATENTED TECHNOLOGY AND HAVE LIMITED ABILITY TO PROTECT OUR
PROPRIETARY INFORMATION, COMPETITORS MAY MORE EASILY ENTER OUR MARKET AND HARM
OUR ABILITY TO GENERATE REVENUES.
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
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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 expose us to competition which would
harm our ability to attract new and existing clients and generate revenues.
UNDETECTED COMPUTER ERRORS ASSOCIATED WITH THE YEAR 2000 PROBLEM COULD DISRUPT
OUR OPERATIONS.
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 addition, we may still find problems with our internal
systems. In either event, our ability to generate revenues could suffer. 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".
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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 55.84% of our outstanding common stock
following the completion of this offering assuming these entities and
individuals do not purchase additional shares in the offering. We have requested
the underwriters reserve up to 2,300,000 shares in this offering for purchase by
Internet Capital Group, Inc., although it has no obligation to buy any shares in
the 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 11,000,000 shares sold in this offering will be freely tradable. The
remaining 76,460,616 shares outstanding, based on the number of shares
outstanding as of March 10, 2000, are restricted securities as defined in Rule
144 of the Securities Act of 1933. Approximately 5,050,766 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 61,382,506 of these shares will be tradable
beginning 180 days after 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;
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- 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 $7.37 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 11,000,000
shares of common stock we are selling in the offering will be approximately
$90.6 million (or $104.4 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.
22
<PAGE> 25
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 11,000,000
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....... 27,102 -- --
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; 85,809,264 shares issued and outstanding pro
forma as adjusted...................................... 2,475 3,122 3,232
Common stock warrants..................................... 13 732 732
Additional paid-in-capital................................ 20,775 84,864 175,324
Deferred stock option plan compensation................... (11,909) (11,909) (11,909)
Accumulated deficit....................................... (23,039) (23,039) (23,039)
Notes receivable -- employees............................. (1,728) (1,728) (1,728)
-------- -------- --------
Total stockholders' equity........................ 52,042 52,042 142,612
-------- -------- --------
Total capitalization............................ $ 54,411 $ 54,411 $144,981
======== ======== ========
</TABLE>
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.
23
<PAGE> 26
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 11,000,000 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 $140.2
million, or $1.63 per share. This represents an immediate increase in the pro
forma net tangible book value of $0.97 per share to existing stockholders and an
immediate dilution of $7.37 per share to new investors, or approximately 82% 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............ 0.97
-----
Pro forma net tangible book value per share after this
offering.................................................. 1.63
--------
Dilution per share to new investors......................... $ 7.37
========
</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 87.2% $ 65,148,000 39.7% $0.87
New stockholders....... 11,000,000 12.8 99,000,000 60.3 9.00
Total........ 85,809,264 100.0% $164,148,000 100.0% $1.91
</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.
24
<PAGE> 27
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 13,607
Operations and administration (stock option plan
compensation)........................................... -- 689 8,146
Depreciation.............................................. -- 47 829
------- ------- --------
Total operating expenses................................ 246 3,508 34,603
------- ------- --------
Operating loss.......................................... (169) (1,879) (20,344)
------- ------- --------
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) (1,998) (19,653)
Accretion and dividends on redeemable and nonredeemable
cumulative convertible preferred stock.................... -- (28) (10,207)
------- ------- --------
Net loss applicable to common stockholders.................. $ (170) $(2,026) $(29,860)
======= ======= ========
Basic and diluted net loss per share........................ $ (0.01) $ (0.07) $ (0.96)
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.............. $ (0.07) $ (0.35)
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>
25
<PAGE> 28
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 March 7, 2000, 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 March
7, 2000, 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.
26
<PAGE> 29
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 $23.0 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 $13.6 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
27
<PAGE> 30
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 the increase in
bad debt expense is related to the creation of a general reserve for doubtful
accounts. Finally, we sold Series D Preferred Stock to service providers during
1999 for $992,000 less than the deemed fair market value of the stock at the
date of sale. Accordingly, we recognized this amount as operations and
administration expense during 1999. 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 $2.0 million and during the year ended
December 31, 1999, we recorded a total of $14.1 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 $3.5 million for the year ended December 31, 1999. We expect to
recognize additional deferred stock option plan compensation expense of
approximately $11.9 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
28
<PAGE> 31
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.
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 $2.0 million 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 $389,000 for the year ended
December 31, 1998. In addition, during 1998, we recorded $300,000 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
29
<PAGE> 32
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)............. -- -- 638 51 95 156
Depreciation................ -- -- 1 46 25 28
---- ----- ------- ------ ------- -------
Total operating
expenses................ 260 468 1,393 1,387 2,580 4,970
---- ----- ------- ------ ------- -------
Operating loss................ $(92) $(241) $(1,058) $ (488) $(1,049) $(2,251)
==== ===== ======= ====== ======= =======
<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)............. 4,381 5,581
Operations and
administration (Stock
option plan
compensation)............. 5,337 2,558
Depreciation................ 237 539
------- -------
Total operating
expenses................ 13,831 13,222
------- -------
Operating loss................ $(9,498) $(7,546)
======= =======
</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
30
<PAGE> 33
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 buying and
selling of capacity on communications networks. We facilitate the process
through which users of communications circuits obtain circuits dedicated for
their specific use from multiple vendors. We refer to this process as
"provisioning a circuit." We also facilitate the installation and servicing of
these dedicated circuits. Our clients are communications service providers, such
as telecommunications service providers, internet service providers and
application service providers, who buy capacity on communications circuits for
use by their customers. We obtain the communications capacity from transport
suppliers, who are the owners of the communications infrastructure over which
information is transmitted.
Through our services, we provide our clients with an outsourced, integrated
solution to obtaining communications network capacity within a fragmented
network services market. The services we provide include:
- assembling detailed information about available network capacity from
multiple suppliers;
- operating facilities where communications networks can be physically
interconnected;
- providing ongoing access to dedicated circuits; and
- providing client support services.
We offer our clients the ability to obtain pricing quotes and circuit
availability information and to order circuits over the Internet. We intend to
expand our Internet 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 assemble
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 assembling 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. To
date, we have derived substantially all of our revenues from providing ongoing,
dedicated circuit access, generating our first revenues from this source in the
quarter ended December 31, 1997. At March 10, 2000 we had two operational UTX
facilities and five UTX facilities under construction. However, to date we have
derived minimal revenues from UTX facilities. 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 $23.0 million.
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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 to transmit data will accelerate as communications 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 suppliers of communications infrastructure. These suppliers
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 is becoming increasingly difficult as the number of transport
suppliers increases.
FRAGMENTED MARKET
The market for communications network capacity and infrastructure services
is complex, competitive and fragmented due to the growth in the number of
service providers and suppliers of communications infrastructure. 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;
- 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, transport suppliers have employed a variety of
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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 market, 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
market, 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, it is difficult to connect
networks together due to 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.
CHALLENGES FOR SERVICE PROVIDERS
The fragmented nature of the market causes a number of challenges for
telecommunications service providers, ISPs, ASPs and other buyers of
communication capacity, including:
- significant time and expense related to obtaining 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, 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
The fragmented nature of the market also causes a number of challenges for
interexchange carriers, local loop, and other suppliers of communications
infrastructure, including:
- inability to efficiently fulfill customer demand for dedicated circuits
due to the limited coverage 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 owned by multiple
vendors.
OUR SOLUTION
Our integrated solution addresses these challenges and provides the
following key advantages:
SINGLE POINT OF CONTACT FOR SUPPLYING AND INSTALLING CIRCUITS AND PROVIDING
NETWORK MANAGEMENT SERVICES. As a third-party provider, we allow our clients to
outsource the obtaining, installing and providing 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
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client would have to contact multiple vendors to determine the source of a
circuit outage and to restore the circuit. We are currently providing these
services in conjunction with an outsourcing arrangement with a third party until
our own facility becomes operational.
EFFICIENT, COST EFFECTIVE PROVISION AND INSTALLATION OF CIRCUITS ACROSS
MULTIPLE VENDOR NETWORKS. We efficiently and cost-effectively supply and install
circuits across multiple vendor networks to buyers of communications transport
capacity. As an independent intermediary, we have been able to collect network
information from multiple transport suppliers. Using 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 COVERAGE. Suppliers of communications
infrastructure are able to easily extend the coverage 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 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 CAPACITY 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, supply 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 price quotes, order circuits and receive
dedicated monitoring and support services, all in real time. We believe these
initiatives will enhance the efficiency and reliability of our web-based
services and will enable us to offer a more complete, electronic 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.
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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
coverage of its network.
OPTIMIZE CIRCUIT CONFIGURATIONS TO GAIN EFFICIENCIES. We will use the
information available in our UIX and the extensive connections in our UTX
facilities to join discrete circuits between network access points. This will
allow us to optimize circuit configurations and realize network and economic
efficiencies.
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 our UIX, UTX and client support
services in international markets. We believe we can use 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 supply 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 communications 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, supply 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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SUPPLY AND INSTALLATION OF CIRCUITS. Our UIX contains information on the
processes by which over 35 transport suppliers supply and install circuits. By
using this information we are able to work with the personnel and field
technicians of multiple vendors to provide dedicated circuits to our clients. As
part of our 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 March 7, 2000 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 more efficiently
to provide circuits 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
transport suppliers and service providers;
- Direct mail campaigns that use 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.
VENDORS
From time to time we enter into long-term contracts, commonly referred to
as "master service agreements" or "master carrier agreements", with
communications transport suppliers for the supply and installation of network
capacity. As of March 10, 2000, we had master carrier agreements with the
following vendors:
AT&T
GTE
IXC (Broadwing)
Level(3) Communications
MCI Worldcom Communications
Williams Communications
Our master carrier agreements generally provide for terms ranging from
three to ten years and provide for a monthly minimum revenue commitment for the
term of the contract. These master carrier agreements will impose minimum
purchase commitments on us that we anticipate will total approximately $1.8
million per month by September 2000. Under a master carrier agreement, each
circuit provided by a transport supplier has its own term, generally ranging
from 12 to 60 months, and is governed by the terms and conditions set forth in
the master carrier agreement. If we cancel a contract with a transport supplier
with respect to a particular circuit, we must generally pay cancellation charges
that can equal substantially all of the amount payable over the remaining term
of the contract for that circuit.
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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.
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
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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 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.
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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
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
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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.
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.
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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 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
In February 2000, a complaint was filed in the Superior Court of
California, County of Santa Clara, against us and other parties 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 allege that we, certain of our officers and
others conspired to deprive them of their interests in Vaultline. They are
seeking damages in excess of $10,000,000. We believe all of our legal
obligations were satisfied and intend to vigorously contest any claims asserted
against us relating to this matter.
EMPLOYEES
As of March 13, 2000, we had approximately 250 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.
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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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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages, as of March 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...................... 48 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
Robert E. Rainone, Jr..................... 37 Chief Development Officer
Paolo Guidi............................... 57 Director
Thomas Kapsalis(3)........................ 66 Director
Robert A. Pollan.......................... 39 Director
Joseph L. Schocken(2)(3)(4)............... 53 Director
John F. Slevin(4)......................... 63 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.
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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 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 Operations
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, a telecommunications 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 E. RAINONE, JR. has served as our Chief Development Officer since
February 2000. From October 1998 to February 2000, Mr. Rainone was the Vice
President of Marketing at Open Port Technology, Inc., an internet messaging
company. From March 1993 to August 1997, Mr. Rainone was employed by U.S.
Robotics Corporation, a computer equipment manufacturer and subsidiary of 3Com
Corporation, in various capacities, most recently as Vice President and General
Manager of Business Access.
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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.
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 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.
JOHN F. SLEVIN has served as one of our directors since February 2000. From
October 1975 to January 1999, Mr. Slevin worked for Comdisco, Inc., an equipment
leasing company, most recently as its Chairman, Chief Executive Officer and
President. Mr. Slevin is also currently a director of MediaOne Group, Inc., a
broadband communications company, and InterWorld Corporation, an enterprise
commerce software company.
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.
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 2000; Class II, whose term will expire at
the annual meeting of stockholders to be held in 2001; and Class III, whose term
will expire at the annual meeting of the stockholders to be held in 2002. 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. Slevin, 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.
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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. Mr. Kapsalis is a holder of approximately 4.84% 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 17.02% 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 1.02% 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 Broadmark approximately $502,190 and issued them warrants for
our common stock and our Series A preferred stock. In addition, Broadmark
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 another stockholder. 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.
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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 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
</TABLE>
52
<PAGE> 55
<TABLE>
<CAPTION>
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS OPTIONS COMPENSATION
---------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
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.
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 762,000 1,328,005 2,196,368
400,000(3) 5.61% $0.27 June 25, 2009 3,492,000 5,688,100 9,057,349
Mark A. Dickey....... 150,000(4) 2.10% $1.38 August 5, 2009 1,143,000 1,992,008 3,294,552
</TABLE>
53
<PAGE> 56
- ---------------
(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.
54
<PAGE> 57
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 March 10, 2000 options to purchase 10,688,179 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
55
<PAGE> 58
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 March
10, 2000, 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 623,750 shares
were issued and outstanding as of that date. We anticipate that we will grant
approximately 475,000 additional shares under our 1999 Plan prior to the closing
of this offering. 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 our fiscal year,
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
56
<PAGE> 59
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 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 and stock purchase rights.
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
57
<PAGE> 60
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
- 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 April 30, 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 not purchase more than 3,000 shares during a six month purchase
period.
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. 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.
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<PAGE> 61
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 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 date.
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.
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<PAGE> 62
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.
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 Ms. 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. We amended our employment agreement with Mr. Dickey in
February 2000. 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.
Robert Rainone. In February 2000, Robert Rainone entered into an employment
agreement with us. Mr. Rainone is currently entitled to an annual salary of
$190,000 with an annual bonus of up to
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<PAGE> 63
$60,000 to be paid at our discretion. Mr. Rainone'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.
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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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) February 24, 2000 $ 0.01 6,170 --
Kenneth A. Napier......................... February 19, 2000 $ 1.38 50,000 --
(executive officer)
Scott D. Fehlan........................... February 10, 2000 $ 2.79 5,000 --
(executive officer) February 14, 2000 $ 2.79 5,000 --
March 1, 2000 $ 2.79 5,000 --
George A. King............................ March 1, 1998 $ 0.00003 900,000 --
(executive officer)
Thomas Kapsalis........................... October 7, 1997 $0.000004 4,725,000 --
(director and 5% stockholder) March 1, 1998 $ 0.00003 1,050,000 --
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.)
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)
Giuseppina Zarcone (5% stockholder)....... October 7, 1997 $ 0.0025 4,050,000 --
(includes stock held as joint tenants
with right of survivorship with her October 7, 1997 $ 0.0025 4,050,000 --
father, and individually)
</TABLE>
For current information on the holdings of these individuals, see
"Principal Stockholders".
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<PAGE> 65
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>
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<PAGE> 66
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 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. In February
2000 we granted to Ms. Shore an option to purchase 210,000 shares of our common
stock at an exercise price of $8.10 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
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<PAGE> 67
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.
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.
Robert Rainone. In February 2000, we granted to Robert Rainone an option to
purchase 500,000 shares of our common stock at an exercise price of $8.10 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, which were exercised in March 2000, 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 another 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.
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.
In November 1999, Advanced Equities, Inc. provided services to us in
connection with the placement of our Series E preferred stock. John Slevin, one
of our directors, owns approximately five percent of Advanced Equities, Inc. As
consideration for Advanced Equities, Inc.'s services, we paid them approximately
$385,000. We also issued Advanced Equities, Inc. a warrant to purchase 40,000
shares of Series E preferred stock with an exercise price of $18.30 per share.
On November 10, 1999, Advanced Equities Investments I, LLC purchased 256,831
shares of our Series E preferred
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<PAGE> 68
stock at a purchase price of $18.30 per share. Mr. Slevin is a non-managing
member of Advanced Equities Investments I, LLC.
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> 69
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 10, 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 March 10, 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 76,460,616 shares of common stock
outstanding on March 10, 2000 and 87,460,616 shares of common stock outstanding
after completion of this offering. The percentage of common stock outstanding as
of March 10, 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
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<PAGE> 70
the individuals named below is: c/o Universal Access, Inc., 100 North Riverside
Plaza, Suite 2200, Chicago, Illinois 60606.
<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 MARCH 10, 2000 OFFERING OFFERING
- ------------------------------------ ------------ ------------------- -------- --------
<S> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS AND 5%
STOCKHOLDERS
Entities Affiliated with
ComVentures(1)..................... 13,015,596 -- 17.02% 14.88%
505 Hamilton Avenue
Suite 305
Palo Alto, CA 94301
Entities Affiliated with Internet
Capital Group(2)................... 17,839,122 1,000,002 24.32% 23.90%(10)
435 Devon Park Drive
Suite 800
Wayne, PA 19087
John D. Drummond(3).................. 3,841,004 -- 5.02% 4.39%
Giuseppina Zarcone(4)................ 4,050,000 2,250 5.30% 4.63%
Patrick C. Shutt(5).................. 5,369,000 300,000 7.39% 6.46%
Robert J. Pommer(6).................. 5,085,000 300,000 7.02% 6.14%
Donna M. Shore....................... 200,000 143,830 * *
Kenneth A. Napier.................... 50,000 100,000 * *
Mark A. Dickey....................... -- 150,000 * *
Paolo Guidi.......................... -- 200,000 * *
Teleglobe Communications
11440 Commerce Park Drive
Reston, VA 20191
Thomas Kapsalis(7)................... 3,701,998 -- 4.84% 4.23%
Robert A. Pollan(2).................. 17,839,122 1,000,002 24.32% 23.90%(10)
Joseph L. Schocken(8)................ 782,106 -- 1.02% *%
2800 One Union Square
600 University Street
Seattle, WA 98101
John F. Slevin(9).................... 770,493 4,863 1.01% *
Roland A. Van der Meer(1)............ 13,015,596 -- 17.02% 14.88%
All directors and executive officers
as a group (16 persons)............ 47,380,093 2,533,695 63.62% 58.40(10)
</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
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<PAGE> 71
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.
(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 2,311,004 shares held by John Drummond as Trustee for the John
Drummond Declaration of Trust dated July 7, 1999, 1,500,000 shares held by
John Drummond Family Limited Partnership and 30,000 shares held by John
Drummond and Romalda Lopat Siblings 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 4,499,000 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.
(6) 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.
(7) Includes 1,500,000 shares held by the Kapsalis Family Limited Partnership
and 2,201,998 shares held by Thomas Kapsalis as Trustee of the Thomas
Kapsalis Declaration of Trust dated March 2, 1999.
(8) Includes 330,882 shares held by Broadmark Investments, L.L.C., 624,120
shares held by Broadmark Investments, L.L.C., 157,986 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.
(9) Includes 770,493 shares held by Advanced Equities Investments I, LLC and a
warrant to purchase 4,863 shares held individually by John Slevin. Mr.
Slevin is a non-managing member of Advanced Equities Investments I, LLC and
disclaims beneficial ownership of the shares held by Advanced Equities
Investments I, LLC.
(10) Assumes that Internet Capital Group, Inc. purchases 2,300,000 shares of our
common stock that we have requested the underwriters reserve for them in
this offering although Internet Capital Group, Inc. is under no obligation
to make such purchase.
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<PAGE> 72
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 March 10, 2000, there were 76,460,616 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 228 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 85,809,264 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 85,809,264 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 98,657,690 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> 73
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 March 10, 2000, there were the following warrants outstanding:
- a warrant to purchase a total of 1,000,002 shares of common stock which
will expire on February 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 March 10, 2000 the holders of 39,634,614 shares of common stock, as
converted, and the holders of warrants and options to purchase 1,959,996 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.
- 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.
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<PAGE> 74
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.
72
<PAGE> 75
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 87,460,616
shares of common stock, assuming the issuance of 11,000,000 shares of common
stock offered by us and no exercise of options after March 10, 2000, and
assuming no exercise of the underwriters' option to purchase additional shares
in the offering. All of the 11,000,000 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 76,460,616 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 76,460,616
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)............... 11,000,000 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)......................... 5,050,766 10% of shares subject to lock-up
released; shares tradeable under
Rule 144 and 701.
180 days after effective date(2)... 61,382,506 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.
73
<PAGE> 76
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 874,606 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.
74
<PAGE> 77
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............................................. 11,000,000
==========
</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
1,650,000 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 1,650,000 additional shares.
Paid by Universal Access
<TABLE>
<S> <C> <C>
No Exercise Full Exercise
----------- -------------
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
75
<PAGE> 78
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.
At the request of Universal Access, the Underwriters have reserved at the
initial public offering price up to 2,300,000 shares of common stock for sale to
an existing stockholder of Universal Access. This stockholder expressed an
interest in purchasing such shares of common stock in this offering. This
stockholder has agreed that, if it does purchase any of such reserved shares,
the reserved shares will be subject to the lock-up described in the immediately
preceding paragraph. There can be no assurance that any of the reserved shares
will be purchased. The number of shares available for sale to the general public
in this offering will be reduced by the number of reserved shares sold. Any
reserved shares not so purchased will be offered to the general public on the
same basis as the other shares offered in this offering.
In addition, 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".
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.
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.
76
<PAGE> 79
A prospectus in electronic format may be made available on the web sites
maintained by one or more underwriters. The underwriters may agree to allocate a
number of shares to underwriters for sale to their online brokerage account
holders. Internet distributions will be allocated by the lead managers to
underwriters that may make Internet distributions on the same basis as other
allocations.
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.
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.
77
<PAGE> 80
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.
78
<PAGE> 81
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 82
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 Statement of Operations........ F-41
Unaudited Pro Forma Combined Statement of Operations for the
year ended December 31, 1999.............................. F-42
Note to Unaudited Pro Forma Combined Financial Statements... F-43
</TABLE>
F-1
<PAGE> 83
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> 84
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)......................... -- 27,102 --
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 $ 3,122
Common stock warrants..................................... -- 13 732
Additional paid-in-capital................................ 1,991 20,775 84,864
Deferred stock option plan compensation................... (1,302) (11,909) (11,909)
Accumulated deficit....................................... (2,196) (23,039) (23,039)
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> 85
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 13,607
Operations and administration (stock option plan
compensation)..................................... -- 689 8,146
Depreciation......................................... -- 47 829
------- ------- --------
Total operating expenses..................... 246 3,508 34,603
------- ------- --------
Operating loss............................... (169) (1,879) (20,344)
------- ------- --------
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) (1,998) (19,653)
Accretion and dividends on redeemable and nonredeemable
cumulative convertible preferred stock............... -- (28) (10,207)
------- ------- --------
Net loss applicable to common stockholders............. $ (170) $(2,026) (29,860)
======= ======= ========
Basic and diluted net loss per share................... $ (0.01) $ (0.07) $ (0.96)
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......... $ (0.07) $ (0.35)
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> 86
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) $(1,998) $(19,653)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation............................................ -- 47 829
Amortization............................................ -- -- 113
Stock option plan compensation.......................... -- 689 8,146
Stock issued for services............................... -- -- 992
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> 87
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..................... -- -- -- -- -- -- 1,991 (1,991)
Stock option plan compensation.... -- -- -- -- -- -- -- 689
Net loss.......................... -- -- -- -- -- -- -- --
Accretion and dividends on
Redeemable Series A Preferred
Stock............................ -- -- -- -- -- -- -- --
--------- ------- ------ ---------- ------ --- ------- --------
Balance at December 31, 1998...... -- -- -- 30,300,000 225 -- 1,991 (1,302)
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 26,439 -- -- -- -- -- --
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..................... -- -- -- -- -- -- 14,142 (14,142)
Stock option plan compensation.... -- -- -- -- -- -- 4,611 3,535
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 -- -- -- -- -- --
Allocation of discount on
Preferred Stock.................. -- -- -- -- -- -- 9,020 --
Deemed Preferred Stock dividend... -- -- -- -- -- -- (9,020) --
--------- ------- ------ ---------- ------ --- ------- --------
Balance at December 31, 1999...... 11,272,415 $64,736 $ 719 31,975,021 $2,475 $13 $20,775 $(11,909)
========= ======= ====== ========== ====== === ======= ========
<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.... -- -- 689
Net loss.......................... (1,998) -- (1,998)
Accretion and dividends on
Redeemable Series A Preferred
Stock............................ (28) -- (28)
-------- ------- -------
Balance at December 31, 1998...... (2,196) -- (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............................ -- 26,439
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.... -- -- 8,146
Net loss.......................... (19,653) -- (19,653)
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) -- --
Allocation of discount on
Preferred Stock.................. -- -- 9,020
Deemed Preferred Stock dividend... -- -- (9,020)
-------- ------- -------
Balance at December 31, 1999...... $(23,039) $(1,728) $52,042
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 88
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. Through December 31, 1999, no
installation revenue has been recognized. Material installation revenue will be
recognized proportionately over the term of the related circuit access
agreement.
F-7
<PAGE> 89
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> 90
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> 91
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> 92
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> 93
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.
F-12
<PAGE> 94
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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):
<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 a complaint was filed in the Superior Court of California,
County of Santa Clara, against UAI and other parties by Point West Ventures,
L.P., previously known as Fourteen Hill Capital,
F-13
<PAGE> 95
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
L.P. and certain other shareholders in Vaultline Incorporated. The claim arises
out of a letter of intent that UAI entered into in December 1998 relating to
UAI's 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
UAI and certain obligations of Vaultline. The letter contemplated that UAI would
undertake a due diligence investigation of Vaultline. After performing the due
diligence, UAI 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 allege that UAI, certain of
UAI's officers and others conspired to deprive them of their interests in
Vaultline. They are seeking damages in excess of $10,000,000. 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
F-14
<PAGE> 96
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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
F-15
<PAGE> 97
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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)........... ($1,999) ($20,224)
Pro forma basic and diluted net loss per
share..................................... ($0.07) ($0.98)
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 $689,000 and $8,146,000 of option plan compensation
expense during 1998 and 1999, respectively, and expects to recognize additional
expense of approximately $11,909,000 over the next four years relating to such
options as they vest. The $8,146,000 of option plan compensation expense for
1999 consisted of $3,535,000 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.
F-16
<PAGE> 98
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.......... -- -- 3,498,000 $0.02514
Granted............................... 4,104,000 $0.02167 8,015,500 1.2985
Exercised............................. (600,000) 0.00167 (1,000,000) 1.49200
Forfeited............................. (6,000) 0.25333 (303,500) 0.3768
---------- -------- ----------- --------
Balance at end of period................ 3,498,000 $0.02514 $10,210,000 $ 0.8621
========== ======== =========== ========
Weighted average fair value of options
granted during the period............. $ 0.59 $ 2.52
</TABLE>
The following information relates to stock options with an exercise price
which was equal to the fair market value of the underlying stock on the date of
grant:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
----------------------------
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance at beginning of period...................... -- $ --
Granted........................................... 260,750 6.10
Exercised......................................... -- --
Forfeited......................................... (5,000) 6.10
-------- -----
Balance at end of period............................ 255,750 $6.10
======== =====
Weighted average fair value of options granted
during the period................................. $1.32
</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> 99
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 $300,000 of the $689,000
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, for which $764,000 of compensation expense was
recognized during 1999.
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.
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-
F-18
<PAGE> 100
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
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.
F-19
<PAGE> 101
UNIVERSAL ACCESS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. The Company ascribed $136,000 of the proceeds to the
warrants using the Black-Scholes option valuation model. 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.
A portion of the Series D Preferred Stock was issued at a price that was
below the deemed fair market value of the equivalent amount of common stock.
Accordingly, the Company recorded a deemed dividend of $9.0 million related to
the issuance of Series D Preferred Stock. The deemed dividend has been included
in the accretion and dividends on redeemable and nonredeemable cumulative
convertible preferred stock for purposes of determining basic and diluted net
loss per common 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>
Series A.............................. 8% 6-to-1
Series B.............................. 5% 6-to-1
Series C.............................. None 3-to-1
Series D.............................. 6% 3-to-1
Series E.............................. 1.4% 3-to-1 (subject to 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> 102
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
During 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.
During 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.
During 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.
During 1999, UAI agreed to issue 70,592 shares of Series D Preferred Stock
at a price below fair market value in exchange for services. UAI recorded
$992,000 of operations and administration expense related to these transactions.
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> 103
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> 104
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> 105
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> 106
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> 107
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> 108
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> 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
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> 110
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> 111
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> 112
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> 113
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> 114
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> 115
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> 116
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> 117
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> 118
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> 119
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> 120
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 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.
F-39
<PAGE> 121
STUFF SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED
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> 122
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> 123
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)........ 13,607 580 33 -- 14,220
Operations and administration
(stock option plan
compensation expense)..... 8,146 -- -- -- 8,146
Depreciation and
amortization.............. 829 113 -- 366(1) 1,308
-------- ------ ---- ----- --------
Total operating
expenses............. 34,603 1,073 37 366 36,079
-------- ------ ---- ----- --------
Operating (loss)
income............... (20,344) (549) 86 (366) (21,173)
-------- ------ ---- ----- --------
Other income (expense):
Interest expense............. (81) -- -- -- (81)
Interest income.............. 739 -- -- -- 739
Other expense................ 33 -- -- -- 33
-------- ------ ---- ----- --------
Total other income
(expense)............ 691 -- -- -- 691
-------- ------ ---- ----- --------
Net (loss) income.............. (19,653) (549) 86 (366) (20,482)
Accretion and dividends on
redeemable and nonredeemable
cumulative convertible
preferred stock.............. (10,207) -- -- -- (10,207)
-------- ------ ---- ----- --------
Net (loss) income applicable to
common stockholders.......... $(29,860) $ (549) $ 86 $(366) $(30,689)
======== ====== ==== ===== ========
Basic and diluted net loss per
share........................ $ (0.96) $ (0.98)
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> 124
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> 125
ALTERNATE VERSION OF THE TABLE OF CONTENTS
WHICH WILL FOLLOW THE COVER PAGE IN THE ELECTRONIC PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 8
Note Regarding Forward-Looking Statements................... 21
Use of Proceeds............................................. 22
Dividend Policy............................................. 22
Capitalization.............................................. 23
Dilution.................................................... 24
Selected Financial Data..................................... 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 34
Management.................................................. 47
Transactions With Related Parties and Insiders.............. 61
Principal Stockholders...................................... 66
Description of Capital Stock................................ 69
Shares Eligible for Future Sale............................. 72
Underwriting................................................ 74
Where You May Find Additional Information................... 76
Validity of Common Stock.................................... 76
Experts..................................................... 77
Index to Financial Statements............................... F-1
</TABLE>
<PAGE> 126
- ------------------------------------------------------
- ------------------------------------------------------
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......................... 8
Note Regarding Forward-Looking
Statements......................... 21
Use of Proceeds...................... 22
Dividend Policy...................... 22
Capitalization....................... 23
Dilution............................. 24
Selected Financial Data.............. 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 26
Business............................. 34
Management........................... 48
Transactions With Related Parties and
Insiders........................... 62
Principal Stockholders............... 67
Description of Capital Stock......... 70
Shares Eligible for Future Sale...... 73
Underwriting......................... 75
Where You May Find Additional
Information........................ 77
Validity of Common Stock............. 77
Experts.............................. 78
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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
11,000,000 Shares
UNIVERSAL ACCESS, INC.
Common Stock
----------------------
[UNIVERSAL ACCESS LOGO]
----------------------
GOLDMAN, SACHS & CO.
CHASE H&Q
ROBERTSON STEPHENS
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 127
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........................................ $ 33,396
NASD filing fee............................................. 13,150
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...................................... 13,434
----------
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> 128
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 the date of this prospectus, we granted
stock options to purchase an aggregate of 14,012,950 shares of our common
stock at exercise prices ranging from $.01 to $8.10 per share to our
employees, consultants, and directors pursuant to our 1998 Stock Plan.
2. From inception through the date of this prospectus, we issued and
sold an aggregate of 2,340,671 shares of our common stock to employees,
consultants and directors for an aggregate consideration of $1,774,996
pursuant to the exercise of options granted under the 1998 Stock Plan.
3. From inception through the date of this prospectus, we granted
stock options to purchase an aggregate of 623,750 shares of our common
stock at an exercise price of $8.10 per share to our employees, consultants
and directors pursuant to our 1999 Stock Plan.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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.
12. 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 which were exercised in March, 2000.
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
II-2
<PAGE> 129
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.
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.
II-3
<PAGE> 130
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.
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.
</TABLE>
II-4
<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
<S> <C>
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.
10.26.1** Amendment to Employment Agreement with Mark A. Dickey dated
February 1, 2000.
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.
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.
10.40** Employment Agreement with Robert E. Rainone, Jr. dated
February 28, 2000.
21.1** Subsidiaries of Registrant.
23.1 Consent of independent accountants.
</TABLE>
II-5
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
<S> <C>
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>
- ---------------
** 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-6
<PAGE> 133
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-7
<PAGE> 134
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-8
<PAGE> 135
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO,
STATE OF ILLINOIS, ON THE 13TH DAY OF MARCH, 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 March 13, 2000
- ----------------------------------------------------- Officer and Director
Patrick C. Shutt (Principal Executive Officer)
* Chief Operating Officer, Chief March 13, 2000
- ----------------------------------------------------- Technical Officer, Secretary
Robert J. Pommer, Jr. and Director
/s/ DONNA M. SHORE Executive Vice President, March 13, 2000
- ----------------------------------------------------- Chief Financial Officer and
Donna M. Shore Treasurer
(Principal Financial and
Accounting Officer)
* Director March 13, 2000
- -----------------------------------------------------
Thomas Kapsalis
* Director March 13, 2000
- -----------------------------------------------------
Roland A. Van der Meer
* Director March 13, 2000
- -----------------------------------------------------
Robert A. Pollan
* Director March 13, 2000
- -----------------------------------------------------
Joseph L. Schocken
* Director March 13, 2000
- -----------------------------------------------------
Paolo Guidi
* Director March 13, 2000
- -----------------------------------------------------
John F. Slevin
*By: /s/ DONNA M. SHORE Attorney-in-Fact March 13, 2000
-----------------------------------------------
Donna M. Shore
</TABLE>
II-9
<PAGE> 136
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> 137
<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.
10.26.1** Amendment to Employment Agreement with Mark A. Dickey dated
February 1, 2000.
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> 138
<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.
10.40** Employment Agreement with Robert E. Rainone, Jr. dated
February 28, 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>
- ---------------
** Previously filed.
+ Confidential treatment requested.
<PAGE> 1
EXHIBIT 10.19
CARRIER SERVICES AGREEMENT
(MULTIMEDIA)
AGREEMENT NO.98R0613.00
This Carrier Services Agreement (this "Agreement") is made this 29th day of
June, 1998, by and between Williams Communications, Inc. d/b/a Williams Network
Services, a Delaware corporation ("Seller"), with its principal place of
business at One Williams Center, 26th Floor, Tulsa, Oklahoma 74172 and Universal
Access, Inc., an Illinois corporation ("Customer"), with its principal place of
business at 1021 Adams Street, Suite 101, Chicago, Illinois 60607, for the
provision of multimedia telecommunications services, set forth in this
Agreement.
1.0. SCHEDULES.
The Schedules attached to this Agreement and made a part hereof are:
Schedule A - Williams Network Services Asynchronous Transfer Mode Service
Schedule including Pricing and Specifications
Schedule B - Williams Network Services Private Line Service Schedule including
Pricing and Specifications
Schedule C - List of Seller's On-Net Cities
2.0. DESCRIPTION OF SERVICES AND PRICING.
Customer may order from Seller multimedia transmission services ("Services"),
the terms and conditions of which and the charges for which are set forth in
Seller's currently prevailing Multimedia Transmission Service Schedule relating
to such Services (the "Service Schedule"). Current Service Schedules are
attached to this Agreement, labeled as consecutive Schedules and incorporated
herein by this reference. Seller offers such Services, as defined in the
applicable Service Schedule, upon the terms and conditions set forth in the
Service Schedule, this Agreement, and any applicable tariff (the "Tariff") filed
by Seller with the Federal Communications Commission. The terms and conditions
of this Agreement (including the Schedules) are subject to change in accordance
with and to the extent of any changes made in such Tariff, if applicable, or as
such changes are generally applicable to Seller's other customers ordering
similar services, provided, however in no event shall the cost of On-Net IXC
Services be increased from current levels for the remainder of the term of this
Agreement. All Services and "Ancillary Services," as defined in Section 5.3, are
subject to availability.
3.0 EFFECTIVE DATE AND TERM
3.1 This Agreement shall become effective on the date on which Seller signs
the Agreement ("Effective Date").
3.2 The duration of this Agreement shall continue for a term of [***]
years (the "Initial Term") from the date by which Customer must meet its Revenue
Commitment (as defined below). This Agreement shall thereafter automatically
renew for successive five-year periods (each, a "Renewal Term") unless canceled
by either party by giving written notice of such cancellation not less than
sixty (60) days before the end of the Initial Term or any Renewal Term. Unless
Customer is in Default, any Service being provided at the time of termination
shall continue until the natural end of such Service as specified in the
applicable Service Schedule upon the terms and conditions of this Agreement;
provided that Customer may not order any new Service without first renewing this
*** 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 1 of 24
<PAGE> 2
Agreement. The charges for Services and Ancillary Services during any such
extension shall be the then current Seller charges provided, however in no event
shall the cost of On-Net IXC Services be increased from current levels for the
remainder of the term of this Agreement. To the extent Seller (a) files a Tariff
incorporating a reduction in the price applicable to any Service or Ancillary
Service being provided to Customer under this Agreement or any Service Schedule,
or (b) reduces its standard list price for any Service or Ancillary Service for
such Service being provided to Customer under this Agreement or any Service
Schedule, then Seller shall reduce the prices charged to Customer
proportionately with respect to any such Service or Ancillary Service as of the
date of filing of such Tariff or reduction of such standard list price, as the
case may be (i.e. a retail price reduction of 10% would constitute a 10% price
reduction on existing rates for Customer on the services effected.)
3.3 Commencing [***] months after the calendar month including the Effective
Date, Customer shall be obligated to have signed orders for on-network Services
in the amount of [***] dollars [***] in total aggregate monthly billings (the
"Revenue Commitment"). For the first [***] months, Customer will receive the
discounted rate associated with the [***] revenue level. If, after the [***]
month, Customer reaches [***]in monthly revenues, it will receive the discounted
rate associated with the [***] revenue level. If Customer reaches [***] in
monthly revenues by month [***], it will receive the discounted rate associated
with the [***]revenue level. If Customer reaches [***] in monthly revenues by
month [***] or at the month thereafter, Customer will receive the discounted
rate associated with the [***] and over revenue level. If any of the above
revenue levels are achieved, Customer will be billed at the discounted rate
associated with the revenue level they have achieved. All charges for Services
in this Agreement shall be determined in accordance with the pricing set forth
in the Service Schedules attached hereto or on Customer's Service Orders, as
applicable, inclusive of any discounts applicable to Customer, but exclusive of
any credits to which Customer may be entitled, late payment penalties, taxes and
other government-imposed surcharges. Customer's purchases of Services shall also
not include payments made by Customer to Seller to reimburse Seller for third
party costs paid to unaffiliated entities, including, but not limited to, local
access charges, taxes, installation charges, off-network charges, one-time fees
and other similar costs. To the extent that, in any month during the Initial
Term hereof, Customer fails to have signed orders or a total aggregate billing
of applicable Services from Seller greater than or equal to the Revenue
Commitment amount, Williams shall invoice Customer on Customer's next invoice,
an amount equal to the difference between the Revenue Commitment amount and the
amount of Services actually purchased or committed to by order by Customer. For
purposes of this entire agreement, "on-network" means interexchange service
provided by Seller on facilities owned by Seller and bounded by Seller points of
presence or services that are ordered and scheduled to be Seller owned
facilities within a one year period from the date of order. (i.e. Customer will
receive On-Net pricing at the time of the order provided that the Seller has
indicated that the route will be On-Net within 12 months of the order.) At the
time that the Off-Net circuit is available for On-net use, Customer agrees to
convert circuit to On-net facilities at the first mutually acceptable date and
time.
4.0 SERVICE ORDERS.
Services requested by Customer hereunder shall be requested on Seller's Service
Order forms in effect from time to time or on Customer's forms accepted in
writing by Seller ("Service Orders"). Each Service Order shall reference this
Agreement and its respective Agreement number. Seller reserves the right not to
accept a Service Order under this Agreement at any time.
When a Service Order is placed, the Customer will indicate a requested start
date (A Requested Start Date). Seller will make reasonable efforts to meet the
Requested Start Date. In the event that a Requested Start Date is altered, the
actual Start Date will be changed to reflect the number of days of delay or
advance, as appropriate.
This Agreement shall apply to all Services and Ancillary Services provided by
Seller to the Customer whether
*** 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 2 of 24
<PAGE> 3
pursuant to a Service Order or otherwise.
Any conflicting, different or additional terms and conditions contained in
Customer's acknowledgment or Service Order or elsewhere are objected to by
Seller and shall not constitute part of this Agreement. No action by Seller
(including, without limitation, provision of Services or Ancillary Services to
Customer pursuant to such Service Order) shall be construed as binding or
estopping Seller with respect to such term or condition, unless the Service
Order containing said specific term or condition has been signed by an
authorized headquarters representative of Seller.
Seller shall make reasonable efforts to provide Services within its standard
service implementation interval or on Customer's requested Start Date. Services
shall begin on the date Seller issues notice that service is available (the
"Start of Service Notice or (SOSN), indicating the service has been tested by
Seller in accordance with Seller's standard specifications and that the service
meets or exceeds those specifications.
Customer may request a delay in the Start Date of an order, a move, or
rearrangement when Seller receives delay request a minimum of fifteen (15) days
prior to the due date and the requested delay does not extend beyond (30)
cumulative days from the Service Orders initial Start Date. When Customer has
delayed a Service Order for the maximum thirty (30) cumulative calendar days,
the order may not be delayed again by Customer. Once the maximum thirty (30)
day delay has been achieved, Customer has the option to (a) accept the billing
for the Service Order, or (b) cancel the Service Order and pay the applicable
cancellation charges for the facilities ordered. The billing or cancellation is
effective on the 30th cumulative calendar of the delay. If Customer elects to
accept billing, the installation will be completed as soon as reasonably
practical after Customer advises Seller that the installation can be completed.
5.0. LOCAL ACCESS AND ANCILLARY SERVICES.
5.1. Seller shall, on behalf and upon request of Customer, obtain
telecommunications facilities connecting Customer, with an approved vendor of
Seller, to a Seller Point of Presence (POP). Customer will execute a Letter of
Agency, on such form as provided by Seller, authorizing Seller to interact
directly with the provider(s) of these access telecommunications facilities.
When Seller acts as Customers 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 telecommunications facilities to Seller POPs.
5.2. In doing so, Seller shall be responsible for provisioning and the
initial testing of an interconnection (reasonably coordinated with Start of
Service) between such interexchange service set forth in the Service Order and
a Customer designated termination point ("Local Access"). Charges to Customer
for Local Access Service administered on behalf of Customer by Seller shall not
exceed charges Customer would otherwise pay the same Local Access Provider for
the relevant interconnection and/or service. Should Customer be able to provide
Seller with a quote for the same Local Access service from the Same Local
Access Provider, Seller agrees to match quote for such service.
5.3. Seller may also provide other extraordinary service to Customer for
reasons including but not limited to: (a) Customer's request to expedite
Service availability to a date earlier than Seller's published installation
interval or a previously accepted Start Date; (b) Service redesign or other
activity occasioned by receipt of inaccurate information from Customer; (c)
reinstallation charges following any suspension of the Service for cause by
Seller; (d) Customer's request for use of routes or facilities other than those
selected by Seller for provision of the Service; and (e) other circumstances in
which extraordinary costs and expenses are generated by Customer and reasonably
incurred by Seller (services under this subsection 5.3 are collectively
referred to herein as ("Ancillary Services").
5.4. Recurring and non-recurring charges to Customer for Local and
Ancillary Services shall be established as of Seller's acceptance of the
Service Order relevant thereto. RECURRING CHARGES FOR LOCAL ACCESS BILLING
ADMINISTERED BY SELLER AND CHARGED TO CUSTOMER SHALL BE SUBJECT TO ADJUSTMENT
AT SUCH TIMES AS SELLER SHALL DETERMINE, NOT TO EXCEED THE PREVAILING CHARGES
OF SUCH LOCAL ACCESS PROVIDERS AS WOULD OTHERWISE BE PAID DIRECTLY BY CUSTOMER
FOR THE RELEVANT INTERCONNECTION OR SERVICE.
Page 3 of 24
<PAGE> 4
6.0. CHANGES IN SERVICE PARAMETERS.
6.1. Cancellation of Services. Customer may cancel any Service or Ancillary
Service provided hereunder by providing written notification to Seller thereof
ninety 90) days in advance of the effective date of cancellation. In the event
of such cancellation, Customer shall not be required to pay to Seller a
cancellation charge as long as the circuit has been in service for at least
twelve (12) months, Customer's Revenue Commitment is still being met the
cancellation, and as long as Customer pays to Seller all termination liability
and one-time charges for local access or off-net, third party provided
facilities that are impacted by the cancellation. Customer shall also not be
required to pay to Seller a cancellation charge (except as set forth in Section
6.2 below) if Customer exercises the portability option defined in Section 6.2.
In the event the cancellation of the Service or Ancillary Service causes
Customer's monthly purchase of Services to fall below the Revenue Commitment
amount, Customer agrees to pay, the monthly difference between the Committed
Revenue amount and the amount actually billed until such time as Customer's
orders or billings exceed this Committed Revenue amount, and (ii) any
non-recurring payments not yet paid together with any termination liability
associated with Local Access. Customer agrees that the actual damages in the
event of such cancellation would be difficult or impossible to ascertain, and
that the cancellation charge in this Section 6.1 is intended, therefore, to
establish liquidated damages and is not intended as a penalty. Notwithstanding
the foregoing, and upon thirty (30) day's prior written notice to the other
party, either Customer or Seller shall have the right, without cancellation
charge or other liability to the other party, to cancel the affected portion of
any Service or Ancillary Service, if Seller is prohibited by governmental
authority from furnishing or Customer is prohibited from using such portion, or
if any material rate or term contained herein and relevant to the affected
portion of any Service or Ancillary Service is substantially changed by order of
the highest court of competent jurisdiction to adjudicate the matter, the
Federal Communications Commission, or other local, state or federal government
authority.
6.2 Portability. After any Service or Ancillary Service has been in effect
for a period of at least twelve (12) months, Customer shall have the option to
disconnect a circuit and turn up a new circuit as a replacement without
incurring a termination liability charge. The replacement circuit must be for
the same or greater term and the same or greater revenue as the circuit being
replaced. Should Customer exercise this portability option, Customer will be
liable for (i) all termination liability charges for local access or off-net,
third party provided facilities that are impacted by the move of the circuit;
and (ii) for all disconnect and one-time charges due to Seller under Seller's
standard disconnect and new installation rates and charges; and (iii) any
one-time local access charges and the new monthly recurring local access
charges. All circuits shall have portability within all areas served by Seller
on its network, subject to available capacity.
6.3 Service Migration. If Customer wishes to upgrade to a higher bandwidth
of service, Customer has forty-five (45) days from the turnup of the higher
bandwidth circuit in which to groom existing circuits onto the higher bandwidth
of service. During this forty-five (45) day period, the Customer will not be
billed for the higher bandwidth. After the forty-five (45) day period from
circuit turnup, billing for the higher bandwidth circuit commences, whether or
not if the existing circuits have been disconnected and groomed onto the larger
bandwidth.
7.0. PAYMENT TERMS.
7.1. Due Date and Invoice. All amounts stated on each monthly invoice are
due and payable thirty (30) days from the date of the invoice ("Due Date")
subject to postponement of disputed charges until resolution thereof as set
forth
Page 4 of 24
<PAGE> 5
below. Customer agrees to remit payment to Seller at the remittance address. In
the event Customer fails to make full payment to the proper address by the Due
Date, Customer shall also pay a late fee in the amount of the lesser of one and
one-half percent (1 1/2) of the unpaid balance per month or the maximum lawful
rate under applicable state law which shall accrue from the Due Date. Customer
acknowledges and understands that all charges are computed exclusive of any
applicable federal, state or local use, excise, valued added, gross receipts,
sales and privilege taxes, duties, fees or similar liabilities (other than
general income or property taxes imposed on Seller), whether charged to or
against Seller, its suppliers or affiliates or Customer associated with the
Service or Ancillary Service provided to Customer ("Additional Charges"). Such
Additional Charges shall be paid by Customer in addition to all other charges
provided for herein.
Payment for all prorated monthly recurring charges (charges for monthly Service
or Ancillary Service provided for less than a calendar month), installation and
other non-recurring charges shall be billed following the receipt of any such
Services or Ancillary Service. Payment for all monthly recurring charges for
full months during which Service or Ancillary Service are to be provided shall
be due in advance.
If Customer in good faith disputes any portion of an invoice it must pay the
undisputed amount of the invoice on or before its Due Date and provide written
notice to Seller of the billing dispute within sixty (60) days thereafter. Such
notice must include documentation substantiating the dispute. Customer's failure
to notify Seller, of a dispute shall be deemed to be Customer's acceptance of
such charges. The parties will make a good faith effort to resolve billing
disputes as expeditiously as possible. If a dispute is resolved in favor of
Customer, Customer shall receive a credit on their next bill for the amount
determined to be due, if not, the additional sum due shall be payable no later
than 30 days following a dermination that it is due.
7.2. Suspension of Service. In the event payment in full is not received
from Customer on or before sixty (60) days following the Due Date, Seller shall
have the right, after giving Customer ten (10) days notice, to suspend all or
any portion of the Services or Ancillary Service to Customer. If only a portion
of the Services or Ancillary Service are suspended and Customer does not cure
within ten days of delivery of notice of such partial suspension of Service,
Seller may suspend all or any additional portion of the Services or Ancillary
Service to Customer. Seller may continue suspension until such time as Customer
has paid in full all charges then due, including any late fees as specified
herein. Following such payment, Seller shall be required to reinstitute Service
or Ancillary Service to Customer only on the provision by Customer of
satisfactory assurance, in Seller's sole discretion which shall not be
unreasonably exercised of Customer's ability to pay for Service or Ancillary
Service. If Customer fails to provide such satisfactory assurance by a date
determined by and acceptable to Seller, Customer shall be deemed to have
canceled the Services or Ancillary Service provided under this Agreement
effective on the date of such suspension and shall remain liable for all
cancellation charges as set forth in Section 6.1. Further, if at any time there
is a material adverse change in Customer's creditworthiness or a material change
in Customer's financial position, then in addition to any other remedies
available to Seller, Seller may elect, in its sole discretion, to exercise one
or more of the following remedies: (i) cause the start of the Service or
Ancillary Service described in a previously executed Service Order to be
withheld; (ii) cease providing Service pursuant to a notice of suspension; (iii)
decline to accept a Service Order or other requests from Customer to provide
Service or Ancillary Service which Seller may otherwise be obligated to accept;
and/or (iv) condition its provision of Service or Ancillary Service or
acceptance of a Service Order on Customer's assurance of payment which shall be
a deposit or such other means to establish reasonable assurance of payment. An
adverse material change in Customer's creditworthiness shall include, but not be
limited to: (a) Customer's default of its financial obligations to Seller under
this or any other agreement with Seller; which default remains uncured. (b)
failure of Customer to make full payment of charges due hereunder on or before
the Due Date on three (3) or more occasions during any period of twelve (12) or
fewer months or Customer's failure to make such payment on or before the Due
Date in any two (2) consecutive months; (c) acquisition of Customer (whether in
whole or by majority or controlling interest) by an entity which is insolvent,
which is subject to bankruptcy or insolvency proceedings, which owes past due
amounts to Seller or any entity affiliated with Seller or which is a materially
greater credit risk than Customer; or, (d)
Page 5 of 24
<PAGE> 6
Customer having filed for bankruptcy or insolvency proceedings or an involuntary
petition for Bankruptcy has been filed against Customer which has not been
deismissed within 60 days of the initial filing date. An adverse material change
in Customer's financial position shall include, but not be limited to: (a) a
decrease in net worth or working capital of five percent (5%) or greater; or,
(b) negative net worth or working capital. If Customer's financial statements
are not public information, Customer shall be required to provide financial
statements upon the request of Seller and Seller agrees hereby to hold such
financial statements in strict confidence subject only to the right to use such
financial statements for the purposes of this Agreement.
7.3. Taxes. If any sales taxes, valued added taxes or similar charges or
impositions are asserted against Seller after, or as a result of, Customer's use
of Services or Ancillary Service by any local, state, national, international,
public or quasi-public governmental entity or foreign government or its
political subdivision, including without limitation, any tax or charge levied to
support the Universal Service Fund contemplated by the Telecommunications Act of
1996, Customer shall be solely responsible for such taxes, charges or
impositions. Customer agrees to pay any such taxes, charges or impositions and
hold Seller harmless from any liability or expense associated with such taxes,
charges or impositions.
7.4 Adjustments. Seller may make billing adjustments for a period of two
(2) years after the Due Date of an invoice, or two (2) years after the date a
service is rendered, whichever is later.
8.0. GENERAL AGREEMENT.
8.1. Warranty and Disclaimer of Warranty. Seller warrants that Services or
Ancillary Service shall be provided to Customer in accordance with the technical
parameters set forth in the applicable Service Schedule. Seller shall use
commercially reasonable efforts under the circumstances to remedy any delays,
interruptions, omissions, mistakes, accidents or errors in the Services or
Ancillary Service and restore such Services or Ancillary Service to comply with
the terms hereof. THE FOREGOING WARRANTY AND THE OUTAGE CREDITS REMEDY PROVIDED
TO CUSTOMER AS SET FORTH IN THE APPLICABLE SERVICE SCHEDULE FOR THE FAILURE TO
COMPLY WITH THIS WARRANTY ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES OR
REMEDIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION,
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
8.2. Limitation of Liability. IN THE EVENT OF ANY BREACH OF THIS AGREEMENT
OR ANY FAILURE OF THE SERVICES OR THE ANCILLARY SERVICES, WHATSOEVER, NO
PROVIDER (AS DEFINED IN SECTION 8.3) SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
CONSEQUENTIAL, SPECIAL, ACTUAL, INCIDENTAL, PUNITIVE OR ANY OTHER DAMAGES, OR
FOR ANY LOST PROFITS OF ANY KIND OR NATURE WHATSOEVER.
NEITHER CUSTOMER NOR ANY PROVIDER SHALL BE LIABLE TO THE OTHER FOR ANY
CONSEQUENTIAL, SPECIAL, INCIDENTAL, PUNITIVE OR ANY OTHER SIMILAR DAMAGES, OR
FOR ANY LOST PROFITS OF ANY KIND OR NATURE WHATSOEVER WITH RESPECT TO THIS
AGREEMENT OR FOR THE LOSS OR FAILURE OF THE SERVICES OR THE ANCILLARY SERVICES.
8.3. Customer Content and Indemnity. Customer shall make all arrangements
with copyright holders, music licensing organizations, performers'
representatives or other parties for necessary authorizations, clearances or
consents with respect to transmission contents ("Consents"). Customer shall
indemnify and hold harmless Seller and any third party or affiliated provider,
operator or maintenance/repair contractor of facilities employed in connection
with the provision of Services or Ancillary Service (all of which shall be
referred to as "Providers")
Page 6 of 24
<PAGE> 7
against and from any court, administrative or agency action, suit or similar
proceeding, whether civil or criminal, private or public, brought against
Providers arising out of or related to the contents transmitted hereunder (over
Seller's network or otherwise) including, but not limited to, claims, actual or
alleged, relating to any violation of copyright law, export control laws,
failure to procure Consents, failure to meet governmental or other technical
broadcast standards, or that such transmission contents are libelous,
slanderous, an invasion of privacy, pornographic, or otherwise unauthorized or
illegal. Seller may terminate or restrict any transmissions over the network if,
in its judgment, (a) such actions are reasonably appropriate to avoid violation
of applicable law; or (b) there is a reasonable risk that criminal, civil or
administrative proceedings or investigations based upon the transmission
contents shall be instituted against Providers. Customer agrees not to use
Services or Ancillary Service for any unlawful purpose, including without
limitation any use which constitutes or may constitute a violation of any local,
state or federal obscenity law.
8.4. a) Customer and Seller shall, indemnify and hold harmless the other
against and from any and all claims for physical property damage, physical
personal injury or wrongful death to the extent that such arises out of the
negligence or willful misconduct of the respective indemnifying party, its
employees, agents, or contractors in connection with the provision of Services,
Ancillary Services or other performance.
b) With respect to third parties that use Services or Ancillary Service
through Customer, Customer shall, indemnify and hold harmless Providers against
any claims by such third parties for damages arising or resulting from any
defect in or failure to provide Services or Ancillary Service.
c) Customer shall, indemnify and hold harmless Providers for any breach
of Customer's obligations under Section 8.3.
d) The indemnifying party agrees to defend the other against the claims
as set forth above and to pay all reasonable litigation costs, attorneys' fees,
court costs, settlement payments, and any damages awarded or resulting from any
such claims. The indemnified party shall promptly notify the indemnifying party
in writing of any such claims and tender the defense thereto.
8.5. Force Majeure. If either party's performance of this Agreement or any
obligation (other than the obligation to make payments) hereunder is prevented,
restricted or interfered with by causes beyond its reasonable control including,
but not limited to, acts of God, fire, explosion, vandalism, cable cut, power
outage, storm or other similar occurrence including rain fade or other
atmospheric conditions, any law, order, regulation, direction, action or request
of the United States Government or state or local governments, or of any
department, agency, commission, court, bureau, corporation or other
instrumentality of any one or more said governments, or of any civil or military
authority, or by national emergencies, insurrections, riots, wars, acts of
terrorism, strikes, lockouts or work stoppages or other labor difficulties,
supplier failures, shortages, breaches or delays, then the affected party shall
be excused from such performance on a day-to-day basis to the extent of such
prevention, restriction or interference. The affected party shall use
commercially reasonable efforts under the circumstances to avoid and remove such
causes of non-performance and shall proceed to perform with reasonable dispatch
whenever such causes cease.
8.6. Events of Default. If the quality of transmission provided under such
Service or Ancillary Service falls below the level of quality set forth in the
technical parameters applicable to such Service or Ancillary Service set forth
in the applicable Schedule, then Customer may terminate that Service or
Ancillary Service, provided that written notice is given to Seller setting forth
the specifics of a default and provided that Seller is unable to cure such
quality default within five (5) days after notice of the default is received by
Seller.
Either party may terminate this Agreement if the other is in default of any
material obligation contained herein, which default has not been cured within
fifteen (15) days following the receipt of notice of such default setting
Page 7 of 24
<PAGE> 8
forth the specifics of such default. Customer may terminate this Agreement if
Seller is unable to provide operational circuits for at least 90% of the
circuits Customer has contracted for for at least 48 hours and such outage
continues as of the date of serving notice of termination by Customer then
Customer may immediately terminate this Agreement without penalty. Termination
and receipt of any applicable refund are Customer's remedies in the event of any
such Seller's default.
8.7. Use of Services. Seller's obligation to provide Services or Ancillary
Service to Customer is subject to the following conditions: (a) Services or
Ancillary Service shall not be used for any unlawful purpose, (b) Services may
be used only for multimedia transmissions (i.e., video and radio transmission
services and/or related applications including, but not limited to, graphic,
visual, imaging, interactive and multimedia), and (c) at least ten percent (10%)
of the transmissions shall be interstate transmissions. Customer represents that
this Agreement, to the extent it is subject to FCC regulation, is an
inter-carrier agreement not subject to the filing requirements of Section 211(a)
of the Communications Act of 1934, as amended.
8.8. Proprietary Information. Customer understands and agrees that the terms
and conditions of this Agreement and all documents referenced herein (including
invoices to Customer for Services or Ancillary Service provided hereunder) are
confidential as between Customer, Seller and its affiliates and shall not be
disclosed by Customer to any party other than the directors, officers, and
employees of Customer or agent's of Customer who have specifically agreed to
nondisclosure of the terms and conditions hereof. Violation by Customer or its
agents of the foregoing provision shall entitle Seller, at its option, to
discontinue Services or Ancillary Service to Customer without further obligation
or liability to Customer. Customer further agrees that any Customer generated
press release, advertisement or publication regarding this Agreement, Services
or Ancillary Service provided hereunder or in which Seller, or its affiliates
are to be mentioned, will be submitted to Seller for its written approval prior
to publication. Customer understands and agrees that Seller may disclose such
information as may be required under applicable law including, without
limitation, filing of tariffs.
8.9. Intrastate Interexchange Services. Customer may use any interexchange
Service provided under this Agreement only if such interexchange Service is used
for carrying interstate telecommunications (i.e., telecommunications subject to
the jurisdiction of the Federal Communications Commission). Seller and its
affiliates shall not be obligated to make available interexchange Service on a
circuit with end points within a single state or service on a circuit which
originates/terminates at points both of which are situated within a single state
unless Customer represents in writing that such interexchange Service or
circuits shall be used to carry interstate telecommunications. If it is
determined at any time that such interexchange Service or circuit is subject to
state regulation, the interexchange Service or circuit may be provided by Seller
or its affiliates pursuant to applicable state laws, regulations and applicable
tariffs, or Seller and its affiliates may discontinue provision of the affected
interexchange Service or circuit.
8.10. Customer Responsibilities. Customer has sole responsibility for
installation, testing and operation facilities, services and equipment
("Customer Facilities") other than those specifically provided by Seller as part
the Service or Ancillary Service as described in a Service Order. In no event
will the untimely installation or ?? operation of Customer Facilities relieve
Customer of its obligation to pay charges for the Service or Ancillary Service
after the start of Services as set forth in the Service Order.
9.0. MISCELLANEOUS PROVISIONS.
9.1. Title to Equipment. This Agreement shall not, and shall not be deemed
to, convey from Seller to Customer title of any kind to any of the transmission
facilities, digital encoder/decoders, telephone lines, microwave facilities or
other facilities utilized in connection with the Services or Ancillary Service.
Any equipment provided by Customer must be itemized on a schedule listing all
such Customer-provided equipment and appended to the Service Order to which use
of that equipment relates ("Customer Equipment Inventory"). Seller shall not be
Page 8 of 24
<PAGE> 9
obligated to provide any Services or Ancillary Service for Customer if Customer
will be providing any of its own equipment unless and until such equipment is
itemized on the applicable Customer Equipment Inventory.
9.2. Notice. All notices to be sent to a party pursuant to this Agreement
shall be in writing and deemed to be effective upon (i) personal delivery, (ii)
three days after mailing certified mail return receipt requested, (iii) on the
day when the notice has been telexed or telecopied if during business hours and
followed by express mail priority next-day delivery, or (iv) in the case of
invoices, upon the Due Date. In each case, the notice shall be sent to the
person identified in this Section at the Full Business Addresses of the parties
as they appear herein. The effective date for any notice under this Agreement
shall be the date of delivery of such notice, not the date of mailing.
The Full Business Address for purposes of notice under this Section as well as
telephone voice and facsimile numbers for reservation of services and
troubleshooting shall be:
One Williams Center, 26th Floor
Tulsa, Oklahoma 74172
Telephone: (918) 588-5760
Fax: (918) 561-6578
Attention: Contract Administration
CUSTOMER: Universal Access, Inc.
1021 Adams Street, Suite 101
Chicago, Illinois 60607
Telephone: (312)491-1700
Fax: (312) 421-9006
Attn: Robert J. Pommer
9.3. Merger/Integration. This Agreement (including the attached Schedules,
as they may be modified from time to time) consists of all the terms and
conditions contained herein and in documents incorporated herein specifically by
reference. This Agreement constitutes the complete and exclusive statement of
the understanding between the parties and supersedes all proposals and prior
agreements (oral or written) between the parties relating to Services or
Ancillary Service provided hereunder.
9.4. Written Amendment. Customer agrees that any addition, deletion or
modification to this Agreement shall not be binding on Seller except by written
agreement executed by Seller and Customer.
9.5. No Venture. The provision of Services or Ancillary Service shall not
create a partnership or joint venture between the parties.
9.6. Conflict of Law. In addition to the nonpayment of any sum due
hereunder, Seller may immediately suspend Services or Ancillary Service in whole
or part if Seller determines that such Services or Ancillary Service violate the
Communications Act of 1934, as amended (including the Telecommunications Act of
1996), or that the imposition of any state or federal statute, or promulgation
of any rule, regulation, or order of the Federal Communications Commission
("FCC") or other governing body makes Seller's performance commercially
impracticable.
9.7. Assignment. Customer shall not assign or otherwise transfer (including
without limitation, a transfer due to a "Change of Control") its rights or
obligations under this Agreement without the prior written consent of Seller,
which shall not be unreasonably withheld. Any such assignment or transfer of
Customer's rights or obligations without such consent shall entitle Seller to
terminate the Services or Ancillary Service provided hereunder at its
Page 9 of 24
<PAGE> 10
option upon ten (10) days' prior written notice to Customer. A "Change in
Control" shall be deemed to be an assignment, merger, sale of a controlling
interest or other transfer of a controlling ownership interest provided that if
Customer engages in an initial (or any subsequent) public offering of its equity
securities, none of such offering shall be deemed to constitute a "Change in
Control" for the purposes of this Agreement. In the case of a merger, sale or
change or transfer of controlling interest, Should Seller withhold assignment of
contract, Customer has the right to terminate this agreement. In the event that
Universal Access becomes insolvent, Seller agrees to consider a direct
relationship with Universal Access's end customers prior to disconnection
subject to normal credit and approval processes.
9.8. Choice of Law. This Agreement shall be governed by the laws of the
State of Oklahoma without regard to choice of law principles. Customer hereby
consents to the jurisdiction of the federal and state courts having a situs in
Tulsa County, Oklahoma over any proceeding initiated with respect to the
enforcement or interpretation of this Agreement.
9.9. Interpretation. No rule of construction requiring interpretation
against the draftsman hereof shall apply in the interpretation of this
Agreement.
9.10. No Third Party Beneficiary. The provisions of this Agreement are for
the benefit only of the parties hereto, and no third party may seek to enforce
or benefit from these provisions.
9.11. Attorneys' Fees. If a proceeding is brought for the enforcement of this
Agreement or because of any alleged or actual dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the prevailing party shall be entitled to recover reasonable attorneys' fees and
other costs and expenses incurred in such action or proceeding in addition to
any other relief to which such party may be entitled.
9.12. Severability. In the event any provision of this Agreement conflicts
with any statute, rule or order of any governmental unit or regulatory body, or
tariff then, if required by law, such statute, rule, order or tariff shall
control.
9.13. No Waiver. The failure of either party to enforce any provision hereof
in whole or in part, shall not constitute the permanent waiver of such
provision.
UNIVERSAL ACCESS, INC. WILLIAMS COMMUNICATIONS, INC.
AN ILLINOIS CORPORATION. A DELAWARE CORPORATION
By: /s/ ROBERT J. POMMER By: /s/ GORDON C. MARTIN
Name: Robert J. Pommer Name: Gordon C. Martin
--------------------------- ---------------------------
Title: Chief Operating Officer Title: Vice President,
-------------------------- --------------------------
Sales, Marketing
---------------------------
Date: 7/14/98 Date: 7/21/98
--------------- ---------------
Page 10 of 24
<PAGE> 11
Schedule A
Williams Network Asynchronous Transfer Mode ServiceTM
SERVICES & PRICING
This Asynchronous Transfer Mode Service Schedule ("ATMSS") is made as of this
__21st__ day of __May ______, 1998__, and is subject to that Carrier Services
Agreement No. _____________ (the "CSA") by and between Williams Communications,
Inc. d/b/a Williams Network Services, a Delaware corporation ("Williams"), and
Universal Access, Inc., an __ Illinois______________ corporation ("Customer").
1. DESCRIPTION: Williams Network Asynchronous. Transfer Mode (ATM) is
multi-service technology that provides integration of disparate
networks onto a single communications infrastructure. ATM technology
takes voice, data and video packets and divides them into equally
sized, 53-byte cells and transmits them over the Williams Network ATM
network. Williams Network ATM service is designed for two (2) primary
applications. These applications include ATM transport and backbone
connectivity. ATM transport provides multimedia aggregation and video
transmission. Multimedia transmission is suited for transporting voice,
data and video while video transmission is best designed for
point-to-point video services. Backbone connectivity provides for the
interconnection of local area networks (LANs) as well as
interconnection of existing Network Access Points (NAPs) or private
peering backbones.
2. RATES & CHARGES: Williams Network ATM service has three basic rate
elements; Access, Port Connections, and either Committed Bit Rate
(CBR), or Variable Bit Rate (VBR) Permanent Virtual Circuits (PVCs) and
Virtual Paths (VPs).
2.1 Permanent virtual circuit (PVC) and Virtual Path (VP)
bandwidth charges. PVC and VP charges are based on the class
of service (CoS) and bandwidth selected. Bandwidth charges are
stated in Committed Information Rates (CIR) or Megabit per
second (Mbps) increments for one-way, or Simplex PVCs. CIR
increments are available in 1Meg increments up to 40Mbps for
DS3 ports, 5 Meg increments up to 150 Mpbs for OC3 ports and
25 Meg increments up to 600 Mbps for OC12 ports. Two Classes
of Service are offered; Constant Bit Rate (CBR) and Variable
Bit Rate non real time (VBRnrt). Monthly recurring charges for
port, PVCs and VPs are as follows:
2.1.1 ATM SERVICES
PRICING
ATM Transport includes both Recurring and Non-Recurring charges and discounts
based on term and monthly revenue commitment.
RECURRING CHARGES
ATM pricing is based on flat monthly fee assessed per node, which includes a
flat port charge based on the port connection speed, a charge for each PVCs CIR
going out from the port, and local access. ATM Transport Service is priced
simplex, meaning that a PVCs CIR is priced for both the ingress and egress CIR.
Page 11 of 24
<PAGE> 12
CIRS INCREMENTS ARE AVAILABLE IN 1MEG INCREMENTS UP TO 40MBPS FOR DS3 PORTS, 5
MEG INCREMENTS UP TO 150 MPBS FOR OC3 PORTS AND 25 MEG INCREMENTS UP TO 600 MBPS
FOR OC12 PORTS (OC12 IS ICB ONLY).
<TABLE>
<CAPTION>
<?>
<?> <?> <?> <?> <?>
<S> <C> <C> <C> <C>
20-29 [***] VBRnrt [***]
30-40 [***] VBRnrt [***]
OC3 5-20 [***] VBRnrt [***]
25-35 [***] VBRnrt [***]
40-55 [***] VBRnrt [***]
60-75 [***] VBRnrt [***]
80-95 [***] VBRnrt [***]
100-120 [***] VBRnrt [***]
125-150 [***] VBRnrt [***]
DS3 1-9 [***] CBR [***]
10-19 [***] CBR [***]
20-29 [***] CBR [***]
30-40 [***] CBR [***]
OC3 5-20 [***] CBR [***]
25-35 [***] CBR [***]
40-55 [***] CBR [***]
60-75 [***] CBR [***]
80-95 [***] CBR [***]
100-120 [***] CBR [***]
125-150 [***] CBR [***]
</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.
Page 12 of 24
<PAGE> 13
NON RECURRING CHARGES
Non-recurring charges include installation, configuration changes, cancellation,
order change that may be incurred for the Port or PVC.
<TABLE>
<CAPTION>
<?>
<?> <?>
<S> <C>
Installation
45Mb Port [***]
155Mb Port [***]
622Mb Port [***]
per PVC [***]
Ancillary
Configuration Changes [***]
Cancellation [***]
PVC Order Change [***]
Port Order Change [***]
</TABLE>
DISCOUNT STRUCTURE
Contributing Williams Network ATM Service charges include recurring port and PVC
charges. The discount structure is based on the monthly revenue commitment
(contributing charges) and the stated length of the contract established.
Discount Structure
<TABLE>
<CAPTION>
Monthly 1 Year 2 Year 3 Year 4 Year 5 Year
Revenue
<S> <C> <C> <C> <C> <C>
$ 0 0% 0% 0% 0% 0%
[***] 12% 14% 18% 22% 27%
[***] 14% 16% 20% 24% 29%
[***] 16% 18% 22% 26% 31%
[***] 18% 20% 24% 28% 33%
[***] 20% 22% 26% 30% 35%
</TABLE>
PARENT/SUBSIDIARY RELATIONSHIPS. If parent/subsidiary billing is provided, all
subsidiaries will contribute toward the overall commitment. The same discount,
based on the revenue commitment will apply for all subsidiary accounts.
CROSS PRODUCT DISCOUNTING. Revenue commitment levels are transferable to any of
the products in the product suite. For example, a private line revenue
commitment of $50,000 for 1 Year term can be used to determine the discount
applied for ATM services for the same term ($50,000 1 Year commitment would
equate to a.14% discount).
2.1.2 Non-recurring PVC and VP charges: Installation: -[***]
2.1.3 Configuration Changes -[***]
2.1.4 Cancellation Charge -[***]
*** 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 13 of 24
<PAGE> 14
For on-net, IXC Services, installation and non-recurrning charges shall
be waived by Seller at the time of order. Should an individual on-net,
IXC circuit cancel prior to the eighteen month anniversary of its
installation, Seller will back bill Customer the full installation and
non-recurring amount fo?? circuit.
Configuration charges are applied when the parameters of Virtual
Channels (VCs) are changed.
Cancellation Charges apply when a PVC has been ordered and needs to be
canceled.
2.2 Ports. Port charges are based on port speed connections selected.
Options currently are DS3, OC3 and OC12. Port charges are as follows:
2.2.1 Non-recurring charges: DS3 Port Installation -[***]
OC3 Port Installation -[***]
OC12 Port Installation -[***]
Port Order Change Charge: -[***]
Port Cancellation Charge: -[***]
Port Order Change Charges apply when the customer requests to change
the port size ordered. If the Port has been installed and accepted, the
customer will be charged for a new port installation.
Port Cancellation Charges apply when a port has been ordered (does not
apply for ports installed and accepted) and needs to be canceled.
2.3 Local Access Charges. Local Access Charges are based on the cost of
transmission capacity provided by Customer or a third party supplier
to extend the Services provided by Williams from a Williams Point of
Presence to any other location ("Local Access Services"). Williams
shall use reasonable efforts to order Local Access services on behalf
of Customer, provided that Customer provides Williams with a letter of
agency. Where available, and if requested by Customer, Williams will
use reasonable efforts to use Customer's requested Local Access
provider. If Williams places an order for Customer for Local Access
Services, Williams will bill Customer for such services and Customer
shall hold harmless and indemnify Williams from any loss or liability
incurred by Williams as a result of Williams ordering any such Local
Access Services from a third party. Customer may, upon Williams' prior
written approval, order its own local access services. If Customer
orders its own Local Access Services, Customer shall be billed
directly by the supplier of such services and Williams shall not be
responsible for billing any such charges.
3. OFF-NET SERVICES PRICING: All services provided to Customer which are
not on network facilities owned by Williams will be priced on an
individual case basis at the time Customer requests such service.
4. OUTAGE CREDITS:
4.1 Customer acknowledges the possibility of an unscheduled, continuous
and/or interrupted period of time when a Service or Services are
"UNAVAILABLE" (as defined in the Specifications) for a continuous
period of two (2) hours (hereafter an "OUTAGE"). An Outage shall begin
upon recognition by Williams that the Service is interrupted. In the
event of an Outage, Customer shall be entitled to a credit (the "OUTAGE
CREDIT") in the amount of ten percent (10%) of the monthly Port, PVC
and/or usage charges (as stated on the applicable Service Order)
regardless of the length of such Outage.
4.2 Customer shall not receive an Outage Credit if the interruptions are
(a) of a duration of less than tw??
*** 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 14 of 24
<PAGE> 15
consecutive hours, (b) caused by the negligence or willful misconduct
of Customer or others authorized by Customer to use the services under
this Agreement, (c) due to the failure of power, facilities, equipment,
systems or connection not provided by Seller, (d) caused by the failure
of access to Seller's fiber optic network, (e) resultant from scheduled
maintenance where Customer has been notified of scheduled maintenance
in advance, (f) due to a Force Majeure event as defined in Section 8.5
of the CSA.
4.3 All Outage Credits shall be credited on the next monthly invoice for
the affected Service.
4.4 The Outage Credit described in this Section 4 of this ATMSS shall be
the sole and exclusive remedy of Customer in the event of any Outage,
and under no circumstance shall an outage be deemed a Default under
this Agreement.
SIGNATURE PAGE TO FOLLOW
Page 15 of 24
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Asynchronous Transfer
Mode Service Schedule as of the day and year first above written.
UNIVERSAL ACCESS, INC. WILLIAMS COMMUNICATIONS, INC:
/s/ Signature Illegible /s/ Signature Illegible
Signature of Authorized Signature of Authorized
Representative Representative
Robert J. Pommer Gordon C. Martin
- -------------------------------- --------------------------------
Printed Name Printed Name
Chief Operating Officer Vice President, Sales, Marketing
- -------------------------------- --------------------------------
Title Title
Page 16 of 24
<PAGE> 17
Williams Network Asynchronous Transfer Mode Service
Technical Specifications
1.0 Definition. Williams Network technical specifications are stated as an
objective that the ATM network will perform in accordance with
prevailing telecommunications industry standards. Williams Network will
use reasonable efforts to remedy delays, interruptions, omissions or
mistakes within the ATM network.
1.1 Performance Objectives. All service provided under the Williams Network
Asynchronous Transfer Mode Service are measured using two variables:
Network availability and Mean-time-to-repair.
1.2 Network Availability is a measurement of actual service time to stated
service time. Network Availability objective: -99.99%
1.3 MTTR is the average time required to restore service and resume
availability and is stated in terms of equipment and cable outages. The
time is measured from the moment the outage is reported until the
service is available and applies specifically to equipment outages or
failures.
MTTR objective: -2 Hours (Equipment)
-6 Hours (First Fibers on Cable)
1.4 Calculation. Williams Network calculates network availability on
customer action requests. The customer must notify Williams Network
Customer Care Department and initiate an action request to determine if
service level variables 1.2 & 1.3 were met.
Page 17 of 24
<PAGE> 18
Schedule B
Williams Network Private Line Service
SERVICES & PRICING
This Private Line Service Schedule ("PLSS") is made as of this_21st __ day of
___ May ________, 1998, and is subject to that Carrier Services Agreement No.
____________ (the "CSA") by and between Williams Communications, Inc. d/b/a
Williams Network Services, a Delaware corporation ("Williams"), and Universal
Access, Inc., an _ Illinois _ corporation ("Customer").
1. Description: Williams Network Private Line Service (the "Private Line
Service" or "Service") provides domestic DS-3 and optical SONET (OC-N)
circuits which are specifically dedicated to Customer's use between two
(2) points specified by the Parties in a Service Order and meeting the
technical requirements defined in the "Technical Specifications for
Private Line Service" attached hereto.
2. RATES & CHARGES: Williams Network Private Line Service has three basic
rate elements; IXC Charges, Local Access Charges, and Non-recurring
Charges.
2.1 IXC. DS-3 and OC-3 Services will be provided at the following rates for
on-net services only:
<TABLE>
<CAPTION>
TIME FRAME MONTHLY COMMITMENT DS3 OC3 OC12
<S> <C> <C> <C> <C>
YEAR 1 [***] [***] [***] [***]
YEAR 2 OR AS ACHIEVED [***] [***] [***] [***]
YEAR 3 OR AS ACHIEVED [***] [***] [***] [***]
YEAR 4 OR AS ACHIEVED [***] [***] [***] [***]
YEAR 5 OR AS ACHIEVED [***] [***] [***] [***]
</TABLE>
Monthly minimum charges for Private Line Service:
DS3s - [***]
OC3s - [***]
OC12s - [***]
OC48s - [***]
All other IXC rates will be determined on an individual case basis and
will be set forth on the Service Order.
2.2 Local Access Charges. Local Access Charges are based on the cost of
transmission capacity provided by Customer or a third party supplier to
extend the Services provided by Williams from a Williams Point of
Presence to any other location ("Local Access Services"). Williams
shall use reasonable efforts to order Local Access services on behalf
of Customer, provided that Customer provides Williams with a letter of
agency. Where available, and if requested by Customer, Williams will
use reasonable efforts to use Customer's requested Local Access
provider. If Williams places an order for Customer for Local Access
Services, Williams will bill Customer for such services and Customer
shall hold harmless and indemnify Williams from any loss or liability
incurred by Williams as a result of Williams ordering any such Local
Access Services from a third party. Customer may, upon Williams' prior
written approval order its own local access services. If Customer
orders its own Local Access Services, Customer shall be billed directly
by the supplier of such services and Williams shall not be responsible
for billing any such charges.
2.3 Non-recurring charges:
DS-3 OC-3 OC-3C OC-12 OC-12C OC-48
*** 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 of 24
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Installation [***] [***] [***] [***] [***] [***]
Additional
Installation/ [***]/hr. [***]/hr. [***]/hr. [***]/hr. [***]/hr. [***]/hr.
Maintenance/
Engineering
After hours [***]/hr. [***]/hr. [***]/hr. [***]/hr. [***]/hr. [***]/hr.
Local Loop
Billing [***] [***] [***] [***] [***] [***]
Administration
</TABLE>
[***] Additional Installation charges shall apply when Williams is required to
install equipment other than that normally required to provide the service or
when Customer requests special equipment. The above non-recurring charges are
subject to change, upon thirty (30) days prior written notice from Williams to
Customer.
3. TERM OF SERVICES:
3.1 Upon acceptance of a Service Order, Williams shall confirm Customer's
requested Start Date, or inform Customer of the estimated date for the
delivery of each service. Williams shall use reasonable efforts to
install each such service on or before the Start Date, but the
inability of Williams to deliver a facility by such date shall not be a
Default under this Agreement. If Williams fails to make any facility
available within thirty (30) days after the Start Date, Customer's sole
remedy shall be to cancel the Service Order which pertains to such
Service by ten (10) calendar days prior written notice to Williams.
3.2 The effective date of each service (the "Service Effective Date") shall
begin on the date on which Customer accepts delivery of such Service.
If Customer fails to give written notice that the Service is in
material non-compliance with the applicable technical specifications,
as modified from time to time by Williams (the "Specifications") within
fifteen (15) business days after notification to Customer by Williams
that the Service is available, Customer shall be deemed to have
accepted such Service, and the Service Effective Date shall commence as
of the fifteenth (15th) business day following such notification by
Williams. Following notice by Customer of material non-compliance as
set forth above, Williams shall promptly take such reasonable action as
is necessary to correct any such non-compliance in the Service and
shall, upon correction, notify Customer of a new Service Effective
Date.
4. CHANGE OF SERVICES:
4.1 Change of Service Date. If Customer desires to change the date on which
Customer has requested that Service be available, Customer may be
charged a Change of Service Date Charge. Such charge will not apply to
Customer's first change request, as long as such request is made within
fifteen (15) business days prior to the original Requested Service
Date. If Customer makes a second change, or such change is requested
after fifteen (15) days prior to the original Requested Service Date,
Customer will be charged Williams' then applicable Change of Service
Date Charge. Customer will also be charged for any charges incurred by
Williams from third party providers as a result of Customer's request
for Change of Service Date.
4.2 Change of Service Order. If Customer requests a modification to the
information contained in a Service Order (other than a Change of
Service Date) prior to completion of installation of the Service,
Customer will incur a Change of Service Order Charge. No charge will be
incurred if the change is to the IXC part of the Service Order and is
administrative in nature (i.e. billing address, contact information,
etc.). A charge will be incurred if the administrative change relates
to Local Access for which Williams is acting as agent.
Change of Service Order charges will be lower if the Customer requests
such change within five (5) business days after a Service Order has
been accepted by Williams ("pre-engineering") and will be higher if
such change is received after that time ("post-engineering"). Any
expedited order will be considered to be in the post-engineering stage
two (2) business days after the Service Order is accepted by Williams.
*** 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 19 of 24
<PAGE> 20
4.3 Change of Service Charges. If Customer requests a change to Services
after such Services have been installed, Customer will incur a Change
of Service Charge. If such Change of Service is administrative in
nature, Customer will not incur a charge, unless such administrative
change applies to Local Access services which have been ordered by
Williams as agent for Customer. In addition to the Change of Service
Charge, Customer will be responsible for any charges due to
re-engineering which is required as a result of Customer's request for
Change of Service.
5. OFF-NET SERVICES PRICING: All services provided to Customer which are
not on network facilities owned by Williams will be priced on an
individual case basis at the time Customer requests such service.
6. OUTAGE CREDITS:
6.1 Customer acknowledges the possibility of an unscheduled, continuous
and/or interrupted period of time when a Service or Services are
"UNAVAILABLE" (as defined in the Specifications) for a continuous
period of two (2) hours (hereafter an "OUTAGE"). An Outage shall begin
upon recognition by Williams that the Service is interrupted. In the
event of an Outage, Customer shall be entitled to a credit (the "OUTAGE
CREDIT") at the rate of 1/720 of the monthly recurring charge for the
IXC portion of the circuit for each hour in excess of the first two (2)
consecutive hours that the affected service fails to conform to the
Specifications.
6.2 Customer shall not receive an Outage Credit if the interruptions are
(a) of a duration of less than two (2) consecutive hours, (b) caused by
the negligence or willful misconduct of Customer or others authorized
by Customer to use the services under this Agreement, (c) due to the
failure of power, facilities, equipment, systems or connection not
provided by Seller, (d) caused by the failure of access to Seller's
fiber optic network, (e) resultant from scheduled maintenance where
Customer has been notified of scheduled maintenance in advance, (f) due
to a Force Majeure event as defined in Section 8.4 of the CSA.
6.3 All Outage Credits shall be credited on the next monthly invoice for
the affected Service.
6.4 The Outage Credit described in this Section 6 of this PLSS shall be the
sole and exclusive remedy of Customer in the event of any Outage, and
under no circumstance shall an outage be deemed a Default under this
Agreement.
Page 20 of 24
<PAGE> 21
VILLIAM'S
3/18/98
SCHEDULE C
TIER 1 CITY LIST (TO BE UPDATED AS NEEDED)
<TABLE>
<CAPTION>
CITY LOCATION PROJECTED IN-SERVICE DATE
- ----------------------------------------------------------------------
<S> <C>
ALBANY, NY 12/98
ATLANTA, GA 8/98
BATON ROUGE, LA 10/98
BOISE, ID 3/99
BIRMINGHAM, AL 10/98
BUFFALO, NY 12/98
CHARLOTTE, NC 10/98
CHICAGO, IL 6/98
CINCINNATI, OH 4/99
CLEVELAND, OH 9/98
COLORADO SPRINGS, CO 11/98
COLUMBUS, OH 3/99
DALLAS, TX 6/98
DAYTON, OH 2/99
DAYTONA BEACH, FL 12/98
FT. LAUDERDALE, FL 12/98
FORT MEYERS, FL 4/99
GREENSBORO, NC 9/98
HOUSTON, TX 10/98
INDIANAPOLIS, IN 8/98
JACKSON, MS 10/98
JACKSONVILLE, FL 12/98
KANSAS CITY, MO 10/98
LAS VEGAS, NV 8/98
LAS ANGELES, CA 8/98
MACON, GA 1/99
MELBOURNE, FL 12/98
MIAMI, FL 12/98
NEW ORLEANS, LA 10/98
NEW YORK, NY 10/98
OKLAHOMA CITY, OK 11/98
ORLANDO, FL 1/99
PHOENIX, AZ 1/99
PORTLAND, OR 3/99
RALEIGH, NC 9/98
RICHMOND, VA 10/98
ROCHESTER, NY 12/98
SPARTANBURG, SC 8/98
ST. LOUIS, MO 8/98
</TABLE>
Page 21 of 24
<PAGE> 22
<TABLE>
<S> <C>
SYRACUSE, NY 2/99
TAMPA, FL 1/99
TULSA, OK 6/98
TUCSON, AZ 3/99
WASHINGTON, DC 8/98
WEST PALM BEACH, FL 12/98
</TABLE>
NEAR FUTURE TIER 1 CITIES
<TABLE>
<CAPTION>
CITY LOCATION PROJECTED IN-SERVICE DATE
- ---------------------------------------------------------------------
<S> <C>
BALTIMORE, MD 5/99
EL PASO, TX 6/99
NEWARK, NJ 5/99
PHILADELPHIA, PA 5/99
</TABLE>
SIGNATURE PAGES TO FOLLOW
Page 22 of 24
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Private Line Service
Schedule as of the day and year first above written.
UNIVERSAL ACCESS, INC.: WILLIAMS COMMUNICATIONS, INC:
/s/ ROBERT J. POMMER /s/ GORDON C. MARTIN
Signature of Authorized Signature of Authorized
Representative Representative
Robert J. Pommer Gordon C. Martin
Printed Name Printed Name
Chief Operating Officer Vice President, Sales & Marketing
- -------------------------------- --------------------------------
Title Title
Page 23 of 24
<PAGE> 24
TECHNICAL SPECIFICATIONS FOR PRIVATE LINE SERVICE
1.0 Interconnection Specifications
1.1 DS-3. DS-3 service is provided in accordance with ANSI Standard T1.102
(formerly AT&T Compatibility Bulletin 119) and Technical Reference
54014'4. DS-3 Service operates at 44.736 Mbps.
1.2 Optical SONET Services (OC-N). Optical SONET Services are provided in
accordance with ANSI Standard T1.105. OC-3 Service operates at 155.520
Mbps and is configured with 3 separate STS-1 signaling paths. OC-3C
Service operates at 155.520 Mbps and is configured with 1 STS-3C
signaling path (or 3 concatenated STS-1 signaling paths). OC-12 Service
operates at 622.080 Mbps with 12 separate STS-1 signaling paths. OC-12C
Service operates at 622.080 Mbps with 1 STS-12C signaling path (or 4
separate STS-3C signaling paths). OC-48 Service operates at 9953.280
Mbps and is configured with 48 separate STS-1 signaling paths.
2.0 Quality Standards
2.1 General. DS-3 and Optical SONET Service standards apply on a one-way
basis between the Customer Premises Network Interface Points ("CPNIP")
which are connected to Local Access between which DS-3 and Optical
SONET Interexchange Service is provided (CPNIP to CPNIP or End-to-End)
and exclude nonperformance due to force majeure or planned
interruptions for necessary maintenance purposes. The actual end-to-end
availability and performance of DS-3 and Optical SONET Service may be
affected by the Customer provided equipment, dependent upon the type
and quality of Customer equipment used. (Customer provided Local Access
may not meet these specifications.)
2.2 Availability. Availability is a measurement of the percent of total
time that service is operative when measured over a 365 consecutive day
(8760 hour) period. DS-3 and Optical SONET Service is considered
inoperative when there has been a loss of signal or when two
consecutive 15 second loop-back tests confirm the observation of any
severely errored seconds or a bit error rate equal to or worse than 1 x
10-3. The Local Access availability standards for DS-3 and Optical
SONET Services are established by the Local Access Provider. For
Services on the Williams network, availability shall be 99.99% from
point-of-presence ("POP") to POP measured over a one year period. For
Services not on the Williams network, the off-net provider will
establish availability. For multi-media services, availability will be
the same as established by WorldCom, Inc.
2.3 Performance (% Error Free Seconds, while Available). Performance is
noted in Error Free Seconds (EFS) which are a measure of the percentage
of total seconds when measured over a consecutive 24 hour period that
do not contain bit errors. Performance shall be measured on a one-way
basis using a Pseudo Random Bit Sequence test pattern as defined in
CCITT Recommendation 0.151. The Error Free Seconds standards for the
Local Access for DS-3 and Optical SONET Service is established by the
Local Access Provider. For Services on the Williams network, Error Free
Seconds shall be 99.5% from POP to POP measured over a monthly period.
For Services not on the Williams network, the off-net provider will
establish Error Free Seconds. For multi-media services, Error Free
Seconds will be as defined by WorldCom, Inc.
3.0 Maintenance
Repair efforts will be undertaken upon notification of trouble by
internal network surveillance and network surveillance and performance
systems or by notification of trouble and release of all or part of the
DS-3 or Optical SONET Service by the Customer for testing.
* Mean Time to Restore (MTTR) is the average time
required to restore service and resume availability
and is stated in terms of equipment and cable
outages. The time is measured from the moment the
outage is reported until the service is available and
applies specifically to equipment outages or
failures.
* MTTR objective: -2 Hours (Equipment)
-6 Hours (Equipment)
4.0 Calculation. Williams Network calculates network availability on
customer action requests. The customer must notify Williams Network
customer Care Department and initiate an action request to determine if
service level variables 1.2 & 1.3 were met.
Page 24 of 24
<PAGE> 1
EXHIBIT 10.19.2
AMENDMENT NO. 2
THIS AMENDMENT ("Amendment") is made and entered into effective this 1st day of
July, 1999, by and between WILLIAMS COMMUNICATIONS, INC. D/B/A WILLIAMS NETWORK
SERVICES ("Seller") and UNIVERSAL ACCESS, INC. ("Customer").
WHEREAS, Seller and Customer are parties to that certain Carrier Services
Agreement, Contract No. 98R0613.00 which is dated June 29, 1998 as amended by
Amendment No. 1 dated March 12, 1999, (together the "Agreement"); and
WHEREAS, Seller and Customer desire to amend the Agreement; and
NOW, THEREFORE in consideration of the foregoing premises and mutual promises
and covenants of the parties hereto, the receipt and sufficiency of which is
hereby acknowledged, Seller and Customer agree to amend the Agreement as
follows:
1. Section 3.2 of the Agreement shall be amended to read as follows:
"The duration of this Agreement shall continue for a term of [***] years (the
"Initial Term") from the Effective Date. This Agreement shall thereafter
automatically renew for successive one-year periods (each, a "Renewal Term")
unless canceled by either party by giving written notice of such cancellation
not less than sixty (60) days before the end of the Initial Term, or any Renewal
Term. Unless Customer is in default at the end of any applicable cure period,
any Service being provided at the time of cancellation shall continue until the
end of such Service as specified in the applicable Service Order upon the terms
and conditions of this Agreement; provided that Customer may not order any new
Service without first renewing this Agreement. The charges for Services or
Ancillary Services during any such extension shall be the then current Seller
charges."
2. Section 2.1 of the Private Line Service Schedule which is a part of the
Agreement shall be amended to read as follows:
"2.1 IXC. DS-1, DS-3, OC-3 and OC-12 and OC-48 On-Net Private Line
Services shall be provided at the following rates:
DS-1: [***] per DS-0 V & H mile per month
DS-3: [***] per DS-0 V & H mile per month
OC-3: [***] per DS-0 V & H mile per month
OC-12: [***] per DS-0 V & H mile per month
OC-48: [***] per DS-0 V & H mile per month
Notwithstanding the foregoing, the minimum monthly charges for Private
Line Service shall be as follows:
*** 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.
1
<PAGE> 2
<TABLE>
<CAPTION>
Minimum Monthly Charges
<S> <C>
DS-1 [***]
DS-3 [***]
OC-3 [***]
OC-12 [***]
OC-48 [***]
</TABLE>
All other IXC rates will be determined on an individual case basis and
will be set forth on the Service Order."
2. The pricing set fourth in Section 2 of this Amendment shall not apply
to any existing Services being purchased by Customer (except as set forth in
paragraph 3 of this Amendment) and shall only apply to and be reflected on new
Service Orders placed by Customer after July 1, 1999. The above rates for new
Service Orders placed by Customer after July 1, 1999 shall be reflected on
Customer's July 1, 1999 invoice and Customer shall receive such pricing for any
new Service Orders placed during the remainder of the Term of the Agreement.
3. Customer's Services ordered prior to July 1, 1999 (hereinafter
"Existing Services") shall be re-priced based on the pricing set forth in
Section 2 of this Amendment going forward after July 1, 1999, on a revenue
basis until Customer has achieved a total of [***] of new monthly recurring
revenue with Seller. Such re-pricing shall occur as follows: for every new
dollar of revenue that Customer generates with Seller after July 1, 1999,
Seller shall re-price a corresponding amount of Existing Services beginning
with Customer's most recently ordered circuits. (For example, if Customer
generates $10,000 of new business, Seller will re-price $10,000 of Existing
Services.) Customer shall receive such re-pricing of Existing Services the
month following the month in which the new Service Order was placed by Customer.
4. Upon placement of a total of $[***] of new Service Orders by Customer
after July 1, 1999, all of Customer's Existing Services shall be re-priced at
the rates set forth in Section 2.1 of this Amendment No. 2. Customer shall
receive such re-pricing of all Existing Services the month following the month
in which the total of $[***] of new Service Orders are placed by Customer.
5. Except as specifically amended herein, all terms, conditions and
provisions contained in the Agreement shall remain unchanged and in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment on the day and year
first above set forth.
WILLIAMS COMMUNICATIONS, INC. UNIVERSAL ACCESS, INC.
/s/ GORDON MARTIN
- --------------------------------------- /s/ ROBERT J. POMMER
(SIGNATURE) (SIGNATURE)
Gordon Martin
- --------------------------------------- /s/ ROBERT J. POMMER
(PRINT) (PRINT)
Senior Vice President, Network Services
- --------------------------------------- /s/ Chief Operating Officer
(TITLE) (TITLE)
*** 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.
2
<PAGE> 1
Exhibit 10.20
GTE TELECOM INCORPORATED
CAPACITY AGREEMENT
This CAPACITY AGREEMENT is made and entered into as of August 20, 1999, by and
between GTE Telecom Incorporated (hereinafter referred to as "TELECOM" or
Party), a Delaware corporation with principal offices at 201 N. Franklin Street,
Suite 2400, Tampa, Florida 33602; and Universal Access, Inc. (hereinafter
referred to as "CUSTOMER" or Party), with offices at 100 N. Riverside Plaza,
Suite 2200, Chicago, Illinois 60606 for the provision of capacity and related
ancillary telecommunications services (hereinafter referred to as "Services") as
described herein and accepted by CUSTOMER under this Agreement, subject to the
terms and conditions contained herein. This Capacity Agreement together with any
Capacity Descriptions (as described in Section 1 below) accepted by TELECOM
pursuant to the terms hereof shall be referred to collectively as the
"Agreement".
1. SERVICE REQUESTS/CAPACITY DESCRIPTIONS: Requests for Services to be provided
hereunder shall be issued by CUSTOMER from time to time on TELECOM Capacity
Description Form(s) (hereinafter referred to as a "CD", a copy of which is
attached hereto and made a part hereof as Exhibit 1). Each CD shall reference
this Capacity Agreement by CA Number. Such CDs shall be effective when accepted
in writing by TELECOM and shall become part of this Agreement to the extent that
they specify the type of Service to be provided, quantity of circuits,
originating and terminating cities, requested service date, Service Term,
recurring and non-recurring charges for provision of Service, and other
information necessary for TELECOM to provide Service to the CUSTOMER. No action
by TELECOM (including, without limitation, provision of Service to CUSTOMER
pursuant to such CD) shall be construed as binding or estopping TELECOM with
respect to such term or condition, unless the CD containing said specific term
or condition has been duly executed by an authorized representative of TELECOM.
2. EFFECTIVE DATE AND APPLICATION OF THIS AGREEMENT: This Agreement shall be
effective between the parties as of the date first written above. The applicable
Rates and Charges are set forth in Exhibit 2 attached hereto and made a part
hereof. This Agreement shall apply exclusively to the Service provided to
CUSTOMER pursuant to the CD(s) identified with this Agreement and accepted by
TELECOM, for the Service Term stated therein and any automatic extensions
thereof. Services are provided subject to availability and TELECOM reserves the
right not to accept a CD under this Agreement at any time.
3. SERVICE TERM: (a) After a CD is accepted by TELECOM, a Firm Order
Confirmation Date ("FOC" Date) will be scheduled for Service installation. The
Service Term for Services subject to recurring charges and described in a CD
shall commence on the Firm Order Confirmation Date or the date upon which the
Service actually becomes available (the "In Service" Date), in conformity with
technical standards, whichever is later. The Service being provided hereunder
will be released to CUSTOMER for testing for seventy-two (72) hours prior to the
In Service Date.
(b) TELECOM will make reasonable efforts to meet the CUSTOMER requested In
Service Date, however, the inability of TELECOM to install Service on or before
the date requested shall not be a Default under this Agreement. Except for any
installation delays caused by those events described in Section 12 below, in the
event Service installation is delayed for ninety (90) days beyond the CUSTOMER
requested In Service Date with respect to each Service ordered, then CUSTOMER's
sole remedy shall be cancellation of the CD which pertains to such Service upon
ten (10) calendar days prior written notice to TELECOM. Cancellation charges
described in Section 11 below shall not apply to such cancellation.
(c) Upon expiration of the Service Term set forth in the CD, if CUSTOMER is not
then in Default under this Agreement, Service will automatically be extended for
continuing thirty (30) day periods and may be canceled by either party upon
thirty (30) calendar days prior written notice. Unless otherwise agreed to in
writing, the charges for Service during any such extension shall be the then
current TELECOM month to month rate for such Services.
1
<PAGE> 2
(d) Price Protection Commencing [***] months after the effective date of the
Agreement and continuing thereafter semi-annually at the semi-annual date of the
Agreement, CUSTOMER may request TELECOM to review the prices contained in the
CD(s) entered into between the parties if the CUSTOMER has received an offer
from a qualified vendor (i.e., a vendor that is suitable to the CUSTOMER that
has obtained any required licenses, approvals or other authorizations) for all
Services provided hereunder which reduces the total prices by [***] or greater.
TELECOM reserves the right to review such an offer, subject to confidentiality
or non-disclosure obligations imposed on CUSTOMER in connection therewith, and
if warranted, will enter into negotiations with CUSTOMER for a reduction in
price.
4. DESCRIPTION OF SERVICES: As specified in the CD accepted by TELECOM
hereunder, TELECOM will provide to CUSTOMER the following Services:
(a) Capacity Service through the installation and operation of either owned
or leased telecommunications facilities between TELECOM designated termination
points in accordance with the Service Level Objectives set forth in Exhibit 3
(hereinafter "Capacity"), and
(b) Ancillary Services Other Services, available on an optional basis, as
may be requested by the CUSTOMER (hereinafter referred to "Ancillary Service")
as described in Section 5 below.
5. LOCAL ACCESS/ANCILLARY SERVICES AND CHARGES: (a) Upon CUSTOMER's request,
TELECOM may, at its sole option and when reasonable under the circumstances,
act as agent for the CUSTOMER with responsibility for provisioning and the
initial testing of an interconnection between selected Interexchange Service,
the local exchange carrier or alternate access carriers (collectively "Local
Carriers") and a CUSTOMER designated termination point and/or service. CUSTOMER
shall issue a Letter of Agency authorizing TELECOM to provision such
interconnection on behalf of CUSTOMER. Changes to CUSTOMER for Local Access
Service administered on behalf of CUSTOMER by TELECOM shall be as stated in the
accepted CD.
(b) TELECOM may also provide Other or Ancillary Services to CUSTOMER, including
but not limited to any one or more of the following:
(1) Multiplexing/demultiplexing service ("Muxing");
(2) Digital cross-connect service,
(3) Extraordinary service under the following circumstances
including but not limited to:
(i) CUSTOMER's request to expedite Service
availability to a date earlier than a
previously accepted start date or Firm Order
Confirmation Date;
(ii) Service redesign or other activity
occasioned by receipt of inaccurate
information from CUSTOMER;
(iii) Reinstallation services for any suspension
of Service for cause by TELECOM;
(iv) CUSTOMER's request for use of routes or
facilities other than those selected by
TELECOM for provision of the Service;
(v) CUSTOMER'S request for use of rack space and
power in TELECOM facilities;
(vi) Other circumstances in which extraordinary
costs and expenses are generated by CUSTOMER
and reasonably incurred by TELECOM.
(c) Recurring and non-recurring charges to CUSTOMER for Local Access (including
TELECOM's Coordination Fee) and Ancillary Services shall be established as of
TELECOM's acceptance of the CD relevant thereto.
2
*** 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> 3
6. CUSTOMER RESPONSIBILITIES: CUSTOMER has sole responsibility for installation,
testing, and operation of facilities, services, and equipment other than those
specifically provided by TELECOM under a duly accepted CD. In no event will the
untimely installation or non-operation of CUSTOMER's facilities, services, and
equipment (including local exchange access and customer premise equipment)
relieve CUSTOMER of its obligation to pay charges for Capacity or Ancillary
Service as of the In Service Date. Notwithstanding the immediately preceding
sentence, CUSTOMER may request one extension of the In Service Date for not more
than thirty (30) calendar days. Such requests for extension of local exchange
access together with the interexchange portion of the Service must be in writing
and must be received by TELECOM at least ten (10) calendar days prior to the
initial FOC Date established by TELECOM. Written requests for extension of the
In Service Date for the interexchange portion only must be and must be received
by TELECOM at least five (5) calendar days prior to the initial FOC Date
established by TELECOM. Any such extension will not relieve CUSTOMER of its
obligations to pay charges for any local access services ordered by TELECOM on
behalf of CUSTOMER as of the FOC Date first established by TELECOM.
7. PAYMENT OF CHARGES: (a) Subject to Section 8 below, all charges for Services
provided by TELECOM pursuant to this Agreement shall be specified in the CD
referred to in this Agreement.
(b) CUSTOMER shall pay each TELECOM invoice for Service in full, without
deduction or offset of any kind, within thirty (30) days after the date of
invoice ("Due Date"); provided however, if CUSTOMER in good faith disputes any
portion of an invoice, it must pay the undisputed amount on or before the Due
Date and provide written notice to TELECOM of the billing dispute within ninety
(90) days thereafter. Such notice must include documentation substantiating the
dispute. CUSTOMER's failure to notify TELECOM of a dispute shall be deemed to be
CUSTOMER's acceptance of such charges. The Parties will make a good faith effort
to resolve billing disputes as expeditiously as possible. If a dispute is
resolved in favor of CUSTOMER, CUSTOMER shall receive a credit on its invoice
within a commercially reasonable period of time for the disputed amount and any
related fees or penalties. All pro-rated monthly recurring charges (i.e.,
charges for monthly Services provided for less than a calendar month),
installation, and other non-recurring charges shall be payable on the Due Date.
All payment shall be made in US dollars. CUSTOMER agrees to timely remit payment
to TELECOM at the remittance address indicated on the TELECOM invoice to
CUSTOMER.
(c) Except for any reasonably disputed amount, in the event CUSTOMER fails to
pay TELECOM's invoice in full or remit payment at the proper address on or
before the Due Date, CUSTOMER shall pay a late fee in an amount equal to one and
one-half percent (1 1/2%) per month of the unpaid balance. The late fee will be
applied for the number of days from the payment Due Date up to and including the
date payment is received by TELECOM. Notwithstanding the foregoing, late fees
shall apply to, but shall not be due and payable for, amounts reasonably
disputed by CUSTOMER provided: (i) CUSTOMER notifies TELECOM of the basis of
such dispute in writing within sixty (60) days after the Due Date and (ii)
negotiates in good faith with TELECOM for the purpose of resolving such dispute.
In the event such dispute is resolved in favor of TELECOM, CUSTOMER will pay to
TELECOM the once disputed amount together with the applicable late fees. In the
event the dispute is resolved in favor of the CUSTOMER, CUSTOMER will receive a
credit for the amounts determined not to be owed together with a credit for the
applicable late fees. The Parties shall use their best efforts to negotiate in
good faith to resolve the disputed invoice within thirty (30) days of CUSTOMER's
written notice of such dispute. If such resolution is not attained or the time
to resolve the dispute is not extended by mutual agreement of the Parties, the
dispute shall be settled by arbitration as set forth below in this Agreement.
(d) TELECOM may, in order to safeguard its interests, require CUSTOMER which has
no credit history with TELECOM or habitually pays late to make a deposit prior
to or any time after the provision of Service to the CUSTOMER to be held by
TELECOM as a guarantee of the payment of the rates and charges. In lieu of such
a deposit, TELECOM may accept an unconditional, irrevocable Letter of Credit in
a form acceptable to TELECOM in an amount required by TELECOM, subject to
increase from time to time as CUSTOMER orders additional circuits hereunder. At
such time as the provision of the Service to CUSTOMER is terminated, the amount
of the deposit will be credited to the CUSTOMER's account and any credit balance
which may remain will be refunded. After the CUSTOMER has established a six (6)
month prompt payment record, such deposit may be refunded or credited to the
CUSTOMER account at any time prior to the termination of the provision of the
Service to CUSTOMER. In the event CUSTOMER pays a deposit as described above,
simple interest at the rate of six percent (6%) will be
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applied to the deposit for the number of days from the date such deposit is
credited to the CUSTOMER'S account or the date the deposit is refunded by
TELECOM.
8. TAXES/ADDITIONAL CHARGES: (a) CUSTOMER acknowledges and understands that all
charges stated in the CD are computed by TELECOM exclusive of any applicable
federal, state, or local use, excise, gross receipts, sales, and privilege
taxes, duties, fees, including but not limited to applicable Universal Service
Fund contributions, or similar liabilities (other than general income or
property taxes), whether charges to or against TELECOM or CUSTOMER because of
the Service furnished by TELECOM ("Additional Charges"), and that such
Additional Charges shall be paid by CUSTOMER in addition to all other charges
provided for herein.
(b) Such taxes, surcharges or fees shall be separately stated on the invoice and
shall be paid directly to TELECOM at the same time as all other charges are due
and payable in accordance with this Agreement. Simultaneous with the signing of
this Agreement, CUSTOMER shall provide TELECOM with a valid Certificate of
Exemption from taxes that would otherwise be paid by CUSTOMER for all foreign,
federal, state, country and local taxes and fees, (if any) or other evidence
reasonably satisfactory to TELECOM that CUSTOMER is not subject to such taxes,
surcharges, or fees. TELECOM will invoice CUSTOMER for taxes that are not
covered by a valid tax exempt certificate properly filed with TELECOM.
9. EARLY TERMINATION: (a) Either Party may terminate this Agreement if:
(i) the other Party ceases doing business as a going concern,
makes an assignment for the benefit of creditors, admits
in writing to its inability to pay its debts as they
become due; or
(ii) the other Party files a voluntary petition in bankruptcy,
is adjudicated a bankrupt or an insolvent; or
(iii) the other Party files a petition seeking for itself any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar arrangement under any
present or future statute, law or regulation or files an
answer admitting the material allegations of a petition
filed against it in any such proceeding; or
(iv) the other Party consents or acquiesces in the appointment
of a trustee, receiver, or liquidator of it or of all or
any substantial part of its assets or properties, or it or
its shareholders shall take any action looking to its
dissolution or liquidation;
(v) the other Party breaches any material provision of this
Agreement, other than those related to payment of charges,
and fails to cure such breach within thirty (30) calendar
days after the receipt of notice thereof ("Default").
(b) Both Parties may terminate this Agreement upon mutual written consent.
10. SUSPENSION OF SERVICE: (a) In the event payment in full is not received from
CUSTOMER on or before the Due Date with respect to any undisputed amounts,
TELECOM shall have the right, after giving CUSTOMER fifteen (15) days written
notice via express courier service or registered mail, to suspend all or any
portion of Service until such time as CUSTOMER has paid in full all charges then
due, including any late fees as specified herein.
(b) Following such payment, TELECOM shall be required to reinstate Service to
CUSTOMER only upon CUSTOMER's provision to TELECOM of satisfactory assurance
(such as a deposit) of CUSTOMER's ability to pay for Service and CUSTOMER's
advance payment of the cost of reinstating Service. If CUSTOMER fails to make
such payment by a date determined by and acceptable to TELECOM, CUSTOMER will be
deemed to have canceled the suspended Service effective the date of the
suspension. Upon such termination, all balances become due and payable.
11. CANCELLATION OF SERVICE: (a) CUSTOMER may cancel a CD without liability if a
Service does not become available within ninety (90) days of the FOC Date as
described in Section 3 (b) above.
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(b) After a CD is submitted to TELECOM by the CUSTOMER except as noted in
Section 3(b) above, CUSTOMER may cancel all or a portion of the Services ordered
upon written notice to TELECOM. The charges for such Cancellation are as
follows:
Prior to issuance of the FOC No Cancellation Charges
Subsequent to issuance of the FOC 50% of applicable MRC for one (1) month
up to the FOC Date (maximum $20,000)
(c) It is agreed that TELECOM's damages in the event of a cancellation can be
difficult or impossible to ascertain. The provision for cancellation charges in
this subsection is intended to establish liquidated damages in the event of
Service cancellation and is not intended as a penalty. Unless otherwise stated
in the CD and specifically agreed to in writing by both Parties, in the event
CUSTOMER cancels existing Service prior to the end of the Service Term described
in the CD, CUSTOMER shall pay TELECOM an amount equal to the balance of the
monthly Service charges that otherwise would have become due for the unexpired
portion of the Service Term ("Cancellation Charges/Early Cancellation Charges").
Notwithstanding the immediately preceding sentence, no Early Cancellation
charges shall apply for the cancellation of the interexchange Service on
Telecom's Network for period that the CUSTOMER is responsible for the payment of
the Minimum Monthly Recurring Charge as set forth in Exhibit 2 - Rates and
Charges.
(d) Notwithstanding the foregoing, and upon thirty (30) days prior written
notice, either Party shall have the right, without cancellation charge or
liability, to cancel (i) an affected portion of the Service, if TELECOM is
prohibited by governmental authority from furnishing said portion, or (ii) an
affected portion of the Service if any material rate or term contained herein is
substantially changed by final order of a court of competent jurisdiction, the
Federal Communication Commission, or other local, state or federal government
authority.
12. FORCE MAJEURE: If either Party's performance of this Agreement or any other
obligation hereunder (other than the obligation to make payments for amounts
due) is prevented, restricted or interfered with by causes beyond their
reasonable control including but not limited to acts of God, fire, explosion,
vandalism, cable cut, storm, or other similar occurrence, any law, order,
regulation, direction, action or request of the United States government or
state or local government, or of any department, agency, commission, court,
bureau, corporation or other instrumentality of any one or more said
governments, or civil or military authority, or by national emergencies,
insurrections, riots, wars, strikes, lockouts or work stoppages or other labor
difficulties, actions or inactions of a third party provider or operator of
facilities employed in the provision of the Services, suppliers' failures,
shortages, breaches, or delays, then the affected Party shall be excused from
such performance on a day-to-day basis to the extent of such prevention,
restriction, or interference. The affected Party shall use reasonable efforts
under the circumstances to avoid or remove such causes of non-performance and
shall proceed to perform with reasonable dispatch whenever such causes are
removed or cease.
13. SERVICE WARRANTY: TELECOM warrants that it will provide the Service to
CUSTOMER in accordance prevailing telecommunication industry standards
(hereinafter "Technical Standards"). TELECOM will use reasonable efforts under
the circumstances to remedy any delays, interruptions, omissions, mistakes,
accidents or errors in any Service and restore the Service in accordance with
Technical Standards. THE FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL
OTHER WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT
LIMITATION IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
14. LIMITATION OF LIABILITY: TELECOM shall not be liable for interruptions,
delays, errors, or defects in transmission caused by the CUSTOMER, or the
CUSTOMER's agents, end users, or by facilities or equipment provided by the
CUSTOMER or by equipment interconnected with the CUSTOMER. UNDER NO
CIRCUMSTANCES, WHETHER IN CONTRACT TORT OR OTHERWISE, SHALL EITHER PARTY BE
LIABLE FOR ANY INCIDENTAL, INDIRECT, CONSEQUENTIAL, SPECIAL, ACTUAL, PUNITIVE,
OR ANY OTHER DAMAGES OR ANY KIND OR NATURE WHATSOEVER REGARDLESS OF THE CAUSE OR
FORESEEABILITY THEREOF, INCLUDING BUT
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NOT LIMITED TO DAMAGES ARISING FROM DELAY OR LOSS OF DATA, PROFITS, REVENUE OR
GOODWILL.
15. INDEMNIFICATION: Each Party agrees to release, indemnify, defend, and hold
harmless the other Party from losses, claims, demands, damages, expenses, suits,
or other actions, including reasonable attorney's fees, for personal injury,
including death of any person or persons, and for losses, damage, or destruction
of property, to the extent proximately caused by the negligence or willful
misconduct of the indemnifying Party, its employees, contractors, or agents.
This indemnity applies where the indemnifying Party's negligence or willful
misconduct is either the sole or the contributing cause of the injury, death, or
damage. This indemnity does not extend to any portion of the injury, death or
damage caused by either the sole or the contributing negligence of the
non-indemnifying Party or third parties. In the event parties other than
CUSTOMER shall have use or benefit of or shall be otherwise affected by the
Service provided through CUSTOMER, then CUSTOMER agrees to forever indemnify and
hold TELECOM and any third party provider or operator of the facilities employed
in the provision of the Service harmless from and against any and all claims,
demands, suits, actions, losses, damages, assessments or payments which may be
asserted by said parties, arising out of or related to any outage in Service.
16. NOTICES: Notices under this Agreement shall be in writing and shall be given
or made by telephonically confirmed facsimile transmissions, certified or
registered mail, express mail or other overnight delivery service, or hand
delivery, proper postage or other charges prepaid. Notices shall be sent to the
address listed below until such address is changed by written notice. Such
notice shall be deemed to have been given or made when actually received or
seventy-two (72) hours after being sent, whichever occurs first.
TO GTE TELECOM:
GTE Telecom Incorporated
201 N. Franklin Street
Suite 2400
Tampa, Florida 33602
Attention: Manager - Contracts and Tariffs
Fax No.: 813/209-9620
TO CUSTOMER:
Universal Access, Inc.
100 N. Riverside Plaza, Suite 2200
Chicago, IL 60606
Attention: Robert Pommer
Fax. No.: 312-660-5050
17. USE OF SERVICE/CAPACITY: (a) TELECOM's obligation to provide Services
specified herein is conditioned upon CUSTOMER not allowing the Services to be
used for any unlawful purpose or in violation of any governmental regulations or
authorizations. TELECOM shall have the right to limit, terminate or suspend
Service by written notice for improper use of the Service by CUSTOMER or any
activity by CUSTOMER, as determined in the sole discretion of TELECOM, that
threatens public health, safety, or welfare, or the integrity or reliability of
TELECOM's facilities or service to TELECOM's other customers.
(b) If CUSTOMER wishes to purchase capacity in an amount exceeding the
equivalent of OC-12 on any one route, then CUSTOMER represents and warrants that
it is not now, nor shall it become during the Term of this Agreement, a Capacity
Reseller (as defined below) with respect to any Services provided under this
Agreement. If CUSTOMER is or becomes during the Term of this Agreement a
Capacity Reseller with respect to any of the Services purchased hereunder, then
CUSTOMER may not purchase capacity in excess of the equivalent of one OC-12 on
any one route (referred to in this Section as the "Maximum Capacity"). If, at
the time CUSTOMER becomes a Capacity Reseller with respect to the Services
hereunder, CUSTOMER has ordered in excess of the Maximum Capacity, then CUSTOMER
shall immediately terminate all capacity in excess of the Maximum Capacity. Such
termination shall be subject to all applicable Early Cancellation/Termination
Charges. As used herein, a "Capacity Reseller" is any person or entity which, in
whole or in part, seeks to obtain telecommunications
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capacity for the purpose of reselling or otherwise providing access thereto to
third parties for profit, whether or not such person or entity actually realizes
a profit as a result of such transaction. CUSTOMER's failure to comply with this
Section shall constitute a material default and shall be grounds for immediate
termination.
18. NONDISCLOSURE: CUSTOMER shall not use, except as provided herein, nor
disclose to any third party during the Term of this Agreement and for a period
of two (2) years thereafter, any of the terms and conditions relating to this
Agreement, including but not limited to the rates and charges set forth in this
Agreement, unless such disclosure is lawfully required by any federal
governmental agency, is otherwise required to be disclosed by law, or is
necessary in any proceeding establishing the rights and obligations under this
Agreement. Prior to any such required disclosure by CUSTOMER, CUSTOMER shall
provide TELECOM with adequate written notice so as to enable TELECOM to seek
appropriate protection. TELECOM reserves the right to terminate this Agreement
immediately upon written notice of any unpermitted third party disclosure
hereunder.
19. LICENSES, APPROVALS AND AUTHORIZATIONS: CUSTOMER represents that in all
jurisdictions in which it provides services that require licenses, approvals or
other authorizations it has obtained such licenses, approvals or other
authorizations from the appropriate governmental authority. Further, if required
by TELECOM, CUSTOMER shall provide proof of such licenses, approvals or other
authorizations. CUSTOMER shall immediately notify TELECOM in writing, in the
event CUSTOMER is prohibited, either on a temporary or permanent basis, from
continuing to provide its telecommunications services in any jurisdiction. In
such event, TELECOM reserves the right to terminate this Agreement.
20. RESOLUTION OF DISPUTES: The Parties desire to resolve disputes arising out
of this Agreement without litigation. Accordingly, except for action seeking a
temporary restraining order or injunction related to the purposes of this
Agreement, or suit to compel compliance with this dispute resolution provision,
the parties agree to submit the dispute to a single arbitrator for resolution by
binding arbitration pursuant to the Commercial Arbitration Rules of the American
Arbitration Association. A Party may demand such arbitration in accordance with
the procedures set out in those rules. Discovery shall be controlled by the
arbitrator. Each Party shall bear its own costs of these procedures. A Party
seeking discovery shall reimburse the responding Party the costs of production
of documents (to include search time and reproduction costs). The Parties shall
equally split the fees of the arbitration and the arbitrator.
21. GENERAL PROVISIONS: (a) Other Documents CUSTOMER will execute such other
documents, provide such information, and affirmatively cooperate with TELECOM,
all as may be reasonably required by TELECOM and relevant to providing the
Service. In particular, CUSTOMER accepts the responsibility for providing
TELECOM with special access surcharge exemption forms as may be required by the
local exchange carrier and as applicable, TELECOM's Universal Service Fund
exemption form.
(b) Non-Waiver The failure of either Party to give notice of default or to
enforce or insist upon compliance with any of the terms or conditions of this
Agreement, the waiver of any term or condition of this Agreement or the granting
of an extension of time for the performance shall not constitute the permanent
waiver of any term or condition of this Agreement and this Agreement and each of
its provisions shall remain at all times in full force and effect until modified
by the Parties in writing.
(c) Relationship of the Parties The provision of Service will not create a
partnership or joint venture between the parties or result in a joint
communications service offering to third parties.
(d) Enforcement In the event suit is brought or an attorney is retained by
either Party to enforce terms of this Agreement or to collect money damages for
breach hereof or by TELECOM to collect any monies due hereunder, then the
prevailing Party shall be entitled to recover, in addition to any other remedy,
reimbursement for reasonable attorneys' fees, court costs, costs of
investigation, and other related expenses incurred in connection therewith.
(e) Modification No subsequent agreement shall change, modify or discharge this
Agreement, in whole or in part, unless such agreement is in writing and signed
by authorized representatives of both parties.
(f) Assignment This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors or assigns,
provided, however, that CUSTOMER shall not assign
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<PAGE> 8
or transfer its rights or obligations under this Agreement without the prior
written consent of TELECOM, which consent shall not be unreasonably withheld,
and further provided that any assignment or transfer without such consent shall
be deemed void and shall entitle TELECOM to terminate the Service provided
hereunder, at its option, upon ten (10) days prior written notice.
Notwithstanding any other language contained in this Agreement, either Party
may, without further permission but upon proper notice to the other Party,
assign the Agreement to any affiliated entity or successor in interest whether
by merger, reorganization, or transfer of all or substantially all of its
assets.
(g) Governing Law This Agreement shall be a contract between TELECOM and
CUSTOMER and the terms hereof shall be construed under the laws of the State of
Florida without regard to choice of law principles.
(h) Severability If any part or any provision of this Agreement shall be invalid
or unenforceable under applicable law, said part shall be ineffective to the
extent of such invalidity only, without in any way affecting the remaining parts
of said provision or the remaining provisions of this Agreement, and the
CUSTOMER and TELECOM hereby agree to negotiate with respect to any such invalid
or unenforceable part to the extent necessary to render such part valid and
enforceable.
(i) Survival The terms and provisions contained in this Agreement that by their
sense and content are intended to survive the performance thereof by the parties
hereto shall survive the completion of performance and termination of this
Agreement, including, without limitation, provisions for indemnification,
nondisclosure and the making of any and all payments due hereunder.
(j) Headings The section headings are for convenience only and shall not be
considered in its interpretation.
(k) Interpretation Words having well-known technical or trade meanings shall be
so construed, and all listing of items shall be taken to be exclusive, but shall
include other items, whether similar or dissimilar to those listed, as the
context reasonably applies in the interpretation of this Agreement.
(l) Entire Agreement This Agreement consists of all the terms and conditions
contained herein, in Capacity Descriptions, if applicable, that conform hereto,
and documents incorporated herein specifically by reference; this Agreement
constitutes the complete and exclusive statement of agreements and
understandings between the parties, and supersedes all proposals and prior
agreements (oral and written) between the parties relating to Service provided
hereunder. No representations or warranties, express or implied, have been made
or relied upon in the making of this Agreement, other than those specifically
contained in this Agreement.
Attachments: Exhibit 1 - Capacity Description
Exhibit 2 - Rates and Charges
Exhibit 3 - Service Level Objectives
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IN WITNESS WHEREOF, the Parties have executed this Capacity Agreement by their
duly authorized representatives.
GTE TELECOM INCORPORATED UNIVERSAL ACCESS, INC.
By: /s/ Signature Illegible By: /s/ Signature Illegible
Name: Joe Boland Name: Robert J. Pommer
---------- ----------------
Title: Vice President/General Manager Title: Chief Operating Officer
------------------------------ -----------------------
Date: 8/25/99 Date: 8/20/99
------- -------
and
By: /s/ Signature Illegible
Name: Kenneth Shelton
---------------
Title: Controller
----------
Date: 8/27/99
-------
Approved As To Form
ECD 8/25/99
-----------
Contracts
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Exhibit 1 to Capacity Agreement
GTE TELECOM INCORPORATED Customer Name________________
210 N. Franklin Street Suite 2400 Service Address: ____________
Tampa, Florida 33602 Billing Address:_____________
Account Manager Customer Contact:____________
Tel: (___)______ Fax. No. (___)______ Tel: (___)______ Fax. No. (___)_______
CAPACITY DESCRIPTION
Order No. P.O. Number Date:
<TABLE>
<CAPTION>
Monthly Monthly
Service Non- Recurring Recurring
TerminationPoints/ Requested Term Recurring Charges Charges
Description of Services Number Service Date (months) Charges (each) (TOTAL)
<S> <C> <C> <C> <C> <C> <C>
TOTAL CHARGES: NRC$________ MRC $____________
</TABLE>
REMARKS:
REFERENCE: Capacity Agreement No__________
Cancellation Charges Apply as set forth in the referenced Capacity Agreement in
the event Services are canceled or changed.
THIS CAPACITY DESCRIPTION IS ENTERED INTO PURSUANT TO THE CAPACITY AGREEMENT
IDENTIFIED HEREIN, THE TERMS AND CONDITIONS OF WHICH ARE INCORPORATED HEREIN IN
THEIR ENTIRETY; PROVIDED, HOWEVER, THAT IN THE EVENT OF ANY CONFLICT OR
INCONSISTENCY BETWEEN THIS CD AND THE TERMS AND CONDITIONS OF THE APPLICABLE
CAPACITY AGREEMENT, THE TERMS AND CONDITIONS CONTAINED IN THE CAPACITY AGREEMENT
SHALL PREVAIL.
<TABLE>
<S> <C> <C>
The Customer hereby orders the Services described ACCEPTED BY GTE TELECOM INCORPORATED
in this Capacity Description
Company
Signature
Joe Boland, Vice President/General Manager Date
Printed Name
Lu Whanger, Director of Sales Date
Title Date
Account Manager Date
</TABLE>
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EXHIBIT 2
RATES AND CHARGES
1. Minimum Monthly Recurring Charge (MMRC): CUSTOMER will maintain Minimum
Monthly Recurring Charges for the interexchange Service on TELECOM's Network
(i.e., not including local access or other charges) in an amount equal to [***]
per month after a Ramp Up Period of [***] months and continuing through [***].
2. Ramp Up Period: The Ramp Up Period shall commence on the actual in Service
Date of the first circuit to be provided hereunder and shall continue for a
period of [***] months thereafter. Following the Ramp Up Period, in the event
CUSTOMER fails to achieve or maintain the MMRC, CUSTOMER will be responsible for
payment of the MMRC in the amount of [***] for each month that CUSTOMER fails to
attain the MMRC.
3. MRC During the Ramp Up Period: Circuits greater than One Hundred (100) miles
in distance will be charged at the following rates during the Ramp Up Period:
<TABLE>
<S> <C>
DS-3 [***] per DS-0 mile (672 DS-0 per DS-3)
OC-3 [***] per DS-0 mile (2016 DS-0 per OC-3)
OC-12 [***] per DS-0 mile (8,064 DS-0 per OC-12)
OC-48 [***] per DS-0 mile (32,256 DS-0 per OC48)
</TABLE>
4. MRC Following the Ramp Up Period: Circuits greater than One Hundred
(100) miles in distance will be charged at the following rates following
the Ramp Up Period:
<TABLE>
<S> <C>
DS-3 [***] per DS-0 mile (672 DS-0 per DS-3)
OC-3 [***] per DS-0 mile (2016 DS-0 per OC-3)
OC-12 [***] per DS-0 mile (8,064 DS-0 per OC-12)
OC-48 [***] per DS-0 mile (32,256 DS-0 per OC48)
</TABLE>
5. All circuits less than One Hundred Miles (100) in distance will be
charged at the following rates:
<TABLE>
<CAPTION>
Circuit Speed During Ramp Up Period Following Ramp Up Period
<S> <C> <C>
DS-3 [***] [***]
OC-3 [***] [***]
OC-12 [***] [***]
OC-48 [***] [***]
</TABLE>
6. MRC Validity: The above MRCs are effective [***], and shall remain
valid for Services ordered under this Agreement through [***].
7. Non-Recurring Charges: The Non-Recurring Charges for additional Services are
as follows:
(a) Move Charge without local access (to different POP at Customer
request) [***] one time;
(b) Add Charges (e.g., increasing a circuit from DS-3 to OC3) at the
same POP [***] one time;
(c) Extend the In Service Date for a second time - Cancellation
Charges apply
(d) Move of a local loop - pass through from local loop provider
plus [***] one time administrative charge;
(e) On site technician (subject to availability) - [***] per hour
during business hours only, two hour minimum plus travel.
(f) Other than above - individual case basis
8. NRC Validity: The above NRC's are effective June 1, 1999, and shall
remain valid through May 31, 2000, at which time, unless otherwise
agreed to in writing, the NRCs will be at TELECOM's then prevailing
rates for such Services.
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 12
Exhibit 3
SERVICE LEVEL OBJECTIVES
TELECOM will make commercially reasonable efforts to meet the following Service
Level Objectives:
(a) Mean Time to Repair - less than or equal to four (4) hours for DS3's,
OC3's, OC12's.
(b) Network Availability for "on net" private line Services:
99.95% for Linear Network
99.99% for SONET Ring Network (when available).
Credits for Outages:
(i) For the purposes of this Agreement, a circuit shall be deemed to be in an
"Outage" condition if, following the start of Service while CUSTOMER is actually
using or attempting to use such circuit, the circuit and becomes unavailable as
defined above.
CUSTOMER's request for credit for Outages must be submitted to TELECOM in
writing within thirty (30) calendar days of such Outage. TELECOM will respond to
each of CUSTOMER's requested credits and upon Outage verification by TELECOM,
TELECOM will apply the applicable credit to the next or subsequent Service
invoice. Service Outages do not include (a) Outage periods when CUSTOMER has
released the Service to TELECOM for maintenance purposes or to make
rearrangements or CUSTOMER requested changes in the Service; (b) circuits
outside the contiguous U.S.; (c) any circuits ordered by CUSTOMER from another
telecommunications service provider or carrier; (d) any local access circuits
ordered by or on behalf of CUSTOMER; (e) failure of CUSTOMER applications,
equipment or facilities, (f) acts or omissions of CUSTOMER, or any use or user
of the Service authorized by CUSTOMER or (g) reasons of Force Majeure. [***] No
credit is allowed for Service Outages of less than thirty (30) minutes. Outages
will be credited to CUSTOMER in half hour multiples for each half hour or major
fraction thereof, from the time TELECOM receives notification until Service is
restored. The credit shall not be applicable for the time that TELECOM stands
ready to repair the Service and CUSTOMER does not provide access to TELECOM to
perform such repair and restoration work. The credit allowance for an Outage or
a series of Outages shall not exceed the current monthly recurring charge for
such Service. The credit provided for in this Section shall be TELECOM's sole
liability and CUSTOMER's sole and exclusive remedy in the event of any Outage or
Service interruption.
(ii) Chronic Outages In the event that a single circuit experiences three (3)
or more Outages of fifteen (15) minutes duration or longer during any thirty
(30) day period, CUSTOMER may declare that the circuit has a chronic problem.
Upon written notice from CUSTOMER, TELECOM will have thirty (30) days to correct
the chronic problem. In the event that the problem is not corrected within
thirty (30) days of TELECOM's receipt of written notice, CUSTOMER may cancel
this circuit without any additional charges or any further liability and such
cancellation will be CUSTOMER's sole and exclusive remedy for chronic Outages.
Credit allowances will be calculated on a monthly basis and the applicable
Outage credit by circuit will be included in TELECOM's invoice. CUSTOMER shall
have thirty (30) days from date of receipt of the invoice to contest the credit
allowance offered by TELECOM.
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the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 1
EXHIBIT 10.31
[LEVEL (3) LOGO]
TERMS AND CONDITIONS
FOR DELIVERY OF SERVICE
These Terms and Conditions for Delivery of Service (the "Terms and Conditions")
shall be applicable to Customer Orders executed by Customer for Services
delivered by Level 3 Communications, LLC ("Level 3"), and shall be incorporated
into each Customer Order. These Terms and Conditions are applicable to sales of
Services originating or terminating in the United States.
DEFINITIONS
CONFIDENTIAL INFORMATION: Licensed Software, and all source code, source
documentation, inventions, know-how, and ideas, updates and any documentation
and information related to the Licensed Software, and any non-public information
regarding the business of a party provided to either party by the other party
where such information is marked or otherwise communicated as being
"proprietary" or "confidential" or the like, or where such information is, by
its nature, confidential.
CUSTOMER: The person, firm or corporation so named on the Customer Order.
CUSTOMER ORDER: A request for Level 3 Service submitted by the Customer in the
format devised by Level 3 and accepted by Level 3.
FIRM ORDER COMMITMENT: A written communication from Level 3 to Customer within
which Level 3 commits to deliver some or all of the Services requested in a
Customer Order.
LICENSED SOFTWARE: Computer software, in object code format only, the use of
which is required for use of Service ordered by Customer hereunder.
PREMISES: The location(s) occupied by Customer or its end users specified in the
Customer Order to (or from) which Service will be delivered.
REVENUE COMMITMENT: A commitment which, if made by Customer in a Customer Order
or in any other form specified and accepted by Level 3, obligates Customer to
order and pay for a minimum volume of Services during an agreed term.
SERVICE: Any communications (or related) service offered by Level 3 pursuant to
a Customer Order.
SECTION 1. CUSTOMER ORDERS
1.1 SUBMISSION OF CUSTOMER ORDERS. Customer may submit to Level 3 Customer Order
forms requesting the provision of Service. Each Customer Order form shall be
submitted on a form designated by Level 3. Level 3 shall confirm the accuracy of
information on the Customer Order form and the availability of the Services
requested. Level 3's delivery of a Firm Order Commitment respecting such
Services shall constitute Level 3's acceptance of the Customer Order for such
Services. The Customer Order form and attachments shall set forth the Service,
the locations for delivery of same, the prices to be charged for same and any
applicable term and/or Revenue Commitment.
1.2 UNDERTAKING OF LEVEL 3. If Level 3 issues a Firm Order Commitment respecting
Services, Level 3 will furnish such Services in accordance with these Terms and
Conditions and any Customer Orders executed by Customer. All title to equipment
or materials used to deliver the Services (except as otherwise expressly agreed)
shall be and remain with Level 3.
SECTION 2. BILLING AND PAYMENT
2.1 PAYMENT AND RENDERING OF BILLS. Level 3 shall bill all charges incurred by
and credits due to Customer on a monthly basis (unless otherwise agreed in
writing by Level 3 and Customer). Level 3 shall bill in advance charges for all
Services to be provided during the ensuing month except for charges which are
dependent upon usage of Service (which charges shall be billed in arrears).
Adjustments for the quantities of Service established or discontinued in any
billing period will be prorated to the number of days based on a 30-day month.
Level 3 will, upon request and if available, furnish such detailed information
as may reasonably be required for verification of the bill.
2.2 PAYMENT OF BILLS. All bills are due upon receipt thereof by Customer, and
become past due thirty (30) days thereafter. The unpaid balance of any past due
bills shall bear interest at a rate of 1.5% per month (prorated on a daily
basis), or the highest rate allowed by law, whichever is less. Interest will be
applied for the number of days from the date the bill became past due to and
including the date that payment is received by Level 3.
2.3 TAXES AND FEES. Except for taxes based on Level 3's net income and except
with respect to ad valorem personal and real property taxes imposed on Level 3's
property, Customer shall be responsible for payment of all sales, use, gross
receipts, excise, access, bypass, franchise or other local, state and federal
taxes, fees, charges, or surcharges, however designated, imposed on or based
upon the provision, sale or use of the Services delivered by Level 3 (including,
but not limited to, taxes and fees lawfully assessed by nations outside of the
United States). Any taxes shall be separately stated on Customer's bill. Any
state or local tax, fee, charge, or surcharge shall be payable only for Services
that are subject to such imposition.
Page 1 of 17
<PAGE> 2
2.4 REGULATORY AND LEGAL CHANGES. In the event of any change in applicable law
or regulation that materially increases the cost of delivery of Service, Level 3
and Customer shall negotiate regarding the rates charged to Customer to reflect
such increase in cost and, in the event that the parties are unable to reach
agreement respecting new rates within thirty (30) days after Level 3's delivery
of written notice requesting renegotiation, then (a) Level 3 may pass such
increased costs through to Customer, and (b) Customer may terminate the affected
Customer Order upon no less than sixty (60) days' prior written notice without
payment of any applicable termination charge
2.5 DISPUTED BILLS. In the event that Customer disputes any portion of the
charges contained in a bill, Customer must pay the undisputed portion of the
invoice in full and submit a documented claim for the disputed amount. All
claims must be submitted to Level 3 within sixty (60) days of receipt of billing
for those Services. If Customer does not submit a claim within such period and
in the manner stated above, Customer waives all rights to dispute such charges.
2.6 CREDIT APPROVAL AND DEPOSITS. Customer shall provide Level 3 with credit
information as requested in advance of the commencement of delivery of Service
under any Customer Order. Delivery of Service is subject to credit approval.
Level 3 may require any Customer to make a deposit as a condition to Level 3's
acceptance of any Customer Order submitted by Customer, or as a condition to
Level 3's continuation of Service under any Customer Order (but only when
Customer's consumption of Service materially exceeds Customer's anticipated use
or when, in Level 3's reasonable discretion, such deposit is required in order
to secure Customer's continued payment obligation), which deposit shall be held
by Level 3 as security for payment of charges. A deposit may not exceed the
actual or estimated rates and charges for the Service for a two (2) month
period. At such time as the provision of Service to Customer is terminated, the
amount of the deposit will be credited to Customer's account and any credit
balance which may remain will be refunded.
2.7 FRAUDULENT USE OF SERVICES. Customer shall be solely responsible for all
charges incurred respecting the Services, even if such charges were incurred
through or as a result of fraudulent or unauthorized use of the Services, unless
Level 3 has actual knowledge of such fraudulent or unauthorized use and fails to
inform Customer thereof or otherwise limit or preclude such use. Nothing in this
Section 2.7, however, shall be construed to obligate Level 3 to detect or report
unauthorized or fraudulent use of Services.
SECTION 3. CANCELLATION OF CUSTOMER ORDERS
3.1 CANCELLATION OF CUSTOMER ORDER BY LEVEL 3.
A. For nonpayment: Level 3 may, upon fourteen (14) days' written notice,
discontinue Service without incurring any liability when there is an unpaid
balance for Service that is past due.
B. For any violation of law or of any of the provisions governing the furnishing
of Service: Any Customer Order shall be subject to cancellation, without notice,
for any violation of any law, rule, regulation or policy of any government
authority having jurisdiction over Service or by reason of any order or decision
of a court or other government authority having jurisdiction which prohibits
Level 3 from furnishing such Service.
C. For other causes: Any Customer Order shall be subject to cancellation, upon
fourteen (14) days' prior written notice, in the event of a breach of a Customer
Order, fraudulent use of the Service, or fraud or misrepresentation in any
submission of information required in a Customer Order or any other information
submitted to Level 3.
D. For any Customer filing of bankruptcy or reorganization or failing to
discharge an involuntary petition therefor within sixty (60) days after filing:
Level 3 may immediately discontinue or suspend delivery of Service without
incurring any liability.
E. For consumption of Services that materially exceeds Customer's credit limit:
Level 3 may, upon fourteen (14) days prior written notice and provided Customer
has not provided additional security for payment which is sufficient in Level
3's reasonable discretion, discontinue or suspend delivery of Service without
incurring any liability.
3.2 EFFECT OF CANCELLATION. Upon Level 3's discontinuance of Service to Customer
under any of the foregoing subparagraphs, Level 3 may, in addition to all other
remedies that may be available to Level 3 at law or in equity or under any other
provision of a Customer Order, assess and collect from Customer any termination
charge set forth herein (to the extent applicable).
3.3 RESUMPTION OF SERVICE. If Service has been discontinued by Level 3, and
Customer requests that Service be restored, Level 3 shall have the sole and
absolute discretion to restore such Service only after satisfaction of such
conditions as Level 3 determines to be required for its protection. Nonrecurring
charges apply to restoration of Service.
SECTION 4. DELIVERY OF SERVICES
4.1 LEVEL 3 ACCESS TO PREMISES. Customer shall allow Level 3 continuous and
reasonable access to the Premises to the extent reasonably determined by Level 3
to be appropriate to the installation, inspection and maintenance of equipment,
facilities and systems relating to the Service. Level 3 shall notify Customer
two (2) business days in advance of any regularly scheduled maintenance that
will require access to the Premises.
4.2 LEVEL 3 FACILITIES. Level 3 will use reasonable efforts to maintain the
facilities and equipment required to deliver Service. Customers shall not and
shall not permit others to rearrange, disconnect, remove, attempt to repair, or
otherwise tamper with any of the facilities or equipment installed by Level 3,
except upon the written consent of Level 3. Equipment provided or installed at
the Premises by Level 3 for use in connection with the Service shall not be used
for any purpose other than that for which Level 3 provided it. In the
Page 2 of 17
<PAGE> 3
event that Customer or a third party attempts to operate or maintain any Level
3-owned equipment without first obtaining Level 3's written approval, in
addition to any other remedies of Level 3 for a breach by Customer of Customer's
obligations hereunder, Customer shall pay Level 3 for any damage to Level
3-owned equipment caused thereby. Customer shall be responsible for the payment
of service charges in the event that maintenance or inspection of the equipment
is required as a result of Customer's breach of this Section. Level 3 shall, in
the event that such expenses are incurred, deliver to Customer a written invoice
therefor. In no event shall Level 3 be liable to Customer or any other person
for interruption of Service or for any other loss, cost or damage caused or
related to improper use or maintenance of Level 3-owned equipment.
4.3 TITLE AND POWER. Title to all facilities (except as otherwise agreed),
including terminal equipment, shall remain with Level 3. The electric power
consumed by such equipment on the Premises shall be provided by and maintained
at the expense of Customer.
4.4 CUSTOMER-PROVIDED EQUIPMENT. Level 3 shall not be responsible for the
operation or maintenance of any Customer-provided communications equipment.
Level 3 may install certain Customer provided communications equipment upon
installation of Service; unless otherwise agreed by Level 3 in writing, Level 3
shall not thereafter be responsible for the operation or maintenance of such
equipment. Level 3 shall not be responsible for the transmission or reception of
signals by Customer-provided equipment or for the quality of, or defects in,
such transmission.
4.5 REMOVAL OF EQUIPMENT. Customer agrees to allow Level 3 to remove all Level
3-owned equipment from the Premises: A. after termination, interruption or
suspension of the Service in connection with which the equipment was used; and
B. for repair, replacement or otherwise as Level 3 may determine is necessary or
desirable. At the time of such removal, such equipment shall be in the same
condition as when delivered to Customer or installed in the Premises, normal
wear and tear only excepted. Customer shall reimburse Level 3 for the
depreciated cost of any equipment which is not in such condition.
4.6 SERVICE SUBJECT TO AVAILABILITY. The furnishing of Service under these Terms
and Conditions is subject to the availability on a continuing basis of all the
necessary facilities and is limited to the capacity of Level 3's facilities, as
well as facilities Level 3 may obtain from other carriers to furnish Service
from time to time as required at the sole discretion of Level 3. Nothing in
these Terms and Conditions shall be construed to obligate Customer to submit, or
Level 3 to accept, Customer Orders.
4.7 NO LIABILITY FOR FAILURE TO TRANSMIT MESSAGES. Level 3 does not undertake to
transmit messages, but offers the use of its Service when available, and, as
more fully set forth elsewhere in these Terms and Conditions and any applicable
Customer Orders, shall not be liable for errors in transmission or for failure
to establish connections.
4.8 SERVICE LEVEL AGREEMENTS. All warranties respecting the Service, and the
remedies applicable to a failure of Level 3 to meet such warranties, shall be
set forth in Service Level Agreements applicable to the particular Service,
which Service Level Agreements (when and if issued by Level 3) shall be deemed
attached hereto and by this reference incorporated herein.
SECTION 5. OBLIGATIONS AND LIABILITY LIMITATION
5.1 OBLIGATIONS OF THE CUSTOMER. Customer shall be responsible for:
A. The payment of all charges applicable to the Service (including charges
incurred as a result of fraud or unauthorized use of the Service).
B. Damage or loss of Level 3's facilities or equipment installed on the Premises
(unless caused by the negligence or willful misconduct of the employees or
agents of Level 3);
C. Providing the level of power, heating and air conditioning necessary to
maintain the proper environment on the Premises for the provision of Service;
D. Providing a safe place to work and complying with all laws and regulations
regarding the working conditions on the Premises;
E. Granting Level 3 or its employees access to the Premise for the purpose of
maintaining Level 3's facilities in accordance herewith;
F. Keeping Level 3's equipment and facilities located on Premises free and clear
of any liens or encumbrances.
5.2 LIABILITY. The liability of Level 3 for damages arising out of the
furnishing of Service, including but not limited to mistakes, omissions,
interruptions, delays, tortious conduct or errors, or other defects,
representations, use of Service or arising out of the failure to furnish
Service, whether caused by acts of commission or omission, shall be limited to
the extension of credit allowances due under any Service Level Agreement. The
extension of such credit allowances or refunds shall be the sole remedy of
Customer and the sole liability of Level 3. Neither party shall be liable for
any indirect, incidental, special, consequential, exemplary or punitive damages
(including but not limited to damages for lost profits or lost revenues),
whether or not caused by the acts or omissions or negligence of its employees or
agents, and regardless of whether such party has been informed of the
possibility or likelihood of such damages.
5.3 DISCLAIMER OF WARRANTIES. LEVEL 3 MAKES NO WARRANTIES OR REPRESENTATIONS,
EXPRESS OR IMPLIED EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR
OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
USE, EXCEPT THOSE EXPRESSLY SET FORTH HEREIN OR IN ANY APPLICABLE SERVICE LEVEL
AGREEMENT.
Page 3 of 17
<PAGE> 4
SECTION 6. SOFTWARE TERMS
6.1 LICENSE. If and to the extent that Customer requires the use of Licensed
Software in order to use the Service supplied under any Customer Order, then
Customer shall have a nonexclusive, nontransferable license to use such Licensed
Software only and solely to the extent required to permit delivery of the
Service. Customer shall in no event be entitled to claim title to or any
ownership interest in any Licensed Software (or any derivations or improvements
thereto), and Customer shall execute any documentation reasonably required by
Level 3 to memorialize Level 3's existing and continued ownership of Licensed
Software.
6.2 RESTRICTIONS. Customer agrees that it shall not:
A. copy the Licensed Software except as allowed and permitted by the express
written consent of Level 3;
B. reverse engineer, decompile or disassemble the Licensed Software;
C. sell, lease, license or sublicense the Licensed Software; or
D. create, write or develop any derivative software or any other software
program based on the Licensed Software or any Confidential Information of Level
3.
SECTION 7. CONFIDENTIAL INFORMATION
7.1 DISCLOSURE AND USE. The Confidential Information disclosed by either party
constitutes the confidential and proprietary information of the disclosing party
and the receiving party shall retain same in strict confidence and not disclose
to any third party (except as authorized by these Terms and Conditions) without
the disclosing party's express written consent. Each party agrees to treat all
Confidential Information of the other in the same manner as it treats its own
proprietary information, but in no case will the degree of care be less than
reasonable care.
7.2 RESTRICTED USE. Each party agrees:
A. to use Confidential Information only for the purposes of performance of any
Customer Order or as otherwise expressly permitted by these Terms and
Conditions;
B. not to make copies of Confidential Information or any part thereof except for
purposes consistent with these Terms and Conditions; and
C. to reproduce and maintain on any copies of any Confidential Information such
proprietary legends or notices (whether of disclosing party or a third party) as
are contained in or on the original or as the disclosing party may otherwise
reasonably request.
7.3 EXCEPTIONS. Notwithstanding the foregoing, each party's confidentiality
obligations hereunder shall not apply to information which:
A. is already known to the receiving party;
B. becomes publicly available without fault of the receiving party;
C. is rightfully obtained by the receiving party from a third party without
restriction as to disclosure, or is approved for release by written
authorization of the disclosing party;
D. is developed independently by the receiving party without use of the
disclosing party's Confidential Information;
E. is required to be disclosed by law.
7.4 PUBLICITY. This agreement shall not be construed as granting to either party
any right to use any of the other party's or its affiliates' trademarks, service
marks or trade names or otherwise refer to the other party in any marketing,
promotional or advertising materials or activities. Without limiting the
generality of the forgoing, neither party shall issue any publication or press
release relating to, or otherwise disclose the existence of, any contractual
relationship between Level 3 and Customer, except as may be required by law.
7.5 REMEDIES. Notwithstanding any other section of these Terms and Conditions,
the non-breaching party shall be entitled to seek equitable relief to protect
its interests, including but not limited to preliminary and permanent injunctive
relief. Nothing stated herein shall be construed to limit any other remedies
available to the parties.
7.6 SURVIVAL. The obligations of confidentiality and limitation of use shall
survive the termination of any applicable Customer Order.
SECTION 8. GENERAL TERMS
8.1 FORCE MAJEURE. Except with respect to payment obligations, neither party
shall be liable, nor shall any credit allowance or other remedy be extended, for
any failure of performance or equipment due to causes beyond such party's
reasonable control, including but not limited to: acts of God, fire, flood or
other catastrophes; any law, order, regulation, direction, action, or request of
any governmental entity or agency, or any civil or military authority; national
emergencies, insurrections, riots, wars; unavailability of rights-of-way or
materials; or strikes, lock-outs, work stoppages, or other labor difficulties.
In the event Level 3, for reasons set forth in this paragraph 8.1, is unable to
deliver Service pursuant to any Customer Order for 90 consecutive days, then
Customer may terminate the affected Customer Order without termination
liability.
8.2 ASSIGNMENT OR TRANSFER. Customer may not transfer or assign the use of
Service without the express prior written consent of Level 3, and then only when
such transfer or assignment can be accomplished without interruption of the use
or location of Service. These Terms and Conditions shall apply to all such
permitted transferees or assignees. Customer shall, unless otherwise expressly
agreed by Level 3 in writing, remain liable for the payment of all charges due
under each Customer Order.
8.3 NOTICES. Any notice Level 3 may give to Customer or Customer shall give to
Level 3 shall be deemed properly given when delivered, if delivered in person,
or when sent via facsimile, overnight courier, electronic mail or when deposited
with the U.S. Postal Service, (a) with respect to Customer, the
Page 4 of 17
<PAGE> 5
address listed on each Customer Order, or (b) with respect to Level 3, to:
Contracts Administration, Level 3 Communications, LLC, 1450 Infinite Drive,
Louisville, CO 80027. Customer shall notify Level 3 of any changes to its
addresses listed on any Customer Order.
8.4 INDEMNIFICATION BY CUSTOMER. Customer shall indemnify, defend and hold Level
3 harmless from claims, loss, damage, expense (including attorney's fees and
court costs), or liability (including liability for patent infringement) arising
from (1) any claims made against Level 3 by any end user in connection with the
delivery or consumption of Service, (2) use of facilities furnished by Level 3
in a manner inconsistent with the terms hereof or in a manner that Level 3 did
not contemplate and over which Level 3 exercises no control and (3) all other
claims, loss, damage, expense (including attorneys fees and court costs), or
liability arising out of any commission or omission by Customer in connection
with the Service.
8.5 INDEMNIFICATION BY LEVEL 3. Level 3 shall indemnify, defend and hold
Customer harmless from claims, loss, damage, expense (including attorney's fees
and court costs), or liability (including liability for patent infringement)
arising from all claims, loss, damage, expense (including attorneys fees and
court costs), or liability for property damage or personal injury to the extent
that such claims arise out of or are caused by Level 3's negligence or willful
misconduct.
8.6 APPLICATION OF TARIFFS. Level 3 may elect or be required by law to file with
the appropriate regulatory agency tariffs respecting the delivery of certain
Service. In the event and to the extent that such tariffs have been or are filed
respecting Service ordered by Customer, then (to the extent such provisions are
not inconsistent with the terms of a Customer Order) the terms set forth in the
applicable tariff shall govern Level 3's delivery of, and Customer's consumption
or use of, such Service.
8.7 CONTENTS OF COMMUNICATIONS Level 3 shall have no liability or responsibility
for the content of any communications transmitted via the Service by Customer or
any other party, and Customer shall hold Level 3 harmless from any and all
claims (including claims by governmental entities seeking to impose penal
sanctions) related to such content.
8.8 ENTIRE UNDERSTANDING These Terms and Conditions, including any Customer
Orders executed hereunder (and any tariff applicable to the delivery of
Service), constitutes the entire understanding of the parties related to the
subject matter hereof. In the event of a conflict between these Terms and
Conditions and any Customer Order executed hereunder, the Customer Order shall
control. These Terms and Conditions shall be governed and construed in
accordance with the laws of the state of Colorado.
8.9 NO WAIVER. No failure by either party to enforce any rights hereunder shall
constitute a waiver of such right.
Page 5 of 17
<PAGE> 6
TERMS AND CONDITIONS
PRIVATE LINE SERVICE
The following Terms and Conditions shall be applicable to metropolitan (local),
city to city (within the United States) and international (from the United
States to another country) private line, non-switchable circuits (the "Private
Line Services") ordered by Customer under any Customer Order.
1. Any state or federal tariffs applicable to the Private Line Services to be
delivered under any Customer Order are incorporated into the terms thereof.
2. The nonrecurring charges and monthly recurring rates for the Private Line
Services provided by Level 3 to Customer shall be set forth in each Customer
Order.
3. Customer hereby agrees to pay for the Private Line Services for the period of
time specified in each Customer Order, which period shall commence with the
initiation of delivery of such Services. The rates and other charges set forth
in each Customer Order are established in reliance on the term commitment made
therein. In the event that Customer terminates Services ordered in any Customer
Order or in the event that the delivery of Services terminated due to a failure
of Customer to satisfy the requirements set forth herein or in the Terms and
Conditions prior to the end of the agreed term, Customer shall (unless Customer
has made a Revenue Commitment) pay a termination charge equal to the termination
or other charges paid or to be paid by Level 3 for services purchased from other
sources used to deliver the Private Line Services to Customer, plus the
percentage of the monthly recurring charges for the terminated Private Line
Services calculated as follows:
A. 100% of the monthly recurring charge that would have been incurred for the
Private Line Service for months 1-12 of the agreed term; plus
B. 75% of the monthly recurring charge that would have been incurred for the
Private Line Service for months 13-24 of the agreed term; plus
C. 50% of the monthly recurring charge that would have been incurred for the
Private Line Service for months 25 through the end of the agreed term.
Customer may, in the event that a Revenue Commitment is made and is then being
satisfied by Customer, terminate, rearrange or reconfigure the Private Line
Services ordered under a Customer Order without payment of the termination
charge specified above; PROVIDED, HOWEVER, that Customer shall be responsible
for payment of Level 3's then-current standard nonrecurring charges for such
termination, rearrangement or reconfiguration.
Page 6 of 17
<PAGE> 7
Standard Service Level Agreement (SLA)
INTERNATIONAL / US NATIONAL PRIVATE LINE
International/National Private Line service will be backed by a Standard Service
Level Agreement that has two components: a Service Delivery SLA and a Network
Performance SLA.
NOTE: The total number of credits per month for both Service Delivery is limited
to four days.
SERVICE DELIVERY SLA
<TABLE>
<CAPTION>
==============================================================================================
US ON-NET CITY STANDARD SERVICE DELIVERY INTERVALS
(US NPLS AND IPL)
==============================================================================================
NX64K, DS1, E1* DS3 0C3/0C12
- ----------------------------------------------------------------------------------------------
US NPLS IPL US NPLS IPL US NPLS IPL
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ON-NET 20 20 30 30 40 30
working working working working working
days days days days days
- ----------------------------------------------------------------------------------------------
OFF-NET BUILDING 30 60 45 60 60 ICB
WITHIN SSA working working working working working
(either end) days days days days days
- ----------------------------------------------------------------------------------------------
OFF-NET BUILDING 30 60 45 60 70 ICB
OUTSIDE SSA (WITHIN working working working working working
50 MILES) days days days days days
(either end)
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
==============================================================================================
US DOMESTIC SERVED STANDARD SERVICE DELIVERY INTERVALS
OFF-NET CITY1
==============================================================================================
DS1 DS3 0C3
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ONE SIDE OF THE 30 working days 45 working days 60 working days (70 days
CIRCUIT IS SERVED BY would apply if the
AN OFF-NET CITY POP customer location served
by the gateway city is
outside of the SSA)
==============================================================================================
</TABLE>
*Off-net building must have DS3 local service availability in order to support
**E1 delivery is available in NYC only and is dependant upon local availability
of E1 delivery
- - Single toll-free number to reach Level 3 Customer Service for all customer
issues, including technical, billing, and product inquiries.
- - Mean Time to Respond - Within 30 minutes
- - 2 hour calendar month Average Time To Repair (MTTR)
If Level 3 fails to meet any of the guarantees above, Level 3 will review all
reported failures at the end of the month, and calculate the applicable credits:
- - Any customer inquiry to the Level 3 Customer Service Center that results in
a Time to Respond of >30 minutes will result in a one day service credit
when the customer notifies Level 3 of the failure.
- - MTTR is calculated as a monthly average. All reported customer trouble
tickets will be totaled over the month, then the average time to close each
ticket will be calculated. If the MTTR is greater than 2 hours, the
customer will receive a one day service credit.
- - Credits will only be applied to events where the Customer reports a failure
to the Level 3 Customer Care organization. Customers must report any
Service Delivery failures within five business days of the event
Page 7 of 17
<PAGE> 8
NETWORK PERFORMANCE SLA
- - 99.99 % Service Availability
- - Target Bit Error Rate(1)
<TABLE>
<S> <C>
End-to-end link (Level 3 on-net) < 1 x 10-11 at T1 Rate (equivalent rate for DS0 1x10-6)
End-to-end link (Non-Level 3 access) < 1 x 10-7 (Dependent on local supplier)
</TABLE>
- - Target Severely Errored Seconds(2)
<TABLE>
<S> <C>
End-to-end link (Level 3 fiber access) < 0.008%
End-to-end link (Non-Level 3 access) < 0.013% (Dependent on local supplier)
</TABLE>
- Availability refers to customer's access point to the Level 3
Backbone Network, including their Level 3 provided local access
circuit.
- Availability does not include regularly scheduled or emergency
maintenance events, or customer caused outages or disruptions.
- Customers may report service unavailability events of longer than 15
consecutive minutes to Level 3 customer service within 48 hours of
the event. If the event is confirmed by Level 3 customer service,
the customer will receive a pro-rated service credit that equals the
time of the unavailability.
NOTES:
- - All measurements are based on monthly averages.
- - These guarantees only apply to the Level 3 Network (including the Local
Access to the customer). They do not apply to off-net city circuits which
do not transit the Level 3 Backbone Network (or the portion the circuit
which does not transit the Level 3 Backbone)
- - This SLA does not apply to periods of regularly scheduled or emergency
maintenance that Level 3 performs on its network or associated hardware
and software.
- - Credits will only be applied to events where the Customer reports a
network performance failure to the Level 3 Customer Care organization.
- - Customers must report any Network Performance failures (unavailability or
delay) within 48 hours (two business days) of the service affecting event
in order to receive a credit. Customers must report any Service Delivery
failures within five business days of the event.
- -----------------------
1 Bit Error Rate Figure excludes periods of more than 10 seconds having
error rates equal to, or worse than 1x10-3
2 Severely Errored Seconds have bit error rates, to, or worse than 1x10-3
TERMS AND CONDITIONS
Page 8 of 17
<PAGE> 9
TELEPHONY COLOCATION
The following Terms and Conditions shall be applicable to Customer's use of
space within Level 3 facilities used for the purpose of colocating
telecommunications equipment (the "Space") ordered by Customer under any
Customer Order.
1. Upon execution and performance of Customer's obligations under a Customer
Order for use of Space, Customer shall be granted the right to occupy the Space
identified therein. Customer may submit multiple Customer Orders requesting use
of different Space, each of which shall be governed by the terms hereof.
2. Customer shall be permitted to use the Space only for placement and
maintenance of communications equipment which shall be interconnected to the
network services offered by Level 3. Customer may use the Space to cross connect
to the facilities of other communications carriers if and only if Level 3 cannot
or will not provide such services to Customer on commercially reasonable terms.
The nonrecurring and monthly recurring charges for the Space and any Services
ordered by Customer shall be set forth in each Customer Order.
3. During the term for use of the Space set forth in each Customer Order,
Customer shall commit to use, order and pay for Level 3 network communications
services (not including monthly recurring fees charged for the use of the Space)
with monthly recurring charges of at least $2,000.00 for each cabinet of Space
ordered by Customer. Customer shall achieve the minimum service level no later
than six (6) months after submission and acceptance of each Customer Order.
Level 3 may terminate use of the Space in the event that Customer does not
satisfy this minimum service commitment.
4. Level 3 shall perform such janitorial services, environmental systems
maintenance, power plant maintenance and other actions as are reasonably
required to maintain the facility in which the Space is located in good
condition which is suitable for the placement of communications equipment.
Customer shall maintain the Space in orderly and safe condition, and shall
return the Space to Level 3 at the conclusion of the term set forth in the
Customer Order in the same condition (reasonable wear and tear excepted) as when
such Space was delivered to Customer. EXCEPT AS EXPRESSLY STATED HEREIN OR IN
ANY CUSTOMER ORDER, THE SPACE SHALL BE DELIVERED AND ACCEPTED "AS IS" BY
CUSTOMER, AND NO REPRESENTATION HAS BEEN MADE BY LEVEL 3 AS TO THE FITNESS OF
THE SPACE FOR CUSTOMER'S INTENDED PURPOSE.
5. The term of use of the Space shall begin on the later to occur of the date
requested by Customer or the date that Level 3 completes the build-out of the
Space. Customer's use of the Space beyond the initial term shall be on a
month-to-month basis, unless Customer and Level 3 have agreed in writing to a
renewal of the right to use such Space.
6. Level 3 shall use reasonable efforts to complete the build-out and make the
Space available to Customer on or before the date requested by Customer. In the
event that Level 3 fails to complete the build-out within sixty (60) days of the
date requested by Customer, then Customer may terminate its rights to use such
Space and receive a refund of any fees paid for the use or build-out of such
Space.
7. Customer shall abide by any posted or otherwise communicated rules relating
to use of, access to, or security measures respecting the Space. In the event
that unauthorized parties gain access to the Space through access cards, keys or
other access devices provided to Customer, Customer shall be responsible for any
damages incurred as a result thereof. Customer shall be responsible for the cost
of replacing any security devices lost or stolen after delivery thereof to
Customer. In addition, Level 3 shall have the right to terminate Customer's use
of the Space in the event that: (a) Level 3's rights to use the facility within
which the Space is located terminates or expires for any reason; (b) Customer
has violated the terms hereof or any Customer Order submitted hereunder; (c)
Customer makes any material alterations to the Space without first obtaining the
written consent of Level 3; (d) Customer allows personnel or contractors to
enter the Space who have not been approved by Level 3 in advance; or (e)
Customer violates any posted or otherwise communicated rules relating to use of
or access to the Space. Level 3 shall use reasonable efforts to notify Customer
of any events that may result in termination of the use of the Space.
8. Customer shall pay all monthly recurring fees, cross-connect fees, power
charges and nonrecurring fees specified in each Customer Order for the agreed
term thereof. In the event that Customer terminates a Customer Order for Space
or in the event that the Customer Order is terminated due to a failure of
Customer to satisfy the requirements set forth herein or in the Customer Order
prior to the end of the agreed term, Customer shall pay a termination charge
equal to the costs incurred by Level 3 in returning the Space to a condition
suitable for use by other parties, plus the percentage of the monthly recurring
fees for the terminated Space calculated as follows:
A. 100% of the monthly recurring fees that would have been charged for the
Space for months 1-12 of the agreed term; plus
B. 75% of the monthly recurring fees that would have been charged for the
Space for months 13-24 of the agreed term; plus
C. 50% of the monthly recurring fees that would have been charged for the
Space for months 25 through the end of the agreed term.
Page 9 of 17
<PAGE> 10
9. Level 3 reserves the right to change the location or configuration of the
Space, provided, however, that Level 3 shall not arbitrarily or discriminatorily
require such changes. Level 3 and Customer shall work in good faith to minimize
any disruption in Customer's services that may be caused by such changes in
location or configuration of the Space.
10. Prior to occupancy and during the term of use of any Space, Customer shall
procure and maintain the following minimum insurance coverage: (a) Workers'
Compensation in compliance with all applicable statutes of appropriate
jurisdiction. Employer's Liability with limits of $500,000 each accident; (b)
Commercial General Liability with combined single limits of $1,000,000 each
occurrence; and (c) "All Risk" Property insurance covering all of Customers
personal property located in the Space. Customer's Commercial General Liability
policy shall be endorsed to show Level 3 (and any underlying property owner, as
requested by Level 3) as an additional insured. All policies shall provide that
Customer's insurers waive all rights of subrogation against Level 3. Customer
shall furnish Level 3 with certificates of insurance demonstrating that Customer
has obtained the required insurance coverages prior to occupancy of the Space.
Such certificates shall contain a statement that the insurance coverage shall
not be materially changed or cancelled without at least thirty (30) days' prior
written notice to Level 3. Customer shall require any contractor entering the
Space on its behalf to procure and maintain the same types, amounts and coverage
extensions as required of Customer above.
11. The liability of Level 3 for damages arising out of the furnishing of Space,
including but not limited to mistakes, omissions, interruptions, delays,
tortious conduct or errors, or other defects arising out of the failure to
furnish Space, whether caused by acts of commission or omission, shall be
limited to a prorated refund of the charges paid by Customer for the use of the
Space hereunder. The extension of such refunds shall be the sole remedy of
Customer and the sole liability of Level 3.
Page 10 of 17
<PAGE> 11
TERMS AND CONDITIONS
IP COLOCATION
The following Terms and Conditions shall be applicable to Customer's use of
space within Level 3 facilities used for the purpose of colocating equipment
used for connection to the internet (the "Space") ordered by Customer under any
Customer Order.
1. Upon execution and performance of Customer's obligations under a Customer
Order for use of Space, Customer shall be granted the right to occupy the Space
identified therein. Customer further agrees to purchase certain communications
services ("Services") identified in Customer Orders for such Services submitted
by Customer hereunder. Customer may submit multiple Customer Orders requesting
use of different Space, each of which shall be governed by the terms hereof.
Services ordered by Customer shall at all times be used by Customer in
compliance with Level 3's then-current Acceptable Use Policy and Privacy Policy,
as amended by Level 3 from time to time and which are available through Level
3's web site.
2. Customer shall be permitted to use the Space only for placement and
maintenance of computer and/or communications equipment which shall be
interconnected to the Services provided by Level 3. Customer may use the Space
to cross connect to the facilities of other communications carriers if and only
if Level 3 cannot or will not provide such services to Customer on commercially
reasonable terms. The nonrecurring and monthly recurring charges for the Space
and the Services shall be set forth in each Customer Order.
3. During the term for use of the Space set forth in each Customer Order,
Customer shall commit to use, order and pay for the following amounts of
bandwidth provided by Level 3: (a) for Customers using cabinets, at least 1 Mbps
of bandwidth for each partial cabinet and at least 2 Mbps of bandwidth for each
full cabinet of Space ordered by Customer; and (b) for Customers using private
rooms, at least 1 Mbps of bandwidth for each 10 square feet of Space ordered by
Customer. Customer shall achieve the minimum service level immediately after
submission and acceptance of each Customer Order. Level 3 may terminate use of
the Space in the event that Customer does not satisfy this minimum service
commitment.
4. Level 3 shall perform such janitorial services, environmental systems
maintenance, power plant maintenance and other actions as are reasonably
required to maintain the facility in which the Space is located in good
condition which is suitable for the placement of communications equipment. In
addition, Customer may order and pay for Level 3 to perform certain limited
("remote hands") maintenance services on Customer's equipment within the space,
which shall be performed in accordance with Customer's directions. "Remote
hands" maintenance services includes power cycling equipment. Level 3 shall in
no event be responsible for the repair, configuration or tuning of equipment, or
for installation of Customer's equipment (although Level 3 will provide
reasonable assistance to Customer in such installation). Customer shall maintain
the Space in orderly and safe condition, and shall return the Space to Level 3
at the conclusion of the term set forth in the Customer Order in the same
condition (reasonable wear and tear excepted) as when such Space was delivered
to Customer. EXCEPT AS EXPRESSLY STATED HEREIN OR IN ANY CUSTOMER ORDER, THE
SPACE SHALL BE DELIVERED AND ACCEPTED "AS IS" BY CUSTOMER, AND NO REPRESENTATION
HAS BEEN MADE BY LEVEL 3 AS TO THE FITNESS OF THE SPACE FOR CUSTOMER'S INTENDED
PURPOSE.
5. The term of use of the Space shall begin on the later to occur of the date
requested by Customer or the date that Level 3 completes the build-out of the
Space. Customer's use of the Space beyond the initial term shall be on a
month-to-month basis, unless Customer and Level 3 have agreed in writing to a
renewal of the right to use such Space. Customer hereby agrees to pay for the
Space and Services for the period of time specified in each Customer Order,
which period shall commence when both completion of the build-out of the Space
and initiation of delivery of such Services has occurred. The rates and other
charges set forth in each Customer Order are established in reliance on the term
commitment made therein. In the event that Customer terminates a Customer Order
for Space or in the event that the Customer Order is terminated due to a failure
of Customer to satisfy the requirements set forth herein or in the Customer
Order prior to the end of the agreed term, Customer shall pay a termination
charge equal to the costs incurred by Level 3 in returning the Space to a
condition suitable for use by other parties, plus the percentage of the monthly
recurring fees for the terminated Space calculated as follows:
a. 100% of the monthly recurring fees that would have been charged for the
Space for months 1-12 of the agreed term; plus
b. 75% of the monthly recurring fees that would have been charged for the
Space for months 13-24 of the agreed term; plus
c. 50% of the monthly recurring fees that would have been charged for the
Space for months 25 through the end of the agreed term.
6. Level 3 shall use reasonable efforts to complete the build-out and make the
Space available to Customer on or before the date requested by Customer. In the
event that Level 3 fails to complete the build-out within sixty (60) days of the
date requested by Customer, then Customer may terminate its rights to use such
Space and receive a refund
Page 11 of 17
<PAGE> 12
of any fees paid for the use or build-out of such Space.
7. Customer shall abide by any posted or otherwise communicated rules relating
to use of, access to, or security measures respecting the Space. In the event
that unauthorized parties gain access to the Space through access cards, keys or
other access devices provided to Customer, Customer shall be responsible for any
damages incurred as a result thereof. Customer shall be responsible for the cost
of replacing any security devices lost or stolen after delivery thereof to
Customer. In addition, Level 3 shall have the right to terminate Customer's use
of the Space or the Services in the event that: (a) Level 3's rights to use the
facility within which the Space is located terminates or expires for any reason;
(b) Customer has violated the terms hereof or of any Customer Order submitted
hereunder; (c) Customer makes any material alterations to the Space without
first obtaining the written consent of Level 3; (d) Customer allows personnel or
contractors to enter the Space who have not been approved by Level 3 in advance;
or (e) Customer violates any posted or otherwise communicated rules relating to
use of or access to the Space. Level 3 shall use reasonable efforts to notify
Customer of any events that may result in termination of the use of the Space or
delivery of Services.
8. Level 3 reserves the right to change the location or configuration of the
Space, provided, however, that Level 3 shall not arbitrarily or discriminatorily
require such changes. Level 3 and Customer shall work in good faith to minimize
any disruption in Customer's services that may be caused by such changes in
location or configuration of the Space.
9. Level 3 provides only access to the Internet; Level 3 does not operate or
control the information, services, opinions or other content of the Internet.
Customer agrees that it shall make no claim whatsoever against Level 3 relating
to the content of the Internet or respecting any information, product, service
or software ordered through or provided by virtue of the Internet.
10. Prior to occupancy and during the term of use of any Space, Customer shall
procure and maintain the following minimum insurance coverage: (a) Workers'
Compensation in compliance with all applicable statutes of appropriate
jurisdiction. Employer's Liability with limits of $500,000 each accident; (b)
Commercial General Liability with combined single limits of $1,000,000 each
occurrence; and (c) "All Risk" Property insurance covering all of Customers
personal property located in the Space. Customer's Commercial General Liability
policy shall be endorsed to show Level 3 (and any underlying property owner, as
requested by Level 3) as an additional insured. All policies shall provide that
Customer's insurers waive all rights of subrogation against Level 3. Customer
shall furnish Level 3 with certificates of insurance demonstrating that Customer
has obtained the required insurance coverages prior to occupancy of the Space.
Such certificates shall contain a statement that the insurance coverage shall
not be materially changed or cancelled without at least thirty (30) days prior
written notice to Level 3. Customer shall require any contractor entering the
Space on its behalf to procure and maintain the same types, amounts and coverage
extensions as required of Customer above.
11. The liability of Level 3 for damages arising out of the furnishing of
Services or the Space, including but not limited to mistakes, omissions,
interruptions, delays, tortious conduct or errors, or other defects arising out
of the failure to furnish Services or Space, whether caused by acts of
commission or omission, shall be limited to a prorated refund of the charges
paid by Customer for the use of the Space hereunder. The extension of such
refunds shall be the sole remedy of Customer and the sole liability of Level 3.
Page 12 of 17
<PAGE> 13
TERMS AND CONDITIONS
INTERNET ACCESS - DEDICATED AND DIAL UP
The following Terms and Conditions shall be applicable to dedicated and dial-up
Internet Access Service (the "Internet Access Services") ordered by Customer
under any Customer Order.
1. Any state or federal tariffs applicable to the Internet Access Services to be
delivered under any Customer Order are incorporated into the terms thereof. The
Internet Access Services shall at all times be used in compliance with Level 3's
then-current Acceptable Use Policy and Privacy Policy, as amended by Level 3
from time to time and which are available through Level 3's web site.
2. The nonrecurring charges and monthly recurring rates for the Internet Access
Services provided by Level 3 to Customer shall be set forth in each Customer
Order.
3. Customer hereby agrees to pay for the Internet Access Services for the period
of time specified in each Customer Order, which period shall commence with the
initiation of delivery of such Internet Access Services. The rates and other
charges set forth in each Customer Order are established in reliance on the term
and/or volume commitment made therein. In the event that Customer terminates
Internet Access Services ordered in any Customer Order or in the event that the
delivery of Internet Access Services is terminated due to a failure of Customer
to satisfy the requirements set forth herein or in the Customer Order prior to
the end of the agreed term, Customer shall (unless Customer has made a Revenue
Commitment) pay a termination charge equal to the termination or other charges
paid or to be paid by Level 3 for services purchased from other sources used to
deliver the Internet Access Services to Customer, plus the percentage of the
monthly recurring charges for the terminated Internet Access Services calculated
as follows:
a. 100% of the monthly recurring charge that would have been incurred for
the Internet Access Service for months 1-12 of the agreed term; plus
b. 75% of the monthly recurring charge that would have been incurred for
the Internet Access Service for months 13-24 of the agreed term; plus
c. 50% of the monthly recurring charge that would have been incurred for
the Internet Access Service for months 25 through the end of the agreed term.
Customer may, in the event that a Revenue Commitment is made and is then being
satisfied by Customer, terminate, rearrange or reconfigure the Internet Access
Services ordered under a Customer Order without payment of the termination
charge specified above; PROVIDED, HOWEVER, that Customer shall be responsible
for payment of Level 3's then-current standard nonrecurring charges for such
termination, rearrangement or reconfiguration.
4. Level 3 provides only access to the Internet; Level 3 does not operate or
control the information, services, opinions or other content of the Internet.
Customer agrees that it shall make no claim whatsoever against Level 3 relating
to the content of the Internet or respecting any information, product, service
or software ordered through or provided by virtue of the Internet.
5. This Section 5 shall apply only to Customers who order Dial-Up Internet
Access Services. The Dial-Up Internet Access Services shall be used only by an
officer, director, employee or agent ("Employee") of Customer. Customer shall
assure that each Employee accessing the Dial-Up Internet Access Service abides
by these Terms and Conditions. Prior to any Employee accessing Dial-Up Internet
Access Services, such Employee will be required to accurately complete an
on-line registration process. During this registration process, each Employee
will be required to identify himself/herself through some means satisfactory to
Level 3. Pursuant to the registration process, by clicking an "ACCEPT" icon,
each Employee will (i) agree to accurately complete the registration; (ii) agree
to abide by all of the provisions, terms, limitations, conditions and
restrictions of these Terms and Conditions; and (iii) agree to use the Dial-Up
Internet Access Services in accordance with any requirements set forth in the
online registration process and for the legitimate business purposes of Customer
only. Each Employee will also receive a password which such Employee will agree
to keep in strict confidence and which will be required whenever accessing the
Dial-Up Internet Access Services.
Page 13 of 17
<PAGE> 14
Standard Service Level Agreement (SLA)
Release 1
INTERNET DEDICATED ACCESS
Dedicated Internet Access service will be backed by a Standard Service Level
Agreement that has two components: a Service Delivery SLA and a Network
Performance SLA.
NOTE: The total number of credits per month for both Service Delivery and
Network Performance is limited to four days.
SERVICE DELIVERY SLA
- - 30 Calendar Day Installation Guarantee for Customers buying Dedicated
Internet Access in speeds from 64 Kbps - 1.544 Kbps within the Standard
Service Area..
- - 45 Calendar Day Installation Guarantee for Customers buying Dedicated
Internet Access in speeds from 3 Mbps - 45 Mbps within the Standard Service
Area.
- - Single toll-free number to reach Level 3 Customer Service for all customer
issues, including technical, billing, and product inquiries.
- - Time to Respond - Within 30 minutes
- - 2 hour calendar month Average Time To Repair (ATTR)
If Level 3 fails to meet any of the guarantees above, Level 3 will review all
reported failures at the end of the month, and calculate the applicable credits:
- - Any customer inquiry to the Level 3 Customer Service Center that results in
a Time to Respond of >30 minutes will result in a one day service credit
when the customer notifies Level 3 of the failure.
- - ATTR is calculated as a monthly average. All reported customer trouble
tickets will be totaled over the month, then the average time to close each
ticket will be calculated. If the ATTR is greater than 2 hours, the
customer will receive a one day service credit.
- - Credits will only be applied to events where the Customer reports a failure
to the Level 3 Customer Care organization. Customers must report any
Service Delivery failures within five business days of the event.
NETWORK PERFORMANCE SLA
- - SERVICE AVAILABILITY
- Availability refers to customer's access point to the Level 3
Internet network, including their Level 3 provided local access
circuit, and the customer's port.
- Unavailability Events are defined as any outage of the Level 3
provided local access circuit and the customer's port of longer than
15 consecutive minutes.
Page 14 of 17
<PAGE> 15
- The Availability Guarantee does not extend to the performance of
Internet networks controlled by other companies, or traffic exchange
points (including NAPs and MAEs) which are controlled by other
companies.
- Availability does not include regularly scheduled or emergency
maintenance events, or customer caused outages or disruptions.
- Customers may report service unavailability events of longer than 15
consecutive minutes to Level 3 customer service within 48 hours of
the event. If the event is confirmed by Level 3 customer service,
the customer will receive a pro-rated service credit that equals the
time of the unavailability.
- - 40 MS ONE-WAY DELAY GUARANTEE
- The Delay guarantee refers to the average delay parameters among the
Level 3 Gateway sites in the United States. It does not extend to
the customer's local access circuit, transit or peering connections,
or to circuits to the traffic exchange points, including NAPs and
MAEs.
- Delay is measured as the average delay, over a calendar month, of
traffic between all major Gateways on the Level 3 U.S. Internet
network.
- Level 3 will publicly report the Average Monthly Delay measurement
for the Level 3 U.S. Internet Network at the end of every month.
- If the customer reports that Level 3 has failed to meet the Delay
guarantee, and this is confirmed by Level 3 customer service, the
customer will be issued one day service credit.
NOTES:
- - All measurements are based on monthly averages.
- - These guarantees only apply to the Level 3 Internet Network. They do not
apply to NAP or transit connections, or to any traffic once it leaves the
Level 3 network.
- - This SLA does not apply to periods of regularly scheduled or emergency
maintenance that Level 3 performs on its network or associated hardware
and software.
- - Credits will only be applied to events where the Customer reports a
network performance failure to the Level 3 Customer Care organization.
- - Customers must report any Network Performance failures (unavailability or
delay) within 48 hours (two business days) of the service affecting event
in order to receive a credit. Customers must report any Service Delivery
failures within five business days of the event.
Page 15 of 17
<PAGE> 16
TERMS AND CONDITIONS
MANAGED MODEM -- DEDICATED, QUICKSTART AND TRANSIT SERVICES
The following Terms and Conditions shall be applicable to services required to
allow access to "Dedicated Services," "Dedicated Service with QuickStart" and
"Transit Services" as offered by Level 3 (the "Managed Modem Services") ordered
by Customer under any Customer Order.
1. Any state or federal tariffs applicable to the Managed Modem Services to be
delivered under any Customer Order are incorporated into the terms thereof. The
Managed Modem Services shall at all times be used in compliance with Level 3's
then-current Acceptable Use Policy and Privacy Policy, as amended by Level 3
from time to time and which are available through Level 3's web site.
2. In the event Customer orders "Dedicated Service," end user traffic will be
routed through and aggregated in Level 3's facility, sent to the Customer's
Premises via a dedicated circuit, and then routed to its final destination by
Customer. In the event that Customer orders "Transit Services," End User traffic
will be routed to Level 3's facility and then routed to its final destination by
Level 3 via the Internet. Dedicated Service with "QuickStart" will initially be
provisioned to the Customer in the same fashion as Transit Services, until such
time as Level 3 has provisioned the dedicated circuit to send end user traffic
from Level 3's facility to the Customer's Premises. QuickStart will then be
migrated to standard Dedicated Service. Customers ordering Dedicated Services
will be required to make a portion of the Premises available to Level 3 for the
placement of equipment necessary to provide such Dedicated Services. For
Dedicated Service, all Customer CPE as well as the private line necessary to
support this service will be ordered, installed and managed by Level 3. Any
telephone numbers assigned to Customer for the purpose of providing Managed
Modem Services hereunder shall be property of Customer; PROVIDED, however, that
Level 3 shall be obligated to release such numbers to Customer upon expiration
or termination hereof if and only if Customer is then in compliance with all of
the terms contained herein or in the Standard Terms and Conditions.
3. The nonrecurring charges and monthly recurring rates for the Managed Modem
Services provided by Level 3 to Customer shall be set forth in each Customer
Order. Level 3 will dedicate the specified number of ports to Customer in the
Level 3 facilities as identified in each Customer Order. Customer may be
responsible for additional monthly charges if Customer's use of the Managed
Modem Services requires and utilizes more ports than the number committed to and
ordered by Customer.
4. Customer hereby agrees to pay for the Services for the period of time
specified in each Customer Order, which period shall commence with the
initiation of delivery of such Managed Modem Services. The rates and other
charges set forth in each Customer Order are established in reliance on the term
commitment made therein. In the event that Customer terminates Managed Modem
Services ordered in any Customer Order or in the event that the delivery of
Managed Modem Services is terminated due to a failure of Customer to satisfy the
requirements set forth herein or in the Customer Order prior to the end of the
agreed term, Customer shall (unless Customer has made a Revenue Commitment) pay
a termination charge equal to the termination or other charges paid or to be
paid by Level 3 for services purchased from other sources used to deliver the
Managed Modem Services to Customer, plus the percentage of the monthly recurring
charges for the terminated Managed Modem Services calculated as follows:
a. 100% of the monthly recurring charge that would have been incurred for
the Managed Modem Service for months 1-12 of the agreed term; plus
b. 75% of the monthly recurring charge that would have been incurred for the
Managed Modem Service for months 13-24 of the agreed term; plus
c. 50% of the monthly recurring charge that would have been incurred for the
Managed Modem Service for months 25 through the end of the agreed term.
Customer may, in the event that a Revenue Commitment is made and is then being
satisfied by Customer, terminate, rearrange or reconfigure the Managed Modem
Services ordered under a Customer Order without payment of the termination
charge specified above; PROVIDED, HOWEVER, that Customer shall be responsible
for payment of Level 3's then-current standard nonrecurring charges for such
termination, rearrangement or reconfiguration.
5. Level 3 provides only access to the Internet; Level 3 does not operate or
control the information, services, opinions or other content of the Internet.
Customer agrees that it shall make no claim whatsoever against Level 3 relating
to the content of the Internet or respecting any information, product, service
or software ordered through or provided by virtue of the Internet.
Page 16 of 17
<PAGE> 17
Standard Service Level Agreement (SLA)
Release 1
MANAGED MODEM
Managed Modem service will be backed by a Service Delivery SLA.
NOTE: The total number of credits per month is limited to four days.
SERVICE DELIVERY SLA
- - 30 Calendar Day Installation Guarantee for Customers buying Managed Modem
service in speeds from 64 Kbps - 1.544 Kbps within the Standard Service
Area.
- - 45 Calendar Day Installation Guarantee for Customers buying Managed Modem
service in speeds from 3 Mbps - 45 Mbps within the Standard Service Area.
- - Single toll-free number to reach Level 3 Customer Service for all customer
issues, including technical, billing, and product inquiries.
- - Time to Respond - Within 30 minutes
- - 2 hour calendar month Average Time To Repair (ATTR)
If Level 3 fails to meet any of the guarantees above, Level 3 will review all
reported failures at the end of the month, and calculate the applicable credits:
- - Any customer inquiry to the Level 3 Customer Service Center that results in
a Time to Respond of >30 minutes will result in a one day service credit
when the customer notifies Level 3 of the failure.
- - ATTR is calculated as a monthly average. All reported customer trouble
tickets will be totaled over the month, then the average time to close each
ticket will be calculated. If the ATTR is greater than 2 hours, the
customer will receive a one day service credit.
- - Credits will only be applied to events where the Customer reports a failure
to the Level 3 Customer Care organization. Customers must report any
Service Delivery failures within five business days of the event.
Page 17 of 17
<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.
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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 fifty percent (50%) of the
aggregate of the Monthly Minimum(s) (and fifty percent (50%) 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.
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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
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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
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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
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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.
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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 six
(6) months (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:
the monthly recurring charge for such circuit(s) multiplied by six (6) minus the
monthly recurring charge for such circuit multiplied by the number of months
installed. 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)
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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
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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
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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.
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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 waive installation charges for circuits; provided, however, if Customer
terminates any circuit prior to twelve (12) months, 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.
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<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
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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.
MCI WORLDCOM CONFIDENTIAL
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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
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<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. In the event of early cancellation of a Term Commitment, Customer
will be required to pay 75% of UUNET's standard Monthly Fee for each month
remaining in the Term Commitment. 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. In the event of early cancellation of a Term Commitment, Customer
will be required to pay 75% of UUNET's standard Monthly Fee for each month
remaining in the Term Commitment. 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
<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. In the event of early cancellation of a Term Commitment, Customer
will be required to pay 75% of UUNET's standard Monthly Fee for each month
remaining in the Term Commitment. 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
<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
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<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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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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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 12 Months 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:
- --------
[***] 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> 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.
- --------
[***] 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> 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. Non Recurring Installation Charge Waiver. AT&T will waive
the Nonrecurring Installation Charges associated with the
installation of certain Services or service components
provided under this Attachment. No waiver applies to
Services or service components 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 service components
installed subject to a waiver of Installation
Charges. If any such service component is
disconnected prior to the end of the Minimum In-
Service Period, CUSTOMER will be billed for the
Installation Charges previously waived for that
service component.
- --------
[***] 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
2. Charges Covered by Waiver. This Installation Charge Waiver
applies only to the following charges that would otherwise
be incurred for Services provided under this Attachment:
(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
- --------
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.
A. If CUSTOMER terminates this Attachment prior to the end of the
Term, or if AT&T terminates this Attachment or the Service
provided under this Attachment prior to the end of the Term due
to CUSTOMER's breach of the Agreement, CUSTOMER will be billed a
Termination Charge. The Termination Charge will be an amount
equal to 50% of the unsatisfied Minimum Revenue Commitment(s)
for the Commitment Period(s) in which the termination occurs,
plus 50% of the Minimum Revenue Commitments for each Commitment
Period remaining in the Term. In addition, CUSTOMER will be
billed an amount equal to the sum of any credits provided under
this Attachment.
End of Attachment
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Not for Publication - All Rights Reserved
<PAGE> 1
EXHIBIT 23.1
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 schedule 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 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
March 13, 2000
