<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1999.
Registration No. 333-63787
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Amendment No. 2
to
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
OnePoint Communications Corp.
OnePoint Communications Holdings, LLC
OnePoint Communications--Georgia, LLC
OnePoint Communications--Illinois, LLC
OnePoint Communications--Colorado, LLC
VIC-RMTS-DC, LLC
(Exact name of registrants as specified in their charter or operating
agreement)
Delaware 4813 36-4225811
Delaware 4813 36-4152762
Delaware 4813 36-4141380
Delaware 4813 36-4115274
Delaware 4813 36-4149806
Delaware 4813 36-4134906
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Number)
organization) --------------
2201 Waukegan Road, Suite E200, Bannockburn, Illinois 60015
Telephone: (847) 374-3700
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
--------------
John D. Stavig
2201 Waukegan Road, Suite E200, Bannockburn, Illinois 60015
Telephone: (847) 374-3700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copy to:
Laurie T. Gunther
Kirkland & Ellis
200 East Randolph Drive, Chicago, Illinois 60601
Telephone: (312) 861-2000
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If any securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, 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 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(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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Title of Maximum Aggregate Amount of
Securities to be Amount to Offering Price Offering Registration
Registered be Registered Per Unit(1) Price(1) Fee(2)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
14 1/2% Senior Notes due
2008, Series B........ $101,750,000 100% $101,750,000 $28,286
- ------------------------------------------------------------------------------------
Guarantees of 14 1/2%
Senior Notes due 2008,
Series B.............. $101,750,000 (3) (3) None
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</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
(2) A fee of $51,625 was paid on September 19, 1998.
(3) No further fee is payable pursuant to Rule 457(n).
--------------
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrants
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement +
+becomes effective. This prospectus shall not constitute an offer to sell or +
+the solicitation of an offer to buy nor shall there be any sale of these +
+securities in any State in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 30, 1999
PRELIMINARY PROSPECTUS
, 1999
OnePoint Communications Corp.
Offer to Exchange its 14 1/2% Senior Notes due 2008, Series B
for any and all of its outstanding 14 1/2% Senior Notes due 2008.
The Exchange Offer will expire at 5:00 p.m., New York City time, on ,
1999, unless extended.
OnePoint Communications Corp., a Delaware corporation ( the "Company") hereby
offers (the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 14 1/2%
Senior Notes due 2008, Series B (the "Exchange Notes"), registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for each $1,000
principal amount of its outstanding 14 1/2% Senior Notes due 2008 (the "Old
Notes"), of which $101,750,000 principal amount is outstanding. The form and
terms of the Exchange Notes are the same as the form and term of the Old Notes
except that (i) the Exchange Notes will bear a Series B designation and a
different CUSIP number than the Old Notes, (ii) the Exchange Notes will have
been registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (iii) holders of the Exchange Notes will
not be entitled to certain rights of holders of Old Notes under the
Registration Rights Agreements (as defined). The Exchange Notes will evidence
the same debt as the Old Notes (which they replace) and will be issued under
and be entitled to the benefits of the Indenture dated as of May 21, 1998 (the
"Indenture") by and among the Company, the Subsidiary Guarantors (as defined)
and Harris Trust and Savings Bank, as trustee, governing the Old Notes. The Old
Notes and the Exchange Notes are sometimes referred to herein collectively as
the "Notes." See "The Exchange Offer" and "Description of the Notes."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on , 1999,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
See "The Exchange Offer."
Interest on the Notes will accrue from their date of original issuance and
will be payable semiannually in arrears on June 1 and December 1 of each year,
commencing June 1, 1999, at the rate of 14 1/2% per annum. The Notes will
mature on June 1, 2008. The Notes are redeemable, in whole or in part, at the
option of the Company on or after June 1, 2003, at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. In addition, prior to June 1, 2001, the Company, at its option, may
redeem up to 35% of the aggregate principal amount of the Notes originally
issued with the net cash proceeds of one or more public or private public or
private offerings of Common Stock by the Company generating net cash proceeds
to the Company in excess of $20.0 million at a redemption price equal to 114.5%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of redemption; provided that at least 65% of the aggregate principal
amount of the Notes originally issued remains outstanding following such
redemption. See "Description of the Notes."
In the event of a Change of Control, the holders of the Notes have the right
to require the Company to purchase the Notes at a price equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase. There can be no assurances
that, in the event of a Change of Control, the Company will have or will have
access to adequate funds to repurchase the Notes.
The Exchange Notes will be, as the Old Notes (which they replace) are, senior
obligations of the Company, and will, as the Old Notes (which they replace),
rank pari passu in right of payment with all existing and future unsubordinated
Indebtedness (as defined herein) of the Company and senior in right of payment
to any
(cover continued on following page)
-----------
See "Risk Factors" beginning on page 13 for a description of certain risks to
be considered by holders who tender their Old Notes in the Exchange Offer.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMIS-
SION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADE-
QUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
(cover page continued)
subordinated Indebtedness of the Company. As of September 30, 1998, the
Company had no senior Indebtedness (as defined) other than the Notes. The
Notes will be fully and unconditionally guaranteed (the "Subsidiary
Guarantees") by all Restricted Subsidiaries (as defined) of the Company
(together, the "Subsidiary Guarantors"). The Subsidiary Guarantees will be
general unsecured obligations of the Subsidiary Guarantors, will rank senior
in right of payment to any subordinated Indebtedness of the Subsidiary
Guarantors and pari passu with any unsubordinated Indebtedness of the
Subsidiary Guarantors. The Subsidiary Guarantors currently have no
Indebtedness outstanding. See "Description of Notes."
$175.0 million of the Old Notes were sold by the Company on May 21, 1998 to
Bear Stearns & Co. Inc. and NationsBanc Montgomery Securities LLC (the
"Initial Purchasers") pursuant to the offering (the "Initial Offering") of
Units (the "Units"), each consisting of $1,000 principal amount of Old Notes
and a Warrant to purchase 0.635 shares of the common stock of the Company (a
"Warrant"). The Initial Offering was made in a transaction not registered
under the Securities Act in reliance upon an exemption under the Securities
Act. The Initial Purchasers subsequently placed the Old Notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities Act.
Accordingly, the Old Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The Exchange Notes are being offered hereunder in
order to satisfy the obligations of the Company and the Subsidiary Guarantors
under the Registration Rights Agreements entered into by the Company, the
Subsidiary Guarantors and the Initial Purchasers in connection with the
Initial Offering (the "Registration Rights Agreements"). See "The Exchange
Offer."
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and such holder
has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. See "The Exchange Offer--Resale of the
Exchange Notes." The Company has not, and does not plan to, submit a request
for its own no-action letter. Holders of Old Notes wishing to accept the
Exchange Offer must represent to the Company, as required by the Registration
Rights Agreements, that such conditions have been met. Each broker-dealer (a
"Participating Broker-Dealer") that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date, it will make this Prospectus available to any
Participating Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution."
Holder of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Company
will not receive any proceeds from the Exchange Offer. The Company has agreed
to bear the expenses of the Exchange Offer. No underwriter is being used in
connection with the Exchange Offer.
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors--Absence of a Public Market
Could Adversely Affect the Value of the Old Notes
ii
<PAGE>
and the Exchange Notes." Moreover, to the extent that Old Notes are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted Old Notes could be adversely affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SUBSIDIARY GUARANTORS. NEITHER THE DELIVERY
OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
THE EXCHANGE NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM.
EXCEPT AS DESCRIBED UNDER "BOOK--ENTRY; DELIVERY AND FORM", THE COMPANY
EXPECTS THAT THE EXCHANGE NOTES ISSUED PURSUANT TO THE EXCHANGE OFFER WILL BE
REPRESENTED BY A GLOBAL NOTES (AS DEFINED), WHICH WILL BE DEPOSITED WITH, OR
ON BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC") AND REGISTERED IN ITS NAME
OR IN THE NAME OF EUROCLEAR SYSTEM AND CEDEL, SOCIETE ANONYME, ITS NOMINEES.
BENEFICIAL INTERESTS IN THE GLOBAL NOTES REPRESENTING THE EXCHANGE NOTES WILL
BE SHOWN ON, AND TRANSFERS THEREOF WILL BE EFFECTED THROUGH, RECORDS
MAINTAINED BY DTC AND ITS PARTICIPANTS. AFTER THE INITIAL ISSUANCE OF THE
GLOBAL NOTES, NOTES IN CERTIFICATED FORM WILL BE ISSUED IN EXCHANGE FOR THE
GLOBAL NOTES ONLY UNDER LIMITED CIRCUMSTANCES AS SET FORTH IN THE INDENTURE.
SEE "BOOK--ENTRY; DELIVERY AND FORM."
PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES ARE NOT TO CONSTRUE THE CONTENTS
OF THIS PROSPECTUS AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD
CONSULT ITS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX,
BUSINESS, FINANCIAL AND RELATED ASPECTS OF THE EXCHANGE NOTES. NEITHER THE
COMPANY NOR ANY OF THE SUBSIDIARY GUARANTORS IS MAKING ANY REPRESENTATION TO
ANY PROSPECTIVE INVESTOR IN THE EXCHANGE NOTES REGARDING THE LEGALITY OF AN
INVESTMENT THEREIN BY SUCH PERSON UNDER APPROPRIATE LEGAL INVESTMENT OR
SIMILAR LAWS.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the Exchange Offer contemplated hereby. This Prospectus does not contain all
the information set forth in the Exchange Offer Registration Statement. For
further information with respect to the Company and the Exchange Offer,
reference is made to the Exchange Offer Registration Statement. The material
provisions of all relevant contracts, agreements or other documents are
summarized herein. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the
document or matter involved, and each such statement shall be deemed qualified
in its entirety by such reference.
iii
<PAGE>
The Exchange Offer Registration Statement, including the exhibits thereto,
and periodic reports and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and inspected at the Commission's regional offices at 7 World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60601. Copies of such
materials can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
As a result of the Exchange Offer Registration Statement being declared
effective by the Commission, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
periodic reports and other information with the Commission. The obligation of
the Company to file periodic reports and other information with the Commission
will be suspended if the Exchange Notes are held of record by fewer than 300
holders as of the beginning of any fiscal year of the Company other than the
fiscal year in which the Exchange Offer Registration Statement is declared
effective. The Company has agreed that, whether or not it is required to do so
by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the holders of such Notes and, to the
extent permitted by applicable law or regulation, file with the Commission (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company was required to file such Forms, including for each a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereof by the Company's
independent certified public accountants and (ii) all reports that would be
required to be filed on Form 8-K if it were required to file such reports. In
addition, for so long as any of the Notes remain outstanding, the Company has
agreed to make available upon request to securities analysts and any
prospective purchaser of the Notes or beneficial owner of the Notes, in
connection with any sale thereof, the information required by Rule 144A(d)(4)
under the Securities Act.
The Company, a corporation organized under the laws of the state of
Delaware, has its principal executive office located at 2201 Waukegan Road,
Suite E200, Bannockburn, Illinois; telephone number is (847) 374-3700.
iv
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the consolidated financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Prospective investors should carefully consider the factors set
forth in "Risk Factors." As the context requires, references in this Prospectus
to the "Company" or "OnePoint" shall mean OnePoint Communications, LLC or
OnePoint Communications Corp., its successor by merger, and the subsidiaries in
which the Company has a greater than 50% interest. Unless otherwise indicated,
all information contained in this Prospectus has been adjusted to give effect
to the Recapitalization (as defined below).
The Company
OnePoint Communications Corp. is a rapidly growing provider of bundled
telephony and video services to residents of multi-dwelling unit buildings
("MDUs") in high growth, densely populated urban and suburban markets. The
Company offers MDU residents bundled telephony and video services at moderate
to significant discounts to prices charged by incumbent local exchange carriers
("ILECs"), interexchange carriers ("IXCs") or franchise cable providers with
the convenience of "one point" of contact and a single integrated bill for such
multiple services. OnePoint seeks to offer bundled telephony and video services
by entering into long-term contracts providing preferential rights for on-site
marketing of telephony and video services (with respect to each service, a
"Right of Entry" for the MDU and a "passing" for each residential unit therein)
with national real estate investment trusts ("REITs") and other MDU property
owners, developers and managers (each, an "MDU Manager") and, where
appropriate, by acquiring private cable television operators having exclusive
video Rights of Entry for MDUs. Where the Company is initially unable to obtain
video Rights of Entry, it may pursue alternative arrangements, such as co-
marketing with the incumbent operator, in order to provide bundled services.
The Company was founded in 1996 with a $35 million investment, primarily from
a subsidiary of SBC Communications Inc. ("SBC") (the sole stockholder of
Southwestern Bell Telephone Co. ("Southwestern Bell"), a regional Bell
operating company ("RBOC")). SBC currently indirectly owns 19.7% of the Common
Stock of the Company. The remaining 80.3% of the Company's Common Stock is
indirectly owned by James A. Otterbeck, the Company's Chairman and Chief
Executive Officer.
Through December 1998, the Company had entered into long term contracts with
7 national REITs and numerous other MDU Managers providing for approximately
207,500 telephony passings and 30,000 video passings in 1,048 MDUs in the
Company's 6 targeted markets. From February to June 1997, the Company made
investments totalling approximately $12.0 million in Mid-Atlantic Telcom Plus,
LLC ("Mid-Atlantic"), a large private cable television operator with
approximately 50,000 subscribers in the Washington/Baltimore/ Philadelphia
metropolitan area. The Company currently holds an approximately 41.4% equity
interest in Mid-Atlantic. As a result of its interest in Mid-Atlantic, the
Company is able to market local and long distance telephony services to Mid-
Atlantic's passings.
The Company's current targeted markets are Atlanta; Charlotte/Raleigh/Durham;
Chicago; Denver; Phoenix; and Washington/Baltimore/Philadelphia, in each of
which it has aggregated over 15,000 telephony passings. The Company is an
authorized competitive local exchange carrier ("CLEC") and has obtained
authority for the resale of local exchange services in eleven states (Colorado,
Delaware, Florida, Georgia, Illinois, Maryland, North Carolina, Pennsylvania,
South Carolina, Tennessee and Virginia) and the District of Columbia.
Additionally, it has applied for CLEC status in Arizona and is permitted to
provide telecommunications services there while its application is pending.
The Company offers a wide range of services, including local telephony,
domestic and international long distance telephony, cellular telephony and
cable and Direct Broadcast Satellite ("DBS") television. The
1
<PAGE>
Company also enhanced its bundled product offering by offering high-speed
Internet access service on a trial basis during 1998. The Company currently
delivers telephony services exclusively through resale of services offered by
ILECs and an IXC. During 1999, the Company expects to begin selectively
replacing its resale platform with higher margin facilities-based services as
warranted by subscriber traffic levels. Video services are delivered through
Satellite Master Antenna Television ("SMATV") or DBS systems and point-to-point
18GHz microwave links. See "Business--The Company".
Key Strategic Relationships
The Company has several relationships and agreements which management
believes offer significant advantages, including:
SBC. The terms of certain contracts pursuant to which SBC purchases
products and services are available to the Company and other entities in
which SBC has a sufficient equity interest. Through such arrangements,
OnePoint purchases long distance service from an IXC and has leveraged
SBC's procurement function to purchase telecommunications equipment. As the
Company invests selectively in a facilities-based telephony strategy,
management believes the Company may be able to obtain further cost
advantages in the purchase of telephony equipment based on similar
arrangements with vendors. The Company's ability to purchase services and
equipment under these arrangements is dependent upon (i) SBC's continued
ownership of an equity interest in the Company which meets or exceeds the
definition of "affiliate" in the underlying contracts and (ii) the
continuation of the current underlying SBC contracts or their replacement
by SBC with contracts having comparable terms. In addition, SBC has
guaranteed the Company's payment obligations under its $9 million secured
bank credit facility (the "Credit Facility") with The Northern Trust
Company ("Northern Trust") and two of the Company's leases for office
space.
Mid-Atlantic. In late 1997, the Company and Mid-Atlantic began joint
marketing of telephony and video services to Mid-Atlantic's passings in the
Washington/Baltimore /Philadelphia metropolitan area.
Relationships with National REITs. Management estimates that the seven
national REITs, including Equity Residential Properties Trust and AIMCO,
with which the Company has entered into agreements providing for telephony
Rights of Entry control approximately 10% of the MDUs in the Company's
targeted markets. The Company seeks to obtain video and/or Internet Rights
of Entry for the buildings in which it has telephony Rights of Entry, and
believes its relationships with such REITs and other MDU Managers will be a
competitive advantage in obtaining video Rights of Entry (when existing
agreements expire or are otherwise terminated) and Internet Rights of
Entry. See "Business--Key Strategic Relationships."
Market Opportunity
MDUs comprise a wide variety of high density residential complexes, including
high and low-rise apartment buildings, condominiums and cooperatives. According
to the U.S. Census Bureau, over 24 million residential housing units were
included in these categories as of 1990 and an additional 1.3 million new
apartments were completed from 1991 to 1997. Of the over 24 million units
nationwide as of 1990, approximately 2.8 million were within the Company's
existing or targeted markets. See "Business--Market Opportunity."
Business Strategy
OnePoint's objective is to be a leading provider of bundled telephony and
video services to MDU residents in selected markets. The key elements of the
Company's strategy are as follows:
2
<PAGE>
. Focus on Dense Concentrations of Demographically Attractive Customers.
The Company targets high revenue potential "A" and "B" properties in
markets where it can aggregate at least 10,000 telephony and/or video
passings. High customer density reduces per-unit capital costs and
increases the efficiency of the Company's sales, marketing, installation
and repair efforts.
. Utilize a "Smart-Build" Strategy to Expedite Customer Acquisition and
Minimize Initial Investment Risk. OnePoint seeks to minimize initial
investment risk by developing a subscriber base in its markets prior to
making significant investments in telephony switching, transport and
digital loop carrier equipment. Telephony services are currently
delivered through a resale platform. The Company plans to replace
selectively its resale platform with higher margin facilities-based
services as warranted by subscriber traffic levels and the availability
of alternative network facilities within each market. The Company plans
to move toward a network design based on Company-owned switches and
leased unbundled network elements ("UNEs") including transmission
facilities, on an incremental basis. Video services are provided through
SMATV and DBS systems and point-to-point 18GHz microwave links.
Management believes that this "smart-build" strategy reduces up-front
capital expenditures, expedites entry into markets and MDUs and allows
the Company to take advantage of evolving regulatory and technical
developments.
. Leverage SBC Affiliation. The Company realizes significant benefits from
favorable costs on certain services and equipment made available to SBC
and its affiliates by third party vendors. The availability of these
favorable costs is dependent upon (i) SBC's continued ownership of an
equity interest in the Company which meets or exceeds the definition of
"affiliate" in the underlying contracts and (ii) the continuation of the
current underlying SBC contracts or their replacement by SBC with
contracts having comparable terms. Through such arrangements, the
Company currently purchases wholesale long distance telephony service at
the prices negotiated by SBC and has purchased telecommunications
equipment. The Company also benefits from SBC's technical and regulatory
expertise as well as access to personnel with specialized knowledge.
. Build Customer Base Through Long-Term Contracts. OnePoint enters into
long-term contracts with MDU Managers providing Rights of Entry for
telephony and video services. The Company's bundled telephony and video
services should benefit MDU Managers by differentiating their properties
and potentially raising rental values. OnePoint also provides revenue
sharing programs for property owners and commissions, and training and
support for on-site leasing consultants at the MDUs it serves. The
Company also seeks to become the exclusive video service provider to the
buildings in which it has telephony Rights of Entry, and believes its
relationships with MDU Managers will be a competitive advantage in
obtaining video Rights of Entry (when existing agreements with other
providers expire or are otherwise terminated) and Internet Rights of
Entry.
. Build Customer Base Through Acquisitions. The Company believes it can
further build its customer base by acquiring established private cable
television operators with MDU video Rights of Entry, or by acquiring
assets from such operators. The Company believes it can cross-sell its
local and long distance telephony services to acquired video subscribers
by promoting the convenience of a single point of contact, integrated
billing and pricing incentives.
. Increase Revenue Through Bundling, Creative Marketing and Cross-
Promotions. OnePoint seeks to increase revenue by offering customers
incentives to purchase bundled services, such as discounted video
services for long-distance subscribers and all-in-one bundled prices for
local and long distance telephony and video services. Management believes
the bundling of telephony and video services leverages sales, marketing
and servicing costs, increases market penetration, reduces churn and
improves account collections.
. Provide Superior Customer Care. The Company seeks to provide customer
care that is superior to that of incumbent providers, including prompt,
courteous repair service, a single toll-free number for telephony and
video customer service and "hassle-free" installation. See "Business--
Business Strategy."
3
<PAGE>
Management Expertise
OnePoint believes that its management and operations team is a critical
component of its initial success and will continue to be a key element of
differentiation for the Company. The Company has built an aggressive and
experienced management team with extensive prior experience at ILECs, CLECs,
IXCs and cable television companies, including MFS Communications Company, MCI
WorldCom, Inc. ("MCI WorldCom"), Sprint Communications Co. ("Sprint") and AT&T
Corp. ("AT&T"), among others. See "Business--Management Expertise" and
"Management."
Financing Strategy
The Company used approximately $80.5 million of the net proceeds from the
Initial Offering to fund the purchase of a portfolio of U.S. government
securities (the "Pledged Securities"), which is intended to provide funds
sufficient to pay in full when due the first seven scheduled interest payments
on the Notes. The Pledged Securities are pledged as security for the repayment
of principal of and interest on the Notes, Liquidated Damages, if any, and all
other obligations under the Indenture. See "Use of Proceeds" and "Description
of the Exchange Notes--Interest Reserve." Other proceeds have been, or will be,
used to acquire private cable television operators or their assets, to invest
in video infrastructure, to invest selectively in a facilities-based platform
for telephony services, to repay borrowings under the Credit Facility (which
were reborrowed on December 14, 1998), to fund future capital calls by Mid-
Atlantic, to fund working capital, to repurchase Notes and for general
corporate purposes, including operating losses. The Company expects that its
current financing will be sufficient to meet its operational rollout plans for
the next twelve months. There can be no assurance that the Company will be
successful in raising sufficient additional debt or equity capital if
necessary, or of the terms of any such capital. Failure to raise and generate
sufficient funds may require the Company to delay or abandon some of its
planned future expansion or expenditures, which could have a material adverse
effect on the Company's growth and its ability to compete in the telephony and
video industry.
Recent Developments
In June 1998, the Company, through a wholly owned subsidiary, entered into a
definitive agreement to acquire substantially all of the assets used by
People's Choice TV Corp. ("PCTV") and Preferred Entertainment, Inc. to provide
video service to MDUs in Chicago. Pursuant to the agreement, the Company
acquired approximately 27,800 video passings in 160 properties in July through
October (the "PCTV Acquisition").
On November 6, 1998, the Warrants were separated from the Notes.
Between November 9, 1998 and March 5, 1999, the Company repurchased $73.25
million in principal amount of Notes in the open market (the "Note
Repurchases") for an aggregate total cost of $38.4 million. The Company
recognized an extraordinary gain on the early extinguishment of this debt of
$19.8 million in the fourth quarter of 1998 and will recognize an extraordinary
gain of approximately $12.4 million in the first quarter of 1999. Pursuant to
the restricted securities agreement entered into in connection with the
issuance of the Senior Notes, the trustee of the Pledged Securities released
approximately $26.7 million of such securities on February 24, 1999 upon
request by the Company.
On November 18, 1998, the Notes began accruing Liquidated Damages as a result
of the failure of the Exchange Offer Registration Statement to be declared
effective by the SEC.
In December, 1998 the Company borrowed $8.75 million and a $250,000 letter of
credit was issued on its behalf under the Credit Agreement.
The Company is at various stages of discussion with respect to other
potential acquisitions in its targeted markets but is not a party to a purchase
agreement or letter of intent with respect thereto. The Company is also
4
<PAGE>
negotiating letters of intent with franchise cable television operators in its
targeted markets providing for co-marketing of local and long distance
telephony services to residents of the MDU passings served by these franchise
cable television operators.
The Recapitalization
The Company is the successor to OnePoint Communications, LLC (the
"Predecessor"). The Predecessor was originally formed in 1996 by Ventures in
Communications, L.L.C. ("VIC"), and AMI-VCOM2, Inc. ("AMI2"). Through a series
of transactions from the fourth quarter of 1997 through April 1998, VenCom,
L.L.C. acquired an equity interest in the Predecessor, and the Predecessor was
recapitalized and merged with the Company in order to become a corporation. See
"The Recapitalization."
Risk Factors
See "Risk Factors" for a discussion of certain factors relating to the
Company and its business that should be carefully considered before tendering
Old Notes in exchange for Exchange Notes.
The Initial Offering
Old Notes................... The Old Notes were sold by the Company on May
21, 1998 to the Initial Purchasers as part of
the Units pursuant to a Purchase Agreement
dated May 15, 1998 (the "Purchase
Agreement"). The Initial Purchasers
subsequently resold the Units, including the
Old Notes to qualified institutional buyers
pursuant to Rule 144A under the Securities
Act.
Registration Rights Pursuant to the Purchase Agreement, the
Agreement................... Company, the Subsidiary Guarantors and the
Initial Purchasers entered into a
Registration Rights Agreement dated as of May
21, 1998 (the "Registration Rights
Agreements"), which grants the holders of the
Old Notes certain exchange and registration
rights. The Exchange Offer is intended to
satisfy such exchange rights which terminate
upon the consummation of the Exchange Offer.
The Exchange Offer
Securities Offered..........
$101,750,000 aggregate principal amount of 14
1/2% Senior Notes due 2008, Series B.
The Exchange Offer..........
$1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of
Old Notes. As of the date hereof,
$101,750,000 aggregate principal amount of
Old Notes are outstanding. The Company will
issue the Exchange Notes to holders on or
promptly after the Expiration Date.
Based on an interpretation by the staff of
the Commission set forth in no-action letters
issued to third parties, the Company believes
that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may
be offered for resale, resold and otherwise
transferred by any holder thereof (other than
any such holder which is an "affiliate" of
the Company within the meaning of Rule 405
5
<PAGE>
under the Securities Act) without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and
that such holder does not intend to
participate and has no arrangement or
understanding with any person to participate
in the distribution of such Exchange Notes.
The Company has not, and does not plan to,
submit a request for its own no-action
letter.
Any Participating Broker-Dealer that acquired
Old Notes for its own account as a result of
market-making activities or other trading
activities may be a statutory underwriter.
Each Participating Broker-Dealer that
receives Exchange Notes for its own account
pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus
in connection with any resale of such
Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit
that it is an "underwriter" within the
meaning of the Securities Act. This
Prospectus, as it may be amended or
supplemented from time to time, may be used
by a Participating Broker-Dealer in
connection with resales of Exchange Notes
received in exchange for Old Notes where such
Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making
activities or other trading activities. The
Company has agreed that, for a period of 180
days after the Expiration Date, it will make
this Prospectus available to any
Participating Broker-Dealer for use in
connection with any such resale. See "Plan of
Distribution."
Any holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution
of the Exchange Notes could not rely on the
position of the staff of the Commission
enunciated in no-action letters and, in the
absence of an exemption therefrom, must
comply with the registration and prospectus
delivery requirements of the Securities Act
in connection with any resale transaction.
Failure to comply with such requirements in
such instance may result in such holder
incurring liability under the Securities Act
for which the holder is not indemnified by
the Company.
Expiration Date............. 5:00 p.m., New York City time, on ,
1999 unless the Exchange Offer is extended,
in which case the term "Expiration Date"
means the latest date and time to which the
Exchange Offer is extended.
Accrued Interest on the
Exchange Notes and the Old
Notes.......................
Each Exchange Note will bear interest from
its issuance date. Holders of Old Notes that
are accepted for exchange will receive, in
cash, accrued interest thereon to, but not
including, the issuance date of the Exchange
Notes. Such interest will be paid with the
first interest payment on the Exchange Notes.
Interest on the Old Notes
6
<PAGE>
accepted for exchange will cease to accrue
upon issuance of the Exchange Notes.
Conditions to the Exchange The Exchange Offer is subject to certain
Offer....................... customary conditions, which may be waived by
the Company. See "The Exchange Offer--
Conditions."
Procedures for Tendering Each holder of Old Notes wishing to accept
Old Notes................... the Exchange Offer must complete, sign and
date the accompanying Letter of Transmittal,
or a facsimile thereof, in accordance with
the instructions contained herein and
therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with the Old Notes and any other
required documentation to the Exchange Agent
(as defined) at the address set forth herein.
By executing the Letter of Transmittal, each
holder will represent to the Company that,
among other things, the Exchange Notes
acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of
business of the person receiving such
Exchange Notes, whether or not such person is
the holder, that neither the holder nor any
such other person has any arrangement or
understanding with any person to participate
in the distribution of such Exchange Notes
and that neither the holder nor any such
other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of the
Company. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "--
Procedures for Tendering."
Untendered Old Notes........ Following the consummation of the Exchange
Offer, holders of Old Notes eligible to
participate but who do not tender their Old
Notes will not have any further exchange
rights and such Old Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for
such Old Notes could be adversely affected.
Consequences of Failure to
Exchange...................
The Old Notes that are not exchanged pursuant
to the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may
be resold only (i) to the Company, (ii)
pursuant to Rule 144A or Rule 144 under the
Securities Act or pursuant to some other
exemption under the Securities Act, (iii)
outside the United States to a foreign person
pursuant to the requirements of Rule 904
under the Securities Act, or (iv) pursuant to
an effective registration statement under the
Securities Act. See "The Exchange Offer--
Holders Who Fail to Exchange Will Be Subject
to Restrictions on Transfer."
Shelf Registration If any holder of the Old Notes (other than
Statement................... any such holder which is an "affiliate" of
the Company or a Subsidiary Guarantor within
the meaning of Rule 405 under the Securities
Act) is not eligible under applicable
securities laws to participate in the
Exchange Offer, and such holder has satisfied
certain conditions relating to the provision
of information to the Company for use
therein, the Company and the Subsidiary
Guarantors have agreed to register the Old
Notes on a
7
<PAGE>
shelf registration statement (the "Shelf
Registration Statement") and use their best
efforts to cause it to be declared effective
by the Commission as promptly as practical on
or after the consummation of the Exchange
Offer. The Company and the Subsidiary
Guarantors have agreed to maintain the
effectiveness of the Shelf Registration
Statement for, under certain circumstances, a
maximum of two years, to cover resales of the
Old Notes held by any such holders.
Special Procedures for
Beneficial Owners..........
Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender should
contact such registered holder promptly and
instruct such registered holder to tender on
such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering its Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable time.
Guaranteed Delivery Holders of Old Notes who wish to tender their
Procedures.................. Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply
with the procedures for book-entry transfer)
prior to the Expiration Date must tender
their Old Notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Old Notes and
Delivery of Exchange
Notes....................... The Company will accept for exchange any and
all Old Notes which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the
Exchange Offer will be delivered promptly
following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
Use of Proceeds............. There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
Exchange Agent.............. Harris Trust and Savings Bank (the "Exchange
Agent") is serving as Exchange Agent in
connection with the exchange offer of
Exchange Notes for Old Notes.
The Exchange Notes
General..................... The form and terms of the Exchange Notes are
the same as the form and terms of the Old
Notes (which they replace) except that (i)
the Exchange Notes bear a Series B
designation and a different CUSIP
8
<PAGE>
number than the Old Notes, (ii) the Exchange
Notes will have been registered under the
Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and
(iii) the holders of Exchange Notes will not
be entitled to certain rights under the
Registration Rights Agreements, including the
provisions providing for an increase in the
interest rate on the Old Notes in certain
circumstances relating to the timing of the
Exchange Offer, which rights will terminate
when the Exchange Offer is consummated. See
"The Exchange Offer--Purpose and Effect of
the Exchange Offer." The Exchange Notes will
evidence the same debt as the Old Notes and
will be entitled to the benefits of the
Indentures. See "Description of Exchange
Notes."
Maturity.................... June 1, 2008.
Interest.................... The Exchange Notes will bear interest at the
rate of 14 1/2% per annum, payable semi-
annually in arrears on June 1 and December 1,
commencing June 1, 1999.
Ranking.....................
The Exchange Notes will be general
obligations of the Company, will rank pari
passu in right of payment with all existing
or future unsubordinated Indebtedness of the
Company, and will rank senior in right of
payment to any subordinated Indebtedness of
the Company. As of December 31, 1998, the
Company had no senior Indebtedness other than
the Notes.
Interest Reserve............
The Company used approximately $80.5 million
of the net proceeds from the Initial Offering
to purchase the Pledged Securities, which
were pledged to the Trustee for the benefit
of the holders of the Notes, and which are in
an amount intended to be sufficient upon
receipt of scheduled interest and principal
payments, to provide for payment in full when
due of the first seven scheduled interest
payments on the Notes. When each of the first
seven interest payments is due, the Trustee
will apply the proceeds of a sufficient
amount of Pledged Securities to pay the
interest then due. As a result of the Note
Repurchases, on February 24, 1999 upon
request by the Company, the trustee of the
Pledged Securities released approximately
$26.7 million of such securities to the
Company which are available to the Company
for general corporate purposes.
Upon the acceleration of the maturity of the
Notes or upon certain redemptions and
repurchases of the Notes, the Pledge
Agreement provides that the Trustee will
apply the proceeds of a sufficient amount of
Pledged Securities to pay the amounts owed by
the Company to holders of the Notes at such
time. Immediately following the earlier of
(i) the payment in full of the seventh
scheduled interest payment on the Notes and
(ii) the day on which all of the Notes have
been repurchased, redeemed or defeased, if no
Default or Event of Default is then
continuing, the remaining Pledged Securities,
if any, will be released from the pledge and
the outstanding Notes (if any) will be
unsecured obligations of the Company.
9
<PAGE>
Subsidiary Guarantees....... The Company's obligations under the Notes are
jointly and severally, fully and
unconditionally, guaranteed by the Subsidiary
Guarantors. The Subsidiary Guarantees will
rank senior in right of payment to any
subordinated Indebtedness of the Subsidiary
Guarantors and pari passu with any
unsubordinated Indebtedness of the Subsidiary
Guarantors. See "Description of the Notes--
Subsidiary Guarantees."
Sinking Fund................ None.
Optional Redemption......... The Notes may be redeemed at the option of
the Company, in whole or in part, on or after
June 1, 2003, at a premium declining to par
in 2006, plus accrued and unpaid interest and
Liquidated Damages, if any, through the
redemption date.
In addition, the Company will be entitled, at
any time on or before June 1, 2001 to redeem
up to 35% of the aggregate principal amount
of the Notes with the net cash proceeds of
one or more public or private offerings of
Common Stock by the Company generating net
cash proceeds to the Company in excess of
$20.0 million at a redemption price equal to
114.5% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated
Damages, if any, thereon, to the redemption
date; provided at least 65% of the aggregate
principal amount of Notes originally issued
remain outstanding immediately after giving
effect to such redemption. See "Description
of the Notes--Optional Redemption."
Change of Control........... In the event of a Change of Control, the
holders of the Notes have the right to
require the Company to purchase the Notes at
a price equal to 101% of the aggregate
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if
any, to the date of purchase. See
"Description of the Notes--Repurchase at the
Option of the Holders--Change of Control."
Covenants................... The Indenture contains certain covenants
that, among other things, limits the ability
of the Company and its Restricted
Subsidiaries to make certain restricted
payments, incur additional Indebtedness and
issue Disqualified Stock (as defined herein),
pay dividends or make other distributions,
repurchase equity interests or subordinated
Indebtedness, engage in sale or leaseback
transactions, create certain liens, enter
into certain transactions with affiliates,
sell assets of the Company or its Restricted
Subsidiaries, conduct certain lines of
business, issue or sell equity interests of
the Subsidiary Guarantors or enter into
certain mergers and consolidations. In
addition, under certain circumstances, the
Company is required to offer to purchase the
Notes at a price equal to 100% of the
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if
any, to the date of purchase, with the
proceeds of certain asset sales. See
"Description of Notes--Certain Covenants."
For additional information concerning the Notes and the definitions of
certain capitalized terms used above, see "Description of Notes."
10
<PAGE>
Summary Historical and Pro Forma Financial Data of the Company
The following table sets forth selected historical and pro forma financial
and other data of the Company. The selected consolidated statement of
operations and balance sheet data set forth below as of December 31, 1996, 1997
and 1998 and for the periods then ended are derived from the financial
statements of the Company which have been audited by Ernst & Young LLP,
independent auditors. The Company was formed in 1996 and has generated
operating losses and negative cash flow from its limited operating activities
to date. As a result of the Company's limited operating history, prospective
investors have limited operating and financial data about the Company upon
which to base an evaluation of the Company's performance and the decision to
tender Old Notes in exchange for Exchange Notes. The selected financial data
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the consolidated
financial statements, including the notes thereto and the Pro Forma Unaudited
Condensed Balance Sheet and Statement of Operations, contained elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Period from Year Ended Unaudited Pro Forma
March 14, 1996 to Year Ended December 31, Year Ended
December 31, 1996 December 31, 1997 1998 December 31, 1998(1)
----------------- ----------------- ------------ --------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenue............ $ -- $ 43 $ 6,953 $ 9,585
Cost of revenue........ -- 83 8,765 10,550
Selling, general and
administrative
expenses.............. 2,021 12,788 27,873 28,852
Depreciation and
amortization.......... 19 235 1,455 2,842
Loss from operations... (2,040) (13,063) (31,140) (32,659)
Interest expense....... -- (11) (15,846) (16,253)
Other income (expense). 4 54 6,059 6,059
Income tax provision
(2)(3)................ -- -- -- --
Loss on equity
investments........... -- (3,071) (3,698) (3,698)
Extraordinary item..... -- -- 19,799 19,799
Net loss............... (2,036) (16,091) (24,826) (26,752)
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1998
(unaudited)
--------------------------
Actual Pro Forma
----------- -------------
(Dollars in thousands)
<S> <C> <C>
Balance sheet data:
Cash and cash equivalents........................... $ 5,730 $ 5,730
Working capital..................................... 15,199 15,199
Total assets........................................ 149,307 130,426
Long term debt...................................... 138,503 107,205
Redeemable preferred stock.......................... 35,000 35,000
Unitholders' equity................................. -- --
Stockholder's equity................................ (36,872) (24,455)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Period from
March 14, 1996 to Year Ended Year ended Pro Forma Year Ended
December 31, 1996 December 31, 1997 December 31, 1998 December 31, 1998(1)
----------------- ----------------- ----------------- --------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Other Financial Data:
Pro forma income tax
provision (3)......... $ -- $ -- $ -- $ --
Adjusted EBITDA (4).... (2,021) (12,828) (29,685) (29,817)
Net cash used in
operating activities.. (2,020) (11,507) (37,672) (37,672)
Net cash used in
investing activities
(5). (13,517) (2,573) (118,372) (125,614)
Net cash from
financing activities.. 15,640 19,440 156,511 121,532
Capital expenditures... 517 2,441 9,374 9,374
Ratio of losses to
fixed charges (6)..... -- -- -- --
Other Data:
Passings:
Telephony passings
under contract...... -- 71,034 207,500 207,500
Telephony passings
actively
marketed (7)........ -- 17,536 150,000 150,000
Video passings under
contract............ -- 184 30,000 30,000
Video passings
actively
marketed (7)........ -- -- 30,000 30,000
Telephony
subscribers......... -- 365 17,067 17,067
Telephony Penetration
Rate................ -- 2.1% 11.4% 11.4%
Video subscribers.... -- -- 17,347 17,347
Video Penetration
Rate................ -- -- 57.8% 57.8%
</TABLE>
- --------
(1) Gives effect to (i) the issuance of $175.0 million aggregate principal
amount of Notes and recognition of (a) the related interest expense thereon
with an interest rate of 14 1/2% per annum; (b) amortization of deferred
debt issuance costs and (c) amortization of the discount on debt resulting
from the issuance of warrants for 111,125 shares of common stock; (ii) the
repurchase of $73.25 million aggregate principal amount of Notes from
November 1998 through March 1999 as if such repurchase had occurred at the
beginning of each period presented or as of December 31, 1998; (iii) the
change in tax status from a limited liability company to a "C" corporation;
and (iv) the PCTV Acquisition.
(2) Prior to the merger with OnePoint Communications Corp. in April 1998 the
Company was treated as a partnership for income tax purposes. Accordingly,
no provision for income taxes has been included in these financial
statements, as taxable income or loss passed through to unitholders
individually.
(3) See pro forma tax discussion in the notes to the Pro Forma Unaudited
Statement of Operations.
(4) Adjusted EBITDA is defined as net income (loss) before income taxes and
depreciation, amortization and equity investment income (loss). Adjusted
EBITDA is presented because it is a widely accepted financial indicator of
a company's ability to incur and service debt. However, Adjusted EBITDA
should not be considered in isolation as a substitute for net loss or cash
flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.
Further, funds depicted by Adjusted EBITDA may not be available for
management's discretionary use (due to legal or functional requirements to
conserve funds for capital replacement and expansion, debt service and
other commitments and uncertainties). In addition, this measure of Adjusted
EBITDA may not be comparable to similar measures reported by other
companies.
(5) Cash flows from investing activities included the changes in the Company's
restricted cash balances on deposit in an escrow account pending investment
in Mid-Atlantic. Cash and cash equivalents as of December 31, 1996 includes
$13 million of restricted cash.
(6) For the purpose of the ratio of losses to fixed charges, (i) losses are
calculated as net loss before fixed charges and (ii) fixed charges include
interest on all Indebtedness, and operating lease expense. Fixed charges
for the period from March 14, 1996 to December 31, 1996 and for the years
ended December 31, 1997 and 1998 were approximately $79,000, $629,000 and
$1,107,000, respectively. For the period from March 14, 1996 to December
31, 1996, the years ended December 31, 1997 and 1998, the Company's
deficiency of earnings to cover fixed charges was approximately $2.0
million and $16.1 million and $24.8 million, respectively.
(7) Passings actively marketed are passings in an MDU in which the Company had
one or more subscribers at the end of the relevant period.
12
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, holders
of Old Notes should consider carefully the following information relating to
the Company and the Notes before tendering their Old Notes in the Exchange
Offer. The risk factors set forth below are generally applicable to the Old
Notes as well as the Exchange Notes.
Holders Who Fail to Exchange Will Be Subject to Restrictions on Transfer
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth in the legend thereon, as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, including Exxon Capital Holdings
Corporation, SEC No-Action Letter (available April 13, 1988) (the "Exxon
Capital Letter"), Morgan Stanley & Co. Incorporated, SEC No-Action Letter
(available June 5, 1991) (the "Morgan Stanley Letter"), and similar letters,
the Company believes that the Exchange Notes issued pursuant to the Exchange
Offer may be offered for resale, resold or otherwise transferred by any holder
thereof (other than any such holder which is an "affiliate" of the Company or
any Subsidiary Guarantor within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such Holder has
no arrangement with any person to participate in the distribution of such
Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes cannot rely on the
Morgan Stanley Letter or similar letters and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
a secondary resale transaction. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market, if any, for the Old Notes
not so tendered could be adversely affected. See "The Exchange Offer."
Absence of a Public Market Could Adversely Affect the Value of the Old Notes
and the Exchange Notes
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange
Offer, there has not been any public market for the Old Notes. The Old Notes
have not been registered under the Securities Act and will be subject to
restrictions on transferability to the extent that they are not exchanged for
Exchange Notes by holders who are entitled to participate in this Exchange
Offer. To the extent Old Notes are tendered and accepted in the Exchange
Offer, the already small number of beneficial owners of Old Notes would be
decreased, and the trading market for Old Notes would be adversely affected.
The Exchange Notes will constitute new issues of securities with no
established trading market. The Company does not intend to list the Exchange
Notes on any national securities exchange or seek the admission thereof to
trading in the National Association of Securities Dealers Automated Quotation
System. The Initial Purchasers have advised the Company that they currently
intend to make a market in the Exchange Notes, but they are not obligated to
do so and may discontinue such market making at any time. In addition, such
market making activity will be subject to the limits imposed by the Securities
Act and the Exchange Act and may be limited during the Exchange Offer and the
pendency of the Shelf Registration Statement. Accordingly, no assurance can be
given that an active public or other market will develop for the Exchange
Notes or as to the
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liquidity of the trading market for the Exchange Notes. If a trading market
does not develop or is not maintained, holders of the Exchange Notes may
experience difficulty in reselling the Exchange Notes or may be unable to sell
them at all. If a market for the Exchange Notes develops, any such market may
be discontinued at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from
their principal amount.
A Holder's Failure to Follow Exchange Offer Procedures Could Invalidate Its
Exchange
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Holders of the Old Notes should complete these
documents carefully and allow sufficient time to ensure timely delivery. The
Company is under no duty to give notification of defects or irregularities
with respect to the tenders of Old Notes for exchange. Old Notes that are not
tendered or are tendered but not accepted will continue to be subject to the
existing restrictions upon transfer. Upon consummation of the Exchange Offer
certain registration rights under the Registration Rights Agreement will
terminate.
Any holder of Old Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities, and if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. See "Plan
of Distribution."
Limited History and Early Stage of Operations
The Company was formed in 1996 and has generated operating losses and
negative cash flow from its limited operating activities to date. Until
January 1998, the Company's primary activities consisted of the procurement of
governmental authorizations, the negotiation of telephony and video Rights of
Entry for MDUs, the hiring of management and other key personnel, the raising
of capital, the development, acquisition and integration of customer service,
billing and other back office systems, the identification of potential
acquisition targets and the negotiation of resale agreements.
As a result of the Company's limited operating history, prospective
investors have limited operating and financial data about the Company upon
which to base an evaluation of the Company's performance and a decision to
tender Old Notes in exchange for Exchange Notes. The Company's ability to
provide bundled telephony and video services in its six targeted markets and
to generate operating profits and positive operating cash flow will depend on
its ability to, among other things: (i) attract and retain an adequate
customer base; (ii) attract and retain qualified personnel; (iii) implement
and manage interconnection arrangements with ILECs; (iv) obtain additional
state authorizations to operate as a CLEC and any other required governmental
authorizations; (v) obtain necessary video programming on satisfactory terms
and (vi) expand its customer service, billing and other back office systems.
There can be no assurance that it will be able to achieve any of these
objectives or generate sufficient cash flow to make principal and interest
payments on the Notes or any other existing or future Indebtedness.
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Negative Cash Flow and Operating Losses
The Company has had negative cash flow from operations and has generated
operating losses since its inception.
The Company expects to continue to generate negative cash flow from
operations while it develops and expands its telephony and video services
business. Revenues to date have been minimal and may be slow in growing due to
start-up and other delays. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." There can be no assurance that
the Company will achieve or sustain profitability or generate sufficient cash
flow from operations to meet its working capital and debt service
requirements, which could have a material adverse effect on the Company's
results of operations and financial condition and its ability to meet its
obligations on the Notes. See "--Substantial Leverage; Possible Inability to
Service Indebtedness."
Substantial Leverage; Possible Inability to Service Indebtedness
As a result of the Initial Offering, the Company will be highly leveraged.
At December 31, 1998, the Company's aggregate outstanding Indebtedness was
$138.753 million, and the Company's stockholder's equity was negative $(36.8)
million. See "Selected Historical Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," "Description of Certain Indebtedness" and "Description of
the Notes." The Indenture limits, but does not prohibit, the incurrence of
additional Indebtedness by the Company. See "Description of the Notes--Certain
Covenants."
The Company's high degree of leverage could, among other things, (i) impair
its ability to obtain additional financing; (ii) leave little, if any, cash
flow after payment of principal and interest for the Company's operations and
growth; (iii) place it at a competitive disadvantage; (iv) impair its ability
to adjust rapidly to changing market conditions; and (v) make it more
vulnerable to changes in economic conditions or in its business.
There can be no assurance that the Company will be able to meet its debt
service obligations. If the Company is unable to make required payments or if
it fails to comply with the other covenants in its debt obligations, it would
be in default under the terms thereof, which would permit the holders of such
Indebtedness to accelerate the maturity of such Indebtedness and could cause
defaults under the terms of the Company's other Indebtedness. The Company's
ability to repay or to refinance its Indebtedness will depend on its financial
and operating performance, which, in turn, will be subject to prevailing
economic and competitive conditions and to financial, business and other
factors, many of which are beyond the Company's control. These factors could
include operating difficulties, increased operating costs, pricing pressures,
the response of competitors, regulatory developments and delays in
implementing strategic projects.
The successful implementation of the Company's business strategy and
significant and sustained growth in the Company's cash flow are necessary for
the Company to be able to meet its debt service and working capital
requirements. There can be no assurance that the Company will successfully
implement its business strategy, that the anticipated results of its strategy
will be realized, or that the Company will be able to generate sufficient cash
flow from operating activities to meet its debt service obligations and
working capital requirements. See "Business--Business Strategy."
If the Company does not achieve sufficient cash flow and capital resources
there can be no assurance that the Company's cash flow and capital resources
will be sufficient for payment of principal of, and premium, if any, and
interest on, its Indebtedness (including the Notes) and it may be forced to
reduce or delay product development or capital expenditures, sell assets, seek
to obtain additional capital, or to refinance or restructure its debt or
employ other measures to enhance liquidity, none of which may prove
successful. There can be no assurance that any asset sale would generate the
highest price for such assets. The Company's Obligations under its Credit
Facility bear interest at floating rates, so an increase in interest rates
could adversely affect, among other things, the Company's ability to meet its
debt service requirements. See "Description of Certain Indebtedness."
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Significant Capital Requirements; Uncertainty of Additional Financing
The expansion and development of the Company's business will require
significant capital to finance investment in billing and customer care
capabilities, investment in video infrastructure, including capacity upgrades
or customer equipment, acquisitions of private cable television operators,
selective investment in a facilities-based platform for telephony services,
repayment of borrowings under the Company's Credit Facility and the funding of
working capital and general corporate purposes, including operating losses.
The Company expects that its current financing will be sufficient to meet
its operational rollout plans for the next twelve months. The actual amount
and timing of the Company's future capital requirements may differ materially
from the Company's estimates as a result of, among other things, the demand
for the Company's services and regulatory, technological and competitive
developments (including additional market developments and new opportunities)
in the Company's industry. The Company's revenues and costs are dependent upon
factors that are not within the Company's control, such as regulatory changes,
changes in technology and increased competition. Due to the uncertainty of
these factors, actual revenues and costs may vary from expected amounts,
possibly to a material degree, and such variations are likely to affect the
Company's future capital requirements. The Company also expects that it will
require additional financing (or require financing sooner than anticipated)
if: (i) its development plans or projections change or prove to be inaccurate,
(ii) it is unable to continue to take advantage of the pricing provided for in
certain SBC-negotiated contracts for any reason, (iii) it engages in
acquisitions (iv) it achieves market penetration for its services at different
rates or stages than management estimates, (v) it achieves lower than expected
pricing for its services, (vi) it enters additional markets, or (vii) it
encounters higher than expected costs to purchase or upgrade telephony, cable
or DBS services, equipment or facilities. Sources of additional financing may
include commercial bank borrowings, vendor financing, or the private or public
sale of equity or debt securities.
There can be no assurance that the Company will be successful in raising
sufficient additional capital at all or on terms that it will consider
acceptable, that the terms of any additional Indebtedness will be within the
limitations contained in the Company's financing agreements, including the
Indenture, or that the terms of such Indebtedness will not impair the
Company's ability to develop its business. See "--Restrictive Covenants." The
Company's ability to raise equity capital may be constrained by its desire to
retain its status as an SBC affiliate. Failure to raise sufficient funds may
require the Company to modify, delay or abandon elements of its planned future
expansion or expenditures, which could have a material adverse effect on the
Company's results of operations and financial condition and its ability to
meet its obligations on the Notes. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The Company Has No Operations and is Dependent Upon Funds From its
Subsidiaries
The Company is a holding company. Its principal assets consist of equity
interests in its operating subsidiaries and an equity interest in Mid-
Atlantic. The Company is dependent upon funds from its subsidiaries. Mid-
Atlantic has not paid dividends in the past, and its current agreements with
its lenders prohibit payment of dividends. The Company does not anticipate
that Mid-Atlantic will pay dividends for the foreseeable future. Accordingly,
the Company will rely upon dividends and other payments from its subsidiaries
to generate the funds necessary to meet its obligations, including the payment
of principal of and interest on the Notes. The subsidiaries, however, are
legally distinct from the Company. The ability of the Company's subsidiaries
to make such payments to the Company will be subject to, among other things,
the availability of funds, the terms of such subsidiaries' Indebtedness and
applicable state laws. As a result of the Company's holding company structure,
the Notes are effectively subordinated to obligations of the Company's
subsidiaries.
Effective Subordination of Notes to Secured Indebtedness
The Notes will not be secured by any of the Company's or its subsidiaries'
assets. The Company's obligations under its Credit Facility are secured by a
security interest in certain of the assets of the Company, including its
accounts, leases, contract rights, general intangibles (including intellectual
property rights),
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inventory, goods other than inventory, funds on deposit with the lender, books
and records, documents of title and proceeds and products of the foregoing. In
the event that a default were to occur with respect to any secured
Indebtedness of the Company (including the Credit Facility) and the holders
thereof were to foreclose on the collateral, or in the event of a bankruptcy,
liquidation or reorganization of the Company, the holders of such Indebtedness
would be entitled to payment out of the proceeds of their collateral prior to
any holders of general unsecured Indebtedness, including the Notes,
notwithstanding the existence of an event of default with respect to the
Notes. Also, to the extent that the value of such collateral is insufficient
to satisfy such secured Indebtedness, holders of amounts remaining outstanding
on such secured Indebtedness would be entitled to share pari passu with
holders of the Notes with respect to any other assets of the Company. Such
assets may not be sufficient to pay amounts due on any or all of the Notes
then outstanding. See "Description of Certain Indebtedness." In addition, the
Indenture permits the Company to incur additional secured Indebtedness, and
such secured Indebtedness would have a prior claim over the Notes to the
assets of the Company that secure such Indebtedness. See "Description of the
Notes--Certain Covenants" and "Description of Certain Indebtedness."
Dependence on SBC Affiliation for Favorable Contracts
The Company is dependent upon its status as an affiliate of SBC for its
ability to purchase services and equipment on terms available to and
negotiated by SBC. The Company believes that terms available to SBC are more
favorable than those that would otherwise be available to the Company. In
particular, the Company believes that its long distance telephony contract is
a significant competitive advantage because it permits the Company to obtain
long distance service at costs which are significantly less than those which
would otherwise be available to the Company. As the Company invests
selectively in a facilities-based telephony strategy, management believes the
Company may be able to obtain cost advantages in the purchase of telephony
infrastructure based on similar arrangements with equipment vendors.
The Company's ability to purchase services and equipment pursuant to SBC-
negotiated contracts is dependent upon SBC's continued ownership, directly or
indirectly, of an equity interest in the Company which meets or exceeds the
definition of "affiliate" in any SBC contract and whether such contract
provides SBC "affiliates" opportunities to purchase thereunder. The definition
of "affiliate" varies in such contracts. Although SBC has an incentive to keep
the definition broad, its negotiation of vendor contracts is typically based
on considerations other than the inclusiveness of the definition of affiliate
and the interests of potential affiliates in the availability of such
contracts.
There can be no assurance that future SBC contracts or amendments or
renewals of existing SBC contracts will contain provisions which have the
effect of permitting the Company to purchase services or equipment pursuant
thereto. If the Company is not able to continue to enjoy the advantageous
prices on services and equipment derived from its relationship with SBC, its
results of operations and financial condition would be materially adversely
affected, which would in turn affect the Company's ability to meet its
obligations under the Notes. The Company has received no indication or
assurance from SBC that it will retain its indirect ownership interest in the
Company for any period of time. SBC has guaranteed the Company's $9 million
Credit Facility and the Company's obligations under two of its leases for
office space. Management believes that the Company would have been unable to
obtain the Credit Facility of such leases absent the SBC guarantee. Any
repudiation or unenforceability of the SBC guarantee or the lender's otherwise
deeming itself insecure constitutes an event of default under the Credit
Facility. Any such event of default could have a material adverse effect on
the Company's results of operations and financial condition and its ability to
meet its obligations under the Notes.
From time to time, at the Company's request, SBC has provided material
assistance to the Company with regard to systems evaluation and procurement,
technical due diligence, corporate development and regulatory filings and
other matters. In addition, SBC has seconded employees to the Company, in some
cases for extended periods of time. There can be no assurance that SBC will
continue to provide similar assistance in the future on terms acceptable to
the Company, or at all. See "Certain Relationships and Related Transactions--
SBC Affiliation and Related Contracts."
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Restrictions on Ability to Provide Service in SBC Region
As an affiliate of SBC for regulatory purposes, the Company may be
prohibited from providing long distance service to customers in Arkansas,
California, Kansas, Missouri, Nevada, Oklahoma and Texas (the "SBC Region").
As a result of the potential restrictions, the Company does not expect to
enter the markets in the SBC Region while current regulatory conditions
persist. Accordingly, the Company's competitors may obtain MDU Rights of Entry
in the SBC Region that would either preclude the Company from subsequently
competing in such markets or make it more costly to do so. Difficulty in
obtaining MDU Rights of Entry could have a material adverse effect on the
Company's results of operations and financial condition and its ability to
meet its obligations under the Notes.
The area which constitutes the SBC Region may change due to other
transactions entered into by SBC or regulatory changes. Expansion of the SBC
Region, through a business combination between SBC and another RBOC or
otherwise, could have a material adverse effect on the Company's results of
the operations and financial condition and its ability to meet its obligations
under the Notes. There can be no assurance that the SBC Region, in which the
Company is currently prohibited from providing long distance telephony and
interLATA Internet service will not expand, or that any such expansions will
not include areas currently served, or targeted to be served, by the Company.
SBC's Proposed Merger with Ameritech May Restrict the Company's Ability to
Provide Services
SBC has announced that it has agreed to merge with Ameritech Corporation
("Ameritech") to create a telecommunications company with a "national-local"
focus to compete against ILECs, CLECs, long distance companies and global
competitors. If Ameritech has not received approval to provide long distance
service and interLATA Internet services in Illinois prior to the consummation
of the merger, the Company may be prohibited from continuing to provide long
distance and interLATA Internet services in Chicago following consummation of
the merger, and similarly, if Ameritech has not received approval to provide
long distance service in Indiana, Michigan, Ohio and Wisconsin (together with
Illinois, the "Ameritech Region"), the Company could be prohibited from
providing long distance service and interLATA Internet services in such states
following consummation of the merger. There can be no assurance that the
Company would be able to restructure its Illinois operations to avoid such
prohibition, or of other amendments or consents that might be required in
connection therewith. The inability to provide long distance service in the
Ameritech Region could have a material adverse effect on the Company's results
of operations and financial condition and its ability to meet its obligations
under the Notes.
Limitations on the Company's Ability to Repurchase Notes Upon a Change of
Control
In the event of a Change of Control (as defined in the Indenture), each
holder of Notes may require the Company to repurchase all or a portion of such
holder's Notes at a price equal to 101% of the principal amount thereof plus
accrued and unpaid interest. There can be no assurance that the Company will
have sufficient funds to make such repurchases.
A Change of Control is defined in the Indenture to include, among other
things:
. the first day on which SBC fails to hold, whether directly or indirectly,
9.9% or more of the total Voting Stock (as defined herein) of the Company
or
. the first day on which the Company's long distance telephony contract in
place on the Closing Date (or any replacement thereof) terminates and is
not replaced by a contract having no less favorable economic terms than
the Company's long distance telephony contract in existence as of the
Closing Date, and a term (assuming exercise of any renewal options)
ending after the maturity date of the Notes.
SBC currently holds a 19.7% indirect equity ownership interest in OnePoint.
There can be no assurance that SBC will retain its equity ownership interest
for any period of time.
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At the Closing Date, the Company purchased long-distance telephony service
under a contract negotiated by SBC by virtue of its affiliate relationship
with SBC. SBC terminated the contract effective March 17, 1999.
The Company and the long-distance provider have agreed to continue the
underlying agreement while the Company determines whether it will (i)
negotiate a new agreement directly with the long-distance provider, (ii)
continue operating under the terms of the current contract until January 1,
2002 or (iii) notify the long-distance provider of its desire to terminate the
service agreement.
There can be no assurance that the Company will be able to obtain a
replacement contract that does not constitute a Change of Control under the
Indenture, or that the terms of the current contract are not less favorable
than those the Company could obtain under such a replacement contract. See
"Description of the Notes--Change of Control."
Risks Associated with MDU Rights of Entry
The Company's business depends upon its ability to obtain, capitalize upon
and renew Rights of Entry. The Company enters into long-term contracts with
national REITs and other MDU Managers providing telephony and video Rights of
Entry. The Company also seeks to acquire private cable television operators
which have video Rights of Entry for MDUs or to acquire assets from such
operators. The Company's success in entering into and capitalizing on such
contracts may be affected by a number of factors, including (i) the extent of
competition in the provision of telephony and video services, (ii) the
Company's ability to identify suitable MDUs and obtain Rights of Entry, (iii)
the demographics of the markets in which the Company has chosen to focus its
business, (iv) occupancy rates in the MDUs that the Company serves, (v) the
quality of customer service the Company provides, (vi) regulatory developments
and (vii) the enforceability of the material terms of its contracts, including
exclusivity provisions. See "Business--Competition," "--Federal Regulation"
and "--State Regulation."
The Company's telephony Right of Entry contracts typically grant the Company
the exclusive rights to market on-site and the right to provide voice
telecommunications services to the residents of applicable MDUs, subject to
the legal right of ILECs and other third parties to provide telephony services
where specifically requested by a resident. The Company's video Right of Entry
contracts typically grant the Company the exclusive rights to market on-site
and the right to provide video services to residents of applicable MDUs,
subject to the legal rights of franchise cable providers to offer services to
residents. There can be no assurance that the enforceability of these
provisions will not be successfully challenged, as suggested by a number of
developments at the federal, state and local levels. See "Business--Government
Regulation."
If the FCC concludes that exclusive contracts should be limited, the
Company's ability to market its bundled services could be adversely affected,
which could have a material adverse effect on the Company's results of
operations and financial condition and its ability to meet its obligations
under the Notes. If the FCC does not grant MDU Managers the rights to take a
"fresh look" at incumbent cable operator exclusive contracts, the addressable
market for the Company's services could be sharply diminished, which could
have a material adverse effect on the Company's results of operations and
financial condition and its ability to meet its obligations under the Notes.
Broad mandatory access requirements would likely increase the Company's
capital costs associated with new video Rights of Entry if construction of
duplicative video infrastructure (or "overbuilding") were required. It should
also be noted that in a number of instances video Rights of Entry are
subordinate by their terms to indebtedness secured by the MDU, with the effect
that enforcement of the security interest or default under the indebtedness
could result in termination of the Right of Entry. Bankruptcy of an MDU owner
could also result in rejection of the agreement as an "executory contract."
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Dependence on Products and Services of Others
The Company's success requires that the Company effectively market its
products to MDU residents and provide reliable service to its subscribers. The
Company relies to a significant extent on face-to-face marketing efforts of
on-site leasing staff. Although these leasing consultants receive commissions
from the Company for their sales of the Company's services, they are not
employees of the Company, and there can be no assurances that leasing
consultants will market the Company's services to MDU residents effectively,
or at all.
The Company currently resells telephony services offered by the ILECs and an
IXC, and provides video programming provided by others. Such services and the
ultimate service providers are subject to power loss, capacity limitations,
signal interference, software defects, network outages and other factors,
certain of which have caused in the past, and will continue to cause,
interruptions in service or reduced capacity for the Company's customers. Such
problems, whether they are the result of actions or inactions by the Company
or others, can result in dissatisfaction among the Company's customers with
the services provided by the Company. The Company's success will depend in
part on customer satisfaction with its services, and any dissatisfaction with
such services could have a material adverse effect on the Company's results of
operations and financial condition and its ability to meet its obligations
under the Notes.
Difficulties in Implementing Local Exchange and Long Distance Telephony
Services
The Company is a recent entrant into the newly created competitive local
telephony services industry. The local exchange telephony services market in
most states was only recently opened to competition due to the passage of the
Telecommunications Act of 1996 (the "Telecommunications Act") and related
regulatory rulings. There are numerous operating complexities associated with
providing these services. The Company will be required to develop new
products, services and systems and will need to develop new marketing
initiatives to sell these services. The inability to overcome any of these
operating complexities could have a material adverse effect on the Company's
results of operations and financial condition and its ability to meet its
obligations under the Notes. In addition, the Company's local exchange
telephony services may not be profitable due to, among other factors, attempts
by local governments to impose franchise fees on CLECs, attempts by property
owners to obtain unreasonable access payments, lack of customer demand,
difficulties initiating service and competition and pricing pressure from the
ILECs and other CLECs. There can be no assurance that the Company will be able
to implement its services strategy successfully.
The Company currently resells local telephony services provided by ILECs.
Although the Telecommunications Act requires all ILECs to permit resale of
their telephony services without unreasonable restrictions or conditions, and
requires ILECs to offer their retail telecommunications services to other
telecommunications carriers for resale at discounted rates, based on the costs
avoided by the ILEC in such offering, there can be no assurance that the
Company will be able to initiate or provide service in a timely manner or at
competitive prices. The Company's ability to expand its services to new
markets will require the negotiation of additional resale agreements with the
ILECs, which can require considerable time, effort and expense and are subject
to federal, state and local regulation. As long as the Company is considered
to be an affiliate of SBC for regulatory purposes it is prohibited from
providing long distance telephony and interLATA Internet services to customers
in the SBC Region until SBC has obtained regulatory authority to do so and is
also subject to certain other restrictions, including regulations regarding
provision of other services in the SBC Region.
The Company plans to replace selectively its resale platform with higher
margin facilities-based services as warranted by subscriber traffic levels and
the availability of alternative network facilities within each market. The
Telecommunications Act requires ILECs to permit their competitors to
interconnect with the ILECs' facilities on nondiscriminatory terms, and
permits competitors to purchase from the ILECs only the origination and
termination services needed (thereby decreasing the competitors' operating
expenses). There can be no assurance that this "unbundling" will be effected
in a timely manner or that it will result in prices favorable to the Company.
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Migration to facilities-based services will also require the Company to face
increased operational complexity and risks as it takes over functions
performed by the ILECs under existing resale arrangements. In particular, the
Company will become responsible for designing, constructing, operating and
maintaining key elements of its own network and providing for required
resident services such as 911, operator services and directory assistance.
Building the capabilities to provide such services will require the
recruiting, selection, and hiring of significant numbers of skilled engineers
and technicians, as well as the purchase and successful installation of
complex network equipment. There can be no assurance that the Company will be
able to effect this migration to facilities-based services efficiently and
without temporary service interruptions. In addition, the Company's ability to
migrate to facilities-based services will require the negotiation of
interconnection agreements with ILECs, which can take considerable time,
effort and expense and are subject to federal, state and local regulation.
Availability of Transmission Sites
The Company's microwave network expansion plans require the Company to lease
or otherwise obtain permission to install equipment at rooftop and tower
transmission sites in substantially all of its markets. The availability of
these sites is subject to market conditions and may be subject to zoning and
other municipal restrictions. The Company believes that as additional wireless
video services and telecommunications providers emerge, competition for such
transmission sites will continue to increase. There can be no assurance that
the Company will be able to obtain or maintain the necessary rights to
implement its microwave network expansion plan on acceptable terms, in a
timely manner, or at all. The Company's inability to obtain such rights could
preclude it from providing video services at a reasonable cost, and could
therefore have a material adverse effect on the Company's results of
operations and financial condition and its ability to meet its obligations
under the Notes.
Risks Related to Subscriber Turnover
Many of the MDU units served by the Company are apartments, which generally
have significantly higher turnover rates than businesses and other types of
residences. As a result, the Company's potential subscriber base is likely to
have a higher rate of turnover than other types of subscribers. Higher
turnover rates typically result in increased administrative and promotional
expenses. The Company has had, and expects to continue to have, a higher
Penetration Rate among residents moving into a served building than among
existing residents. Management believes that a majority of apartment turnover
occurs between the months of April and October. Should the Company fail to
maximize its subscription of new customers for any reason during these
critical months, such a failure could have a material adverse effect on the
Company's results of operations and financial condition and ability to meet
its obligations under the Notes. Moreover, although management believes the
Company's resources, including its customer care facility and billing systems,
are adequate to handle a large increase in customer volume, there can be no
assurances that they will perform adequately under such circumstances.
Business Development and Expansion Risks; Possible Inability to Manage Growth
The Company began actively marketing its services in January 1998.
Management expects that the Company will need to increase its number of
employees rapidly as it obtains new Rights of Entry and adds subscribers. The
need for installation and repair technicians and customer care representatives
is expected to be particularly acute. The Company's success will depend upon,
among other things, its ability to provide timely, courteous service to its
customers, and difficulties in hiring a sufficient number of qualified
employees could result in delays in installation and repair calls and lower
levels of customer care, particularly during any periods of rapid growth.
The Company's ability to market its services effectively in MDUs will be
dependent upon the Company's training and support of third party on-site
leasing agents. The Company anticipates that it will need to increase its
training and marketing resources as its business expands. Delay or failure in
providing such training or support
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may affect the Company's ability to achieve its revenue and Penetration Rate
targets. Failure by the Company to train and support leasing agents, to meet
the demands of customers or to manage the expansion of its business and
operations could have a material adverse effect on the Company's results of
operations and financial condition and its ability to meet its obligations on
the Notes.
The Company's success will also depend on its ability to assess potential
markets, obtain additional required governmental authorizations, franchises
and permits, secure financing, provision new customers, implement resale and
interconnection arrangements with ILECs, develop and implement a facilities-
based platform, including obtaining capacity and equipment (either through the
leasing of existing facilities or the installation of new switches, digital
loop carrier equipment, fiber optic cable or other similar facilities),
implement efficient customer service, billing and other back office systems
and develop a sufficient customer base. In addition, as the Company implements
a facilities-based platform, it may be subject to more extensive regulation.
The successful implementation of the Company's business plan will result in
rapid expansion of its operations and the provision of bundled telephony and
video services on a widespread basis. The Company's ability to manage such
future growth, should it occur, will depend upon its ability to develop
efficient customer service, billing and other back office systems, monitor
operations, control costs, maintain regulatory compliance, maintain effective
quality controls and significantly expand the Company's internal management,
technical, information and accounting systems and to attract, assimilate and
retain additional qualified personnel. See "--Dependence on Key Personnel."
Failure of the Company to manage its future growth effectively could adversely
affect the expansion of the Company's customer base and service offerings.
There can be no assurance that the Company will successfully implement and
maintain such operational and financial systems or successfully obtain,
integrate and utilize the employees and management, operational and financial
resources necessary to manage a developing and expanding business in an
evolving, highly regulated and increasingly competitive industry. Any failure
to expand these areas and to implement and improve such systems, procedures
and controls in an efficient manner at a pace consistent with the growth of
the Company's business could have a material adverse effect on the Company's
results of operations and financial condition and its ability to meet its
obligations under the Notes.
Risks Related to Market Acceptance and Value of Bundled Service Offering
The Company is providing services which have historically been provided by
the ILECs, and the OnePoint brand is not well known. The Company's success
will depend upon, among other things, the willingness of customers to accept
the Company as an alternate provider of local and long distance telephony
service and/or video service. There can be no assurance that such acceptance
will occur, and the lack of such acceptance could have a material adverse
effect on the Company's results of operations and financial condition and its
ability to meet its obligations under the Notes.
Management believes that the Company's ability to offer bundled services in
MDUs will result in increased market penetration leading to additional
revenues, reduced subscriber churn and reduced operating and other expenses.
There can be no assurance that the Company will be successful in creating or
marketing its bundled service offering, or that it will be able to realize
incremental revenue and cost savings from its bundled offerings. Failure to
market bundled services successfully or to realize incremental revenue and
cost savings in connection therewith could have a material adverse effect on
the Company's results of operations and financial condition and its ability to
meet its obligations under the Notes.
Risks Relating to Internet Business
With respect to its planned Internet offerings, the Company believes that it
is not currently subject to direct regulation by the FCC or any other
governmental agency, other than regulations applicable to businesses
generally. To date, the FCC has not actively sought to regulate the provision
of Internet access and related services although the FCC has determined that
Internet services are interstate in nature, and thus potentially subject to
FCC jurisdiction. The FCC recently announced its intention to determine on a
case-by-case basis
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whether to require Internet telephony services to contribute financially to
universal service support mechanisms which could also subject these services
to other forms of regulation.
Due to the increase in Internet use and publicity, it is possible that new
laws and regulations may be adopted, and that changes in laws or regulations
may be made, with respect to the Internet, including laws regarding privacy,
pricing, and characteristics of services or products. Certain other
legislative initiatives, including those involving taxation of Internet
services and transactions, and payment of access charges by Internet providers
have also been proposed. Any legislation or regulation regarding the Internet
could impact adversely the Company's ability to provide various planned
services and have a material adverse effect on the Company's results of
operations and financial condition and its ability to meet its obligations
under the Notes. See "Business--Federal Regulation--Internet Regulation."
In addition, federal and state laws and regulations relating to the
liability of online services companies and Internet access providers for
information carried on or disseminated through their networks are currently
unsettled. Several private lawsuits seeking to impose such liability upon
online services companies and Internet access providers are currently pending.
In addition, legislation has been enacted and new legislation has been
proposed that imposes liability for the transmission of or prohibits the
transmission of certain types of information on the Internet, including
sexually explicit and gambling information. The imposition of potential
liability on the Company as an Internet access provider for information
carried on or disseminated through its systems could require the Company to
implement measures to reduce its exposure to such liability, which may require
the Company to expend substantial resources or to discontinue certain service
or product offerings incurred as a result of liability or asserted liability
for information carried on or disseminated through the Company's networks
could have a material adverse effect on the Company's results of operations
and financial condition and its ability to meet its obligations under the
Notes.
Dependence on Billing, Customer Care and Information Systems
Sophisticated back office information and processing systems are vital to
the Company's growth and its ability to monitor costs, bill customers,
provision customer orders and achieve operating efficiencies. The Company's
right to use these systems is dependent upon license agreements with third
party vendors. Certain of such agreements may be cancelable by the vendor and
the cancellation or nonrenewal of these agreements could have a material
adverse effect on the Company's results of operations and financial condition
and its ability to meet its obligations on the Notes. The Company's employees
input customer information into the systems and interface with the ILECs to
provision services. Columbia Services Group Inc. ("CSG") processes, prints and
mails the Company's billing statements, however. The Company has been using
its customer information systems for less than eighteen months and only with
respect to a limited number of subscribers. The failure of the Company's
customer care, billing and information systems to perform as expected, or
failure of CSG to perform bill processing and distribution in a timely and
effective manner could have a material adverse effect on the Company's results
of operations and financial condition and its ability to meet its obligations
under the Notes. The Company's customer care facility and billing systems have
never been tested with large numbers of subscribers and although management
believes such resources are adequate to handle a large increase in customer
volume, there can be no assurances that they will perform adequately under
such circumstances. Portions of the customer care facility are currently
operated jointly with Mid-Atlantic. See "--Risks Related to Mid-Atlantic Joint
Ventures."
Dependence on Key Personnel
The Company's performance is dependent upon the performance of its officers
and key employees. Given the early stage of deployment, the Company is
dependent on its ability to retain and motivate high quality personnel,
especially its management, which currently consists of a small number of key
executive officers, most notably James A. Otterbeck, the Company's Chairman
and Chief Executive Officer, William F. Wallace, the Company's President and
Chief Operating Officer and John Stavig, the Company's Chief Financial
Officer. Mr. Otterbeck is President of The VenCom Group, Inc., a venture
capital company ("VenCom"), and devotes a
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portion of his time and attention to the affairs of VenCom. Mr. Otterbeck does
not currently receive any compensation as an employee of OnePoint. See
"Management" and "Certain Relationships and Related Transactions." The loss of
services of one or more of these key individuals could have a material adverse
effect on the Company's results of operations and financial condition and its
ability to meet its obligations on the Notes. The Company believes that its
success will depend in large part on its ability to develop large and
effective sales and service forces and its ability to attract and retain
highly skilled and qualified personnel. The Company maintains key person life
insurance only for its Chairman and Chief Executive Officer. Competition for
qualified managers in the telecommunications industry is intense and,
accordingly, there can be no assurance that the Company will be able to hire
or retain necessary personnel in the future.
Control by Investors; Potential Conflicts of Interest
Mr. Otterbeck and SBC (collectively, the "Equity Investors"), own indirectly
90% of the common stock of the Company on a fully diluted basis after giving
effect to the exercise of the Warrants. Accordingly, the Equity Investors are
able to control the management policy of the Company and all fundamental
corporate actions, including mergers, substantial acquisitions and
divestitures and other agreements and the election of the Board of Directors
of the Company. See "Security Ownership of Certain Beneficial Owners and
Management" and "Certain Relationships and Related Transactions."
Certain decisions concerning the operations or financial structure of the
Company may present conflicts of interest between the Equity Investors and the
holders of the Notes. For example, if the Company encountered financial
difficulties or were unable to pay its debts as they matured, the interests of
the Equity Investors might conflict with those of the holders of Notes. In
addition, the Equity Investors may have an interest in pursuing acquisitions,
divestitures, financings or other transactions that, in their judgment, could
enhance their investment in the Company, even though such transactions might
involve increased risk to the holders of the Notes. In addition to their
investment in the Company, the Equity Investors and their affiliates currently
have significant investments in other telecommunications companies and may in
the future invest in other entities engaged in the telecommunications business
or in related business (including entities engaged in the business and in
areas in which the Company operates). As a result, the Equity Investors have,
and may develop additional, relationships with businesses that are or may be
competitive with the Company. Conflicts may also arise in the negotiation or
enforcement of arrangements entered into by the Company and entities in which
these investors have an interest.
Acquisition-Related Risks
The Company expects to acquire other businesses that management believes
will complement its existing business. Management is unable to predict whether
or when any prospective acquisitions will occur or the likelihood of a
material transaction being completed on favorable terms and conditions. The
Company's ability to finance acquisitions may be constrained by, among other
things, its high degree of leverage and the terms of the Indenture. There can
be no assurance the Company will be able to obtain financing for acquisitions.
The inability of the Company to effect such transactions will limit its
ability to achieve rapid market penetration and execute its strategy and thus
have a material adverse effect on the Company's results of operations and
financial condition and its ability to meet its obligations on the Notes.
Acquisitions are likely to involve certain risks, including, among other
things: the difficulty of assimilating the acquired operations and personnel;
the potential disruption of the Company's ongoing business and diversion of
resources and management time; the possible inability of management to
maintain uniform standards, controls, procedures and policies; the risks of
entering markets in which the Company has little or no direct prior
experience; and the potential impairment of relationships with employees or
customers as a result of changes in management. There can be no assurance that
the Company will be able to successfully integrate acquired businesses into
the Company's operations or that acquired business will perform as expected.
The Company may also enter into joint venture transactions. See "--Risks
Related to Mid-Atlantic Joint Ventures." These transactions present many of
the same risks involved in acquisitions and may also involve the
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risk that other joint venture partners have economic, business or legal
interests or objectives that are inconsistent with those of the Company. Joint
venture partners may also be unable to meet their economic or other
obligations, thereby forcing the Company to fulfill these obligations. The
inability of any joint venture partners to meet their obligations could have a
material adverse effect on the Company's results of operations or financial
condition and its ability to meet its obligations under the Notes.
Risks Related to Mid-Atlantic Joint Ventures
From February to June 1997, the Company made investments totalling
approximately $12.0 million to acquire a 50% ownership interest in Mid-
Atlantic. The Company elected not to meet capital calls in February and June
of 1998, and as a result it currently holds an approximately 41% equity
interest in Mid-Atlantic. Pursuant to the terms of Mid-Atlantic's operating
agreement, the joint venture is not managed by the Company and the Company's
consent is required for a limited number of actions by Mid-Atlantic. As a
consequence, the Company has limited ability to control Mid-Atlantic and may
be unable to prevent actions by Mid-Atlantic which might be adverse to the
interests of the Company, and which might result in a material adverse change
in the value of the Company's interest in Mid-Atlantic.
Mid-Atlantic is highly leveraged. The degree of leverage of Mid-Atlantic
could affect, among other things, the ability of Mid-Atlantic to fulfill its
obligations under its agreements, the frequency and amount of capital calls by
Mid-Atlantic, the value of the Company's equity in Mid-Atlantic and the
likelihood that the Company will be able to recoup its investment in the
future. Although the Company is not required to make additional capital
contributions to Mid-Atlantic, its failure to do so on a pro rata basis will
result in a decline in the Company's percentage ownership of Mid-Atlantic, and
could affect the value of the Company's investment in Mid-Atlantic. There can
be no assurance that a reduction in the Company's percentage ownership of Mid-
Atlantic would not have a material adverse effect on the Company's results of
operations and financial condition and its ability to meet its obligations on
the Notes. Mid-Atlantic's agreements with its lenders prohibit the payment of
dividends by Mid-Atlantic.
On August 6, 1998 OnePoint made a demand for arbitration of certain disputes
under the Mid-Atlantic operating agreement. The arbitration demand seeked the
resolution of several disputes between the parties, including among other
things, whether OnePoint was entitled to disclose Mid-Atlantic's financial
results in connection with the Exchange Offer. On January 15, 1999 the
Company, Mid-Atlantic and other related parties entered into a Settlement
Agreement (the "Settlement Agreement") which resolved the disputes covered by
the arbitration demand. See "Business--Mid-Atlantic Joint Venture."
There can be no assurances that further disputes between the Company and
Mid-Atlantic will not arise, or of the effects of any such disputes on the
Company's results of operations and financial condition and its ability to
meet its obligations on the Notes.
The Company contributed $5 million to form VIC-RMTS-DC, LLC, the company
that provides telephony services in the Mid-Atlantic region, and Mid-Atlantic
RMTS Holdings, LLC ("Mid-Atlantic Holdings"), an affiliate of the other owners
of equity in Mid-Atlantic, was to contribute a like amount of assets or cash.
Upon review, however, the Company believes that the value of the assets
contributed by Mid-Atlantic Holdings was sufficient to give Mid-Atlantic
Holdings only an approximate 5% interest based upon capital contributions
through December 31, 1998. The Manager of Mid-Atlantic Holdings has suggested
that they are entitled to an unspecified, but higher, equity interest in VIC-
RMTS-DC, LLC. OnePoint has also made additional capital contributions to VIC-
RMTS-DC, LLC which to date have not been matched by Mid-Atlantic Holdings. On
March 30, 1999, the Company filed a decree for arbitration seeking a
declaratory ruling on the equity ownership at VIC-RMTS-DC, LLC. On April 5th,
1999 the Company's joint venture partner in VIC-RMTS-DC, LLC filed its own
decree for arbitration to resolve issues of equity ownership of VIC-RMTS-DC,
LLC. OnePoint will be entitled only to that portion of any distributions made
by VIC-RMTS-DC, LLC corresponding to its percentage ownership therein.
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Portions of the Company's customer care facility are currently operated
jointly with Mid-Atlantic. The billing and operating support system is
operated pursuant to a contract between the Company and a third party, and
Mid-Atlantic reimburses the Company for a portion of the variable expenses
related to the system, based on usage. Both the Company and Mid-Atlantic
utilize the facility to perform services for their customers, and data
relating to both companies' customers are integrated into the billing and
operating support systems. The PBX/ACD telephone equipment used at the
facility is leased by Mid-Atlantic and the Company reimburses Mid-Atlantic for
half of the expenses related to such equipment. In certain circumstances, the
Company relies on Mid-Atlantic's employees to answer the Company's inbound
phone calls. The Company also reimburses Mid-Atlantic for certain payroll and
other expenses with respect to shared employees. Any event that required the
separation of Mid-Atlantic and OnePoint customer care and billing operations
could result in a disruption in the Company's ability to provide adequate
service to its customers. There can be no assurance that such occurrence would
not have a material adverse effect on the Company's results of operations and
financial condition and its ability to meet its obligations under the Notes.
In addition, the Company is a co-tenant with Mid-Atlantic with respect to both
companies' offices in Washington, D.C., and is jointly and severally liable
for lease payments with respect to space used by Mid-Atlantic.
Risks Related to the Mid-Atlantic Joint Venture Non-Competition Agreements
In connection with the Mid-Atlantic joint venture, the Company, its co-joint
venturer and certain of their affiliates entered into a series of Non-
Competition Agreements. Such agreements restrict the rights of such parties
(other than Mid-Atlantic and VIC-RMTS-DC, LLC, the telephony joint venture
company controlled by the Company) to provide cable and telephony services,
respectively, under certain circumstances in either (i) the "D.C. Metro" area,
defined to include Washington D.C., Baltimore, Maryland and certain areas of
Virginia, or (ii) the "Territory," defined to include the States of Delaware,
Maryland, New Jersey, Pennsylvania and Virginia and Washington, D.C.
The agreements restrict parties other than Mid-Atlantic from pursuing any
opportunity related to, or providing, any private cable service or any
franchise cable service with less than 75,000 dwelling units passed or
available to be passed anywhere in the Territory unless such opportunity has
been offered first to Mid-Atlantic, and then to VIC-RMTS-DC, LLC and, within
the D.C. Metro area, only if Mid-Atlantic has ceased to develop cable
opportunities therein for not less than six consecutive months.
The agreements restrict parties other than VIC-RMTS-DC, LLC from pursuing
any opportunity related to, or providing any, telephony services in the
Territory unless such opportunity has been offered first to VIC-RMTS-DC, LLC,
and then to Mid-Atlantic and, within the DC Metro area, only if VIC-RMTS-DC,
LLC has ceased to develop telephony opportunities therein for not less than
six consecutive months.
In the event that any proposed telephony or cable acquisition would provide
a legal or regulatory conflict for SBC such that neither VIC-RMTS-DC, LLC nor
Mid-Atlantic could pursue such acquisition, there is no offer requirement.
Each party to the agreements is restricted from providing a bundled service
offering consisting of telephony and cable services (other than pursuant to
the joint venture) within the D.C. Metro area. The agreements prohibit the
recruiting or solicitation of any employees, customers, subscribers or
suppliers of either of the joint venture companies who perform services in the
Territory. The duration of such agreements with respect to any party is
dependent on such party's continued equity ownership in the joint venture
entities, and the continued operation of the joint venture entities, but last
in no event longer than one year following the end of such party's affiliation
with the joint venture entities.
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The Company Faces Significant Competition, Often From Larger Competitors
The Company competes with a wide range of service providers for each of the
services that it provides. Virtually all markets for telephony and video
services are highly competitive, and the Company expects that competition will
intensify in the future.
In addition, SBC has announced that in connection with its planned merger
with Ameritech, the company resulting from the merger (the "'Combined
Company") would provide an integrated mix of local, long distance, Internet
and high-speed data services to consumers and businesses in 30 additional U.S.
markets outside of its region, including certain of the Company's other
currently targeted markets: Atlanta, Baltimore, Denver, Philadelphia, Phoenix
and Washington. Upon entry into these markets, the Combined Company could be
competing with OnePoint. The Company cannot predict the effect on OnePoint of
entry of the Combined Company into such markets, including the effect on
OnePoint's ability to compete in such markets and its ability to continue to
purchase certain services and equipment on favorable terms pursuant to SBC
agreements, and there can be no assurance that such competition from the
Combined Company would not have a material adverse effect on the Company's
results of operations and financial condition and its ability to meet its
obligations under the Notes. See "--Dependence on SBC Affiliation for
Favorable Contracts."
With respect to local telephony services, the Company competes with the
ILECs and alternative service providers including CLECs and cellular and other
wireless telephony service providers. AT&T, MCI WorldCom, Sprint and other
IXCs have announced their intention to offer local services in major U.S.
markets using their existing infrastructure in combination with resale of ILEC
service, lease of unbundled local loops, new facilities or other providers'
services. In particular, AT&T has recently purchased the cable company Tele-
Communications, Inc. and intends to provide local telephony, long distance,
Internet, and other services to customers via cable facilities.
With respect to long distance telephony services, the Company faces, and
expects to continue to face, significant competition from IXCs, including
AT&T, Sprint and MCI WorldCom, which account for the majority of all long
distance revenue. The long distance business is highly competitive and prices
have declined substantially in recent years and are expected to continue to
decline. There can be no assurance that the Company's contract for long
distance will be at competitive rates. See "--Limitations on the Company's
Ability to Repurchase Notes Upon a Change of Control." In addition, the long
distance industry has historically had a high average churn rate, and
customers continue to change long distance providers frequently, and,
increasingly, to use multiple long distance providers in response to rate
offerings and promotional incentives. See "--Government Regulation."
The Company believes that among the existing competitors serving MDU
customers, the ILECs, the IXCs, the incumbent cable providers and other CLECs
provide the most direct competition to the Company. In each of its target
markets for bundled telecommunication and video services to MDUs, the Company
faces, and expects to continue to face, significant competition from the
ILECs, which currently dominate their local telephony markets. The Company
competes with the ILECs on the basis of product offerings, customer service
and price, and the ILECs generally have greater resources than the Company to
devote to the implementation of new product offerings, enhanced customer
service and pricing alternatives. The ILECs have begun to expand the amount of
fiber facilities in their networks and to prepare to enter the long distance
telephony services market and, in addition, have long-standing relationships
with their customers. ILECs other than RBOCs already may provide in-region
long distance telephony service, and all ILECs may provide out-of-region long
distance telephony service. The Company expects that the increased competition
made possible by regulatory reform will result in certain pricing and margin
pressures in the telecommunications services business.
The Telecommunications Act permits the ILECs and others to provide a wide
variety of video services directly to subscribers in competition with the
Company. Various ILECs, including certain subsidiaries of SBC, currently are
providing video services within and outside their telephony service areas
through a variety of distribution methods, including the deployment of
broadband wire facilities and the use of wireless transmission
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facilities. The Company cannot predict the likelihood of success of video
service ventures by ILECs or the impact on the Company of such competitive
ventures.
Certain of the Company's video service businesses compete with incumbent
franchise cable companies in their respective service areas. In particular,
OnePoint's wireless satellite systems (DBS and SMATV) compete for cable
subscribers with the major franchise cable operators such as Jones Intercable
Inc. and District Cablevision in the Washington, D.C. metropolitan area,
MediaOne Inc. in Atlanta, Tele-Communications Inc. ("TCI") in Chicago and
Denver and Cox Communications Inc. in Phoenix. In addition, the Company also
competes with home satellite dish earth stations and wireless program
distribution services such as multi-channel multipoint distribution service
systems. The Company expects that its video service will face growing
competition from current and new DBS service providers.
The market for most Internet-related services is extremely competitive and
the number of competitors in the Internet-related services market is likely to
increase steadily. In addition, the FCC recently adopted rules that will soon
allow so-called "wireless cable" licensees (which includes "multipoint
distribution service" ("MDS"), "multichannel multipoint distribution service"
("MMDS") and "instructional television fixed service" ("ITFS") licensees) to
offer two-way digital services, including high-speed and high capacity data
transmission services, Internet service, and video-conferencing and various
other telephony services. As a result of this expanded authority granted to
MDS/MMDS/ITFS operators, it is reasonable to anticipate that the Company may
experience greater competition from the wireless cable service sector in the
areas of data transmission services, Internet service, and various telephony
services. There are few barriers to entry in many Internet-related markets,
and new competitors, such as computer hardware or software manufacturers,
other telecommunications providers, and foreign entities, may enter the market
with considerable resources. Furthermore, competitors currently devoting only
a small part of their resources to Internet-related services may expand their
presence in the marketplace. Regulatory changes may allow telecommunications
providers to improve their competitive position by permitting service bundling
that will create attractive new one-stop-shopping marketing opportunities.
The Company also faces, and expects to continue to face, competition from
other potential providers of bundled telephony, Internet and video services in
certain of the markets in which the Company offers its services. The Company
competes with companies such as RCN Corporation ("RCN") in Washington, D.C.
and 21st Century Telecom Group, Inc. ("21st Century") in Chicago, which are
deploying advanced fiber optic networks to provide bundled telephony and video
services to residents in MDUs and single-family homes and which may have
greater resources than those of the Company. Other CLECs compete in the local
telephony services market, although they have to date focused primarily on the
market for commercial customers. In addition, potential competitors capable of
offering private line and special access services also include other smaller
long distance carriers, cable television companies, electric utilities,
microwave carriers, wireless telephony system operators and private networks
built by large end-users.
The Company faces significant competition for each of the services it
offers, in each of the markets in which it offers services. Most of the
Company's competitors are larger than the Company, and have greater financial
resources and more experience than the Company in offering telecommunications
services. Several of the Company's competitors are among the largest
corporations in the world, and a number of the Company's competitors are
incumbent providers that have historically dominated their respective local
markets. These competitors may be able to use their superior resources to
develop their service offerings and infrastructures more rapidly and more
efficiently than OnePoint. They may be able to react more quickly and more
appropriately to changes in regulation, technology, or the marketplace.
Additionally, these competitors may be able to improve their competitive
position through mergers and acquisitions.
Other new technologies may become competitive with services that the Company
offers. Advances in communications technology as well as changes in the
marketplace and the regulatory and legislative environment are constantly
occurring. In addition, a continuing trend toward business combinations and
alliances in the telecommunications industry may also create significant new
competitors to the Company. The Company cannot
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predict whether competition from such developing and future technologies or
from such future competitors will have a material impact on its operations.
For additional information on the competitive environment in which the Company
operates, see "Business--Competition."
Government Regulation
The Company's networks and the provision of telecommunications services are
subject to significant regulation at the federal, state and local levels. See
"Business--Federal Regulations," "--State Regulation" and "--Local
Regulation." Delays in receiving required regulatory approvals or the
enactment of new adverse regulation or regulatory requirements may have a
material adverse effect upon the Company's results of operations and financial
condition and its ability to meet its obligations under the Notes.
Tariffs
The FCC exercises jurisdiction over the Company with respect to interstate
and international services. Additionally, the Company files tariffs with the
FCC. The continuation of tariff filing requirements is in dispute. If tariffs
are no longer required, telecommunications carriers such as the Company will
no longer be able to rely on the filing of tariffs with the FCC as a means of
providing notice to customers of prices, terms, and conditions on which they
offer interstate services. Tariffs also allow the Company to limit its
liability to its customers, including in connection with service
interruptions. If tariffs are eliminated, the Company may become subject to
significantly increased liability risks, and there can be no assurance that
such liabilities will not have a material adverse effect on the Company's
results of operations and financial condition and its ability to meet its
obligations under the Notes.
CPNI
In February 1998, the FCC adopted rules implementing Section 222 of the
Communications Act of 1934, as amended (the "Communications Act"), which
governs the use of customer proprietary network information ("CPNI") by
telecommunications carriers. CPNI generally includes any information regarding
a subscriber's use of a telecommunications service, where it is obtained by a
carrier solely by virtue of the carrier-customer relationship. These rules,
either as adopted or as requested to be modified, may impede the Company's
ability to effectively market integrated packages of services and to expand
existing customers' use of the Company's services.
State Regulation
All states in which the Company operates require a certification or other
authorization from the state regulatory commission to offer intrastate
telecommunications services. Many of the states in which the Company operates
are in the process of addressing issues relating to the regulation of CLECs.
Some states may require authorization to provide enhanced services.
In states where the Company operates, numerous state rulemaking proceedings
and arbitrations that may affect the Company's ability to compete with ILECs
are now underway or may be instituted in the future. These rulemaking
proceedings and arbitrations involve numerous telecommunications issues. To
the extent the Company decides in the future to install its own transmission
facilities, other state rulemaking proceedings and arbitrations may also
affect the Company's ability to compete with ILECs.
Local Regulation
The Company's networks are subject to numerous local regulations, including
those relating to building codes and licensing. Such regulations vary on a
city by city and county by county basis. To the extent the Company decides in
the future to install its own transmission facilities, it will need to obtain
rights-of-way over private and publicly owned land. There can be no assurance
that such rights-of-way will be available to the Company on economically
reasonable or advantageous terms.
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Long Distance and InterLATA Internet Restrictions
The Telecommunications Act provides for a significant deregulation of the
domestic telecommunications industry, including the local exchange, long
distance and cable television industries. The Telecommunications Act remains
subject to judicial review and additional FCC rulemaking, and thus it is
difficult to predict what effect the legislation will have on the Company and
its operations. There are currently many regulatory actions underway and being
contemplated by federal and state authorities regarding the telecommunications
industry. There can be no assurance that these changes will not have a
material adverse effect upon the Company's results of operations and financial
condition and its ability to meet its obligations under the Notes.
Due to SBC's indirect ownership of 19.7% of the sole stockholder of the
Company, the Company is considered to be an affiliate of SBC for regulatory
purposes and is, therefore, prohibited from providing long distance telephony
and InterLATA Internet service to customers in the SBC Region. The Company is
also subject to certain other restrictions, including regulations regarding
the provision of other services in the SBC Region. Under current regulatory
conditions, such restrictions would hamper the Company's ability to enter into
and compete in the SBC Region. As a result, the Company does not expect to
enter the markets in the SBC Region while current regulatory conditions
persist. Accordingly, the Company's competitors may enter such regions and
obtain MDU Rights of Entry that would either preclude the Company from
subsequently competing in such regions or make it more costly to do so. The
area which constitutes the SBC Region may change due to transactions entered
into by SBC or regulatory changes. Expansion of the SBC Region, through a
business combination between SBC and another RBOC or otherwise, could have a
material adverse effect on the Company's results of operations and financial
condition and its ability to meet its obligations under the Notes. There can
be no assurance that the SBC Region, in which the Company is currently
prohibited from providing long distance telephony service, will not expand, or
that any such expansion will not include areas currently served, or targeted
to be served by the Company.
Local Exchange Requirements
In addition to requirements placed on ILECs, the Telecommunications Act
subjects the Company to certain federal regulatory requirements relating to
the provision of local exchange service in a market. In addition, the FCC's
rules require that the Company contribute to universal service funds, the
Telecommunications Relay Services fund and the North American Numbering Plan
Administrator fund. Compliance with these obligations, individually and in the
aggregate, may cause the Company to incur substantial expenses. There can be
no assurance that these expenses will not have a material adverse effect upon
the Company's results of operations and financial condition and its ability to
meet its obligations under the Notes.
In addition, the Company might incur significant expenses to assure that its
networks comply with the requirements of the Communications Assistance for Law
Enforcement Act ("CALEA"), which requires telecommunications carriers to
provide law enforcement officials with call content and call identifying
information ("assistance capability requirements") and to reserve circuits for
use by law enforcement officials in executing court authorized electronic
surveillance ("capacity requirements").
Universal Service
On May 8, 1997, the FCC released an order establishing a significantly
expanded federal universal service subsidy regime. Providers of interstate
telecommunications services, such as the Company, as well as certain other
entities, must pay for these programs. The Company's share of these federal
subsidy funds will be calculated based on end-user revenues. The Company is
currently unable to quantify the amount of subsidy payments that it will be
required to make in future years and the effect that these required payments
will have on its financial condition.
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<PAGE>
Access Charges
To the extent the Company provides interexchange telecommunications service,
it is required to pay access charges to ILECs when it uses the facilities of
those companies to originate or terminate interexchange calls. Also, as a
CLEC, the Company provides access services to other interexchange service
providers. With limited exceptions, the current policy of the FCC for most
interstate access services dictates that ILECs charge all customers the same
price for the same service. Thus, the ILECs generally cannot lower prices to
some customers without also lowering charges for the same service to all
similarly situated customers in the same geographic area. The FCC may,
however, alleviate this constraint on the ILECs and permit them to offer
special rate packages to certain customers, as it has done in a few cases, or
permit other forms of rate flexibility. Further FCC action is expected during
1999 that may grant ILECs subject to the FCC's price cap rules ("price cap
LECs") increased pricing flexibility upon demonstrations of increased
competition (or potential competition) in relevant markets. The manner in
which the FCC implements this approach to lowering access charge levels could
have a material adverse effect on the Company's ability to compete in
providing interstate access services.
Reciprocal Compensation
All ILECs and CLECs must complete calls originated by other carriers under
reciprocal compensation arrangements. That is, the LEC terminating a local
call is entitled to payment from the LEC originating a call. Charges assessed
by the ILECs for terminating calls originated on a CLEC's network must be
based on a reasonable approximation of additional cost or through mutual
exchange of traffic without explicit payment. The FCC recently determined that
Internet traffic is interstate in nature, not local, and has initiated a
proceeding to determine appropriate carrier-to-carrier compensation. At the
same time, the FCC declined to overturn a multitude of state decisions
requiring ILECs to pay CLECs compensation for delivering Internet traffic to
ISPs. The FCC's decision is on appeal, and ILECs are expected to ask state or
federal courts to reverse the existing state determinations. The outcome of
those challenges and the compensation scheme ultimately adopted by the FCC
could have a material adverse effect on the Company's results of operations
and financial condition and its ability to meet its obligations under the
Notes.
Video Regulation
A number of recent and on-going developments in Congress, at the FCC, and at
the United States Copyright Office are likely to have an impact on the extent
to which governmental regulations burden the entertainment component of the
Company's business and on its ability to compete with other MVPDs.
Access to Property. Franchise cable operators must rely on state or local
access laws to obtain the right to compete for MDU subscribers for which
private cable systems hold exclusive rights. These statutes, referred to as
"mandatory access" provisions, typically empower only franchise cable
operators to gain access to an MDU in order to provide service to the
residents regardless of whether the MDU owner objects or has entered into a
contract with an alternative provider of video services such as the Company.
Thus, in jurisdictions where a mandatory access provision has been enacted, a
franchise operator might be able to access an MDU and provide service in
competition with the Company despite any exclusive Rights of Entry contract
that the company might have entered into with the owner. The ability of
franchise operators to force access to an MDU may create additional
competition for a limited subscriber base and poses a potential threat to the
Company's operating margin at the property in question. A number of
jurisdictions in which the Company's targeted markets are located have enacted
mandatory access provisions, including the states of Illinois and Pennsylvania
and the District of Columbia. While the state of Virginia has not enacted a
mandatory access statute, its laws prohibit landlords from accepting payment
from a video services provider in exchange for access to an MDU. The inability
of video service providers such as the Company to include compensation
provisions in video Rights of Entry contracts for properties located in
Virginia may limit their ability to induce property owners to enter into these
contracts. There can be no assurance that existing or future mandatory access
provisions will not have a material adverse effect on the Company's results of
operations and financial condition and its ability to meet its obligations
under the Notes.
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<PAGE>
Inside Wiring. In some instances, a new provider such as the Company faces
difficulty in taking over a property because the ownership of the wiring is
uncertain or contested and the property owner is hesitant to allow
installation of additional wiring. In late 1997, the FCC issued new rules that
address such problems and impose conditions on the sale, removal or
abandonment of wiring and govern shared use of space by competing providers.
The new rules are being challenged, however, and there can be no assurance
that uncertainty regarding ownership or use of inside wiring will not have a
material adverse effect on the Company's results of operations and financial
condition and its ability to meet its obligations under the Notes.
Regulation of DBS Providers. Congress is considering several pieces of DBS
legislation that could enhance the ability of DBS providers to compete with
traditional franchise cable systems or private cable operators like the
Company. In addition, the FCC has adopted rules that prohibit MDU Managers
from imposing certain restrictions that might impair reception by viewers who
do not own the affected property, including MDU residents. This could
adversely affect the value of the Company's present and future Rights of
Entry, which could have a material effect on the Company's results of
operations and financial condition and its ability to meet its obligations
under the Notes.
The foregoing discussion of regulatory considerations does not review all
laws or regulations under consideration by federal and state governmental
bodies that may affect the Company's operations. It is possible that present
and future laws and regulations not discussed here could have a material
adverse effect on the Company's results of operations and financial condition
and its ability to meet its obligations under the Notes.
Year 2000 Problems May Disrupt Our Operations
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company has undertaken a program to address the Year 2000 issue with
respect to the following: (i) the Company's information technology and
operating and support systems (including its customer care, trouble tracking,
billing and provisioning systems); (ii) the Company's non-information
technology systems; and (iii) certain systems of the Company's major suppliers
and material service providers (insofar as such systems relate to the
Company's business activities with such parties). The Company's Year 2000
program involves (i) an assessment of the Year 2000 problems that may affect
the Company, (ii) the development of remedies to address the problems
discovered in the assessment phase, (iii) the testing of such remedies and
(iv) the preparation of contingency plans to deal with worst case scenarios.
Although the Company's Year 2000 efforts are intended to minimize the
adverse effects of the Year 2000 issue on the Company's business and
operations, the actual effects of the issue and the success or failure of the
Company's efforts described above cannot be known until the Year 2000. Failure
by the Company or its major suppliers to address adequately their respective
Year 2000 issues in a timely manner (insofar as such issues relate to the
Company's business) could have a material adverse effect on the Company's
results of operations and financial condition and its ability to meet its
obligations on the Notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Impact of the Year 2000 Issue."
Rapid Technological Changes and Uncertain Market Development
The telephony and video industries are subject to rapid and significant
changes in technology and frequent service innovations. The effect on the
business of the Company of future technological changes, such as changes
relating to emerging transmission technologies, cannot be predicted. The
Company believes that its future success will depend on its ability, as to
which no assurance can be given, to enhance its existing systems or
32
<PAGE>
implement new systems to respond to new technologies and to develop and
introduce in a timely fashion new products and services on a competitive
basis.
The markets in which the Company competes are constantly evolving. The
convergence of traditional telephony services and video services is a recent
trend in the industry in which the Company competes. As part of this trend,
many telephony and video services providers are attempting to integrate
network components. For example, multi-channel television distribution
equipment is being considered for voice and data telecommunications and vice
versa. The convergence of these traditional services towards integrated
multimedia services presents both opportunity and material risk to companies
such as OnePoint. The Company will face enhanced competition from competitors
with much greater financial, technical, marketing and other resources. Many of
these competitors may offer packages of services that are more extensive than
the services which the Company plans to offer. There can be no assurance that
the Company will be able to predict accurately the direction of this evolving
market or be able to respond effectively to the highly competitive
environment. See "--Competition."
Antitakeover Provisions
The Company's Certificate of Incorporation and Bylaws and the Delaware
General Corporation Law contain certain provisions that may have the effect of
discouraging, delaying or making more difficult a change in control of the
Company or preventing the removal of incumbent directors. The existence of
these provisions may have a negative impact on the price of the Common Stock
and may discourage third-party bidders from making a bid for the Company or
may reduce any premiums paid to stockholders for their Common Stock. Pursuant
to the Operating Agreement of the Company's sole stockholder, the consent of
VIC is required for the sale of all or substantially all of the Company's
assets.
Absence of Public Market
The Notes are a new issue of securities for which there presently is no
active trading market and none may develop. If the Notes are traded after
their initial issuance, they may trade at a discount from their initial
offering price, depending upon prevailing interest rates, the market for
similar securities, the financial condition and prospects of the Company and
other factors beyond the control of the Company, including general economic
conditions. Although the Initial Purchasers have informed the Company that
they currently intend to make a market in the Notes, the Initial Purchasers
are not obligated to do so and any such market-making may be discontinued at
any time without notice, at the sole discretion of the Initial Purchasers.
Accordingly, there can be no assurance as to the development or liquidity of
any market for the Notes. See "Plan of Distribution."
Fraudulent Conveyance Risks
Under applicable provisions of the federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if the Company, at the time of
issuance of, or making any payment in respect of, the Notes, (a)(i) was or was
rendered insolvent thereby, was engaged or about to engage in a business or
transaction for which its assets constituted unreasonably small capital, or
intended to incur, or believed that it would incur, debts beyond its ability
to pay such debts as they matured and (ii) the Company received less than
reasonably equivalent value or fair consideration for such issuance or (b) the
Company issued the Notes or made any payment thereunder with intent to hinder,
defraud or delay any of its creditors, the obligations of the Company under
some or all of the Notes could be voided or held to be unenforceable by a
court, the obligations of the Company under the Notes could be subordinated to
claims of other subordinated creditors, or the holders of Notes could be
required to return payments already received. In particular, if the Company
were to cause a subsidiary to pay a dividend in order to enable the Company to
make payments in respect of the Notes, and such transfer were deemed a
fraudulent transfer, the holders of Notes could be required to return the
payment. In any of the foregoing cases, there could be no assurance that the
holders would ultimately recover the amounts owing under the Notes.
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<PAGE>
The measure of insolvency for purposes of the foregoing will vary depending
upon the law applied in any such case. Generally, however, the Company would
be considered insolvent if the sum of its debts, including contingent
liabilities, was greater than all of its assets at a fair valuation, if it had
unreasonably small capital to conduct its business, or if the present fair
salable value of its assets were less than the amount that would be required
to pay the probable liability on its existing debts, including contingent
liabilities, as they become absolute and matured. The Company believes that it
was not insolvent at the time of or as a result of the Initial Offering, that
it has not engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital and that it did not and does not intend
to incur or believe that it will incur debts beyond its ability to pay such
debts as they mature. There can be no assurance, however, that a court passing
on such questions would agree with the Company's analysis.
The Indenture provides that certain subsidiaries of the Company will be
required to guarantee the obligations of the Company under the Indenture and
the Notes. When any subsidiary enters into such a guarantee, if bankruptcy or
insolvency proceedings were initiated by or against that subsidiary within 90
days (or, possibly, one year) after that subsidiary issued a guarantee, or if
that subsidiary incurred obligations under its guarantee in anticipation of
insolvency, all or a portion of the guarantee could be avoided as a
preferential transfer under federal bankruptcy or applicable state law. In
addition, a court could require holders of the Notes to return all payments
made within any such 90 day (or, possibly, one year) period as preferential
transfers.
Original Issue Discount; Possible Unfavorable Tax and Other Legal Consequences
for Holders of Notes and the Company
The Notes are deemed to have been initially issued at a discount equal to
the sum of the estimated value of the Warrants and the amount, if any, by
which the principal amount of the Notes exceeds the issue price of the Units.
Consequently, for federal income tax purposes, original issue discount (that
is, the difference between the stated redemption price at maturity and the
deemed issue price of the Notes) may accrue from the issue date of the Notes
and may be includable in a holder's gross income as it accrues. See "Certain
United States Federal Income Tax Considerations" for a more detailed
discussion regarding the federal income tax consequences of the purchase,
ownership and disposition of the Notes.
The "yield to maturity" on the Notes exceeds the sum of 5% and the
"applicable federal rate" (a rate based on the yield on Treasury Securities
with similar maturity) in effect for the month in which the Notes were issued.
Accordingly, if the Notes have "significant" OID, the Notes will be considered
"applicable high yield discount obligations." A debt instrument has
"significant" OID if the aggregate amount of unpaid interest (including OID)
as of the close of any accrual period ending after the date five years after
the date of issue exceeds the product of the issue price of such instrument
and its yield to maturity.
If the Notes are "applicable high yield discount obligations," the Company
will not be permitted to deduct for United States federal income tax purposes
OID accrued on the Notes until such time as the Company actually pays such OID
in cash or in property other than stock or debt of the Company (or persons
related to the Company). Moreover, to the extent that the yield to maturity of
the Notes exceeds the sum of 6% and the applicable federal rate, such excess
(the "Dividend-Equivalent Interest") will not be deductible at any time by the
Company for United States federal income tax purposes (regardless of whether
the Company actually pays such Dividend-Equivalent Interest in cash or in
other property). Such Dividend-Equivalent Interest would be treated as a
dividend to the extent it is deemed to have been paid out of the Company's
current or accumulated earnings and profits. Accordingly, a holder of Notes
that is a domestic corporation may be entitled to take a dividends-received
deduction with respect to any Dividend-Equivalent Interest received by such
corporate holder on the Note.
If a bankruptcy case under the U.S. Bankruptcy Code were to be commenced by
or against the Company after the issuance of the Notes, the claim of a holder
of Notes with respect to the principal amount thereof may be limited to an
amount equal to the sum of (i) the initial offering price and (ii) that
portion of the original issue
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<PAGE>
discount that is not deemed to constitute "unmatured interest" for purposes of
the U.S. Bankruptcy Code. Any original issue discount that was not amortized
as of the time of any such bankruptcy filing would constitute "unmatured
interest."
Corporate Acquisition Indebtedness--Possible Limitation of Federal Tax
Deduction for Interest Expense on the Notes
Interest on a debt obligation issued as part of an investment unit (such as
the Notes) may not be deductible for federal income tax purposes to the extent
such interest exceeds $5 million (subject to certain reductions) for a tax
year if, among other things, the proceeds of such debt are used to make
certain asset or stock acquisitions and the debt is expressly subordinated or
is subordinated to trade creditors (determined on a group basis). While the
Company believes that the federal tax deduction for interest on the Notes
should not be subject to such limitation due to, among other things, the
presence of the Subsidiary Guarantees (resulting in the Notes being ranked
pari passu with the trade creditors of such Subsidiaries), no assurances can
be given in this regard and a ruling from the Internal Revenue Service has not
been sought.
Restrictive Covenants
The Indenture contains a number of covenants that will limit the discretion
of the Company's management with respect to certain business matters. These
covenants, among other things, restrict the ability of the Company to incur
additional Indebtedness, pay dividends and make other distributions, prepay
subordinated Indebtedness, make Investments and other restricted payments,
enter into sale and leaseback transactions, create liens, sell assets, and
engage in certain transactions with affiliates. See "Certain Relationships and
Related Transactions," "Description of Certain Indebtedness" and "Description
of the Notes."
A failure to comply with the covenants and restrictions contained in the
Indenture or agreements relating to any subsequent financing could result in
an event of default under such agreements which could permit acceleration of
the related debt and acceleration of debt under other debt agreements that may
contain cross-acceleration or cross-default provisions, and the commitments of
the lenders to make further extensions under such other agreements could be
terminated.
Classification as an Investment Company
Until the proceeds of the Initial Offering are deployed in the Company's
business, the Company will have substantial short-term investments and other
investment securities. See "Capitalization," "Use of Proceeds" and the
consolidated financial statements, including the notes thereto. This may
result in the Company being treated as an "investment company" under the
Investment Company Act of 1940 (the "1940 Act"). The 1940 Act requires the
registration of, and imposes various substantive restrictions on, certain
companies ("investment companies") that are, or hold themselves out as being,
engaged primarily, or propose to engage primarily in, the business of
investing, reinvesting or trading in securities, or that fail certain
statistical tests regarding composition of assets and sources of income and
are not primarily engaged in businesses other than investing, reinvesting,
owning, holding or trading securities.
The Company believes that it is primarily engaged in a business other than
investing, reinvesting, owning, holding or trading securities and, therefore,
is not an investment company within the meaning of the 1940 Act. If the
Company were to be an investment company, the Company currently would intend
to rely upon a one year safe harbor exemption from the 1940 Act for certain
"transient" or temporary investment companies.
If the Company were required to register as an investment company under the
1940 Act, it would become subject to substantial regulation with respect to
its capital structure, management, operations, transactions with affiliated
persons (as defined in the 1940 Act) and other matters. Application of the
provisions of the 1940 Act to the Company would have a material adverse effect
on the Company's results of operations and financial condition and its ability
to meet its obligations under the Notes.
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<PAGE>
THE RECAPITALIZATION
The Predecessor was initially formed in 1996 by VIC, which initially owned
99% of the equity interests in the Predecessor, and AMI2, which owned the
remaining 1% equity interest in the Predecessor. VIC is an affiliate of SBC,
and 99% of the equity of VIC is owned indirectly by SBC. The remaining 1% of
the equity of VIC is owned by The VenCom Group, Inc., which is, in turn, owned
by James A. Otterbeck, the Company's Chairman and Chief Executive Officer. VIC
is the sole stockholder of AMI2.
In October 1997, AMI2 transferred to VIC its membership units of the
Predecessor, Mr. Otterbeck became a member of the Predecessor and the
Predecessor was recapitalized. Pursuant to the Recapitalization, VIC agreed to
guarantee up to $9 million of secured indebtedness of the Predecessor,
contributed additional capital to the Predecessor (resulting in aggregate
equity contributions to the Predecessor of $33.5 million) and exchanged its
membership interests for (i) 19.9% of the Predecessor's membership units,
which had a preferred return of 10% per annum and a priority on the first
$33.5 million of distributions, (ii) a promissory note in the principal amount
of $1.5 million due October 15, 2007 which bore interest at 10% per annum (the
"Predecessor Note"), and (iii) a warrant to purchase 5% of the common units
outstanding following exercise of the warrant. In connection with the
Recapitalization, Mr. Otterbeck purchased 80.1% of the Predecessor's
membership units (which did not have a preferential return or priority on
distributions) for an aggregate of $80,100 and agreed to contribute up to an
additional $1.5 million to the Predecessor no later than the Predecessor's
dissolution. The parties also entered into (i) a Members Agreement that
restricted the transfer of membership units and provided preemptive rights on
the sale of new securities and (ii) a Registration Agreement that provided
certain rights to register the Predecessor's securities under the Securities
Act of 1933, as amended. In April 1998, Mr. Otterbeck transferred his equity
interest in the Predecessor to VenCom, L.L.C., of which he is the sole member.
In April 1998, in order to convert the Predecessor into a corporation, VIC
and VenCom, L.L.C. contributed their membership interests in the Predecessor
and the Predecessor Note to Ventures in Communications II, LLC ("VIC2"), a
newly-formed limited liability company, in exchange for membership interests
of VIC2. VIC's membership units in VIC2 do not accrue dividends, however, and
the VIC2 warrant relates to 9.9% of the common units of VIC2. Subsequently,
the Predecessor merged with and into the Company, with the Predecessor's
outstanding membership interests and the Predecessor Note exchanged for shares
of the Company's common stock and preferred stock. In addition, the
Predecessor Note was replaced with a note in the same principal amount issued
by VIC2 to VIC (the "VIC2 Note"), and the parties entered into a Registration
Agreement. As a result of the merger transactions, the Company is a Delaware
corporation which is wholly owned by VIC2; 80.1% of VIC2's membership units
are owned by VenCom, L.L.C. and the remaining 19.9% of VIC2's membership units
are owned by VIC. As a result of SBC's indirect ownership of 99% of the equity
interests of VIC, SBC indirectly owns 19.7% of the Company's Common Stock.
The Operating Agreement of VIC2 entered into in April 1998 in connection
with the Recapitalization (i) imposes certain restrictions on the transfer of
VIC2's membership units; (ii) grants certain participation rights in
connection with a sale of membership units by a member; (iii) grants VIC
certain preemptive rights with respect to VIC2 membership units in connection
with issuances by VIC2 of membership units or issuances by the Company of
Common Stock; (iv) grants VIC the right to require VenCom, L.L.C. to purchase
all or any portion of the VIC2 membership units held by VIC; (v) grants a
first refusal right to the members in connection with a transfer of VIC2
membership units and shares of the Company's Common Stock; (vii) requires the
members to take certain actions in the event of an initial public offering by
VIC2; and (viii) grants VIC the right to require VIC2 to exercise its demand
and piggyback registration rights and to require VIC2 to distribute the
proceeds of the resulting offering.
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USE OF PROCEEDS
The net proceeds from the Initial Offering were approximately $168.1
million. The Company used approximately $80.5 million to fund the purchase of
Pledged Securities. The remaining $87.6 million of net proceeds has been or
will be used (i) to acquire private cable television operators or their
assets, (ii) to invest in video infrastructure, (iii) to invest selectively in
a facilities-based platform for telephony services, (iv) to repay borrowings
under the Credit Facility, (which were reborrowed on December 14, 1998), (v)
to fund future capital calls by Mid-Atlantic, (vi) to fund working capital,
(vii) to repurchase Notes and for general corporate purposes, including
operating losses. Prior to the application of the net proceeds of the Initial
Offering, such funds will be invested in Cash Equivalents.
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights
Agreements. The Company will not receive any cash proceeds from the issuance
of the Exchange Notes offered hereby. In consideration for issuing the
Exchange Notes contemplated in this Prospectus, the Company will receive Old
Notes in like principal amount, the form and terms of which are the same as
the form and terms of the Exchange Notes (which replace the Old Notes), except
as otherwise described herein. The Old Notes surrendered in exchange for
Exchange Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any increase or
decrease in the indebtedness of the Company. As such, no effect has been given
to the Exchange Offer in the pro forma statements or capitalization table.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not expect to declare any such dividends in the foreseeable
future. Payment of any future dividends will depend upon earnings and capital
requirements of the Company, the Company's debt facilities and other facts the
Board of Directors considers relevant. OnePoint intends to retain its
earnings, if any, to finance the development and expansion of its business,
and therefore does not anticipate paying any cash dividends in the foreseeable
future. The Company's Certificate of Incorporation prohibits the payment on
cash dividends on the Common Stock while the Company's Preferred Stock is
outstanding and, upon liquidation of the Company, requires payment of the
liquidation value of the Preferred Stock prior to any payments with respect to
the Common Stock. See "Description of Capital Stock." The Company's ability to
declare and pay cash dividends on its Common Stock is also restricted by
certain covenants in the Indenture. See "Description of Notes--Certain
Covenants--Restricted Payments."
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CAPITALIZATION
The following table sets forth the capitalization and cash and cash
equivalents of the Company at December 31, 1998 and as adjusted on a pro forma
basis to give effect to the repurchase of $32.25 million aggregate principal
amount of Notes as if they had occurred on December 31, 1998. The table should
be read in conjunction with "Selected Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements, including the
notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As of
December 31, 1998
------------------------
Actual Pro Forma
----------- -----------
(unaudited)
(Dollars in thousands)
<S> <C> <C> <C>
Cash and cash equivalents(1)..................... $ 5,730 $ 5,730
=========== ===========
Credit facility(2)............................... $ -- $ --
14 1/2% Senior Notes due 2008(3)................. 130,003 98,705
Term Note (including current portion of $250).... 8,750 8,750
----------- -----------
Total debt................................. 138,753 107,455
Redeemable preferred stock, $1.00 par value,
35,000 shares
authorized, 35,000 shares issued and
outstanding, at redemption value................ 35,000 35,000
Stockholders' deficit:
Common stock $0.01 par value, 2,000,000 shares
authorized, 1,000,000 shares issued and
outstanding(4)................................ 10 10
Additional capital(3).......................... 5,370 5,370
Accumulated deficit............................ (42,953) (30,536)
Unrealized gains on securities................. 701 701
----------- -----------
Total stockholders' deficit.................. (36,872) (24,455)
----------- -----------
Total long term debt, redeemable preferred
stock and stockholders' deficit............. $ 136,881 $ 118,000
=========== ===========
</TABLE>
- --------
(1) Excludes the $73.4 million of net proceeds from the Initial Offering used
to purchase Pledged Securities.
(2) The Company has up to $9.0 million available for borrowing under the
Credit Facility. As of December 31, 1998, $8.75 million was outstanding
under the Credit Facility. In November, 1998 a letter of credit in the
amount of $0.25 million was issued on behalf of the Company under the
Credit Facility. The Company borrowed the $8.75 million available under
the Credit Facility immediately prior to the termination of draw rights
under the terms of the Credit Facility.
(3) The carrying amount of 14 1/2% Senior Notes reflect the debt discount of
$5.3 million (less approximately $0.06 million of accumulated amortization
and $1.24 million of write-offs related to repurchased Notes) resulting
from the issuance of Warrants in conjunction with the Old Notes and the
Note Repurchases. The Company has obtained an independent valuation,
issued by Sturgill & Associates LLP, to determine the fair value of the
Warrants. In addition, from November 9 through March 5, 1999, the Company
repurchased certain of its Notes with an aggregate principal amount of
$73.25 million, for an aggregate amount of approximately $38.36 million,
including interest, fees, and other transaction costs. The Company will
recognize net gains on the early extinguishment of this debt of
approximately $19.8 million in the fourth quarter of 1998 and
approximately $12.42 million in the first quarter of 1999. The Company
funded these Note repurchases through the liquidation of certain non-
current investments originally purchased with the proceeds from the
original issuance of the Notes.
(4) Excludes 111,125 shares of Common Stock reserved for issuance upon
exercise of the Warrants.
38
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial and other data
of the Company. The selected consolidated statement of operations and balance
sheet data set forth below as of December 31, 1996, 1997 and 1998 and for the
periods then ended are derived from the financial statements of the Company
which have been audited by Ernst & Young LLP, independent auditors. The
Company was formed in 1996 and has generated operating losses and negative
cash flow from its operating activities to date. As a result of the Company's
short operating history, prospective investors have limited operating and
financial data about the Company upon which to base an evaluation of the
Company's performance and the decision to tender Old Notes in exchange for
Exchange Notes. The selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements,
including the notes thereto, contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Period from Year Ended
March 14, 1996 to Year Ended December
December 31, 1996 December 31, 1997 31, 1998
----------------- ----------------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Statement of Operations Data:
Net revenue................... $ -- $ 43 $ 6,953
Cost of revenue:.............. -- 83 8,765
Selling, general and
administrative expenses...... 2,021 12,788 27,873
Depreciation and
amortization................. 19 235 1,455
Loss from operations.......... (2,040) (13,063) (31,140)
Other income (expense)........ 4 44 (9,787)
Income tax provision (1)...... -- -- --
Loss on equity investments.... -- (3,072) (3,698)
Extraordinary item............ -- -- 19,799
Net loss...................... (2,036) (16,091) (24,826)
<CAPTION>
As of December 31,
----------------------------------------------
1996 1997 1998
----------------- ----------------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Consolidated balance sheet data:
Cash and cash equivalents
(4).......................... $13,103 $ 5,463 $ 5,730
Working capital............... 12,771 3,851 15,199
Total assets.................. 14,031 19,681 149,307
Long term debt................ -- 1,500 138,503
Redeemable preferred stock.... -- -- 35,000
Unitholders'/stockholders'
equity/(deficit)............. 13,604 15,373 (36,872)
</TABLE>
<TABLE>
<CAPTION>
Period from
March 14, 1996 to Year Ended Year Ended
December 31, 1996 December 31, 1997 December 31, 1998
----------------- ----------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C>
Other Financial Data:
Pro forma income tax
provision (2)......... $ -- $ -- $ --
Adjusted EBITDA (3).... (2,021) (12,845) (29,685)
Net cash used in
operating activities.. (2,020) (11,427) (37,672)
Net cash used in
investing activities
(4)................... (13,517) (2,573) (118,572)
Net cash from financing
activities............ 15,640 19,360 156,511
Capital expenditures... 517 2,440 9,374
Ratio of losses to
fixed charges (5)..... -- -- --
Other Data:
Passings:
Telephony passings
under contract...... -- 71,034 207,500
Telephony passings
actively marketed
(6)................. -- 17,536 150,000
Video passings under
contract............ -- 184 30,000
Video passings
actively marketed
(6)................. -- -- 30,000
Telephony subscribers.. -- 365 17,067
Telephony Penetration
Rate.................. -- 2.1% 11.4%
Video subscribers...... -- -- 17,347
Video Penetration
Rate.................. -- -- 57.8%
</TABLE>
39
<PAGE>
- --------
(1) Prior to the merger with OnePoint Communications Corp. in April 1998 the
Company was treated as a partnership for income tax purposes. Accordingly,
no provision for income taxes has been included in these financial
statements, as taxable income or loss passed through to unitholders
individually.
(2) See pro forma tax discussion in the notes to the Pro Forma Unaudited
Statement of Operations.
(3) Adjusted EBITDA is defined as net income (loss) before income taxes and
depreciation, amortization and equity investment income (loss). Adjusted
EBITDA is presented because it is a widely accepted financial indicator of
a company's ability to income and service debt. However, Adjusted EBITDA
should not be considered in isolation as a substitute for net loss or cash
flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.
Further, funds depicted by Adjusted EBITDA may not be available for
management's discretionary use (due to legal or functional requirements to
conserve funds for capital replacement and expansion, debt service and
other commitments and uncertainties). In addition, this measure of
Adjusted EBITDA may not be comparable to similar measures reported by
other companies.
(4) Cash flows from investing activities included the changes in the Company's
restricted cash balances on deposit in an escrow account pending
investment in Mid-Atlantic. Cash and cash equivalents as of December 31,
1996 includes $13 million of restricted cash.
(5) For the purpose of the ratio of losses to fixed charges, (i) losses are
calculated as net loss before fixed charges and (ii) fixed charges include
interest on all Indebtedness, and operating lease expense. Fixed charges
for the period from March 14, 1996 to December 31, 1996, and for the years
ended December 31, 1997 and 1998 were approximately $79,000, $629,000, and
$1,107,000 respectively. For the period from March 14, 1996 to December
31, 1996, the year ended December 31, 1997 and 1998 the Company's
deficiency of earnings to cover fixed charges was approximately $2.0
million, $16.1 million, and $24.8 million respectively.
(6) Passings actively marketed are passings in an MDU in which the Company had
one or more subscribers at the end of the relevant period.
40
<PAGE>
PRO FORMA UNAUDITED CONDENSED FINANCIAL DATA
The following pro forma unaudited condensed financial data is based upon the
historical financial statements of OnePoint Communications Corp. and
Subsidiaries as of December 31, 1998 and for the year then ended, adjusted to
give effect to (i) the issuance of $175.0 million aggregate principal amount
of Notes and recognition of (a) the relative interest expense thereon with an
interest rate of 14 1/2% per annum, (b) amortization of deferred debt issuance
costs and (c) amortization of the discount on debt resulting from the issuance
of warrants for 111,125 shares of common stock; (ii) the repurchase of $73.25
million aggregate principal amount of notes; (iii) the change in the tax
status from a limited liability company to a "C" corporation; and (iv) the
PCTV Acquisition.
The transaction and the related adjustments are described in the
accompanying notes. The pro forma adjustments are based upon available
information and certain assumptions that management believes are reasonable.
The Pro Forma Financial Data does not purport to represent what the Company's
results of operations would have actually been had such transaction in fact
occurred on January 1, 1998 or to project the Company's results of operations
for any future period. The Pro Forma Financial Data should be read in
conjunction with the historical financial statements of OnePoint
Communications, LLC included elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PRO FORMA UNAUDITED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Pro Forma
OnePoint OnePoint
Communications, Initial Communications
LLC Offering and Adjustments to Corp.
Year ended Incorporation Reflect PCTV Year ended
December 31, 1998 Adjustments Acquisition (c) December 31, 1998
----------------- ------------- --------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenue................. $ 6,953 $ -- $ 2,632 $ 9,585
Cost of revenue......... 8,765 -- 1,785 10,550
-------- ------- ------- --------
(1,812) -- 847 (965)
Selling, general and
administrative
expenses............... 27,873 -- 979 28,852
Depreciation and
amortization........... 1,455 -- 1,387 2,842
-------- ------- ------- --------
Loss from operations.... (31,140) -- (1,519) (32,659)
Interest expense (a).... 15,846 407 -- 16,253
Other income (expense).. 6,059 -- -- 6,059
-------- ------- ------- --------
Income before taxes and
loss on equity
investments............ (40,927) (407) (1,519) (42,853)
Income tax provision
(b).................... -- -- -- --
-------- ------- ------- --------
Income before losses on
equity method
investments............ (40,927) (407) (1,519) (42,853)
Losses on equity method
investments............ (3,698) -- -- (3,698)
Extraordinary item...... 19,799 -- -- 19,799
-------- ------- ------- --------
Net loss................ $(24,826) $ (407) $(1,519) $(26,752)
======== ======= ======= ========
</TABLE>
41
<PAGE>
Pro Forma Balance Sheet
As of December 31, 1998 (unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
OnePoint Pro Forma
Communications Pro Forma Balance
Corp. Adjustments Sheet
-------------- ----------- ---------
<S> <C> <C> <C>
Assets
Cash and cash equivalents................. $ 5,730 $ -- $ 5,730
Restricted cash........................... 5,199 -- 5,199
Investments, current (d).................. 13,118 -- 13,118
Accounts receivable, net.................. 2,277 -- 2,277
Affiliate receivable...................... 653 -- 653
Prepaid expenses.......................... 898 -- 898
-------- -------- --------
Total current assets.................. 27,875 -- 27,875
Investments, non-current ($73,377
restricted) ............................. 86,705 (17,259) 69,446
Investment in unconsolidated subsidiaries. 6,283 -- 6,283
Property and equipment, net............... 10,923 -- 10,923
Intangible assets, net of accumulated
amortization (d)......................... 11,549 (1,622) 9,927
Other assets.............................. 5,972 -- 5,972
-------- -------- --------
$149,307 $(18,881) $130,426
======== ======== ========
Liabilities, Redeemable Preferred Stock
and Stockholders' Deficit
Accounts payable.......................... $ 7,167 $ -- $ 7,167
Affiliate payable......................... 3,558 -- 3,558
Accrued interest payable.................. 1,701 -- 1,701
Current portion of long-term debt......... 250 -- 250
-------- -------- --------
Current liabilities..................... 12,676 -- 12,676
Notes payable, non-current (d)............ 138,503 (31,298) 107,205
Redeemable preferred stock................ 35,000 -- 35,000
Stockholders' deficit:
Common stock............................ 10 -- 10
Additional capital...................... 5,370 -- 5,370
Accumulated deficit (d)................. (42,953) 12,417 (30,536)
Unrealized gain on securities........... 701 -- 701
-------- -------- --------
Total stockholders' deficit .......... (36,872) 12,417 (24,455)
-------- -------- --------
Total liabilities, redeemable
preferred stock and stockholders'
deficit.............................. $149,307 $(18,881) $130,426
======== ======== ========
</TABLE>
- --------
(a) The pro forma adjustment to interest expense for the year ended December
31, 1998 reflects the following:
<TABLE>
<S> <C>
Elimination of historical interest expense related to the
Notes......................................................... $(15,404)
Interest expense on the Notes, at an interest rate of 14 1/2%
per annum, net of repurchases through March, 1999............. 14,754
Amortization of debt issuance costs related to the Initial
Offering...................................................... 402
Amortization of debt discount.................................. 323
Amortization of warrants....................................... 332
--------
$ 407
========
</TABLE>
(b) As part of the Company's Recapitalization, in April 1998, OnePoint
Communications, LLC merged with and into OnePoint Communications Corp. See
"The Recapitalization." The pro forma condensed statement of operations
contains adjustments to reflect the estimated income tax provision on
historical income before taxes which would have occurred had OnePoint
Communications LLC been a "C" corporation for the
42
<PAGE>
period presented. The Company was in a loss position for all periods
presented, accordingly, no tax provisions have been provided.
(c) The Pro Forma acquisition adjustments assume the PCTV Acquisition occurred
on January 1, 1998. The acquisition adjustments include an adjustment to
record the increase in depreciation and amortization expense for the year
ended December 31, 1998 related to the re-valuation of certain assets and
the recognition of intangibles and goodwill. (Also see the Company's
December 31, 1998 audited financial statements, the Predecessor's 1997
audited financial statement and PCTV's 1997 financial statements).
(d) To reflect the repurchase of an aggregate principal amount of $32.25
million of Notes between January 8 and March 5, 1999 at various prices for
an aggregate amount of approximately $18.05 million, less approximately
$0.78 million of purchased interest, the write-off of the net book value
of (i) debt issuance costs and the initial debt discount totaling
approximately $1.62 million, and (ii) additional debt discounts
attributable to the warrants of approximately $0.95 million related to the
repurchased Notes, and the corresponding gain on early extinguishment of
debt of approximately $12.41 million as if such transactions had occurred
on December 31, 1998.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations is qualified in its entirety by, and should be read
in conjunction with, the consolidated financial statements, including the
notes thereto, included elsewhere in this Prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in the forward-
looking statements as a result of certain factors including, but not limited
to, those discussed in "Risk Factors," "Business" and elsewhere in this
Prospectus. The Company disclaims any obligation to update information
contained in any forward-looking statement.
Overview
OnePoint is a rapidly growing provider of bundled telephony and video
services to residents of MDUs in high growth, densely populated urban and
suburban markets. The Company offers a wide range of residential telephony and
video services, including local and long-distance telephony services and video
subscription services, in six regional markets. From its inception in 1996
until January 1998, the Company's principal activities consisted of procuring
governmental authorizations, negotiating telephony and video Rights of Entry
for MDUs, hiring management and other key personnel, raising capital,
developing, acquiring and integrating customer service, billing and other back
office systems, identifying potential acquisition targets, and negotiating
resale agreements. The Company commenced active marketing efforts in January
1998 in the Washington/Baltimore/Philadelphia metropolitan area, in February
1998 in Atlanta and Chicago, and in March 1998 in Charlotte/Raleigh/Durham,
Denver and Phoenix. While continuing to evaluate new potential markets for
expansion, the Company has no current plans to expand into new markets within
the next twelve months. As a result of the Company's limited operating
history, prospective investors have limited operating and financial data about
the Company upon which to base an evaluation of the Company's performance and
a decision to tender the Old Notes in exchange for the Exchange Notes.
Revenues
Addressable Telephony Market. Through December 1998, the Company had entered
into long term contracts with seven national REITs and numerous other MDU
Managers providing for approximately 237,500 telephony or video passings in
1,048 MDUs in the Company's six targeted markets. Through December 1998, the
Company had 17,067 telephony and 17,347 video subscribers, and had commenced
marketing of services to 150,000 telephony and 30,000 video passings in six
target markets. Through December 1998, the Company had 335 internet
subscribers through its high-speed internet trial launched during the third
quarter. Through December 1998, the Company's proportional ownership share of
Mid-Atlantic represented an additional 20,460 video subscribers and 38,100
video passings. The Company expects to increase the number of buildings for
which it has Rights of Entry through a combination of agreements with
additional MDU Managers and the expansion of existing agreements as MDU
Managers acquire additional properties in the Company's target markets.
Through the above activities, the Company seeks to add between approximately
300 to 450 buildings representing approximately 90,000 to 150,000 telephony
passings per year (at the higher end of such range in later years).
In addition, the Company seeks to acquire private cable operators or their
assets in order to have the opportunity to market a full bundle of services to
the MDUs served, either directly or by obtaining a telephony Right of Entry
from the MDU Manager.
The Company also seeks to form strategic relationships with franchise or
private cable providers to co-market telephony services to their MDU customer
bases. Such strategic relationships may take a variety of forms, including but
not limited to equity investments by the Company (as in the case of Mid-
Atlantic). For example, OnePoint is leveraging its strategic relationship with
Mid-Atlantic to market telephony services to residents of MDUs currently
receiving video services from Mid-Atlantic. In addition, the Company is
currently negotiating telephony co-marketing agreements with franchise cable
operators throughout its targeted markets. Pursuant to such strategic
relationships, the Company may market its services under the OnePoint brand
name or that of the strategic partner. The Company believes that such
arrangements will benefit the Company and the franchise or
44
<PAGE>
private cable operator through greater revenues and reduced churn. The Company
anticipates that it will market telephony services to approximately 20,000
additional Mid-Atlantic video passings per year over the next three to four
years through its relationship with Mid-Atlantic.
Addressable Video Market. OnePoint seeks opportunities to (i) acquire
private cable operators or their assets, (ii) replace existing cable operators
in buildings where the Company has telephony Rights of Entry; and (iii)
install video distribution systems in newly constructed MDUs. The Company
believes that the expansion of its video service passings and resulting
increase in the number of MDUs where the Company can offer bundled telephony
and video services will increase subscriber revenues and reduce marketing and
sales expenses.
The Company seeks to acquire private cable operators or their assets in
order to build scale rapidly by obtaining rights which are otherwise currently
unavailable to provide video services. In June 1998, the Company, through a
wholly owned subsidiary, entered into a definitive agreement to acquire
substantially all of the assets used by People's Choice TV Corp. and Preferred
Entertainment, Inc. to provide video services to MDUs in Chicago. Pursuant to
the agreement, the Company acquired approximately 28,300 video passings in 160
properties in July through October. Management expects to invest in video
reception and transmission equipment to upgrade the video services offering
for the acquired passings.
Market Penetration. From the beginning of the year through December, 1998,
OnePoint had marketed telephony services to a total of 150,000 units
(including approximately 30,500 Mid-Atlantic video passings), and had marketed
video services to approximately 30,000 units (not including Mid-Atlantic video
passings). Through December, 1998 the Company's Penetration Rates were 11.4%
and 57.8%, respectively, for telephony and video. The Company primarily
targets new residents and believes that it will be able to achieve
significantly higher telephony Penetration Rates with respect to such
residents, who are introduced to the Company's services when moving in. The
Company estimates that its overall Penetration Rates will lag behind new
resident Penetration Rates but will increase over time as a result of
residential turnover.
The turnover of residents is a key factor in the penetration of the
Company's telephony services. OnePoint anticipates that initial telephony
penetration for MDU residents at the time the Company commences offering
service will be significantly lower than that of residents who move in
subsequently. The Company focuses its marketing efforts on new residents at
the time they move in. Anticipated regulation mandating number portability may
enable the Company to accelerate telephony penetration, although the timing
for the implementation of this requirement is uncertain. Management believes
that the average term of an apartment lease is 18 months and, based on data
from the National Multi-Housing Council, that apartment turnover averages
approximately 35% to 40% per year. Management believes it has designed its
marketing efforts, sales channels and operational infrastructure so the
Company may benefit from this expected high turnover of MDU residents.
Through December 1998, the Company had 335 Internet subscribers through its
high-speed Internet trial launched during the third quarter.
Telephony Prices and Services. OnePoint offers a full range of local
telephony services at discounted rates to those charged by the ILEC, with
feature packages at discounts of up to 30%. Installation and service charges
are similar to those charged by the ILECs. Long distance telephony is offered
at prices competitive with major IXCs. Average subscriber revenues will be
impacted by the Company's ability to bundle local and long distance telephony
services as well as any pricing pressure brought about by deregulation and
increased competition. The Company is an authorized agent for CellularOne.
The Company plans in the future to offer various options for high speed
Internet access, including cable modem and xDSL. The Company commenced market
trials under a memorandum of understanding with an Internet service provider
to test on a limited basis an MDU-specific Ethernet-based application in up to
ten MDUs during 1998.
Video Prices and Services. OnePoint plans to offer basic and expanded cable
service at a slight discount to the franchise provider. The Company estimates
that average revenue per subscriber (adjusted for bulk discounts)
45
<PAGE>
will exceed $35 per month as the Company improves the number and variety of
channels and services offered, upgrades its delivery systems and adds DBS
capability to individual buildings. In addition, average monthly revenue per
subscriber will be affected by any acquisition of private cable operators
having different average revenue per subscriber and service levels. Moreover,
the Company's average revenue per subscriber will be affected by the
demographics of any MDUs for which the Company obtains video Rights of Entry
in the future. Pricing may be affected by potential regulatory actions
restricting price increases by franchise cable providers.
Costs of Products and Services
Telephony. OnePoint resells local services purchased from the ILECs. Future
regulatory and/or judicial developments may affect the timing and method of
the Company's partial migration to a facilities-based platform and thus affect
the Company's ability to reduce its local service cost structure. To the
extent that the concentration of the Company's telephony subscriber base leads
to investment in facilities to replace ILEC facilities, the Company believes
it will be able to achieve significant ongoing savings in the provisioning of
telephony services. Long-distance services are provided by an IXC at
competitive prices as a result of the Company's affiliation with SBC, or by
the ILEC for intraLATA services within certain markets. Costs are typically
higher for intraLATA toll services, varying by market based on the cost of
intraLATA services from either the ILEC or IXC.
Video. The Company has entered into an agreement for the purchase of video
programming with a programming wholesaler. The Company has purchased
programming to date on the terms of Mid-Atlantic's contracts with such
programming wholesaler and individual programming providers, although the
Company is not a party to Mid-Atlantic's contracts. The Company's programming
costs are directly related to the number of subscribers. The Company expects
to realize a small reduction in programming costs per subscriber as the volume
of purchases increases.
General. For both telephony and video services, OnePoint frequently
compensates MDU Managers on either a flat rate per passing per year or a
percentage of revenues tied to penetration rates, as well as compensating
leasing agents based on new subscribers. The Company has already made
significant capital expenditures to develop its integrated billing system,
automated EDI interfaces with ILECs for telephony service provisioning and
customer care center systems and equipment. These investments and utilization
of third-party leasing agents reduce the cost of acquiring customers and
improve the Company's ability to increase subscription rates.
Selling, General and Administrative Expenses
The principal component of OnePoint's selling, general and administrative
expenses is employee compensation and benefits. Other significant components
include marketing expenses, facilities rental costs and depreciation and
amortization, communications and information systems and
professional/consulting fees.
Capital Expenditures
Telephony. The Company currently offers telephony services through a resale
platform, thereby avoiding capital expenditures for network facilities. The
Company plans to replace selectively its resale platform with a facilities-
based infrastructure as warranted by subscriber traffic levels and the
availability of alternative network facilities within each market in order to
improve gross margins. Such investments may include installation of switches,
installation of digital loop carriers and leasing of transmission capacity
from ILECs. The Company will also evaluate the potential for leasing
transmission facilities and/or partitioning switch capacity from facilities-
based CLECs with excess capacity. Expenses for operating and maintaining
equipment may increase significantly as the Company's investment in network
facilities increases, although such increases are expected to be offset by
savings from the elimination of certain other costs, such as local access and
origination fees. The Company may incur other costs, including installation of
inside telephony wiring required for newly constructed properties, for which
costs vary according to the number of buildings and units on the property.
46
<PAGE>
Video. Capital expenditures for video services vary according to the number
of properties served, the number of units in the MDUs, and the delivery
platform. SMATV systems require multiple large receiving dishes and headend
equipment for each property. Point-to-point microwave links enable the
utilization of a single headend for multiple properties via installation of
transmission and reception equipment at each property. The DBS delivery
platform requires a single receiving dish for each property and less expensive
headend equipment, if any. Converter boxes are required for certain network
configurations and services. Installation of inside wiring is required for
newly constructed properties with costs varying according to the number of
buildings and units on the property. Additional capital expenditures may be
required to upgrade or retrofit equipment, depending on the age, configuration
and capacity of existing wiring.
Historical Results of Operations
From its inception in 1996 until January 1998, the Company engaged
principally in procuring governmental authorizations, negotiating telephony
and video Rights of Entry for MDUs, hiring management and other key personnel,
raising capital, developing, acquiring and integrating customer service,
billing and other back office systems, identifying potential acquisition
targets, and negotiating resale agreements. Accordingly, the Company's
historical results should not be relied upon as an indicator of future
performance.
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Revenue
The Company began actively marketing its services in January 1998 in the
Washington/Baltimore/ Philadelphia metropolitan area, in February 1998 in
Atlanta and Chicago and in March 1998 in Charlotte/Raleigh/Durham, Denver and
Phoenix. Total revenues for 1998 were $7.0 million compared to $42,669 for
1997. Telephony revenues and cable television revenues for 1998 were $4.4
million and $2.5 million, respectively. Total revenue per average billed
subscriber during the fourth quarter of 1998 was approximately $68.53 for
telephony services and $23.02 for video services, including all subscribers
residing in MDUs covered by a bulk pricing arrangement. Monthly subscription
fees are lower for MDUs covered by a bulk pricing arrangement. Monthly revenue
per average billed subscriber is impacted by the relative proportion of new
subscribers incurring installation charges.
Cost of Revenue
Cost of Revenue (programming, telecommunication service costs and payments
to owners and employees of MDUs) was $8.8 million in 1998 as compared to
$82,288 in 1997. Cost of Revenue for 1998 exceeded revenues by $1.8 million
primarily because payments to certain MDU owners are structured on a per-
passing basis and because of higher costs during a customer's installation
period. The Company anticipates improvement in the relationship between costs
of services and revenue as subscriber penetration increases and the relative
proportion of new customers decreases. Total costs of telephony revenues and
cable television revenues for 1998 were $7.1 million and $1.6 million,
respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $27.9 million in 1998
compared to $12.8 million in 1997, an increase of $15.1 million, or 118%. This
was primarily the result of increases in personnel and related costs
associated with the initiation of service in three new regions and the
increased volume of subscribers for the Company's communications services. The
Company continues to experience higher than anticipated customer activation
costs as it currently provides services through resale agreements with the
ILECs and is dependent on the ILECs for the efficiency of order processing and
installation. The reserve for bad debts was increased in December from 4% to
9% of telephony revenue as the Company has recently experienced an increased
volume of non-pay disconnections and anticipates this higher level of bad
debts to continue for the foreseeable future.
47
<PAGE>
Depreciation and Amortization
Depreciation and amortization was $1.5 million in 1998 compared to $0.2
million in 1997, an increase of $1.3 million, or 519%. The increase is
primarily attributable to an increase in cable and telephone systems and
intangible assets resulting from purchases and construction of such equipment
and the acquisition of PCTV during 1998.
Interest Income and Expenses
Interest expense was $15.8 million in 1998 compared to $11,286 in 1997. The
increase results from the interest accrued on the Senior Notes. Interest
income was $6.0 million in 1998, compared to $71,596 in the same period in
1997. The increase reflects interest income from short-term investment of the
proceeds from the Initial Offering.
Equity Losses of Investments in Unconsolidated Subsidiaries
The Company recognized an equity loss of $3.7 million from the operations of
Mid-Atlantic and MAC Interactive in 1998 compared to an equity loss of $3.1
million from such investees in 1997.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Revenue
The Company commercially introduced service on a very limited basis in July
of 1997, while it was refining its organization and customer care capability.
In 1997 the Company generated revenue of approximately $43,000 from telephony
services in the Washington/Baltimore/Philadelphia metropolitan area. The
Company did not generate any revenue during 1996.
Cost of Revenue
Cost of Revenue for 1997 was approximately $82,000. This consisted of
charges from ILECs for local service, installation and order processing,
charges for long-distance usage and payments to MDU Managers and leasing
consultants. Additionally, certain connection charges from the ILECs during
1997 resulted from the manual entry of orders, prior to the completion of the
automated EDI links for provisioning of services. The Company did not generate
any revenue during 1996.
Selling, General and Administrative Expenses
Total selling, general and administrative expenses were approximately $12.8
million for 1997, an increase of $10.8 million over 1996 expenses of $2.0
million as a result of increased development expenses, headcount and other
start-up costs. Such expenses consisted primarily of salaries and related
expenses for the development of the Company's business and operational
infrastructure, completion of regulatory filings, systems development expenses
and sales and marketing efforts directed toward MDU Managers.
Depreciation and Amortization
Depreciation and amortization was approximately $235,000 in 1997, an
increase of $216,000 over 1996 depreciation and amortization of $19,000,
primarily due to the depreciation of equipment and leasehold improvements
which were purchased in 1997.
Taxes
Income taxes will consist of federal, state and local taxes, when
applicable. The Company expects significant net losses for the foreseeable
future which should generate net operating loss ("NOL") carryforwards.
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However, utilization of such prospective NOLs is subject to substantial annual
limitations. In addition, income taxes may be payable during this time due to
operating income in certain tax jurisdictions. Once the Company achieves
operating profits and the NOLs have been exhausted or have expired, the
Company may experience significant tax expense. The Company has recognized no
provision for taxes as it operated at a loss through 1997. The Predecessor was
a limited liability company, and, accordingly, NOLs for periods prior to April
29, 1998 will not be available to the Company.
Other
The Company recognized an Equity Loss of $3.1 million from the operations of
Mid-Atlantic during 1997, based on its 50% equity ownership during the period.
Liquidity and Capital Resources
The Company has financed its development through September, 1998 with $35.0
million of funding provided by VIC, $80,100 of equity invested by VenCom,
L.L.C., borrowings under the Credit Facility and the proceeds of the Initial
Offering. As a result of the Recapitalization transactions, as of September
30, 1998: (i) VIC2 owns all of the Company's outstanding capital stock; (ii)
Mr. Otterbeck indirectly owns 80.3% of VIC2's common membership units; (iii)
SBC indirectly owns 19.7% of VIC2's common membership units, and has a
priority on the first $35.0 million of distributions by VIC2 (less all
principal and interest payments on the VIC2 Note), and VIC has a warrant
exercisable for 9.9% of VIC2's equity. See "The Recapitalization."
From February to June 1997, the Company made investments totalling
approximately $12.0 million in Mid-Atlantic and in December 1997 the Company
invested $750,000 in MAC Interactive to establish a separate joint venture
with the other investors in Mid-Atlantic to secure exclusive marketing rights
for certain programming services from an affiliated company. During January
1999, the Company committed to a plan to liquidate MAC Interactive. See
"Certain Relationships and Related Transactions--MAC Interactive." Net cash
used in the Company's operating activities from inception through December
1997 totaled $13.4 million. Net cash used by the Company for acquisitions of
property and equipment during this period totaled $3.0 million. As of December
31, 1997 the Company had an accumulated deficit of $18.1 million, and had cash
and cash equivalents of $5.5 million. Net cash used in the Company's operating
activities in 1998 totaled $37.7 million. Net cash used by the Company for
acquisitions of property and equipment during this period totaled $9.4
million. As of December 31, 1998 the Company had an accumulated deficit of
$(42.9) million, and had cash and cash equivalents of $5.7 million in addition
to available investments of $26.4 million (excluding the Pledged Securities).
Subsequent to December 31, 1997, the Company obtained the Credit Facility.
Borrowings under the Credit Facility as of December 15, 1998 will be amortized
over a five-year period. The interest rate on borrowings under the Credit
Facility is, at the Company's election: (i) Northern Trust's prime rate less
3/4 of 1%; (ii) LIBOR plus 50 basis points; or (iii) the federal funds rate
(as defined) plus 50 basis points. As of December 31, 1998, there was an
outstanding balance under the Credit Facility of $8.75 million and the Company
had obtained a $250,000 letter of credit under the facility. See "Description
of Certain Indebtedness."
In May 1998, the Company issued the Units for gross proceeds of $175.0
million. The Company used approximately $80.5 million of the net proceeds from
the Initial Offering to purchase Pledged Securities. The Company also used a
portion of the proceeds to pay down borrowings under the Credit Facility. The
Company has used approximately $38.4 million to repurchase Senior Notes in the
open market. The balance of the net proceeds have been, or will be, used to
acquire private cable operators or their assets, to invest in video
infrastructure, to invest selectively in a facilities-based platform for
telephony services, to fund future capital calls by Mid-Atlantic, to
repurchase Notes, to fund working capital and for general corporate purposes,
including operating losses. The Company expects that its current financing
will be sufficient to meet its operational rollout plans for 1999. The Company
may require additional capital if it achieves market penetration for its
services significantly different than, or at a different stage than,
management estimates, achieves lower than expected pricing for its services,
enters additional markets, locates additional or larger acquisition
opportunities or
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encounters higher than expected costs to purchase or upgrade telephony, cable
or DBS services, equipment or facilities. The Company also expects that it
will require additional financing (or require financing sooner than
anticipated) if the Company's development plans or projections change or prove
to be inaccurate or if the Company is unable to continue to take advantage of
the pricing provided for in SBC-negotiated contracts for any reason. There can
be no assurance that the Company will be successful in raising sufficient
additional debt or equity capital, or of the terms of any such capital-raising
activities. Failure to raise and generate sufficient funds may require the
Company to delay or abandon some of its planned future expansion or
expenditures, which could have a material adverse effect on the Company's
growth and its ability to compete in the telephony and video industry. See
"Risk Factors."
In June 1998, the Company, through a wholly-owned subsidiary, entered into a
definitive agreement to acquire certain assets used by Preferred
Entertainment, Inc., a subsidiary of PCTV to provide video service to MDUs in
Chicago. Pursuant to the agreement, the Company acquired Rights of Entry for
approximately 27,800 video passings in 160 properties in July through October
for total consideration of $12.4 million. The Company has begun to invest in
video reception and transmission equipment to upgrade the video services
offering for the acquired passings.
The Company completed open market purchases of Notes having an aggregate
principal amount of $73.25 million between November 9 and March 5, 1999 at
various prices for an aggregate total cost of $38.4 million including accrued
interest and transaction fees. The Company will recognize a gain on the early
extinguishment of this debt totaling approximately $32.2 million, of which,
approximately $19.8 million will be recognized in the fourth quarter of 1998.
Pursuant to the restricted securities agreement entered into in connection
with the Issuance of the Senior Notes, the trustee of the Pledged Securities
released approximately $26.7 million of such securities on February 24, 1999
upon request by the Company. Based on market conditions, the Company will
continue to evaluate the repurchase of Notes and may continue to utilize
existing cash to fund additional purchases.
In addition, depending on market conditions and the availability of
acquisitions on favorable terms, the Company may determine to raise additional
capital. The Company may obtain additional funding through the sale of public
or private debt and/or equity securities or through additional borrowings from
banks or other lending institutions.
In June 1998, the Company, through a wholly owned subsidiary, entered into a
definitive agreement to acquire substantially all of the assets used by
People's Choice TV Corp. and Preferred Entertainment, Inc. to provide video
service to MDUs in Chicago. Pursuant to the agreement, the Company acquired
approximately 27,800 video passings in 160 properties in July through October.
Management expects to invest in video reception and transmission equipment to
upgrade the video services offering for the acquired passings.
Cash flows used in operating activities were $37.6 million and $11.4 million
in 1998 and 1997, respectively, an increase of $26.2 million or 230%. The
rollout and expansion of business operations during 1998 precipitated this
increase. Cash flows used in operating activities can vary significantly from
period to period depending upon the timing of operating cash receipts and
payments, especially accounts receivable, prepaid expenses and other assets,
and accounts payable and accrued liabilities.
Net cash used by the Company for acquisitions of property and equipment
during 1998 totaled $9.4 million, compared to $2.4 million in 1997. As of
December 31, 1998, the Company had an accumulated deficit of $(42.9) million,
and had cash and cash equivalents of $5.7 million (excluding the Pledged
Securities) in addition to available investments of $26.4 million, net of the
Pledged Securities totaling $73.4 million.
Cash flows used in investing activities in 1998 was $118.5 million. Cash
flows used in investing activities in 1997 was $2.6 million. Cash flows
provided by financing activities was $156.5 million and $19.4 million in 1998
and 1997, respectively.
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The Company is currently incurring liquidated damages resulting from its
failure to have this Registration Statement declared effective by the
Commission by November 17, 1998. The Company incurred liquidated damages of
approximately $5,000 to $7,000 per week through February 17, 1999, based on
the amount of Senior Notes outstanding. Following an escalation on February
17, 1999, liquidated damages (based on the Senior Notes outstanding at March
31, 1999), are accruing at approximately $10,000 per week. In the event the
exchange offer registration statement is not declared effective by May 17,
1999 these damages will further escalate to approximately $15,000 per week,
with subsequent escalations each 90 day period thereafter up to a maximum
penalty of approximately $51,000 per week.
The Company's future results of operations will be materially impacted by
its ability to finance its planned business strategies. The Company expects
that its current financing will be sufficient to meet its operational rollout
plans for the next twelve months. A considerable portion of the Company's
capital expenditure requirements are scaleable dependent upon the number of
Right of Entry contracts the Company enters into. Capital expenditures may be
larger or smaller depending whether the Company is able to achieve its
targeted market share.
Depending on market conditions and the availability of acquisitions on
favorable terms, the Company may determine to raise additional capital. The
Company may obtain additional funding through the sale of public or private
debt and/or equity securities or through additional borrowings from banks or
other lending institutions.
The Company expects significant cash requirements for at least the next
several years due to continued expansion of its customer base and the need to
invest in facilities and equipment to support telephony and video services.
The Company's future cash requirements will depend on a number of factors
including (i) the rate at which the Company secures Rights of Entry, (ii) the
level of penetration achieved for telephony and video services and the pricing
of such services, (iii) the availability of private cable acquisitions on
favorable terms, (iv) the rate at which the Company deploys telephony
facilities, the cost of equipment required to do so, and its ability to
aggregate traffic onto the Company's facilities, and (v) the expansion to
additional markets, if any.
Results of Operations for VIC-RMTS-DC, LLC
Year Ended December 31, 1998--Compared with Year Ended December 31, 1997
Revenue
VIC-RMTS-DC, LLC's total revenues for 1998 were $1,660 compared to $43 in
1997, as VIC-RMTS-DC, LLC significantly increased its volume of operations
throughout 1998.
Cost of Revenue
Cost of Revenue (telecommunication service costs and payments to owners and
employees of MDUs) was $2,840 in 1998 as compared to $82 in 1997. Cost of
Revenue for the twelve months ended December 31, 1998 exceeded revenue by
$2,758 primarily because payments to certain MDU owners are structured on a
per passing basis and because of higher costs during a customer's installation
period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $10,305 in 1998 compared
to $4,575 in 1997, an increase of $5,730, or 125%. This was primarily the
result of increases in personnel and related costs associated with the
initiation of service and the increased volume of subscribers for VIC-RMTS-DC,
LLC's communications services. VIC-RMTS-DC, LLC continues to experience higher
than anticipated customer activation costs as it currently provides services
through resale agreements with the ILECs and is dependent on the ILECs for the
efficiency of order processing and installation. The reserve for bad debts was
increased in December 1998 from 4% to 9% of telephony revenue as VIC-RMTS-DC,
LLC has recently experienced an increased volume of non-pay disconnections and
anticipates this higher level of bad debts to continue for the foreseeable
future.
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Depreciation and Amortization
Depreciation and amortization was $287 in 1998 compared to $157 in 1997, an
increase of $130, or 83%. The increase is primarily attributable to an increase
in telephone systems and intangible assets resulting from purchases and
installation of such equipment.
Liquidity and Capital Resources of VIC-RMTS-DC, LLC
VIC-RMTS-DC, LLC has financed its development with $20,434 of contributed
equity by unit holders.
Cash flows used in operating activities were $12,126 and $4,296 in 1998 and
1997, respectively, an increase of $7,830 or 182%. The rollout and expansion of
business operations during 1998 precipitated this increase. Cash flows used in
operating activities can vary significantly from period to period depending
upon the timing of operating cash receipts and payments, especially accounts
receivable, prepaid expenses and other assets, and accounts payable and accrued
liabilities.
Net cash used by VIC-RMTS-DC, LLC for acquisitions of property and equipment
during 1998 totaled $1,206, compared to $1,055 in 1997. As of December 31, 1998
VIC-RMTS-DC, LLC had an accumulated deficit of $(17,213), and had cash and cash
equivalents of $0.
Cash flows used in investing activities in 1998 were $1,206. Cash flows used
in investing activities in 1997 were $1,055. Cash flows provided by financing
activities were $13,332 and $5,351 in 1998 and 1997, respectively. As of
December 31, 1998 VIC-RMTS-DC, LLC had $0 of cash and cash equivalents.
VIC-RMTS-DC, LLC expects significant cash requirements for at least the next
several years due to continued expansion of its customer base and the need to
invest in facilities and equipment to support telephony and internet services.
VIC-RMTS-DC, LLC's future cash requirements will depend on a number of factors
including (i) the rate at which VIC-RMTS-DC, LLC secures Rights of Entry, (ii)
the level of penetration achieved for telephony services and the pricing of
such services, (iii) the rate at which VIC-RMTS-DC, LLC deploys telephony and
internet facilities, the cost of equipment required to do so, and its ability
to aggregate traffic onto VIC-RMTS-DC, LLC's facilities, (iv) the expansion to
additional markets, if any.
VIC-RMTS-DC, LLC's future results of operations will be materially impacted
by its ability to finance its planned business strategies. VIC-RMTS-DC, LLC
expects that its current financing will be sufficient to meet its operational
rollout plans for the next twelve months.
Year 2000 Issue
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company's Program. The Company has undertaken a program to address the
Year 2000 issue with respect to the following: (i) the Company's information
technology and operating and support systems (including its customer care,
trouble tracking, billing and provisioning systems); (ii) the Company's non-
information technology systems; and (iii) certain systems of the Company's
major suppliers and material service providers (insofar as such systems relate
to the Company's business activities with such parties). As described below,
the Company's Year 2000 program involves (i) an assessment of the Year 2000
problems that may affect the Company, (ii) the development of remedies to
address the problems discovered in the assessment phase, (iii) the testing of
such remedies and (iv) the preparation of contingency plans to deal with worst
case scenarios.
Assessment Phase. As part of the assessment phase of its program, the Company
has and will continue to attempt to identify substantially all of the major
components of the systems described above. In order to determine the extent to
which such systems are vulnerable to the Year 2000 issue, the Company
continuously
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evaluates its internal software applications. The Company believes all
internal systems and software have been purchased or developed after 1995 and
will thus be Year 2000 compliant. From the outset of operations, the Company's
intent has been to procure hardware and software that is Year 2000 compliant.
The Company has requested Year 2000 Compliance statements from the equipment,
billing and communications carriers from which it procures equipment and
services, and has received written confirmation of their compliance or their
intention to become compliant before the Year 2000 (although these assurances
are not legally binding). Every piece of computer equipment utilized by the
Company was purchased in new condition after January 1, 1997. The servers (HP,
Sun, and Compaq) are all either running a version of their operating systems
which is certified by the manufacturer to be Year 2000 compliant, or the
patch/upgrade has been identified and the Company is planning the upgrade.
Each of the desktop computers is a Compaq Deskpro-line PC running either
Windows 95 or Windows NT 4.0, which, based on the Company's review of
manufacturer information contained on their web sites, are compliant according
to the manufacturer. The BIOS of each of these machines has been updated by
the Company based on manufacturer recommendations. The customer care and
billing system, provided by CSG is Year 2000 compliant and has been tested by
CSG. The telephony provisioning system, provided by Beechwood Data Systems is
reported to be Year 2000 compliant and has been tested by Beechwood Data
Systems. The Company has obtained written certifications from its underlying
local and long distance service providers that all provisioning applications
and interfaces to/from its underlying carriers will be Year 2000 compliant
before the year 2000. With respect to the operation of their network, these
local and long distance service providers have indicated that they have had
Year 2000 projects underway for several years and expect to complete all Year
2000 upgrades during 1999, with time before year-end for system testing and
quality assurance. The majority of equipment suppliers (i.e., HP, Sun, Compaq,
Dell, Microsoft, and Novell) have directed the Company to their Internet web
sites where they have posted product information relative to Year 2000
compliance. The Company has downloaded this information and has identified
those systems that are compliant, as well as those systems that will have to
be upgraded or replaced to become compliant. The assurances received by the
Company regarding Year 2000 compliance are not legally binding. The Company
also relies on the information regarding Year 2000 compliance of its local and
long distance service providers as supplied to Public Service Commissions in
each state.
Remediation and Testing Phase. Based on the results of its assessment
efforts, the Company will undertake remediation and testing activities. The
activities conducted during the remediation and testing phase are intended to
address information technology systems and non-information technology systems
in an attempt to demonstrate that this software will be made substantially
Year 2000 compliant on a timely basis. In this phase, the Company evaluates
program applications and, if a potential Year 2000 problem is identified,
takes steps to attempt to remediate the problem and to test the application to
confirm that the remediating changes are effective and have not adversely
affected the functionality of the application. The Company has historically
tested systems utilizing internal resources. Testing is accomplished by
setting system clocks ahead and then running these systems as in real
operations. The results have proven that the customer care and billing system
is compliant, the long distance provisioning software is compliant, and
applicable SUN and SCO patches will bring the UNIX servers up to Year 2000
compliance. The lone application developed internally has been tested and is
compliant. In addition to the individual testing of system components, the
Company is testing integrated systems in order to test Year 2000 issues which
may arise through a combination of individual systems. The Company is also
exploring extending the integrated testing with EDI partners.
Contingency Plans. The Company intends to develop contingency plans to
handle the most reasonably likely worst case Year 2000 scenarios. Mission-
critical failure would relate to those systems which are vital to the
provision of voice switching, processing, and transport services to our
customers. Examples of mission-critical systems include those network and
essential operating supporting systems provided and provisioned by OnePoint's
underlying carriers that enable the Company to offer its customers local and
long distance switched telecommunications services. As the Company initially
operates under a resale arrangement from what is effectively a monopoly
provider of certain services, it has not as yet identified a timely and cost-
effective contingency plan in the event of a pervasive and extended failure by
its underlying carriers. If the underlying systems experience errors short of
failure, these errors may prevent correct billing and/or provisioning of new
service to the Company's customers. If any or all of the Company's internal
systems fail, but those of its
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underlying carriers do not, then service to existing customers would not be
disturbed, although this failure may prevent correct billing and/or
provisioning of new services. The Company intends to complete its contingency
plans after it has monitored progress made by the communications carriers
referred to above.
Costs Related to the Year 2000 Issue. To date, the Company has incurred no
explicit costs for its Year 2000 program, aside from indirect management costs
related to the research of internal and vendors' systems, plans and
procedures. While the Company anticipates relatively low direct costs related
to its internal systems, total costs related to the Year 2000 issue will be a
function of its vendors ability to make timely progress toward their year 2000
compliance.
Risks related to the Year 2000 Issue. Although the Company's Year 2000
efforts are intended to minimize the adverse effects of the Year 2000 issue on
the Company's business and operations, the actual effects of the issue and the
success or failure of the Company's efforts described above cannot be known
until the Year 2000. Failure by the Company or its major suppliers to address
adequately their respective Year 2000 issues in a timely manner (insofar as
such issues relate to the Company's business) could have a material adverse
effect on the Company's results of operations and financial condition and its
ability to meet its obligations on the Notes.
Inflation
The Company's obligations under the Credit Facility bear interest at
floating rates, and an increase in interest rates could adversely affect,
among other things, the Company's ability to meet its debt service
requirements.
Impact of New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("Statement 130"), which establishes standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Statement 130 is effective for fiscal years
beginning after December 15, 1997. Disclosure of total comprehensive income is
required in interim period financial statements. The Company did not have any
components of comprehensive income for prior periods, accordingly, adoption of
this standard did not affect net income or comprehensive income prior to 1998.
In June, 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("Statement 131"), which is effective for years beginning after December 15,
1997. However, Statement 131 need not be applied to interim financial
statements in the initial year of application. Statement 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. Since Statement 131 is effective for financial statements for
fiscal years beginning after December 15, 1997, the Company adopted the new
requirements in 1998 and prior period disclosures.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and for Hedging Activities
("Statement 133"). Statement 133 is effective for years beginning after June
15, 1999. Statement 133 provides a comprehensive and consistent standard for
the recognition and measurement of derivatives and hedging activities.
Management does not anticipate that the adoption of Statement 133 will have a
material impact on its financial position or the results of its operations.
In Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). This Statement of Position provides guidance on the
financial reporting of start-up costs and organization costs. It requires
costs of start-up activities and organization costs to be expensed as incurred
and broadly defines start-up activities SOP 98-5 applies to all non-
governmental entities, except for certain entities, and is effective for
financial statements for fiscal years beginning after December 15, 1998. The
Company will recognize the effects of the initial application of SOP 98-5 as
the cumulative effect of a change in accounting principal, as described in
Accounting Principles Board (APB) Opinion No. 20, Accounting Changes. The
Company will not report the pro forma effects of retroactive application of
SOP 98-5.
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BUSINESS
The Company
OnePoint Communications Corp. is a rapidly growing provider of bundled
telephony and video services to residents of MDUs in high growth, densely
populated urban and suburban markets. The Company offers MDU residents bundled
telephony and video services at moderate to significant discounts to prices
charged by ILECs, IXCs or franchise cable providers with the convenience of
"one point" of contact and a single integrated bill for such multiple
services. OnePoint seeks to offer bundled telephony and video services by
entering into long-term contracts providing Rights of Entry with MDU Managers
and, where appropriate, by acquiring private cable television operators having
exclusive video Rights of Entry for MDUs. Where the Company is initially
unable to obtain video Rights of Entry, it may pursue alternative
arrangements, such as co-marketing with the incumbent operator, in order to
provide bundled services. In addition, the Company plans to enhance its
existing bundled product offering by introducing high speed Internet access
service by the end of 1998.
The Company was founded in 1996 with a $35 million investment, primarily
from a subsidiary of SBC (the sole stockholder of Southwestern Bell, an RBOC).
The Company's strategy evolved from SBC's highly successful SmartMoves(R)
program for marketing to MDU residents within SBC's service area. As a result
of the Recapitalization, SBC currently indirectly owns 19.7% of the Common
Stock of the Company. The remaining 80.3% of the Company's Common Stock is
indirectly owned by James A. Otterbeck, the Company's Chairman and Chief
Executive Officer.
Through December 1998, the Company had entered into long term contracts with
7 national REITs and numerous other MDU Managers providing for approximately
207,500 telephony passings and 30,000 video passings in 1,048 MDUs in the
Company's 6 targeted markets. From February to June 1997, the Company made
investments totalling approximately $12.0 million in Mid-Atlantic, a large
private cable television operator with approximately 50,000 subscribers in the
Washington/Baltimore/Philadelphia metropolitan area. The Company currently
holds an approximately 41.4% equity interest in Mid-Atlantic. As a result of
its interest in Mid-Atlantic, the Company has begun marketing local and long
distance telephony services to Mid-Atlantic's video passings.
The Company's current targeted markets are Atlanta;
Charlotte/Raleigh/Durham; Chicago; Denver; Phoenix; and
Washington/Baltimore/Philadelphia, in each of which it has aggregated over
10,000 telephony passings. The Company is an authorized CLEC and has obtained
authority for the resale of local exchange services in eleven states
(Colorado, Delaware, Florida, Georgia, Illinois, Maryland, North Carolina,
Pennsylvania, South Carolina, Tennessee and Virginia) and the District of
Columbia. Additionally, it has applied for CLEC status in Arizona and is
permitted to provide telecommunications services there while its application
is pending.
Commencing in July 1997, the Company initiated service in a limited number
of MDUs in order to refine its billing, provisioning and customer care
infrastructure. In January 1998, the Company began actively marketing its
services. From the beginning of the year through December 1998, the Company
had marketed telephony services to a total of 150,000 units (including
approximately 30,500 Mid-Atlantic video passings), and has marketed video
services to approximately 30,000 units (not including Mid-Atlantic video
passings). Through December 1998 the Company's Penetration Rate was 11.4% and
57.8%, respectively, for telephony and video. The Company primarily targets
new residents and believes that it will be able to achieve significantly
higher telephony Penetration Rates with respect to such residents, who are
introduced to the Company's services when moving in. The Company estimates
that overall Penetration Rates will lag behind new resident Penetration Rates
but will increase over time as a result of residential turnover. According to
data compiled by the National Multi-Housing Council, annual apartment turnover
rates average 35% to 40%.
The Company offers a wide range of services, including local telephony,
domestic and international long distance telephony, cellular telephony and
cable and DBS television. The Company also enhanced its bundled product
offerings by offering high-speed Internet access service on a trial basis
during 1998. The Company
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currently delivers telephony services exclusively through resale of services
offered by ILECs and an IXC. Management believes that the Company's long
distance resale cost position is superior to those of other similarly sized
CLECs as a result of the Company's affiliation with SBC. During 1999, the
Company expects to begin selectively replacing its resale platform with higher
margin facilities-based services as warranted by subscriber traffic levels.
Video services are delivered through SMATV or DBS systems and point-to-point
18GHz microwave links. Management believes that the Company's expanded use of
DBS systems will reduce capital requirements and expand the number of channels
available.
Key Strategic Relationships
The Company has several relationships and agreements which management
believes offer significant advantages, including:
SBC. The terms of certain contracts pursuant to which SBC purchases
products and services are available to the Company and other entities in
which SBC has a sufficient equity interest. Accordingly, the Company has
been able to purchase a number of products and services from third parties
at prices lower than those that would otherwise be available to it. Through
such arrangements, OnePoint purchases long distance service from an IXC and
has leveraged SBC's procurement function to purchase telecommunications
equipment. As the Company invests selectively in a facilities-based
telephony strategy, management believes the Company may be able to obtain
further cost advantages in the purchase of telephony equipment based on
similar arrangements with vendors. Management believes that these
arrangements will enable the Company to provide a bundled communications
offering at a competitive price and provide opportunities for better
margins than competitors lacking such an affiliation can achieve. The
Company's ability to purchase services and equipment under these
arrangements is dependent upon (i) SBC's continued ownership of an equity
interest in the Company which meets or exceeds the definition of
"affiliate" in the underlying contracts and (ii) the continuation of the
current underlying SBC contracts or their replacement by SBC with contracts
having comparable terms. In addition, SBC has guaranteed the Company's
payment obligations under its $9 million Credit Facility with Northern
Trust and two of the Company's leases for office space.
Mid-Atlantic. In late 1997, the Company and Mid-Atlantic began joint
marketing of telephony and video services under the OnePoint brand name on
a building by building basis to the passings served by Mid-Atlantic in the
Washington/Baltimore/Philadelphia metropolitan area. The Company has also
partnered with Mid-Atlantic to develop integrated customer care and billing
capabilities designed to support both telephony and video services. The
principals of Mid-Atlantic own a minority interest in the Company's
telephony operations in the six-state Mid-Atlantic region.
Relationships with National REITs. Management estimates that the seven
national REITs, including Equity Residential Properties Trust and AIMCO,
with which the Company has entered into agreements providing for telephony
Rights of Entry control approximately 10% of the MDUs in the Company's
targeted markets. The Company seeks to obtain video and/or Internet Rights
of Entry for the buildings in which it has telephony Rights of Entry, and
believes its relationships with such REITs and other MDU Managers will be a
competitive advantage in winning video Rights of Entry (when existing
agreements expire or are otherwise terminated) and Internet Rights of
Entry. Management believes that the REIT industry is growing and
concentrating, and that the REITs with which it has relationships are
seeking to acquire additional properties and/or other REITs, which should
provide opportunities for the Company to obtain additional Rights of Entry.
Market Opportunity
MDUs comprise a wide variety of high density residential complexes,
including high and low-rise apartment buildings, condominiums and
cooperatives. According to the U.S. Census Bureau, over 24 million residential
housing units were included in these categories as of 1990 and an additional
1.3 million new apartments were completed from 1991 to 1997. Of the over 24
million units nationwide as of 1990, approximately 2.8 million were within the
Company's existing or targeted markets. The following table sets forth the
approximate MDU
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units currently subject to the Company's Rights of Entry and other marketing
opportunities in the Company's targeted markets as of December 31, 1998.
<TABLE>
<CAPTION>
MDU Units
Other MDU Marketing Total MDU Actively
MDU Passings Opportunities Opportunities Marketed(1)
---------------- --------------------- ----------------- ----------------
Market Telephony Video Telephony(2) Video(3) Telephony Video Telephony Video
------ --------- ------ ------------ -------- --------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Atlanta..................................... 30,800 800 300 30,300 31,100 31,100 28,000 800
Charlotte/Raleigh/
Durham..................................... 10,400 -- -- 10,400 10,400 10,400 10,400 --
Chicago..................................... 10,300 29,200 26,500 7,600 36,800 36,800 7,000 29,200
Denver...................................... 16,800 -- -- 16,800 16,800 16,800 8,000 --
Phoenix..................................... 38,500 -- -- 38,500 38,500 38,500 23,900 --
Washington/Baltimore/Philadelphia........... 100,700 -- 58,100 100,700 158,800 100,700 72,500 --
------- ------ ------ ------- ------- ------- ------- ------
Total................................. 207,500 30,000 84,900 204,300 292,400 234,300 149,800 30,000
======= ====== ====== ======= ======= ======= ======= ======
</TABLE>
- --------
(1) Units in MDUs in which the Company had one or more subscribers as of
December 31, 1998.
(2) MDU Units for which Mid-Atlantic has video Rights of Entry but for which
the Company does not currently have telephony Rights of Entry.
(3) MDU Units for which the Company has telephony Rights of Entry, but does
not currently have video Rights of Entry.
The Company has targeted the markets listed above primarily because of their
high proportion of REIT-controlled MDUs, attractive growth rates, availability
of SBC-owned assets (currently in Chicago and Washington, D.C.) and sufficient
potential subscriber density to permit a subsequent move to a facilities-based
telephony platform. Pursuant to its "smart-build" strategy, the Company seeks
to utilize the most cost-effective means of providing services in a market,
and management believes that significant opportunities exist with respect to
underutilized facilities of other CLECs, many of which target business
customers.
Management believes that the MDU market is growing and consolidating. The
following table sets forth information regarding the estimated number of
apartments in each of the Company's targeted markets, and the projected growth
rate in apartments in such markets from 1997 to 2000. The table does not
include condominiums, townhouses, cooperatives and other types of MDUs.
<TABLE>
<CAPTION>
Estimated
Number of 1997-2000
Total MDU Estimated MDU
Market Units in 1997 Growth Rate
------ ------------- -------------
<S> <C> <C>
Atlanta....................................... 282,000 6.7%
Charlotte/Raleigh/Durham...................... 119,000 10.9%
Chicago....................................... 443,000 4.5%
Denver........................................ 125,000 11.2%
Phoenix....................................... 216,000 13.0%
Washington/Baltimore/Philadelphia............. 652,000 6.5%
</TABLE>
Source: The REIS Reports, Inc.
Business Strategy
OnePoint's objective is to be a leading provider of bundled telephony and
video services to MDU residents in selected markets. The key elements of the
Company's strategy are as follows:
. Focus on Dense Concentrations of Demographically Attractive Customers.
The Company targets high revenue potential "A" and "B" properties in
markets where it can aggregate at least 10,000 telephony and/or video
passings. Management believes that residents of such buildings tend to
have high demand for telephony and video services and will find the
Company's superior customer service, lower prices and the convenience of
"one point" of contact for multiple services attractive. High customer
density reduces per-unit capital costs and increases the efficiency of
the Company's sales, marketing, installation and repair efforts.
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. Utilize a "Smart-Build" Strategy to Expedite Customer Acquisition and
Minimize Initial Investment Risk. OnePoint seeks to minimize initial
investment risk by developing a subscriber base in its markets prior to
making significant investments in telephony switching, transport and
digital loop carrier equipment. Telephony services are currently
delivered through a resale platform. The Company plans to replace
selectively its resale platform with higher margin facilities-based
services as warranted by subscriber traffic levels and the availability
of alternative network facilities within each market. The Company plans
to move toward a network design based on Company-owned switches and
leased UNEs, including transmission facilities, on an incremental basis.
Management believes that this approach balances the cost savings and
capital expenditure requirements associated with a facilities-based
platform. Video services are provided through SMATV and DBS systems and
point-to-point 18GHz microwave links. As a private cable operator, the
Company is not required to serve any particular customer base and
generally does not incur capital costs to build its video systems until
it has obtained a Right of Entry for the property. The Company expects to
deploy digital DBS systems where justified, based on subscriber
demographics and demand. Management believes that this "smart-build"
strategy reduces up-front capital expenditures, expedites entry into
markets and MDUs and allows the Company to take advantage of evolving
regulatory and technical developments.
. Leverage SBC Affiliation. The Company realizes significant benefits from
favorable costs on certain services and equipment made available to SBC
and its affiliates by third party vendors. The availability of these
favorable costs is dependent upon (i) SBC's continued ownership of an
equity interest in the Company which meets or exceeds the definition of
"affiliate" in the underlying contracts and (ii) the continuation of the
current underlying SBC contracts or their replacement by SBC with
contracts having comparable terms. Through such arrangements, the Company
currently purchases wholesale long distance telephony services at the
prices negotiated by SBC and has purchased telecommunications equipment.
The Company also benefits from SBC's technical and regulatory expertise
as well as access to personnel with specialized knowledge.
. Build Customer Base Through Long-Term Contracts. OnePoint enters into
long-term contracts with MDU Managers providing Rights of Entry for
telephony and video services. The Company's bundled telephony and video
services should benefit MDU Managers by differentiating their properties
and potentially raising rental values. OnePoint also provides revenue
sharing programs for property owners and commissions, and training and
support for on-site leasing consultants at the MDUs it serves. These
programs motivate the leasing consultants to serve as an effective face-
to-face sales channel to residents. The Company also seeks to become the
exclusive video service provider to the buildings in which it has
telephony Rights of Entry, and believes its relationships with MDU
Managers will be a competitive advantage in obtaining video Rights of
Entry (when existing agreements with other providers expire or are
otherwise terminated) and Internet Rights of Entry.
. Build Customer Base Through Acquisitions. The Company believes it can
further build its customer base by acquiring established private cable
television operators with MDU video Rights of Entry, or acquiring assets
from such operators. The Company believes it can cross-sell its local and
long distance telephony services to acquired video subscribers by
promoting the convenience of a single point of contact, integrated
billing and pricing incentives. In furtherance of its strategy, the
Company recently consummated the PCTV Acquisition and is engaged in
discussions with respect to additional acquisitions. See "Recent
Developments." In addition, in February 1998, the Company acquired
equipment and infrastructure and assumed telephony and video services
agreements in connection with two MDUs with a total of 964 passings
located in Atlanta, Georgia.
. Increase Revenue Through Bundling, Creative Marketing and Cross-
Promotions. OnePoint seeks to increase revenue by offering customers
incentives to purchase bundled services, such as discounted video
services for long-distance subscribers and all-in-one bundled prices for
local and long distance telephony and video services. To the extent
permitted under FCC rules, subscribers to each service receive
information about the Company's other services in their bill. Residents
can subscribe for available services by completing a single form when
leasing an apartment, can schedule a single installation visit for all
services, and thereafter receive a single integrated bill for all
services. Management believes the
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bundling of telephony and video services leverages sales, marketing and
servicing costs, increases market penetration, reduces churn and improves
account collections.
. Provide Superior Customer Care. The Company has developed an integrated
billing system and an advanced customer care facility, which opened in
June 1997. The Company seeks to provide customer care that is superior to
that of incumbent providers, including prompt, courteous repair service,
a single toll-free number for telephony and video customer service and
"hassle-free" installation, with a single installation service call for
all services that can be made on an expedited basis and without the
subscriber present. As a private cable television provider, the Company
can also provide customized programming in each building to match the
demographics and special interests of residents.
Management believes that OnePoint's MDU Manager relationships, its smart-
build approach and its favorable cost position due to its relationship with
SBC are significant competitive advantages. The Company's focus on MDU
customers enables it to concentrate its marketing, service and support
efforts, and requires lower capital costs per unit than targeting other
residential customer groups. The MDU focus also permits the Company to offer
programming and promotions targeted to the demographic characteristics of a
specific building. The Company's Rights of Entry give it the exclusive right
to market its services using the MDU's leasing staff as an on-site face-to-
face sales channel. The smart-build approach permits the Company to enter
markets quickly with a limited initial capital commitment, as compared to a
facilities-led approach which requires significant up-front capital
expenditures prior to providing service and gaining market share. In addition,
management believes that the Company currently has a favorable cost position
for long distance telephony services.
Management Expertise
OnePoint believes that its management and operations team is a critical
component of its initial success and will continue to be a key element of
differentiation for the Company. The Company has built an aggressive and
experienced management team with extensive prior experience at ILECs, CLECs,
IXCs and cable television companies, including MFS Communications Company, MCI
WorldCom, Sprint, and AT&T, among others. James A. Otterbeck, the Company's
Chairman and Chief Executive Officer has served as a Vice President of Gemini
Consulting, where he co-founded and managed the $100 million global
communications business unit of the firm. Mr. Otterbeck has also previously
worked for AT&T Bell Laboratories in product design and management positions
and has worked at IBM in sales and marketing positions. William F. Wallace,
the Company's President and Chief Operating Officer, served as the Chief
Operating Officer of Gemini Consulting, where he co-founded and built Gemini
Consulting's communications business unit with Mr. Otterbeck over a four year
period. See "Management."
Financing Strategy
The Company used approximately $80.5 million of the net proceeds from the
Initial Offering to fund the purchase of a portfolio of U.S. government
securities (the "Pledged Securities"), which is intended to provide funds
sufficient to pay in full when due the first seven scheduled interest payments
on the Notes. The Pledged Securities are pledged as security for the repayment
of principal of and interest on the Notes, Liquidated Damages, if any, and all
other obligations under the Indenture. See "Use of Proceeds" and "Description
of the Exchange Notes--Interest Reserve." Other proceeds have been, or will
be, used to acquire private cable television operators or their assets, to
invest in video infrastructure, to invest selectively in a facilities-based
platform for telephony services, to repay borrowings under the Credit Facility
(which were reborrowed on December 14, 1998), to repurchase Notes, to fund
future capital calls by Mid-Atlantic, to fund working capital and for general
corporate purposes, including operating losses. The Company expects that its
current funding will be sufficient to meet its operational rollout plans for
the next twelve months. The Company may require additional capital if it
achieves market penetration for its services significantly different than, or
at a different stage than current management estimates, achieves lower than
expected pricing for its services, enters additional markets, locates
additional or larger acquisition opportunities or encounters higher than
expected costs to purchase or upgrade telephony, cable or DBS services,
equipment or facilities. The Company also expects that it will require
additional financing (or require financing sooner than anticipated) if the
Company's development
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plans or projections change or prove to be inaccurate, or if the Company is
unable to continue to take advantage of the pricing provided for certain SBC-
negotiated contracts for any reason. There can be no assurance that the
Company will be successful in raising sufficient additional debt or equity
capital, or of the terms of any such capital. Failure to raise and generate
sufficient funds may require the Company to delay or abandon some of its
planned future expansion or expenditures, which could have a material adverse
effect on the Company's growth and its ability to compete in the telephony and
video industry. See "Risk Factors."
Recent Developments
In June 1998, the Company, through a wholly owned subsidiary, entered into a
definitive agreement to acquire substantially all of the assets used by
People's Choice TV Corp. and Preferred Entertainment, Inc. to provide video
service to MDUs in Chicago. Pursuant to the agreement, the Company acquired
approximately 27,800 video passings in 160 properties in July through August.
The financial statements of PCTV are attached hereto. Management expects to
invest in video reception and transmission equipment to upgrade the video
services offering for the acquired passings.
On November 6, 1998, the Warrants were separated from the Notes.
Between November 9, 1998 and March 5, 1999, the Company repurchased $73.25
million in principal amount of Notes in the open market for an aggregate total
cost of $38.4 million. The Company recognized an extraordinary gain on the
early extinguishment of this debt of $19.8 million in the fourth quarter of
1998 and will recognize an extraordinary gain of approximately $12.4 million
in the first quarter of 1999. Pursuant to the restricted securities agreement
entered into in connection with the issuance of the Senior Notes, the trustee
of the Pledged Securities released approximately $26.7 million of such
securities on February 24, 1999 upon request by the Company.
On November 18, 1998, the Notes began accruing Liquidated Damages as a
result of the failure of the Exchange Offer Registration Statement to be
declared effective by the SEC.
In December 1998 the Company borrowed $8.75 million and a $250,000 letter of
credit was issued on its behalf under the Credit Agreement.
The Company is at various stages of discussion with respect to other
potential acquisitions in its targeted markets but it is not a party to a
purchase agreement or letter of intent with respect thereto. The Company is
also negotiating letters of intent with franchise cable television operators
in its targeted markets providing for co-marketing of local and long distance
telephony services to residents of the MDU passings served by these franchise
cable television operators.
Delivery Platform
Telephony Services
The Company currently delivers telephony services through the resale of
services provided by the ILECs and an IXC. The resale of telephony services is
less capital-intensive than providing facilities-based local and long distance
services and the Company believes resale will be more economically attractive
until a critical mass of customers is obtained. It also allows rapid service
deployment in any location that is served by the ILEC and does not require
service interruption, change in service of any significance or change in
telephone number for the customer. This platform ensures customers receive all
available services with the reliability and redundancy enjoyed by ILEC
customers, and the Company and its customers further benefit by having the
ILEC manage a degree of operational risk and complexity for services such as
911, directory and operator assistance. Resale can also be migrated to a UNEs-
based platform by extending the responsibilities of the Company and taking on
the rebundling role that the underlying carrier currently performs.
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Commencing in 1999, the Company plans to invest selectively in a network
design based on Company-owned switches and leased UNEs, including transmission
facilities, on an incremental basis. Facilities deployment requires switching
equipment, dedicated trunking to each building and remote access nodes at each
building. The Company will make network deployment decisions based on the
availability of and prices for equipment, distribution facilities and UNEs
purchased from the ILEC, which will be driven by market and regulatory
developments. As it invests selectively in a facilities-based platform, the
Company will need to take on increased operational responsibilities, including
network design and engineering and the employment and retention of a highly
expert workforce to manage and maintain the network. The Company will also
need to negotiate interconnection agreements. See "--Network Deployment."
The Company is authorized as a CLEC and has obtained authority for the
resale of local exchange services in eleven states (Colorado, Delaware,
Florida, Georgia, Illinois, Maryland, North Carolina, Pennsylvania, South
Carolina, Tennessee and Virginia) and the District of Columbia. It has also
applied for CLEC status in Arizona and is permitted to provide
telecommunications services there while its application is pending. The
Company has also received authorization to resell domestic long distance
service in the United States and international long distance service.
Telephony services are provisioned through direct EDI interfaces with the
underlying carriers. The interfaces are integrated with the Company's customer
care and billing systems and were designed in conjunction with Beechwood Data
Systems and CSG. Other computer interfaces are utilized for pre-ordering and
trouble management. These systems are in use with Bell Atlantic Corporation
("Bell Atlantic"), Ameritech Corporation ("Ameritech"), BellSouth Corporation
("BellSouth") and Sprint.
The Company markets cellular telephony service provided by CellularOne to
MDU residents in the Chicago and Washington, D.C. markets. CellularOne is
responsible for service provisioning, order fulfillment, billing and customer
care.
Video Services
Video services are delivered through private cable systems that serve one or
more MDUs. Service is provided through SMATV systems or DBS systems and point-
to-point 18GHz microwave links. Private cable operators are not required to
serve any particular customer base and thereby have greater flexibility with
respect to programming, service provisioning and pricing than do franchise
cable operators. Management believes that the Company's expanded use of DBS
systems will reduce capital requirements and expand channel capacity. The DBS
delivery platform utilizes only one satellite that requires a single,
lightweight, 18-inch dish, eliminating the need for the traditional
configuration of two 3-meter dishes secured to a reinforced concrete base. DBS
headend equipment also costs less than the equivalent analog equipment it
replaces, and can be installed more quickly. In addition, where inside wiring
is of sufficient capacity, the Company's use of DBS systems may eliminate the
need for headend equipment. Video services are provisioned from the Company's
integrated customer care, provisioning, trouble management and billing system.
Through use of interdiction systems, customers can be activated, deactivated,
or have service altered remotely, which allows for more efficient use of the
technical field staff.
Internet
The Company is currently offering high speed Internet access service at a
limited number of properties on a trial basis. This service allows customers
high speed connectivity to the Internet and will be offered in conjunction
with other Internet-related services, including software, content and e-mail
service. During 1999 the Company expects to more broadly deploy high speed
access in viable properties based on size and demographics. The Company
intends to deliver connectivity and provide private label wholesale access
services by partnering with a Tier 1 or 2 Internet Service Provider ("ISP").
Each property will be connected to the ISP point of presence ("POP") through
wireline or wireless T1s. The Company will most likely utilize a combination
of end-user technologies including cable modem, Ethernet and a variety of
digital subscriber line (or "xDSL") technologies to broaden deployment
opportunities. Products will be offered at varying speeds and will be priced
accordingly. The Company entered into a memorandum of understanding with an
Internet service provider to test on a limited basis an MDU-specific Ethernet-
based application in up to ten MDUs during 1998.
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The Company's Services
The Company offers a wide range of telephony and video services, which it
tailors to meet the specific needs of the customers in its target markets. The
Company offers (or plans to offer) the following services:
Local Telephony Services. The Company offers a full range of local
telephony services including enhanced features such as call forwarding,
call waiting, dial back and caller ID in all of its target markets through
resale agreements with ILECs. Former ILEC customers who switch to
OnePoint's telephony services will in most cases be able to retain their
telephone number.
Long Distance Telephony Services. The Company offers domestic and
international long distance telephony services, including "1+" outbound
calling and inbound toll free service through a resale agreement with an
IXC.
Cellular Telephony Services. The Company markets cellular telephony
service to MDU residents in the Chicago and Washington, D.C. metropolitan
markets as an agent for CellularOne.
Video Services. As a private cable operator, the Company offers multi-
channel television programming customized to the demographic profile and
special interests of residents. Depending on the system, the Company offers
from 50 to 80 channels, with basic video programming featuring major cable
and broadcast networks and premium services including HBO, Cinemax,
Showtime and The Movie Channel. In addition, where installed, DBS allows
the Company to deliver up to 175 channels of programming including
exclusive sports programming and up to 50 pay-per-view channels.
Internet Services. The Company plans to offer a range of options to MDU
Managers for high-speed Internet access, depending on resident demand and
demographics. The Company believes that high speed Internet access is a
value-added amenity which will be highly attractive to MDU Managers and
will enable the Company to increase per subscriber revenue. The Company is
evaluating and testing several technologies for providing this service,
including cable modems, Ethernet and xDSL.
Programming
The Company purchases video programming primarily from a programming
wholesaler and programming suppliers. The Company has generally obtained
programming on terms and conditions that it considers reasonable and has
obtained favorable pricing as a result of its relationship with Mid-Atlantic.
OnePoint's programming includes basic channels, premium channels including
pay-per-view movies and events, adult entertainment, electronic program guide
services and digital music services, as well as retransmission arrangements
for relevant network broadcasters.
The Company generally pays a monthly fee per subscriber per channel for
programming. Programming costs increase in the ordinary course of the
Company's business as a result of increases in the number of subscribers,
expansion of the number of channels provided to customers and contractual rate
increases from programming suppliers. The Company anticipates that its
programming costs, particularly for sports programming, will increase in the
future.
Marketing
The Company focuses on MDU customers in order to concentrate its marketing,
service and support efforts and reduce its capital costs. The Company's sales
and marketing approach is aimed at three key decision-makers: the MDU
Managers, the on-site leasing staff and the residential end-user. The
Company's bundled telephony and video services offer MDU Managers the
opportunity to earn additional income through revenue sharing arrangements and
also differentiate the property. Management believes that such differentiation
enables the MDU Manager to achieve greater occupancy rates and potentially
raises rental values. On-site leasing staff are an important part of the
Company's marketing strategy, because they are a direct face-to-face sales
channel to residents. The Company provides commissions to, trains and supports
on-site leasing consultants to promote the benefits of OnePoint's service
options. The Company's Residential Marketing Coordinators work with MDU
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Managers and leasing staff to increase subscription rates. The Residential
Marketing Coordinators also provide initial and ongoing training and marketing
materials and sponsor launch events to build product and brand awareness and
encourage residents to subscribe immediately. The financial incentive to
purchase bundled services is reinforced by face-to-face marketing by on-site
leasing consultants to existing residents and to new residents at the critical
move-in period. The Company is devoting considerable efforts to promoting the
OnePoint brand name among the MDU Manager community and within MDUs for which
it has Rights of Entry. Management believes that this value-driven strategy
will lead to increased penetration, subscriber loyalty, market share and
profitability and reduced subscriber churn.
The Company offers MDU residents bundled telephony and video services at
moderate to significant discounts to prices charged by ILECs, IXCs or
franchise cable providers with the convenience of "one point" of contact and a
single integrated bill for multiple services. OnePoint uses additional
marketing and discounts to encourage the subscriber to purchase a bundle of
services (including, when available, cellular phone and Internet service), or
to purchase premium or feature packages. Residents are offered a simple
subscription process, with all services installed at the time of move-in. They
have a single toll-free point of contact for all telephony and video services,
including service inquiries, billing inquiries and trouble reporting. The
Company provides its customers with a single integrated bill and the
opportunity to write a single check each month for all services. The Company's
resale of telephony services ensures customers the reliability and redundancy
enjoyed by customers of ILECs and other major carriers. As a private cable
operator, the Company can offer video programming customized to the
demographic profile and special interests of residents. The Company offers a
diverse line-up of high quality basic, premium and pay-per-view programming.
Telephony and Video Rights of Entry
Telephony Rights of Entry. Through December 1998, the Company had entered
into long term contracts with 7 national REITs (Equity Residential Properties
Trust, Charles E. Smith Residential Realty, Summit Properties, United Dominion
Realty Trust, Walden Residential Properties, Inc, AIMCO and AvalonBay) and
numerous other MDU Managers providing for approximately 207,500 telephony
passings in the Company's 6 targeted markets. Each of such REIT Right of Entry
agreements has terms of five to seven years. These agreements typically grant
the Company, on a property by property basis, and, in each case, to the extent
permitted under applicable law, (i) the right to provide specific
telecommunications services to the property (including the installation and
maintenance of necessary on-site equipment and the wiring of the building) and
(ii) the right to market local, long distance and other telephony services
directly to residents of the property, including the sole right to market such
services on the property. The Company's rights under such contracts do not
prohibit other telecommunications service providers from soliciting residents
to use telecommunications services other than through on-site solicitations,
nor do they restrict third parties from providing services to a resident at
the request of such resident. Services covered under the contracts vary, and
may or may not include dial-up Internet access. The Company's right to market
its services, subject to certain limitations, typically extends to advertising
within the building through use of signs, handbills and door-to-door visits.
The Company may also train, coordinate and provide incentives to property
management personnel to provide marketing materials and telephony service
agreements to potential lessees. Under these contracts, MDU Managers typically
receive volume-based financial incentives. MDU Managers are required to
promote generally the use of the Company's services and to use their best
efforts not to permit physical entry onto the property by any other party for
the purpose of marketing or providing the services covered under the contract;
however, the contracts do not prohibit other service providers from indirectly
soliciting residents through other legal means, such as direct mailings or
telemarketing, or providing any services specifically at the request of a
resident. To the extent the Company requires permits to market or provide
services covered by the contract, MDU Managers are obligated to cooperate and
use their best efforts to assist the Company in obtaining necessary permits.
Under these contracts, an MDU Manager may, but is not obligated to, offer
additional properties to the Company. To the extent existing conflicting
agreements would prohibit the Company from offering services to residents at
offered properties, MDU Managers are obligated to terminate such agreements as
soon as legally permissible under the terms of those agreements.
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Video Rights of Entry. Through December 1998, the Company had entered into
contracts with numerous MDU Managers providing for video Rights of Entry
covering approximately 30,000 passings in the Chicago and Atlanta markets.
These contracts typically grant the Company the sole right to install, own,
operate and maintain a private cable system on the property and to provide
private cable services to the residents of the property, but do not restrict
provision of such services by others where state, local or federal laws
require such other parties to have the right to provide such services. The
Company also is granted the sole license to solicit residents on-site to
subscribe to its private cable services. Except as otherwise required by
federal, state or local laws, MDU Managers agree to refrain from granting
access to the property and any rights relating to the marketing or provision
of video/cable services to any other person or entity for the duration of the
contract. Additionally, the contracts cannot prevent third party solicitations
of residents by mail, telephone or other indirect means outside of the MDU
Managers' control. MDU Managers agree to use their best efforts to promote the
use of private cable services, and the Company is permitted to train property
management personnel to promote the Company's services. To the extent the
Company requires permits to market or provide services covered by the
contract, an MDU Manager is obligated to cooperate and use its best efforts to
assist the Company in obtaining any necessary permits.
Customer Care and Billing
The Company has implemented a flexible, customer-service oriented approach
which it believes differentiates it from the mass-market strategy of incumbent
providers. The Company provides customer service from a central care center
located in Largo, Maryland. The customer care center is equipped with a toll-
free "888-ONE-POINT" line through which customers can coordinate all of their
service needs, including the initial service order, repair and billing
inquiries. The facility utilizes an operating support system that integrates
all customer information and can be accessed by activation, billing, customer
care and technical personnel. The Company's customer care professionals,
installers and technicians have been professionally trained to address both
telephony and video service needs. A single, integrated bill is distributed to
each customer for all of the services provided by the Company to that
customer, which management believes provides a competitive advantage in its
cross-marketing efforts. In certain properties where wiring and scrambling
does not preclude the theft of video signals, the Company relies upon periodic
field audits by its technicians to monitor and detect any piracy of video
signals. The Company relies upon the software algorithms utilized by the
wholesale provider of long distance telephony services to monitor potential
fraudulent calling patterns. Through this provider, pre-established controls
and procedures to disconnect service are in place to limit the exposure from
fraudulent long-distance and international telephony calling. The Company
depends upon the credit screening processes employed by the leasing staff in
determining the suitability of the prospective tenant. Service is suspended
for non-payment after 75 days at most properties.
Portions of the customer care facility are currently operated jointly with
Mid-Atlantic. The billing and operating support system is operated pursuant to
a contract between the Company and a third party, and Mid-Atlantic reimburses
the Company for a portion of the variable expenses related to the system,
based on usage. Both the Company and Mid-Atlantic utilize the facility to
perform services for their customers, and data relating to both companies'
customers are integrated into the billing and operating support systems. In
certain circumstances, the Company relies on Mid-Atlantic's employees to
answer the Company's inbound phone calls. The Company also reimburses Mid-
Atlantic for certain payroll and other expenses with respect to shared
employees. Any event that required the separation of Mid-Atlantic and OnePoint
customer care and billing operations could result in a disruption in the
Company's ability to provide adequate service to its customers.
Information Systems
OnePoint has invested significant resources to develop tailored information
systems and procedures that it believes provide a significant competitive
advantage in terms of cost, cross-marketing and customer care. These systems
are required to enter, schedule, provision and track a customer's order from
the point of sale to the
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installation and testing of service and also include or interface with trouble
management, inventory, billing, collection and customer care systems.
Telephony services are provisioned through direct EDI interfaces with the
underlying carriers, which currently include Bell Atlantic, Ameritech,
BellSouth and Sprint. The interfaces are integrated with the Company's
customer care and billing systems and were designed in conjunction with
Beechwood Data Systems and CSG. Other computer interfaces are utilized for
pre-ordering and trouble management. The Company's employees input customer
information into the systems and interface with the ILECs to provision
services; CSG processes, prints and mails the Company's billing statements.
Network Deployment
The Company plans to deploy switching, concentration and distribution
infrastructure where it achieves significant customer density in a target
market, i.e., in locations where in excess of 2,000 local customer lines in 12
or fewer MDUs can be served from a single central office. The actual size,
class and configuration of the switch deployed will be dependent on the
concentration of subscribers, the likelihood for further utilization and the
Company's ability to obtain SBC's favorable pricing terms from vendors. The
Company may also seek to negotiate agreements to partition capacity of
existing switching facilities from the ILEC, other CLECs, or in the
Washington, D.C. and Chicago markets, from SBC or its affiliates. After
evaluating the cost-effectiveness of UNEs, the Company may elect to lease
point-to-point local loops from either the ILEC or, if available, another CLEC
to span the "last mile." The Company may also elect to lease dedicated T1
facilities to connect large and proximate properties to its switching
equipment, and will then complete the connection with its customers by
installing digital loop carriers, or other concentrating equipment, at each
property. When the Company's local switching facilities are being utilized,
the Company will dedicate long distance traffic and provide transport via
dedicated facilities to an IXC POP, thereby bypassing the ILEC's tandem
switching. While management believes that deploying switches and other
equipment is a cost-effective approach for connecting properties covered by
long-term agreements, ongoing regulatory changes may alter management's view
in this respect by creating additional opportunities through UNEs which may
lead to alternative approaches for deploying leased unbundled facilities. The
Company will make network deployment decisions based on the availability of,
and prices for, equipment, distribution facilities and UNEs purchased from the
ILEC, which will be driven by market and regulatory developments. As it
invests selectively in a facilities-based platform, the Company will need to
take on increased operational responsibilities, including network design and
engineering and the employment and retention of a highly expert workforce to
manage and maintain the network. The Company will also need to negotiate,
among other things, facilities interconnection agreements with the ILECs as
well as reciprocal compensation arrangements and 911 handling arrangements.
See "Risk Factors--Significant Capital Requirements; Uncertainty of Additional
Financing" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
The Recapitalization
The Company is the successor to OnePoint Communications, LLC. The
Predecessor was originally formed in 1996 by VIC and AMI2. Through a series of
transactions from the fourth quarter of 1997 through April 1998, VenCom,
L.L.C. acquired an equity interest in the Predecessor, and the Predecessor was
recapitalized and merged with the Company in order to become a corporation.
See "The Recapitalization."
Business--Mid-Atlantic Joint Venture
From February to June 1997, the Company made investments totalling
approximately $12 million to acquire a 50% ownership interest in Mid-Atlantic.
In late 1997, the Company and Mid-Atlantic began joint marketing of telephony
and video services under the OnePoint brand name in the areas served by Mid-
Atlantic in the Washington/Baltimore/Philadelphia metropolitan area. The
Company elected not to meet capital calls in February and June of 1998, and as
a result, it currently holds an approximately 41% equity interest in Mid-
Atlantic. As of December 31, 1997, the Company's equity in Mid-Atlantic
constituted a significant portion of its assets, accounting for $9.3 million
of the Company's $19.8 million in assets (based on book values). As of
December 31, 1998, Mid-Atlantic constituted $6.2 million of the Company's
$149.3 million in assets.
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Pursuant to the terms of Mid-Atlantic's operating agreement, the joint
venture is not managed by the Company and as a consequence, the Company has
limited ability to control Mid-Atlantic and may be unable to prevent actions
by Mid-Atlantic which might be adverse to the interests of the Company. The
Company's consent is required for a limited number of actions by Mid-Atlantic,
including entry into new lines of business, entry into a merger,
consolidation, recapitalization or reorganization transaction, making of
certain payments to members or entry into transactions with insiders on other
than an arm's length basis, entry into agreements in excess of $1 million
(other than cable operator acquisitions and contracts to provide cable
services), sales of assets other than in the ordinary course, and other
strategic sales of contracts with a fair market value not exceeding $500,000
in any 12-month period, and liquidation or dissolution.
On January 15, 1999, the Company, Mid-Atlantic and other related parties
entered into the Settlement Agreement which resolved certain disputes arising
out of an arbitration demand made by the Company on August 6, 1998. The
Settlement Agreement provides, among other things, that Mid-Atlantic would
provide the necessary financial information regarding Mid-Atlantic for the
Exchange Offer and the Company's periodic filings under the Securities
Exchange Act of 1934, as amended. Also, as part of the Settlement Agreement,
the parties agreed to the formation of a new holding company, Mid-Atlantic
Telcom Plus Holding, LLC, to own the membership interests of Mid-Atlantic. In
addition, the Settlement Agreement transferred the day-to-day operations of
Mid-Atlantic Telcom Plus Interactive, LLC ("MAC Interactive") to the Company.
MAC Interactive
In December 1997 OnePoint invested $750,000 to acquire a 50% equity interest
(with a preferred return) in MAC Interactive. In December 1997, MAC
Interactive entered into an agreement with ODS to acquire set top boxes and
marketing rights from ODS for its pari-mutuel horse racing wagering service
for an aggregate of $750,000. It was anticipated that MAC Interactive would
provide such set top boxes and market ODS services to Mid-Atlantic
subscribers. The other investors in MAC Interactive are the investors that
also own the equity interests in Mid-Atlantic which are not owned by the
Company. VIC was a limited partner of ODS until July 1998. There can be no
assurance that ODS will be able to introduce its pari-mutuel wagering service
in any jurisdictions, or that the Company will realize any returns on its
investment in MAC Interactive. Pursuant to the Settlement Agreement, the
Company and the other investors have agreed to liquidate MAC Interactive.
Mid-Atlantic Joint Venture Non-Competition Agreements
In connection with the Mid-Atlantic joint venture, the Company, its co-joint
venturer and certain of their affiliates entered into a series of Non-
Competition Agreements. Such agreements restrict the rights of such parties
(other than Mid-Atlantic and VIC-RMTS-DC, LLC, the telephony joint venture
company controlled by the Company) to provide cable and telephony services,
respectively, under certain circumstances in either (i) the "D.C. Metro" area,
defined to include Washington D.C., Baltimore, Maryland and certain areas of
Virginia, or (ii) the "Territory," defined to include the States of Delaware,
Maryland, New Jersey, Pennsylvania, and Virginia and Washington, D.C.
The agreements restrict parties other than Mid-Atlantic from pursuing any
opportunity related to, or providing, any private cable service or any
franchise cable service with less than 75,000 dwelling units passed or
available to be passed anywhere in the Territory unless such opportunity has
been offered first to Mid-Atlantic, and then to VIC-RMTS-DC, LLC and, within
the D.C. Metro area, only if Mid-Atlantic has ceased to develop cable
opportunities therein for not less than six consecutive months.
The agreements restrict parties other than VIC-RMTS-DC, LLC from pursuing
any opportunity related to, or providing any, telephony services in the
Territory unless such opportunity has been offered first to VIC-RMTS-DC, LLC,
and then to Mid-Atlantic and, within the DC Metro area, only if VIC-RMTS-DC,
LLC has ceased to develop telephony opportunities therein for not less than
six consecutive months.
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In the event that any proposed telephony or cable acquisition would provide
a legal or regulatory conflict for SBC such that neither VIC-RMTS-DC, LLC nor
Mid-Atlantic could pursue such acquisition, there is no offer requirement.
Each party to the agreements is restricted from providing a bundled service
offering consisting of telephony and cable services (other than pursuant to
the joint venture) within the D.C. Metro area. The agreements prohibit the
recruiting or solicitation of any employees, customers, subscribers or
suppliers of either of the joint venture companies who perform services in the
Territory. The duration of such agreements with respect to any party is
dependent on such party's continued equity ownership in the joint venture
entities, and the continued operation of the joint venture entities, but last
in no event longer than one year following the end of such party's affiliation
with the joint venture entities.
Federal Regulation
The Company's networks and the provision of telecommunications services are
subject to significant regulation at the federal, state and local levels.
General FCC Regulation
The FCC regulates interstate and international telecommunications services.
The Company provides service on a common carrier basis. The FCC imposes
certain regulations on common carriers such as the RBOCs that have some degree
of market power ("dominant carriers"). The FCC imposes less regulation on
common carriers without market power ("nondominant carriers") including, to
date, CLECs. Under the FCC's rules, the Company is a nondominant carrier and
as such does not need authorization to provide domestic services and can file
tariffs on one day's notice. The FCC requires common carriers to receive an
authorization to construct and operate telecommunications facilities, and to
provide or resell telecommunications services, between the United States and
international points.
ILEC and CLEC Obligations
The Telecommunications Act is intended to increase competition. The act
opens the local services market by requiring ILECs to permit interconnection
to their networks and establishing obligations with respect to:
Reciprocal Compensation. Requires all ILECs and CLECs to complete calls
originated by competing carriers under reciprocal arrangements. The prices
charged by ILECs for terminating calls originated on a CLEC's network must
be based on a reasonable approximation of additional cost or through mutual
exchange of traffic without explicit payment.
Resale. Requires all ILECs and CLECs to permit resale of their
telecommunications services without unreasonable restrictions or
conditions. In addition, ILECs are required to offer all retail
telecommunications services to other carriers for resale at discounted
rates, based on the costs avoided by the ILEC in such offering.
Interconnection. Requires all ILECs and CLECs to permit their competitors
to interconnect with their facilities. Requires all ILECs to permit
interconnection at any technically feasible point within their networks, on
nondiscriminatory terms, at prices based on cost (which may include a
reasonable profit). At the option of the carrier seeking interconnection,
collocation of the requesting carrier's equipment on the ILECs' premises
must be offered, except where an ILEC can demonstrate space limitations or
other technical impediments to collocation.
Unbundled Access. Requires all ILECs to provide nondiscriminatory access
to unbundled network elements (including network facilities, equipment,
features, functions, and capabilities) at any technically feasible point
within their networks, on nondiscriminatory terms, at prices based on cost
(which may include a reasonable profit). The Supreme Court's decision in
AT&T v. Iowa Utilities Board required the FCC to
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reconsider which elements should be unbundled. The FCC has initiated a
remand proceeding. In the interim, ILECs have committed to continue
offering existing UNEs.
Number Portability. Requires all ILECs and CLECs to permit users of
telecommunications services to retain existing telephone numbers without
impairment of quality, reliability or convenience when switching from one
local exchange carrier to another.
Dialing Parity. Requires all ILECs and CLECs to provide nondiscriminatory
access to telephone numbers, operator services, directory assistance, and
directory listing with no unreasonable dialing delays. They must also
provide dialing parity for interLATA services and for intraLATA toll
services. LECs that have not yet implemented dialing parity for intraLATA
toll services will be required to do so by the end of 1999.
Access to Rights-of-Way. Requires all ILECs and CLECs to permit competing
carriers access to poles, ducts, conduits and rights-of-way at reasonable
and nondiscriminatory rates, terms and conditions.
ILECs are required to negotiate in good faith with carriers requesting any
or all of the above arrangements. If the negotiating carriers cannot reach
agreement within a prescribed time, either carrier may request binding
arbitration of the disputed issues by the state regulatory commission. Where
an agreement has not been reached, ILECs remain subject to interconnection
obligations established by the FCC and state telecommunication regulatory
commissions.
In August 1996, the FCC released a decision (the "Interconnection Decision")
establishing rules implementing the Telecommunications Act requirements that
ILECs negotiate interconnection agreements and providing guidelines for review
of such agreements by state public utilities commissions. On July 18, 1997,
the Eighth Circuit vacated certain portions of the Interconnection Decision,
including provisions establishing a pricing methodology and a procedure
permitting new entrants to "pick and choose" among various provisions of
existing interconnection agreements between ILECs and their competitors. On
October 14, 1997, the Eighth Circuit issued a decision vacating additional FCC
rules. The Supreme Court has reversed the Eighth Circuit's decision on the
pricing and "pick and choose" rules. However, the Court also determined that
the FCC's standard to determine which unbundled element must be made available
by ILECs did not comply with the statute. The FCC has initiated a new
proceeding to reconsider what unbundled network elements should be made
available.
The Telecommunications Act also requires all telecommunications carriers to
ensure that their services are accessible to and usable by persons with
disabilities. In addition, the FCC's rules require that the Company contribute
to universal service funds, the Telecommunications Relay Services fund and the
North American Numbering Plan Administrator fund. See "--Federal Regulation--
Universal Service." The Company is also subject to other FCC filing
requirements. Compliance with these obligations, individually and in the
aggregate, may cause the Company to incur substantial expenses. There can be
no assurance that these expenses will not have a material adverse effect upon
the Company's results of operations and financial condition and its ability to
meet its obligations under the Notes. In addition, the Company might incur
significant expenses to assure that its networks comply with the requirements
of CALEA. Under CALEA, telecommunications carriers are required to: (i)
provide law enforcement officials with call content and call identifying
information pursuant to a valid electronic surveillance warrant ("assistance
capability requirements"); and (ii) reserve a sufficient number of circuits
for use by law enforcement officials in executing court authorized electronic
surveillance ("capacity requirements"). To the extent that the Company
provides facilities-based services, it may incur costs in meeting both of
these requirements. In particular, regarding the assistance capability
requirements, the government is only required to compensate carriers for the
costs of making equipment installed or deployed before January 1, 1995 CALEA-
compliant. While the telecommunications industry is attempting to negotiate
legislative and administrative changes to this reimbursement cut-off date, as
it stands today, the Company will be financially responsible for ensuring that
its post-1995 equipment is in compliance. Regarding the capacity requirements,
the government will finance any necessary increases in capacity for equipment
installed or deployed prior to
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September 8, 1998, and the Company will be responsible for paying for any
necessary increases in capacity for equipment installed or deployed after that
date.
Tariffs and Pricing Requirements
In October 1996, the FCC adopted an order in which it eliminated the
requirement that non-dominant interstate carriers such as the Company maintain
tariffs on file with the FCC for domestic interstate services. This order
applies to all non-dominant interstate carriers. The order does not apply to
the switched and special access services of the RBOCs or other local exchange
providers. The FCC order was issued pursuant to authority granted to the FCC
in the Telecommunications Act to "forbear" from regulating any
telecommunications services provider under certain circumstances. After a
nine-month transition period, relationships between interstate carriers and
their customers will be set by contract. At that point, long distance
companies are prohibited from filing tariffs with the FCC for interstate,
domestic, interexchange services. Carriers have the option to immediately
cease filing tariffs. Several parties have filed notices for reconsideration
of the FCC order and other parties have appealed the decision. On February 13,
1997, the United States Court of Appeals for the District of Columbia Circuit
stayed the implementation of the FCC order pending its review of the order on
its merits. Currently, that stay remains in effect and interstate long
distance telephony companies are therefore still required to file tariffs.
If the stay is lifted and the FCC order becomes effective,
telecommunications carriers such as the Company will no longer be able to rely
on the filing of tariffs with the FCC as a means of providing notice to
customers of prices, terms and conditions on which they offer their interstate
services. The obligation to provide non-discriminatory, just and reasonable
prices remains unchanged under the Communications Act. While tariffs provide
notice of prices, terms and conditions, the Company intends to rely primarily
on its sales force and direct marketing to provide such information to its
customers. Tariffs also allow the Company to limit its liability to its
customers, including in connection with service interruptions. If tariffs are
eliminated, the Company may become subject to significantly increased
liability risks, and there can be no assurance that such liabilities will not
have a material adverse effect on the Company's results of operations and
financial condition and ability to meet its obligations under the Notes. In
addition, the Company must obtain prior FCC authorization for installation and
operation of international facilities and the provision (including resale) of
international long distance services. There has been no proposal to detariff
international services and the Company has filed tariffs to offer those
services.
Pursuant to authority granted by the FCC, the Company will resell the
international telecommunications services of other common carriers between the
United States and international points.
With respect to its domestic service offerings, various subsidiaries of the
Company have filed tariffs with the FCC stating the rates, terms and
conditions for their interstate services. The Company's tariffs are generally
not subject to pre-effective review by the FCC, and can be amended on one
day's notice. The Company's interstate and intrastate toll services are
provided in competition with interexchange carriers (including ILECs in some
cases). The Company's access services are provided in competition with the
ILECs.
Pursuant to authority granted by the FCC, the Company will resell the
international telecommunications services of other common carriers between the
United States and international points.
With limited exceptions, the current policy of the FCC for most interstate
access services dictates that ILECs charge all customers the same price for
the same service. Thus, the ILECs generally cannot lower prices to some
customers without also lowering charges for the same service to all similarly
situated customers in the same geographic area, including those whose
telecommunications requirements would not justify the use of such lower
prices. The FCC may, however, alleviate this constraint on the ILECs and
permit them to offer special rate packages to certain customers, as it has
done in few cases, or permit other forms of rate flexibility.
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CPNI
In February 1998, the FCC adopted rules implementing Section 222 of the
Communications Act, which governs the use of customer proprietary network
information ("CPNI") by telecommunications carriers. CPNI generally includes
any information regarding a subscriber's use of a telecommunications service,
where it is obtained by a carrier solely by virtue of the carrier-customer
relationship. CPNI does not include a subscriber's name, telephone number, and
address, if that information is published or accepted for publication in any
directory format. Under the FCC's rules, a carrier may only use a customer's
CPNI to market a service that is "necessary to, or used in," the provision of
a service that the carrier already provides to the customer, unless it
receives the customer's prior oral or written consent to use that information
to market other services. A number of parties have asked the FCC to modify
several of these rules. These requests remain pending. These rules, either as
adopted or as modified, may impede the Company's ability to effectively market
integrated packages of services and to expand existing customers' use of the
Company's services.
Universal Service
On May 8, 1997, the FCC released an order establishing a significantly
expanded federal universal service subsidy regime. For example, the FCC
established new subsidies for telecommunications and certain information
services provided to qualifying schools and libraries and for services
provided to rural health care providers. The FCC also expanded or revised the
federal subsidies for local exchange telephony services provided to low-income
consumers and consumers in high-cost areas. Providers of interstate
telecommunications services, such as the Company, as well as certain other
entities, must pay for these programs. The Company's share of these federal
subsidy funds will be calculated based on end-user revenues. For the schools
and libraries and rural health care support mechanisms, interstate,
international, and intrastate end-user revenues will be used. For the high
cost and low income support mechanisms, contributions will be based on
interstate and international end-user revenues. Currently, the FCC is
calculating assessments based on the prior year's revenues. Assuming that the
FCC continues to calculate contributions based on the prior year's revenues,
the Company believes that it will not be liable for subsidy payments in any
material amount during 1998 because it had no significant revenues in 1997.
With respect to subsequent years, however, the Company is currently unable to
quantify the amount of subsidy payments that it will be required to make or
the effect that these required payments will have on its financial condition.
In the May 8th order, the FCC also announced that it would revise its rules
for subsidizing service provided to consumers in high cost areas. The FCC has
recently adopted the platform for the cost model which it will use to
determine the subsidies needed for high cost areas. The Commission will be
making decisions regarding the inputs for the model in 1999. It is unclear
what impact these decisions will have on the level of subsidies for the
provision of service in high cost areas. Several parties have appealed the May
8th order. Such appeals have been consolidated and transferred to the United
States Court of Appeals for the Fifth Circuit where they are currently
pending. Several petitions for administrative reconsideration of the order are
pending.
Long Distance and InterLATA Internet Restrictions
The Telecommunications Act codifies the ILECs' equal access and
nondiscrimination obligations and preempts inconsistent state regulation. The
Telecommunications Act also contains special provisions that eliminate the
AT&T Antitrust Consent Decree restricting the RBOCs from providing interLATA
services and engaging in telecommunications equipment manufacturing. The
Telecommunications Act permitted the RBOCs to enter the out-of-region long
distance and interLATA Internet services market immediately upon its
enactment. Further, provisions of the Telecommunications Act permit a RBOC to
enter the long distance and interLATA Internet services market in its
traditional service area if it satisfies several procedural and substantive
requirements, including obtaining FCC approval upon a showing that the RBOC
has entered into interconnection agreements (or, under some circumstances, has
offered to enter into such agreements) in those states in which it seeks long
distance relief, the interconnection agreements satisfy a 14-point "checklist"
of competitive requirements, and the FCC is satisfied that the RBOC's entry
into long distance markets is in the public interest. To date, several
petitions by RBOCs for such entry have been denied by the FCC, and none has
been granted.
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Due to SBC's indirect ownership of 19.7% of the sole stockholder of the
Company, the Company may considered to be an affiliate of SBC for regulatory
purposes, and may be therefore prohibited from providing long distance
telephony service to customers in the SBC Region. On May 11, 1998 SBC
announced that it had agreed to merge with Ameritech to create a
telecommunications company with a "national-local" focus to compete against
ILECs, CLECs, long distance companies and global competitors. SBC stated that
it hoped to complete the merger within a year, but noted that the merger is
subject to approval by stockholders, the public utilities commissions in the
Ameritech Region, other local regulators and the Federal Communications
Commission. The merger is also subject to review by the United States
Department of Justice. As potentially an affiliate of SBC for regulatory
purposes, the Company may be prohibited from providing long distance service
and interLATA Internet services to customers in the SBC Region, and if
Ameritech has not received approval to provide long distance service and
interLATA Internet services in Illinois prior to the consummation of the
merger, the Company could be prohibited from continuing to provide long
distance service in Chicago following consummation of the merger, and
similarly, if Ameritech has not received approval to provide long distance
service and interLATA Internet services in the other states in the Ameritech
Region, the Company could be prohibited from providing long distance service
and interLATA Internet services in such states following consummation of the
merger. In the event that the merger is consummated and Ameritech has not
received approval to provide long distance service by that time, the Company
believes that, under current regulatory conditions, it may be able to
restructure its Illinois operations in such a way that it would not be
prohibited from providing long distance service in Illinois, although such
restructuring could require amendments or consents under certain of the
Company's agreements, including the agreement pursuant to which it purchases
long distance service. There can be no assurance, however, that such an
approach would be successful. Such inability to provide long distance service
could have a material adverse effect on the Company's results of operations
and financial condition and its ability to meet its obligations under the
Notes. See "Risk Factors--Dependence on SBC Affiliation; Restrictions on
Ability to Provide Service in SBC Region."
The area which constitutes the SBC Region may change due to other
transactions entered into by SBC or regulatory changes. Expansion of the SBC
Region, through a business combination between SBC and another RBOC or
otherwise, could have a material adverse effect on the Company's results of
operations and financial condition and its ability to meet its obligations
under the Notes. There can be no assurance that the SBC Region, in which the
Company is currently prohibited from providing long distance telephony
service, or the Ameritech Region, in which the Company may be prohibited from
providing long distance telephony service, will not expand, or that any such
expansions will not include areas currently served, or targeted to be served,
by the Company.
Under the Telecommunications Act, any entity, including cable television
companies and electric and gas utilities, may enter any telecommunications
market, subject to reasonable state regulation of safety, quality and consumer
protection. Because implementation of the Telecommunications Act is subject to
numerous federal and state policy rulemaking proceedings and judicial review
there is still uncertainty as to what impact such legislation will have on the
Company.
Access Charges
To the extent the Company provides interexchange telecommunications service,
it is required to pay access charges to ILECs when it uses the facilities of
those companies to originate or terminate interexchange calls. Also, as a
CLEC, the Company provides access services to other interexchange service
providers. The interstate access charges of ILECs are subject to extensive
regulation by the FCC, while those of CLECs are subject to a lesser degree of
FCC regulation but remain subject to the requirement that all charges be just,
reasonable, and not unreasonably discriminatory. With limited exceptions, the
current policy of the FCC for most interstate access services dictates that
ILECs charge all customers the same price for the same service. Thus, the
ILECs generally cannot lower prices to some customers without also lowering
charges for the same service to all similarly situated customers in the same
geographic area. The FCC may, however, alleviate this constraint on the ILECs
and permit them to offer special rate packages to certain customers, as it has
done in a few cases, or
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permit other forms of rate flexibility. In two orders released on December 24,
1996, and May 16, 1997, the FCC made major changes in the interstate access
charge structure. In the December 24th order, the FCC removed restrictions on
ILECs' ability to lower access charges and relaxed the regulation of new
switched access services in those markets where there are other providers of
access services. The May 16th order increased the costs that price cap LECs
recover through monthly, non-traffic sensitive access charges and decreased
reliance on traffic-sensitive charges. In the May 16th order, the FCC also
announced its plan to bring interstate access rate levels more in line with
cost. The plan will include rules that are expected to be established sometime
in early to mid-1999 that may grant price cap LECs increased pricing
flexibility upon demonstrations of increased competition (or potential
competition) in relevant markets. The manner in which the FCC implements this
approach to lowering access charge levels could have a material effect on the
Company's ability to compete in providing interstate access services. Several
parties appealed the May 16th order. Those appeals were consolidated and
transferred to the United States Court of Appeals for the Eighth Circuit where
they are currently pending. That court upheld the FCC's May 16th order in a
decision issued on August 19, 1998.
Reciprocal Compensation
All ILECs and CLECs must complete calls originated by other carriers under
reciprocal compensation arrangements. That is, the LEC terminating a local
call is entitled to payment from the LEC originating a call. Charges assessed
by the ILECs for terminating calls originated on a CLEC's network must be
based on a reasonable approximation of additional cost or through mutual
exchange of traffic without explicit payment. The FCC recently determined that
Internet traffic is interstate in nature, not local, and has initiated a
proceeding to determine appropriate carrier-to-carrier compensation. At the
same time, the FCC declined to overturn a multitude of state decisions
requiring ILECs to pay CLECs compensation for delivering Internet traffic to
ISPs. The FCC's decision is on appeal, and ILECs are expected to ask states or
federal courts to reverse the existing state determinations.
Internet Regulation
The Company believes that it is not currently subject to direct regulation
by the FCC or any other governmental agency, other than regulations applicable
to businesses generally. To date, the FCC has not actively sought to regulate
the provision of Internet access and related services. Under current law,
operators of "enhanced" or "information" services, which currently include
Internet access services, are exempt from FCC regulation, but operators of
"basic" or "telecommunications" services are not similarly exempt. The FCC
recently announced its intention to determine on a case-by-case basis whether
to require Internet telephony services to contribute financially to universal
service support mechanisms, which could also subject these services to other
forms of regulation.
There are also a number of ongoing proceedings at the FCC regarding whether
the FCC should regulate the Internet. On April 10, 1998, the FCC reported to
Congress on the meaning of various provisions in the Telecommunications Act,
including whether the provision of Internet access is a "telecommunications"
service. In its report, the FCC concluded that Internet access service,
defined as a bundled offering combining various computer processing and
content applications, is an information service under the Telecommunications
Act and that the transmission capabilities provided over the facilities
underlying Internet access and other information service offerings constitute
"telecommunications" under the Telecommunications Act, where provided by a
common carrier or other party, and may be "telecommunications" if self-
provisioned by an Internet service provider. The FCC recently announced its
intention to determine in the future whether to require certain providers of
Internet services over their own facilities to contribute financially to
universal service support mechanisms, which could also subject them to other
forms of regulation. The FCC also noted that IP phone-to-phone telephony
appears to be a telecommunications service rather than an information service,
but a final conclusion was deferred to subsequent ad hoc proceedings. The
regulatory status of cable television system facilities used to provide
Internet access was specifically not addressed, and how universal service
funding obligations will apply may be the subject of a further proceeding. The
FCC has said it will monitor whether
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high-speed cable data transport should be made available to all Internet
access providers and bills may soon be introduced in Congress to address this
issue.
Due to the increase in Internet use and publicity, it is possible that new
laws and regulations may be adopted, and that changes in laws or regulations
may be made, with respect to the Internet, including laws regarding privacy,
pricing, and characteristics of services or products. Certain other
legislative initiatives, including those involving taxation of Internet
services and transactions, and payment of access charges by Internet providers
have also been enacted or proposed. BellSouth has announced that it will
assess access charges on certain providers of IP-based telephony. Any
legislation regarding the Internet could impact adversely the Company's
ability to provide various services and could have a material adverse effect
on the Company's results of operations and financial condition and its ability
to meet its obligations under the Notes. The Company cannot predict the
impact, if any, that future laws or any legal changes may have on its
business.
The introduction of, or changes to, regulations that directly or indirectly
affect the regulatory status of Internet services, affect telecommunications
costs (including the application of reciprocal compensation requirements,
access charges or universal service contribution obligations to Internet
services), or increase the competition from regional telecommunications
companies or others, could have a material adverse effect on the Company's
results of operations and financial condition and its ability to meet its
obligations under the Notes. For instance, if the FCC determines, through any
one of the ongoing or future proceedings, that the Internet is subject to
regulation, the Company could be required to comply with a number of FCC
entry/exit regulations, reporting, fee, and record-keeping requirements,
marketing restrictions, access charge obligations, and universal service
contribution and other obligations, which could adversely impact the Company's
ability to provide various planned services and have a material adverse effect
on the Company's results of operations, financial condition and its ability to
meet its obligations under the Notes. The Company cannot predict the impact,
if any, that regulations or regulatory changes may have on its business. A
final determination by the FCC that providing Internet transport or telephony
services to customers over an IP-based network is subject to regulation also
could impact adversely the Company's ability to provide various planned
services and could have a material adverse effect on the Company's results of
operations and financial condition and its ability to meet its obligations
under the Notes.
Federal and state laws and regulations relating to the liability of online
services companies and Internet access providers for information carried on or
disseminated through their networks are currently unsettled. Several private
lawsuits seeking to impose such liability upon online services companies and
Internet access providers are currently pending. In addition, legislation has
been enacted and new legislation has been proposed that imposes liability for
the transmission of or prohibits the transmission of certain types of
information on the Internet, including sexually explicit and gambling
information. The imposition of potential liability on the Company and other
Internet access providers for information carried on or disseminated through
their systems could require the Company to implement measures to reduce its
exposure to such liability, which may require the Company to expend
substantial resources or to discontinue certain service or product offerings.
The increased attention to liability issues as a result of these lawsuits and
legislative actions and proposals could impact the growth of Internet use.
While the Company carries professional liability insurance, it may not be
adequate to compensate claimants or may not cover the Company in the event the
Company becomes liable for information carried on or disseminated through its
networks. Any costs not covered by insurance incurred as a result of such
liability or asserted liability could have a material adverse effect on the
Company's results of operations and financial condition and its ability to
meet its obligations under the Notes.
Video Regulation
A number of recent and on-going developments in Congress, at the FCC, and at
the United States Copyright Office are likely to have an impact on the extent
to which governmental regulations burden the entertainment component of the
Company's business and on its ability to compete with other MVPDs.
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Access to Property. The Communications Act contains a provision affording
franchise cable operators access to public rights-of-way and certain private
easements. Because judicial interpretations generally limit the applicability
of this federal right of access to external easements, franchise cable
operators have not been successful in using it to gain access to internal
ducts or conduits of MDUs without consent of the landlord or management. Thus,
cable operators must rely on state or local access laws to obtain the right to
compete for MDU subscribers for which private cable systems hold exclusive
rights. These statutes, referred to as "mandatory access" provisions,
typically empower only franchise cable operators to gain access to an MDU in
order to provide service to the residents regardless of whether the MDU owner
objects or has entered into a contract with an alternative provider of video
services such as the Company. Thus, in jurisdictions where a mandatory access
provision has been enacted, a franchise operator might be able to access an
MDU and provide service in competition with the Company despite any exclusive
Rights of Entry contract that the Company might have entered into with the
owner. The ability of franchise operators to force access to an MDU may create
additional competition for a limited subscriber base and poses a potential
threat to the Company's operating margin at the property in question. A number
of jurisdictions in which the Company's targeted markets are located have
enacted mandatory access provisions, including the states of Illinois and
Pennsylvania and the District of Columbia. While the state of Virginia has not
enacted a mandatory access statute, its laws prohibit landlords from accepting
payment from a video services provider in exchange for access to an MDU. [The
inability of video service providers such as the Company to include
compensation provisions in video Rights of Entry contracts for properties
located in Virginia may limit their ability to induce property owners to enter
into these contracts.]
The Company's business depends upon its ability to obtain, capitalize and
renew Rights of Entry. The Company enters into long-term contracts with
national REITs and other MDU Managers providing telephony and video Rights of
Entry.
These rights may be affected by a proceeding in which the Commission is
considering whether it should adopt new rules that would cap or otherwise
limit the ability of MVPDs to enter into future exclusive contracts with MDU
Managers, address existing exclusive contracts, apply its rules concerning
wiring inside a customer's premises to all MVPDs, and require the sharing of
cable wiring by multiple providers. In a proceeding that remains pending at
the FCC, the agency examined the propriety of exclusive contracts entered into
between MVPDs and MDU Managers for the provision of multichannel video
services, such as cable service. In addition to numerous other proposals, the
Commission has proposed a "cap" on such contracts, limiting them to the amount
of time reasonably necessary for an MVPD to recover its specific capital costs
of providing service in that MDU. In particular, the FCC has sought comment on
the length of such a cap and whether it should establish a presumption that a
seven-year term is enforceable for all existing and future exclusivity
provisions.
In this proceeding, the FCC has sought comment on whether it can and should
take any specific actions regarding "perpetual" exclusive contracts, including
whether such contracts should be limited under any general rule on exclusive
contracts that the FCC adopts. The FCC is considering whether to allow MDU
Managers to elect to terminate (or take a "fresh look" at) existing
"perpetual" exclusive or other exclusive long-term contracts with incumbent
cable operators to give all competitive MVPDs the opportunity to compete for
MDU business that would otherwise be foreclosed to them because of an
exclusive contract. In addition, the comments filed in response to the
Commission's proposals are divided on the issue of exclusive and perpetual
contracts. For example, a number of incumbent providers have argued that the
Commission lacks statutory authority or a policy basis to apply its proposed
"fresh look" policy. A number of these parties also urge the FCC to adopt a
limit on the duration of future exclusive contracts, which in some cases is
shorter than the time period proposed by the FCC. On the other hand, several
new entrant MVPDs assert that a prospective limit on exclusive contracts
should not be adopted, while supporting a fresh look for existing contracts.
The arguments raised in the record and the alternative proposals advanced by a
number of parties may well affect the final outcome of the Commission's
determinations concerning both existing and future exclusive contracts.
If the FCC concludes that exclusive contracts should be limited, the
Company's ability to market its bundled services could be adversely affected,
which could have a material adverse effect on the Company's results of
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operations and financial conditions and its ability to meet its obligations
under the Notes. If the FCC does not grant MDU Managers the rights to take a
"fresh look" at incumbent cable operator exclusive contracts, the addressable
market for the Company's services could be sharply diminished, which could
have a material adverse effect on the Company's results of operations and
financial condition and its ability to meet its obligations under the Notes.
Inside Wiring. In late 1997, the FCC issued new rules to govern the
disposition of inside wiring by incumbent MVPDs in MDUs on termination of
service. These rules, which are intended to encourage competition by new
entrants offering franchised and private video service, impose conditions on
the sale, removal or abandonment of wiring and govern shared use of space by
competing providers. Petitions seeking administrative reconsideration of
certain aspects of these rules remain pending at the FCC, and at least one
judicial challenge to these rules has been filed in the U.S. Court of Appeals
for the Eighth Circuit. In some instances, a new provider such as the Company
faces difficulty in taking over a property because the ownership of the wiring
is uncertain or contested and the property owner is hesitant to allow
installation of additional wiring. The new rules address this issue and
facilitate competition from new providers by requiring the incumbent to choose
between sale, removal or abandonment of the wiring within certain time
constraints and allowing for shared use of space by competing providers in
certain circumstances.
Equipment Availability. As part of the Telecommunications Act of 1996, the
FCC adopted regulations to ensure the commercial availability of equipment
(such as converter boxes and interactive equipment) used to access services
offered over multichannel video programming distribution systems, from sources
that are unaffiliated with any MVPD. These regulations require that all MVPDs,
including OnePoint's systems, (1) allow customers to attach their own
equipment to their systems, (2) not prevent equipment that does not perform
security functions from being offered by retailers, manufacturers or other
unaffiliated vendors, (3) separate out security functions from non-security
functions of equipment by July 1, 2000 (not applicable to DBS or other systems
that operate throughout the U.S. if equipment is available from independent
sources), (4) not offer equipment with integrated security and non-security
functions after January 1, 2005, and (5) provide, upon request, technical
information concerning interface parameters needed to permit equipment to
operate with their systems. MVPDs are allowed to protect the security of their
systems and programming from unauthorized reception. The rules are subject to
sunset after the markets for MVPDs and equipment become fully competitive in a
particular geographic market. The FCC refused to adopt specific requirements
that equipment be made interoperable between different types of MVPDs. These
rules are subject to petitions for administrative reconsideration, which
remain pending at the FCC. Judicial challenges to these rules have been filed
and remain pending.
Program Access and Exclusivity. In accordance with the Cable Television
Consumer Protection and Competition Act of 1992, the FCC adopted regulations
intended to facilitate access to programming by competing MVPDs. The rules
generally preclude programmers that share ownership ties with franchise cable
television operators ("vertically-integrated programmers") from granting
particular MVPDs the exclusive right to carry their programming. In addition,
the rules prohibit vertically-integrated programmers that deliver their
programming by satellite from engaging in other unfair or discriminatory
practices. Both the FCC and Congress currently are considering requests to
expand restrictions on exclusive contracting and other unfair or
discriminatory practices to non-vertically-integrated programmers and to
programming that is distributed by terrestrial means as well as by satellite.
In addition, the FCC recently adopted new procedures to make it easier for
competing MVPDs to pursue complaints against programmers that violate the
rules.
Regulation of DBS Providers. Congress is considering several pieces of DBS
legislation that could facilitate the Company's ability to receive local and
network TV programming, on the one hand, and enhance the ability of DBS
providers to compete with traditional franchise cable systems or private cable
operators like the Company on the other. Although federal law currently
precludes DBS providers from distributing local TV stations or network signals
to viewers other than those living in so-called "white areas" where over-the-
air broadcast service is unavailable, Congress is considering removing those
restrictions. Pressure for Congressional action has intensified as a result of
recent federal court decisions that would require certain DBS providers to
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discontinue delivery of network signals to thousands of ineligible subscribers
outside "white areas"; however, broadcasters and the DBS providers affected by
an injunction have agreed to stay enforcement until the end of 1999. In
addition, a DBS provider is seeking reconsideration of FCC action that could
greatly expand so-called "white areas" where delivery of network signals via
DBS is permissible. Enactment of such legislation or FCC rules would
facilitate delivery of satellite network signals by Company facilities relying
on DBS as a source of programming. At the same time, removing restrictions
from DBS providers could strengthen DBS as a competitor to the Company's video
distribution business. Initial legislative steps also have been taken to
establish competitive parity between DBS providers and franchise or private
cable operators by reducing the higher license fees that DBS providers must
pay for carrying broadcast signals. Current FCC rules preempt any state or
local restrictions that "impair" a viewer's ability to receive video
programming through devices designed for over-the-air reception of television
broadcast service, MMDS or DBS. The rules also preempt laws, regulations,
private covenants and homeowners' association rules impairing reception to the
extent they apply to property within the exclusive control of the antenna user
and where the user has an ownership interest in the property. In addition, the
FCC has adopted rules prohibiting MDU Managers from imposing certain
restrictions that might impair reception by viewers who do not own the
affected property, including MDU residents. This could adversely affect the
value of the Company's present and future Rights of Entry, which could have a
material effect on the Company's results of operations and financial condition
and its ability to meet its obligations under the Notes.
Regulation of Franchise Cable Television Rates. Private cable operators are
not subject to FCC rate regulation; however, a complex regulatory scheme has
governed the rates that traditional franchise cable systems charge for basic
monthly service, expanded basic and certain customer premises equipment since
1992. Although, as a general rule, the FCC requires franchise cable systems to
charge uniform rates to all customers within a geographic area, the
regulations allow these operators to offer certain "bulk" discounts to MDU
customers, enabling franchise cable systems to be more competitive with
private cable providers. As a result of statutory language in the
Telecommunications Act, the FCC currently is considering revisions to the
uniform rate requirements, which, if adopted, may affect the level of
protection these provisions afford private operators. For example, the
statutory language currently prohibits only "predatory" bulk discounts. The
FCC is considering whether to define this term by reference to a "bright line"
standard based upon the price differential or whether to rely on federal
antitrust law. The FCC's eventual decision could make it more difficult or
burdensome to prove whether a bulk discount is predatory. The scope of rate
regulation is limited in other ways as well. The FCC rules, including its
uniform pricing requirements, do not apply when the franchise operator can
demonstrate, pursuant to procedures established by the FCC, that it is subject
to "effective competition" from providers of similar services in its franchise
area. More generally, the regulations do not prohibit discriminatory pricing
for services other than rate regulated services and associated installation
and equipment costs. In addition, the Telecommunications Act ended regulations
currently holding down the price franchise cable operators can charge for
expanded basic service on March 31, 1999.
Regulatory Status and Regulation of Private Cable Operations. Franchise
cable systems must comply with a host of FCC regulations including rate
regulation, substantial channel set-asides for mandatory carriage of local
television stations and for leasing by unaffiliated parties, provisions
governing content and presentation of advertising and of local cablecast
programming, customer service standards, technical testing and performance
standards and reporting requirements. Local franchising authorities play a
role in enforcing some of these provisions. See "--Regulation of Franchise
Cable Television Rates." In addition, local (and sometimes state) officials
issue traditional cable systems their chief operating authorization, the local
franchise, which frequently imposes requirements such as construction and
design standards, channel set-asides and production facilities for public,
educational and governmental use, and payment of annual franchise fees or
other "in kind" benefits to the community.
Pursuant to the Communications Act, wired MVPD facilities that serve
subscribers without using any public right-of-way (commonly known as "private
cable systems") are exempt from local franchise requirements and the majority
of FCC regulations applicable to franchise systems that do use public rights-
of-way. The FCC does
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not consider use of microwave relays instead of wires to cross public right-
of-way a "use of the public right-of-way" for jurisdictional purposes. Thus,
in order to avoid becoming subject to these extensive governmental
requirements, the Company must confine its wired plant to private property and
must rely on microwave transmission to cross public rights-of-way. Use of
certain frequencies commonly used in the microwave links that connect
properties is limited in the Washington, D.C. area by a recent FCC order
establishing a local zone where, in order to protect sensitive government
operations, new facilities will not be authorized. The use of these
frequencies for microwave links nationwide also could be affected generally by
other FCC rulemakings investigating the introduction of new services in the
frequency band in question on a shared basis. For example, private cable
operators and other terrestrial fixed service operations currently enjoy co-
primary status exempting their operations from satellite interference in a
spectrum that spans two thousand megahertz within the 18 GHz band. In
September, 1998, the FCC issued a proposed rulemaking considering a potential
reallocation of portions of the 18 GHz band. Under this proposal, which is
still pending, all fixed service operators, including private cable operators,
will lose their co-primary status in two key portions of the 18 GHz band and
be relegated instead to secondary status. If enacted, private cable operators
will have little use for new licenses in these two "shared" spectrums because
their transmissions would be subject to satellite interference. A
grandfathering provision should allow the Company to retain its current 18 GHz
licenses in the "shared" spectrums without exposure to satellite interference
although the Company will not be able to expand or change those existing
licenses. Additionally, the FCC will allow private cable operators to apply
for new licenses not subject to satellite interference in one of the "shared"
spectrums up until the date the FCC issues a final rule, expected in mid-1999.
If the final FCC rule results in a reallocation, it is unclear what substitute
spectrum is or may be made available for private cable operators in the
future.
In a recent decision, the FCC clarified the law and held that another avenue
exists for private operators that will allow them to avoid the requirement for
a municipal franchise. The FCC held that under certain circumstances a private
operator does not need to receive a municipal franchise to provide its video
service to MDUs where the operator provides such service in part through
subscribing to a service offered by one of the telephone companies. Under the
telephone company's service, the video signal would travel through the
telephone company's facilities over the public streets and rights of way.
These facilities would connect to the private operator's facilities on private
property. The FCC limited its holding that a franchise is unnecessary to the
facts involved in the matter before it, which included (but were not limited
to) the following: (i) there was absolute separation of ownership between the
private operator and telephone company and there was nothing more than a
carrier-user relationship between them; (ii) the private operator's facilities
were located entirely on private property; (iii) the facilities primarily used
by the telephone company to provide service to the private operator were not
constructed at the private operator's request; (iv) there was capacity to
serve several other programming providers using the telephone companies'
fiber; and (v) the private operator had committed to make its drops available
to other programming providers. Several entities have appealed the FCC's
decision, which appeal is pending before the United States Court of Appeals
for the Seventh Circuit. The FCC's ruling, if upheld, may increase operating
efficiencies by enabling the Company to link facilities much more widely
dispersed throughout an area than it could using microwave links and still
remain largely unregulated. The FCC's conditions on the decision listed above,
however, and particularly the fifth condition, may limit the usefulness of the
decision to the Company.
Although private cable systems are exempt from the majority of federal
regulations, a few FCC rules apply. Among these are rules which, depending on
the configuration of the system and the ownership of TV reception equipment,
impose the obligation to obtain retransmission consent prior to delivering
certain television stations, limitations on radiation and interference, rules
governing equal employment opportunity and closed captioning requirements.
Copyright. Private cable systems must obtain copyright clearance for
programming and other copyrighted material they distribute to subscribers. For
satellite-delivered services, such clearance typically is obtained from the
program supplier. To obtain copyright clearance for broadcast signals they
retransmit, private cable systems must rely on a statutory blanket license
which they can obtain by filing semi-annual reports and making payments
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into a federally-administered royalty pool. Recent action by the U.S.
Copyright Office affecting the method private cable operators use to calculate
these payments may increase copyright liability; however, copyright reform
efforts underway in Congress may further affect regulation of the Company in
this area by replacing the current payment formula with a flat fee that could
result in significant savings.
State Regulation
The Telecommunications Act is intended to increase competition in the
telecommunications industry, especially in the local exchange market. With
respect to local services, ILECs are required to allow interconnection to
their networks and to provide access to unbundled network facilities, as well
as a number of other procompetitive measures. Because the implementation of
the Telecommunications Act is subject to rulemaking proceedings, arbitration
proceedings and other state regulatory proceedings on these issues, it is
currently difficult to predict how quickly full competition for local
services, including local dial tone, will be realized.
All states in which the Company operates require a certification or other
authorization from the state regulatory commission to offer intrastate
telecommunications services. Many of the states in which the Company operates
are in the process of addressing issues relating to the regulation of CLECs.
Some states may require authorization to provide enhanced services.
In a few states, existing state statutes, regulations or regulatory policy
may preclude some or all forms of local service competition. The
Telecommunications Act contains provisions that prohibit states and localities
from adopting or imposing any legal requirement that may prohibit, or have the
effect of prohibiting, the ability of any entity to provide any interstate or
intrastate telecommunications service. The FCC is required to preempt any such
state or local requirements to the extent necessary to enforce the
Telecommunications Act's open market entry requirements. States and localities
may, however, continue to regulate the provision of intrastate
telecommunications services and require carriers to obtain certificates or
licenses before providing service.
In states where the Company operates, rulemaking proceedings, arbitration
proceedings and other state regulatory proceedings may affect the Company's
ability to compete with ILECs are now underway or may be instituted in the
future. These proceedings involve a variety of telecommunications issues,
including but not limited to: pricing and pricing methodologies of local
exchange and intrastate interexchange services; development and approval of
resale agreements between ILECs and CLECs and among CLECs; terms and
conditions governing the provision of telecommunications services; customer
service and unauthorized changes in customer-selected telephone service
providers; complaints regarding anticompetitive practices and transactions
between affiliated telecommunications companies; denial of entry into
telecommunications markets; discount levels for resale of local exchange and
toll services; treatment of and compensation for calls to Internet service
providers; charges for access to ILEC networks; cost sharing and
implementation of interim and permanent number portability; dialing parity;
access to and responsibility for universal service funding; and review and
recommendation to the FCC concerning RBOC authorization to offer in-region
long distance service. To the extent the Company decides in the future to
install its own transmission facilities, rulemaking proceedings, arbitration
proceedings and other state regulatory proceedings may also affect the
Company's ability to compete with ILECs. These proceedings may involve issues
including but not limited to: collocation of ILEC and CLEC facilities;
interconnection agreements between ILECs and CLECs; and access to unbundled
and combined network elements of ILECs. In addition, states in which the
Company operates may consider legislation that involves issues including but
not limited to: any of the aforementioned issues in rulemaking proceedings,
arbitration proceedings and other state regulatory proceedings; alternative
forms of regulation; and limitations on the provision of competitive
telecommunications services.
The Company is an authorized CLEC, and has obtained authority for the resale
of local exchange services, in Colorado, Delaware, Florida, Georgia, Illinois,
Maryland, North Carolina, Pennsylvania, South Carolina, Tennessee and Virginia
and the District of Columbia. The Company is also authorized to resell long
distance telephone services in these jurisdictions. The Company has applied
for CLEC status and resale authority in
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Arizona and is permitted to provide telecommunications services there while
its application is pending. In addition, the Company expects that it will
offer more intrastate services, including intrastate switched services, as its
business expands. There can be no assurances that the Company will receive the
authorizations it now seeks or may seek in the future to the extent it expands
into other states or seeks additional services from the aforementioned states.
In most states, the Company is required to file tariffs or price lists setting
forth the terms, conditions and prices for services that are classified as
intrastate. In all states, the Company must comply with state regulations and
policies regarding service quality, reporting, auditing, customer service, and
other matters.
Local Regulation
The Company's networks are subject to numerous local regulations such as
building codes and licensing. Such regulations vary on a city by city and
county by county basis. To the extent the Company decides in the future to
install its own transmission facilities, it will need to obtain rights-of-way
over private and publicly owned land. There can be no assurance that such
rights-of-way will be available to the Company on economically reasonable or
advantageous terms.
The foregoing discussion of regulatory factors does not describe all laws,
regulations, or restrictions that may apply to the Company. It also does not
review all laws or regulations under consideration by federal and state
governmental bodies that may affect the Company's operations. It is possible
that present and future laws and regulations not discussed here could have a
material adverse effect on the Company's results of operations and financial
condition and its ability to meet its obligations under the Notes.
Competition
Overview
OnePoint has a large number of competitors for each of the services that it
provides. The telephony and video services markets are highly competitive, and
management expects that competition will intensify in the future. In each of
the markets in which it offers services, OnePoint faces significant
competition from larger, better-financed ILECs, IXCs and cable companies, and
OnePoint competes directly with incumbent providers which have historically
dominated their respective local telephony, long distance telephony and cable
television markets. These incumbents have numerous advantages as a result of
their historic monopoly control of their respective markets. However, OnePoint
believes that most existing and potential competitors will, at least
initially, provide narrower service offerings due to regulatory constraints
(in the case of RBOCs) or slow or limited deployment (in the case of
facilities-based competitors such as RCN in Washington, D.C. and 21st Century
in Chicago), secure fewer MDU Rights of Entry, adopt less focused MDU
marketing and sales approaches (not benefitting from preferential access to
face-to-face sales channels) and retain less flexible pricing and product
bundling strategies. As a result, management believes that OnePoint has an
opportunity to achieve important market penetration.
SBC has announced that in connection with its planned merger with Ameritech,
the Combined Company would provide an integrated mix of local, long distance,
Internet and high-speed data services to consumers and businesses in 30
additional U.S. markets outside of its region, including certain of the
Company's other currently targeted markets: Atlanta, Baltimore, Denver,
Philadelphia, Phoenix and Washington. Upon entry into these markets, the
Combined Company would be competing with OnePoint if it elected to target
residential customers residing in MDUs other than through a cooperation
arrangements or other agreement with the Company. While the Company believes
that opportunities may exist for the Company to utilize the Combined Company's
assets in such markets on favorable terms, the Company cannot predict the
effect on OnePoint of entry of the Combined Company into such markets,
including the effect on OnePoint's ability to compete in such markets and its
ability to continue to purchase certain services and equipment on favorable
terms pursuant to SBC agreements, and there can be no assurance that such
competition from the Combined Company would not have a material adverse effect
on the Company's results of operations and financial condition and its ability
to meet its obligations under the
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Notes. See "Risk Factors--Dependence on SBC Affiliation for Favorable
Contracts"; "--Restrictions on Ability to Provide Service in SBC Region" and
"--Competition."
With respect to local telephony services, OnePoint competes with the ILECs
and alternative service providers including CLECs. Commercial mobile radio
services providers, including cellular carriers (such as Bell Atlantic Mobile
Services), personal communications services ("PCS") carriers (such as Sprint
PCS) and enhanced specialized mobile radio ("ESMR") service providers (such as
Nextel Communications Inc.), may also become a source of competitive local and
long distance telephony service. AT&T, MCI WorldCom, Sprint and other IXCs
have also announced their intention to offer local services in major U.S.
markets using their existing infrastructure in combination with resale of ILEC
service, lease of unbundled local loops or other providers' services. In
particular, AT&T has recently purchased the cable company Telecommunications,
Inc. and intends to provide local telephony, long distance, Internet and other
services to customers via cable facilities.
With respect to long distance telephony services, OnePoint faces, and
expects to continue to face, significant competition from IXCs, including
AT&T, Sprint and MCI WorldCom, which account for the majority of all long
distance revenue. The major long distance service providers benefit from
established market share and from brand names established through nationwide
advertising. The long distance business is highly competitive and prices have
declined substantially in recent years and are expected to continue to
decline. In addition, the long distance industry has historically had a high
average churn rate, and customers continue to change long distance providers
frequently, and, increasingly, to use multiple long distance providers in
response to rate offerings and promotional incentives.
In addition, under the Telecommunications Act and ensuing federal and state
regulatory initiatives, barriers to local exchange competition are being
removed. The introduction of such competition, however, also establishes the
prerequisites for the RBOCs to provide in-region interexchange long distance
services. Once the RBOCs are allowed to offer in-region long distance
services, they will also be in a position to offer single source local and
long distance service similar to that offered by OnePoint and proposed by the
three largest IXCs (AT&T, MCI WorldCom and Sprint).
All of the Company's video services face competition from alternative
methods of receiving and distributing television signals and from other
sources of news, information and entertainment such as off-air television
broadcast programming, newspapers, movie theaters, live sporting events,
interactive online computer services and home video products, including video
cassette recorders. Among the alternative video distribution technologies are
fiber distribution from companies like RCN in Washington, D.C. and 21st
Century in Chicago and home satellite dish earth stations ("HSDs") which
enable individual households to receive many of the satellite-delivered
program services formerly available only to cable subscribers. Furthermore,
the Cable Television Consumer Protection and Competition Act of 1992, as
amended (the "1992 Act") contains provisions, which the FCC has implemented
with regulations, to enhance the ability of cable competitors to purchase and
make available to HSD owners certain satellite-delivered cable programming at
competitive costs. The FCC and Congress have adopted policies providing a more
favorable operating environment for new and existing technologies that
provide, or have the potential to provide, substantial competition to the
Company's various video distribution systems. These technologies include,
among others, DBS service whereby signals are transmitted by satellite to
receiving facilities located on customer premises. The Company expects that
its video programming services will face growing competition from current and
new DBS service providers. OnePoint also competes with wireless program
distribution services such as MMDS which use low-power microwave frequencies
to transmit video programming over-the-air to subscribers. The Company is
unable to predict whether wireless video services will have a material impact
on its operations.
Internet competition is rapidly emerging and evolving. The Company's high-
speed Internet access service will compete directly with many types of ISPs,
offering both dial-up and dedicated access to the Internet at varying speeds.
Many of the technologies being deployed by competitors, such as cable modems
or xDSL, offer significantly increased speeds over traditional dial-up access.
Most larger IXC, ILEC and franchise video providers have developed high-speed
service offerings targeting the residential customer. With thousands of local
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<PAGE>
and regional ISPs emerging in recent years, significant industry consolidation
is well underway. Most of the existing providers offer a broad range of
services in addition to Internet access, including software, content and e-
mail services. Recently, major personal computer vendors and web portal sites
have become increasingly active in providing or jointly marketing these
services.
The FCC recently adopted rules that will soon allow wireless cable (i.e.,
MDS/MMDS/ITFS) licensees to offer two-way digital services, including high-
speed and high capacity data transmission services, Internet service, and
video-conferencing and various other telephony services. As a result of this
expanded authority granted to wireless cable operators, it is reasonable to
anticipate that the Company may experience greater competition from the
wireless cable sector in the areas of data transmission services, Internet
service, and various telephony services.
Other new technologies, including Internet-based services, may become
competitive with services that OnePoint can offer. Advances in communications
technology as well as changes in the marketplace and the regulatory and
legislative environment are constantly occurring. Thus, it is not possible to
predict the effect that ongoing or future developments might have on the video
services industry or on the operations of the Company.
OnePoint believes that among the existing competitors, the ILECs, IXCs,
incumbent cable providers and other CLECs provide the most direct competition
to OnePoint in the delivery of telephony and video services to residential
customers in concentrated communities.
ILECs
In each of its target markets, OnePoint faces, and expects to continue to
face, significant competition from the ILECs, which currently dominate their
local telephony markets. OnePoint competes with the ILECs in its markets for
local exchange services on the basis of product offerings (including the
ability to offer bundled local and long distance telephony and video services
today), MDU-focused marketing and sales (with preferential access to face-to-
face sales channels) and superior customer service, as well as price. OnePoint
believes that its MDU-focused approach will enable rapid gains in market
share. However, the ILECs have begun to enhance their networks and to prepare
to enter the long distance telephony service market and, in addition, have
long-standing relationships with their customers. ILECs other than RBOCs
already may provide in-region long distance telephony and information
services, and all ILECs may provide out-of-region long distance and
information telephony services.
In addition, under the Telecommunications Act, and ensuing federal and state
regulatory initiatives, barriers to local exchange competition are being
removed. The introduction of such competition, however, also establishes the
prerequisites for the RBOCs, such as Bell Atlantic, to provide in-region
interexchange long distance services. The RBOCs are currently allowed to offer
"incidental" long distance service in-region and to offer out-of-region long
distance service. Once the RBOCs are allowed to offer in-region long distance
services, they will also be in a position to offer single source local and
long distance service similar to that offered by OnePoint and proposed by the
three largest IXCs (AT&T, MCI WorldCom and Sprint). The Company expects that
the increased competition made possible by regulatory reform will result in
certain pricing and margin pressures in the telephony services business.
OnePoint has sought, and will continue to seek, to provide a full range of
local telephony services in competition with ILECs in its service areas. The
Company expects that competition for local telephony services will be based
primarily on service quality, customer service, response to customer needs,
bundled service features and price, and will not be based on any proprietary
technology. As a result of OnePoint's MDU-focused marketing and sales efforts,
and its low long distance cost position, OnePoint may have advantages over
ILECs, as well as the competitive advantage provided by the ability to deliver
a bundled telephony and video service.
The Telecommunications Act permits the ILECs and others to provide a wide
variety of video services directly to subscribers in competition with
OnePoint. Various ILECs currently are providing video services
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<PAGE>
within and outside their telephony service areas through a variety of
distribution methods, including both the deployment of broadband wired
facilities and the use of wireless transmission facilities. The Company cannot
predict the likelihood of success of video service ventures by ILECs or the
impact on the Company of such competitive ventures.
CLECs and Other Competitors
OnePoint also faces, and expects to continue to face, competition from other
potential competitors in certain of the markets in which OnePoint offers its
services. Other CLECs compete in the local telephony services market, although
they have to date focused primarily on the market for business customers. In
addition, potential competitors capable of offering private line and special
access services also include other smaller long distance carriers, cable
television companies, electric utilities, microwave carriers, wireless
telephony system operators and private networks built by large end-users.
Advances in communications technology as well as changes in the marketplace
and the regulatory and legislative environment are constantly occurring. In
addition, a continuing trend toward business combinations and alliances in the
telecommunications industry may also create significant new competitors to
OnePoint. Further, as a result of recent international treaties, FCC
regulations have been changed to facilitate entry by foreign
telecommunications companies and other entities into United States
telecommunications markets. The Company cannot predict whether competition
from such developing and future technologies or from such future competitors
will have a material impact on its operations.
Incumbent Video Service Providers
Certain of the Company's video service businesses compete with incumbent
wireline cable companies in their respective service areas. In particular,
OnePoint's wireless satellite systems (DBS and SMATV) compete for cable
subscribers with the major wireline cable operators such as Jones Intercable
Inc. and District Cablevision in the Washington, D.C. metropolitan area,
MediaOne Inc. in Atlanta, TCI in Chicago and Denver and Cox Communications
Inc. in Phoenix.
The Company also faces, and expects to continue to face, competition from
other potential competitors in certain of the markets in which the Company
offers its services. Companies such as RCN in Washington, D.C. and 21st
Century in Chicago are deploying advanced fiber optic networks to provide
bundled communication services to residents in MDUs and single-family homes.
OnePoint competes with these "fiber-led" competitors primarily by obtaining
MDU Rights of Entry, and through its preferential access to face-to-face
marketing and sales channels and low long distance telephony cost position.
See "Risk Factors--Dependence on Third Parties", "--Dependence on SBC
Affiliation for Favorable Contracts" and "--Restriction on Ability to Provide
Service in SBC Region."
Since cable television systems generally operate pursuant to franchises
granted on a non-exclusive basis, and the 1992 Act prohibits franchising
authorities from unreasonably denying requests for additional franchises and
permits franchising authorities to operate cable systems, well-financed
businesses from outside the cable industry (such as the public utilities that
own certain of the poles to which cable is attached) may become competitors
for franchises or providers of competing services.
Long Distance Carriers
The Company faces, and expects to continue to face, significant competition
from IXCs, including AT&T, Sprint, and MCI WorldCom, which accounts for the
majority of all long distance calls. Today the Company competes with IXCs
primarily for the long distance component of its service bundle. However,
AT&T, Sprint, and MCI WorldCom have each announced their intention to offer
local telephony services bundled with existing long distance services to
residences in major U.S. markets. These IXCs benefit from established market
share and brand names, as well as substantially greater resources available
for continued national advertising. They
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<PAGE>
have not to date focused on securing MDU rights of entry, nor have they
developed bundled product and pricing packages targeted at MDU residents, but
the Company believes that IXCs will ultimately enter the bundled
communications business aimed at MDUs and present formidable competition.
Internet-Related Competitors
The market for most Internet-related services is extremely competitive.
Currently there are four general types of entities providing the Internet-
related services that will compete with OnePoint: (i) traditional online
service providers, including America Online, and the Microsoft Network, that
offer a combination of Internet access, content, and web hosting services via
the public switched telephone network; (ii) cable-delivered online service
providers, such as AtHome Corporation and Internet at Roadrunner, that offer
Internet access, content, and web hosting services via a coaxial
infrastructure; (iii) ISPs, including PSINet, Inc., NETCOM OnLine
Communications Services, Inc., and numerous regional providers, that offer
Internet access services without or with only a limited amount of the content
and web hosting services offered by online service providers; and (iv)
telecommunications providers, including IXCs, local exchange carriers, and
non-carrier telecommunications companies, using wireline, wireless, and
satellite technologies, that offer both traditional telecommunications
services such as voice telephone service, as well as many of the services
offered by the other identified competitors, including Internet access.
Most of these competitors have more experience than OnePoint in offering
Internet-related services, as well as superior engineering, marketing, and
personnel resources. Many of these competitors also have greater financial
resources than OnePoint and several competitors are among the largest
corporations in the world. These competitors may be able to use these superior
resources to develop their service offerings and infrastructures more rapidly
and more efficiently than OnePoint. They may be able to react more quickly and
more appropriately to changes in technology or the marketplace. Additionally,
these competitors may be able to improve their competitive position through
mergers and acquisitions.
The number of competitors in the Internet-related services market is likely
to increase steadily. There are few barriers to entry in many Internet-related
markets, and new competitors, such as computer hardware or software
manufacturers, other telecommunications providers, and foreign entities, may
enter the market with considerable resources. Furthermore, competitors
currently devoting only a small part of their resources to Internet-related
services may expand their presence in the marketplace. Regulatory changes may
allow telecommunications providers to improve their competitive position by
permitting service bundling that will create attractive new one-stop-shopping
marketing opportunities.
Changes in the business practices or market positions of competitors or
suppliers of OnePoint also may undermine OnePoint's ability to compete
effectively. For example, commenters that participated in the FCC's and
Department of Justice's review of the merger of MCI and WorldCom expressed
concern that the merger would give the merged entity a dominant position in
the Internet backbone market. In light of this concern, the Justice Department
(after consultation with the antitrust authorities of the European Union)
conditioned approval of the WorldCom/MCI merger on the sale of MCI's Internet
business to a third party (Cable & Wireless). The effectiveness of that sale
in ameliorating competitive concerns remain unclear. If MCI WorldCom has a
dominant position in the Internet backbone market notwithstanding the sale,
this dominance could be leveraged to undermine competition in other Internet-
related markets, to the detriment of OnePoint. The Company cannot predict
whether competition from existing entities, new entrants, or changes in
business practices or market positions of existing or new competitors will
have a material impact on its operations.
Employees
As of December 31, 1998, the Company had a total of approximately 300
employees. The Company believes that its future success will depend on its
continued ability to attract and retain highly skilled and qualified
employees. None of the Company's employees is currently represented by a
collective bargaining agreement. The Company believes that it enjoys good
relationships with its employees.
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Legal Proceedings
From time to time, the Company has been and is involved in various legal
proceedings, all of which management believes are routine in nature and
incidental to the conduct of its business. The ultimate legal and financial
liability of the Company with respect to such proceedings cannot be estimated
with certainty, but the Company believes, based on its examination of such
matters, that none of such proceedings, if determined adversely to the
Company, would have a material adverse effect on the Company's results of
operations and financial condition and its ability to meet its obligations
under the Notes.
On August 6, 1998 OnePoint made a demand for arbitration of certain disputes
under the Mid-Atlantic operating agreement. The arbitration demand seeked the
resolution of several disputes between the parties, including among other
things, whether OnePoint was entitled to disclose Mid-Atlantic's financial
results in connection with the Exchange Offer. On January 15, 1999 the
Company, Mid-Atlantic and other related parties entered into the Settlement
Agreement which resolved the disputes covered by the arbitration demand.
The Settlement Agreement provides, among other things, that Mid-Atlantic
would provide the necessary financial information regarding Mid-Atlantic for
the Exchange Offer and the Company's periodic filings under the Securities
Exchange Act 1934, as amended and for the liquidation of MAC Interactive.
Also, as part of the Settlement Agreement, the parties agreed to the formation
of a new holding company, Mid-Atlantic Telcom Plus Holding, LLC, to own the
membership interests of Mid-Atlantic. In addition, the Settlement Agreement
transferred the day-to-day operations of MAC Interactive to the Company and
required its timely liquidation. There can be no assurances that further
disputes between the Company and Mid-Atlantic will not arise, or of the
effects of any such disputes on the Company's results of operations and
financial condition and its ability to meet its obligations on the Notes.
On March 30, 1999, the Company filed a demand for arbitration seeking a
declaratory ruling on the equity ownership of VIC-RMTS-DC, LLC. The Company
believes that the value of the assets contributed by Mid-Atlantic RMTS
Holdings, LLC was sufficient to give Mid-Atlantic RMTS Holdings, LLC an
approximate 5% interest based on capital contributions through December 31,
1998. The manager of Mid-Atlantic RMTS Holdings, LLC has suggested that they
are entitled to an unspecified, but higher, equity interest in VIC-RMTS-DC,
LLC and on April 5, 1999, Mid-Atlantic Holdings filed its own decree for
arbitration to resolve issues of equity ownership of VIC-RMTS-DC, LLC. The
Company will be entitled only to that portion of any distributions made by
VIC-RMTS-DC, LLC corresponding to its percentage equity ownership therein.
Facilities
The Company is headquartered in Bannockburn, Illinois and leases offices and
space in certain other locations. The table below lists the Company's current
leased facilities:
<TABLE>
<CAPTION>
Approximate
Location Lease Expiration Square Footage
-------- ------------------ --------------
<S> <C> <C>
Bannockburn, IL......................... December 31, 2002 21,600
Washington, D.C......................... April 30, 2008 8,600(1)
Largo, MD............................... February 28, 2007 18,500
Alpharetta, GA.......................... August 31, 2002 7,200
Atlanta, GA............................. December 31, 2004 20,000
Aurora, CO.............................. April 30, 2003 10,900
Chicago, IL............................. October 31, 2003 11,900
Phoenix, AZ............................. September 30, 2003 7,700
</TABLE>
- --------
(1) Does not include space used by Mid-Atlantic for which the Company is a co-
tenant with Mid-Atlantic under a single lease.
The Company believes that its leased facilities are adequate to meet its
current needs in its targeted markets and that additional facilities are
available to meet its development and expansion needs in such markets for the
foreseeable future. The Company's obligations under its leases for its
Bannockburn, Illinois and Alpharetta, Georgia offices are guaranteed by SBC.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information concerning the directors
and officers, including the executive officers, of the Company and the
Subsidiary Guarantors, as of March 31, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
James A. Otterbeck 38 Chairman and Chief Executive Officer, Director
William F. Wallace 44 President and Chief Operating Officer, Director
Jon D. Bergman 43 Executive Vice President, Operations Support
John D. Stavig 34 Chief Financial Officer, Director
Linda L. Pace 35 Director of the Company
Paul Dahlquist 50 Vice President, General Manager--Mid Atlantic
Region
Scott M. Martin 32 General Manager--Western Region
Laurel A. Dent 34 Vice President, General Manager--South East Region
Mary M. Rodino 44 Vice President, General Manager--Central Region
Michael A. Britti 39 Vice President, National Accounts
Stephen V. Minshew 47 Vice President, Information Systems
Chantal L. Moore 29 Vice President, Network Planning
Marge Rodino 37 Vice President, Human Resources
Scott M. Seawell 36 Vice President, Marketing
William J. McMoil 34 Controller and Treasurer
</TABLE>
Mr. Otterbeck has served as Chairman and Chief Executive Officer since the
Company's inception in March 1996. Mr. Otterbeck has served as President of
The VenCom Group, Inc., a venture capital company focused on investing in
communications related companies, since he founded it in 1995. From 1988 to
1995, Mr. Otterbeck worked for Gemini Consulting, most recently as Vice
President of the firm's global communications practice. Mr. Otterbeck worked
for AT&T Bell Laboratories in product design and management positions from
1984 to 1987, and worked at IBM in sales and marketing positions from 1982 to
1984. Mr. Otterbeck received his B.B.A. from the University of Iowa and his
M.B.A. from the Kellogg Graduate School of Management at Northwestern
University.
Mr. Wallace has served as the President and Chief Operating Officer since
June of 1996. From 1980 to 1996 Mr. Wallace worked at Gemini Consulting, where
he served as the Chief Operating Officer from 1994 to 1996, and where he co-
founded and built a $100 million communications business unit. Mr. Wallace
brings over 15 years of experience in telecommunications. Mr. Wallace received
his B.A. from Harvard College and his M.B.A. from the Harvard Graduate School
of Business.
Mr. Bergman has served as Executive Vice President, Operations Support since
October 1998. From 1995 to 1998 Mr. Bergman worked for American Management
Systems where he served as Senior Principal helping lead the development of
their strategic customer care and billing products and managing all strategic
vendor relationships for the $300 million telecommunications business unit.
From 1977 to 1995 Mr. Bergman held a variety of business and systems
development positions at GTE, Sprint, SAIC, and CSC. Mr. Bergman received his
B.S. from University of Maryland and his M.S. from George Washington
University.
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<PAGE>
Mr. Stavig has served as Chief Financial Officer since March 1998. Mr.
Stavig has served as VenCom's Vice President since 1995. Since 1995 he has
also served as Chief Executive Officer and Chief Financial Officer for
ComPlus, L.P., a supplier of engineering services to telecommunications firms
which is 99% owned by Ventures in Communications, LLC, which also indirectly
owns 19.9% of the Company's common stock. From 1992 to 1995, he served as
Principal in the Communications practice of Gemini Consulting. Prior to 1992,
Mr. Stavig served as a consultant with Arthur Andersen & Co. Mr. Stavig
received his B.S. from the University of Minnesota and his M.B.A. from the
Wharton School of the University of Pennsylvania.
Ms. Pace has served as a Director Since June of 1998. Since 1989 Ms. Pace
has served as an Associate and Vice President of La Salle Partners, Inc. where
she has directed the management and disposition of commercial real estate
assets. Prior to 1987, Ms. Pace served as a Banking Officer in the Real Estate
Division of InterFirst Bank Dallas, N.A. Ms. Pace received her B.S. from the
University of Notre Dame and her M.B.A from the Kellogg Graduate School of
Management at Northwestern University.
Mr. Dahlquist has served as Vice President, General Manager--Mid Atlantic
Region since January 1997. Mr. Dahlquist came to OnePoint directly from the
shared tenant services industry. He served as General Manager of ICS
Communications from 1995 to January 1997. Mr. Dahlquist served with the United
States Navy from 1972 to 1995, achieving the rank of Captain and serving in a
variety of positions including Deputy Director for Operations/OASD (S&R) for
Peacekeeping and Peace Enforcement Policy at the Pentagon, Commanding Officer
of the USS Taylor (FFG-50) and Senior Fellow-Strategic Policy Analysis Group
for the Center for Naval Analysis. Mr. Dahlquist received his B.S. from the
U.S. Naval Academy and an M.A. from the U.S. Naval Post-Graduate School.
Mr. Martin has served as General Manager--Western Region since November
1998. Mr. Martin has over 13 years experience in the telecommunications
industry. From 1995 to 1998, he served as a General Manager for AT&T,
supporting Local market entry via both Total Service Resale and Network
facilities-based platforms. From 1985 to 1995, Mr. Martin held a variety of
sales, consulting, operations, information technology and project management
positions within AT&T, both domestically and internationally. Mr. Martin
received his B.B.A. from Kennesaw State University.
Ms. Dent has served as Vice President, General Manager--South East Region
since November 1997. Ms. Dent served as a Principal with VenCom from 1995 to
1997. From 1991 to 1995, Ms. Dent worked for Gemini Consulting's
communications practice, leading sales and marketing projects for several
major international telecommunications firms. She has also worked in sales and
marketing positions for the Marriott Corporation. Ms. Dent received her B.A.
from Pomona College and her M.B.A. from the Kellogg Graduate School of
Management at Northwestern University.
Ms. Mary Rodino has served as Vice President, General Manager--Central
Region/National Accounts since July 1997. Ms. Rodino has over 15 years
experience in the telecommunications industry. From 1994 to 1997, she served
as a General Manager for AT&T, and from 1982 to 1994 Ms. Rodino held a variety
of sales, operations, quality management and consulting positions within AT&T.
Ms. Rodino received her B.S. from the University of Illinois Medical Center
and her M.B.A. from the University of Illinois.
Mr. Minshew has served as Vice President, Information Systems since March
1997. Mr. Minshew served as Manager of Strategic Systems Implementations for
GE Capital ResCom, L.P. from 1995 to 1997. From 1993 to 1994, Mr. Minshew
served as Director of Scheduling/Director of Information Services of Express
One International, Inc., and from 1991 to 1993, Mr. Minshew operated a
consulting firm which he founded, specializing in hardware and software
development, communications and network design. From 1986 to 1991, Mr. Minshew
was the Vice President of Engineering for Telecast, Inc. From 1983 to 1986,
Mr. Minshew was the President of Inertek where he developed a new missile
guidance sensor. From 1977 to 1983, Mr. Minshew was the Program Manager for
Texas Instruments Incorporated where he was responsible for new business
development, strategic planning and marketing. Mr. Minshew received his B.S.,
M.S., and M.B.A. from Southern Methodist University.
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<PAGE>
Ms. Moore has served as Vice President, Network Planning since January 1997.
Ms. Moore joined OnePoint from VenCom, where she served as an associate from
1995 to 1997. Ms. Moore served as a consultant to British Telecom plc from
1993 to 1995. Prior to entering the telecommunications industry, Ms. Moore
conducted robotics research for NASA, the U.S. Navy and the Getty Group. She
has also designed and developed various intelligent robotic systems for
industrial applications, and is published in the IEEE. Ms. Moore received her
B.S. and M.S. from the Massachusetts Institute of Technology.
Ms. Marge Rodino has served as Vice President, Human Resources since January
1998. Ms. Rodino joined OnePoint with over 13 years experience in Human
Resources. From 1995 to 1997 she served as Director, Human Resources with
WorldCom. During 1995, Ms. Rodino was a consultant with the Human Resources
practice of Deloitte & Touche, LLP. From 1990 to 1995, Ms. Rodino held a
variety of Human Resource management positions within the pharmaceutical
division of BASF Corporation. Ms. Rodino also worked for Harris Bank in Human
Resources from 1984 to 1990, most recently as an Assistant Vice President. Ms.
Rodino received her B.S. from Northern Illinois University.
Mr. Seawell has served as Vice President, Marketing since October, 1998. Mr.
Seawell has over 14 years experience in the telecommunications industry. From
1995 to 1998, he served as Director/General Manager, Marketing and Sales for
Ameritech. From 1993 to 1995, he was an associate for Booz, Allen & Hamilton's
telecommunications management consulting practice concentrating on marketing
and sales engagements. From 1984 to 1993, Mr. Seawell held a variety of
positions with AT&T including product development in Bell Laboratories,
product marketing, and operations support. Mr. Seawell received his B.S. from
the University of Wisconsin-Eau Claire, his M.S. from Arizona State
University, and his M.B.A. from the Graduate School of Business at the
University of Chicago.
Mr. McMoil has served as Controller since January 1998 and Treasurer since
December of 1998. Mr. McMoil comes to OnePoint with 12 years of experience in
the fields of finance, planning and accounting for a number of businesses. Mr.
McMoil served as Controller for IoWave, Inc., a wireless telecommunications
equipment manufacturer from May to December 1997. From 1995 to 1997, Mr.
McMoil served as Director of Finance of Martin's Herend Imports, Inc. From
1991 to 1995, Mr. McMoil served as Regional Controller and Director of Finance
for Stewart Title, where he was responsible for extensive planning, startup,
acquisition, and joint-venture activity. He has also worked as financial
director of companies in the retail, wholesale/distribution and title
insurance industries. Mr. McMoil received his B.A. from Furman University and
his M.B.A. from George Mason University.
The following table summarizes the compensation paid by the Company and its
subsidiaries in and with respect to 1997 and 1998 to the Company's Chief
Executive Officer and four other most highly compensated executive officers at
December 31, 1997 and 1998 (collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
--------------------------------- ------------
Other Annual Securities All Other
Compensation Underlying Compensation
Name and Principal Position Year Salary ($) Bonus ($) (1) Option/SARs ($) (2)
- --------------------------- ---- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James A. Otterbeck................ 1998 -- -- -- -- --
Chairman, Chief Executive Officer 1997 -- -- -- -- --
William F. Wallace................ 1998 375,000 125,000 5,492 -- 6,547
President, Chief Operating 1997 375,000 200,000 -- -- --
Officer
John D. Stavig.................... 1998 131,667 150,000 188 -- 523
Chief Financial Officer (3) 1997 -- -- -- -- --
Thomas W. DeCrosta................ 1998 185,000 -- 1,690 -- 2,757
Former Executive Vice President, 1997 150,312 70,000 -- -- --
Sales & Marketing (4)
Jon D. Bergman.................... 1998 57,704 55,000 346 -- 204
Executive Vice President, 1997 -- -- -- -- --
Operations Support (5)
</TABLE>
- --------
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<PAGE>
(1) Other Annual Compensation was not reportable.
(2) Reflects reimbursement of premiums for life insurance for William F.
Wallace, and Company contributions under a 401(k) plan for the other Named
Executive Officers.
(3) Salary reflects start date of March 15, 1998.
(4) Mr. DeCrosta resigned in January, 1999.
(5) Salary reflects start date of October 1, 1998.
In August of 1998, the Company implemented a Stock Appreciation Rights Plan,
pursuant to which employees of the Company received contractual rights to
receive a portion of the appreciation of the market value of the Company.
Pegged to a multiple of historical EBITDA or a qualifying triggering event,
these rights are subject to vesting requirements and broad discretion of the
Compensation Committee of the Board of Directors.
The following table sets forth information with respect to all options
granted in fiscal 1998 to the Named Executive Officers.
SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants Grant Date Value
----------------------- ----------------
Number of Percent of
Securities Total SARs
Underlying Granted to Exercise or Grant Date
SARs Employees in Base Price Expiration Present Value
Name Granted Fiscal Year ($/Sh) Date (1) ($)
- ---- ---------- ------------ ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
James A. Otterbeck 0 0% 67.50 1/1/08 $ 0
William F. Wallace 969 1.4% 67.50 1/1/08 $ 0
John D. Stavig 1,200 1.7% 67.50 1/1/08 $ 0
Thomas W. DeCrosta 10,000 14.1% 67.50 1/1/08 $ 0
Jon D. Bergman 1,250 1.8% 67.50 1/1/08 $ 0
</TABLE>
- --------
(1) The Company's estimation of the fair value of stock appreciation rights
granted during 1998 was estimated on the grant date using the Black-
Scholes option pricing model. The following assumptions were used for
grants made in 1998: no dividend yield, zero volatility, risk-free
interest rate of 6 percent, and an expected life of ten years.
Compensation of Directors
Directors who are employees of the Company or its subsidiaries are not
entitled to receive any fees for serving as directors. Non-employee directors
receive a fee $12,500 per year, are reimbursed for their expenses, and are
entitled to participate in the Company's Stock Appreciation Rights Plan and to
receive certain life insurance benefits.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SBC Affiliation and Related Contracts
The terms of certain contracts pursuant to which SBC purchases products and
services are available to the Company and other entities in which SBC has a
sufficient equity interest. Through such arrangements, OnePoint purchases long
distance service from an IXC and has leveraged SBC's procurement function to
purchase telecommunications equipment, in each case at prices lower than those
that would otherwise be available to it. The Company's ability to purchase
services and equipment pursuant to SBC-negotiated contracts is dependent upon
SBC's continued ownership, directly or indirectly, of an equity interest in
the Company which meets or exceeds the definition of "affiliate" in any SBC
contract and whether such contract provides SBC "affiliates" opportunities to
purchase thereunder. The definition of "affiliate" varies in such contracts.
Although SBC has an incentive to keep the definition broad, its negotiation of
vendor contracts is typically based on considerations other than the
inclusiveness of the definition of affiliate and the interests of potential
affiliates in the availability of such contracts. There can be no assurance
that future SBC contracts or amendments or renewals of existing SBC contracts
will contain provisions which have the effect of permitting the Company to
purchase services or equipment pursuant thereto. Moreover, the Company has
received no indication or assurance from SBC that it will retain its indirect
ownership interest in the Company for any period of time. The Company also
markets cellular telephony service in the Chicago and Washington, D.C.
metropolitan markets as an agent for CellularOne, which is operated by a
subsidiary of SBC in such cities. SBC currently holds, through wholly owned
subsidiaries, a 19.7% equity ownership interest in the sole stockholder of
OnePoint. See "Risk Factors--Dependence on SBC Affiliation for Favorable
Contracts" and "--Restrictions on Ability to Provide Service in SBC Region."
From time to time, at the Company's request, SBC has provided material
assistance to the Company with regard to systems evaluation and procurement,
technical due diligence, corporate development and regulatory filings and
other matters. In addition, SBC has seconded employees to the Company, in some
cases for extended periods of time, and is currently seconding an employee to
the Company. The Company reimburses SBC for such services based on SBC's costs
of providing such services. At December 31, 1997 the Company had accrued
$203,000 in accounts payable due to SBC in respect of such services.
Affiliate Loans and Guarantees
Pursuant to the Recapitalization in October 1997, the Predecessor issued the
Predecessor Note to VIC. The Predecessor Note had a principal amount of $1.5
million and matured on October 15, 2007. It provided for interest at a rate of
10% per annum. No interest in respect of the Predecessor Note was paid during
1997. Pursuant to the Recapitalization, the Predecessor Note was exchanged for
membership units of VIC2 and subsequently converted into the right to receive
common and preferred stock of the Company.
The Company's payment obligations under the Credit Facility are guaranteed
by SBC. See "Description of Certain Indebtedness." The Company's payment
obligations under two of its leases for office space are also guaranteed by
SBC. See "Business--Facilities."
The Recapitalization
Through a series of transactions from the fourth quarter of 1997 through
April 1998, VenCom, L.L.C. acquired an equity interest in the Predecessor, and
the Predecessor was recapitalized and merged with the Company in order to
become a corporation. See "The Recapitalization."
The Operating Agreement of VIC2 entered into in April 1998 in connection
with the Recapitalization (i) imposes certain restrictions on the transfer of
VIC2's membership units; (ii) grants certain participation rights in
connection with a sale of membership units by a member; (iii) grants VIC
certain preemptive rights with respect to VIC2 membership units in connection
with issuances by VIC2 of membership units or issuances by the Company of
Common Stock; (iv) grants VIC the right to require VenCom, L.L.C. to purchase
all or any portion of the VIC2 membership units held by VIC; (v) grants a
first refusal right to the members in connection with a
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transfer of VIC2 membership units and shares of the Company's Common Stock;
(vi) requires the members to take certain actions in the event of an initial
public offering by VIC2; and (vii) grants VIC the right to require VIC2 to
exercise its demand and piggyback registration rights and to require VIC2 to
distribute the proceeds of the resulting offering.
Registration Agreement
In April 1998 the Company and VIC2 entered into a Registration Agreement
pursuant to which VIC2 has the right in certain circumstances, and subject to
certain conditions, to require the Company to register the shares of the
Company's Common Stock held by it under the Securities Act.
Executive Non-Competition Agreements
Mr. Wallace has entered into non-disclosure and non-competition agreements
with the Company which provide that the executive will not: (i) during the
term of such executive's employment and for 18 months thereafter, use or
distribute confidential information about the Company, without authorization;
(ii) for six months following the termination of executive's employment with
the Company, own an interest in, be employed by or provide assistance to any
business engaged in the provision of bundled telecommunications services to
residential MDUs on a similar basis as the Company within any metropolitan
area then served by the Company or its affiliates; (iii) during the term of
such executive's employment and for twelve months thereafter, entice or induce
in any manner or influence any person who is or shall be in the employ or
service of the Company to leave such employ or service for the purpose of
engaging in any other business.
Mid-Atlantic Joint Venture Non-Competition Agreements
In connection with the Mid-Atlantic joint venture, the Company, its co-joint
venturer and certain of their affiliates entered into a series of Non-
Competition Agreements. Such agreements restrict the rights of such parties
(other than Mid-Atlantic and VIC-RMTS-DC, LLC, the telephony joint venture
company controlled by the Company) to provide cable and telephony services,
respectively, under certain circumstances in either (i) the "D.C. Metro" area,
defined to include Washington D.C., Baltimore, Maryland and certain areas of
Virginia, or (ii) the "Territory," defined to include the states of Delaware,
Maryland, New Jersey, Pennsylvania, and Virginia and Washington D.C. See "Risk
Factors--Risks Related to the Mid-Atlantic Joint Venture Non-Competition
Agreements."
Professional Services Agreement
The Company entered into a Professional Services Agreement with The VenCom
Group, Inc. in April 1998, pursuant to which The VenCom Group, Inc. provides
financial and management consulting services and manages the Company's
relationships with VIC2 and SBC. Under this agreement VenCom receives an
annual management fee of $750,000 and a fee of 2% of the amount of any capital
raising activity or acquisition activity of the Company (without duplication)
(the "Transaction Fee"), including debt and equity placements, for its
assistance in raising such capital. Fees payable under the agreement are
subject to an annual cap of $900,000, provided that if the amount paid in any
calendar year is less than $900,000, the annual cap in the next calendar year
shall be equal to the difference between $1.8 million and the amount paid in
the previous calendar year and further provided that amounts owed in excess of
the cap in any year may be paid in one or more subsequent years if and to the
extent they are within the cap in such years. The Company has no basis on
which to conclude whether the management agreement is on terms no less
favorable than terms that could have been negotiated with unaffiliated third
parties. The Company did not conduct negotiations with unaffiliated third
parties regarding management services at the time it entered into the
management agreement and believes the services provided under the agreement
are not of a type readily available from unaffiliated third parties.
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MAC Interactive
In December 1997 OnePoint invested $750,000 to acquire a 50% equity interest
(with a preferred return) in MAC Interactive. In December 1997, MAC
Interactive entered into an agreement with ODS to acquire set top boxes and
marketing rights from ODS for its pari-mutuel horse racing wagering service
for an aggregate of $750,000. It was anticipated that MAC Interactive would
provide such set top boxes and market ODS services to Mid-Atlantic
subscribers. The other investors in MAC Interactive are the investors that
also own the equity interests in Mid-Atlantic which are not owned by the
Company. VIC was a limited partner of ODS until July 1998. Pursuant to the
Settlement Agreement, the Company and the other investors have agreed to
liquidate MAC Interactive.
Programming Services
The Company has entered into an agreement for the purchase of video
programming with a programming wholesaler. The Company has in the past
purchased programming on the terms of Mid-Atlantic's contracts with such
programming wholesaler and individual programming providers, although the
Company was not a party to Mid-Atlantic's contracts.
Customer Care Facility
Portions of the customer care facility are currently operated jointly with
Mid-Atlantic. The billing and operating support system is operated pursuant to
a contract between the Company and a third party, and Mid-Atlantic reimburses
the Company for a portion of the variable expenses related to the system,
based on usage. Both the Company and Mid-Atlantic utilize the facility to
perform services for their customers, and data relating to both companies'
customers are integrated into the billing and operating support systems. In
certain circumstances, the Company relies on Mid-Atlantic's employees to
answer the Company's inbound phone calls. The Company also reimburses Mid-
Atlantic for rent, for certain payroll and other expenses with respect to
shared employees. The amounts payable to Mid-Atlantic vary each month, but the
total amount payable during 1998 was $836,000. Such amounts are offset by
amounts owed by Mid-Atlantic to the Company with respect to billing and
processing charges under the Company's contract with CSG. In addition, the
Company is a co-tenant with Mid-Atlantic with respect to both companies'
offices in Washington, D.C., and is jointly and severally liable for lease
payments with respect to space used by Mid-Atlantic.
Affiliate Receivables
At the end of 1997, the Company's receivables from The VenCom Group, Inc.
and its sole stockholder, Mr. Otterbeck related to equity capital
contributions and expense reimbursement totalled approximately $81,000. This
amount was paid during 1998.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 1, 1999 by (i) each owner
of more than 5% of the Company's Common Stock, (ii) each director and Named
Executive Officer of the Company and (iii) all directors and executive
officers of the Company as a group. Except as otherwise indicated below, each
of the persons named in the table has sole voting and investment power with
respect to the securities beneficially owned by it or him as set forth
opposite its or his name. Unless otherwise noted, the address for each
director and executive officer of the Company is c/o the Company, 2201
Waukegan Road, Suite E200, Bannockburn, Illinois 60015.
<TABLE>
<CAPTION>
Common Stock Preferred Stock
-------------------- --------------------
Name of Beneficial Owner Number(1) Percent(2) Number(1) Percent(2)
------------------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Ventures in Communications II,
LLC........................... 1,000,000 90.0% 35,000 100.0%
SBC Communications Inc. (3).... 295,020 26.6 -- --
James A. Otterbeck (4)......... 704,980 63.4 -- --
William F. Wallace............. -- -- -- --
Linda L. Pace.................. -- -- -- --
John D. Stavig................. -- -- -- --
All executive officers and
directors
as a group (4 persons)........ 704,980 63.4 -- --
</TABLE>
- --------
(1) Includes rights to acquire shares of Common Stock which are exercisable
within 60 days of March 1, 1999.
(2) Rights to acquire shares of Common Stock which are exercisable within 60
days of September 15, 1998 are considered outstanding for the purpose of
determining the percent of the class held by the holder of such rights,
but not for the purpose of computing the percentage held by others.
(3) Through certain wholly owned subsidiaries, SBC owns 99% of the common
membership units of VIC, which in turn owns 19.9% of the equity interests
of VIC2, thus resulting in SBC's indirect ownership of 19.7% of the equity
interests of the Company. VIC owns a warrant to purchase 9.9% of the
membership units of VIC2, and after giving effect to the exercise of such
warrant, SBC would indirectly own 29.5% of the membership units of VIC2.
Pursuant to the terms of the VIC and VIC2 Operating Agreements, SBC shares
voting and dispositive power with respect to the securities owned by VIC2
with VenCom, L.L.C. and The VenCom Group, Inc. (both of which are owned by
Mr. Otterbeck) until such time as the preferred return on membership units
of VIC2 held by VIC has been paid in full. SBC disclaims beneficial
ownership of the securities held by VIC2 except to the extent of its
pecuniary interest therein. The business address of SBC is 175 East
Houston, San Antonio, Texas 78205.
(4) Mr. Otterbeck is the Manager of VIC2 and is the sole member of VenCom,
L.L.C., which owns 80.1% of the common membership units of VIC2 (or 70.5%
upon exercise of VIC's warrant). The VenCom Group, Inc., of which Mr.
Otterbeck is the sole stockholder, is the Manager of VIC. Pursuant to the
terms of the VIC and VIC2 Operating Agreements, Mr. Otterbeck shares
voting and dispositive power with SBC with respect to the securities owned
by VIC2 until such time as the preferred return on membership units of
VIC2 held by VIC is paid in full, at which time he will have sole voting
and dispositive power with respect to such securities.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
In March 1998, the Company entered into a secured Credit Facility with
Northern Trust, which was amended in April 1998 in connection with the
Recapitalization. The Credit Facility permits the Company to borrow up to $9
million and matures on January 1, 2003. Amounts outstanding under the Credit
Facility on December 15, 1998 are converted into a term loan which is payable
in quarterly installments beginning January 1, 1999, with quarterly payments
of $62,500 in the first year, $125,000 in the second year, $562,000 in the
third year and $875,000 in the fourth year, with the balance payable at
maturity. No advances will be made under the Credit Facility after December
15, 1998. Payment of amounts owed under the Credit Facility has been
guaranteed by SBC.
The Credit Facility does not require Northern Trust to advance funds to the
Company if, in Northern Trust's good faith determination, there has occurred
an adverse change in the assets, condition or prospects of the Company or SBC.
In addition, the Credit Facility is revocable upon 48 hours written notice to
the Company as to further advances, notwithstanding any payment of any fees or
maintenance of any account balances.
Borrowings under the Credit Facility are secured by a first priority
security interest in certain of the Company's assets, including its accounts,
leases, contract rights, general intangibles (including intellectual property
rights), inventory, goods, equipment, vehicles, leasehold improvements,
fixtures, deposits at Northern Trust, books and records, documents of title
and the proceeds and products of the foregoing.
The interest rate on borrowings under the Credit Facility will be, at the
Company's election: (i) Northern Trust's prime rate less 3/4 of 1%; (ii) LIBOR
plus 50 basis points; or (iii) the federal funds rate (as defined) plus 50
basis points.
The Credit Facility contains customary covenants, including covenants
requiring the Company to notify Northern Trust of changes in its name or the
locations of the collateral, maintain insurance, defend the collateral from
claims of others, execute financing statements and other necessary documents,
deliver certificates or documents of title, furnish evidence of ownership of
collateral, maintain the collateral in good condition, make appropriate
entries upon the Company's financial statements, books and records disclosing
Northern Trust's interest in the collateral, and notify Northern Trust of any
material loss or depreciation in the value of the collateral. The Credit
Facility also prevents the Company from selling, transferring or otherwise
disposing of collateral without Northern Trust's consent.
The Credit Facility contains customary events of default. Upon the
occurrence of an event of default, Northern Trust may accelerate outstanding
loans and exercise its rights with respect to the collateral, as well as all
other rights and remedies available to it at law or in equity. Events of
default under the Credit Facility include (i) payment and covenant defaults,
(ii) cross defaults to any other indebtedness of the Company, VenCom, L.L.C.,
VIC2 and VIC, (iii) misrepresentations, (iv) repudiation or unenforceability
of SBC's guaranty, (v) failure to maintain existence in good standing, (vi)
dissolution, merger, consolidation or cessation of existence of the Company, a
subsidiary, VIC2, VIC, VenCom, L.L.C. or SBC (vii), bankruptcy and judgment
defaults with respect to the Company, a subsidiary, VIC2, VIC, VenCom, L.L.C.
or SBC, (viii), the existence of a security interest of another person in the
collateral, (ix) material loss or depreciation of value of the collateral or
Northern Trust's otherwise deeming itself insecure, and a (x) change of
control. A change of control is defined in the Credit Facility as the
occurrence of any person or entity not in control of the Company, VIC2, VIC,
VenCom, L.L.C., or SBC obtaining control directly or indirectly of the
Company, VIC2, VIC, VenCom, L.L.C., or SBC, whether by purchase or gift of
stock or assets, by contract or otherwise.
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THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Old Notes were originally sold by the Company on May 21, 1998 to the
Initial Purchasers as part of the Units pursuant to the Purchase Agreement.
The Initial Purchasers subsequently resold the Units, including the Old Notes,
to qualified institutional buyers in reliance on Rule 144A under the
Securities Act. As a condition of the Purchase Agreement, the Company and the
Subsidiary Guarantors entered into the Registration Rights Agreement with the
Initial Purchasers pursuant to which the Company and the Subsidiary Guarantors
agreed, for the benefit of the holders of the Old Notes, at the Company's
cost, to use their best efforts to (i) file the Exchange Offer Registration
Statement within 120 days after the date of the original issue of the Old
Notes with the Commission with respect to the Exchange Offer for the Exchange
Notes: (ii) use their best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 180 days
after the date of the original issuance of the Old Notes and (iii) use their
best efforts to consummate the Exchange Offer on or prior to 30 business days
after the date on which the Exchange Offer Registration Statement was declared
effective by the Commission. Upon the Exchange Offer Registration Statement
being declared effective, the Company will offer the Exchange Notes in
exchange for surrender of the Old Notes. The Company will keep the Exchange
Offer open for not less than 20 business days (or longer if required by
applicable law) after the date on which notice of the Exchange Offer is mailed
to the holders of the Old Notes. For each Old Note surrendered to the Company
pursuant to the Exchange Offer, the holder of such Old Note will receive an
Exchange Note having a principal amount equal to that of the surrendered Old
Note. Interest on each Old Note will accrue from the last interest payment
date on which interest was paid on the Old Note surrendered in exchange
therefor or, if no interest has been paid on such Old Note, from the date of
its original issue. Interest on each Exchange Note will accrue from the date
of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes will in general
be freely tradeable after the Exchange Offer without further registration
under the Securities Act. However, any purchaser of Old Notes who is an
"affiliate" of the Company or who intends to participate in the Exchange Offer
for the purpose of distributing the Exchange Notes (i) will not be able to
rely on the interpretation of the staff of the Commission, (ii) will not be
able to tender its Old Notes in the Exchange Offer and (iii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Old Notes, unless such sale or
transfer is made pursuant to an exemption from such requirements.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the Exchange Notes are to
be acquired by the holder or the person receiving such Exchange Notes, whether
or not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in distribution
of the Exchange Notes, (iii) the holder or any such other person has no
arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company or any of the Subsidiary Guarantors
within the meaning of Rule 405 under the Securities Act, and (v) the holder or
any such other person acknowledges that if such holder or any other person
participates in the Exchange Offer for the purpose of distributing the
Exchange Notes it must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the
Exchange Notes and cannot rely on those no-action letters. As indicated above,
each Participating Broker-Dealer that receives a New Note for its own account
in exchange for Old Notes must acknowledge that it (i) acquired the Old Notes
for its own account as a result of market-making activities or other trading
activities, (ii) has not entered into any arrangement or understanding with
the Company or any "affiliate" of the Company or any of the Subsidiary
Guarantors (within the meaning of Rule 405 under the Securities Act) to
distribute the Exchange Notes to be received in the Exchange Offer and (iii)
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. For a description of the
procedures for resales by Participant Broker-Dealers, see "Plan of
Distribution."
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Registration Rights; Liquidated Damages
Pursuant to the Registration Rights Agreement, the Company and the
Subsidiary Guarantors agreed to file with the Commission the Exchange Offer
Registration Statement on the appropriate form under the Securities Act with
respect to the Exchange Offer. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company will offer to the holders of Transfer
Restricted Securities who are able to make certain representations the
opportunity to exchange their Transfer Restricted Securities for Exchange
Notes pursuant to the Exchange Offer. If (i) the Company or the Subsidiary
Guarantors are not required to file the Exchange Offer Registration Statement
or permitted to consummate the Exchange Offer because the Exchange Offer is
not permitted by applicable law or Commission policy or (ii) any holder of
Transfer Restricted Securities notifies the Company prior to the 20th day
following consummation of the Exchange Offer that (a) it is prohibited by law
or Commission policy from participating in the Exchange Offer or (b) that it
may not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales or (c) that it is a broker-dealer and owns Notes acquired directly
from the Company, the Subsidiary Guarantors or an affiliate thereof, the
Company and the Subsidiary Guarantors will file with the Commission a Shelf
Registration Statement to cover resales of the Notes by the holders thereof
who satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. For purposes of the
foregoing, "Transfer Restricted Securities" means each Note until (i) the date
on which such Note has been exchanged by a person other than a broker-dealer
for an Exchange Note in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of a Note for an Exchange Note, the date
on which such Exchange Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on
which such Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iv) the
date on which such Note is distributed to the public pursuant to Rule 144
under the Act.
The Registration Rights Agreement provides that (i) the Company will file an
Exchange Offer Registration Statement with the Commission on or prior to 120
days after the date upon which the Notes were first issued (the "Issue Date"),
(ii) the Company and the Subsidiary Guarantors will use their best efforts to
have the Exchange Offer Registration Statement declared effective by the
Commission on or prior to 180 days after the Issue Date, (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will commence the Exchange Offer and use its best efforts to
issue, on or prior to 30 business days after the date on which the Exchange
Offer Registration Statement was declared effective by the Commission,
Exchange Notes in exchange for all Notes tendered prior thereto in the
Exchange Offer and (iv) if obligated to file the Shelf Registration Statement,
the Company will use its best efforts to file the Shelf Registration Statement
with the Commission on or prior to 30 days after such filing obligation arises
and to cause the Shelf Registration to be declared effective by the Commission
on or prior to 120 days after such obligation arises. If (a) the Company and
the Subsidiary Guarantors fail to file any of the Registration Statements
required by the Registration Rights Agreement on or before the date specified
for such filing, (b) any of such Registration Statements is not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement
is declared effective but thereafter ceases to be effective or usable in
connection with resales of transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above a "Registration Default"), then the Company will
pay Liquidated Damages to each holder of Notes, with respect to the first 90-
day period immediately following the occurrence of the first Registration
Default in an amount equal to $.05 per week per $1,000 principal amount of
Notes held by such holder. The amount of the Liquidated Damages will increase
by an additional $.05 per week per $1,000 principal amount of Notes with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages for all Registration
Defaults of $.50 per week per $1,000 principal amount of Notes. All accrued
Liquidated Damages will be paid by the Company on each Damages Payment Date to
the Global Note holder by wire transfer of immediately available funds or by
federal funds check and to holders of Certificated Securities
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by wire transfer to the accounts specified by them or by mailing checks to
their registered addresses if no such accounts have been specified. Following
the cure of all Registration Defaults, the accrual of Liquidated Damages will
cease.
Holders of Old Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Additional Interest set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which is filed as an exhibit to the Exchange Offer Registration
Statement of which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be adversely
affected.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B
designation and a different CUSIP Number from the Old Notes, (ii) the Exchange
Notes have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof and (iii) the holders of the Exchange
Notes will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Old Notes in certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
consummated. The Exchange Notes will evidence the same debt as the Old Notes
and will be entitled to the benefits of the Indentures.
As of the date of this Prospectus, $101,750,000 aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
, 1999 as the record date for the Exchange Offer for purposes of determining
the persons to whom this Prospectus and the Letter of Transmittal will be
mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware, or the Indentures in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
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If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
1999, unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the term "Expiration Date" shall mean the latest date and time
to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
Interest on the Exchange Notes
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on June 1, 1999. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each June 1 and
December 1, commencing on June 1, 1999.
Procedures for Tendering
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal or submit an Agent's
Message in connection with a book-entry transfer, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes and any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. To be tendered effectively,
the Old Notes, Letter of Transmittal or Agent's Message and other required
documents must be completed and received by the Exchange Agent at the address
set forth below under "Exchange Agent" prior to 5:00 p.m., New York City time,
on the Expiration Date. Delivery of the Old Notes may be made by book-entry
transfer in accordance with the procedures described below. Confirmation of
such book-entry transfer must be received by the Exchange Agent prior to the
Expiration Date.
The term "Agent's Message" means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer
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facility tendering the Old Notes that such participant has received and
agrees: (i) to participate in the Automated Tender Option Program ("ATOP");
(ii) to be bound by the terms of the Letter of Transmittal; and (iii) that the
Company may enforce such agreement against such participant.
By executing the Letter of Transmittal or Agent's Message, each holder will
make to the Company the representations set forth above in the third paragraph
under the heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal or Agent's Message.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL OR AGENT'S
MESSAGE AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL,
HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility unless an Agent's Message is received by the
Exchange Agent in compliance with ATOP, an appropriate Letter of Transmittal
properly completed and duly executed with any required signature guarantee and
all other required
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documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in its sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Issuer shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither the Issuer, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) (or, in the case of a book-entry
transfer, an Agent's Message) together with the certificate(s) representing
the Old Notes (or a confirmation of book-entry transfer of such Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility), and any
other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility), together with a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message) and all other documents required by the Letter of Transmittal are
received by the Exchange Agent upon five New York Stock Exchange trading
days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
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To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case
of Old Notes transferred by book-entry transfer, the name and number of the
account at the Book-Entry Transfer Facility to be credited), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such
Old Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein prior
to the Expiration Date, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied prior to the Expiration Date, the Company may (i)
refuse to accept any Old Notes and return all tendered Old Notes to the
tendering holders, (ii) extend the Exchange Offer and retain all Old Notes
tendered prior to the expiration of the Exchange Offer, subject, however, to
the rights of holders to withdraw such Old Notes (see "--Withdrawal of
Tenders") or (iii) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all properly tendered Old Notes which have not been
withdrawn.
Exchange Agent
Harris Trust and Savings Bank has been appointed as Exchange Agent for the
exchange of Exchange Notes for Old Notes pursuant to the Exchange Offer.
Questions and requests for assistance, requests for additional
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copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
HARRIS TRUST AND SAVINGS BANK, DEPOSITARY
c/o Harris Trust Company of New York
By Mail: Overnight Courier:
Wall Street Station 77 Water Street, 4th Floor
P.O. Box 1023 New York, NY 10005
New York, NY 10268-1023 Attention: Reorganization Dept.
Attention: Reorganization Dept.
By Hand: Facsimile Transmission:
Receive Window (for Eligible Institutions Only)
77 Water Street, 5th Floor (212) 701-7636 or 7637
Attention: Reorganization Dept.
Confirm by Telephone:
(212) 701-7649
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
Fees and Expenses
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Company's accounting records
on the date of exchange. Accordingly, no gain or loss for accounting purposes
will be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
Consequences of Failure to Exchange
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A,
to a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii)
outside
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the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
Resale of the Exchange Notes
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of the Company or any Subsidiary Guarantor within the
meaning of Rule 405 under the Securities Act) who receives Exchange Notes in
exchange for Old Notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes, will be allowed to resell the Exchange Notes to the public
without further registration under the Securities Act and without delivering
to the purchasers of the Exchange Notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing
or participating in a distribution of the Exchange Notes, such holder cannot
rely on the position of the staff of the Commission enunciated in such no-
action letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each Participating Broker-Dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such Participating Broker-Dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the Exchange Notes are to
be acquired by the holder or the person receiving such Exchange Notes, whether
or not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act, and (v) the holder or any such other person acknowledges
that if such holder or other person participates in the Exchange Offer for the
purpose of distributing the Exchange Notes it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on those no-
action letters. As indicated above, each Participating Broker-Dealer that
receives Exchange Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see "Plan of Distribution."
DESCRIPTION OF NOTES
General
The Notes are issued pursuant to an Indenture (the "Indenture") between the
Company and Harris Trust and Savings Bank, as trustee (the "Trustee"), in a
private transaction that is not subject to the registration requirements of
the Securities Act. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are subject to
all such terms, and holders of Notes are referred to the Indenture and the
Trust Indenture Act for a statement thereof. The form and terms of the
Exchange Notes are the same as the form and terms of the Old Notes (which they
replace) except that (i) the Exchange Notes bear a Series B designation and
have a different CUSIP number than the Old Notes, (ii) the Exchange Notes have
been registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (iii) the holders of Exchange Notes will
not be entitled to certain rights under the Registration Rights Agreement,
including the provisions providing for an
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increase in the interest rate on the Old Notes in certain circumstances
relating to the timing of the Exchange Offer, which rights will terminate when
the Exchange Offer is consummated. The following summary of the material
provisions of the Indenture, the Pledge Agreement and the Registration Rights
Agreement does not purport to be complete and is qualified in its entirety by
reference to such agreements, including the definitions therein of certain
terms used below. Copies of the proposed form of such agreements are available
as set forth below under "--Additional Information." The definitions of
certain terms used in the following summary are set forth below under "--
Certain Definitions." For purposes of this summary, the term "Company" refers
only to OnePoint Communications Corp. and not to any of its Subsidiaries.
The Notes are general obligations of the Company and will rank pari passu in
right of payment with any existing or future unsubordinated Indebtedness of
the Company and senior in right of payment to any subordinated Indebtedness of
the Company. The Company's obligations under the Notes are guaranteed, fully
and unconditionally, (the "Subsidiary Guarantees") by all of the Company's
Restricted Subsidiaries. In addition, a portion of the Company's obligations
on the Notes are secured by a first priority pledge to the Trustee for the
benefit of the holders of the Notes of the Pledged Securities, which will be
held in the Escrow Account pursuant to the Pledge Agreement. The proceeds from
the Pledged Securities will be used to pay the first seven interest payments
on the Notes. See "--Interest Reserve" and "--Subsidiary Guarantees."
The operations of the Company are conducted in large part through its
Subsidiaries and, therefore, the Company is dependent upon the cash flow of
its Subsidiaries to meet its obligations, including its obligations under the
Notes. See "Risk Factors--The Company Has No Operations and is Dependent Upon
Funds From Its Subsidiaries."
Under certain circumstances, the Company will be able to designate
Subsidiaries of the Company, including Subsidiaries that it creates or
acquires in the future, to be Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be subject to many of the restrictive covenants set
forth in the Indenture. See "--Certain Covenants--Restricted Payments."
Subsidiary Guarantees
The Company's payment obligations under the Notes are jointly and severally
guaranteed, fully and unconditionally, (the "Subsidiary Guarantees") by the
Subsidiary Guarantors. The obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee will be limited so as not to constitute a fraudulent
conveyance under applicable law. See, however, "Risk Factors--Fraudulent
Conveyance Risks."
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person) another corporation, Person or entity whether or not affiliated with
such Subsidiary Guarantor unless (i) subject to the provisions of the
following paragraph, the Person formed by or surviving any such consolidation
or merger (if other than such Subsidiary Guarantor) assumes all the
obligations of such Subsidiary Guarantor pursuant to a supplemental indenture
in form and substance reasonably satisfactory to the Trustee, under the Notes,
the Indenture, the Pledge Agreement and the Registration Rights Agreement;
(ii) immediately after giving effect to such transaction, no Default or Event
of Default exists; and (iii) except in the case of any such merger or
consolidation with the Company or another Subsidiary Guarantor, the Company
would, on a pro forma basis, immediately after giving effect to such
transaction, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt to Cash Flow Ratio test set forth in the covenant
described below under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Disqualified Stock."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Subsidiary Guarantor, by way of merger, consolidation
or otherwise, or a sale or other disposition of all of the capital stock of
any Subsidiary Guarantor, then such Subsidiary Guarantor (in the event of a
sale or other disposition, by way of such a merger, consolidation or
otherwise, of all of the capital stock of such Subsidiary Guarantor) or the
corporation acquiring the property (in the event of a sale or other
disposition of all of the assets of such Subsidiary Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided
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that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "--Repurchase
at Option of Holders--Asset Sales."
Principal, Maturity and Interest
The Notes are limited in aggregate principal amount to $101.75 million. The
Notes will mature on June 1, 2008. Interest on the Notes will accrue at the
rate of 14 1/2% per annum and will be payable semi-annually in arrears on June
1 and December 1 of each year (each, an "Interest Payment Date"), commencing
on June 1, 1999, to holders of record on the immediately preceding May 15 and
November 15. Interest on the Notes accrues from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest is computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal of and premium, interest and
Liquidated Damages, if any, on the Notes is payable at the office or agency of
the Company maintained for such purpose or, at the option of the Company,
payment of interest and Liquidated Damages may be made by check mailed to the
holders of the Notes at their respective addresses set forth in the register
of holders of Notes; provided that all payments of principal, premium,
interest and Liquidated Damages with respect to Notes the holders of which
have given wire transfer instructions to the Company will be required to be
made by wire transfer of immediately available funds to the accounts specified
by the holders thereof. Until otherwise designated by the Company, the
Company's office or agency will be the office of the Trustee maintained for
such purpose. The Notes are issued in denominations of $1,000 and integral
multiples thereof.
Interest Reserve
A portion of the Company's obligations under the Notes will be secured
pending disbursement pursuant to the Pledge Agreement by a pledge of the
Pledged Securities. Upon the consummation of the Initial Offering, the Company
used approximately $80.5 million of the net proceeds of such offering to
purchase, and pledged to the Trustee, for the benefit of the holders of the
Notes, the Pledged Securities, which are in an amount intended to be
sufficient upon receipt of scheduled interest and principal payments, to
provide for payment in full when due of the first seven scheduled interest
payments on the Notes. The Pledged Securities are pledged as security for the
payment of the principal of and interest on the Notes, Liquidated Damages, if
any, and all other Obligations of the Company under the Indenture and the
Notes. When each of the first seven interest payments is due, the Trustee will
apply the proceeds of a sufficient amount of Pledged Securities to pay the
interest then due.
Upon the acceleration of the maturity of the Notes or upon certain
redemptions and repurchases of the Notes, the Pledge Agreement provides that
the Trustee will apply the proceeds of a sufficient amount of Pledged
Securities to pay the amounts owed by the Company to holders of the Notes at
such time. Immediately following the earlier of (i) the payment in full of the
seventh scheduled interest payment on the Notes and (ii) the day on which all
of the Notes have been repurchased, redeemed or defeased, if no Default or
Event of Default is then continuing, the remaining Pledged Securities, if any,
will be released from the Pledge and the outstanding Notes (if any) will be
unsecured obligations of the Company. The ability of holders of the Notes to
realize upon any such funds or receive payment from the proceeds of the
Pledged Securities may be subject to certain bankruptcy law limitations in the
event of a bankruptcy of the Company.
Optional Redemption
The Notes will not be redeemable at the Company's option prior to June 1,
2003. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on June 1 of the years
indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003.......................... 107.250%
2004.......................... 104.833%
2005.......................... 102.417%
2006 and thereafter........... 100.000%
</TABLE>
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Notwithstanding the foregoing, on or prior to June 1, 2001, the Company may
redeem up to 35.0% or approximately $61,250,000 of the aggregate principal
amount of Notes issued under the Indenture at a redemption price of 114.5% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date, with the net cash proceeds of
one or more public or private offerings of Common Stock generating net cash
proceeds to the Company in excess of $20.0 million; provided that at least
65.0% of the aggregate principal amount of Notes issued on the Closing Date
remains outstanding immediately after the occurrence of such redemption.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each holder of Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
Notes or portions of them called for redemption.
Mandatory Redemption
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, the Indenture requires the
Company to make an offer to each holder of Notes to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to
the date of purchase (the "Change of Control Payment"). Within ten business
days following any Change of Control, the Company will mail a notice to each
holder describing the transaction or transactions that constitute the Change
of Control and offering to repurchase Notes on the date specified in such
notice, which date shall be no earlier than 30 days and no later than 60 days
from the date such notice is mailed (the "Change of Control Payment Date"),
pursuant to the procedures required by the Indenture and described in such
notice. The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
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The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
There is no assurance that, in the event of a Change of Control, the Company
will have or have access to adequate funds to repurchase the Notes.
Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 80% of the
consideration therefor received by the Company or such Restricted Subsidiary
is in the form of cash or Cash Equivalents; provided that the amount of (a)
any liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet) of the Company or such Restricted Subsidiary (other
than contingent liabilities and liabilities that are by their terms
subordinated to the Notes or any guarantee thereof) that are assumed by the
transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Restricted Subsidiary from further liability and
(b) any securities, notes or other obligations received by the Company or such
Restricted Subsidiary from such transferee that are contemporaneously (subject
to ordinary settlement periods) converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received), shall be deemed to
be cash for purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may, subject to the provisions of the Indenture described under
"--Certain Covenants--Restricted Payments," (a) apply such Net Proceeds to the
permanent repayment of any Indebtedness that is pari passu with the Notes or
(b) (i) apply such Net Proceeds to the acquisition of the assets or a majority
of the voting equity interests of another Person, the making of capital
expenditures, or the acquisition of other long-term assets, in each case, in
or used or useful in the Telecommunications Business or (ii) enter into a
binding commitment to apply, within 120 days of the date of such commitment,
such Net Proceeds as described in clause (i) above. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce
revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be
required to make an offer to all holders of Notes (an "Asset Sale Offer") to
repurchase the maximum principal amount of Notes that may be purchased out of
the Excess Proceeds, at an offer price in cash in an amount equal to 100% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the repurchase date, in accordance with the
procedures set forth in the Indenture. To the extent that any Excess Proceeds
remain after consummation of an Asset Sale Offer, the Company may use such
Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If
the aggregate principal amount of Notes tendered pursuant to such Asset Sale
Offer exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes to be purchased on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
Certain Covenants
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of
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the Company's or any of its Restricted Subsidiaries' Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company or any of its Restricted Subsidiaries) or
to the direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock)
of the Company or to the Company or a Restricted Subsidiary of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation involving
the Company) any Equity Interests of the Company or any direct or indirect
parent of the Company (other than any such Equity Interests owned by the
Company or any Restricted Subsidiary of the Company); (iii) make any payment
on or with respect to, or purchase, redeem, defease or otherwise acquire or
retire for value, any Indebtedness that is subordinated to the Notes, except a
payment of interest or principal at Stated Maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Debt to
Cash Flow Ratio test set forth in the first paragraph of the covenant
described below under caption "--Incurrence of Indebtedness and Issuance of
Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Closing Date (excluding Restricted Payments
permitted by clauses (ii), (iii) and (iv) of the next succeeding
paragraph), is less than the sum, without duplication, of (i) (A)
Cumulative Consolidated Cash Flow minus (B) the product of 1.75 and
Cumulative Interest Expense, in each case as of the date of such Restricted
Payment, plus (ii) 100% of the aggregate net cash proceeds received by the
Company since the Closing Date as a contribution to its common equity
capital or from the issue or sale of Equity Interests of the Company (other
than Disqualified Stock) or from the issue or sale of Disqualified Stock or
debt securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company), plus
(iii) to the extent that any Restricted Investment that was made after the
date of the Indenture is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment, plus (iv) in the event the
Company or any Restricted Subsidiary makes an Investment in a Person that,
as a result of or in connection with such Investment, becomes a Restricted
Subsidiary, an amount equal to the lesser of (A) the fair market value of
such Person at the time it becomes a Restricted Subsidiary as evidenced by
a resolution of the Board of Directors set forth in an officers'
certificate delivered to the Trustee or (B) the net amount of Restricted
Investments made in such Person prior to its becoming a Restricted
Subsidiary.
So long as no Default has occurred and is continuing or would be caused
thereby, the foregoing provisions will not prohibit: (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the
Company in exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (c)(ii) of the preceding paragraph; (iii) the defeasance,
redemption, repurchase or other acquisition of subordinated Indebtedness with
the net cash proceeds from an incurrence of Permitted Refinancing
Indebtedness; (iv) the payment of any dividend by a Restricted Subsidiary of
the Company to the holders of its common Equity Interests on a pro rata basis;
(v) the payment of cash in lieu of fractional shares of Common Stock pursuant
to the Warrant Agreement; and (vi) the
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repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company or any Restricted Subsidiary of the Company
held by any member of the Company's or any of its Restricted Subsidiaries'
management; provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $250,000 in
any twelve-month period.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be
valued by this covenant shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $5.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting
forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed, together with a copy of any fairness
opinion or appraisal required by the Indenture.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
"Restricted Payments" covenant.
If, at any time, any Unrestricted Subsidiary would fail to meet the
definition of an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
the Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption "--
Incurrence of Indebtedness and Issuance of Disqualified Stock," the Company
shall be in default of such covenant).
The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i)
such Indebtedness is permitted under the covenant described under the caption
"--Incurrence of Indebtedness and Issuance of Disqualified Stock," calculated
on a pro forma basis as if such designation had occurred at the beginning of
the four-quarter reference period, and (ii) no Default or Event of Default
would be in existence following such designation.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) or issue any Disqualified Stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock if the Company's Debt to Cash Flow
Ratio is greater than zero and less than or equal to (a) 5.0 to 1, if such
incurrence is on or prior to June 1, 2001, and (b) 4.5 to 1, if such
incurrence of issuance is after June 1, 2001, in each case determined on a pro
forma basis (including a pro forma application of the net proceeds therefrom)
as if the additional Indebtedness had been incurred at the beginning of
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the Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which
such additional Indebtedness is incurred. Notwithstanding the foregoing,
neither the Company nor any of its Restricted Subsidiaries may incur any
Indebtedness that is contractually subordinated in right of payment to any
other Indebtedness of the Company or such Restricted Subsidiary unless such
Indebtedness is also contractually subordinated in right of payment to the
Notes on substantially identical terms; provided, however, that no
Indebtedness of the Company or any Restricted Subsidiary shall be deemed to be
contractually subordinated in right of payment to any other Indebtedness of
the Company or such Restricted Subsidiary solely by virtue of being unsecured.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company of Indebtedness from a bank or other
financial institution in an aggregate amount at any one time outstanding
not to exceed the greater of (a) $25 million and (b) 80% of the face amount
of all accounts receivable owned by the Company as of such date that are
not more than 90 days past due;
(ii) the incurrence by the Company and its Restricted Subsidiaries of
Existing Indebtedness;
(iii) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness represented by the Notes and the Subsidiary Guarantees;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to be
incurred under the first paragraph hereof or clauses (ii), (iii), (vi) or
(vii) of this paragraph;
(v) the incurrence by the Company of Indebtedness in an aggregate
principal amount at any one time outstanding, not to exceed 2.0 times the
sum of the net cash proceeds received by the Company after the Closing Date
as a capital contribution or from the issuance and sale of Equity Interests
(other than Disqualified Stock) to a Person that is not a Subsidiary of the
Company to the extent that such net cash proceeds have not been used to
make Restricted Payments pursuant to clause (c)(ii) of the first paragraph
or clauses (ii), (iii) or (vi) of the second paragraph of the covenant
described under the caption "--Restricted Payments" or Investments
described under clause (vi) of the definition of Permitted Investments;
provided that such Indebtedness does not mature prior to the Notes and has
a Weighted Average Life to Maturity greater than that of the Notes;
(vi) the incurrence by the Company and its Restricted Subsidiaries of
Vendor Debt; provided that the aggregate amount of such Vendor Debt does
not exceed the sum of (a) 100% of the total cost of any digital loop
carriers or switches acquired therewith and (b) 80% of the total cost of
any other Telecommunications Equipment or Telecommunications Related Assets
acquired therewith;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness in connection with the acquisition of (a) a Person engaged
in a Telecommunications Business or (b) Telecommunications Related Assets,
which include contractual rights of entry, in each case in an aggregate
amount not to exceed the product of $650 and the number of acquired
telephony or video subscribers (as stated in an Officers' Certificate
delivered to the Trustee);
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness; provided, however, that (a) any
subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a
Restricted Subsidiary of the Company and (b) any sale or other transfer of
any such Indebtedness to a Person that is not either the Company or a
Restricted Subsidiary of the Company shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be, that was not permitted by this
clause (viii);
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(ix) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of this Indenture to be outstanding; and
(x) the Guarantee by the Company or any of its Restricted Subsidiaries of
Indebtedness of the Company or any of its Restricted Subsidiaries permitted
to be incurred pursuant to the Debt to Cash Flow Ratio test set forth in
the first paragraph of this covenant or pursuant to any of clauses (i)
through (v) or (vii) through (ix) of this covenant, which guarantee has the
same ranking relative to the Notes and the Guarantees as the guaranteed
Indebtedness does.
For purposes of determining compliance with this covenant, in the event that
an item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (ix) above as of
the date of incurrence thereof or is entitled to be incurred pursuant to the
first paragraph of this covenant as of the date of incurrence thereof, the
Company shall, in its sole discretion, classify such item of Indebtedness on
the date of its incurrence in any manner that complies with this covenant.
Accrual of interest and accretion or amortization of original issue discount
will not be deemed to be an incurrence of Indebtedness for purposes of this
covenant.
Liens
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien of any kind on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any Indebtedness owed to the Company
or any of its Restricted Subsidiaries, (ii) make loans or advances to the
Company or any of its Restricted Subsidiaries or (iii) transfer any of its
properties or assets to the Company or any of its Restricted Subsidiaries.
However, the foregoing restrictions do not apply to encumbrances or
restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the Closing Date, (b) the Indenture and the Notes, (c) applicable
law, (d) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property or assets of
the Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (e)
customary non-assignment provisions in contracts entered into in the ordinary
course of business, (f) purchase money obligations for property acquired in
the ordinary course of business that impose restrictions of the nature
described in clause (iii) above on the property so acquired, (g) any agreement
for the sale of a Subsidiary that restricts distributions by that Subsidiary
pending its sale, (h) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those contained
in the agreements governing the Indebtedness being refinanced, (i) secured
Indebtedness otherwise permitted to be incurred pursuant to the provisions of
the covenant described above under the caption "--Liens" that limits the right
of the debtor to dispose of the assets securing such Indebtedness, (j)
provisions with respect to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered into
in the ordinary course of business and (k) restrictions on cash or other
deposits or net worth imposed by customers under contracts entered into in the
ordinary course of business.
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Merger, Consolidation, or Sale of Assets
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries may consolidate or merge with or into (whether or not the Company
or such Restricted Subsidiary is the surviving corporation), or sell, assign,
transfer, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another Person
unless (i) the Company is the surviving corporation or such Restricted
Subsidiary is the surviving entity, as the case may be, or the Person formed
by or surviving any such consolidation or merger (if other than the Company or
such Restricted Subsidiary) or to which such sale, assignment, transfer,
conveyance or other disposition shall have been made is a corporation (in the
case of the Company) or a corporation or other entity (in the case of such
Restricted Subsidiary) organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the Person formed
by or surviving any such consolidation or merger (if other than the Company or
such Restricted Subsidiary) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Notes, the Indenture, the Pledge
Agreement and the Registration Rights Agreement, or of such Restricted
Subsidiary under its Subsidiary Guarantee, as the case may be, pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) except in the case of a merger of the Company with or into a Wholly Owned
Restricted Subsidiary of the Company, the Company or the Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, conveyance or other disposition shall
have been made (a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (b) will, immediately after such
transaction after giving pro forma effect thereto and to any related financing
transactions as if the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt to Cash Flow Ratio test set forth in the
first paragraph of the covenant described above under the caption "--
Incurrence of Indebtedness and Issuance of Disqualified Stock." The Indenture
also provides that neither the Company nor any of its Restricted Subsidiaries
may, directly or indirectly, lease all or substantially all of its properties
or assets, in one or more related transactions, to any other Person. The
provisions of this covenant are not applicable to a sale, assignment,
transfer, conveyance or other disposition of assets between or among the
Company and any of its Restricted Subsidiaries.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or such Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers
to the Trustee (a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause
(i) above and that such Affiliate Transaction has been approved by a majority
of the disinterested members of the Board of Directors and (b) with respect to
any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $10.0 million (or if no member
of the Board of Directors is an Independent Director, $1.0 million), an
opinion as to the fairness to the holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment
banking firm of national standing. Notwithstanding the foregoing, the
following items shall not be deemed to be Affiliate Transactions: (i) any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business; (ii) transactions between or
among the Company and/or its Restricted Subsidiaries; (iii) payment of
reasonable directors fees to Persons who are not otherwise Affiliates of the
Company; (iv) provisioning or other agreements with SBC Communications, Inc.
or any Affiliate thereof, and under any amendment or extension thereof so long
as such agreement,
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amendment or extension is not disadvantageous to the holders of the Notes in
any material respect; (v) payment of management and advisory fees to The
VenCom Group, Inc. or any Affiliate thereof in an amount during any calendar
year period not to exceed $900,000, provided, that if the amount paid in any
calendar year is less than $900,000, the annual cap in the next calendar year
shall be equal to the difference between $1.8 million and the amount paid in
the previous calendar year and further provided that amounts owed in excess of
the cap in any year may be paid in one or more subsequent years if and to the
extent that they are within the cap in such years; (vi) any sale or other
issuance of equity interests (other than Disqualified Stock) of the Company;
(vii) reasonable indemnity provided to officers, directors, employees,
consultants or agents of the Company and its Restricted Subsidiaries as
determined in good faith by the Company's Board of Directors and as permitted
by the Company's governing documents and applicable law; (viii) any
transactions undertaken pursuant to any contractual obligations or rights in
existence on the Closing Date, and (ix) Restricted Payments that are permitted
by the provisions of the Indenture described above under the caption "--
Restricted Payments."
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Restricted
Subsidiaries creates or acquires another Restricted Subsidiary, then the
Company shall cause such Restricted Subsidiary to execute a guarantee of the
Notes in the form set forth in the Indenture; provided that the Guarantee of
any Restricted Subsidiary will be released if the Company (i) designates such
Restricted Subsidiary to be an Unrestricted Subsidiary in accordance with the
covenant described under the caption "--Restricted Payments" or (ii) sells all
of the Capital Stock of such Restricted Subsidiary in compliance with the
provisions of the Indenture relating to Asset Sales.
Issuances and Sales of Equity Interests in Wholly Owned Restricted
Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any of its Wholly Owned Restricted Subsidiaries to, transfer, convey, sell,
lease or otherwise dispose of any Equity Interests in any Wholly Owned
Restricted Subsidiary of the Company to any Person (other than the Company or
another Wholly Owned Restricted Subsidiary, unless (a) such transfer,
conveyance, sale, lease or other disposition is of all of the Equity Interests
in such Wholly Owned Restricted Subsidiary and (b) the Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in
accordance with the covenant described above under the caption "--Repurchase
at the Option of Holders--Asset Sales," and (ii) will not permit any Wholly
Owned Restricted Subsidiary of the Company to issue any of its Equity
Interests (other than, if necessary, shares of its Capital Stock constituting
directors' qualifying shares) to any Person other than to the Company or
another Wholly Owned Restricted Subsidiary.
Business Activities
The Indenture provides that the Company and its Restricted Subsidiaries may
not, directly or indirectly, engage in any business other than the
Telecommunications Business.
Limitations on Sale and Leaseback Transactions
The Indenture provides that the Company and its Restricted Subsidiaries may
not, directly or indirectly, enter into, assume, Guarantee or otherwise become
liable with respect to any Sale and Leaseback Transactions, provided that the
Company or any Restricted Subsidiary of the Company may enter into any such
transaction if (i) the Company or such Restricted Subsidiary would be
permitted under the covenants described above under "--Incurrence of
Indebtedness and Issuance of Disqualified Stock" and "--Liens" to incur
secured Indebtedness in an amount equal to the Attributable Debt with respect
to such transaction, (ii) the consideration received by the Company or such
Restricted Subsidiary from such transaction is at least equal to the Fair
Market Value of the property being transferred and (iii) the Net Proceeds
received by the Company or such Restricted Subsidiary from such transaction
are applied in accordance with the covenant described above under the caption
"Repurchase at the Option of Holders--Asset Sales."
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Payments for Consent
The Indenture provides that neither the Company nor any of its Affiliates
shall, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any holder of any Notes for
or as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid or agreed to be paid to all holders of the Notes that consent,
waive or agree to amend in the time frame and on the terms and conditions set
forth in the solicitation documents relating to such consent, waiver or
agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will furnish to the holders of Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition
and results of operations of the Company and its consolidated Subsidiaries
(showing in reasonable detail, either on the face of the financial statements
or in the footnotes thereto and in Management's Discussion and Analysis of
Financial Condition and Results of Operations, the financial condition and
results of operations of the Company and its Restricted Subsidiaries separate
from the financial condition and results of operations of the Unrestricted
Subsidiaries of the Company) and, with respect to the annual information only,
a report thereon by the Company's certified independent accountants and (ii)
all current reports that would be required to be filed with the Commission on
Form 8-K if the Company were required to file such reports, in each case
within the time periods specified in the Commission's rules and regulations.
In addition, whether or not required by the rules or regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission (unless the Commission will not accept such a filing) and
make such information and reports available to securities analysts and
prospective investors upon request. In addition, for so long as any Notes are
outstanding, the Company will furnish to the holders and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes; (ii) default in payment when
due of the principal of or premium, if any, on the Notes; (iii) failure by the
Company or any of its Restricted Subsidiaries to comply with the provisions
described under the captions "--Repurchase at the Option of Holders--Change of
Control," "--Repurchase at the Option of Holders--Asset Sales," "--Certain
Covenants--Restricted Payments," "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Disqualified Stock" or "--Certain Covenants--
Merger, Consolidation, or Sale of Assets;" (iv) failure by the Company or any
of its Restricted Subsidiaries for 30 days after notice to comply with any of
its other agreements in the Indenture or the Notes; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries), whether such
Indebtedness or guarantee now exists or is created after the Closing Date,
which default (a) is caused by a failure to pay principal of or premium, if
any, or interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $1.5 million or more; (vi) failure
by the Company or any of its Restricted Subsidiaries to pay final judgments
(other than any judgment or portion thereof as to which an insurance carrier
rated at least A by Standard & Poor's Corporation or A2 by Moody's Investors
Service, Inc. has accepted liability in writing) aggregating in excess of $3.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; (vii) default by the
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Company in the performance of any covenant set forth in the Pledge Agreement,
or repudiation by the Company of its obligations under the Pledge Agreement,
or the unenforceability of the Pledge Agreement against the Company or any of
its Restricted Subsidiaries for any reason; (viii) default by any Restricted
Subsidiary of the Company in the performance of any obligation under its
Subsidiary Guarantee, or repudiation by any of Restricted Subsidiary of the
Company of its obligations under its Subsidiary Guarantee, or the
unenforceability of any Subsidiary Guarantee against any Restricted Subsidiary
of the Company for any reason; (ix) the failure for any reason for the Company
to retain all material licenses necessary to conduct its business; and (x)
certain events of bankruptcy or insolvency with respect to the Company or any
of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company, any Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. Subject to
certain limitations, holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
June 1, 2003 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to such date, then the premium
specified in the Indenture shall also become immediately due and payable to
the extent permitted by law upon the acceleration of the Notes.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder of Notes by accepting a
Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations under the Notes and all obligations of its Restricted Subsidiaries
under the Subsidiary Guarantees discharged ("Legal Defeasance") except for (i)
the rights of holders of outstanding Notes to receive payments in respect of
the principal of and
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premium, interest and Liquidated Damages, if any, on such Notes when such
payments are due from the trust referred to below, (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith, and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "--Events of Default and Remedies" will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of and premium, interest and Liquidated
Damages, if any, on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (a) the Company has received from,
or there has been published by, the Internal Revenue Service a ruling or (b)
since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of
funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the
Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (vii) the Company must deliver to
the Trustee an Officers' Certificate stating that the deposit was not made by
the Company with the intent of preferring the holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
Transfer and Exchange
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
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The registered holder of a Note will be treated as the owner of it for all
purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture, the
Notes or the Subsidiary Guarantees may be amended or supplemented with the
consent of the holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes),
and any existing default or compliance with any provision of the Indenture,
the Notes or the Subsidiary Guarantees may be waived with the consent of the
holders of a majority in principal amount of the then outstanding Notes
(including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder): (i) reduce the
principal amount of Notes whose holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders"); (iii) reduce the
rate of or change the time for payment of interest on any Note; (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Notes (except a rescission of acceleration of the Notes by
the holders of at least a majority in aggregate principal amount of the Notes
and a waiver of the payment default that resulted from such acceleration); (v)
make any Note payable in money other than that stated in the Notes; (vi) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of holders of Notes to receive payments of principal of
or premium, if any, interest or Liquidated Damages, if any, on the Notes;
(vii) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the caption "--
Repurchase at the Option of Holders"); (viii) amend the Pledge Agreement in a
manner that adversely affects the holders of the Notes; or (ix) make any
change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture, the Notes
or the Subsidiary Guarantees to cure any ambiguity, defect or inconsistency,
to provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to holders
of Notes in the case of a merger or consolidation or sale of all or
substantially all of the Company's assets, to make any change that would
provide any additional rights or benefits to the holders of Notes or that does
not adversely affect the legal rights under the Indenture of any such holder,
to provide for additional Subsidiary Guarantors, or to comply with
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
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Book-Entry, Delivery and Form
The Exchange Notes will be represented in registered, global form by one or
more Global Notes (the "Global Notes") . The Global Notes will be deposited
upon issuance with the Trustee as custodian for The Depository Trust Company
("DTC"), in New York, New York, and registered in the name of DTC or its
nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
Notes in certificated form except in the limited circumstances described
below. See "--Exchange of Book-Entry Securities for Certificated Securities."
Except in the limited circumstances described below, owners of beneficial
interests in the Global Notes will not be entitled to receive physical
delivery of Certificated Securities (as defined below). Transfers of
beneficial interests in the Global Notes will be subject to the applicable
rules and procedures of DTC and its direct or indirect participants, which may
change from time to time.
Initially, the Trustee will act as Paying Agent and Registrar with respect
to the Notes. The Notes may be presented for registration of transfer and
exchange at the offices of the Registrar.
Depository Procedures
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures
are solely within the control of DTC and are subject to changes by it from
time to time. The Company takes no responsibility for these operations and
procedures and urges investors to contact DTC or its participants directly to
discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established by
it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes and (ii) ownership of such interests in
the Global Notes will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interest in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations which are Participants in such system. All interests in a Global
Note may be subject to the procedures and requirements of DTC. The laws of
some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer
beneficial interests in a Global Note to such persons will be limited to that
extent. Because DTC can act only on behalf of Participants, which in turn act
on behalf of Indirect Participants and certain banks, the ability of a person
having beneficial interests in a Global Note to pledge such interests to
persons or entities that do not
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participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing
such interests.
Except as described below, owners of interest in the Global Notes will not
have Notes registered in their names, will not receive physical delivery of
the Notes in certificated form and will not be considered the registered
owners or "holders" thereof under the Indenture for any purpose.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on a Global Note registered in the name of DTC
or its nominee will be payable to DTC in its capacity as the registered holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Global Notes, are registered
as the owners thereof for the purpose of receiving such payments and for any
and all other purposes whatsoever. Consequently, neither the Company, the
Trustee, nor any agent of the Company, or the Trustee has or will have any
responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made
on account of beneficial ownership interest in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the Global Notes or (ii) any other matter relating to
the actions and practices of DTC or any of its Participants or Indirect
Participants. DTC has advised the Company that its current practice, upon
receipt of any payment in respect of securities, is to credit the accounts of
the relevant Participants with the payment on the payment date, in amounts
proportionate to their respective holdings in the principal amount of
beneficial interest in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the Trustee,
or the Company. Neither the Company nor the Trustee will be liable for any
delay by DTC or any of its Participants in identifying the beneficial owners
of the Notes, and the Company and the Trustee, as the case may be, may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee for all purposes.
Interests in the Global Notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in
all cases to the rules and procedures of DTC and its Participants. See "--Same
Day Settlement and Payment."
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Securities only at the direction of one or more
Participants to whose account DTC has credited the interests in the Global
Notes and only in respect of such portion of the amount of the Notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Notes, DTC reserves the
right to exchange the Global Notes for legended Notes in certificated form,
and to distribute such Notes to its Participants.
Exchange of Book-Entry Notes for Certificated Notes
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Notes") if (i) DTC (x) notifies the Company
that it is unwilling or unable to continue as depositary for the Global Notes
and the Company thereupon fails to appoint a successor depositary or (y) has
ceased to be a clearing agency registered under the Exchange Act, (ii) the
Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of the Certificated Notes or (iii) there shall have
occurred and be continuing a Default or Event of Default with respect to the
Securities. In addition, beneficial interests in Global Notes may be exchanged
for Certificated Notes upon request but only upon prior written notice given
to the Trustee or the Warrant Agent, as the case may be, by or on behalf of
DTC in accordance with the Indenture Notes. In all cases, Certificated
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Notes delivered in exchange for any Global Notes or beneficial interests
therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with
its customary procedures).
Exchange of Certificated Notes for Book-Entry Notes
Notes issued in certificated form may not be exchanged for beneficial
interests in any Global Notes unless the transferor first delivers to the
Trustee, as the case may be, a written certificate (in the form provided in
the Indenture to the effect that such transfer will comply with any transfer
restrictions applicable to such Notes.
Same Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note holder. With respect to
Notes in certificated form, the Company will make all payments of principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the holders thereof
or, if no such account is specified, by mailing a check to each such holder's
registered address. The securities represented by the Global Notes are
expected to be eligible to trade in the PORTAL market and to trade in the
Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such Securities will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in any certificated Notes will also be settled in
immediately available funds.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Restricted Subsidiary of such specified Person, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person, in each case to the extent not repaid within five days after
the date of the acquisition.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Equity
Interests of a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of services in the ordinary course of business
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole will be governed by the provisions of the Indenture described
above under the caption "--Repurchase at the Option of Holders--Change of
Control" and/or the provisions described above under the caption "--Certain
Covenants--Merger, Consolidation or Sale of Assets" and not by the provisions
of the Asset Sale covenant), and (ii) the issue or sale by the Company or any
of its
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Restricted Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing, the following shall not be deemed to
be Asset Sales: (i) a transfer of assets by the Company to a Restricted
Subsidiary or by a Restricted Subsidiary to the Company or to another
Restricted Subsidiary; (ii) an issuance of Equity Interests by a Restricted
Subsidiary to the Company or to a Wholly Owned Restricted Subsidiary; (iii) a
Restricted Payment that is permitted by the covenant described above under the
caption "--Certain Covenants--Restricted Payments;" (iv) disposals or
replacements of obsolete, uneconomical, negligible, worn-out or surplus
property in the ordinary course of business; (v) the creation of a Lien not
prohibited by the covenant described above under the caption "--Certain
Covenants-- Liens" and (vi) the conversion of Cash Equivalents into cash.
"Attributable Debt" means, with respect to any Sale and Leaseback
Transaction, the present value of the time of determination (discounted at a
rate consistent with accounting guidelines, as determined in good faith by the
Company) of the payments during the remaining term of the lease (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended) or until the earliest date on which the lessee may
terminate such lease without penalty or upon payment of a penalty (in which
case the rental payments shall include such penalty), after excluding all
amounts required to be paid on account of maintenance and repairs, insurance,
taxes, assessments, water, utilities and similar charges.
"Beneficial Owner" means a beneficial owner as defined in Rules 13d-3 and
13d-5 under the Exchange Act (or any successor rules), including the provision
of such Rules that a Person shall be deemed to have beneficial ownership of
all securities that such Person has a right to acquire within 60 days;
provided that a Person will not be deemed a beneficial owner of, or to own
beneficially, any securities if such beneficial ownership (1) arises solely as
a result of a revocable proxy delivered in response to a proxy or consent
solicitation made pursuant to, and in accordance with, the Exchange Act and
(2) is not also then reportable on Schedule 13D or Schedule 13G (or any
successor schedule) under the Exchange Act.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less
from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any
domestic commercial bank having capital and surplus in excess of $500 million
and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Corporation and in each case maturing
within six months after the date of acquisition and (vi) money market funds at
least 95% of the assets of which constitute Cash Equivalents of the kinds
described in clauses (i)-(v) of this definition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the assets of the Company
and its Restricted Subsidiaries, taken as a whole, to any Person or group (as
such term is used in
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Section 13(d)(3) and 14(d)(2) of the Exchange Act) other than a Permitted
Holder, (ii) the adoption of a plan relating to the liquidation or dissolution
of the Company, (iii) any Person or group (as defined above) other than the
Permitted Holders is or becomes the Beneficial Owner, directly or indirectly,
of more than 50% of the total Voting Stock of the Company (measured by voting
power rather than number of shares), including by way of merger, consolidation
or otherwise, (iv) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors, (v) the first
day on which SBC Communications, Inc. fails to hold, whether directly or
indirectly, 9.9% or more of the total Voting Stock (measured by voting power
rather than the number of shares) of the Company or (vi) the first day on
which the Company's existing long distance telephony contract (or any
replacement thereof) terminates and is not replaced by a contract having no
less favorable economic terms than the Company's long distance telephony
contract in existence as of the Closing Date, and a term (assuming exercise of
any renewal options) ending after the final maturity date of the Notes.
"Closing Date" shall mean the first date on which Notes are issued by the
Company.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing
Consolidated Net Income) plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such
Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that
was paid in a prior period) of such Person and its Restricted Subsidiaries for
such period to the extent that such depreciation, amortization and other non-
cash expenses were deducted in computing such Consolidated Net Income, minus
(v) non-cash items increasing such Consolidated Net Income for such period, in
each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or
profits of, and the depreciation and amortization and other non-cash expenses
of, a Restricted Subsidiary of the Company shall be added to Consolidated Net
Income to compute Consolidated Cash Flow of the Company only to the extent
that a corresponding amount would be permitted at the date of determination to
be dividended to the Company by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Indebtedness" means, with respect to any Person as of any date
of determination, the sum, without duplication, of (i) the total amount of
Indebtedness of such Person and its Restricted Subsidiaries, plus (ii) the
total amount of Indebtedness of any other Person, to the extent that such
Indebtedness has been Guaranteed by the referent Person or one or more of its
Restricted Subsidiaries, plus (iii) the aggregate liquidation value of all
preferred stock of Restricted Subsidiaries of such Person, in each case,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any Person, for any period, the
aggregate of the following for such Person and its Restricted Subsidiaries for
such period determined on a consolidated basis in accordance with GAAP: (a)
the amount of interest in respect of Indebtedness (including amortization of
original issue discount, amortization of debt issuance costs, and non-cash
interest payments on any Indebtedness and the
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interest portion of any deferred payment obligation), (b) the interest
component of rentals in respect of any Capital Lease Obligation paid, in each
case whether accrued or scheduled to be paid or accrued by such Person during
such period to the extent such amounts were deducted in computing Consolidated
Net Income, determined on a consolidated basis in accordance with GAAP and (c)
the product of (i) all dividend payments, whether or not in cash, on any
series of preferred stock or Disqualified Stock of such Person or any of its
Subsidiaries, other than dividend payments on Equity Interests payable solely
in Equity Interests of the Company (other than Disqualified Stock) or to the
Company or a Subsidiary of the Company, times (ii) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, in each case, on a consolidated basis and in accordance with
GAAP. For purposes of this definition, interest on a Capital Lease Obligation
shall be deemed to accrue at an interest rate reasonably determined by such
Person to be the rate of interest implicit in such Capital Lease Obligation in
accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to such Restricted Subsidiary or
its equity holders, (iii) the Net Income of any Person acquired in a pooling
of interests transaction for any period prior to the date of such acquisition
shall be excluded and (iv) the cumulative effect of a change in accounting
principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (a) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the Closing Date
in the book value of any asset owned by such Person or a consolidated
Restricted Subsidiary of such Person, (b) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Restricted
Subsidiaries and (c) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in
accordance with GAAP.
"Continuing Director" means as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Cumulative Consolidated Cash Flow" means the cumulative Consolidated Cash
Flow of the Company from and after the first day of the first fiscal quarter
beginning after the date of the Indenture to the end of the fiscal quarter
immediately preceding the date of a proposed Restricted Payment, or, if such
cumulative Consolidated Cash Flow for such period is negative, minus the
amount by which such cumulative Consolidated Cash Flow is less than zero.
"Cumulative Interest Expense" means the aggregate amount of Consolidated
Interest Expense of the Company paid or accrued by the Company from and after
the first day of the first fiscal quarter beginning after
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the Closing Date to the end of the fiscal quarter immediately preceding a
proposed Restricted Payment, determined on a consolidated basis in accordance
with GAAP.
"Debt to Cash Flow Ratio" means, as of any date of determination (the
"Calculation Date"), the ratio of (a) the Consolidated Indebtedness of the
Company as of such date to (b) the Consolidated Cash Flow of the Company for
the four most recent full fiscal quarters ending immediately prior to such
date for which internal financial statements are available, determined on a
pro forma basis after giving effect to all acquisitions or dispositions of
assets made by the Company and its Restricted Subsidiaries from the beginning
of such four-quarter period through and including such date of determination
(including any related financing transactions) as if such acquisitions and
dispositions had occurred at the beginning of such four-quarter period. In
addition, for purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall be
calculated without giving effect to clause (iii) of the proviso set forth in
the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Calculation Date,
shall be excluded.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Escrow Account" means an account established with the Collateral Agent
pursuant to the terms of the Pledge Agreement for the deposit of the Pledged
Securities purchased by the Company with a portion of the proceeds from the
sale of the Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or any
successor act), and the rules and regulations thereunder.
"Existing Indebtedness" Indebtedness of the Company and its Restricted
Subsidiaries in existence on the Closing Date, until such amounts are repaid.
"Fair Market Value" means with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Closing Date.
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"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other
Person. The amount of any Indebtedness outstanding as of any date shall be (i)
the accreted value thereof, in the case of any Indebtedness issued with
original issue discount and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or
loss, together with any related provision for taxes on such gain or loss,
realized in connection with (a) any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries and (ii) any extraordinary gain or loss,
together with any related provision for taxes on such extraordinary gain or
loss.
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"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness secured by a Lien on the asset or assets that
were the subject of such Asset Sale, and any reserve for adjustment in respect
of the sale price of such asset or assets established in accordance with GAAP;
provided, however, that the reversal of any such reserve shall be deemed a
receipt of Net Proceeds by the Company in the amount and on the date of such
reversal.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise) or (c) constitutes the lender; (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or
assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed by (i) the Chairman of
the Board, a Vice Chairman of the Board, the President, the Chief Executive
Officer or a Vice President, and (ii) the Chief Financial Officer, the Chief
Accounting Officer, the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary of the Company and delivered to the Trustee, which shall
comply with the Indenture.
"Permitted Holder" means (i) SBC Communications, Inc., (ii) James Otterbeck,
or (iii) Ventures in Communications II, LLC; whether acting in their own name
or as a majority of persons having the power to exercise the voting rights
attached to, or having investment power over, equity interests held by others,
any trust principally for the benefit of one or more members of such persons
and any charitable foundation the majority of whose members, trustees or
directors, as the case may be, are any of such persons.
"Permitted Investments" means (i) any Investment in the Company or in any
Restricted Subsidiary of the Company; (ii) any Investment in Cash Equivalents;
(iii) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person if, as a result of such Investment, (a) such Person
becomes a Restricted Subsidiary of the Company or (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company, (iv) any Investment made as a result of
the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales;" (v) any
acquisition of assets to the extent acquired in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company and (vi) any
Investment by the Company in one or more Permitted Telecommunications Joint
Ventures, provided, however, that the aggregate fair market value (measured on
the date such Investment was made and without giving effect to any subsequent
changes in value) of outstanding Investments made pursuant to this clause (vi)
shall not at any time exceed $10.0 million.
"Permitted Liens" means (i) Liens in favor of the Company, Restricted
Subsidiaries or holders of the Notes; (ii) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the
Company or any Restricted Subsidiary of the Company; provided that such Liens
were in existence prior to the contemplation of such merger or consolidation
and do not extend to any assets other than those of the Person
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merged into or consolidated with the Company; (iii) Liens on property existing
at the time of acquisition thereof by the Company or any Restricted Subsidiary
of the Company, provided that such Liens were in existence prior to the
contemplation of such acquisition; (iv) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (v)
Liens existing on the Closing Date; (vi) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor;
(vii) Liens on accounts receivable owned by the Company and securing
Indebtedness permitted by the Indenture; (viii) Liens securing Vendor Debt
permitted by the Indenture on the acquired property together with proceeds,
product, accessions, substitutions and replacements thereof; (ix) Liens
incurred in the ordinary course of business of the Company or any Restricted
Subsidiary of the Company with respect to obligations that do not exceed $2.0
million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Restricted Subsidiary; and (x) Liens to secure any refinancings, renewals,
extensions, modifications or replacements (collectively, "refinancings") or
successive refinancings, in whole or in part, of any Indebtedness secured by
Liens referred to in clauses (ii), (iii) and (v) above, so long as such Lien
does not extend to any other property (other than improvements thereto) and is
otherwise no more burdensome than the Lien it replaces.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or such Restricted Subsidiary (other
than intercompany Indebtedness); provided that: (i) the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Permitted Telecommunications Joint Venture" means a corporation,
partnership, limited liability company or other entity engaged in one or more
Telecommunications Businesses in which the Company owns, directly or
indirectly, an equity interest.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, business
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Pledge Agreement" means the Pledge Agreement dated as of the date of the
Indenture between the Company and the Trustee, as amended from time to time.
"Pledged Securities" means the securities purchased by the Company with a
portion of the proceeds from the sale of the Notes, which shall consist of
Government Securities, to be pledged to the Trustee for the benefit of holders
of the Notes and deposited in the Escrow Account.
"Restricted Investment" means an Investment other than a Permitted
Investment.
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"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which any property (other than
Capital Stock) is sold by such Person or a Subsidiary, or, in the case of the
Company, a Restricted Subsidiary of such Person and is thereafter leased back
from the purchaser or transferee thereof by such Person or one of its
Subsidiaries or, in the case of the Company, one of its Restricted
Subsidiaries.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the
Closing Date.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Subsidiary Guarantors" means (i) each existing Subsidiary of the Company
and (ii) any other Subsidiary of the Company that executes a Subsidiary
Guarantee in accordance with the provisions of the Indenture, and their
respective successors and assigns.
"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data
through owned or leased transmission facilities (ii) reselling voice, video or
data services and (iii) creating, developing or marketing communications
related network equipment, software and other devices for use in a
Telecommunications Business.
"Telecommunications Equipment" means video reception, processing,
modulating, transmission and distribution equipment and telecommunication
switching, distribution and transmission equipment and inventory, including,
without limitation, all remote switching nodes, digital loop carriers,
switches, line cards and other equipment, software or hardware necessary to
install, monitor, operate and maintain a video and/or telecommunications
network.
"Telecommunications Related Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, real or personal,
used or to be used, in connection with a Telecommunications Business.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary: (i) has no
Indebtedness other than Non-Recourse Debt; (ii) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (iii) is a Person with respect
to which neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation (a) to subscribe for additional Equity Interests
or (b) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results; (iv) has not
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guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (v) has
at least one director on its board of directors (or one individual in an
equivalent position if the entity is not a corporation) that is not a director
or executive officer of the Company or any of its Restricted Subsidiaries and
has at least one executive officer that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries.
"Vendor Debt" means any Indebtedness of the Company or its Restricted
Subsidiaries incurred in connection with the acquisition or construction
within 90 days of the incurrence of such Indebtedness of Telecommunications
Equipment or Telecommunications Related Assets.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or Persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
DESCRIPTION OF WARRANTS
On May 21, 1998, the Company issued the Warrants as part of the Units
pursuant to the Warrant Agreement between the Company and Harris Trust and
Savings Bank, as warrant agent (the "Warrant Agent") in a private transaction
that is not subject to the registration requirements of the Securities Act.
The following summary of certain provisions of the Warrant Agreement and the
Warrant Registration Rights Agreement does not purport to be complete and is
qualified in its entirety by reference to the Warrant Agreement, the Warrants
and the Warrant Registration Rights Agreement, including the definitions
therein of certain terms. A copy of the Warrant Agreement is filed as an
exhibit to the Exchange Offer Registration Statement of which this Prospectus
forms a part.
General
Each Warrant, when exercised, entitles the holder thereof to purchase 0.635
shares of Common Stock of the Company at an exercise price of $0.01 per share
(the "Exercise Price"). The Exercise Price and the number of Warrant Shares
issuable on exercise of a Warrant are both subject to adjustment in certain
cases referred to below. The Warrants became exercisable on November 6, 1998.
Unless exercised, the Warrants will automatically expire on June 1, 2008 (the
"Expiration Date"). The Warrants entitle the holders thereof to purchase in
the aggregate approximately 10.0% of the outstanding Common Stock of the
Company on a fully diluted basis as of the date of issuance of the Warrants
after giving effect to the (i) consummation of the Offering and (ii) exercise
as of the date of original issuance of the Warrants of all outstanding options
and rights issued by the Company. The Company will give notice of expiration
not less than 90 nor more than 120 days prior to the Expiration Date to the
registered holders of the then outstanding Warrants. If the Company fails to
give this notice, the Warrants will not expire until 90 days after the Company
gives such notice. In no event will holders be entitled to any damages or
other remedy for the Company's failure to give such notice other than any such
extension.
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The Warrants may be exercised by surrendering to the Company the Warrant
certificates evidencing such Warrants, if any, with the accompanying form of
election to purchase, properly completed and executed together with payment of
the Exercise Price. Payment of the Exercise Price may be made in the form of
cash or a certified or official bank check, payable to the order of the
Company, or by surrender of additional Warrants. Upon surrender of the Warrant
certificate and payment of the Exercise Price, the Warrant Agent will deliver
or cause to be delivered, to or upon the written order of such holder, stock
certificates representing the number of whole Warrant Shares or other
securities or property to which such holder is entitled under the Warrants and
Warrant Agreement, including without limitation any cash payment to adjust for
fractional interests in Warrant Shares issuable upon such exercise. If less
than all of the Warrants evidenced by a Warrant certificate are exercised, a
new Warrant certificate will be issued for the remaining number of Warrants.
No fractional Warrant Share will be issued upon exercise of the Warrants. If
any fraction of a Warrant Share would, except for the foregoing provision, be
issuable on the exercise of any Warrants (or specified portion thereof), the
Company must pay to the holder an amount in cash equal to the current market
price per Warrant Share, as determined on the day immediately preceding the
date the Warrant is presented for exercise, multiplied by such fraction,
computed to the nearest whole cent.
Certificates for Warrants will be issued in registered form only, and no
service charge will be made of registration or transfer or exchange upon
surrender of any Warrant certificate at the office of the Warrant Agent
maintained for that purpose. The Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration or transfer or exchange of Warrant
certificates.
The holders of the Warrants have no right to vote on matters submitted to
the stockholders of the Company and have no right to receive dividends, except
as provided below. The holders of the Warrants are not entitled to share in
the assets of the Company in the event of the liquidation, dissolution or
winding up of the Company's affairs.
Adjustments
Both the number of Warrant Shares purchasable upon the exercise of the
Warrants and the Exercise Price will be subject to adjustment in certain
events including (i) the payment by the Company of dividends (or other
distributions) on Common Stock of the Company payable in Common Stock of the
Company or other shares of the Company's capital stock, (ii) subdivisions,
combinations and reclassifications of Common Stock of the Company, (iii) the
issuance to all holders of Common Stock of the Company of rights, options or
warrants entitling them to subscribe for Common Stock of the Company, or for
securities convertible into or exchangeable for shares of Common Stock of the
Company, in either case for a consideration per share of Common Stock which is
less than the current market price per share (as defined in the Warrant
Agreement) of Common Stock of the Company, and (iv) the distribution to all
holders of Common Stock of the Company of any of the Company's assets, debt
securities or any rights or warrants to purchase securities (excluding those
rights and warrants referred to in clause (iii) above and excluding cash
dividends or other cash distributions from current or retained earnings).
No adjustment in the Exercise Price will be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the
Exercise Price; provided, however, that any adjustment which is not made will
be carried forward and taken into account in any subsequent adjustment.
In case of certain consolidations or mergers of the Company, or the sale of
all or substantially all of the assets of the Company to another corporation,
each Warrant shall thereafter be exercisable for the right to receive the kind
and amount of shares of stock or other securities or property to which such
holder would have been entitled as a result of such consolidation, merger or
sale had the Warrant been exercised immediately prior thereto.
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Reservation of Shares
The Company has authorized and reserved for issuance such number of shares
of Common Stock as will be issuable upon the exercise of all outstanding
Warrants. Such shares of Common Stock, when paid for and issued, will be duly
and validly issued, fully paid and non-assessable, free of preemptive rights
and free from all taxes, liens, charges and security interests with respect to
the issue thereof.
Amendment
From time to time, the Company and the Warrant Agent, without consent of the
holders of the Warrants, may amend or supplement the Warrant Agreement for
certain purposes, including curing defects or inconsistencies or making change
that do not materially adversely affect the rights of any holder. Any
amendment or supplement to the Warrant Agreement that has a material adverse
effect on the interests of the holders of the Warrants requires the written
consent of the holders of a majority of the then outstanding Warrants. The
consent of each holder of the Warrants affected is required for any amendment
pursuant to which the Exercise Price would be increased or the number of
Warrant Shares purchasable upon exercisable of Warrants would be decreased
(other than pursuant to adjustments provided for in the Warrant Agreement as
generally described above).
Reports
Whether or not required by the rules and regulations of the Commission, so
long as any of the Warrants remain outstanding, the Company shall cause copies
of the SEC Reports described under "--Certain Covenants--Reports" to be filed
with the Warrant Agent and mailed to the holders at their addresses appearing
in the register of Warrants maintained by the Warrant Agent.
Registration Rights
After the earlier to occur of June 1, 2003 or the occurrence of a Triggering
Event, the holders of one-quarter or more of the Warrants and the Warrant
Shares will be entitled to require the Company to effect one registration (a
"Demand Registration") under the Securities Act of the Warrant Shares, subject
to certain limitations. Upon a demand, the Company will (a) notify the holders
of all Warrants and Warrant Shares that a demand registration has been
requested, (b) prepare, file and use its best efforts to cause to become
effective within 120 days of such demand a registration statement in respect
of all of the Warrant Shares which holders request, no later than 30 days
after the date of such notice, to have included therein (the "Included
Securities"); provided, that if such demand occurs during the "lock up" or
"black out" period (not to exceed 180 days) imposed on the Company pursuant to
any underwriting or purchase agreement relating to an underwritten Rule 144A
or registered public offering of Common Stock or securities convertible into
or exchangeable or exercisable for Common Stock, the Company shall not be
required to so notify holders of Warrants and Warrant Shares and file such
demand registration statement prior to the end of such "lock up" or "black
out" period, in which event the Company will use its best efforts to cause
such Demand Registration statement to become effective no later than 30 days
after the end of such "lock up" or "black out" period and (c) keep such
registration statement continuously effective for the shorter of (i) 180 days
(the "Effectiveness Period") and (ii) such period of time as all of the
Warrant Shares included in such registration statement shall have been sold
thereunder; provided, that the Company may postpone the filing period, suspend
the effectiveness of any registration statement, suspend the use of any
prospectus and shall not be required to amend or supplement the registration
statement, any related prospectus or any document incorporated therein by
reference (other than an effective registration statement being used for an
underwritten offering) in the event that, and for a period (a "Black Out
Period") not to exceed an aggregate of 45 days with respect to a Demand
Registration, (i) an event or circumstance occurs and is continuing as a
result of which the registration statement, any related prospectus or any
document incorporated therein by reference as then amended or supplemented
would, in the Company's good faith judgment, contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and (ii)(A) the Company
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determines in its good faith judgment that the disclosure of such an event at
such time would have a material adverse effect on the business, operations or
prospects of the Company or (B) the disclosure otherwise relates to a material
business transaction which has not yet been publicly disclosed; provided
further, that the Effectiveness Period shall be extended by the number of days
in any Black Out Period. In the event of any "lock up" or "black out" period
in any underwriting or purchase agreement, the Company will so notify the
holders of Warrants and Warrant Shares.
Holders of Warrants and Warrant Shares will also have the right to include
the Warrant Shares in any registration statement under the Securities Act
filed by the Company for its own account or for the account of any of its
security holders covering the sale of Common Stock (other than (a) a
registration statement on Form S-4 or S-8 or (b) a registration statement
filed in connection with an offer of securities solely to existing security
holders or (c) a Demand Registration) for sale on the same terms and
conditions as the securities of the Company or any other selling security
holder included therein (a "Piggy-Back Registration") if and whenever any such
registration statement is filed under the Securities Act, except that the
Piggy-Back Registration right of holders of Warrants and Warrant Shares shall
not apply to any Equity Offering that is the initial Equity Offering of the
Company unless the securities of other selling security holders are to be
included therein. In the case of a Piggy-Back Registration, the number of
Warrant Shares requested to be included therein is subject to pro rata
reduction (a "Cut Back") based upon the number of Warrant Shares and other
securities requested to be registered by each holder of Warrants and Warrant
Shares and any other security holders exercising piggy-back registration
rights to the extent that the Company is advised by the managing underwriter,
if any, therefor that the total number or type of Warrant Shares or other
securities to be included therein is such as to materially and adversely
affect the success of the offering.
If the Company has complied with all its obligations with respect to a
Demand Registration or a Piggy-Back Registration relating to an underwritten
public offering, all holders of Warrants and Warrant Shares, upon request of
the lead managing underwriter with respect to such underwritten public
offering, will be required not to sell or otherwise dispose of any Warrants
and Warrant Shares owned by them for a period not to exceed 180 days from the
consummation of such underwritten public offering, provided, that such
requirement shall apply to Warrant Shares not sold in a Demand Registration or
Piggy-Back Registration due to a Cut Back for a period not to exceed 90 days
from such date of consummation.
As used herein, "Triggering Event" means the occurrence of any of the
following events: (i) the day immediately prior to a Change of Control, (ii)
the 180th day (or such earlier date as determined by the Company in its sole
discretion) following the initial Equity Offering of the Company or (iii)
other than as a result of the initial Equity Offering of the Company, the day
on which a class of common equity securities of the Company is listed on a
national securities exchange or authorized for quotation on the Nasdaq
National Market System or is otherwise subject to registration under the
Exchange Act.
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DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of the Company's capital stock does not
purport to be complete and it is qualified in its entirety by reference to the
actual terms of the capital stock contained in the Company's Certificate of
Incorporation and Bylaws and by the provisions of applicable law.
The Company's authorized capital stock consists of 2,000,000 shares of
Common Stock, par value $0.01 per share and 35,000 shares of Preferred Stock,
par value $1.00 per share (the "Preferred Stock"). At January 1, 1999, there
were 1,000,000 shares of Common Stock and 35,000 shares of Preferred Stock
outstanding.
Common Stock
The issued and outstanding shares of Common Stock are validly issued, fully
paid and nonassessable. Subject to the prior rights of the holders of
Preferred Stock, the holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
time and in such amounts as the Board of Directors may from time to time
determine. The Indenture will restrict the ability of the Company to pay
dividends on the Common Stock. The shares of Common Stock are not redeemable
or convertible, and the holders thereof have no preemptive or subscription
rights to purchase any securities of the Company. Upon liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive pro rata the assets of the Company which are legally
available for distribution, after payment of all debts and other liabilities
and subject to the prior rights of any holders of Preferred Stock then
outstanding. Each outstanding share of Common Stock is entitled to vote on all
matters submitted to a vote of stockholders. At present, there is no
established trading market for the Common Stock.
Preferred Stock
Upon any liquidation, dissolution or winding up of the Company (whether
voluntary or involuntary), each holder of Preferred Stock is entitled to be
paid before any distribution or payment is made with respect to any other
class of the Company's capital stock, an amount in cash equal to the aggregate
of all shares held by such holder. "Liquidation Value" for any share of
Preferred Stock is equal to the initial price paid to the Company for such
share on its date of issuance. The Preferred Stock does not accrue dividends,
and is not convertible into any other class of capital stock of the Company.
The Preferred Stock may be redeemed by the Company, in whole or in part, at
any time, but is not subject to mandatory redemption.
Certain Provisions of Delaware Law
The Company has elected not to be governed by the provisions of Section 203
of the Delaware General Corporation Law. In general, the law prohibits a
public Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the stockholder. An "interested stockholder" is a
person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock.
Limitations on Liability and Indemnification of Officers and Directors
The Company's Certificate of Incorporation will limit the liability of
directors to the fullest 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, including
gross negligence, except liability for: (i) breach of the director's duty of
loyalty; (ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law; (iii) the unlawful payment of a
dividend or unlawful stock purchase or redemption; and (iv) any transaction
from which the director derives an improper personal benefit. This provision
of the Company's Certificate of Incorporation has no effect on the
availability of equitable remedies such as injunction or rescission.
Additionally, this provision will not limit liability under state or federal
securities laws. The Certificate of Incorporation also provides that the
Company shall indemnify directors and officers of the Company to the fullest
extent permitted by such law. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve
as directors.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes certain of the material United
States federal income tax consequences of an exchange of Old Notes for
Exchange Notes and the ownership, and disposition of the Exchange Notes to
initial purchasers thereof. This discussion is a summary for general
information only and does not consider all aspects of United States federal
income taxation that may be relevant to a prospective investor in light of
that investor's particular circumstances. This discussion also deals only with
Notes held by a holder as capital assets within the meaning of Section 1221 of
the United States Internal Revenue Code of 1986, as amended to the date hereof
(the "Code"). This summary does not address all of the tax consequences that
may be relevant to a holder of Notes, nor does it address the federal income
tax consequences to holders subject to special treatment under the federal
income tax laws, such as brokers or dealers in securities or currencies,
certain securities traders, tax-exempt entities, banks, thrifts, insurance
companies, other financial institutions, persons that hold the Notes, Warrants
or Common Stock as a position in a "straddle" or as part of a "synthetic
security," "hedging," "conversion" or other integrated instrument, persons
that have a "functional currency" other than the United States dollar, persons
that acquire Notes in connection with the performance of services, investors
in pass-through entities and certain United States expatriates. Further, this
summary does not address (i) the income tax consequences to shareholders in,
or partners or beneficiaries of, a holder of the Notes (ii) the United States
federal alternative minimum tax consequences of the purchase, ownership or
disposition of the Notes, or (iii) any state, local or foreign tax
consequences of the purchase, ownership or disposition of the Notes.
The Company recommends that each holder consult such holder's own tax
advisor as to the particular tax consequences of exchanging such holder's Old
Notes for Exchange Notes, including the applicability and effect of any state,
local or foreign tax laws.
The Company believes that the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer will not be treated as an "exchange" for
federal income tax purposes because the Exchange Notes will not be considered
to differ materially in kind or extent from the Old Notes. Rather, the
Exchange Notes received by a holder will be treated as a continuation of the
Old Notes in the hands of such holder. As a result, there will be no federal
income tax consequences to holders exchanging Old Notes for Exchange Notes
pursuant to the Exchange Offer.
Persons considering the purchase of Notes should consult their own tax
advisors concerning the application of federal income taxes laws, as well as
the laws of any state, local, or foreign taxing jurisdiction, to their
particular situations.
U.S. Holders
For purposes of this discussion, "U.S. Holder" generally means (i) a citizen
or resident of the United States, (ii) a corporation or partnership created or
organized in the United States or under the laws of the United States or any
state, (iii) an estate the income of which is includible in its gross income
for United States federal income tax purposes without regard to its source, or
(iv) a trust if a court within the United States is able to exercise primary
supervision over its administration and one or more United States persons have
the authority to control all substantial decisions of the trust. Certain
United States federal income consequences relevant to a holder other than a
U.S. Holder (a "Non-U.S. Holder") are discussed separately below.
Payments of Interest
Stated interest paid or accrued on the Notes will constitute qualified
stated interest and will be taxable to a U.S. Holder as ordinary income in
accordance with the holder's method of accounting for federal income tax
purposes. Alternatively, a U.S. Holder may elect to include stated interest on
the Notes (as well as original issue discount ("OID") and, if any, market
discount, de minimis market discount and unstated interest on the Notes, as
adjusted by any amortizable bond premium or acquisition premium) in gross
income on a constant-yield basis. The mechanics and implications of such an
election are beyond the scope of this discussion and, as a result, U.S.
Holders should consult their own tax advisors regarding the advisability of
making such an election.
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Original Issue Discount
The Old Notes have OID for federal tax purposes, and accordingly U.S.
Holders of Old Notes and Exchange Notes (which for tax purposes are treated as
a continuation of the Old Notes) will be subject to special tax accounting
rules, as described in greater detail below. U.S. Holders of Notes should be
aware that they generally must include OID in gross income for U.S. federal
income tax purposes on an annual basis under a constant yield accrual method
regardless of their regular method of tax accounting. As a result, U.S.
Holders will include OID in income in advance of the receipt of cash
attributable to such income. However, U.S. Holders of the Notes generally will
not be required to include separately in income cash payments received on such
Notes, even if denominated as interest, to the extent such payments constitute
payments of previously accrued OID.
The Notes will be treated as issued with OID equal to the excess of the
"stated redemption price at maturity" of a Note over its "issue price." The
stated redemption price at maturity of a Note is the total of all payments on
the Note that are not payments of "qualified stated interest." A qualified
stated interest payment is a payment of stated interest unconditionally
payable, in cash or property (other than debt instruments of the issuer), at
least annually at a single fixed rate during the entire term of the Note that
appropriately takes into account the length of intervals between payments.
Stated interest on the Notes will be treated as qualified stated interest.
The amount of OID includible in income by an initial U.S. Holder of a Note
is the sum of the "daily portions" of OID with respect to the Note for each
day during the taxable year or portion thereof in which such U.S. Holder holds
such Note ("accrued OID"). The daily portion is determined by allocating to
each day in any "accrual period" a pro-rata portion of the OID that accrued in
such period. The "accrual period" of a Note may be of any length and may vary
in length over the term of an OID note, provided that each accrual period is
no longer than one year and each scheduled payment of principal or interest
occurs either on the first or last day of an accrual period. The amount of OID
that accrues with respect to any accrual period is the excess of (a) the
product of the Note's adjusted issue price at the beginning of such accrual
period and its yield to maturity, determined on the basis of compounding at
the close of each accrual period and properly adjusted for the length of such
period, over (b) the amount of qualified stated interest allocable to such
accrual period. The "adjusted issue price" of a Note at the start of any
accrual period is equal to its issue price increased by the accrued OID for
each prior accrual period and reduced by any prior payments made on such Note
(other than payments of qualified stated interest).
If the Company is required to pay Liquidated Damages with respect to the
Notes as described under "Description of Notes--Registration Rights;
Liquidated Damages," such payment would result in ordinary income to a U.S.
Holder. Although not free from doubt, the Company believes that, as of the
date the Old Notes were originally issued, the likelihood that Liquidated
Damages would be paid was "remote" for purposes of Treasury Regulation 1.1275-
2(h)(2) and intends to treat any such payments as additional interest payable
on the Notes which should be taxable to a U.S. Holder at the time it accrues
or is received in accordance with such holder's regular method of accounting.
If such treatment is not respected, in the event of a Registration Default the
Notes may be treated as reissued for OID purposes, which may affect the
calculation of OID and the timing of income inclusion for a U.S. Holder.
Impact of Applicable High Yield Discount Obligation Rules
The "yield to maturity" on the Notes exceeds the sum of 5% and the
"applicable federal rate" (for May 1998, the "applicable federal rate" is
5.85% assuming semi-annual compounding) in effect for the month in which the
Old Notes were originally issued. Accordingly, if the Notes have "significant"
OID, the Notes will be considered "applicable high yield discount obligations"
("AHYDOs"). A debt instrument has "significant" OID if the aggregate amount of
unpaid interest (including OID) as of the close of any accrual period ending
after the date five years after the date of issue exceeds the product of the
issue price of such instrument and its yield to maturity.
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If the Notes are AHYDOs, the Company will not be permitted to deduct for
United States federal income tax purposes OID accrued on the Notes until such
time as the Company actually pays such OID in cash or in property other than
stock or debt of the Company (or persons related to the Company). Moreover, to
the extent that the yield to maturity of the Notes exceeds the sum of 6% and
the applicable federal rate, such excess (the "Dividend-Equivalent Interest")
will not be deductible at any time by the Company for United States federal
income tax purposes (regardless of whether the Company actually pays such
Dividend-Equivalent Interest in cash or in other property). Such Dividend-
Equivalent Interest would be treated as a dividend to the extent it is deemed
to have been paid out of the Company's current or accumulated earnings and
profits. Accordingly, a U.S. Holder that is a domestic corporation may be
entitled to take a dividends-received deduction with respect to any Dividend-
Equivalent Interest received by such corporate U.S. Holder on the Note.
Sale or Redemption of the Notes
Upon the disposition of a Note by sale, exchange or redemption, a U.S.
Holder generally will recognize gain or loss equal to the difference, if any,
between (i) the amount realized on the disposition (other than amounts
attributable to accrued and unpaid interest) and (ii) the U.S. Holder's tax
basis in the Note. A U.S. Holder's tax basis in a Note generally will equal
the cost of the Note to the U.S. Holder, increased by OID previously included
(or currently includible) in such holder's gross income to the date of
disposition, and reduced by any payments other than payments of qualified
stated interest made on such Note. When a Note is sold, disposed of or
redeemed between interest payment dates, the portion of the amount realized on
the disposition that is attributable to interest accrued to the date of sale
must be reported as interest income by a cash method investor and an accrual
method investor that has not included the interest in income as it accrued.
Assuming the Note is held as a capital asset, such gain or loss will
generally constitute capital gain or loss and will be long-term capital gain
or loss if the U.S. Holder has held such Note for longer than one year. The
maximum Federal income tax rate on long-term capital gain received by
noncorporate taxpayers is currently 20%.
Non-U.S. Holders
The following discussion summarizes certain United States federal income tax
consequences relevant to a Non-U.S. Holder of a Note.
This discussion does not deal with all aspects of United States federal
income taxation that may be relevant to any particular Non-U.S. Holder in
light of that holder's personal circumstances with respect to such holder's
purchase, ownership or disposition of the Notes, including such holder holding
the Notes through a partnership. For example, persons who are partners in
foreign partnerships and beneficiaries of foreign trusts or estates who are
subject to United States federal income tax because of their own status, such
as United States residents or foreign persons engaged in a trade or business
in the United States, may be subject to United States federal income tax even
though the entity which holds the Note is not subject to such tax.
Stated Interest and OID on the Notes
Under current United States federal income tax law, payments of stated
interest or OID on a Note by the Company or any paying agent to a holder that
is a Non-U.S. Holder will not be subject to withholding of United States
federal income tax if (i) such payment is effectively connected with a trade
or business within the United States by such Non-U.S. Holder, or (ii) both (a)
the holder does not actually or constructively own 10 percent or more of the
combined voting power of all classes of stock of the Company and is not a
controlled foreign corporation related to the Company through stock ownership
and (b) the beneficial owner provides a statement signed under penalties of
perjury that includes its name and address and certifies (on an IRS Form W-8
or a substantially similar substitute form) that it is a Non-U.S. Holder in
compliance with applicable requirements.
135
<PAGE>
Interest on a Note that is effectively connected with the conduct of a trade
or business in the United States by a Non-U.S. Holder, although exempt from
the withholding tax (assuming appropriate certification is provided), may be
subject to graduated United States federal income tax on a net income basis
and, in the case of a corporation, also an additional branch profits tax of
30% (or a lower rate provided in an applicable treaty) as if such amounts were
earned by a U.S. Holder.
Sale or Redemption of Notes
Except as described below and subject to the discussion concerning backup
withholding, a Non-U.S. Holder generally will not be subject to withholding of
United States federal income tax with respect to any gain realized upon the
sale or redemption of Notes. Further, a Non-U.S. Holder generally will not be
subject to United States federal income tax with respect to any such gain
unless (i) the gain is effectively connected with a United States trade or
business of such Non-U.S. Holder, (ii) subject to certain exceptions, the Non-
U.S. Holder is an individual who holds such Notes as a capital asset and is
present in the United States for 183 days or more in the taxable year of the
disposition, or (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of United States tax law applicable to certain United States
expatriates.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, the Notes held by a noncorporate U.S.
Holder within the United States. In addition, payments made on, and payments
of proceeds from the sale of, such Notes to or through the United States
office of a broker are subject to information reporting unless the holder
thereof certifies as to its non-U.S. status or otherwise establishes an
exemption from information reporting and backup withholding.
Payments made on, and proceeds from the sale of the Notes may be subject to
a "backup" withholding tax of 31% unless the holder complies with certain
identification or exemption requirements. Any amounts so withheld will be
allowed as a credit against the holder's income tax liability, or refunded,
provided the required information is provided to the IRS.
In October 1997, the IRS issued final regulations relating to withholding,
backup withholding and information reporting with respect to payments made to
Non-U.S. Holders. The regulations generally apply to payments made after
December 31, 1999.
When effective, the new regulations will streamline and, in some cases,
alter the type of statements and information that must be furnished to claim a
reduced rate of withholding. While various IRS forms (such as IRS Forms 1001
and 4224) currently are used to claim exemption from withholding or a reduced
withholding rate, the preamble to the regulations states that the IRS intends
most certifications to be made on revised Form W-8. The regulations also
clarify the duties of United States payors making payments to foreign persons
and modify the rules concerning withholding on payments made to Non-U.S.
Holders through foreign intermediaries. With some exceptions, the new
regulations treat a payment to a foreign partnership as a payment directly to
the partners. The regulations also eliminate the address rule under which
dividends paid to a foreign address were presumed to be paid to a resident at
that address and therefore eligible for the benefit of any applicable tax
treaty and require a foreign holder who wishes to claim the benefit of an
applicable treaty rate to satisfy certain certification and other
requirements.
136
<PAGE>
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Old Notes where such Old Notes were acquired as
a result of market-making activities or other trading activities. The Company
has agreed that for a period of 180 days after the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale. In
addition, until , 1999 (90 days after the commencement of the Exchange Offer),
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Exchange Notes. Any Participating
Broker-Dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any Participating Broker-Dealer that requests such
documents in the Letter of Transmittal.
EXPERTS
The Consolidated Financial Statements of OnePoint Communications Corp. as of
December 31, 1997 and 1998, and the related consolidated statements of
operations, comprehensive income, unitholders'/stockholder's equity (deficit)
and cash flows for the period from May 14, 1996 (inception) to December 31,
1996 and each of the years ended December 31, 1997 and 1998 appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as stated in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The financial statements of Mid-Atlantic Telcom Plus, LLC as of December 31,
1998 and 1997, and for the years then ended, and the consolidated and combined
financial statements of Mid-Atlantic Cable Companies as of December 31, 1996,
and for the year then ended, appearing in this Prospectus have been audited by
Beers & Cutler PLLC, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of VIC-RMTS-DC, LLC as of December 31, 1997 and
1998, and the related statements of operations, unitholders' equity and cash
flows for the period from November 6, 1996 (inception) to December 31, 1996
and each of the years ended December 31, 1997 and 1998 appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as stated in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
137
<PAGE>
The statements of certain assets and liabilities of Preferred Entertainment,
Inc. as of December 31, 1997 and 1996 and the statements of related revenues
and expenses for the years ended December 31, 1997 and 1996 included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The appraised value of the Warrants included in this propectus has been
prepared by Sturgill & Associates LLP and is included herein to reliance upon
the authority of such firm as experts in business valuation.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Kirkland & Ellis (partnerships including professional
corporations), Chicago, Illinois.
138
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OnePoint Communications Corp.
<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Statements of Operations for the periods ended December 31,
1996, 1997 and 1998....................................................... F-3
Consolidated Statements of Comprehensive Income for the periods ended
December 31, 1996, 1997 and 1998.......................................... F-4
Consolidated Balance Sheets as of December 31, 1997 and 1998............... F-5
Consolidated Statements of Changes in Unitholders'/Stockholders'
Equity/(Deficit) for the periods ended December 31, 1996, 1997 and 1998... F-6
Consolidated Statements of Cash Flows for the periods ended December 31,
1996, 1997 and 1998....................................................... F-7
Notes to Consolidated Financial Statements................................. F-8
</TABLE>
Mid-Atlantic Telcom Plus, LLC
<TABLE>
<S> <C>
Report of Independent Accountants........................................ F-26
Balance Sheets as of December 31, 1997 and 1998.......................... F-27
Statements of Operations for the years ended December 31, 1997 and 1998.. F-28
Statements of Changes in Members' Equity for the years ended December 31,
1997 and 1998........................................................... F-29
Statement of Cash Flows for the years ended December 31, 1997 and 1998... F-30
Notes to Financial Statements............................................ F-31
Mid-Atlantic Cable Companies
Independent Auditors' Report............................................. F-37
Consolidated and Combined Balance Sheet.................................. F-38
Consolidated and Combined Statement of Operations........................ F-39
Consolidated and Combined Statement of Changes in Owners' Equity
(Deficit)............................................................... F-40
Consolidated and Combined Statement of Cash Flows........................ F-41
Notes to the Consolidated and Combined Financial Statements.............. F-42
VIC-RMTS-DC, LLC
Report of Independent Accountants........................................ F-48
Statements of Operations for the periods ended December 31, 1996, 1997,
and 1998................................................................ F-49
Balance Sheets as of December 31, 1997 and 1998.......................... F-50
Statements of Changes in Unitholders' Equity for the periods ended
December 31, 1996, 1997 and 1998........................................ F-51
Statements of Cash Flows for the periods ended December 31, 1996, 1997
and 1998 ............................................................... F-52
Notes to Financial Statements............................................ F-53
People's Choice TV Corp.
Report of Independent Public Accountants................................. F-58
Statements of Certain Assets and Liabilities of Preferred Entertainment,
Inc. to be Sold......................................................... F-59
Statements of Revenues and Expenses Related to Certain Assets and
Liabilities of Preferred Entertainment, Inc. to be Sold................. F-60
Notes to Statements of Certain Assets and Liabilities and Related
Revenues and Expenses of Preferred Entertainment, Inc................... F-61
</TABLE>
The Company has not provided individual financial statements for its
subsidiary guarantors (other than VIC-RMTS-DC, LLC), in accordance with Staff
Accounting Bulletin Topic 1. H., as the Company has provided the Audited
Consolidated Financial Statements of OnePoint Communication, LLC, which
include all guarantors. The guarantors are wholly-owned (other than VIC-RMTS-
DC, LLC, which is majority-owned). All non-guarantor subsidiaries are
inconsequential, individually and in the aggregate, to the Company's
consolidated financial statements. The guarantees are full, unconditional and
joint and several; and separate financial statements of the guarantors (other
than VIC-RMTS-DC, LLC) are not presented because the Company has determined
such financial statements would not be material to investors.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholder
OnePoint Communications Corp.
We have audited the accompanying consolidated balance sheets of OnePoint
Communications Corp. as of December 31, 1997 and 1998, and the related
consolidated statements of operations, comprehensive income,
unitholders'/stockholder's equity (deficit) and cash flows for the period from
March 14, 1996 (inception) to December 31, 1996 and each of the years ended
December 31, 1997 and 1998. 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 did not audit the financial
statements of Mid-Atlantic Telcom Plus, LLC, an investment in a 41.4% owned
unconsolidated subsidiary, which statements reflect total assets of $48.0
million and $57.2 million as of December 31, 1997 and 1998, respectively, and
total revenues of $14.0 million and $16.5 million for the years then ended.
Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
Mid-Atlantic Telcom Plus, LLC, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principals used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
aspects, the consolidated financial position of OnePoint Communications Corp.
at December 31, 1997 and 1998, and the results of its operations and cash
flows for the period from March 14, 1996 (inception) to December 31, 1996, and
for the years ended December 31, 1997 and 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young, LLP
February 12, 1999, except for the
fourth paragraph of Note 10 as to
which the date is March 5, 1999
and Note 21 as to which the date
is March 30, 1999.
Vienna, Virginia
F-2
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Period from
March 14, 1996
(inception) Year Ended December 31,
to December 31, ------------------------
1996 1997 1998
--------------- ----------- -----------
<S> <C> <C> <C>
Revenue.............................. $ -- $ 43 $ 6,953
Cost of revenue...................... -- 83 8,765
-------- ----------- -----------
Gross margin loss.................... -- (40) (1,812)
Expenses:
Selling, general and
administrative.................... 2,021 12,788 27,873
Depreciation and amortization...... 19 235 1,455
-------- ----------- -----------
Loss from operations................. (2,040) (13,063) (31,140)
Other income (expense)
Interest income.................... 4 72 6,042
Interest expense................... -- (11) (15,846)
Other income (loss)................ -- (17) 17
-------- ----------- -----------
4 44 (9,787)
-------- ----------- -----------
(2,036) (13,019) (40,927)
Equity in losses of unconsolidated
subsidiaries........................ -- (3,072) (3,698)
-------- ----------- -----------
Loss before extraordinary item....... (2,036) (16,091) (44,625)
Extraordinary item gain on bond
repurchases......................... -- -- 19,799
-------- ----------- -----------
Net loss............................. $ (2,036) $ (16,091) $ (24,826)
======== =========== ===========
Basic Earnings Per Share:
(Loss) before extraordinary item... $(203.60) $ (16.09) $ (44.62)
Extraordinary item................. -- -- 19.80
-------- ----------- -----------
Net (loss)......................... $(203.60) $ (16.09) $ (24.82)
======== =========== ===========
Shares used in computing loss per
share:
Weighted average common shares--
basic............................. 10,000 1,000,000 1,000,000
======== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
STATEMENTS OF COMPREHENSIVE INCOME
For the Period from March 14, 1996 (Inception) to December 31, 1996 and
Years Ended December 31, 1997 and 1998
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Period from
March 14, 1996
(Inception) to Years Ended December 31,
December 31, ------------------------
1996 1997 1998
-------------- ------------ ------------
<S> <C> <C> <C>
Net loss............................. $(2,036) $ (16,091) $ (24,826)
Other comprehensive income, net of
tax:
Unrealized gain arising during the
year on securities................ -- -- 701
------- ------------ ------------
Comprehensive loss................... $(2,036) $ (16,091) $ (24,125)
======= ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................................... $ 5,463 $ 5,730
Restricted cash............................................... -- 5,199
Investment in marketable securities, current.................. -- 13,118
Accounts receivable, net...................................... 32 2,277
Affiliate receivable.......................................... 33 653
Prepaid expenses.............................................. 1,131 898
------- --------
Total current assets........................................ 6,659 27,875
Investment in marketable securities, non-current ($ 73,377
restricted).................................................... -- 86,705
Investments in unconsolidated subsidiaries...................... 10,061 6,283
Property and equipment, net..................................... 2,704 10,923
Intangible assets, net.......................................... -- 11,549
Other assets.................................................... 257 5,972
------- --------
Total assets................................................ $19,681 $149,307
======= ========
Liabilities, Redeemable Preferred Stock and
Unitholders'/Stockholder's Equity/(Deficit)
Current liabilities:
Accounts payable and accrued expense.......................... $ 2,797 $ 7,167
Affiliate payable............................................. -- 3,558
Accrued interest payable...................................... 11 1,701
Current portion of long term debt............................. -- 250
------- --------
Total current liabilities................................... 2,808 12,676
Long term debt--affiliate....................................... 1,500 --
Long term debt.................................................. -- 138,503
Redeemable preferred stock, $1.00 par value, 35,000 shares
authorized, 35,000 shares issued and outstanding at redemption
value.......................................................... -- 35,000
Unitholders'/Stockholder'sEquity/(Deficit):
Unitholders' equity:
Preferred units.............................................. 33,500 --
Founder units................................................ 80 --
Notes receivable--unitholder................................. (80) --
Stockholder's deficit:
Common stock, $0.01 par value, 2,000,000 shares authorized,
1,000,000 shares issued and outstanding at December 31,
1998........................................................ -- 10
Additional capital........................................... -- 5,370
Accumulated deficit.......................................... (18,127) (42,953)
Other comprehensive income................................... -- 701
------- --------
Total unitholders'/stockholder's equity/(deficit)........... 15,373 (36,872)
------- --------
Total liabilities, redeemable preferred stock and
unitholders'/stockholder's equity/(deficit)................ $19,681 $149,307
======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN UNITHOLDERS'/STOCKHOLDER'S
EQUITY/(DEFICIT)
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Member Units
------------------------------------
Redeemable Units Founders Units Notes Accumulative Accumulated
----------------- ----------------- Receivable Common Additional Amount Comprehensive Total
Units Amount Units Amount Unitholder Stock Capital Deficit Income Equity
-------- ------- -------- ------- ---------- ------ ---------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 13, 1996... -- $ -- -- $ -- $-- $-- $ -- $ -- $-- $ --
Initial
capitalization.. -- -- 10,000 1,640 -- -- -- -- -- 1,640
Unit-holder
additional
contributions... -- -- -- 14,000 -- -- -- -- -- 14,000
Net loss......... -- -- -- -- -- -- -- (2,036) -- (2,036)
-------- ------- -------- ------- ---- ---- ------ -------- ---- --------
Balance, December
31, 1996........ -- -- 10,000 15,640 -- -- -- (2,036) -- 13,604
Unitholder
additional
contributions... -- -- -- 12,000 -- -- -- -- -- 12,000
Issuance of units
- 1997
recapitalization. -- -- -- 80 (80) -- -- -- -- --
1997
recapitalization
(see Note 1).... 199,000 33,500 791,000 (27,640) -- -- -- -- -- 5,860
Comprehensive
income:
Net loss......... -- -- -- -- -- -- -- (16,091) -- (16,091)
-------- ------- -------- ------- ---- ---- ------ -------- ---- --------
Balance, December
31, 1997........ 199,000 3,500 801,000 80 (80) -- -- (18,127) -- 15,373
1998
recapitalization
(see Note 1).... (199,000) (33,500) (801,000) (80) -- 10 70 -- -- (33,500)
Unitholder
payment......... -- -- -- -- 80 -- -- -- -- 80
Warrants......... -- -- -- -- -- -- 5,300 -- -- 5,300
Comprehensive
income:
Net (loss)...... -- -- -- -- -- -- -- (24,826) -- (24,826)
Net unrealized
gain on
marketable
securities..... -- -- -- -- -- -- -- -- 701 701
-------- ------- -------- ------- ---- ---- ------ -------- ---- --------
Balance, December
31, 1998........ -- $ -- -- $ -- $-- $ 10 $5,370 $(42,953) $701 $(36,872)
======== ======= ======== ======= ==== ==== ====== ======== ==== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended
March 14, 1996 December 31,
(inception) to ------------------
December 31, 1996 1997 1998
----------------- -------- --------
<S> <C> <C> <C>
Operating activities
Net loss................................. $(2,036) $(16,091) $(24,826)
Adjustments to reconcile net loss to net
cash used in operating activities....... -- -- --
Depreciation and amortization............ 19 235 1,455
Amortization of premium (discount) of
securities acquired included in
interest income....................... -- -- 499
Amortization of debt discount and
issuance cost included in interest
expense................................. -- -- 552
Amortization of warrants included in
interest expense...................... -- -- 63
Amortization of developer payments
included in reselling costs........... -- -- 173
Losses in equity of interest of
unconsolidated investments.............. -- 3,072 3,698
Extraordinary gain on bond repurchases... -- -- (19,799)
Gain on investments in marketable
securities.............................. -- -- (790)
Change in allowance for doubtful
accounts................................ -- 7 777
Changes in operating assets and
liabilities:
Accounts receivable...................... -- (39) (3,022)
Developer payments PCTV acquisition.... -- -- (5,400)
Prepaid expenses....................... (11) (1,121) --
Other assets........................... (335) 79 (50)
Affiliates payable..................... -- -- 3,558
Affiliates receivable.................. (84) (51) (620)
Accounts payable and accrued expenses.. 427 2,370 4,370
Accrued interest....................... -- 11 1,690
------- -------- --------
Net cash used in operating activities.. (2,020) (11,427) (37,672)
Investing activities
Restricted cash, net..................... (13,000) 13,000 (5,199)
Acquisition of intangible assets......... -- -- (4,467)
Purchase of equity investments........... -- (13,133) --
Proceeds form sale of marketable
securities.............................. -- -- 85,179
Purchase of marketable securities........ -- -- (184,711)
Acquisition of property and equipment.... (517) (2,440) (9,374)
------- -------- --------
Net cash used in investing activities.... (13,517) (2,573) (118,572)
Financing activities
Proceeds from issuance of long-term debt. -- 1,500 188,050
Repayment of long-term debt.............. -- -- (22,151)
Debt discount and issuance costs......... -- -- (9,468)
Unitholder contributions................. 15,640 17,860 80
------- -------- --------
Net cash provided by financing
activities.............................. 15,640 19,360 156,511
------- -------- --------
Net increase (decrease) in cash.......... 103 5,360 267
Cash at the beginning of period.......... -- 103 5,463
------- -------- --------
Cash at the end of period................ $ 103 $ 5,463 $ 5,730
======= ======== ========
</TABLE>
See accompanying notes.
F-7
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. Organization and Recapitalization
Organization
OnePoint Communications Corp., (the "Company") was incorporated to provide
bundled communications services including local and long distance telephony,
video programming and Internet access to residents of multiple dwelling units
("MDU"). The Company has operations in a number of major markets. The Company
is the successor to OnePoint Communications, L.L.C. (the "Predecessor"). The
Predecessor entered into several significant contracts and began to generate
revenue during the second half of 1997, and was no longer considered to be in
the development stage at that time.
The Company consists of OnePoint Communications Corp., the parent and its
wholly-owned subsidiaries which consist of OnePoint Communications--Colorado,
L.L.C., OnePoint Communications--Illinois, L.L.C., OnePoint Communications--
Georgia, L.L.C., and OnePoint Communications Holdings, L.L.C. ("OPC
Holdings"). In addition, through OPC Holdings, the Company maintains (i) a
97.5% interest in VIC-RMTS-DC, L.L.C., which has been consolidated in the
Company's financial statements and (ii) 41.4% interest in Mid-Atlantic Telcom
Plus, L.L.C. ("Mid-Atlantic"), and a 50% interest in Mid-Atlantic Telcom Plus
Interactive, LLC ("MAC Interactive") and Mid-Atlantic RMTS Holdings, L.L.C.
which are accounted for under the equity method (see Note 7).
The Predecessor was initially formed in 1996 by Ventures in Communications,
L.L.C. ("VIC"), which initially owned 99% of the equity interests in the
Predecessor, and AMI-VCOM2, Inc. ("AMI2"), which owned the remaining 1% equity
interest in the Predecessor. VIC is an affiliate of SBC Communications, Inc.
("SBC"), and 99% of the equity of VIC is owned indirectly by SBC. The
remaining 1% of the equity of VIC is owned by The VenCom Group, Inc. , which
is, in turn, owned by James A. Otterbeck, the Company's Chairman and Chief
Executive Officer.
In October 1997, AMI2 transferred to VIC its membership units of the
Predecessor, Mr. Otterbeck became a member of the Predecessor and the
Predecessor was recapitalized (the "Recapitalization"). Pursuant to the
Recapitalization, VIC agreed to guarantee up to $9,000 of collateralized
indebtedness of the Predecessor, contributed additional capital to the
Predecessor (resulting in aggregate equity contributions to the Predecessor of
$33,500) and exchanged its membership interests for (i) 19.9% of the
Predecessor's membership units, and a priority on the first $33,500 of
distributions, (ii) a promissory note in the principal amount of $1,500 due
October 15, 2007 which bore interest at 10% per annum (the "Predecessor
Note"), and (iii) a warrant to purchase 5% of the common units outstanding
following exercise of the warrant. In connection with the Recapitalization,
Mr. Otterbeck purchased 80.1% of the Predecessor's membership units (which did
not have a preferential return or priority on distributions) for an aggregate
of $80 and agreed to contribute up to an additional $1,500 to the Predecessor.
Mr. Otterbeck's 80.1% of the Predecessor's membership units are held by
VenCom, L.L.C., a company in which Mr. Otterbeck is the sole member and
manager. The parties also entered into (i) a Members Agreement that restricted
the transfer of membership units and provided preemptive rights on the sale of
new securities and (ii) a Registration Agreement that provided certain rights
to register the Predecessor's securities under the Securities Act of 1933, as
amended.
In April 1998, in order to convert the Predecessor into a corporation,
VenCom, L.L.C. and VIC contributed their membership interests in the
Predecessor and a $1,500 promissory note payable by the Predecessor to VIC to
Ventures in Communications II, LLC ("VIC2") in exchange for membership
interests of VIC2. Subsequently, the Predecessor merged with and into the
Company, with the Predecessor's outstanding membership interests and its
$1,500 promissory note payable to VIC exchanged for shares of the Company's
common stock and
F-8
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
preferred stock. As a result of the April 1998 merger transactions, the
Company became a Delaware corporation which is a wholly owned by VIC2.
The membership interests of VIC2 are owned by VIC (19.9%) and VenCom, L.L.C.
(80.1%). VIC also owns a warrant to purchase 9.9% of the membership units of
VIC2. The operating agreement of VIC2 entered into in April 1998 in connection
with the Recapitalization (i) imposes certain restrictions on the transfer of
VIC2's membership units; (ii) grants certain participation rights in
connection with a sale of membership units by a member; (iii) grants VIC
certain preemptive rights with respect to VIC2 membership units in connection
with issuances by
VIC2 of membership units or issuances by the Company of common stock; (iv)
grants VIC the right to require VenCom, L.L.C. to purchase all or any portion
of the VIC2 membership units held by VIC; (v) grants a first refusal right to
the members in connection with a transfer of VIC2 membership units and shares
of the Company's common stock; (vii) requires the members to take certain
actions in the event of an initial public offering by VIC2; and (viii) grants
VIC the right to require VIC2 to exercise its demand and piggyback
registration rights and to require VIC2 to distribute the proceeds of the
resulting offering.
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
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 amounts reported in the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Marketable Securities
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
the intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost, adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization is included in
investment income. Interest on securities classified as held-to-maturity is
included in investment income.
Marketable equity securities and debt securities not classified as held-to-
maturity are classified as available-for-sale. Available-for-sale securities
are carried at fair value, with the unrealized gains and losses, net of tax,
reported in a component of comprehensive income. The amortized cost of debt
securities in this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in
investment income. Realized gains and losses and declines in value judged to
be other-than-temporary on
F-9
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
available-for-sale securities are included in investment income. The cost of
securities sold is based on the specific identification method. Interest and
dividends on securities classified as available-for-sale are included in
investment income.
Property and Equipment
Property and equipment are stated at cost and depreciated on the straight-
line method over their estimated useful lives, ranging from 3 to 5 years.
Leasehold improvements are depreciated over the shorter of their useful lives
or the lease term, not to exceed 15 years. The Company classifies installed
wiring and hardware costs in construction in process until the installation is
completed at which time the balances are classified as leasehold improvements.
Intangible Assets
Intangible assets consist of goodwill representing the excess of cost over
net assets acquired and rights of entry ("ROE") contracts resulting from the
purchase of certain assets and liabilities from Preferred Entertainment, Inc.,
a subsidiary of People's Choice-TV Corp.("PCTV"), deferred financing charges
consisting of original issue debt discount and issuance costs related to the
Company's offering of 175,000 units each consisting of $1,000 principal amount
of 14 1/2% Senior Notes due 2008 (the "Senior Notes") and warrants to purchase
111,125 shares of common stock (the "Warrants") for gross proceeds of $175,000
(collectively, the "Unit Offering"). Goodwill and rights of entry contracts
are amortized using the straight line method over a 15 year periods. Deferred
financing charges are amortized under the effective interest method as a
component of interest expense over the life of the related debt.
Research and Development
All research and development costs are charged to operations as incurred.
Revenue Recognition
The Company recognizes revenue as services are provided.
Fair Value of Financial Instruments
The Company considers the recorded value of its financial assets and
liabilities, to approximate the fair value of the respective assets and
liabilities at December 31, 1997 and 1998, respectively.
Stock Based Compensation
The Company has adopted the Financial Accounting Standards Board's Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" (Statement No. 123). Statement No. 123 allows companies to
either account for stock-based compensation under the new provisions of
Statement No. 123 or under the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (Opinion No. 25),
but requires pro forma disclosures in the footnotes to the consolidated
financial statements as if the measurement provisions of Statement No. 123 had
been adopted. The Company intends to continue to account for its stock-based
compensation in accordance with Opinion No. 25.
Marketing Costs
Marketing costs are expensed as incurred. For the period from March 14, 1996
(Inception) to December 31, 1996 and for the years ended December 31, 1997 and
1998, marketing costs were approximately $40, $484 and $1,921, respectively.
F-10
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
The Company accounts for income taxes and the related accounts under the
liability method. Deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax basis of assets and
liabilities using enacted rates expected to be in effect during the year in
which the differences reverse. The Company has incurred losses for both
financial and income tax reporting since inception. Accordingly, no provision
or benefit for income tax has been recorded in the accompanying consolidated
financial statements.
Loss Per Share
The Company's basic loss per share calculations are based upon the weighted
average of shares of common stock outstanding. The dilutive effect of stock
appreciation rights are included for purposes of calculating diluted earnings
per share, except for periods when the Company reported a net loss, in which
case the inclusion of stock options would be anti-dilutive. Diluted loss per
share is not presented for the periods ended December 31, 1996, 1997, and 1998
as the effects of potentially dilutive instruments are anti-dilutive.
Segment Reporting
In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
(Statement No. 131) which is effective for fiscal years beginning after
December 15, 1997. The Statement changes the way public companies report
segment information in annual financial statements and also requires those
companies to report selected segment information in interim financial
statements to stockholders. The Statement also establishes standards for
related disclosures regarding products and services, geographic areas and
major customers. The Company adopted Statement No. 131 for the year ended
December 31, 1998, resulting in additional segment disclosures as required by
the Statement.
Comprehensive Income
In June 1997, FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," which is effective for fiscal years
beginning after December 15, 1997. The Statement establishes standards for
reporting of comprehensive income and its components in financial statements.
The Company adopted Statement No. 130 effective the fourth quarter of the year
ended December 31, 1998, and has applied its provisions retroactively as
required by the Statement. The adoption of this Statement did not have a
material impact on its financial position or results from operations.
Recently Issued Accounting Standards
In June 1998, The FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
requires that all derivatives be recognized as either assets or liabilities in
the statement of financial position and that those instruments shall be
measured at fair value. Statement No. 133 also prescribes the accounting
treatment for changes in the fair value of derivatives which depends on the
intended use of the derivative and the resulting designation. Designations
include hedges of the exposure to changes in the fair value of a recognized
asset or liability, hedges of the exposure to variable cash flows of a
forecasted transaction, hedges of the exposure to foreign currency
translations, and derivatives not designated as hedging instruments. Statement
No. 133 is effective for fiscal years beginning after June 15, 1999. The
Company expects to adopt Statement No. 133 in the first quarter of the fiscal
year ending December 31, 2000; however, no disclosures are expected to be
required. The Company does not believe the adoption of this Statement will
have a material impact on its financial position or results from operations.
F-11
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Acquisitions
On February 23, 1998, the Company purchased certain cable television ROE
contracts and satellite cable television equipment from U.S. Online
Communications, LLC. The purchase resulted in the addition of 425 cable
television subscribers located in two properties in Atlanta, Georgia. The
purchase price was approximately $400 in cash and was accounted for pursuant
to the purchase method of accounting.
On June 9, 1998, the Company entered into a definitive agreement to acquire
certain video programming ROE contracts and microwave cable television
equipment of Preferred Entertainment, Inc., a subsidiary of People's Choice TV
Corp. ("PCTV") , which provided contractual rights to serve 28,270 MDU in 160
properties in the Chicago market. On July 1, 1998, August 10, 1998 and October
1, 1998 the Company completed closings acquiring such assets of PCTV for a
total consideration of $12,479 in cash. The PCTV acquisition was recorded
pursuant to the purchase method of accounting.
The results of operations of these acquisitions have been included in the
Company's consolidated financial statements from the date of acquisition
through the end of the period presented. The Company amortizes the goodwill
and other intangible assets acquired over a period of 10 to 15 years, on a
straight-line basis, based on the estimated future economic benefit to the
Company related to the assets acquired in connection with these transactions.
The Company is not obligated to make any further payments or provide any form
of additional or contingent consideration related to these acquisitions.
The following pro forma unaudited financial data is based upon the
historical financial statements of the Company for the year ended December 31,
1998 adjusted to give effect to (i) the series of acquisitions of certain
assets, liabilities, and operations of PCTV from July 1, 1998 through October
1, 1998; and (ii) certain purchase accounting adjustments related to the
amortization of goodwill and other intangible assets acquired in connection
with the PCTV series of transactions as if such transactions had occurred on
January 1, 1997. The pro forma adjustments are based upon available
information and certain assumptions that management believes are reasonable.
The pro forma financial data does not purport to represent what the Company's
operations would have actually been had such transaction in fact occurred on
January 1, 1997 or to predict the Company's results of operations.
<TABLE>
<CAPTION>
Adjustments Pro Forma
OnePoint to Reflect OnePoint
Communications PCTV Communications
Corp. Acquisition Corp.
-------------- ----------- --------------
For the Year Ended December 31, 1997
<S> <C> <C> <C>
Revenue............................. $ 43 $ 5,208 $ 5,251
Loss before extraordinary items..... (16,091) (1,991) (18,082)
Net loss............................ $ (16,091) $(1,991) $ (18,082)
--------- ------- ---------
Basic loss per share................ $ (16.09) $ (18.08)
--------- ---------
<CAPTION>
For the Year Ended December 31, 1998
<S> <C> <C> <C>
Revenue............................. $ 6,953 $ 2,632 $ 9,585
Loss before extraordinary items..... (44,625) (1,519) (46,144)
Net loss............................ $ (24,826) $(1,519) $ (26,345)
--------- ------- ---------
Basic loss per share................ $ (24.82) $ (26.34)
--------- ---------
Shares used in computing loss before
extraordinary item per share (1997
and 1998)
Weighted average common shares--
Basic............................ 1,000,000 1,000,000
--------- ---------
</TABLE>
F-12
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Restricted Cash
At December 31, 1998 the Company had restricted cash of $5,000 plus accrued
interest. These funds were held in this account in anticipation of meeting an
equity capital call for Mid-Atlantic, pending the successful outcome of
arbitration proceedings. On January 15, 1999 the Company entered into a
Settlement Agreement (the "Settlement Agreement") which resolved the disputes
covered by the arbitration demand (see Note 19 ). The Company also had $125 of
restricted cash at December 31, 1998 which represented security deposits on
certain leased office space.
5. Accounts Receivable
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December
31,
------------
1997 1998
---- ------
<S> <C> <C>
Customers................................................... $39 $2,487
Other....................................................... -- 6
--- ------
Total accounts receivable................................... 39 2,493
Allowance for doubtful accounts............................. (7) (216)
--- ------
Accounts receivable, net.................................... $32 $2,277
=== ======
</TABLE>
The Company provides an allowance for doubtful accounts for accounts
receivable amounts deemed uncollectible as determined by management. Activity
in the allowance for doubtful accounts was as follows:
<TABLE>
<CAPTION>
For the Period from Year Ended
March 14, 1996 December 31,
(inception) to ------------
December 31, 1996 1997 1998
------------------- ------------
<S> <C> <C> <C>
Opening balance......................... $-- $ -- $ 7
Bad debt charge-offs.................... -- -- (568)
Adjustments to reserves................. -- 7 777
---- ----- ------
Ending balance.......................... $-- $ 7 $ 216
==== ===== ======
</TABLE>
6. Investments in Marketable Securities
The table below is a summary of marketable securities, all of which were
classified as available-for-sale, as of December 31, 1998:
<TABLE>
<CAPTION>
Estimated
Unrealized Unrealized Accrued Fair
Cost Losses Gains Interest Value
-------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Non-restricted:
Corporate bonds............ $ 13,048 $-- $ 91 $188 $13,327
Commercial paper........... 12,637 -- -- 121 12,758
Mutual Funds............... 339 -- -- 21 360
Restricted:
U.S.Treasury Notes and
Securities................ 69,988 -- 610 -- 70,598
Money Market............... 2,780 -- -- -- 2,780
-------- ---- ---- ---- -------
$ 98,792 $-- $701 $330 $99,823
======== ==== ==== ==== =======
</TABLE>
The gross realized gains on sales of available-for-sale securities totaled
$916, and the gross realized losses totaled $544. The net adjustment to
unrealized holding gains (losses) on available-for-sale securities included as
comprehensive income in shareholders' equity totaled $701 in 1998. The Company
did not hold investments in marketable securities in 1996 or 1997.
F-13
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1998, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because the
issuers of the securities may have the right to prepay obligations without
prepayment penalties. The Company's restricted securities are comprised of the
Pledged Securities as discussed in Note 10. The Company has classified
restricted securities with an estimated fair value of approximately $27,270
which mature within twelve months as non-current investments in the
accompanying consolidated balance sheet.
<TABLE>
<CAPTION>
Estimated Fair
Cost Value
-------- --------------
<S> <C> <C>
Due in one year or less........................... $ 36,969 $37,248
Due after one year through three years............ 58,704 59,435
Due after three years............................. -- --
-------- -------
95,673 96,683
Mutual funds and money market..................... 3,119 3,140
-------- -------
$ 98,792 $99,823
======== =======
</TABLE>
7. Investment in Unconsolidated Subsidiaries
The Company has investments ranging from 41-50% in three companies and
accounts for those investments using the equity method.
The daily operations of Mid-Atlantic are managed by an entity which owns the
other 58.6% interest Mid-Atlantic. The Company maintains certain veto rights
on significant transactions and as defined in the operating agreement between
the unitholders.
Mid-Atlantic RMTS Holdings, LLC had no material operations, assets or
liabilities as of and for the period from March 14, 1996 (inception) to
December 31, 1996, and for the years ended December 31, 1997 and 1998.
During 1997, the Predecessor entered into a joint venture with South Central
Development Corporation ("SCDC") to form MAC Interactive. SCDC and its
affiliates hold the equity interests in Mid-Atlantic Telcom Plus, LLC that is
not owned by the Company. The initial capitalization of the joint venture was
used to purchase certain assets and marketing rights. Each member owns a 50%
equity interest. On January 15, 1999, the Company took over control of MAC
Interactive and committed to a formal plan to terminate the joint venture as
soon as practicable. The Company has estimated the loss on disposal of the
assets and liabilities of the joint venture to be approximately $1,096 and
that the Company's proportionate share of these losses will be approximately
$548. This loss has been reflected in the accompanying financial statements as
a component of losses from unconsolidated subsidiaries.
The results of operations and financial position of the Company's equity-
basis affiliates are summarized below for the years ended December 31, 1997
and 1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Condensed Operating Information:
Net sales............................................. $14,040 $16,494
Loss from operations.................................. (3,367) (3,919)
Net loss.............................................. (6,142) (7,717)
Condensed Balance Sheet Information:
Current assets........................................ $ 1,402 $ 2,192
Non-current assets.................................... 47,380 55,183
Current liabilities................................... 29,461 7,233
Non-current liabilities............................... 713 34,257
Net worth............................................. 18,608 15,885
</TABLE>
F-14
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investments in net assets of companies accounted for under the equity method
was as follows:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Opening Balance......................................... $ -- $10,061
Purchase of equity interests............................ 12,750 --
Equity losses of unconsolidated subsidiaries............ (3,072) (3,678)
Other investment costs.................................. 463 --
Amortization of other investment costs.................. (80) (80)
------- -------
Balance at December 31.................................. $10,061 $ 6,283
======= =======
</TABLE>
8. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Furniture and equipment................................. $ 462 $ 3,157
Computer equipment...................................... 738 1,942
Facility equipment...................................... -- 3,176
Vehicles................................................ 139 791
Leasehold improvements.................................. 816 1,828
------- -------
2,155 10,894
Less accumulated depreciation........................... (254) (1,409)
------- -------
1,901 9,485
Construction in progress................................ 803 1,438
------- -------
$ 2,704 $10,923
======= =======
</TABLE>
The Company recognized depreciation expense of $19, $235 and $1,155 in 1996,
1997 and 1998, respectively.
9. Intangible Assets
Intangible assets consist of the following as of December 31:
<TABLE>
<CAPTION>
1997 1998
----- -------
<S> <C> <C>
Issuance costs and original issuance discount on Notes.... $ -- $ 7,250
Goodwill.................................................. -- 4,937
Other..................................................... -- 30
----- -------
12,217
Accumulated amortization.................................. -- (668)
----- -------
$ -- $11,549
===== =======
</TABLE>
During 1998 the Company repurchased $41,000 of its 14 1/2% Senior Notes and
wrote off $2,111 of issuance costs and original issuance discount on the
Senior Notes, net of accumulated amortization of $107.
Amortization expense for the period from March 14, 1996 (Inception) to
December 31, 1996 and for the years ended December 31, 1997 and 1998 totaled
$0, $0 and $775, respectively.
Amortization related to the issuance costs and original issuance discount on
the Senior Notes of $552 in 1998 was recognized as a component of interest
expense.
F-15
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Long Term Debt
Unit Offering
During May 1998, the Company offered units each consisting of $1,000
principal amount of 14 1/2% Senior Notes due 2008 (the "Senior Notes") and
Warrants to purchase 111,125 shares of common stock (the "Warrants") for gross
proceeds of $175,000 (collectively, the "Unit Offering"). Each of the 175,000
Warrants entitles the holders to purchase 0.635 shares of common stock of the
Company at an exercise price of $0.01 per share. Unless exercised, the
Warrants expire on June 1, 2008. The Warrants were valued at $5,300 based on
independent appraisal thereof as of the issuance date and are reflected as an
additional debt discount in the accompanying financial statements.
In connection with the Unit Offering, the Company purchased $80,500 of
government securities (the "Pledged Securities") to fund the first seven
scheduled interest payments on the Senior Notes. These Pledged Securities are
pledged to a trustee for the benefit of the holders of the Senior Notes, and
secure a portion of the Company's obligations under the indenture with respect
to the Unit Offering (the "Indenture"). Pursuant to the restricted securities
agreement entered into in connection with the Unit Offering, the trustee is
allowed to release Pledged Securities in excess of the amount required to fund
the first seven scheduled interest payments on the Senior Notes, upon request
by the Company.
As of November 6, 1998, the date on which the Senior Notes and the Warrants
became separable, the Company recognized a discount of $5,300 on the book
value of the Senior Notes relating to the Warrants and will amortize this
amount over the life of the Senior Notes. Accordingly, $63 of amortization of
the discount of the Senior Notes resulting from the issuance of the Warrants
has been recorded in the accompanying financial statement for the year ended
December 31, 1998.
The Company completed open market purchases of Senior Notes having an
aggregate principal amount of $73,250 between November 9, 1998 and March 5,
1999 at various prices for an aggregate total cost of approximately $38,355,
including accrued interest and transaction fees. The Company recognized an
extraordinary gain on the early extinguishment of this debt of $19,799 in the
fourth quarter of 1998 and will recognize an extraordinary gain of
approximately $12,417 in the first quarter of 1999. Pursuant to the restricted
securities agreement entered into in connection with the Unit Offering, the
trustee of the Pledged Securities released approximately $26,650 on February
24, 1999 upon request by the Company.
The Senior Notes bear interest annually at 14 1/2% from the date of
issuance. Interest payments are due on June 1 and December 1 of each year,
commencing on December 1, 1998. During 1998, the Company paid $10,656 of
interest related to the Senior Notes and accrued approximately $32 of
liquidated damages as described below. The Company is not required to make
mandatory redemption or sinking fund payments under the Senior Notes. The
Senior Notes generally are not redeemable at the option of the Company at
anytime prior June to 1, 2003. Thereafter, the Senior Notes will be subject to
redemption at any time at the option of the Company, in whole or in part, at
the redemption prices (expressed as percentages of principal amount) set forth
below, plus any unpaid interest and liquidated damages, if any.
<TABLE>
<CAPTION>
Percentage
----------
<S> <C>
June 1, 2003 to May 31, 2004................................... 107.250%
June 1, 2004 to May 31, 2005................................... 104.833%
June 1, 2005 to May 31, 2006................................... 102.417%
June 1, 2006 and thereafter.................................... 100.000%
</TABLE>
In addition, the Company may redeem up to 35% of the aggregate principal
amount of issued Senior Notes at a redemption price of 114.5% of the principal
amount, plus unpaid interest and liquidated damages, if any,
F-16
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
with the net cash proceeds of one or more public or private offerings of
common stock generating net cash proceeds to the Company of at least $20,000
provided at least 65% of the aggregate principal amount of Senior Notes issued
remain outstanding immediately after such redemption.
In the event of a change in control, as defined in the Indenture, the
Company will be required to make an offer to each holder of Senior Notes to
repurchase all or any part of the Senior Notes at 101% of the aggregate
principal amount, plus unpaid interest and liquidated damages, if any.
Amounts outstanding under the Senior Notes were $130,003, net of a discount
of $3,997 relating to the value assigned to the Warrants, at December 31,
1998. Interest accrued under the Senior Notes at December 31, 1998 was $1,678.
In connection with the Unit Offering, the Company is required to comply with
specified covenants described in the Indenture. These covenants include
limitations on sales of subsidiaries and certain assets, mergers, and other
activities.
In connection with the May 1998 Unit Offering, the Company entered into a
Registration Rights Agreement (the "Registration Rights Agreement") pursuant
to which it agreed to file and use its best efforts to cause to become
effective the registration statement relating to an offer to exchange the
Senior Notes for substantially identical notes which are not subject to
restrictions on transfer that are applicable to the Senior Notes. The Company
filed the registration statement on September 18, 1998, as required under the
Registration Rights Agreement. The Registration Rights Agreement provides,
however, that if the registration statement has not been declared effective by
the Securities and Exchange Commission on or before November 17, 1998, then
liquidated
damages will accrue with respect to the Senior Notes. Such liquidated damages
accrue at a rate of $0.05 per week per $1,000 principal amount of Senior Notes
for the first 90 days beyond November 17, 1998, and thereafter increase by
$0.05 per week per $1,000 outstanding principal amount of the Senior Notes
each 90 day period, up to a maximum of $0.50 per week per $1,000 principal
amount of Senior Notes. Liquidated damages cease to accrue when the
registration statement is declared effective. As the registration statement
was not declared effective by November 17, the Company accrued approximately
$32 at December 31, 1998.
Term Note
On March 25, 1998, the Company entered into a term note with a bank (the
"Credit Facility"). Under the terms of the Credit Facility, the Company may
borrow up to $9,000. Through December 1998, the Company borrowed $8,750 with
the additional $250 of availability securing a letter of credit. Principal
payments begin on January 1,1999 with all balances payable on or before
January 1, 2003. The Credit Facility has mandatory repayment provisions upon
certain events. The Credit Facility is collateralized by certain of the
Company's assets and is guaranteed by SBC. As of December 31, 1998 the
outstanding principal balance was $8,750 and the amount available to the
Company under the Credit Facility was $0. At December 31, 1998, the Company
had accrued interest of $23 on the Credit Facility.
F-17
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following future minimum debt payments are required for the Company's
borrowings as of December 31, 1998:
<TABLE>
<S> <C>
1999............................. $ 250
2000............................. 500
2001............................. 2,250
2002............................. 3,500
2003............................. 2,250
Thereafter....................... 134,000
---------
142,750
Less
remaining debt discounts
attributable to warrants
issued......................... (3,997)
---------
$ 138,753
=========
</TABLE>
11. Stockholder's Equity
Pursuant to the Company's Recapitalization as described in Note 1, the
Company has authorized capital stock consisting of 2,000,000 shares of $0.01
par value common stock ("Common Stock") and 35,000 shares of $1.00 par value
preferred stock ("Preferred Stock").
Upon liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive pro rata the assets of the Company which
are legally available for distribution, after payment of all debts and other
liabilities and subject to the prior rights of any holders of Preferred Stock.
Each outstanding share of Common Stock is entitled to vote on all matters
submitted to a vote of stockholders. Subject to the prior rights of the
holders of Preferred Stock, the holders of outstanding shares of Common Stock
are entitled to receive dividends as determined, from time to time, by the
Board of Directors. The Indenture restricts the ability of the Company to pay
dividends on the Common Stock.
The Preferred Stock is not entitled to receive dividends; however, the
Company can not redeem, purchase, or otherwise acquire directly or indirectly
any junior securities or pay or declare dividends or make any distribution
upon any junior securities so long as the Preferred Stock is outstanding. The
Preferred Stock is not entitled to vote on matters upon which holders of the
Common Stock are entitled to vote unless the Company is non-compliant with
certain provisions of the Company's amended and restated articles of
incorporation (an "Event of Noncompliance"), at which time the holders of
Preferred Stock are entitled to elect an additional member of the Board of
Directors who shall have voting rights equal to the total number of board
members plus one. The Preferred Stock is redeemable by the Company at any time
in whole or in part, and the holders thereof have the right to demand
redemption if an Event of Noncompliance occurs, at a redemption price of
$1,000 per share. Upon liquidation, dissolution or winding up of the Company,
each holder of Preferred Stock is entitled to be paid before any distribution
or payment is made with respect to any other class of the Company's capital
stock, an amount in cash equal to the aggregate liquidation value of all
Preferred Stock held by such holder. "Liquidation Value" for any share of
Preferred Stock is equal to $1,000. The Preferred Stock does not accrue
dividends, and is not convertible into any other class of capital stock. The
Preferred Stock is entitled to certain anti-dilution rights in the event of a
stock split, dividend, combination, or other recapitalization.
12. Stock Appreciation Rights Plan
During 1998, the Company authorized the issuance of up to 166,669 stock
appreciation rights ("SARs") pursuant to the OnePoint Stock Appreciation
Rights Plan (the "Plan") and granted a total of 71,719 SARs with an exercise
price of $67.50 per SAR to certain officers and employees of the Company
pursuant to agreements with each grantee. All SARs issued have an expiration
date of 10 years and are subject to certain vesting
F-18
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
schedules, typically 5 years. The Company estimates the market value of SARs
issued based on a capitalization of discounted cash flow valuation model, as
adjusted for the current general market conditions and specific company
information. No compensation expense related to these stock appreciation
rights was recognized in the accompanying financial statements during 1998 as
the estimated market value was substantially lower than the exercise price at
date of grant. No form of stock based compensation was issued prior to 1998.
<TABLE>
<CAPTION>
Year Ended
Period from March 14, December
1996 (Inception) to 31,
December 31, -----------
1996 1997 1998
--------------------- ---- ------
<S> <C> <C> <C>
Stock appreciation rights outstanding,
beginning............................... -- -- --
Granted.................................. -- -- 71,719
Exercised................................ -- -- --
Forfeited................................ -- -- 1,975
--- --- ------
Stock appreciation rights outstanding,
ending.................................. -- -- 69,774
=== === ======
</TABLE>
The Company had no SARs that were exercisable as of December 31, 1998. The
weighted average grant-date estimated market value of common stock underlying
the SARs granted during the year ended December 31, 1998 was approximately $8
per share. Had the Company adopted the employee stock compensation measurement
provisions of Statement No. 123, net loss and basis net loss per share, on a
pro forma basis assuming no other adjustments, would have been the same as
reported amounts.
The Company's estimation of the fair value of stock appreciation rights
granted during 1998 was estimated on the grant date using the Black-Scholes
option pricing model. The following assumptions were used for grants made in
1998: no dividend yield; zero volatility; risk-free interest rate of 6
percent; and an expected life of ten years.
13. Related Party Transactions
Affiliate Receivable
As of December 31, 1997 and 1998, the Company had receivable balances from
Mid-Atlantic primarily resulting from a shared cash receipts lockbox totaling
approximately $33 and $653, respectively.
Other
Certain officers of the Company are officers of VIC and VIC2.
The Company shares certain operations and billing systems with Mid-Atlantic,
a company in which the Company holds a 41.4% interest. The Company paid
approximately $0, $250 and $836 for services provided by this company in 1996,
1997 and 1998, respectively.
At December 31, 1997 and 1998, the Company had accrued $203 and $208 in
accounts payable related to reimbursement for seconded employees provided by
SBC. SBC has guaranteed certain leases and other obligations of the Company.
The Company entered into a professional services agreement with The VenCom
Group, Inc. in April 1998, pursuant to which The VenCom Group, Inc. provides
financial and management consulting services and manages the Company's
relationships with VIC2 and SBC. Under this agreement, The VenCom Group, Inc.
receives an annual management fee of $750 and a fee of 2% of the amount of any
capital raising activity or acquisition
F-19
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
activity of the Company, including debt and equity placements. Fees payable
under the agreement are subject to an annual cap of $900, provided that if the
amount paid in any calendar year is less than $900, the annual cap in the next
calendar year shall be equal to the difference between $1,800 and the amount
paid in the previous calendar year and further provided that amounts owed in
excess of the cap in any year may be paid in one or more subsequent years if
and to the extent they are within the cap in such years. The Company accrued
consulting fees payable of $3,500 from the Unit Offering, of which,
approximately $3,350 remained unpaid as
of December 31, 1998. Amortization of this debt issuance cost has been
recognized as a component of interest expense. Under this agreement, the
Company paid The VenCom Group, Inc. $900 during 1998.
14. Income Taxes
The Company was treated as a partnership for income tax purposes until
incorporation in April 1998. Accordingly, no provision or benefit for income
taxes has been included in the financial statement for any period prior to
April 1998 as taxable income or loss passes through to and is reported by
unitholders individually. As of December 31, 1998, the Company had net tax
operating loss carryforwards of approximately $20.3 million, which were
generated from April 1998 through December 31, 1998 will expire through 2018.
Net operating loss carryforwards may be used to offset future taxable income
generated by the Company. All loss carryforwards may be limited in the future
in the event of significant changes in the ownership of the Company.
The Company had net deferred tax assets of approximately $8.3 million at
December 31, 1998. The components of net deferred tax assets consist primarily
of net operating loss carryforwards and current nondeductible reserves. The
benefit of deferred tax assets are recorded to the extent that management
believes the realization of such deferred tax assets to be "more likely than
not." As of December 31, 1998, the Company has incurred losses since inception
and management does not believe taxable income will be achieved in the near
future. Accordingly, management has fully reserved the net deferred tax assets
due to uncertainty of the ultimate realization of any benefit from such
assets.
The effective income tax rate differs from the statutory federal income tax
rate due principally to the following:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Federal tax rate (benefit)................................... 34.0%
State tax, net of federal tax................................ (7.0)
Valuation allowance.......................................... 33.8
Nondeductible expenses....................................... 6.9
Change in entity tax status.................................. (0.1)
Other........................................................ 0.4
----
Effective rate............................................... 0.0%
====
</TABLE>
The net deferred tax liabilities in the accompanying balance sheets include
the following components:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Deferred tax asset and other temporary differences
deductible in the future.................................... $ 88
Deferred tax asset for net operating loss.................... 8,258
Valuation allowance.......................................... (8,346)
-------
Net deferred tax liability................................... $ --
=======
</TABLE>
F-20
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Fringe Benefit Plans
The Company has a 401(k) Savings Plan and Trust for the benefit of all
employees who meet certain eligibility requirements. The plan documents
provide for the Company to make defined contributions as well as matching and
other discretionary contributions, as determined by the Board of Directors.
The Company contributed $0, $0, and $47 to the 401(k) Savings Plan and Trust
during the period from March 14, 1996 (Inception) to December 31, 1996 and for
the years ended December 31, 1997 and 1998, respectively.
16. Leases
The Company currently leases office space and equipment under non-cancelable
operating leases. The future minimum lease payments under non-cancelable
operating leases at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1999.............................................................. $ 1,638
2000.............................................................. 1,682
2001.............................................................. 1,736
2002.............................................................. 1,712
2003.............................................................. 1,061
Thereafter........................................................ 2,190
-------
Total............................................................. $10,019
=======
</TABLE>
Most leases provide for the pass through of increases in operating expenses
and real estate taxes. Rent expense for 1996, 1997 and 1998 was approximately
$79, $629 and $1,107, respectively.
17. Other Information
During 1998, the Company made cash payments of $10,656 and $0 for interest
and income taxes, respectively, and recapitalized long-term debt totaling
$1,500 through the issuance of preferred stock. During 1996 and 1997, the
Company made no cash payments for interest or income taxes.
The Company is from time to time party to litigation arising in the ordinary
course of its business. The Company believes that such litigation will not
have a material impact on the Company's financial position or results from
operations.
Approximately 0%, 50% and 70% of the Company's cost of revenues for the
period from March 14, 1996 (Inception) to December 31, 1996 and for the years
ended December 31, 1997 and 1998, respectively, were purchased from 5
suppliers, each of whom supplied more than 10% of the total cost of revenues
during such periods.
18. Arbitration Proceedings
On August 6, 1998 the OPC Holdings made a demand for arbitration of certain
disputes under the Mid-Atlantic operating agreement. The arbitration demand
sought the resolution of several disputes between the parties, including among
other things, whether the Company was entitled to disclose Mid-Atlantic's
financial results in connection with the Company's exchange offer registration
statement. On January 15, 1999 OPC Holdings, Mid-Atlantic and other related
parties entered into a Settlement Agreement which resolved the disputes
covered by the arbitration demand. The Settlement Agreement provides, among
other things, that Mid-Atlantic would provide the necessary financial
information regarding Mid-Atlantic for the exchange offer and OPC Holdings'
periodic filings under the Security Exchange Act of 1934, as amended. Also as
part of the Settlement Agreement, the parties agreed to the formation of a new
holding company, Mid-Atlantic Telcom Plus Holding, LLC to own the membership
interests of Mid-Atlantic.
F-21
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
19. Segment Information
The Company's reportable segments are segregated into business units that
offer services to four distinct geographic regions; (i) Atlanta, Georgia and
Charlotte/Raleigh/Durham, North Carolina (the "Southeast Region"), (ii)
Chicago, Illinois (the "Central Region"), (iii) Denver, Colorado and Phoenix,
Arizona (the "Western Region"), and (iv) Washington, DC/Baltimore,
MD/Philadelphia, PA (the "Mid-Atlantic Region"). The Company's services to
each segment include a combination of telephony, video and/or high-speed
Internet access services.
The Company evaluates performance and allocates resources based on operating
profit or loss. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies. The
Company and its subsidiaries carry their investments in affiliates on the
equity method of accounting. Accordingly, certain segments have recognized
equity in the earnings of other segments and their proportionate share of the
assets and liabilities of investments in affiliates. All such amounts have
been included in the reported financial information for the business segments.
The Company's segments do not provide services to each other; therefore, there
were no inter-segment sales or related cost of sales during the periods
presented.
F-22
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table provides certain financial information for each business
segment:
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Central Region................................. $ -- $ -- $ 2,690
Mid-Atlantic Region............................ -- 43 1,660
Southeast Region............................... -- -- 1,670
Western Region................................. -- -- 911
Other.......................................... -- -- 22
-------- -------- --------
$ -- $ 43 $ 6,953
======== ======== ========
Loss from operations:
Central Region................................. $ (663) $ (3,138) $ (5,817)
Mid-Atlantic Region............................ (556) (4,686) (11,772)
Southeast Region............................... -- (2,853) (6,938)
Western Region................................. -- (2,411) (5,585)
Other.......................................... (821) 25 (1,028)
-------- -------- --------
$(2,040) $(13,063) $(31,140)
======== ======== ========
Identifiable assets:
Central Region................................. $ 57 $ 1,039 $ 15,515
Mid-Atlantic Region............................ 287 1,860 4,378
Southeast Region............................... -- 595 2,206
Western Region................................. -- 465 908
Other.......................................... 13,687 15,722 126,300
-------- -------- --------
$ 14,031 $ 19,681 $149,307
======== ======== ========
Capital expenditures:
Central Region................................. $ 8 $ 816 $ 4,677
Mid-Atlantic Region............................ 172 1,004 1,200
Southeast Region............................... -- 364 837
Western Region................................. -- 199 390
Other.......................................... 337 57 2,270
-------- -------- --------
$ 517 $ 2,440 $ 9,374
======== ======== ========
Depreciation and amortization:
Central Region................................. $ -- $ 94 $ 684
Mid-Atlantic Region............................ 2 57 287
Southeast Region............................... -- 30 111
Western Region................................. -- 20 74
Other.......................................... 17 34 299
-------- -------- --------
$ 19 $ 235 $ 1,455
======== ======== ========
</TABLE>
F-23
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
20. Consolidating Condensed Financial Statements
The Company's consolidating condensed financial statements for the (i)
Company, (ii) its wholly-owned subsidiaries (OnePoint Communications-Illinois
LLC, OnePoint Communications-Colorado LLC, OnePoint Communications-Georgia LLC
and OnePoint Communications Holdings, LLC), on a combined basis, which are
guarantors under the Senior Notes, and (iii) its majority owned subsidiary
(VIC-RMTS-DC, LCC) which is a guarantor under the Senior Notes as required by
the Securities and Exchange Commission's Staff Accounting Bulletin No. 53
follows.
Consolidating Condensed Balance Sheets as of
December 31, 1997 and 1998
<TABLE>
<CAPTION>
Majority
Wholly Owned Owned
Guarantor Guarantor Consolidated
Parent Subsidiaries Subsidiary Eliminations Total
-------- ------------ ---------- ------------ ------------
December 31, 1997
<S> <C> <C> <C> <C> <C>
Current assets.......... $ 5,496 $ 548 $ 615 $ -- $ 6,659
Noncurrent assets....... 11,462 12,543 1,245 (12,228) 13,022
Current liabilities..... 85 1,628 1,111 (16) 2,808
Noncurrent liabilities.. 1,500 -- -- -- 1,500
Redeemable preferred
stock.................. -- -- -- -- --
Minority interests...... -- -- -- -- --
Total unitholders'
equity 15,373 11,463 749 (12,212) 15,373
<CAPTION>
December 31, 1998
<S> <C> <C> <C> <C> <C>
Current assets.......... $ 24,769 $ 2,141 $ 965 $ -- $ 27,875
Noncurrent assets....... 119,415 25,790 3,413 (27,186) 121,432
Current liabilities..... 7,553 4,060 1,063 -- 12,676
Noncurrent liabilities.. 138,503 -- -- -- 138,503
Redeemable preferred
stock.................. 35,000 -- -- -- 35,000
Minority interests...... -- -- -- -- --
Total stockholders'
equity/(deficit)........ (36,872) 23,871 3,315 (27,186) (36,872)
</TABLE>
F-24
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidating Condensed Statements of Operations
for the Period from March 14, 1996 (Inception) to December 31, 1996
and for the Years Ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
Majority
Wholly Owned Owned
Guarantor Guarantor Consolidated
Parent Subsidiaries Subsidiary Eliminations Total
------------- --------------- ------------- ------------------------------
For the Period from March 14, 1996 (Inception) to December 31, 1996
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ -- $ --
Cost of revenues........ -- -- -- -- --
Loss from continuing
operations before
extraordinary items.... (2,036) (1,827) (670) 2,497 (2,036)
Net loss................ $ (2,036) $ (1,827) $ (670) $ 2,497 $ (2,036)
<CAPTION>
For the Year Ended December 31, 1997
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ 43 $ -- $ 43
Cost of revenues........ -- -- 83 -- 83
Loss from continuing
operations before
extraordinary items.... (16,091) (16,135) (4,686) 20,821 (16,091)
Net loss................ $ (16,091) $ (16,135) $ (4,686) $ 20,821 $ (16,091)
<CAPTION>
For the Year Ended December 31, 1998
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ 5,293 $ 1,660 $ -- $ 6,953
Cost of revenues........ -- 5,925 2,840 -- 8,765
Loss from continuing
operations before
extraordinary items.... (44,625) (33,567) (11,772) 45,339 (44,625)
Net loss................ $ (24,826) $ (33,567) $ (11,772) $ 45,339 $ (24,826)
</TABLE>
21. Subsequent Events
On March 30, 1999, OPC Holdings filed a demand for arbitration seeking a
declaratory ruling on the equity ownership of VIC-RMTS-DC, LLC. OPC Holdings
believes that the value of the assets contributed by Mid-Atlantic RMTS
Holdings, LLC was sufficient to give Mid-Atlantic RMTS Holdings, LLC only an
approximate 5% interest based on capital contributions through December 31,
1998. The manager of Mid-Atlantic RMTS Holdings, LLC has suggested that they
are entitled to an unspecified, but higher, equity interest in VIC-RMTS-DC,
LLC. OPC Holdings will be entitled only to that portion of any distributions
made by VIC-RMTS-DC, LLC corresponding to its percentage equity ownership
therein.
F-25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Members of
the Mid-Atlantic Telcom Plus, LLC
Washington, D.C.
We have audited the accompanying balance sheets of Mid-Atlantic Telcom Plus,
LLC as of December 31, 1998 and 1997, and the related statements of
operations, changes in members' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mid-Atlantic Telcom Plus,
LLC as of December 31, 1998 and 1997, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
Beers & Cutler PLLC
Washington, D.C. February 19, 1999
F-26
<PAGE>
MID-ATLANTIC TELCOM PLUS, LLC
BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Assets
Current Assets
Cash............................................... $ 359,065 $ 154,102
Accounts Receivable--trade, net of allowance for
doubtful accounts of $191,207 and $248,287........ 1,119,000 1,112,763
Accounts receivable--other......................... 445,848 43,293
Prepaid expenses and other assets.................. 268,488 144,740
----------- -----------
Total current assets............................. 2,192,401 1,454,898
----------- -----------
Fixed Assets
Cable TV systems, net of accumulated depreciation
of
$4,859,157 and $2,423,216......................... 18,838,667 13,223,221
Other property and equipment, net of accumulated
depreciation of
$923,238 and $419,133............................. 2,249,085 1,784,735
----------- -----------
Total fixed assets............................... 21,087,752 15,007,956
----------- -----------
Intangible assets
Goodwill........................................... 39,059,812 33,827,273
Loan origination costs............................. 758,635 1,143,650
Other intangible assets............................ 1,764,898 491,119
Accumulated amortization........................... (7,622,960) (3,840,159)
----------- -----------
Total intangible assets.......................... 33,960,385 31,621,883
----------- -----------
Total assets..................................... $57,240,538 $48,084,737
=========== ===========
Liabilities and Members' Equity
Current liabilities
Accounts payable--trade............................ $ 3,287,507 $ 2,168,064
Accrued expenses................................... 1,309,578 1,259,253
Accrued interest--CIBC............................. 168,558 312,222
Accrued interest--Allied........................... 331,048 --
Due to affiliates, net............................. 947,169 234,821
Deferred revenue................................... 764,490 784,764
Current maturities of notes payable--other......... 213,324 265,811
Current maturities of leases payable............... 197,155 115,061
Deferred rent--current............................. 10,706 8,088
----------- -----------
Total current liabilities........................ 7,229,535 5,148,084
----------- -----------
Long-term liabilities
Note payable--CIBC................................. 22,757,296 24,197,296
Subordinated debt--Allied.......................... 10,751,826 --
Notes payable--other............................... 250,000 457,017
Other long-term liabilities........................ 215,573 169,382
Leases payable..................................... 282,746 255,770
----------- -----------
Total long-term liabilities...................... 34,257,441 25,079,465
----------- -----------
Total liabilities................................ 41,486,976 30,227,549
Members' Equity...................................... 15,753,562 17,857,188
----------- -----------
Total Liabilities and Members' Equity............ $57,240,538 $48,084,737
=========== ===========
</TABLE>
F-27
<PAGE>
MID-ATLANTIC TELCOM PLUS, LLC
STATEMENTS OF OPERATIONS
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenue
Cable TV revenue................................... $16,493,994 $14,039,818
----------- -----------
Operating Expenses
Operating.......................................... 18,588,140 15,520,687
Selling, general and administrative................ 1,827,321 1,886,599
----------- -----------
Total operating expenses......................... 20,415,461 17,407,286
Loss from operations............................... (3,921,467) (3,367,468)
Other income (expense)
Interest income.................................... 26,217 186,129
Interest expense................................... (3,191,034) (3,001,174)
(Loss) gain on disposal of assets.................. (17,342) 39,701
----------- -----------
Total other income (expense)..................... (3,182,159) (2,775,344)
----------- -----------
Net loss............................................. $(7,103,626) $(6,142,812)
=========== ===========
</TABLE>
F-28
<PAGE>
MID-ATLANTIC TELCOM PLUS, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
Years Ended December 31, 1998 And 1997
<TABLE>
<CAPTION>
OnePoint
Mid-Atlantic Communications
Holdings, LLC Holdings, LLC Total
============= -------------- -----------
<S> <C> <C> <C>
Balance, January 1, 1997.............. $ -- $ -- $ --
Contributions....................... 12,000,000 12,000,000 24,000,000
Net loss............................ (3,071,406) (3,071,406) (6,142,812)
----------- ----------- -----------
Balance, January 1, 1998.............. 8,928,594 8,928,594 17,857,188
Contributions....................... 5,000,000 -- 5,000,000
Net loss............................ (4,035,663) (3,067,963) (7,103,626)
----------- ----------- -----------
Balance, December 31, 1998............ $ 9,892,931 $ 5,860,631 $15,753,562
=========== =========== ===========
</TABLE>
F-29
<PAGE>
MID-ATLANTIC TELCOM PLUS, LLC
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998 And 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from Operating Activities
Net loss......................................... $ (7,103,626) $ (6,142,812)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.................. 7,956,365 6,682,508
Loss (gain) on disposal of assets.............. 17,342 (39,701)
Changes in current assets and liabilities, net
of contributed amounts in 1997
Accounts receivable--trade and other......... (408,792) (69,468)
Prepaid and other assets..................... (123,748) 126,329
Accounts payable, accrued interest payable,
accrued expenses and deferred rent.......... 1,657,791 (941,529)
Due to affiliates, net....................... 347,344 (3,416,693)
Deferred revenue............................. (20,274) (45,688)
------------ ------------
Net cash provided by (used in) Operating
Activities................................ 2,322,402 (3,847,054)
------------ ------------
Cash flows from Investing Activities
Capital expenditures............................. (9,154,465) (5,210,216)
Proceeds from sale of fixed assets............... 15,310 193,139
Acquisition of intangible assets................. (7,015,846) (2,601,597)
------------ ------------
Net cash used in Investing Activities...... (16,155,001) (7,618,674)
------------ ------------
Cash flows from Financing Activities
Capital Contribution--holdings, net of non-cash
contribution of assets and liabilities in 1997.. 5,000,000 184,702
Capital contribution--OPC........................ -- 12,000,000
Proceeds from issuance of subordinated debt...... 10,500,000 --
Repayments of debt, net.......................... (1,699,504) (1,249,164)
Advances from affiliate.......................... 365,000 --
Repayments of leases payable..................... (127,934) (125,277)
Proceeds from issuance of long-term debt......... -- 809,569
------------ ------------
Net cash provided by Financing Activities.. 14,037,562 11,619,830
------------ ------------
Net increase in cash and cash equivalents.......... 204,963 154,102
Cash and cash equivalents, beginning of year....... 154,102 --
------------ ------------
Cash and cash equivalents, end of year............. $ 359,065 $ 154,102
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest............................ $ 2,655,883 $ 2,553,752
============ ============
</TABLE>
F-30
<PAGE>
MID-ATLANTIC TELCOM PLUS, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. Organization
Mid-Atlantic Telcom Plus, LLC (the "Company" on pp. F-28 to F-39.) was
formed as of January 1, 1997 under the laws of Delaware as a limited liability
company. The Company was formed when Mid-Atlantic Cable Development Company
Limited Partnership, a Maryland Limited Partnership (DevCo), Mid-Atlantic CATV
Limited Partnership, a Maryland Limited Partnership (NewCo) and Mid-Atlantic
Cable Service Company, Inc., a Virginia Corporation (MCSC), collectively
referred to as the Mid-Atlantic Cable Companies, contributed all of their
assets and liabilities to Mid-Atlantic Cable Holdings, LLC ("Holdings").
Holdings simultaneously contributed these assets and liabilities to the
Company for an original 50% ownership interest. The remaining original 50%
ownership interest was owned by OnePoint Communications Holdings LLC ("OPC"),
formerly known as VIC RMTS Holdco, LLC.
Except for certain matters specified in the Operating Agreement between
Holdings and OPC, which require a supermajority vote of 80%, voting control is
held by Holdings.
In 1997, Holdings contributed tangible and intangible assets with a fair
value of $48,020,000 (including cash of $184,702 and goodwill of $21,966,000
created at the time of contribution), liabilities with a fair value of
$36,020,000, and received ownership in the Company with a fair value of
$12,000,000. During 1997, OPC contributed $12,000,000 in cash for its original
ownership interest. Holdings contributed an additional $5,000,000 in cash to
the Company in 1998.
On August 6, 1998 OPC made a demand for arbitration of certain disputes
under the Operating Agreement. On January 15, 1999, the Company, OPC and other
related parties entered into a settlement agreement related to matters covered
by the August 1998 demand for arbitration. The issues were settled. As part of
the settlement, the parties agreed to the formation of a new holding company,
Mid-Atlantic Telcom Plus Holding, LLC ("Telcom Plus Holding") to own the
membership interest in the Company. Telcom Plus Holding is controlled and
owned 58.6% by Holdings. The remaining 41.4% is held by OPC. The creation of
this new entity eliminates the need for OPC's and Holdings' direct pledge of
their membership interests in the Company to CIBC as collateral for the CIBC
Reducing, Revolving Credit Facility.
The Company and an OPC affiliate do business under the name OnePoint
Communications providing bundled cable and telephone services in Washington,
D.C., Maryland, Virginia, Pennsylvania, New Jersey and Delaware. The Company
will cease use of the OnePoint name on April 1, 1999 and begin doing business
under the name Mid-Atlantic Communications.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents--The term cash, as used in the accompanying
financial statements, includes cash on deposit with financial institutions,
cash on hand and short-term liquid investments purchased with a maturity of
three months or less.
The Company maintains its cash in bank deposit accounts that, at times,
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant
credit risk on cash.
Fixed Assets--Cable TV systems and other property and equipment are recorded
at cost and depreciated using the straight-line method over their estimated
useful lives of 10 and 5 years, respectively. Depreciation expense was
$3,279,021 and $2,842,349 in 1998 and 1997, respectively.
F-31
<PAGE>
MID-ATLANTIC TELCOM PLUS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
Intangible Assets--Intangible assets are amortized using the straight-line
method over their estimated useful lives ranging from 3 to 15 years.
Amortization expense was $4,677,344 and $3,840,159 in 1998 and 1997,
respectively.
The Company has classified as goodwill the cost in excess of fair value of
net assets of companies acquired that were accounted for as purchase
transactions. At each balance sheet date, the Company evaluates the
realizability of goodwill based on the related cable system contracts.
Deferred Revenue--Deferred revenue is reported on the balance sheet for
amounts which have been billed
to customers in advance and therefore not yet earned. These advance charges
are also included in accounts receivable.
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, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities.
Actual results may differ from estimates.
Income Taxes--No provision for federal and state income taxes has been made
in the accompanying financial statements of the limited liability company as
profits and losses of the Company are reported by the members on their
respective income tax returns.
Prior Year Reclassification--In the accompanying financial statements,
certain prior year balances have been reclassified to conform to current year
classifications.
3. Cable TV Systems Acquisitions
In February 1997 and throughout 1998 the Company acquired several cable TV
systems located throughout Maryland, Pennsylvania, New Jersey and Delaware.
The 1998 acquisitions, totaling approximately $9.3 million, were completed
between February and October 1998. The accompanying statements of operations
include the results of operations for the acquired systems from the dates of
acquisition. These acquisitions have been accounted for using the purchase
method. The purchase price has been allocated to the tangible cable TV assets
acquired based on their estimated fair values. The excess of the purchase
price over tangible assets received allocable to goodwill is $5,497,836 and
$2,000,000 for 1998 and 1997, respectively.
One of the above acquisitions, serving approximately 60 multiple dwelling
units in and around Philadelphia, uses a wireless technology to deliver
programming. Within the terms of the purchase contract, the seller (CAI)
agreed to operate the newly acquired systems until each system could be
technically converted from the wireless system to the Company's private cable
system signal distribution system. During this period, which is expected to be
completed by September 1999, the Company pays a management fee to CAI equal to
70% of gross revenue of those systems remaining on the wireless system. In
addition, the purchase contract provided for a 90 day right to return to CAI
any system serving any of these multiple dwelling units which the Company
determines are undesirable. The 90 day period expired on January 1, 1999.
Effective January 1, 1999 seven systems valued at approximately $400,000 were
returned to the seller and related escrow proceeds were released to the
Company; accordingly, the purchase price has been reduced by $400,000 and a
corresponding amount is included in Accounts receivable--other. The purchase
contract also allows for offsets due to losses incurred by the Company for any
unpaid seller liability, taxes, copyright payments, programming charges or
subscriber deduction not credited at closing. The offset period ends six
months after the technical conversion of the wireless system to a private
cable system. Approximately $741,000 of the purchase price paid by the Company
is escrowed by CAI at December 31, 1998.
F-32
<PAGE>
MID-ATLANTIC TELCOM PLUS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Long-Term Debt
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Notes Payable to Financial Institutions
CIBC (As Agent) Term Loan (including Expansion) in
the original amount of $23,125,000 bearing interest
based on either CIBC's base rate plus 4% or LIBOR
plus 5% (10.94% at December 31, 1997). Interest
payments were paid monthly. The loan was
renegotiated and amended as described below........ $ -- $ 21,636,296
CIBC Revolving Line of Credit in the amount of
$5,500,000 bearing interest based on either CIBC's
base rate plus 4% or LIBOR plus 5% (10.94% at
December 31, 1997). Interest payments were paid
monthly. The loan was renegotiated and amended as
described below.................................... -- 2,561,000
The above CIBC loans were renegotiated in June 1998
to the following:
CIBC Reducing, Revolving Credit Facility, dated June
1998 in the amount of $30,000,000. The applicable
interest margin is determined based on the
Company's leverage ratio. The margin applicable to
the Company's current leverage ratio is based on
either CIBC's base rate plus 2.25% or LIBOR plus
3.25% (8.375% at December 31, 1998.) Interest
payments are paid monthly or quarterly............. 22,757,296
Subordinate Debt--Allied Capital
Subordinate debenture dated June 18, 1998, maturing
June 2006, in the original amount of $5,000,000.
Amended September 1998 for additional borrowings of
$5,500,000. Note bears interest at 18% of which 12%
is payable for twenty calendar quarters and 6% is
deferred. The remaining deferred interest also
accrues compound interest at 18%. Deferred interest
converted to long-term notes payable totaled
$251,826 in 1998. Commencing June 2003 until
maturity, quarterly payments of deferred interest
and principal will be required. Compound interest
on deferred interest is due at maturity............ 10,751,826
Notes Payable--Other
Promissory note payable to Cecilton CATV, Inc. dated
February 1, 1997 in the original amount of
$800,000. The note bears interest at 8.5% per
annum. The note requires quarterly principal
payments of $50,000 plus accrued interest. The note
matures in February 2001........................... 456,392 659,318
Promissory note payable to former owners of an
acquired business, dated November 15, 1996, in the
original amount of $100,000. The note bore interest
at 8% per annum. Eight quarterly principal payments
of $12,500 plus interest were due. The note was
paid in full as of November 30, 1998............... -- 50,340
Note payable bearing interest at 10.50%. Monthly
principal and interest payments of $611 are
required. The note matures in December 1999. 6,932 13,170
----------- ------------
Total Notes Payable............................... $33,972,446 $ 24,920,124
----------- ------------
</TABLE>
Borrowings under the CIBC Reducing, Revolving Credit Facility (The CIBC
Facility) for 1998 were limited to $27,136,296. As discussed in Note 1, the
formation of Telcom Plus Holding eliminates the OPC pledge. Therefore,
borrowing capacity from CIBC was increased to $30,000,000 in 1999. The CIBC
Facility shall be automatically and permanently reduced on each quarterly date
commencing March 31, 2000 until maturity on December 31, 2004. As of December
31, 1997, obligations to CIBC under the Term Loan were classified as long-term
as a result of the Company entering into the CIBC Loan.
F-33
<PAGE>
MID-ATLANTIC TELCOM PLUS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
The CIBC Facility is subject to certain restrictive covenants with respect
to maintaining certain ratios of operating cash flows to total debt, principal
and interest payments. Allied Capital Subordinated Debt is subject to the same
covenants as required by CIBC. During 1998 and 1997, the Company was not in
compliance with certain of the financial covenants. Waivers of default have
been received from the lenders related to these covenants.
The Company has entered into interest rate swap agreements with CIBC, to
reduce the impact of changes in interest rates on its debt. The swap agreement
effectively converts a portion of the variable rate debt to fixed rate debt to
reduce the risk of incurring higher interest costs. The interest rate swaps
are settled and paid quarterly by an adjustment to interest expense. No
amounts were receivable or payable under the swap agreements at December 31,
1998 and 1997. The notional amounts of interest rate agreements are used to
measure interest to be paid or to be received and do not represent the amount
of exposure to credit loss. At December 31, 1998 and 1997, the notional amount
was $13,000,000 and $9,000,000, respectively, with a fixed payment rate of
5.2% and 6.07%.
The CIBC Facility is collateralized by all of the assets, the assignment of
all franchise agreements, SMATV agreements and other material agreement owned
by the Company and the assignment of all general and limited partnership
interests in NewCo and Devco, the outstanding stock in MCSC, the
members'equity interests in the Company and Holdings, a $1.4 million guaranty
by the President of the Company and an assignment of the proceeds of a $1
million life insurance policy of the President of the Company.
The maturities of the above loans are as follows:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1999......................................................... $ 213,324
2000......................................................... 200,000
2001......................................................... 307,296
2002......................................................... 6,000,000
2003......................................................... 7,075,183
Thereafter................................................... 20,176,643
------------
$ 33,972,446
============
</TABLE>
5. Lease Commitments
The Company is obligated under operating leases for premises occupied with
minimum lease terms expiring at various times through 2008. Certain of these
leases contain escalation clauses for increases based upon increases in
operating expenses and real estate taxes. The Company has entered into a
sublease for a portion of its primary office location. The Company also has
several operating leases for other operating equipment. Total rent expense was
$439,632 and $391,233 for 1998 and 1997, respectively. The following future
minimum rental payments, net of sublease receipts, are required under
noncancellable operating leases with terms in excess of one year:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1999.......................................................... $ 750,184
2000.......................................................... 762,849
2001.......................................................... 774,066
2002.......................................................... 793,277
2003.......................................................... 853,918
Thereafter.................................................... 3,703,606
-----------
$ 7,637,900
===========
</TABLE>
F-34
<PAGE>
MID-ATLANTIC TELCOM PLUS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
Lease commitments do not reflect payments to be made by an OPC affiliate who
is jointly obligated with the Company on certain lease agreements. Expected
lease payments by the OPC affiliate are as follows:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1999.......................................................... $ 372,023
2000.......................................................... 380,793
2001.......................................................... 389,811
2002.......................................................... 386,401
2003.......................................................... 381,885
Thereafter.................................................... 1,749,633
-----------
$ 3,660,546
===========
</TABLE>
During 1998 and 1997, the Company purchased $237,303 and $232,181,
respectively, in property and equipment through issuance of capital lease
obligations. The amounts of leased equipment included in other property and
equipment, net of accumulated depreciation of $309,275, totals $533,006. The
following future lease payments are required as of December 31, 1998:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1999.......................................................... $ 261,454
2000.......................................................... 186,503
2001.......................................................... 145,068
---------
593,025
Less: amounts representing interest........................... (113,124)
---------
$ 479,901
=========
</TABLE>
6. Related Party Transactions
The Company and an OPC affiliate jointly operate a customer support and
operations center (the "Operations Center"). Personnel assigned to the
Operations Center are directly employed and paid by either the Company or the
OPC affiliate. Rent, utilities and other office support costs of the
Operations Center are allocated to the Company or the OPC affiliate. The
allocation is based on the proportional number of employees assigned to the
Operations Center by the Company or the OPC affiliate. The Company believes
its costs related to the Operations Center if operated on a stand alone basis
would have been comparable to amounts allocated to it under the joint
operation with the OPC affiliate. In addition, the companies share a lockbox
in which customers' payments are deposited, which is controlled by the
Company. At December 31, 1998 and 1997, the Company owed the OPC affiliate
approximately $680,000 and $56,000, respectively, related to these
relationships. During 1997, the OPC affiliate reimbursed the Company $221,186
in accordance with the cost sharing agreement.
In accordance with the Contribution Agreement between and among DevCo,
NewCo, MCSC, Holdings and OPC, the Company made a payment of $2,250,000 to
DevCo in February 1997. The liability for payment was included in liabilities
contributed by Holdings.
In February 1997, the Company paid $1,093,000 to an entity affiliated with
Holdings to satisfy a note obligation that was included in liabilities
contributed by Holdings.
During 1997, the Company paid $434,310 to its chief executive officer to
satisfy a liability contributed by Holdings.
F-35
<PAGE>
MID-ATLANTIC TELCOM PLUS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
Included in Due to Affiliates at December 31, 1998 is $365,000 due to DevCo.
The amount represents a $350,000 note bearing interest at 8%. Repayment of the
note is subject to CIBC approval.
The Company provides certain administrative, management, and customer
support services to Prince William Operating Partnership (PW) and Mid-Atlantic
Connecticut LP I (CT), affiliates of Holdings. The costs of providing these
services is allocated to PW and CT based on relative proportion of total
subscribers. Total costs allocated to these affiliates are $179,671 and
$182,118 for 1998 and 1997, respectively. Amounts due from these affiliates as
of December 31, 1998 and 1997 are $162,617 and $11,782, respectively.
7. Pension Plan
The Company sponsors a 401(k) and Profit Sharing Plan covering all
employees. Contributions to the plan are at the discretion of management.
Contributions to the plan for 1998 were $45,223 and no contributions were made
in 1997.
8. Fair Value of Financial Instruments
The Company has the following financial instruments: cash, trade receivables
and payables and notes payable (including the swap agreement). Based on the
floating rate nature of the debt and the short-term nature of cash, trade
receivables and payables, carrying values of the financial instruments
approximate fair value.
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners and Shareholders of the Mid-Atlantic Cable Companies
Washington, D.C.
We have audited the consolidated and combined balance sheet of Mid-Atlantic
Cable Service Company, Inc., its Subsidiaries and Mid-Atlantic CATV Limited
Partnership, collectively referred to as the Mid-Atlantic Cable Companies as
of December 31, 1996 and the related consolidated and combined statements of
operations, changes in owners' equity (deficit) and cash flows for the year
then ended. These consolidated and combined financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these consolidated and combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated and combined financial position of
Mid-Atlantic Cable Service Company, Inc., its Subsidiaries and Mid-Atlantic
CATV Limited Partnership as of December 31, 1996 and the consolidated and
combined results of their operations and their consolidated and combined cash
flows for the year then ended, in conformity with generally accepted
accounting principles.
Beers & Cutler PLLC
Washington, D.C.
April 4, 1997
F-37
<PAGE>
MID-ATLANTIC CABLE COMPANIES
(Predecessor to Mid-Atlantic Telcom Plus, LLC)
CONSOLIDATED AND COMBINED BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets
Cash........................................................ $ 184,702
Accounts receivable, net of allowance for doubtful accounts
of $216,271................................................ 1,086,589
Prepaid expenses and other assets........................... 291,545
Investment in and advances to affiliates.................... 986,139
-----------
Total current assets...................................... 2,548,975
-----------
Fixed Assets
Cable TV systems, net of accumulated depreciation of
$10,995,040................................................ 11,716,022
Other property and equipment, net of accumulated
depreciation of $1,823,085................................. 790,855
-----------
Total fixed assets........................................ 12,506,877
-----------
Intangible Assets
Goodwill.................................................... 10,755,829
Other intangible assets..................................... 2,505,573
Accumulated amortization.................................... (2,152,137)
-----------
Total intangible assets................................... 11,109,265
-----------
Deferred Income Taxes......................................... 563,147
-----------
Total Assets............................................ $26,728,264
===========
<CAPTION>
LIABILITIES AND OWNERS' EQUITY (DEFICIT)
<S> <C>
Current Liabilities
Accounts payable--trade..................................... $ 2,929,191
Accrued interest and success fee--financial institution..... 852,392
Accrued expenses............................................ 643,222
Deferred compensation....................................... 434,310
Deferred revenue............................................ 830,452
Current maturities of notes payable--financial institution.. 5,556,000
Current maturities of notes payable and interest payable--
partners................................................... 1,093,820
Current maturities of notes payable--other.................. 224,163
Current maturities of leases payable........................ 98,608
-----------
Total current liabilities................................. 12,662,158
-----------
Long-Term Debt
Notes payable--financial institution........................ 19,536,296
Notes payable and accrued interest--partner................. 1,203,348
Notes payable and accrued interest--other................... 203,170
Leases payable.............................................. 165,320
-----------
Total long-term debt...................................... 21,108,134
-----------
Total liabilities....................................... 33,770,292
Owners' Equity (Deficit)
Common stock................................................ 245
Additional paid-in capital.................................. 1,355
Retained deficit............................................ (962,093)
Partners' deficit........................................... (6,081,535)
-----------
Total owners' equity (deficit)............................ (7,042,028)
-----------
Total Liabilities and Owners' Equity (Deficit).......... $26,728,264
===========
</TABLE>
The accompanying notes are an integral part of these consolidated and combined
financial statements.
F-38
<PAGE>
MID-ATLANTIC CABLE COMPANIES
(Predecessor to Mid-Atlantic Telcom Plus, LLC)
CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 1996
<TABLE>
<S> <C>
Revenue
Cable TV revenue................................................ $12,605,721
-----------
Operating Expenses
Operating....................................................... 11,210,652
Selling, general and administrative............................. 1,490,184
-----------
Total operating expenses...................................... 12,700,836
-----------
Loss from operations............................................ (95,115)
-----------
Other Income (Expense)
Interest expense................................................ (2,772,087)
CIBC success fee................................................ (835,439)
Equity in loss of affiliate..................................... (279,297)
-----------
Total other income (expense).................................. (3,886,823)
-----------
Loss before income tax and extraordinary item................... (3,981,938)
Income tax benefit--deferred.................................... 320,748
-----------
Net loss before extraordinary item.............................. (3,661,190)
Extraordinary item--debt restructuring gain..................... 414,474
-----------
Net loss.................................................... $(3,246,716)
===========
</TABLE>
The accompanying notes are an integral part of these consolidated and combined
financial statements.
F-39
<PAGE>
MID-ATLANTIC CABLE COMPANIES
(Predecessor to Mid-Atlantic Telcom Plus, LLC)
CONSOLIDATED AND COMBINED STATEMENT OF CHANGES
IN OWNERS' EQUITY (DEFICIT)
Year ended December 31, 1996
<TABLE>
<CAPTION>
Common Stock--1,000
Shares Authorized,
$1 Par Value
--------------------
Shares Issued Additional Total
Partners' and Paid-in Retained Owners'
Capital Outstanding Amount Capital Deficit Deficit
----------- ------------- ------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996................... $(3,651,330) 245 $ 245 $1,355 $(483,302) $(4,133,032)
Distributions......... -- -- -- -- -- --
Purchase of Partners'
Interest............. 337,720 -- -- -- -- 337,720
Net Loss.............. (2,767,925) -- -- -- (478,791) (3,246,716)
----------- ------ ------ ------ --------- -----------
Balance, December 31,
1996................... $(6,081,535) 245 $ 245 $1,355 $(962,093) $(7,042,028)
=========== ====== ====== ====== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated and combined
financial statements.
F-40
<PAGE>
MID-ATLANTIC CABLE COMPANIES
(Predecessor to Mid-Atlantic Telcom Plus, LLC)
CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS
Year ended December 31, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net loss........................................................ $(3,246,716)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization................................. 3,826,136
Noncash interest expense...................................... 101,485
Extraordinary time--debt restructuring gain................... (414,474)
Income tax benefit--deferred.................................. (320,748)
Changes in:
Accounts receivable......................................... (89,503)
Prepaid and other assets.................................... 127,967
Investments in and advances to affiliates................... (135,298)
Accounts payable and accrued expenses....................... 1,506,785
Deferred revenue............................................ 130,096
-----------
Net cash provided by operating activities................. 1,485,730
-----------
Cash Flows from Investing Activities
Capital expenditures............................................ (3,235,848)
Acquisition of intangible assets................................ (2,054,256)
-----------
Net cash used in investing activities..................... (5,290,104)
-----------
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt........................ 8,925,630
Repayments of debt.............................................. (5,388,088)
-----------
Net cash provided by financing activities................. 3,537,542
Net Decrease in Cash and Cash Equivalents......................... (266,832)
Cash and Cash Equivalents, Beginning of Year...................... 451,534
-----------
Cash and Cash Equivalents, End of Year............................ $ 184,702
===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest.......................................... $ 2,846,704
===========
Supplemental Disclosure of Noncash Investing and Financing
Activities
Additions to property and equipment from issuance of capital
lease obligations.............................................. $ 263,928
===========
Additions to goodwill through issuance of a note payable........ $ 1,093,820
===========
Goodwill arising from repurchase of a partners' interests....... $ 337,720
===========
</TABLE>
The accompanying notes are an integral part of these consolidated and combined
financial statements.
F-41
<PAGE>
MID-ATLANTIC CABLE COMPANIES
(Predecessor to Mid-Atlantic Telcom Plus, LLC)
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
December 31, 1996
1. Consolidation, Combination and Organization
The consolidated and combined financial statements include the accounts of
Mid-Atlantic Cable Service Company, Inc., a Virginia corporation, ("MCSC") and
its subsidiaries, Mid-Atlantic Cable Development Company Limited Partnership,
a Maryland limited partnership ("DevCo"), Chesapeake Private Cablevision
Limited Partnership, a Maryland limited partnership (Chessie) combined with
its affiliate, Mid-Atlantic CATV Limited Partnership, a Maryland limited
partnership, ("NewCo"). These entities are under common control. All material
intercompany transactions have been eliminated.
The primary purpose of these entities, collectively referred to as the Mid-
Atlantic Cable Companies (the Company), is to acquire, construct, operate and
otherwise deal in and with franchise and private cable TV systems and other
forms of communication in the Mid-Atlantic region.
MCSC
MCSC is a wholly-owned subsidiary of South Central Development Company
Limited Partnership, a Maryland limited partnership ("South Central"). John C.
Norcutt, an individual ("Norcutt"), is the sole general partner of South
Central with a 1% general partnership interest as well as a 12.74% limited
partnership interest in South Central. MCSC exists solely to manage the
interests and investments of South Central and to provide management services
to the cable operating limited partnerships it owns and controls.
DevCo
MCSC is the 1% general partner in DevCo. The remaining 99% limited
partnership interest is held by South Central.
NewCo
Norcutt holds the sole general partnership interest in NewCo. As of December
31, 1996, the limited partners are South Central, Chessie and Mid-Atlantic
Cable Limited Partnership of Caroline County, a Virginia limited partnership
("Caroline").
Norcutt, South Central and MCSC collectively own 98.4% of Chessie. An
individual owns a 1.6% limited partnership interest in Chessie. This
individual also holds a 6.13% limited partnership interest in South Central.
Norcutt and South Central own 100% of Caroline; Norcutt has a 1% general
partnership interest and South Central has a 99% limited partnership interest.
Subsequent Events
Effective as of January 1, 1997, MCSC, NewCo, and DevCo (referred to in this
paragraph as the "Transferors") contributed all of their assets and
substantially all of their liabilities to a newly formed entity, Mid-Atlantic
Holdings, LLC ("Holdings") and Holdings simultaneously contributed the assets
and liabilities of the transferors to a newly formed entity, Mid-Atlantic
Telcom Plus, LLC ("CableCo"). In connection with the contribution of the
assets through Holdings to CableCo, VIC RMTS HoldCo, LLC ("VIC") purchased a
50% interest in CableCo for $12,000,000, also effective as of January 1, 1997.
The transfer of a portion of the assets from the Transferors and a portion of
the cash from VIC to CableCo remain subject to certain closing conditions
which reasonably should occur on or before June 30, 1997. In connection with
the organization of CableCo,
F-42
<PAGE>
MID-ATLANTIC CABLE COMPANIES
(Predecessor to Mid-Atlantic Telcom Plus, LLC)
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
South Central Development Company Limited Partnership (the owner directly or
indirectly of substantially all of the equity of the Transferors and Holdings)
and VIC organized Mid-Atlantic RMTS, LLC ("Telco") each owning a 50%
membership interest therein. Thus, South Central initially is indirectly a 25%
equity owner of Telco. CableCo and Telco have joined together and are doing
business under the name OnePoint Communications with CableCo owning the cable
television assets and Telco owning the telephone assets and together will sell
bundled cable and telephony services in Washington, D.C., Maryland, Virginia,
Pennsylvania, New Jersey and Delaware.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents--The term cash, as used in the accompanying
financial statements, includes cash on deposit with financial institutions and
cash on hand.
The Company maintains its cash in bank deposit accounts which, at times,
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant
credit risk on cash equivalents.
Investments--MCSC is 1% general partner in Mid-Atlantic Cable Operating
Limited Partnership No. 1 of Prince William County. The investment is
accounted for using the equity method and has a credit balance of $279,297 at
December 31, 1996.
Fixed Assets--Cable TV systems and other property and equipment are recorded
at cost and depreciated using the straight-line method over their estimated
useful lives of 10 and 5 years, respectively. Total 1996 depreciation expense
was $2,413,641.
Intangible Assets--Intangible assets are amortized using the straight-line
method over their estimated useful lives ranging from 5 to 15 years. The
Company has classified as goodwill the cost in excess of fair value of net
assets of companies acquired accounted for as purchase transactions. At each
balance sheet date, the Company evaluates the realizeability of goodwill based
on the related cable system contracts.
As a result of the PPCLP transaction (Note 6) and the purchase of Howard's
preferred partnership interest in NewCo (Note 9), $2.3 million was added to
goodwill during 1996 which represents the excess of the purchase prices over
the carrying value of the partners' interests.
Deferred Revenue--Deferred revenue is reported on the balance sheet for
amounts which have been billed to customers in advance and therefore not yet
earned. These advance charges are also included in accounts receivable.
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 consolidated and combined
assets, liabilities, revenues and expenses and the disclosure of contingent
assets and liabilities. Actual results may differ from estimates.
Income Taxes--No provision for federal and state income taxes has been made
in the accompanying financial statements of the limited partnerships as the
profits and losses of the partnerships are reported by the individual partners
on their respective income tax returns. In addition, no current provision for
federal and state income taxes has been made for MCSC as MCSC had cumulative
net operating losses of $2.3 million available as of December 31, 1996 for
carryforward to reduce taxable income of future periods. The availability of
the losses expires at various times through 2011.
F-43
<PAGE>
MID-ATLANTIC CABLE COMPANIES
(Predecessor to Mid-Atlantic Telcom Plus, LLC)
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
3. Cable TV Systems Acquisitions
In August and November 1996, DevCo acquired the assets of Delaware Valley
Cablevision and Satleasco, LLC for $350,000 and $476,000, respectively. In
addition, DevCo entered into an agreement with Cecilton CATV, Inc. on November
26, 1996 to purchase for $2.8 million four cable TV franchises located in
Cecil and Kent County, Maryland. A $50,000 deposit was placed in escrow until
closing by CableCo which occurred on February 8, 1997. These financial
statements do not reflect this acquisition.
The accompanying statement of operations includes the results of operations
for Delaware Valley and the Satleasco Properties from the date of their
acquisition as stated above. The aforementioned acquisitions were accounted
for using the purchase method.
4. Debt Restructuring
On January 31, 1996, Canadian Imperial Bank of Commerce (CIBC) provided Mid-
Atlantic with the CIBC Expansion Term Loan in the amount of $5,125,000. The
proceeds of the loan were used to refinance and repay certain notes, pay
success fees to CIBC related to the transaction and provide Mid-Atlantic with
working capital. This transaction generated a restructuring gain in the amount
of $414,474.
5. Long-Term Debt
Notes Payable to Financial Institutions
<TABLE>
<S> <C>
NewCo and DevCo
CIBC (As Agent) Term Loan (including Expansion) in the original
amount of $23,125,000 bearing interest based on either CIBC's
base rate plus 4% or LIBOR plus 5%. Interest payments are paid
quarterly. A balloon payment of $14,375,000 is due at loan
maturity, September 30, 1998..................................... $21,636,296
CIBC Revolving Line of Credit in the amount of $5,500,000 bearing
interest based on either CIBC's base rate plus 4% or LIBOR plus
5% (10.5% at December 31, 1996). Interest payments are made
quarterly. The line of credit expires June 30, 1997. Negotiations
for restructuring the Term Loan and the Revolving Line of Credit
into one long-term self liquidating loan are currently underway.. 3,456,000
DevCo
Promissory note payable to Delaware Valley Cablevision, dated
August 1, 1996, in the original amount of $190,000. Interest
accrues at 8% and is payable quarterly. Beginning April 1997,
quarterly principal installments of $15,000 are also due. In
October 1997, quarterly principal installments increase to
$20,000 and are payable with interest until the note is paid in
full on July 31, 1999............................................ 192,541
Promissory note payable to Satleasco, dated November 15, 1996, in
the original amount of $115,000. The note was non-interest
bearing and was paid in full February 28, 1997................... 115,000
Promissory note payable to Satleasco, dated November 15, 1996, in
the original amount of $100,000. The note bears interest at 8%
per annum. Eight quarterly principal payments of $12,500 plus
interest are due. The note matures on November 30, 1997.......... 101,008
MCSC
Note payable to Ditch Witch bearing interest at 10.50%. Monthly
principal and interest payments of $611 are required. The note
matures in December 1999......................................... 18,784
-----------
Total notes payable............................................ $25,519,629
===========
</TABLE>
F-44
<PAGE>
MID-ATLANTIC CABLE COMPANIES
(Predecessor to Mid-Atlantic Telcom Plus, LLC)
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
The maturities of the above loans are as follows:
<TABLE>
<S> <C>
December 31, 1997............ $ 5,780,163
1998......................... 19,672,534
1999......................... 66,932
-----------
$25,519,629
===========
</TABLE>
Mid-Atlantic has entered into an interest rate swap agreement with CIBC,
Toronto to reduce the impact of changes in interest rates on its debt. The
swap agreement effectively converts a portion of the variable rate debt to
fixed rate debt to reduce the risk of incurring higher interest costs. The
interest rate swaps are settled and paid quarterly by an adjustment to
interest expense. No amounts were receivable or payable under the swap
agreements at December 31, 1996. The notional amounts of interest rate
agreements are used to measure interest to be paid or to be received and do
not represent the amount of exposure to credit loss. At December 31, 1996, the
notional amount was $9,000,000 with an average receive rate of 5.75%.
The CIBC loan is collateralized by all of the assets of NewCo and DevCo and
PW East #1, the assignment of all franchise agreements, SMATV agreements and
other material agreements owned by MCSC, NewCo, DevCo and PW East #1, the
assignment of all general and limited partnership interests in NewCo, DevCo,
and PW East #1, outstanding stock in MCSC, a $1 million guaranty by Norcutt
and an assignment of the proceeds of a $1 million life insurance policy on
Norcutt. Subsequent to year end, the assets of PW East #1 were released from
the loan.
The CIBC loans are subject to certain restrictive covenants with respect to
maintaining certain ratios of operating cash flows to total debt, principal
and interest payments and limits on capital expenditures. During 1996, the
Company was not in compliance with certain of the financial covenants related
to the CIBC debt. Waivers of default have been received from the lender
related to these covenants. Also, during 1996, the Company agreed to pay CIBC
$835,000 as additional consideration associated with the Term Loan. The fee
was paid in February 1997 and is classified as a success fee in the
accompanying consolidated and combined statement of operations.
6. Notes Payable to Partners
NewCo is indebted to South Central for two loans made to NewCo by South
Central. The first South Central Note bears simple interest at prime plus 1%
on the outstanding principal balance of $130,000. Interest is deferred until
the maturity of the loan on December 31, 1998.
The second South Central Note in the original amount of $700,000, bears
simple interest at the rate of 2% over that rate charged by NewCo's primary
lender (12.78% at December 31, 1996). Interest is deferred until the maturity
of the loan on December 31, 1998.
Payment of principal or interest on the South Central Notes is prohibited
according to the provisions of the CIBC Initial Term Loan. However, Norcutt,
general partner of South Central, represents that upon repayment of these
notes, the proceeds will be used to repay monies owed to MCSC (see Note 1).
On December 26, 1996 Newco entered into an agreement to purchase all of
Potomac Private Cablevision Limited Partnership's (PPCLP) interest in Newco
for $1,592,000. A $500,000 principal payment was made at closing. The
remaining balance was converted to a promissory note with interest of 10% per
annum. The note was paid in full on February 28, 1997 by CableCo.
F-45
<PAGE>
MID-ATLANTIC CABLE COMPANIES
(Predecessor to Mid-Atlantic Telcom Plus, LLC)
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
7. Deferred Income Taxes
The net deferred income tax asset in the accompanying balance sheet as of
December 31, 1996 consists of the following components:
<TABLE>
<S> <C>
Deferred tax assets--federal.................................... $342,000
Deferred tax assets--state...................................... 239,400
Deferred tax liabilities--federal............................... (10,010)
Deferred tax liabilities--state................................. (8,243)
--------
Net deferred tax benefit........................................ $563,147
========
</TABLE>
The income tax benefit in the accompanying income statement consist of the
following components:
<TABLE>
<S> <C>
Current benefit:
Federal....................................................... $ --
State......................................................... --
Deferred benefit:
Federal....................................................... 184,621
State......................................................... 136,127
--------
Total deferred tax benefit.................................. $320,748
========
</TABLE>
A reconciliation of income tax benefit as statutory rates to recorded
benefit is as follows:
<TABLE>
<S> <C>
Federal income tax benefit at statutory rate (34%)........... $1,353,859
Net loss attributable to entities whose tax attributes pass
through to partners......................................... (941,094)
Difference in graduated tax rates............................ (218,319)
Other........................................................ 126,302
----------
Deferred tax benefit....................................... $ 320,748
==========
</TABLE>
Deferred income taxes reflected in the accompanying financial statement are
primarily attributable to temporary differences between financial statement
reporting and income tax reporting for depreciation methods of the equity
investees of MCSC and MCSC net operating loss carryforwards totaling $2.3
million.
8. Lease Commitments
The Company is obligated under operating leases for premises occupied with
minimum lease terms expiring at various times through 2004. Certain of these
leases contain escalation clauses for increases based upon increases in
operating expenses and real estate taxes. The Company has also entered into
several operating leases for vehicles and other operating equipment. Total
rent expense for the year was $288,330. The following future minimum rental
payments are required under noncancellable operating leases with terms in
excess of one year as of December 31, 1996:
<TABLE>
<S> <C>
December 31, 1997............. $ 309,786
1998.......................... 296,837
1999.......................... 294,929
2000.......................... 279,274
2001.......................... 55,064
Thereafter.................... 65,087
----------
$1,300,977
==========
</TABLE>
F-46
<PAGE>
MID-ATLANTIC CABLE COMPANIES
(Predecessor to Mid-Atlantic Telcom Plus, LLC)
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
The Company also has entered into several capital leases for vehicles and
other operating equipment. The amounts of leased equipment, net of accumulated
depreciation reflected in other property and equipment is $293,003. The
following future lease payments are required as of December 31, 1996.
<TABLE>
<S> <C>
December 31, 1997............... $100,346
1998............................ 100,346
1999............................ 100,346
--------
Total......................... 301,038
--------
Less: Amounts representing
interest....................... (37,110)
--------
$263,928
========
</TABLE>
9. Related Party Transactions
Included in deferred compensation on the balance sheet of MCSC is $434,310
owed to Norcutt, consisting of unpaid compensation and unreimbursed advances
to Mid-Atlantic. Payment of these amounts was subordinated to restrictions
established in the CIBC Initial Term Loan. The Term Loan was amended on
December 26, 1996 to allow for repayment of the amount due Norcutt.
Subsequently, the balance due Norcutt at February 28, 1997 was paid in full by
CableCo.
As of December 31, 1996, MCSC is owed $690,263 by South Central, its owner,
for cumulative development and operating costs. As of December 31, 1996 MCSC
is owed $575,212 from affiliates for management fees and reimbursement of
operating expenses.
On November 30, 1996, NewCo entered into an agreement with Howard County
CATV (Howard) and Gerald Vento (Vento) to purchase Howard's preferred
partnership interest in NewCo for $595,000. In addition, it was agreed that
upon receipt of the closing payment that Vento would release Norcutt, South
Central and Mid-Atlantic from the payment of any and all fees outstanding. On
December 27, 1996 the closing payment was made.
10. Pension Plan
In November, 1996 Mid-Atlantic adopted a 401(k) and Profit Sharing Plan
covering all employees. Contributions to the plan are at the discretion of
management. For the year ended December 31, 1996, a matching contribution of
50% of all employee contributions, up to $3,000, totaling $27,869 was made.
11. Fair Value of Financial Instruments
The Company has the following financial instruments: cash, trade receivables
and payables and long-term debt (including the interest rate swap). Based on
the nature and terms of the long-term debt and the interest rate swap and the
short-term nature of cash, trade receivables and payables, carrying values of
the financial instruments approximate fair value.
F-47
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Unitholders
VIC-RMTS-DC, LLC
We have audited the accompanying balance sheets of VIC-RMTS-DC, LLC, a
majority-owned subsidiary of OnePoint Communications Corp., as of December 31,
1997 and 1998, and the related statements of operations, unitholders' equity
and cash flows for the period from November 6, 1996 (inception) to December
31, 1996 and each of the years ended December 31, 1997 and 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of VIC-RMTS-DC, LLC at
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from November 6, 1996 (inception) to December 31, 1996,
and for the years ended December 31, 1997 and 1998, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young, LLP
February 12, 1999, except for the
fifth paragraph of Note 9 as to
which the date is March 5, 1999
and Note 10 as to which the date
is March 30, 1999.
Vienna, Virginia
F-48
<PAGE>
VIC-RMTS-DC, LLC
STATEMENTS OF OPERATIONS
(Dollars in thousands, except for per unit data)
<TABLE>
<CAPTION>
Period from
November 6,
1996 (Inception) Year Ended December 31,
to December 31, ----------------------------
1996 1997 1998
---------------- ------------ --------------
<S> <C> <C> <C>
Revenue......................... $ -- $ 43 $ 1,660
Cost of revenue................. -- 82 2,840
------------ ------------ --------------
-- (39) (1,180)
Expenses:
Selling, general and
administrative............... 668 4,575 10,305
Depreciation and amortization. 2 157 287
------------ ------------ --------------
Net loss........................ $ (670) $ (4,771) $ (11,772)
============ ============ ==============
Basic loss per unit............. $(670,000.00) $(795,166.67) $(1,962,000.00)
============ ============ ==============
Units used in the computation of
basic loss per unit............ 1 6 6
============ ============ ==============
</TABLE>
See accompanying notes.
F-49
<PAGE>
VIC-RMTS-DC, LLC
BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Assets
Current assets:
Accounts receivable, net.................................... $ 26 $ 490
Affiliate receivable........................................ -- 139
Prepaid expenses............................................ 590 336
------- -------
Total current assets...................................... 616 965
Property and equipment, net................................... 1,229 2,248
Intangible assets, net........................................ 900 800
Other assets.................................................. 11 265
------- -------
Total assets.............................................. $ 2,756 $ 4,278
======= =======
Liabilities and Unitholders' Equity
Current liabilities:
Accounts payable and accrued expenses....................... $ 1,091 $ 1,005
------- -------
Other current liabilities................................... 4 52
Total current liabilities................................. 1,095 1,057
Unitholders Equity:
Contributed capital......................................... 7,102 20,434
Accumulated deficit......................................... (5,441) (17,213)
------- -------
Total unitholders' equity................................. 1,661 3,221
------- -------
Total liabilities and unitholders' equity................. $ 2,756 $ 4,278
======= =======
</TABLE>
See accompanying notes.
F-50
<PAGE>
VIC-RMTS-DC, LLC
STATEMENTS OF CHANGES IN UNITHOLDERS' EQUITY
(Dollars in thousands, except per unit data)
<TABLE>
<CAPTION>
Total
Contributed Accumulated Unitholders'
Units Capital Deficit Equity
----- ----------- ----------- ------------
<S> <C> <C> <C> <C>
November 6, 1996.................... -- $ -- $ -- $ --
Initial unitholder contribution... 1 751 -- 751
Net loss.......................... -- -- (670) (670)
--- ------- -------- -------
Balance, December 31, 1996.......... 1 751 (670) 81
Additional unitholders'
contributions.................... 5 6,351 -- 6,351
Net loss.......................... -- -- (4,771) (4,771)
--- ------- -------- -------
Balance, December 31, 1997.......... 6 7,102 (5,441) 1,661
Additional unitholders'
contributions.................... -- 13,332 -- 13,332
Net loss.......................... -- -- (11,772) (11,772)
--- ------- -------- -------
Balance, December 31, 1998.......... 6 $20,434 $(17,213) $ 3,221
=== ======= ======== =======
</TABLE>
See accompanying notes.
F-51
<PAGE>
VIC-RMTS-DC, LLC
STATEMENTS OF CASH FLOW
(Dollars in thousands, except per unit data)
<TABLE>
<CAPTION>
Period from
November 6, 1996
(Inception) to Year Ended December 31,
December 31, -----------------------
1996 1997 1998
---------------- ----------- ------------
<S> <C> <C> <C>
Operating activities
Net loss.......................... $(670) $ (4,771) $ (11,772)
Adjustments to reconcile net loss
to net cash
used in operating activities
Depreciation and amortization... 2 157 287
Change in allowance for doubtful
accounts......................... -- 7 300
Changes in operating assets and
liabilities:
Accounts receivable............. -- (34) (764)
Affiliates receivable........... -- -- (139)
Prepaid expenses................ (3) (587) 254
Other assets.................... (2) (9) (254)
Accounts payable and accrued
expenses....................... 154 941 (38)
----- ----------- ------------
Net cash used in operating
activities..................... (519) (4,296) (12,126)
Investing activities
Acquisition of property and
equipment........................ (232) (1,055) (1,206)
----- ----------- ------------
Net cash used in investing
activities....................... (232) (1,055) (1,206)
Financing activities
Unitholder contributions.......... 751 5,351 13,332
----- ----------- ------------
Net cash provided by financing
activities....................... 751 5,351 13,332
----- ----------- ------------
Net increase (decrease) in cash... -- -- --
Cash at the beginning of period... -- -- --
----- ----------- ------------
Cash at the end of period......... $ -- $ -- $ --
===== =========== ============
</TABLE>
See accompanying notes.
F-52
<PAGE>
VIC-RMTS-DC, LLC
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per unit data)
1. Organization
VIC-RMTS-DC, LLC, (the "Company") was formed to provide telephone services
to multiple dwelling units in the Mid-Atlantic region. The Company was formed
as VIC-RMTS-DC Metro, LLC and changed its name to VIC-RMTS-DC, LLC on November
7, 1996. The Company was formed in Delaware and will terminate on January 31,
2017.
The Company is jointly owned by OnePoint Communications Holdings, LLC ("OPC
Holdings"), formerly known as VIC-RMTS Holdco, LLC, a wholly-owned subsidiary
of OnePoint Communications, LLC, and Mid-Atlantic RMTS Holdings, LLC ("Mid-
Atlantic RMTS"). Mid-Atlantic RMTS is 50% held by OPC Holdings and South
Central Development L.P. In April 1998, OnePoint Communications, LLC merged
with and into OnePoint Communications Corp. ("OnePoint"). As a result of these
holdings, the Company is a majority owned subsidiary of OnePoint as of
December 31, 1998.
2. Significant Accounting Policies
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 amounts reported in the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Property and Equipment
Property and equipment are stated at cost and depreciated on the straight-
line method over their estimated useful lives, ranging from 3 to 5 years.
Leasehold improvements are depreciated over the shorter of their useful lives
or the lease term, not to exceed 15 years. The Company classifies installed
wiring and hardware costs in construction in process until the installation is
completed at which time the balances are classified as leasehold improvements.
Revenue Recognition
The Company recognizes revenue as services are provided.
Fair Value of Financial Instruments
The Company considers the recorded value of its financial assets and
liabilities, to approximate the fair value of the respective assets and
liabilities at December 31, 1997 and 1998, respectively.
Marketing Costs
Marketing costs are expensed as incurred. During the periods from November
6, 1996 (Inception) to December 31, 1996 and the years ended December 31, 1997
and 1998, marketing costs were approximately $11, $136 and $140 respectively.
Income Taxes
The Company is treated as a partnership for income tax purposes.
Accordingly, no provision for income taxes has been included in these
financial statements, as taxable income or loss passes through to, and is
reported by, the unitholders individually.
F-53
<PAGE>
VIC-RMTS-DC, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
Loss Per Unit
The Company's loss per unit calculations are based upon the weighted average
of membership units outstanding. The Company did not have any dilutive
securities as of December 31, 1996, 1997, and 1998; accordingly, diluted loss
per unit is not presented.
Comprehensive Income
In June 1997, FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," which is effective for fiscal years
beginning after December 15, 1997. The Statement establishes standards for
reporting of comprehensive income and its components in financial statements.
The Company adopted Statement No. 130 effective the fourth quarter of the year
ended December 31, 1998; however, the Company did not have any items of
comprehensive income during 1996, 1997 or 1998. Accordingly, the adoption of
this Statement did not have an impact on the Company's financial position or
results from operations.
Recently Issued Accounting Standards
In June 1998, The FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
requires that all derivatives be recognized as either assets or liabilities in
the statement of financial position and that those instruments shall be
measured at fair value. Statement No. 133 also prescribes the accounting
treatment for changes in the fair value of derivatives which depends on the
intended use of the derivative and the resulting designation. Designations
include hedges of the exposure to changes in the fair value of a recognized
asset or liability, hedges of the exposure to variable cash flows of a
forecasted transaction, hedges of the exposure to foreign currency
translations, and derivatives not designated as hedging instruments. Statement
No. 133 is effective for fiscal years beginning after June 15, 1999. The
Company expects to adopt Statement No. 133 in the first quarter of the fiscal
year ending December 31, 2000; however, no disclosures are expected to be
required. The Company does not believe the adoption of this Statement will
have a material impact on its financial position or results from operations.
3. Accounts Receivable
Accounts receivable consists of amounts due from customers. The Company
provides an allowance for doubtful accounts for accounts receivable amounts
deemed uncollectible as determined by management. Activity in the allowance
for doubtful accounts was as follows:
<TABLE>
<CAPTION>
Year Ended
For the period from December
November 6, 1996 31,
(inception) to -----------
December 31, 1996 1997 1998
------------------- ----- -----
<S> <C> <C> <C>
Opening Balance............................. $ -- $ -- $ 7
Bad debt charge-offs........................ -- -- (261)
Adjustments to reserves..................... -- 7 300
----- ----- -----
Ending balance.............................. $ -- $ 7 $ 46
===== ===== =====
</TABLE>
F-54
<PAGE>
VIC-RMTS-DC, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ ------
<S> <C> <C>
Furniture and equipment................................... $ 149 $ 343
Computer equipment........................................ 208 254
Facility Equipment........................................ -- 483
Vehicles.................................................. 172 232
Leasehold improvements.................................... 20 280
------ ------
549 1,592
Less accumulated depreciation............................. (59) (246)
------ ------
490 1,346
Construction in progress.................................. 739 902
------ ------
$1,229 $2,248
====== ======
</TABLE>
The Company recognized depreciation expense of $2, $57 and $187 in 1996,
1997 and 1998, respectively.
5. Intangible Assets
Intangible assets consisted of goodwill with an acquisition value of
approximately $1,000 as of December 31, 1997 and 1998, less accumulated
amortization of $100 and $200, respectively. Goodwill is amortized under the
straight line method over a ten year period.
6. Unitholders' Equity
Pursuant to the Company's operating agreement, OPC Holdings contributed $751
at inception and has subsequently contributed approximately $18,683 and Mid-
Atlantic RMTS contributed $1,000 during 1997 in the form of intangible assets.
Mid-Atlantic RMTS has not met capital calls made during 1998. Accordingly, the
ownership interests have been modified from the equal ownership interests
pursuant to the operating agreement to reflect the dilution of Mid-Atlantic
RMTS's interests in favor of OPC Holdings. The operating agreement obligates
Mid-Atlantic RMTS to contribute additional assets acceptable to the Company
and, upon such contribution, Mid-Atlantic RMTS will receive 1 additional
membership unit for each $1 million contribution, with fair market value
determined by the Company's manager.
The units make up the only class of ownership interests, of which there is
an unlimited authorized number. However, all units issued must be in
accordance with the operating agreement. Certain restrictions on the sale and
transfer of units exist as provided by the operating agreements. Net profits
and net losses are allocated to the members according to their membership
percentages. The member unitholders' liabilities are limited to their
respective capital contributions.
The managing member (OPC Holdings) is the only member that takes part in the
operations or management of the Company. Matters requiring membership voting
or significant input from the non-managing member are limited to certain
transactions as defined in the operating agreement including filing for
bankruptcy, liquidating the Company or other significant transactions.
Transactions requiring membership voting approval must be approved by 80% of
the votes of the member designees.
7. Related Party Transactions
As of December 31, 1997 and 1998, the Company had affiliate receivable
balances of $0 and $139, respectively, due from Mid-Atlantic TelcomPlus, LLC.
F-55
<PAGE>
VIC-RMTS-DC, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company shares certain billing and collections systems with an affiliate
of the Company. The Company paid approximately $0, $250 and $836 for services
provided by this affiliate in 1996, 1997 and 1998, respectively.
SBC and VIC provided other employment and operating services on behalf of
the Company for which the Company has not recorded expenses. The Company
believes that the value of unreimbursed services provided by SBC and VIC are
not material to its financial position or results of operations.
8. Fringe Benefit Plans
The Company's employees are eligible to participate in OnePoint's 401(k)
Savings Plan & Trust (the "Plan") pursuant to the terms thereof. Substantially
all employees of OnePoint and participating affiliates who meet certain
eligibility requirements are eligible to participate in the Plan. The Plan
provides for OnePoint and participating affiliates to make defined
contributions as well as matching and other discretionary contributions, as
determined by OnePoint's Board of Directors. The Company contributed $0, $0,
and $7 to the Plan during the period from November 6, 1996 (Inception) to
December 31, 1996 and for the years ended December 31, 1997 and 1998,
respectively.
9. Guarantor of the Debt of Others
The Company is an unconditional guarantor of $175 million of Senior Notes
issued by OnePoint as discussed below. The Company is required under
OnePoint's Senior Notes to comply with specified debt covenants, including
limitations on sales of certain assets, mergers, distributions, and other
activities.
During May 1998, OnePoint offered units each consisting of $1,000 principal
amount of 14 1/2% Senior Notes due 2008 (the "Senior Notes") and Warrants to
purchase 111,125 shares of OnePoint's common stock (the "Warrants") for gross
proceeds of $175,000 (collectively, the "Unit Offering"). Each of the 175,000
Warrants entitles the holders to purchase 0.635 shares of common stock of
OnePoint at an exercise price of $0.01 per share. Unless exercised, the
Warrants expire on June 1, 2008. The Warrants were valued at $5,300 based on
independent appraisal thereof as of the issuance date and are reflected as an
additional debt discount in the accompanying financial statements.
In connection with the Unit Offering, OnePoint purchased $80,500 of
government securities (the "Pledged Securities") to fund the first seven
scheduled interest payments on the Senior Notes. These Pledged Securities are
pledged to a trustee for the benefit of the holders of the Senior Notes, and
secure a portion of OnePoint's obligations under the indenture with respect to
the Unit Offering (the "Indenture"). Pursuant to the restricted securities
agreement entered into in connection with the Unit Offering, the trustee is
allowed to release Pledged Securities in excess of the amount required to fund
the first seven scheduled interest payments on the Senior Notes, upon request
by OnePoint.
As of November 6, 1998, the date on which the Senior Notes and the Warrants
became separable, OnePoint recognized a discount of $5,300 on the book value
of the Senior Notes relating to the Warrants and will amortize this amount
over the life of the Senior Notes.
OnePoint completed open market purchases of Senior Notes having an aggregate
principal amount of $73,250 between November 9, 1998 and March 5, 1999 at
various prices for an aggregate total cost of approximately $38,355, including
accrued interest and transaction fees. Pursuant to the restricted securities
agreement entered into in connection with the Unit Offering, the trustee of
the Pledged Securities released approximately $26,650 on February 24, 1999
upon request by OnePoint.
The Senior Notes bear interest annually at 14 1/2% from the date of
issuance. Interest payments are due on June 1 and December 1 of each year,
commencing on December 1, 1998. During 1998, OnePoint paid $10,656 of interest
related to the Senior Notes and accrued approximately $32 of liquidated
damages as described below.
F-56
<PAGE>
VIC-RMTS-DC, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
OnePoint is not required to make mandatory redemption or sinking fund payments
under the Senior Notes. The Senior Notes generally are not redeemable at the
option of OnePoint at anytime prior June to 1, 2003. Thereafter, the Senior
Notes will be subject to redemption at any time at the option of OnePoint, in
whole or in part, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus any unpaid interest and liquidated
damages, if any.
<TABLE>
<CAPTION>
Percentage
----------
<S> <C>
June 1, 2003 to May 31, 2004................................... 107.250%
June 1, 2004 to May 31, 2005................................... 104.833%
June 1, 2005 to May 31, 2006................................... 102.417%
June 1, 2006 and thereafter.................................... 100.000%
</TABLE>
In addition, OnePoint may redeem up to 35% of the aggregate principal amount
of issued Senior Notes at a redemption price of 114.5% of the principal
amount, plus unpaid interest and liquidated damages, if any, with the net cash
proceeds of one or more public or private offerings of common stock generating
net cash proceeds to OnePoint of at least $20,000 provided at least 65% of the
aggregate principal amount of Senior Notes issued remain outstanding
immediately after such redemption.
In the event of a change in control, as defined in the Indenture, OnePoint
will be required to make an offer to each holder of Senior Notes to repurchase
all or any part of the Senior Notes at 101% of the aggregate principal amount,
plus unpaid interest and liquidated damages, if any.
Amounts outstanding under the Senior Notes were $134,000, less a discount of
$3,997 relating to the value assigned to the Warrants, at December 31, 1998.
Interest accrued under the Senior Notes at December 31, 1998 was $1,678.
In connection with the Unit Offering, OnePoint and the Company are required
to comply with specified covenants described in the Indenture. These covenants
include limitations on sales of subsidiaries and certain assets, mergers, and
other activities.
In connection with the May 1998 Unit Offering, OnePoint entered into a
Registration Rights Agreement (the "Registration Rights Agreement") pursuant
to which it agreed to file and use its best efforts to cause to become
effective the registration statement relating to an offer to exchange the
Senior Notes for substantially identical notes which are not subject to
restrictions on transfer that are applicable to the Senior Notes. OnePoint
filed the registration statement on September 18, 1998, as required under the
Registration Rights Agreement. The Registration Rights Agreement provides,
however, that if the registration statement has not been declared effective by
the Securities and Exchange Commission on or before November 17, 1998, then
liquidated damages will accrue with respect to the Senior Notes. Such
liquidated damages accrue at a rate of $0.05 per week per $1,000 principal
amount of Senior Notes for the first 90 days beyond November 17, 1998, and
thereafter increase by $0.05 per week per $1,000 outstanding principal amount
of the Senior Notes each 90 day period, up to a maximum of $0.50 per week per
$1,000 principal amount of Senior Notes. Liquidated damages cease to accrue
when the registration statement is declared effective. As the registration
statement was not declared effective by November 17, OnePoint accrued
approximately $32 at December 31, 1998.
10. Subsequent Events
On March 30, 1999, OPC Holdings filed a demand for arbitration seeking a
declaratory ruling on the equity ownership of the Company. OPC Holdings
believes that the value of the assets contributed by Mid-Atlantic Holdings was
sufficient to give Mid-Atlantics Holdings only an approximate 5% interest
based on capital contributions through December 31, 1998. The manager of Mid-
Atlantic RMTS Holdings, LLC has suggested that they are entitled to an
unspecified, but higher, equity interest in the Company. OPC Holdings will be
entitled only to that portion of any distributions made by the Company
corresponding to its percentage equity ownership therein.
F-57
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To People's Choice TV Corp.:
We have audited the accompanying statements of certain assets and
liabilities of Preferred Entertainment, Inc. as of December 31, 1997 and 1996
and the statements of related revenues and expenses for the years ended
December 31, 1997 and 1996. These financial statements are the responsibility
of People's Choice TV Corp.'s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The statements have been prepared pursuant to the Asset Purchase and Sale
Agreement described in Note 2 between People's Choice TV Corp. and OnePoint
Communications LLC dated June 8, 1998 and is not intended to be a complete
presentation of People's Choice TV Corp.'s or Preferred Entertainment, Inc.'s
assets, liabilities, revenues and expenses.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of Preferred
Entertainment, Inc. as of December 31, 1997 and 1996 pursuant to the Asset
Purchase and Sale Agreement referred to in Note 2 and the related revenues and
expenses for the years ending December 31, 1997 and 1996 in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Stamford, Connecticut
June 15, 1998
F-58
<PAGE>
PEOPLE'S CHOICE TV CORP.
STATEMENTS OF CERTAIN ASSETS AND LIABILITIES
OF PREFERRED ENTERTAINMENT, INC. TO BE SOLD
<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
ASSETS 1996 1997 1998
------ ---------- ---------- -------------
(unaudited)
<S> <C> <C> <C>
Accounts receivable, net................... $ 439,743 $ 442,849 $ 7,050
Prepaid expenses........................... 100,111 77,272 1,200
Other assets............................... 141,283 130,900 2,100
Investment in wireless system and
equipment, net............................ 5,061,576 4,141,398 65,900
---------- ---------- -------
$5,742,713 $4,792,419 $76,250
========== ========== =======
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C>
Liabilities:
Accounts payable......................... $ 110,104 $ 97,829 $ 1,600
Accrued expenses......................... 232,631 163,289 2,600
Subscriber advance payments and deposits. 507,629 573,536 9,150
---------- ---------- -------
Total.................................. 850,364 834,654 13,350
---------- ---------- -------
Commitments and contingencies
PCTV equity in operations to be sold....... 4,892,349 3,957,765 62,900
---------- ---------- -------
$5,742,713 $4,792,419 $76,250
========== ========== =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-59
<PAGE>
PEOPLE'S CHOICE TV CORP.
STATEMENTS OF REVENUES AND EXPENSES RELATED TO CERTAIN
ASSETS AND LIABILITIES OF PREFERRED ENTERTAINMENT, INC.
TO BE SOLD
<TABLE>
<CAPTION>
For the Years Ended For the Nine
December 31, Months Ended
------------------------ September 30,
1996 1997 1998
----------- ----------- -------------
(unaudited)
<S> <C> <C> <C>
Revenues................................ $ 4,685,385 $ 5,208,471 $ 2,632,000
Costs and expenses:
Service costs......................... 2,881,774 2,994,226 1,785,500
Selling, general and administrative... 2,323,034 1,838,249 979,000
Depreciation and amortization......... 1,138,177 1,722,216 1,124,500
----------- ----------- -----------
Total............................... 6,342,985 6,554,691 3,889,000
----------- ----------- -----------
Net loss................................ $(1,657,600) $(1,346,220) $(1,257,000)
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-60
<PAGE>
PEOPLE'S CHOICE TV CORP.
NOTES TO STATEMENTS OF CERTAIN ASSETS AND LIABILITIES AND
RELATED REVENUES AND EXPENSES OF PREFERRED ENTERTAINMENT, INC.
(1) Company Operations:
People's Choice TV Corp. (the "Company" or "PCTV") was incorporated in
Delaware on April 22, 1993. The Company and its predecessors have been engaged
in wireless communications since 1988.
The Company's strategy is to own, develop and operate wireless
communications systems, and provide wireless cable and high-speed data
communication services in large markets. PCTV's operating and targeted markets
are concentrated in the midwestern and southwestern regions of the United
States. Currently, the Company operates six wireless cable systems located in
Houston, Tucson, Chicago, Phoenix, St. Louis and Detroit. The Company operates
a high-speed data communication service in the Detroit and Phoenix markets. In
addition, the Company controls wireless frequency rights in Indianapolis, Salt
Lake City, and Milwaukee.
On September 8, 1995, PCTV and Preferred Entertainment, Inc. ("PEI") closed
on a merger transaction pursuant to which PCTV acquired each share of PEI
common stock that it did not already own for consideration of approximately
$65 million through a merger in which PEI became an indirect wholly owned
subsidiary of PCTV. The acquisition was accounted for as a purchase
transaction and accordingly, the purchase price was allocated to the fair
value of assets acquired and liabilities assumed. Substantially all of the
excess of purchase price over the net assets acquired has been allocated to
frequency rights acquired from PEI.
The Company offers 44 channels (including 12 off-air VHF/UHF channels) in
the Chicago market and controls the rights to 32 wireless channels and
transmits at 50 watts from the Sears Tower, the tallest building in Chicago.
PCTV leases approximately 14,000 square feet of office and warehouse space in
Chicago. At December 31, 1997 and 1996 PCTV's Chicago market had approximately
18,100 and 19,000 customers, respectively.
(2) Asset Purchase and Sale Agreement:
On June 8, 1998, PCTV and PEI ("the Sellers") and OnePoint Communications-
Illinois LLC ("OnePoint" or "the Buyer") entered into an Asset Purchase and
Sale Agreement ("the Agreement") to sell certain Assets and Assumed
Liabilities as stipulated in the Agreement. Under the Agreement, PCTV agrees
to sell to OnePoint the Assets and Assumed Liabilities, as defined related to
video programming services to its subscribers at multiple dwelling units
(MDUs) in Chicago, Illinois. The assets sold to OnePoint do not include the
MMDS, MDS or ITFS licenses currently controlled by the Company and certain AML
licenses not related to the MDU segment of the business. OnePoint shall not
assume any Excluded Liabilities, as defined.
The consideration for the Assets and Assumed Liabilities is $444 times the
units of the properties covered by the right of entry agreements included in
the transaction. The Agreement contemplates that there are a maximum of twenty
nine thousand two hundred fifty (29,250) of such units. Payment of the
consideration will be a $500,000 cash deposit paid to PCTV prior to the
execution of the Agreement and a $12,500,000 cash payment upon execution of
the Agreement.
Approximately $2.85 million of the consideration will be held in escrow
until transfer of certain AML licenses are approved and the final units of
property sold are confirmed. The Agreement also provides for purchase price
reductions of up to $260,000 for failure to meet service and system standards
specified in the Agreement.
Assets, as defined in the Agreement, constitutes all rights of PCTV and PEI
under certain contracts, AML licenses, AML applications, equipment, Accounts
Receivable, subscribers and customer lists related to the assets, permits, all
data, books and records related to the Assets, inventory and vehicles but
excludes the Excluded Assets, as defined. Excluded Assets include such items
as cash and cash equivalents, video programming
F-61
<PAGE>
PEOPLE'S CHOICE TV CORP.
NOTES TO STATEMENTS OF CERTAIN ASSETS AND LIABILITIES AND
RELATED REVENUES AND EXPENSES OF PREFERRED ENTERTAINMENT, INC.--(Continued)
contracts, insurance policies, licenses and contract rights (unless
specifically cited in the Agreement), any tax refunds or claims and Federal
Communications Commissions (FCC) frequencies (unless specifically indicated in
the Agreement).
Assumed Liabilities as defined in the agreement include (i) all obligations
of PCTV assigned to OnePoint for any contract or permit assigned to the Buyer
under the Agreement (ii) all obligations of the Buyer arising out of the
Buyers' ownership of assets sold to the Buyer under the Agreement and (iii)
customer deposits and advances. The accompanying financial statements include
an allocation of accrued programming costs and access fees paid to landlords
of MDUs. Deposits received from MDU customers and the advance payments by
subscribers for video services are also included in liabilities.
Accounts Receivable represents all accounts receivable of PCTV related to
the subscribers being sold as of the closing date. The accompanying financial
statements include a reserve of 3% of such receivables to reflect possible
losses from nonpayment. Customer deposits and advances represents all deposits
and advanced billings related to the subscribers being sold as of the closing
date.
(3) Summary of Significant Accounting Policies:
The accompanying financial statements include the historical cost of the
assets and liabilities of PCTV that have been sold to OnePoint pursuant to the
Agreement and the allocated historical revenues and expenses of such
operations using generally accepted accounting principles.
Subscribers are determined through the use of an equivalent basic unit (EBU)
calculation for customers receiving basic video programming service on a bulk
basis. The number of subscribers on a bulk basis is determined by dividing the
monthly revenue for such bulk subscribers by the weighted average rate that
single family home (SFH) subscribers pay per month for basic service. This
number is then added to those customers receiving basic video programming
service on an individual basis to arrive at the total subscriber count.
The assets and liabilities included in the financial statements are those to
be assumed by OnePoint pursuant to the Agreement and allocations of certain
assets or liabilities used by PCTV to provide services to the subscribers
covered by the Agreement. The assets assumed by OnePoint pursuant to the
agreement are Accounts Receivable and the investment in the wireless system
and equipment. The liabilities assumed by OnePoint are subscriber advance
payments and deposits. The assets allocated to the operations included in the
accompanying financial statements (prepaid expenses and other assets) are
generally based on the relative subscribers sold to the total subscribers of
PEI at the end of each period presented. The liabilities allocated (accounts
payable and accrued expenses) include programming and franchise taxes and
excludes accrued payroll and related amounts.
Revenue represents the amounts billed to the specific MDU subscribers
covered by the Agreement. Allocations have been made of certain minor
revenues, such as late fees.
Service costs and selling, general, and administrative expenses for the
years ended December 31, 1996 and 1997 are generally based upon allocation of
such costs of PEI based upon the relative number of subscribers sold to the
total number of subscribers of PEI. Certain expenses have been specifically
identified as related directly to MDU operations and have been assigned to
those operations included in these financial statements. Also included in
selling, general, and administrative expenses are management fees of $140,562
and $156,254 for the years ended December 31, 1996 and 1997, respectively.
These management fees represent a portion of the historical allocation of
costs by PCTV to its various subsidiaries. The portion allocated in these
financial statements are based on the relative subscribers sold to the total
subscribers of PEI for each period.
F-62
<PAGE>
PEOPLE'S CHOICE TV CORP.
NOTES TO STATEMENTS OF CERTAIN ASSETS AND LIABILITIES AND
RELATED REVENUES AND EXPENSES OF PREFERRED ENTERTAINMENT, INC.--(Continued)
Depreciation and amortization are based upon the specific assets included in
the statements of assets and liabilities to be sold.
Under the terms of the Agreement, the debt of PEI (which consists of various
capital lease obligations on equipment not being sold to OnePoint and a bank
line of credit) is not being assumed by OnePoint. Accordingly, the
accompanying financial statements do not include any allocation of interest
expense incurred by PEI in 1996 and 1997.
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PCTV management believes the allocation of revenues and expenses included in
the accompanying financial statements is reasonable.
Long-lived assets
The Company periodically reviews the carrying value of the investment in
wireless systems and equipment, for each wireless communication system in
order to determine whether an impairment may exist. The Company considers
relevant cash flow, estimated future operating results, trends and other
available information including the fair value of frequency rights owned, in
assessing whether the carrying value of the assets can be recovered. An
impairment would be measured as any deficiency in estimated discounted cash
flows of the wireless communication system to recover the carrying value
related to the assets.
Revenue recognition
Subscription revenues are recognized in the period of service.
System launch expenses
Administrative and marketing expenses incurred by systems during their
launch period are expensed as incurred.
(4) Investment in Wireless System and Equipment:
The investment in wireless systems and equipment is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Right of entry fees............................... $ 36,562 $ 44,287
Headend equipment................................. 754,821 747,503
Systems........................................... 965,600 965,600
Installations..................................... 4,929,477 5,731,108
Less--accumulated depreciation and amortization... (1,624,884) (3,347,100)
---------- ----------
$5,061,576 $4,141,398
========== ==========
</TABLE>
F-63
<PAGE>
PEOPLE'S CHOICE TV CORP.
NOTES TO STATEMENTS OF CERTAIN ASSETS AND LIABILITIES AND
RELATED REVENUES AND EXPENSES OF PREFERRED ENTERTAINMENT, INC.--(Continued)
Depreciation and amortization is calculated on a straight-line basis over 3-
10 years.
Wireless systems and equipment include the cost of initial customer
installations. These costs include reception equipment on customer premises,
related labor and the excess of direct commission costs over installation
revenues to be realized. The excess of direct commission costs over
installation revenues are deferred and amortized over a three year period, the
estimated useful life of customers. Amortization is accelerated upon the
disconnection of specific customers. Sat-Tel, a subsidiary of PCTV and
affiliate of PEI, provided customer installation and other services to PEI.
(5) Employee Benefits:
The Company maintains a 401(k) employee benefit plan pursuant to which
participants can defer a certain percent of their annual compensation in order
to receive certain benefits upon retirement, death, disability or termination
of employment. For the years ended December 31, 1996 and 1997 PEI incurred
expense of $4,230 and $6,050, respectively, of which $2,661 and $4,223,
respectively, have been allocated to the operations being sold.
(6) Income Taxes:
PCTV and PEI account for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109--Accounting for Income Taxes.
SFAS No. 109 requires, among other things, recognition of future tax benefits,
measured by enacted tax rates, attributable to deductible temporary
differences between financial and income tax basis of assets and liabilities
and to net operating loss carryforwards, to the extent that realization of
such benefits is more likely than not.
PCTV and PEI have net operating loss carryforwards ("NOL's") for financial
and tax reporting purposes. SFAS 109 requires that the tax benefit of
financial reporting NOL's be recorded as an asset to the extent that
management assesses the utilization of such NOL's to be "more likely than
not". PCTV and PEI recorded a valuation allowance against the entire deferred
asset attributable to the NOL's since PCTV and PEI have incurred operating
losses since inception.
(7) Commitments and Contingencies:
There are certain claims against the PCTV and PEI which are incidental to
the ordinary course of business. In the opinion of management, the ultimate
resolution of these claims will not have a material effect on the financial
statements of PCTV or PEI.
F-64
<PAGE>
PEOPLE'S CHOICE TV CORP.
NOTES TO STATEMENTS OF CERTAIN ASSETS AND LIABILITIES AND
RELATED REVENUES AND EXPENSES OF PREFERRED ENTERTAINMENT, INC.--(Concluded)
(8) Service Costs and Selling, General and Administrative Expenses:
Service costs and selling, general and administrative expenses included in
the accompanying financial statements for the years ended December 31, 1996
and 1997 are comprised of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Service Costs:
Programming...................................... $1,648,359 $1,777,260
Channel lease and access fees.................... 501,558 591,009
Transmitter site rental.......................... 211,169 319,230
Service calls.................................... 420,287 176,750
Other............................................ 100,401 129,977
---------- ----------
$2,881,774 $2,994,226
========== ==========
Selling, General and Administrative:
Salaries and wages, net.......................... $1,000,644 $ 736,638
Payroll taxes.................................... 90,908 83,192
Employee health and life, net.................... 99,701 117,728
Rent and occupancy............................... 167,026 173,050
Telephone........................................ 143,281 135,848
Billing.......................................... 93,869 59,780
Management fee................................... 140,562 156,254
Other............................................ 587,043 375,759
---------- ----------
$2,323,034 $1,838,249
========== ==========
</TABLE>
(9) Subsequent Event
The interim financial statements as of September 30, 1998 and for the nine
months ended September 30, 1998 and the related footnote information are
unaudited and have been prepared on a basis consistent with the People's
Choice TV Corp.'s audited Statements of Certain Assets and Liabilities and
Related Revenues and Expenses of Preferred Entertainment, Inc. as of and for
the year ended December 31, 1997 included in this prospectus. These financial
statements should be read in conjunction with the audited Statements of
Certain Assets and Liabilities and Related Revenues and Expenses of Preferred
Entertainment, Inc. and the related notes to such statements as of and for the
year ended December 31, 1997. In the opinion of OnePoint Communications-
Illinois, LLC's management, the accompanying unaudited Statements of Certain
Assets and Liabilities and Related Revenues and Expenses of Preferred
Entertainment, Inc. contain all adjustments (consisting of normal recurring
adjustments) which management considers necessary to present fairly the
financial position of certain assets and liabilities and related revenues and
expenses of Preferred Entertainment, Inc. purchased by OnePoint
Communications-Illinois LLC at September 30, 1998 and for the nine months then
ended.
On October 1, 1998, OnePoint Communications--Illinois, LLC completed its
acquisition of certain assets and liabilities of Preferred Entertainment, Inc.
Accordingly, the net assets reflected in the accompanying statement of certain
asset and liabilities of Preferred Entertainment, Inc. to be sold as of
September 30, 1998 were transferred to OnePoint Communications--Illinois, LLC
on October 1, 1998.
F-65
<PAGE>
ANNEX A
ONEPOINT COMMUNICATIONS CORP.
GLOSSARY
CAP (Competitive Access Provider)--A name for a category of local service
provider that competes with incumbent local telephony companies in providing
originating and/or terminating access to IXCs.
CLEC (Competitive Local Exchange Carrier)--A category of local telephony
service provider (carrier) that offers services similar to the former monopoly
local telephony company, as recently allowed by changes in telecommunications
law and regulation. A CLEC may also provide other types of communications
services (long distance, Internet access, entertainment etc.).
CLEC certification--Granted by a state public service commission or public
utility commission, this certification provides a telecommunications services
provider with the legal standing to offer local exchange telephony services in
direct competition with ILECs and other CLECs. Such certifications are granted
on a state by state basis.
Communications Act of 1934--Federal legislation that established rules for
broadcast and non-broadcast communications, including both wireless and wired
telephony service and created the FCC.
DBS--Direct broadcast satellite television.
FCC (Federal Communications Commission)--The US Government agency charged
with regulating interstate and international communications by radio,
television, wire, satellite and cable.
facilities-based carrier/provider--A telecommunications provider that
delivers a significant amount of its services to the end-user via owned and/or
leased network equipment.
ILEC (Incumbent Local Exchange Carrier)--The local exchange carrier that was
the monopoly carrier prior to the opening of local exchange services to
competition.
interconnection agreement--A contract between and ILEC and a CLEC for the
interconnection of the two networks, for the purpose of mutual passing of
traffic between the networks, allowing customers of one of the networks to
call users served by the other network. These agreements set out the financial
and operational aspects of such interconnection.
interexchange services--Telecommunications services that are provided
between two exchange areas, i.e., long distance.
IXC (Interexchange Carrier)--A provider of telecommunications services that
extend between LATAs or cities.
LATA (Local Access and Transport Area)--A geographic area inside of which a
RBOC can offer long distance service (known as local toll). There are 196
LATAs in the U.S.
local exchange--An area inside of which telephone calls are generally
completed without any toll, or long distance charges. Local exchange areas are
defined by the state regulator of telephony services.
local exchange services--Telephony services that are provided within a local
exchange. These usually refer to local calling services (dial tone services).
Business local exchange services include Centrex, access lines and trunks and
customer owned, coin operated telephone lines.
A-1
<PAGE>
Right of Entry--Contractual rights providing preferential rights for on-site
marketing of telephony, video and other services.
RBOC (Regional Bell Operating Company)--One of the remaining ILECs created
by the divestiture by AT&T of its local exchange business. These include
BellSouth, Bell Atlantic (which acquired NYNEX in 1997), Ameritech, US West
Inc. and SBC (which acquired Pacific Telesis in 1997).
UNEs--Unbundled network elements including switches, local loops, and
transmission facilities.
A-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No person has been authorized to give any information or to make any repre-
sentation other than those contained in this Prospectus and, if given or made,
such information or representation must not be relied upon as having been au-
thorized. This Prospectus does not constitute an offer to sell, or solicita-
tion of an offer to buy any securities other than the securities to which it
relates, nor does it constitute and offer to sell or the solicitation of an
offer to buy such securities in any circumstances in which such offer or so-
licitation is unlawful. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company since the date hereof
or that the information contained herein is correct as of any time subsequent
to its date.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 13
The Recapitalization...................................................... 36
Use of Proceeds........................................................... 37
Dividend Policy........................................................... 37
Capitalization............................................................ 38
Selected Historical Financial Data........................................ 39
Pro Forma Unaudited Condensed Financial Data.............................. 41
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 44
Business.................................................................. 55
Management................................................................ 85
Certain Relationships and Related Transactions............................ 89
Security Ownership of Certain Beneficial Owners and Management............ 92
Description of Certain Indebtedness....................................... 93
The Exchange Offer........................................................ 94
Description of Notes...................................................... 102
Description of Warrants................................................... 128
Description of Capital Stock.............................................. 132
Certain United States Federal Income Tax Considerations................... 133
Plan of Distribution...................................................... 137
Experts................................................................... 137
Legal Matters............................................................. 138
Index to Financial Statements............................................. F-1
Glossary.................................................................. A-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$101,750,000
OnePoint Communications Corp.
Offer to Exchange its
14 1/2% Senior Notes Due 2008,
Series B, for any and all
outstanding 14 1/2% Senior Notes due 2008
---------------
PRELIMINARY PROSPECTUS
---------------
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 15: Indemnification of Directors and Officers.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person is or was an officer, director, employee or agent of
such corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the corporation's best interests and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any persons who are, or are
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably incurred.
The Company's Certificate of Incorporation and By-laws provide for the
indemnification of officers and directors to the fullest extent permitted by
the Delaware General Corporation Law.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation
or enterprise, against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
All of the directors and officers of the Company are covered by insurance
policies maintained and held in effect by such corporation against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act of 1933.
Each Subsidiary Guarantor is a limited liability company organized under the
laws of the State of Delaware. Section 18-108 of the Delaware Limited
Liability Company Act provides that, subject to such standards and
restrictions, if any, as are set forth in its limited liability company
agreement, a limited liability company may, and shall have the power to,
indemnify and hold harmless any member or manager or other person from and
against any and all claims and demands whatsoever.
The limited liability company agreements of each of the Subsidiary
Guarantors provide for broad indemnification of their respective members,
managers and persons controlling their managers for losses, claims, damages
and liabilities incurred by such persons in connection with the conduct of the
business of the Company, except for such persons' fraud, gross negligence or
willful misconduct.
Each of the Subsidiary Guarantors may carry insurance protecting it and
potential indemnitees from liabilities to third parties, to the extent
practicable.
II-1
<PAGE>
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
2.1* Agreement and Plan of Merger dated April 29, 1998 of OnePoint
Communications, LLC with and into the Company
3.1* Amended and Restated Certificate of Incorporation of the Registrant, as of
April 29, 1998
3.2* Bylaws of the Registrant, as amended
3.3* Operating Agreement of OnePoint Communications--Georgia, LLC dated as of
April 7, 1997, as amended
3.4* Operating Agreement of OnePoint Communications--Colorado, LLC dated as of
April 23, 1997, as amended
3.5* Operating Agreement of OnePoint Communications--Illinois, LLC, dated as of
April 23, 1997, as amended
3.6* Operating Agreement of OnePoint Communications Holdings, LLC, dated as of
January 30, 1997, as amended
3.7* Operating Agreement of VIC-RMTS-DC, LLC between Mid-Atlantic RMTS
Holdings, LLC and OnePoint Communications Holdings, LLC dated as of
February 6, 1997
4.1* Purchase Agreement, dated as of May 15, 1998 by and between the Company,
the Subsidiary Guarantors, Bear, Stearns and Co., Inc. and NationsBank
Montgomery Securities LLC
4.2* Indenture dated as of May 21, 1998, by and between the Company, the
Subsidiary Guarantors and Harris Trust and Savings Bank
4.3* Form of 14 1/2% Senior Notes due 2008
4.4* Registration Rights Agreement dated as of May 21, 1998 by and between the
Company, Bear, Stearns & Co. Inc. and NationsBank Montgomery Securities,
as Initial Purchasers relating to the Notes
4.5* Warrant Agreement dated as of May 21, 1998 by and between the Company and
Harris Trust and Savings Bank, as Warrant Agent relating to the warrants
to purchase Common Stock of the Company (the "Warrants")
4.6* Specimen Certificate for the Warrants of the Company
4.7* Warrant Registration Rights Agreement dated as of May 21, 1998 by and
between the Company and Harris Trust and Savings Bank
4.8* Pledge & Security Agreement, dated May 21, 1998, between the Company and
Harris Trust and Savings Bank as Collateral Agent and Trustee, relating to
the interest reserve account for the Notes
4.9* Guarantee of the Subsidiary Guarantors dated May 21, 1998
4.10* Registration Agreement dated April 29, 1998 between the Company and
Ventures in Communications II, LLC
5.1 Opinion and Consent of Kirkland & Ellis
10.1* Professional Services Agreement dated May 15, 1998 by and between the
Company and The VenCom Group, Inc.
10.2* Letter Agreement by and between the Company and Sprint Communications
dated April 23, 1998 electing renewal of the Affiliate Services Agreement
10.3 Affiliate Services Agreement by and between the Company and Sprint
Communications dated April 4, 1997
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
10.4 (intentionally omitted)
10.5+ Asset Purchase and Sale Agreement dated June 8, 1988 by and between the
Company and People's Choice TV Corp. and Preferred Entertainment, Inc.
10.6* Amended and Restated Security Agreement dated April 29, 1998 by and
between the Company and The Northern Trust Company
10.7* Amended and Restated Call on Term-Term Note dated April 29, 1998
evidencing the Company's indebtedness to The Northern Trust Company
10.8 Deed of Lease Agreement dated July 3, 1996 between Mid-Atlantic Cable
Service Company and LEP/Largo Limited Partnership relating to the property
at 1200 Mercantile Lane, Largo, Maryland, as amended
10.9* Stock Appreciation Rights program of the Company, effective as of January
1, 1998
10.10 CSG Master Subscriber Management Agreement dated September 27, 1998 by and
between the Company and CSG Systems, Inc.
10.11 End User License Agreement dated March 7, 1997 by and between the Company
and BDSI, Inc. D/B/A Beechwood Data Systems
10.12* Resale Agreement dated as of May 28, 1997 by and between VIC-RMTS-DC, LLC
and Bell Atlantic--Virginia, Inc., as amended
10.13* Resale Agreement dated as of August 1, 1997 by and between VIC-RMTS-DC,
LLC and Bell Atlantic--Washington, D.C., Inc., as amended
10.14* Resale Agreement dated as of August 1, 1997 by and between VIC-RMTS-DC,
LLC and Bell Atlantic--Pennsylvania, Inc., as amended
10.15* Resale Agreement dated as of May 7, 1997 by and between VIC-RMTS-DC, LLC
and Bell Atlantic--Maryland, Inc., as amended
10.16* Resale Agreement dated as of March 25, 1998 by and between VIC-RMTS-DC,
LLC and Bell Atlantic--Delaware, Inc., as amended
10.17* Agreement for Sale of Telecommunications Services dated July 21, 1997 by
and between OnePoint Communications--Georgia, LLC and BellSouth
Telecommunications, Inc.
10.18* Agreement for Sale of Telecommunications Services dated February 6, 1998
by and between OnePoint Communications--Colorado, LLC and US WEST
Communications, Inc.
21.1* Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of Beers & Cutler PLLC, independent auditors
23.3 Consent of Arthur Andersen LLP, independent auditors
23.4 Consent of Kirkland & Ellis (included in Exhibit 5.1)
23.5 Consent of Sturgill & Associates LLP, independent appraisers
24.1 Powers of Attorney of Directors and Officers of the Company and each
Subsidiary Guarantor (contained in signature pages)
25.1* Statement of Eligibility of Note Trustee
27.1 Financial Data Schedule
99.1* Form of Letter of Transmittal
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
99.2* Form of Notice of Guaranteed Delivery
99.3* Form of Tender Instructions
</TABLE>
- --------
*Previously filed
**To be filed by Amendment
+Confidential treatment requested
Item 22. Undertakings.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions, or otherwise, the registrants have
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a directors, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
(d) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(e) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company duly
caused this Amendment No. 2 to the Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in City of
Bannockburn, State of Illinois, on the 29th day of April, 1999.
Onepoint Communications Corp.
/s/ James A. Otterbeck
By: _________________________________
James A. Otterbeck
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on the 29th day of April, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ James A. Otterbeck Chairman, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
James A. Otterbeck
/s/ William F. Wallace President, Chief Operating Officer and
___________________________________________ Director (Principal Operating Officer)
William F. Wallace
/s/ John D. Stavig Chief Financial Officer and Director
___________________________________________ (Principal Financial Officer)
John D. Stavig
/s/ William McMoil Treasurer (Principal Accounting Officer)
___________________________________________
William McMoil
/s/ Linda L. Pace Director
</TABLE>___________________________________________
Linda L. Pace
*By _________________________________
Attorney-in-fact
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, OnePoint
Communications Holdings, LLC duly caused this Amendment No. 2 to the
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in City of Bannockburn, State of
Illinois, on the 29th day of April, 1999.
OnePoint Communications Holdings,
LLC
/s/ James A. Otterbeck
By: _________________________________
James A. Otterbeck
Chairman and Chief Executive
Officer of OnePoint Communications
Corp., its manager
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on the 29th day of April, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ William F. Wallace President (Principal Executive Officer)
___________________________________________
William F. Wallace
/s/ John D. Stavig Chief Financial Officer (Principal
___________________________________________ Financial Officer)
John D. Stavig
/s/ William McMoil Treasurer (Principal Accounting Officer)
___________________________________________
William McMoil
</TABLE>
*By _________________________________
Attorney-in-fact
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, OnePoint
Communications--Georgia, LLC duly caused this Amendment No. 2 to the
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in City of Bannockburn, State of
Illinois, on the 29th day of April, 1999.
OnePoint Communications--Georgia,
LLC
/s/ James A. Otterbeck
By: _________________________________
James A. Otterbeck
Chairman and Chief Executive
Officer of OnePoint Communications
Corp., its manager
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on the 29th day of April, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ William F. Wallace President (Principal Executive Officer)
___________________________________________
William F. Wallace
/s/ John D. Stavig Chief Financial Officer (Principal
___________________________________________ Financial Officer)
John D. Stavig
/s/ William McMoil Treasurer (Principal Accounting Officer)
___________________________________________
William McMoil
</TABLE>
*By _________________________________
Attorney-in-fact
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, OnePoint
Communications--Illinois, LLC duly caused this Amendment No. 2 to the
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in City of Bannockburn, State of
Illinois, on the 29th day of April, 1999.
OnePoint Communications--Illinois,
LLC
/s/ James A. Otterbeck
By: _________________________________
James A. Otterbeck
Chairman and Chief Executive
Officer of OnePoint Communications
Corp., its manager
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on the 29th day of April, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ William F. Wallace President (Principal Executive Officer)
___________________________________________
William F. Wallace
/s/ John D. Stavig Chief Financial Officer (Principal
___________________________________________ Financial Officer)
John D. Stavig
/s/ William McMoil Treasurer (Principal Accounting Officer)
___________________________________________
William McMoil
</TABLE>
*By _________________________________
Attorney-in-fact
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, OnePoint
Communications--Colorado, LLC duly caused this Amendment No. 2 to the
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in City of Bannockburn, State of
Illinois, on the 29th day of April, 1999.
OnePoint Communications--Colorado,
LLC
/s/ James A. Otterbeck
By: _________________________________
James A. Otterbeck
Chairman and Chief Executive
Officer of OnePoint Communications
Corp., its manager
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on the 29th day of April, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ William F. Wallace President (Principal Executive Officer)
___________________________________________
William F. Wallace
/s/ John D. Stavig Chief Financial Officer (Principal
___________________________________________ Financial Officer)
John D. Stavig
/s/ William McMoil Treasurer (Principal Accounting Officer)
___________________________________________
William McMoil
</TABLE>
*By _________________________________
Attorney-in-fact
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, VIC-RMTS-DC, LLC
duly caused this Amendment No. 2 to the Registration Statement on Form S-4 to
be signed on its behalf by the undersigned, thereunto duly authorized, in City
of Bannockburn, State of Illinois, on the 29th day of April, 1999.
VIC-RMTS-DC, LLC
/s/ James A. Otterbeck
By: _________________________________
James A. Otterbeck
Chairman and Chief Executive
Officer of OnePoint Communications
Corp., the manager of its manager
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on the 29th day of April, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ William F. Wallace President (Principal Executive Officer)
___________________________________________
William F. Wallace
/s/ John D. Stavig Chief Financial Officer (Principal
___________________________________________ Financial Officer)
John D. Stavig
/s/ William McMoil Treasurer (Principal Accounting Officer)
___________________________________________
William McMoil
</TABLE>
*By _________________________________
Attorney-in-fact
II-11
<PAGE>
KIRKLAND & ELLIS
PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS
200 East Randolph Drive
Chicago, Illinois 60601
To Call Writer Direct: 312 861-2000 Facsimile:
312 861-2000 312 861-2200
April 29, 1999
OnePoint Communications Corp.
2201 Waukegan Road
Bannockburn, Illinois 60015
Re: OnePoint Communications Corp.
Registration Statement on Form S-4
Registration No. 333-63787
-------------------------
Ladies and Gentlemen:
We are issuing this opinion letter in our capacity as special legal counsel
to OnePoint Communications Corp., a Delaware corporation (the "Registrant") in
connection with the proposed registration by the Registrant of up to
$101,750,000 in aggregate principal amount of the Registrant's 14 1/2% Senior
Notes due 2008, Series B (the "Exchange Notes"), pursuant to a Registration
Statement on Form S-4 (Registration No. 333-63787) originally filed with the
Securities and Exchange Commission (the "Commission") on September 18, 1998,
under the Securities Act of 1933, as amended (the "Act") (such Registration
Statement, as amended or supplemented, is hereinafter referred to as the
"Registration Statement"). The Exchange Notes are to be issued pursuant to the
Indenture (the "Indenture"), dated as of May 21, 1998, between the Registrant
and Harris Trust and Savings Bank, as Trustee, in exchange for and in
replacement of the Registrant's outstanding 14 1/2% Senior Notes due 2008 (the
"Old Notes"). We have been informed that $101,750,000 in aggregate principal
amount of Old Notes was outstanding as of April 29, 1999.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the Articles of Incorporation and By-Laws of the
Registrant, (ii) minutes and records of the corporate proceedings of the
Registrant with respect to the issuance of the Exchange Notes, (iii) the
Registration Statement, and (iv) the Registration Rights Agreement, dated May
21, 1998, among the Registrant, OnePoint Communications Holdings, LLC,
OnePoint Communications--Georgia, LLC, OnePoint Communications--Illinois, LLC,
OnePoint Communications--Colorado, LLC and VIC-RMTS-DC, LLC, and Bear, Stearns
& Co. and NationsBanc Montgomery Securities LLC.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of
all documents submitted to us as copies. We have also assumed the genuineness
of the signatures of persons signing all documents in connection with which
this opinion is rendered, the authority of such persons signing on behalf of
the parties thereto other than the Registrant and the due authorization,
execution and delivery of all documents by the parties thereto other than the
Registrant. As to any facts material to the opinions expressed herein which we
have not independently established or verified, we have relied upon statements
and representations of officers and other representatives of the Registrant
and others.
Our opinion expressed below is subject to the qualifications that we express
no opinion as to the applicability of, compliance with, or effect of (i) any
bankruptcy, insolvency, reorganization, fraudulent transfer,
London Los Angeles New York Washington D.C.
<PAGE>
KIRKLAND & ELLIS
OnePoint Communications Corp.
April 29, 1999
Page 2
fraudulent conveyance, moratorium or other similar law affecting the
enforcement of creditors' rights generally, (ii) general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or
at law), (iii) public policy considerations which may limit the rights of
parties to obtain certain remedies and (iv) any laws except the laws of the
State of New York and the federal laws of the United States of America.
Based upon and subject to the assumptions, qualifications, exclusions and
other limitations contained in this letter, we are of the opinion that when
(i) the Registration Statement becomes effective, (ii) the Indenture has been
duly qualified under the Trust Indenture Act of 1939, as amended and (iii) the
Exchange Notes have been duly executed and authenticated in accordance with
the provisions of the Indenture and duly delivered to the purchasers thereof
in exchange for the Old Notes, the Exchange Notes will be validly issued and
binding obligations of the Registrant.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the States of New York or the federal law of the United States be
changed by legislative action, judicial decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.
Sincerely,
/s/ Kirkland & Ellis
_____________________________________
Kirkland & Ellis
<PAGE>
EXHIBIT 10.3
AFFILIATE SERVICES AGREEMENT
THIS AFFILIATE SERVICES AGREEMENT (the "Affiliate Contract") is entered
into this 4th day of APRIL, 1997, by and between ONEPOINT COMMUNICATIONS, LLC, a
Delaware limited liability company, and its operating subsidiaries doing
business as OnePoint (collectively "OnePoint"), and SPRINT COMMUNICATIONS
COMPANY L.P. ("Sprint").
RECITALS
WHEREAS, Sprint entered into a Services Agreement with Pacific Bell
Communications ("PBC") dated February 3, 1997 (the "Master Agreement") pursuant
to which Sprint will sell to PBC, and PBC will purchase from Sprint, certain
long distance telecommunications services; and
WHEREAS, Section 3.2 of the Master Agreement provides that "Affiliates" of
PBC may elect to obtain from Sprint any of the "Services" under the Master
Agreement by execution of a written Affiliate Contract between such Affiliate
and Sprint; and
WHEREAS, the Master Agreement defines "Affiliate" to include, for purposes
of the Master Agreement only, Southwestern Bell Communications Services, Inc., a
Delaware corporation ("SBCS") and Affiliates of SBCS; and
WHEREAS, OnePoint, as an Affiliate of SBCS (and thereby an "Affiliate" of
PBC), desires to obtain Services from Sprint pursuant to Section 3.2 of the
Master Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth below and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties intending legally to
be bound, agree as follows:
1. Definitions. Capitalized terms not herein defined shall have their
-----------
respective meanings set forth in Article I and Attachment DE of the Master
Agreement.
2. Term. Unless otherwise extended or earlier terminated in accordance with
----
Section 5 hereof or as contemplated by Section 3.2(b) of the Master Agreement,
the term of the
<PAGE>
Affiliate Contract shall commence as of the date hereof and shall continue in
full force and effect until the first anniversary of the date hereof (the
"Termination Date").
3. Integration. Sprint shall provide such Services to OnePoint as OnePoint may
-----------
request from time to time pursuant to the terms hereof in accordance with
Section 3.2(a) of the Master Agreement, and OnePoint shall be entitled to the
benefits of, and subject to the obligations set forth in, the provisions of the
Master Agreement set forth herein with respect to the provision of such Services
to the same extend as if a party to the Master Agreement, other than as
expressly set forth herein.
4. Non-Exclusive Agreement; Rates and Charges. During the term of the
------------------------------------------
Affiliate Contract, OnePoint may elect, without regard to the exclusivity
provisions of Article 6 of the Master Agreement, to obtain any of the Services
from Sprint at the Rates and Charges set forth in the Master Agreement and
Attachment PS thereto.
5. Company Affiliate's Right to Renew. On or prior to the Termination Date,
----------------------------------
OnePoint may elect, by notice delivered to Sprint, to renew the Affiliate
Contract on either an exclusive or a non-exclusive basis as follows (subject, in
each case, to the right to terminate the Affiliate Contract in accordance with
Section 3.2(b) of the Master Agreement):
(a) Exclusive Basis. OnePoint may renew the Affiliate Contract for a term
which is coextensive with the Term of the Master Agreement; provided
that in such event, OnePoint shall thereupon become subject to the
same exclusivity provisions as set forth in Article 6 of the Master
Agreement (excluding any volume commitments set forth therein) except
that clause (iv) of the first sentence of Section 6.1(a) of the Master
Agreement shall be modified to permit OnePoint to obtain services
provided by a carrier other than Sprint under any contract existing as
of the date of OnePoint's election to renew the Affiliate Contract
pursuant to this Section 5(a) (which contracts will be terminated as
soon as practicable to the extent no breach or penalty results
therefrom).
(b) Non-Exclusive Basis. OnePoint may renew the Affiliate Contract and
elect, without regard to the exclusivity provisions of Article 6 of
the Agreement, to obtain any of the Services from Sprint at the rates
and charges and for the terms and conditions to be negotiated in good
faith.
6. Other Terms and Conditions. The following terms and conditions of the
--------------------------
Master Agreement, with such modifications set forth herein and such conforming
changes as shall be necessary to reflect the identity of OnePoint and to be
consistent with the foregoing, are incorporated herein and made a part hereof by
reference:
(a) Article 1 (Definitions);
(b) Section 3.2 (Services to Company Affiliates);
(c) Section 4.4
2
<PAGE>
(d) Section 4.6 (Quality of Services) amended to read as follows:
4.6 Quality of Services. Sprint shall provide Services purchased
-------------------
by OnePoint hereunder in compliance with the Performance
Guarantees to the extent set forth in Section (6)r of this
Affiliate Contract;
(e) Section 8 (Rates and Charges);
(f) Section 10.1 (Price Adjustments); provided, however, that this Section
shall not become operational with respect to OnePoint until Sprint
begins making the adjustments provided for herein for PBC;
(g) Article 12 (Confidential Information);
(h) Article 14 (Representations, Warranties and Covenants);
(i) Article 15 (Intellectual Property Rights);
(j) Article 16 (Indemnification; Third Party Claims);
(k) Section 17.2(c) ("Pass-Through Compensation"); provided, however, that
this Section shall be administered using the same procedures used to
accomplish the pass-through provided for herein for PBC;
(l) Section 17.6(b) (Special Remedies Under Certain Circumstances-Fraud);
(m) Sections 18.2 (Force Majeure), 18.3 (Independent Contractor), 18.4
(Advertising or Publicity), 18.5 (Subcontracting), 18.6 (Dispute
Resolution), and 18.7 (Assignment);
(n) Article 19 (Miscellaneous), with the address of the parties in Section
19.3 (Notices) modified as follows:
If to OnePoint
--------------
OnePoint Communications, LLC
Address: c/o The VenCom Group, Inc.
2201 Waukegan Rd., Suite E-200
Bannockburn, Illinois 60015
Facsimile: (847) 374-1070
Telephone: (847) 374-7000
Attention: President
3
<PAGE>
If to Sprint
------------
Sprint Communications Company L.P.
Address: 5420 LBJ Freeway, 18th Floor
Dallas, TX 75240
Facsimile: (214) 405-5002
Telephone: (214) 405-5504
Attention: Vice President/General Manager RBOC Services
(o) Section I (General Matters) of Attachment BA (Billing and Accounting);
provided, however, that the last sentence of Subsection I.A shall be
replaced with the following:
Sprint hereby waives all charges for any usage not billed within
180 days following the end of the first available monthly billing
cycle after the usage is recorded, unless (a) Sprint can document
in writing that the delayed billing was caused by the Company or
(b) the parties agree in writing to a longer time period.
(p) Section III.A (Cost Categories for General Ledger Account Purposes) of
Attachment BA (Billing and Accounting);
(q) Attachment DE (Definitions);
(r) Sections I.1, I.3, I.4 and I.5 (Sprint Support Levels) of Attachment
PG (Performance Guarantees);
(s) Attachment PS (Pricing of Services) with Attachments.
IN WITNESS WHEREOF, the parties hereto, each acting with proper authority, have
executed this Service Contract, to be effective as of the date first above
written.
ONEPOINT COMMUNICATIONS, LLC SPRINT COMMUNICATIONS COMPANY L.P.
By: [SIGNATURE ILLEGIBLE] By: /s/ Leo Welsh
------------------------- -------------------------------
Title: Chairman/CEO Title: Vice President
---------------------- ----------------------------
STAMP APPEARS HERE
4
<PAGE>
SERVICES AGREEMENT
BETWEEN
PACIFIC BELL COMMUNICATIONS
AND
SPRINT COMMUNICATIONS COMPANY. L.P.
Dated February 3, 1997
<PAGE>
ATTACHMENTS
Attachment AS Terms of Affiliate Services Agreement
Attachment BA Billing and Accounting
Attachment DE Definitions
Attachment PG Performance Guarantees
Attachment PS Pricing of Services
Diagram 1 Access Services and Transport Services
Table 1 Switched Access Services
Table 2 Domestic Transport Services
Table 3 International Transport Services
Table 4 Calling Card Services
Table 5 Billing Increments
Table 6 Domestic Toll Free Services
Table 7 Directory Assistance Services
Table 8 Operator Services
Table 9 Dedicated Access Services
Table 10 Bulk Transport Services
Table 11 Branding Services
Exhibit PS-1 Price Change Modification Notice
Exhibit PS-II Additional Core Services Notice
Exhibit PS-III Purchased Shopping Services Notice
<PAGE>
SERVICES AGREEMENT
This SERVICES AGREEMENT (this "AGREEMENT") is entered into this 3rd
day of February 1997, by and between PACIFIC BELL COMMUNICATIONS (the "COMPANY")
and SPRINT COMMUNICATIONS COMPANY, L.P. ("SPRINT").
RECITALS
A. The Company, together with certain other parties, issued a
Request for Proposal dated April 18, 1996, which requested from certain long
distance service providers proposals to provide the Company with voice and data
services.
B. In response to certain proposals submitted by Sprint, the Company
has determined, subject to the terms and conditions of this Agreement, to
purchase certain voice and data services offered by Sprint and Sprint has agreed
to provide such services to the Company on the terms and conditions set forth
herein.
C. Sprint acknowledges (i) the interest of the Company in obtaining
competitively priced voice and data services and (ii) that this Agreement is
being entered into by the Company, in part, to obtain the assistance of Sprint
in connection with the Company's entry, upon the receipt of all relevant federal
and state regulatory approvals, into the long distance market.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth below and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending
legally to be bound, agree as follows.
TERMS OF AGREEMENT
ARTICLE 1
DEFINITIONS
Whenever used in this Agreement, capitalized words and phrases shall
have the meanings set forth in ATTACHMENT DE. With respect to any technical or
similar terms or phrases used without definition herein, such technical or
similar terms or phrases shall be governed by their ordinary and common meaning
as generally used by Persons familiar with, and experienced in, the
telecommunications industry.
<PAGE>
3.2 Services to Company Affiliates.
------------------------------
(a) TERMS OF AFFILIATE SERVICES. From the date of this Agreement
until the six (6) month anniversary of the Commercial Commencement Date, each
Company Affiliate may elect in its sole and absolute discretion to obtain from
Sprint, and Sprint shall be obligated to provide to any such Company Affiliate,
any of the Services at the Rates and Charges by execution of a written contract
between such Company Affiliate and Sprint incorporating the terms set forth in
ATTACHMENT AS (the "AFFILIATE CONTRACT"). In addition to the foregoing, Sprint
may provide to the Company Affiliate any additional services specified by the
Company Affiliate at the rates and for the charges to be negotiated in good
faith by such parties in accordance with the applicable Affiliate Contract.
(b) TRANSITION OF AFFILIATE AGREEMENTS. Sprint acknowledges that the
Company intends to offer telecommunications services to its Affiliates after
receipt of all necessary governmental authorizations. In connection therewith,
Sprint agrees that it shall permit any Company Affiliate to which Sprint
provides retail telecommunications services or wholesale services to terminate
such Affiliate's telecommunications agreement or Affiliate Contract, as the case
may be, with Sprint (each, a "SPRINT AGREEMENT") without penalty and without
regard to any contrary provisions contained therein; provided that (i) such
--------
Company Affiliate, upon termination of such Sprint Agreement, shall obtain the
telecommunications services which were the subject of such Sprint Agreement from
the Company and (ii) the Company shall, subject to the exception to exclusivity
set forth in SECTION 6.1(A)(I) hereof, obtain the telecommunications services
which it provides to such Affiliate from Sprint for the remainder of the
existing term of such Sprint Agreement (without giving effect to any right of
renewal) on an exclusive basis (to the extent, and only to the extent, that such
services were provided to the Affiliate under the Sprint Agreement on such an
exclusive basis) and at a volume consistent with any volume commitments set
forth in such Sprint Agreement.
<PAGE>
4.4 Management of LEC and Domestic Alternate Provider Relationship.
--------------------------------------------------------------
Sprint acknowledges that the Company intends to rely upon Sprint to provide
end-to-end services and to manage, on behalf of the Company, all of Sprint's
relationships with any LEC or Domestic Alternate Provider to the extent
necessary to permit the Company to deliver end-to-end services. In connection
with the foregoing, the Company acknowledges that Sprint is unable to guarantee
the level of service provided by any such LEC or Domestic Alternate Provider,
although Sprint agrees that it shall use its reasonable best efforts to manage
any such relationships in such a manner so as to ensure that the Services meet
the Performance Guarantees. In addition, in no event shall Sprint's level of
managerial effort, on behalf of the Company, with any LEC or Domestic Alternate
Provider differ, in any material and adverse respect, from the efforts Sprint
expands on its own behalf in connection with the provision of services to
Sprint's other customers (including the efforts Sprint uses for its own retail
division).
<PAGE>
undertaken in a manner designed to minimize or eliminate, to the extent
commercially practicable, any disruption to the Company's ordinary business
operations, including the provision of end-to-end services by the Company.
4.6 Quality and Value of Services. Sprint expressly acknowledges that
-----------------------------
the provision of competitively priced and highly reliable end-to-end services to
the Company is critical to the Company's business and reputation. Sprint shall
provide all Services in compliance with the applicable Performance Guarantees,
Documentation and other requirements set forth in this Agreement. To the extent
that Sprint uses any service provider (including, without limitation, any LEC or
any Domestic Alternate Provider) in connection with the provision of end-to-end
Services to the Company, Sprint shall use its reasonable best efforts to ensure
that any such other service provider delivers the same level of reliability and
quality of services to the Company as is required of Sprint under the terms of
this Agreement.
<PAGE>
ARTICLE 6
EXCLUSIVITY
6.1 Terms of Exclusivity
--------------------
(a) GENERALLY. Subject to SECTION 6.2 AND 6.3 hereof, the Company
shall obtain all of its Domestic and international long distance Services from
Sprint, except for (i) services provided by the Company or its Affiliates or by
means of any capitalized assets or owned facilities of the Company or its
Affiliates, (ii) dedicated services that Sprint cannot readily supply or for
which Sprint cannot meet reasonable due dates established in accordance with the
provisions set forth in ATTACHMENT PG, (iii) services directed to another
carrier for emergency backup or redundancy, (iv) services provided by another
carrier under any existing contract as of November 1, 1996 (which contracts will
be terminated as soon as practicable to the extent no breach or penalty results
therefrom), (v) Captive Services (to the extent the Company has determined not
to obtain such Captive Service from Sprint) and any Shopping Services unless
otherwise
<PAGE>
expressly agreed by the Company and Sprint, (vi) international Services from a
(1) Foreign Country Carrier pursuant to any Direct Service Agreement, (2)
Strategic Partner, pursuant to any International Service Arrangement, at any
time on or after the first anniversary of the Commercial Commencement Date and
(3) Foreign Carrier, pursuant to any International Service Arrangement, at any
time on or after the second anniversary of the Commercial Commencement Date.
Notwithstanding anything to the contrary in this Agreement or otherwise, (a)
this Agreement shall not, in any manner, limit the Company's right, at any time,
to construct its own facilities or to use facilities of any Affiliate, (b) in
the event the provisions of CLAUSE (VI) of the preceding sentence shall apply to
an International Service Arrangement entered into by the Company with respect to
any foreign country, the exclusivity provisions of this Section 6.1(a) shall,
from and after the date on which such International Service Arrangement has been
entered into, not apply at any time thereafter to such foreign country, and (c)
except pursuant to the express exceptions of the preceding sentence and CLAUSE
(A) of this sentence, the Company shall not engage in transactions with any of
its Affiliates solely for the purpose of circumventing the exclusivity
provisions of this ARTICLE 6.
(b) END-USER REQUIREMENTS. On a case-by-case basis, Sprint shall
negotiate, in good faith, with the Company to satisfy any specific end-user
requirements relating to the Services, including, but not limited to, the use of
an alternate carrier in connection with an end-user's need for redundancy, route
diversity or emergency backup.
6.2 Methods for Domestic Service Delivery.
-------------------------------------
(a) INTERLATA SERVICES. Subject to the exceptions set forth in
SECTION 6.1 (A) hereof, the Company shall, at its election, and in its sole and
absolute discretion, obtain interLATA Services from Sprint through any of the
following configurations:
(i) Switchless Configuration. The Company may obtain from
Sprint, Domestic Transport Services, together with, in the sole
and absolute discretion of the Company, either Switched Access
Services or Dedicated Access Services (a "SWITCHLESS CONFIGURATION").
(ii) Carrier Origination Configuration. The Company may
provide for terminated of a call on a Company switch and obtain
from Sprint. Domestic Transport Services, together with, in the
sole and absolute discretion of the Company, either Switched
Origination Services or Dedicated Access Services (a "CARRIER
ORIGINATION CONFIGURATION").
(iii) Carrier Termination Configuration. The Company may
provide for origination of a call on a Company switch and obtain
from Sprint, Domestic Transport Services, together with, in the
sole and absolute discretion of the Company, either Switched
Termination Services
<PAGE>
or Dedicated Access Services (a "CARRIER TERMINATION CONFIGURATION") or
(iv) Bulk Transport Configuration. Subject to SECTIONS 6.3(A) AND
7.1(A) hereof, the Company may provide for origination and termination of a
call on a Company switch and obtain from Sprint dedicated connections
between Sprint's POPs (a "BULK TRANSPORT CONFIGURATION") at the rate
specified in TABLE 10 of ATTACHMENT PS.
(b) INTRALATA SERVICES. Subject to the exceptions set forth in
SECTION 6.1(A) hereof, the Company shall obtain intraLATA toll Services from
Sprint through a Switchless Configuration: provided that the Company may, at any
--------
time, subject to SECTION 7.1(B) hereof, obtain intraLATA toll Services from any
LEC or Domestic Alternate Provider.
6.3 Volume Commitments.
------------------
(a) DOMESTIC VOLUME COMMITMENT. In the event that the Company's
aggregate MOUs over Access Component D (calculated for the period commencing on
the Commercial Commencement Date and ending on the first anniversary of the
Commercial Commencement Date, and for each annual period thereafter (each, a
"MEASUREMENT PERIOD")) shall decline from one (1) Measurement Period to the next
succeeding Measurement Period, other than as a result of Domestic MOUs that have
migrated from the Sprint network as a result of (i) Market Forces, (ii) the
receipt of services by the Company from any other provider pursuant to SECTION
6.1(A) hereof or (iii) the provision by Sprint of Virtual Bulk Transport (such
net difference in Domestic MOUs, the "DOMESTIC SHORTFALL"), the Company shall
pay to Sprint an amount equal to the Domestic Volume Commitment Charge.
(b) INTERNATIONAL VOLUME COMMITMENT. In the event that, after its
receipt of international Services from a Foreign Alternate Provider as permitted
by clause (vi) of the first sentence of SECTION 6.1(A) hereof, the Company's
aggregate MOUs over Transport Component F calculated for each Measurement
Period) shall decline from one (1) Measurement Period to the next succeeding
Measurement Period, other than as a result of international MOUs that have
migrated from the Sprint network as a result of (i) Market Forces, (ii) the
receipt of services by the Company from a PTT pursuant to a Direct Service
Agreement or from any provider other than Sprint pursuant to CLAUSES (I) THROUGH
(V) of the first sentence of SECTION 6.1(A) hereof or (iii) the receipt of
services pursuant to any arrangement with Sprint pursuant to SECTIONS 6.4 OR 7.3
hereof (such net difference in international MOUs, the "INTERNATIONAL
SHORTFALL"), the Company shall pay to Sprint an amount equal to the
International Volume Commitment Charge
6.4 Collateral Agreements.
---------------------
<PAGE>
(a) COLLATERAL ARRANGEMENTS TO WHICH THE COMPANY IS A PARTY. Sprint
shall have the right to offer the Company the opportunity to participate in any
International Services Arrangement which Sprint reasonably believes may enhance
the terms or conditions under which the Company receives the Services. In any
such event, if the Company, in its sole and absolute discretion, determines to
participate in such International Services Arrangement with Sprint, the terms
and conditions of such International Services Arrangement (to the extent, and
only to the extent, that the Company is a signatory thereto), shall govern the
relationship of the parties hereto with respect to the subject matter thereof,
and the parties understand that the terms and conditions governing such
relationship may, to the extent agreed upon by the parties, include provisions
relating to exclusivity, volume commitments and other matters otherwise
addressed in this Agreement.
(b) COLLATERAL ARRANGEMENTS TO WHICH THE COMPANY IS NOT A PARTY.
Sprint may, from time to time, notify the Company of any opportunity available
to Sprint to participate in any International Services Arrangement which Sprint
reasonably believes (i) may enhance the terms or conditions under which the
Company receives the Services and (ii) will require international traffic volume
commitments from the Company to make the arrangement financially feasible for
Sprint. If the Company, in its sole discretion, determines that Sprint's
participation in such arrangement will benefit the Company, and the Company
agrees in writing to the specific international traffic volume commitments
necessary to make the arrangement feasible for Sprint, then, to the extent
specifically agreed upon by the parties, the Company shall, in accordance with
the express terms of such arrangement, comply with such international traffic
volume commitments with respect to international traffic to countries covered by
such arrangement.
<PAGE>
ARTICLE 8
PAYMENT AND TAXES
8.1 Rates and Charges.
-----------------
(a) GENERALLY. Subject to ATTACHMENT BA, the Company shall pay the
Rates and Charges set forth in this Agreement and ATTACHMENT PS hereto in
connection with the provision of any of the Services hereunder. Sprint shall
render invoices for Services to the Company not later than the twelfth (12th)
day after the monthly billing cycle in which any usage is recorded. The Company
shall pay any such invoices within thirty (30) days after receipt thereof, with
interest payable by the Company on any overdue amounts at a rate equal to the
lesser of the (x) Prime Rate plus Two Percent (2%) per annum or (y) maximum
interest rate permitted by applicable law; provided that the Company shall not
--------
be required to pay Sprint, and no interest shall accrue upon, any overdue
amounts which are the subject of a good faith dispute between the Company and
Sprint. In the event of a dispute with respect to any invoice, the Company shall
provide to Sprint, on or before the stated due date of such invoice, a notice
which sets forth, in reasonable detail and with supporting documentation, the
basis of such dispute and the Company shall pay to Sprint, when due, the amount
of any such invoice which is not in dispute. The Company and Sprint shall use
their reasonable best efforts to resolve any such dispute in a commercially
reasonable and expeditious manner; provided that in the event that such dispute
--------
is not resolved in a ninety (90) day period after the commencement of
negotiations, either party may initiate the dispute resolution procedure set
forth in SECTION 18.6 hereof. Any failure by the Company to pay any amounts due
under this Agreement which are the subject of a bona fide dispute between the
Company and Sprint shall not constitute a default for any purposes of this
Agreement by the Company and shall not form the basis for any termination of
this Agreement or for any suspension or limitation of Services. Subject to any
adjustments permitted or required under the terms of this Agreement, the Rates
and Charges (plus any applicable taxes and tax-related surcharges) set forth in
ATTACHMENT PS hereto constitute the sole charges (recurring and non-recurring)
for which Sprint may bill the Company in connection with the provision of any of
the Services set forth in ATTACHMENT PS hereto.
<PAGE>
(b) TARIFF 8. The Rates and Charges for any Service Elements that are not
set forth in this Agreement or ATTACHMENT PS, and which the Company shall
determine to obtain from Sprint, shall, to the extent expressly referenced in
TARIFF 8, be an amount equal to the lesser of (i) eighty percent (80%) of the
applicable nondiscounted rates and charges set forth in such Tariff 8 or (ii)
the applicable discounted rates and charges set forth in such Tariff 8, in the
case of each of CLAUSE (I) AND (II) above, for any such Service Elements set
forth in Tariff 8, based upon the applicable Tariff Term Plan for any such
Service Element so purchased and without regard to the date of such purchase. In
the event that the applicable Tariff Term Plan for any such Service Element so
purchased extends beyond the term of this Agreement, then, in such event, each
of the Company and Sprint shall comply with the provisions of such Tariff Term
Plan notwithstanding the termination of this Agreement.
8.2 Taxes and Surcharges.
--------------------
(a) GENERALLY. The Company shall pay all sales, federal excise and other
taxes or surcharges lawfully levied by a duly constituted taxing or regulatory
authority against or upon the Services and required by such authority to be paid
by the Company, and billed by Sprint to the Company either on the original
invoice relating to the Services subject to such taxes or within one (1) year
after the date of such original invoice. In the alternative, the Company shall
provide Sprint with a certificate evidencing the Company's exemption from
payment of or liability for any such taxes. Other taxes, including taxes based
on Sprint's income, corporate franchise and ordinary real and personal property
taxes, shall be paid by Sprint.
(b) TAX PROCEDURE. The Company shall pay any tax for which it is legally
responsible in connection with its receipt of Services that may be levied on or
assessed against the Company directly. Sprint shall collect such tax from the
Company in the same manner as it collects such tax from other customers in the
ordinary course of Sprint's business, but in no event prior to the time it
invoices the Company for the Services for which such taxes are levied. If
permitted by law, Sprint may state taxes or surcharges on its invoice as a
single line item, whether or not the taxes or surcharges charged are computed on
the basis of the aggregate amount billed or for particular Services. Sprint
shall maintain records sufficient to demonstrate that any applicable taxes or
surcharges have been correctly computed, collected and remitted in compliance
with any applicable laws or regulations, and shall make such records reasonably
available to the Company for purposes of determining correct billing by Sprint
or in connection with an audit. Sprint shall cooperate reasonably with the
Company to minimize lawfully any such taxes or surcharges payable and such
cooperation shall, if requested, include changes in billing address or service
reconfigurations, subject to the terms of this Agreement sprint shall timely
remit any tax or surcharge collected from the Company to the proper tax or
receiving authority as required by applicable law.
<PAGE>
(c) TAX ASSIGNMENT. All refunds of taxes or surcharges paid by the
Company (including any interest allowed thereon, and regardless of whether
actually received by Sprint or allowed as a credit) shall belong to the Company.
Sprint shall promptly remit to the Company all such refunds (including any
interest received or allowed thereon) upon receipt thereof. If permitted by
applicable law or regulation, the Company may initiate and shall manage any
administrative proceedings or litigation on its own behalf to seek refunds of
any taxes or surcharges collected by Sprint from the Company. If applicable law
or regulation requires or permits Sprint to make a refund clam in its own name
with respect to taxes or surcharges paid by the Company, Sprint shall initiate
refund claims at the Company's request. To the extent the proceedings are
attributable to amounts paid by the Company, the Company shall manage the
proceedings at its own expense. Sprint shall cooperate reasonably with the
Company in pursuing any such refund claims, including related administrative,
litigation and appellate proceedings.
(d) TAX NOTICE. Sprint shall provide the Company timely notice
of any audit, proposed assessment or any additional taxes, penalty, addition to
tax, surcharge or interest that may be due by the Company to enable the Company
the opportunity to seek administrative relief, a ruling, judicial review
(original or appellate) or other appropriate review as to the applicability of
such other taxes or additional charges prior to any assessment of such taxes or
other charges. Sprint shall, when requested by the Company (or when ordered to
do so by a governmental entity or court), cooperate or participate with the
Company in any such proceeding, protest or legal challenge. Sprint shall timely
provide the Company with copies of all relevant correspondence, work papers or
other documents reasonably requested by the Company in order to participate
effectively in such proceedings.
<PAGE>
ARTICLE 10
PRICE ADJUSTMENTS
10.1 Price Adjustment. Access charges for Domestic and to the extent
----------------
applicable, international Services and the prices for international Services set
forth in ATTACHMENT PS shall, in each case, be subject to adjustment pursuant to
the provisions of SECTIONS 10.1(A) AND 10.1(B) hereof.
(a) SWITCHED ACCESS CHARGE ADJUSTMENTS. Charges for Switched Access
Services purchased from a LEC or Domestic Alternate Provider will be billed to
the Company on the basis of the configurations selected by the Company pursuant
to SECTIONS 6.2(A) AND 6.2(B). The parties intend for Sprint to "pass-through"
to the Company, and for the Company to pay to Sprint, the actual access charges
for Switched
<PAGE>
Access Services incurred by Sprint in connection with the provision of Services
hereunder on a LEC-specific or Alternate Domestic Provider-specific basis. In
light of the current capability of Sprint's billing systems to effect such "pass
- -through" of actual charges for Switched Access Services on a LEC-specific or
Alternate Domestic Provider specific basis, the parties agree as follows:
(i) Domestic Access Charge Adjustment. Prior to the Carrier Transport
II Date, Sprint shall determine its weighted average access charges for
Access Components A and E, together with the applicable charges for Access
Components B and D calculated on the basis of such Access Components A and
E (including any alternative access servicing arrangements that may be used
by Sprint), through the use of Sprint's AMIS system. Sprint will respond on
a timely basis to reasonable inquiries from the Company regarding the rates
and charges derived from AMIS and other related inquires regarding the AMIS
system. Prior to the Carrier Transport II Date, Sprint shall adjust all
access charges "passed-through" to the Company not less than once per
calendar year so as to ensure that during such period, to the extent
practicable, the rates and charges paid by the Company to Sprint with
respect to Access Components A and E, together with charges for Access
Components B and D calculated on the basis of such Access Components A and
E, reflect Sprint's actual access charges on a "weighted average rate per
LATA" basis (including any alternate access servicing arrangements that may
be used by Sprint). Within thirty (30) days of such adjustment, the Company
shall pay Sprint the net amount of any underpayments or Sprint shall credit
the Company the net amount of the overpayments, for the applicable period
with respect to which such adjustment has been effected. Notwithstanding
the foregoing, the parties agree that in the event of any errors or delays
in timely "passing-through" changes to actual access charges which occur
on or after the date of this Agreement the party owing the other party any
payment as a result of such "true-up" shall pay to the other party, at the
time any such "true-up" is effected, interest on any amounts which have
been or are the subject of such "true-up" at a rate equal to the lesser of
the (x) Prime Rate plus Two Percent (2%) per annum or (y) maximum rate
permitted by applicable law.
(ii) Carrier Transport II System. As of the Carrier Transport II Date,
the Company shall be billed by Sprint for actual access charges based on
actual usage incurred by Sprint in connection the provision of Services
hereunder on a LEC-specific of Domestic Alternate Provider-specific basis,
as such charges may be in effect on the first day of any calendar month,
thus eliminating any need for access "true-ups".
<PAGE>
(iii) Attachment PS. The parties acknowledge and agree that
TABLE 1 to ATTACHMENT PS is appended for illustrative purpose only
and shall not constitute the Rates and Charges to be "passed-through"
in connection with Access Components. Sprint shall, in accordance
with SECTION 19.3 hereof, provide to the Company, on a periodic
basis, updated Rates and Charges for Access Components in a format
substantially similar to the format set forth in such TABLE 1.
(b) INTERNATIONAL PRICING. On the first business day of each March
and September during the Term, commencing March 1, 1997, Sprint shall adjust
each of the prices set forth in ATTACHMENT PS attached hereto which relate to
the provision of International Services to the Company and any Affiliate of the
Company in accordance with the following formula:
New International Old International Adjusted
Price (=) Price (x) International
Benchmark
(/) International
Benchmark
In addition to the foregoing, each party shall pay to the other party, at the
time of any adjustment pursuant to this SECTION 10.1(B), interest on any
overpayments or underbillings, as applicable, made by the Company or Sprint, in
respect of international Services as a result of any delays in timely making any
adjustments required by this SECTION 10.1(B) at a rate equal to the lesser of
the (x) Prime Rate plus two percent (2%) per annum or (y) maximum rate permitted
by applicable law. Sprint shall deliver notice of the New International Price to
the Company within five (5) business days after each adjustment undertaken
pursuant to this SECTION 10.1(B), which shall set forth the formula referred to
above.
(c) BOOKS AND RECORDS. Sprint shall maintain all books and records
related to the determination and calculation of any of the Domestic access
charges, international prices or adjustments required by this SECTION 10.1
for a period of not less than two (2) years from the date of any adjustment
effected pursuant to this SECTION 10.1; provided that notwithstanding the
--------
foregoing. Sprint shall maintain all books and records related to the
determination and calculation of the International Benchmark until the
termination of this Agreement.
<PAGE>
ARTICLE 12
CONFIDENTIAL INFORMATION
12.1 Confidential Information. During the Term and for a period of
------------------------
three (3) years thereafter, each party hereto shall maintain in strict
confidence all Confidential Information, including preventing disclosure to any
competitor of the other party (known to be such after reasonable inquiry).
Neither party shall, without obtaining the other party's prior consent, use the
other party's Confidential Information for any purpose other than for the
performance of its duties and obligations under this Agreement and for
provision of other services to the other party. Each party shall use, and shall
take reasonable steps to arrange for other persons authorized to receive the
other party's Confidential Information to use, at least the same degree of care
to protect the other party's Confidential Information as it uses to protect its
own Confidential Information.
12.2 Disclosure to Employees and Others. Notwithstanding SECTION 12.1
----------------------------------
hereof, either party may disclose Confidential Information to:
(a) its and its Affiliates' employees, agents, advisors, employees,
outside counsel, auditors and other professional advisors; provided that (i)
--------
disclosure may be made to any such individuals only on a need-to-know basis,
(ii) the disclosing party has taken reasonable steps to ensure that such
Confidential Information is kept strictly confidential consistent with the
confidentiality obligations imposed hereunder and (iii) any Person to whom such
Confidential Information is disclosed shall be instructed not to use any such
Confidential Information outside the scope of employment or engagement; and
(b) in the case of the Company, (i) the employees, agents, advisors,
outside counsel, auditors and other professional advisors of any entity or
Affiliate of such entity that is merging with, or acquiring, the Company or an
Affiliate of the Company;
<PAGE>
provided that disclosure may be made to any such individuals only on a
- --------
need-to-know basis, and (ii) any state regulatory agencies with jurisdiction
over the companies involved in such merger or acquisition provided that the
--------
Company or its Affiliate shall seek confidential treatment of any Confidential
Information disclosed to such agency; provided further that (1) disclosure may
-------- -------
be made to any such individuals only on a need-to-know basis, (2) the disclosing
party has taken reasonable steps to ensure that such Confidential Information is
kept strictly confidential consistent with the confidentiality obligations
imposed hereunder and (3) any Persons to whom such Confidential Information is
disclosed shall be instructed not to use any such Confidential Information
outside the scope of employment or engagement.
12.3 Required Disclosure.
-------------------
(a) GENERALLY. The restrictions imposed by this ARTICLE 12 do not
apply to the extent, but only to the extent, that Confidential Information must
be disclosed pursuant to a court order or as required by any regulatory agency
or other governmental body of competent jurisdiction. Each party shall make its
own good faith judgment as to the disclosure requirements applicable to it,
including the statutory and regulatory requirements administered or imposed by
the FCC and the Securities and Exchange Commission. In the event that a party is
legally required to disclose the other party's Confidential Information by a
ruling or order of a court, regulatory agency or other governmental body, it
shall notify the other party upon receipt of such an order or determination and
shall use it best efforts to resist, or to assist the other party in resisting,
such disclosure.
(b) PROCEDURE. A party providing another party's Confidential
Information to any court, regulatory agency or other governmental body shall:
(i) use its best efforts to assist the other party in obtaining a
protective order or comparable assurance that the Confidential Information
so provided will be held in confidence by such court, regulatory agency or
governmental body and not be further disclosed to any other person, absent
the owner's prior consent, and
(ii) permit the other party to review any redacted document to be
filed with the court, regulatory agency or other governmental body and
offer its comments thereon before the document is filed.
In any event, the parties shall, to the extent practicable, assist one another
in any action required by this SECTION 12.3(B).
12.4 Remedies. The Company and Sprint acknowledge that any disclosure
--------
or misappropriation of Confidential Information in violation of this Agreement
could cause irreparable and immediate harm, the amount of which may be extremely
<PAGE>
difficult to determine, and thereby making any remedy at law or in damages
inadequate. Each party therefore agrees that, notwithstanding SECTION 18.6
hereof, the other party shall have the right to apply to any court of competent
jurisdiction for an order restraining any breach or threatened breach of this
ARTICLE 12 and for any other equitable relief as such other party deems
appropriate.
<PAGE>
ARTICLE 14
REPRESENTATIONS, WARRANTIES AND COVENANTS
14.1 Sprint Representations, Warranties and Covenants
------------------------------------------------
(a) AUTHORITY. Sprint has full power and authority to enter into
this Agreement without the consent of any other Person and to perform its
obligations hereunder.
(b) GOOD STANDING. Sprint is and shall continue to be duly
organized, validly existing and in good standing under the laws of the State of
California and is and shall continue to be authorized to do business in the
jurisdictions in which the ownership of its properties or conduct of its
business legally requires such authorization, other than such jurisdictions in
which the failure to be so authorized would not have a material effect upon
Sprint's ability to provide Services in accordance with the terms of this
Agreement.
(c) DUE AUTHORIZATION. This Agreement and the transactions
contemplated hereby have been duly authorized by Sprint, and no further
partnership action is required.
(d) NO CONFLICT. This Agreement and the transactions contemplated
hereby do not conflict in any material respect with any other agreements or
judicial or administrative orders to which Sprint is a party or by which it may
be bound.
(e) COMPLIANCE. Sprint is in compliance, in all material respects,
with and shall, at all times during the Term, comply, in all material respects,
with all foreign
<PAGE>
and Domestic laws, statutes, ordinances, rules, regulations and orders or court
decisions applicable to the provision of Services, including, without
limitation, all applicable laws and regulations relating to CPNI. Sprint shall
take all necessary actions to ensure that the Services, and the rates, terms and
conditions set forth in this Agreement, remain in full compliance with all
applicable laws, statutes, ordinances, rules, regulations and orders or
decisions of any court or governmental body. Sprint further agrees that it shall
make all governmental fillings, including tariff fillings, that may be required
from time to time by any governmental body of competent jurisdiction. Sprint
shall promptly notify the Company of any charge of noncompliance with any
applicable foreign, federal, state or local law (including a statue, rule,
regulation or order) of which it becomes aware in connection with the Services.
Sprint shall not do or perform any act, or omit to do or perform any act, that
Sprint should reasonably know would place the Company in violation of any
foreign, federal, state or local statute, rule, regulation or order.
(f) VALID, BINDING AND ENFORCEABLE. This Agreement constitutes a valid and
binding agreement of Sprint, enforceable against Sprint in accordance with its
terms, except as may be limited by bankruptcy, insolvency, moratorium,
fraudulent conveyance and other laws affecting creditors rights generally and to
general principles of equity.
(g) CLAIMS BY SUBCONTRACTORS. Sprint expressly covenants, warrants and
agrees to pay all subcontractors, materialmen or other laborers with which it
enters into agreements to perform work related to Services. In no event shall
the Company be obligated to pay such subcontractors, materialmen or other
laborers for claims which arise out of work related to Services. Sprint
expressly covenants and agree to hold harmless and defend the Company against
any and all claims (including the cost of defending them) arising out of work by
Sprint subcontractors, materialmen or other laborers related to Services.
(h) PERMITS. Sprint has secured and shall, during the Term, secure all
Domestic and foreign permits, licenses, certifications, regulatory approvals and
authorizations (collectively "PERMITS") legally required for the provision of
Services, and shall take all lawful actions necessary to maintain such Permits
in full force and effect.
(i) ALL REASONABLE EFFORTS. Subject to the terms of this Agreement, Sprint
shall use all reasonable efforts to take, or cause to be taken, all lawful
actions to do, or cause to be done, all things necessary proper or advisable to
comply with the requirements of this Agreement.
(j) NON-INTERFERENCE. The installation maintenance and provision of the
Services shall be performed in such a manner as will minimize any disruption to
the normal business operations of the Company or its Affiliates that might arise
as a result of such activities.
<PAGE>
(k) INTELLECTUAL PROPERTY. Sprint has not received a claim that
causes it to believe that the Company's use of equipment or services material to
this Agreement will be interrupted or otherwise disturbed by Sprint or any third
Person asserting a claim under or through Sprint. Sprint has the rights to grant
the license of Intellectual Property granted herein on a royalty free basis,
subject to the payment for Services otherwise required by the terms of this
Agreement.
(l) PRICING CALCULATION. Sprint represents that the International
Benchmark has been calculated in accordance with the definition of such term as
set forth in this Agreement. Sprint shall calculate and implement the Domestic
and international access charge adjustments and the New International Price in
accordance with the requirements of SECTION 10.1 hereof.
14.2 The Company's Representations and Warranties.
--------------------------------------------
(a) AUTHORITY. The Company has full corporate power and authority to
enter into this Agreement without the consent of any other Person and to perform
its obligations hereunder.
(b) GOOD STANDING. Subject to the transactions contemplated by
SECTION 18.1 hereof, the Company is and shall continue to be duly organized,
validly existing and in good standing under the laws of the State of California,
and is and shall, subject to the receipt of all applicable regulatory approvals
and authorizations, continue to be authorized to do business in the
jurisdictions in which the ownership of its properties or conduct of its
business legally requires such authorization, other than such jurisdictions in
which the failure to do so authorized would not have a material effect upon the
Company's ability to engage in the transactions contemplated hereby.
(c) DUE AUTHORIZATION. This Agreement and the transactions
contemplated hereby have been duly authorized by the Company, and no further
corporate action is required.
(d) NO CONFLICT. Except for the applicable regulatory approvals and
authorizations which the Company intends to obtain prior to the resale of the
Services being obtained hereunder, this Agreement and the transactions
contemplated hereby do not conflict in any material respect with any other
agreements or judicial or administrative orders to which the Company is a party
or by which it may be bound.
(e) VALID, BINDING AND ENFORCEABLE. This Agreement constitutes a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
moratorium, fraudulent conveyance and other laws affecting creditors rights
generally and to general principles of equity.
<PAGE>
(f) COMPLIANCE. The Company is in compliance, in all material
respects, with and shall, at all times during the Term, comply, in all material
respects, with all foreign and Domestic laws, statutes, ordinances, rules,
regulations and orders or court decisions applicable to the receipt of Services.
The Company shall make all governmental filings, including tariff filings, that
may be required from time to time by any governmental body of competent
jurisdiction. The Company shall promptly notify Sprint of any charge of
noncompliance with any applicable foreign, federal, state or local law
(including a statute, rule, regulation or order) of which it becomes aware in
connection with the receipt of Services. The Company shall not do or perform any
act, or omit to do or perform any act, that the Company should reasonably know
would place Sprint in violation of any foreign, federal, state or local statute,
rule, regulation or order.
(g) PERMITS. Prior to the resale of any Services to any end-users,
the Company shall secure and shall maintain, during the Term, all Domestic and
foreign permits, licenses, certifications, regulatory approvals and
authorizations legally required to permit the Company to resell any of the
Services to any end-users.
(h) ALL REASONABLE EFFORTS. Subject to the terms of this Agreement,
the Company shall use all reasonable efforts to take, or cause to be taken, all
lawful actions to do, or cause to be done, all things necessary, proper or
advisable to comply with requirements of this Agreement.
14.3 Joint Covenant Regarding Definitions of Access Components. Each
----------------------------------------------------------
of the Company and Sprint acknowledge and agree that in the event of any
fundamental change in the methodology or manner of determining any Access
Components as defined herein, the parties hereto shall negotiate, in good faith,
a modification of the definitions of such terms so as to preserve the intention
of the parties to segregate the local access components of any transmission.
ARTICLE 15
INTELLECTUAL PROPERTY RIGHTS
15.1 Rights to Intellectual Property.
-------------------------------
(a) GENERALLY. Unless otherwise agreed in writing, the Company shall
own the entire right, title and interest in and to any Intellectual Property
developed by Sprint specifically for the Company, at the Company's sole expense
provided such Intellectual Property directly relates to systems, features and
functions that operate on a stand alone basis and are not inextricably
integrated with Sprint's other systems. In the event that Sprint develops any
Intellectual Property other than that referred to in the preceding sentence, the
Company and Sprint shall negotiate, in good faith, prior to the
<PAGE>
development of such Intellectual Property, the rights of each such party to any
Intellectual Property developed by Sprint in connection with the Services
hereunder.
(b) COMPETITIVENESS. Notwithstanding anything to the contrary, Sprint
and the Company shall use commercially reasonable efforts to protect the
Company's competitive advantage with respect to developments paid for solely by
the Company for a period not to exceed nine (9) months from the date the Company
receives use of such developments.
15.2 Intellectual Property Claims.
----------------------------
(a) INTELLECTUAL PROPERTY CLAIMS NOTICE. Sprint shall give the
Company prompt notice of any written claim asserting infringement or any action
against Sprint which relates to any Intellectual Property being used by the
Company that Sprint, in good faith, believes may have a material adverse affect
on the Company's use of the Services, the Intellectual Property or the
Documentation. The Company agrees to give Sprint prompt notice, in accordance
with the process set forth in SECTION 16.3(A) hereof, of any such action of
which it becomes aware, and copies of all papers served upon or received by the
Company relating to the same. Subject to the provisions set forth in SECTION
16.3(B) and SECTION 16.3(C) hereof, which are incorporated herein, Sprint will
handle, defend or settle any claim, suit or other proceeding and pay all damages
awarded by a judicial or arbitral body, brought against the Company based upon
an allegation that the use of the Service furnished pursuant to this Agreement
constitutes an infringement of any Intellectual Property, provided the Company
notifies Sprint promptly in writing of such allegation, suit or proceeding and
Sprint is given full and complete authority, information and assistance, at
Sprint's expense, for the defense and settlement of same, and also provided that
the Company or its agents does not by any act (including any admission or
acknowledgement) materially impair or compromise the defense of such suit or
proceeding.
(b) ENJOINED USE. If Sprint's or the Company's use of any Service,
Intellectual Property or any Documentation is enjoined as a consequence of a
claim or action of the kind described in SECTION 15.2(A) hereof. Sprint shall
rectify the situation by taking one (1) or more of the following actions at its
own expense and shall, where commercially reasonable, honor the Company's
express desire that they be attempted in the listed order of preference:
(i) immediately procure for the Company the right to continue
using the enjoined Services, Intellectual Property or Documentation;
(ii) immediately modify the enjoined Services, Intellectual
Property or Documentation so that it is non-infringing; provided that
--------
such modification does not materially affect the intended use thereof
as contemplated hereunder;
<PAGE>
(iii) upon notice to the Company, substitute for the
Service, Intellectual Property or Documentation a non-infringing
Service, Intellectual Property or Documentation that the Company and
Sprint, in good faith, jointly determine to be a reasonably acceptable
substitute for the enjoined Service or Documentation; and
(iv) upon the Company's request, substitute for the
Service, Intellectual Property or Documentation a non-infringing
Service, Intellectual Property or Documentation that the Company and
Sprint, in good faith, jointly determine to be inferior thereto, but
which Sprint shall offer to the Company on terms and at rates
acceptable to the Company.
(v) discontinue the Service and make an adjustment to the
Rates and Charges for other Services equal to the Company's and Sprint's
good faith, jointly determined estimate of the damages (including
diminution in value) caused by such discontinuance.
(c) DISCLAIMER. This SECTION 15.2 does not apply to the extent
the claim, suit or other proceeding referenced above is based on Service
Developments, modifications, combinations, or uses that are attributable to
the Company's design or specification. This SECTION 15.2 constitutes the
Company's sole remedy and the sole liability of Sprint with respect to any
third party claim based on an infringement of any Intellectual Property.
THE INTELLECTUAL PROPERTY OBLIGATIONS RECITED ABOVE ARE IN LIEU OF ALL
OTHER INTELLECTUAL PROPERTY WARRANTIES WHATSOEVER WHETHER ORAL, WRITTEN,
EXPRESS, IMPLIED OR STATUTORY.
ARTICLE 16
INDEMNIFICATION: THIRD PARTY CLAIMS
16.1 Indemnification by Sprint. Subject to the provisions of
--------------------------
this ARTICLE 16. Sprint shall indemnify, defend and hold harmless the
Company and its Affiliates, and the officers, directors, shareholders,
employees and agents of the Company and its Affiliates from and against all
claims (including, without limitation, claims by third parties), damages,
losses, liabilities, costs and expenses (including, without limitation,
settlement costs and any reasonable legal, accounting or other expenses for
investigating or defending any actions or threatened actions) (collectively,
"DAMAGES") arising out of or caused by (a) the failure of any representation
or warranty made by Sprint in this Agreement to be true and correct in all
respects when made, (b) any breach of any covenant, agreement or obligation
of Sprint contained in this Agreement or (c) the imposition of taxes
relating to the provision of Services under the terms of this
<PAGE>
Agreement, except to the extent that the Company is required to pay such taxes
pursuant to SECTION 8.2 hereof and has failed to do so when legally required.
16.2 Indemnification by the Company. Subject to the provisions of
------------------------------
this ARTICLE 16, the Company shall indemnify, defend and hold harmless Sprint
and its Affiliates, and the officers, directors, shareholders, employees and
agents of Sprint and its Affiliates from and against all Damages arising out of
or caused by (a) the failure of any representation or warranty made by the
Company in this Agreement to be true and correct in all respects when made, (b)
any breach of any covenant, agreement or obligation of the Company contained in
this Agreement and (c) the imposition of taxes relating to the provision of
Services under the terms of this Agreement, except to the extent that Sprint is
required to pay such taxes pursuant to SECTION 8.2 hereof and has failed to do
so when legally required.
16.3 Notice and Resolution of Claim.
------------------------------
(a) NOTICE OF CLAIM. An indemnified party hereunder shall promptly
give notice to the indemnifying party after obtaining knowledge of any claim
against the indemnified party as to which recovery may be sought against the
indemnifying party because of the indemnity set forth above. The failure to give
or delay in giving notice as required by this SECTION 16.3(A) in a timely
fashion shall not result in a waiver of any right to indemnification hereunder
except to the extent the indemnifying party is prejudiced thereby and then only
to the extent of such prejudice.
(b) ASSUMPTION OF DEFENSE BY INDEMNIFYING PARTY. Subject to SECTION
16.3(C) hereof, if any indemnification obligation hereunder shall arise from the
claim of a third party, the indemnified party shall permit the indemnifying
party to assume the defense of any such claim or any litigation resulting from
such claim unless such third party is seeking injunctive or equitable remedies
in respect of the indemnified party or its business. If the indemnifying party
assumes the defense of such claim or litigation, the obligations of the
indemnifying party hereunder shall include taking all steps reasonably necessary
in the defense or settlement of such claim or litigation and holding the
indemnified party harmless from and against any and all Damages caused by or
arising out of any settlement approved by the indemnifying party or any judgment
in connection with such claim or litigation. The indemnifying party shall not in
the defense of such claim or litigation, unless the indemnified party otherwise
expressly consents in writing, consent to entry of any judgment or enter into
any settlement (i) unless such judgment or settlement provides only for monetary
damages to be paid by the indemnifying party and (ii) which does not include as
an unconditional term thereof the giving by the claimant or the plaintiff to the
indemnified party of a release from all liability in respect of such claim or
litigation. In cases where the indemnifying party has, by written instrument
delivered to the indemnified party, assumed the defense or a settlement with
respect to a claim for which indemnity is being sought, and is not in default,
or otherwise unable to perform its obligations, under this ARTICLE 16, the
<PAGE>
indemnifying party shall be entitled to assume the defense or settlement thereof
with counsel of its own choosing, which counsel shall be reasonably satisfactory
to the indemnified party; provided that the indemnified party (and its counsel)
--------
shall be entitled to continue to participate at its own cost in any such action
or proceeding or in any negotiations or proceedings to settle or otherwise
eliminate any claim for which indemnification is being sought, and the
indemnifying party shall consult in good faith with the indemnified party upon
the indemnified party's request regarding the conduct of such action, proceeding
or claim.
(c) ASSUMPTION OF DEFENSE BY INDEMNIFIED PARTY. If (i) the
indemnifying party does not promptly assume such defense, (ii) the indemnified
party is entitled to assume the defense under the first sentence of SECTION
16.3(B) hereof, (iii) the indemnifying party is in default or otherwise unable
to perform its obligations under this ARTICLE 16 or (iv) the indemnified party
reasonably concludes that there may be legal defenses available to it that are
different from or in addition to those available to the indemnifying party, or
that another conflict of interest exists or may occur in the defense of such
action, then in any of such cases, the indemnified party may assume primary
responsibility for the defense of the claims, and may select legal counsel
reasonably acceptable to the indemnifying party to conduct the defense of such
claims. If the indemnified party assumes and undertakes a defense of a third
party claim or claims in accordance with the immediately preceding sentence, the
indemnifying party shall be liable to the indemnified party for any reasonable
attorneys' fees and expenses incurred by the indemnified party in connection
with such matter, after receiving notice from the indemnified party to the
effect that it intends to take advantage of the provisions set forth in the
immediately preceding sentence; provided that the indemnifying party shall
--------
continue to have the right to participate in the defense of any such action and
to employ separate counsel in connection therewith, but the fees, costs, and
expenses related to such participation shall be at the expense of and paid by
the indemnifying party. In the event the indemnified party assumes primary
responsibility for the defense of the claims pursuant to SECTION 16.3(B) hereof,
the indemnifying party shall continue to pay the legal fees and expenses of
counsel for the indemnified party and the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party.
The indemnified party shall have the right, with the consent of the indemnifying
party (which consent shall not be unreasonably withheld), to settle or
compromise any such action on terms satisfactory to it.
16.4 Payment. The indemnifying party shall promptly pay or reimburse
-------
the indemnified party as contemplated by SECTION 16.3 hereof for (a) the amount
of any judgment rendered or settlement entered into, (b) all Damages and
reasonable expenses, legal or otherwise, incurred by the indemnified party in
connection with the defense against such third party claim or litigation and (c)
all costs incurred by the indemnified party in the securing of such party's
rights under this indemnification agreement.
<PAGE>
16.5 Consequential Damages. Subject to SECTION 16.3 hereof, neither
---------------------
Sprint nor the Company shall be liable to each other for incidental,
consequential or special damages, regardless of the form of action whether in
contract, indemnity, warranty, strict liability, or tort, including negligence
of any kind with regard to Services or other conduct under this Agreement.
ARTICLE 17
REMEDIES
17.2 Interruption Credits and Other Credits.
--------------------------------------
<PAGE>
(c) "PASS-THROUGH" OF COMPENSATION. Sprint shall promptly
"pass-through" to the Company the full amount of any rebates, credits or other
payments or compensation which Sprint receives from any service provider,
including any LEC or Domestic Alternate Provider, used by Sprint with respect to
any Service that has suffered an Interruption as set forth in SECTION 17.2(A)
hereof, including Interruptions arising outside of Sprint's POPs.
<PAGE>
17.6 Special Remedies Under Certain Circumstances.
--------------------------------------------
(b) FRAUD. Sprint shall assume all liability for any costs or
charges for fraudulent use of any Services in the event:
(i) such fraudulent use involves calls which originated
on Sprint's switched network facilities and occurs more than
four (4) hours after the Company notifies Sprint to block an
ANI or calling card using Sprint's card platform: or
(ii) such fraudulent use results from unauthorized
electronic entry into and use of Sprint's (or any of its
suppliers or subcontractors) network systems and facilities
through any circumvention of systems or unauthorized access
to building facilities:
provided that the Company expressly assumes liability for any costs and charges
- --------
related to fraudulent use which are not referred to in CLAUSES (I) AND (II) of
this SECTION 17.6(B).
<PAGE>
18.2 Force Majeure. In no event shall either party be liable to the
-------------
other party for any delay or other failure to perform hereunder that is due to
(a) the other's delay in supplying or failure to supply approvals, information,
materials, or services called for or reasonably required under the terms of this
Agreement; provided that the party has previously requested such approvals,
--------
information, materials or services with reasonable advance notice or (b) any
Force Majeure Event. Sprint shall (i) give immediate notice to the Company of
any Force Majeure Event and of the cessation of such event and (ii) use its
reasonable best efforts to mitigate the effects of such Force Majeure Event in a
prompt and expeditious manner.
18.3 Independent Contractor. In providing the Services, Sprint shall
----------------------
operate as, and for all purposes be considered, an independent contractor and
not an agent or partner of the Company, and Sprint shall have no authority to
bind or otherwise obligate the Company in any manner whatsoever. All Sprint
personnel shall remain under the exclusive direction and control of Sprint and
shall not be deemed to be employees or agents of the Company. Sprint shall be
solely responsible for payments of all Sprint personnel's compensation,
including overtime wages, employees benefits, social security taxes, employment
taxes and any similar taxes and workmen's compensation, disability and other
insurance, and the withholding or deduction, if any, of such items to the extent
required by applicable law.
18.4 Advertising or Publicity
------------------------
(a) GENERALLY. Neither Sprint nor the Company shall make public
reference to the existence or terms or this Agreement without the prior approval
of the other. This prohibition includes use of the other's name, trademarks,
service marks or logos or any other reference to the other party directly or
indirectly in any advertising, sales presentation, news release, release to any
professional or trade publication or for any other purpose.
(b) REGULATORY COMMISSION. The Company may inform a regulatory
commission verbally or in writing or verbally advise any customer or potential
customer who makes an inquiry that a portion of the services provided by the
Company to such customer or potential customer will be provided over the Sprint
network.
18.5 Subcontracting
--------------
(a) GENERALLY. Subject to SECTION 18.5(B) hereof, Sprint may use
other contractors to assist it in connection with the performance of its
obligations under this Agreement; provided that in no event shall Sprint
--------
subcontract the performance of any significant or substantial portion of the
Services without the prior consent of the
<PAGE>
Company. The Company may require the execution by any Sprint subcontractor of a
non-disclosure agreement in a form acceptable to the Company that names the
Company as a third party beneficiary. Sprint shall cause any subcontractor
providing Services under this Agreement to comply with, and be bound by, the
requirements of this Agreement with respect to the provision of such Services.
(b) SPRINT'S OBLIGATIONS. Sprint shall remain fully responsible for
the performance of this Agreement in accordance with it terms including any
obligations it performs through subcontractors and shall be solely responsible
for payments to its subcontractors. No contract, subcontract or other agreement
entered into by Sprint with any third party in connection with its provision of
Services hereunder shall provide for any indemnity, guarantee or assumption of
liability by, or other obligation of, the Company with respect to such
arrangement, except as consented to by the Company.
18.6 Dispute Resolution.
------------------
(a) GENERALLY. Sprint and the Company shall endeavor, in good faith,
to settle through their respective employees any disputes which may arise
between them, and shall so instruct each of their employees performing services
under the terms of this Agreement. In the event that such employees are unable
to resolve any such dispute, or any such dispute is of a nature which requires
the attention of senior management of Sprint or the Company, each of Sprint and
the Company shall seek to resolve such dispute in the manner set forth in this
SECTION 18.6.
(b) ESCALATION. In the event that any matter in dispute shall not
have been adequately resolved by the employees of each of Sprint and the
Company, then, in such event, either Sprint or the Company may bring any such
matter as remains in dispute (and only such matter) to the attention, in the
case of Sprint, of the Vice President and General Manager - Wholesale Services
Group, and, in the case of the Company, the Vice President - Operations
(collectively, the "SENIOR EXECUTIVES"). The Senior Executives shall meet in
person or by telephone within ten (10) days after the submission to them of such
matter and attempt in good faith to resolve such matter. If, notwithstanding the
foregoing dispute resolution provision, Sprint and the Company do not resolve
the matters in dispute, in a mutually satisfactory manner, within thirty (30)
days after submission of the matter to the Senior Executives, either party may,
by notice to the other party, subject such matter (and only such matter) as
remains in dispute to binding arbitration under and pursuant to the rules of the
American Arbitration Association in effect at the time such controversy or
dispute is referred to arbitration. Such hearing shall be held in New York City,
New York or such other location as may be agreed upon by the parties hereto.
Unless the parties hereto otherwise agree, such arbitration shall be conducted
with three (3) independent arbitrators, one (1) chosen by Sprint, one (1) chosen
by the Company and the third chosen by the other two arbitrators: provided that
--------
each party may reject the other party's selection upon a showing of bias. Sprint
and the Company shall each select an arbitrator not later than ten (10) days
from
<PAGE>
the date such dispute is referred to arbitration and such arbitrators shall
choose a third arbitrator not later than twenty (20) days after the date such
dispute is referred to arbitration. If any such selections are not timely made,
the American Arbitration Association shall make such selection within five (5)
days of the request by any party. The parties hereto shall submit their dispute
for resolution to the arbitrators within ten (10) days after the selection of
the final arbitrator and the arbitrators shall deliver their award within
forty-five (45) days after the date of such submission. An arbitration award
signed by any two (2) or all three (3) of the arbitrators shall be final and
binding on the parties and not be subject to any appeal or de novo review by any
-- ----
judicial body. The losing party shall pay all costs and fees for the
arbitration, except that each of Sprint and the Company shall bear its own legal
fees. Judgment upon the award rendered may be entered in any court having
jurisdiction or application may be made to any such court for judicial
recognition of the award or any order of enforcement thereof, as the case may
be. The losing party shall pay all costs and expenses, including reasonable
attorneys' fees, incurred by the winning party in any legal proceeding to
enforce any arbitration award.
(c) PERFORMANCE PENDING OUTCOME OF DISPUTE. Pending the resolution
of any dispute or controversy arising under this Agreement, whether by
settlement, arbitration award, or final judgment, each party shall continue to
perform its obligations under this Agreement, and shall not discontinue,
disconnect, or in any other fashion cease to provide all or any substantial
portion of the Services to the Company unless otherwise directed by the Company.
18.7 Assignment. Subject to ATTACHMENT AS, ATTACHMENT MR, SECTION
----------
3.2(A), SECTION 18.1 and SECTION 18.5 hereof, neither party may assign any of
its rights or delegate any of its obligations under this Agreement without the
prior consent of the other party, which the other party may grant or withhold in
its sole discretion. Any prohibited assignment or delegation shall be null and
void.
ARTICLE 19
MISCELLANEOUS
19.1 Successors and Assigns. This Agreement shall be binding on the
----------------------
parties hereto and their respective legal successors and permitted assigns.
19.2 Third Party Beneficiaries. This Agreement shall not be deemed to
-------------------------
provide third party with any remedy, claim, right of action or other right,
except that the provisions in this Agreement shall inure to the benefit of the
parties' Affiliates and any indemnitees hereunder.
<PAGE>
19.3 Notices. All notices, requests, demands, consents, reports,
-------
authorizations, approvals or other communications made pursuant to this
Agreement shall be in writing and shall be deemed to have been duly given upon
receipt when delivered personally, by mail, by courier, by facsimile, telegram,
telex or similar means of communication (in all instances other than delivery by
mail, the notifying party shall send confirmation to the recipient by mail) to
the recipient party, to the following addresses:
<PAGE>
Any party may change its address for purposes of this SECTION 19.3 by notice to
the other party hereto of such change in the manner specified above.
19.4 Governing Law. The validity of this Agreement, the construction
-------------
and enforcement of its terms, and the interpretation of the rights and duties of
the parties shall be governed by the internal laws of the State of California,
without regard to the principles of the conflicts of laws thereof, except
insofar as federal law may control any aspect of this Agreement, in which case
federal law shall govern such aspect.
19.5 Cumulative Remedies. The remedies available to any party under
-------------------
this Agreement shall be cumulative and not exclusive, and the election of any
one(1) remedy shall not preclude pursuit of other remedies. In arbitration, a
party may seek any remedy generally available under the applicable governing
law.
19.6 Tariffs. Subject to SECTION 8.1(B) hereof, in the event of a
-------
conflict between this Agreement and any applicable tariffs, this Agreement shall
prevail and control.
19.7 Construction. Each party hereto has been represented by counsel
------------
in connection with, and has participated in, the negotiation and execution of
this Agreement and is familiar with the terms and conditions contained herein
and the industry to which this Agreement relates. In light of such factors,
among others, the parties expressly agree that this Agreement shall not as a
matter of law be construed against the party that has drafted it, but rather
shall be considered as an agreement produced jointly by the parties.
19.8 Modification, Amendment, Supplement or Waiver. Subject to
---------------------------------------------
ATTACHMENT CC AND SECTION 3.4 hereof, no modification, amendment, supplement to
or waiver of this Agreement or any of its provisions shall be binding upon the
parties hereto unless made in writing and duly signed by each party hereto. Any
failure of any party hereto to comply with any obligation, covenant, agreement
or condition herein may be waived in writing by the other party hereto, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
19.9 Entirety of Agreement. Except to the extent set forth in SECTION
----------------------
8.1(B) hereof, with respect to Tariff 8. this Agreement, together with all
Attachments, constitutes the complete and exclusive statement of the agreement
between the parties and supersedes all prior or contemporaneous agreements,
promises, representations, understandings and negotiations between the parties,
wether written or oral, with respect
<PAGE>
to the subject matter hereof. In the event of any conflict between the
provisions of this Agreement and the Attachments, the terms of this Agreement
shall prevail and control.
19.10 Severability. If any provision of this Agreement shall be
------------
invalid or unenforceable (as a result of any tariff inconsistency or otherwise),
such invalidity or unenforceability shall not invalidate or render this
Agreement unenforceable but rather this Agreement shall be construed as if not
containing the invalid or unenforceable provision. If such provision is an
essential and fundamental element of this Agreement however, the parties shall
promptly attempt to negotiate, in good faith a substitute therefor and either
party may elect to terminate this Agreement if the parties are unable to agree
on a substitute therefor within a reasonable period of time.
19.11 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one (1) and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto, each acting with proper
authority, have executed this Agreement, to be effective as of the date first
above written.
SPRINT COMMUNICATIONS COMPANY, L.P.
By: /s/ R M Franz
-----------------------------
Name: R. Michael Franz
---------------------------
Title: President, WSG
--------------------------
PACIFIC BELL COMMUNICATIONS
By: /s/ Betsy J. Bernard
-----------------------------
Name: Betsy J. Bernard
---------------------------
Title: President
[SIGNATURE PAGE FOR THE SERVICES AGREEMENT]
<PAGE>
ATTACHMENT AS
TERMS OF AFFILIATE SERVICES AGREEMENT
This ATTACHMENT AS is annexed to that certain Services Agreement,
dated as of the 3rd day of February 1997, between the Company and Sprint (the
"AGREEMENT"), and sets forth certain terms and conditions that shall be
incorporated into any contract (the "AFFILIATE CONTRACT") for telecommunications
services that a Company Affiliate may elect to enter into with Sprint in
accordance with SECTION 3.2 of the Agreement. The information and obligations
set forth herein are deemed fully incorporated into the Agreement as if set
forth therein in their entirety. Reference is further made to SECTION 19.9 of
the Agreement. Capitalized terms used without definition herein have their
respective meanings set forth in ATTACHMENT DE.
I. Terms of Affiliate Contract
---------------------------
Sprint shall be obligated, at the election of the Company Affiliate or
unless otherwise expressly agreed, to provide the Services to the Company
Affiliate in accordance with the following terms and conditions and each of such
terms and conditions shall be incorporated into the Affiliate Contract:
1. Definitions. Capitalized terms used in the Affiliate Contract shall have
-----------
their respective meanings set forth in ARTICLE 1 and ATTACHMENT DE of the
Agreement.
2. Term. Unless otherwise extended or earlier terminated in accordance with
----
PARAGRAPH 5 hereof or as contemplated by SECTION 3.2 of the Agreement, the
term of the Affiliate Contract shall commence as of the date of its
execution and shall continue in full force and effect until the first
anniversary of such date (the "TERMINATION DATE").
3. Integration. Sprint shall provide such Services to the Company Affiliate
-----------
as the Company Affiliate may request from time to time pursuant to the
terms of the Affiliate Contract in accordance with SECTION 3.2(A) of the
Agreement, and the Company Affiliate shall be entitled to the benefits of,
and subject to the obligations set forth in, the Agreement with respect to
the provision of such Services to the same extent as if a party to the
Agreement, other than as expressly set forth in the Affiliate Contract.
4. Non-Exclusive Agreement; Rates and Charges. During the term of the
------------------------------------------
Affiliate Contract, the Company Affiliate may elect, without regard to the
exclusivity provisions of ARTICLE 6 of the Agreement, to obtain any of the
Services from Sprint at the Rates and Charges set forth in the Agreement
and ATTACHMENT PS.
<PAGE>
5. Company Affiliate's Right to Renew. On or prior to the Termination Date,
----------------------------------
the Company Affiliate may elect, by notice delivered to Sprint, to renew
the Affiliate Contract on either an exclusive or a non-exclusive basis as
follows (subject, in each case, to the right to terminate the Affiliate
Contract in accordance with SECTION 3.2(B) of the Agreement):
(a) EXCLUSIVE BASIS. The Company Affiliate may renew the Affiliate
Contract for a term which is coextensive with the Term of the
Agreement; provided that is such event, the Company Affiliate shall
--------
thereupon become subject to the same exclusivity provisions as set
forth in ARTICLE 6 of the Agreement (excluding any volume commitments
set forth therein except that CLAUSE (IV) of the first sentence of
SECTION 6.1 shall be modified to permit the Company Affiliate to
obtain services provided by a carrier other than Sprint under any
contract existing as of the date of the Company Affiliate's election
to renew the Affiliate Contract pursuant to this Section 5(a) (which
contracts will be terminated as soon as practicable to the extent no
breach or penalty results therefrom).
(b) NON-EXCLUSIVE BASIS. The Company Affiliate may renew the Affiliate
Contract and elect, without regard to the exclusivity provisions of
ARTICLE 6 of the Agreement, to obtain any of the Services from Sprint
at the rates and charges and for the terms and conditions to be
negotiated in good faith.
6. Other Terms and Conditions. The Affiliate Contract shall incorporate by
--------------------------
reference all other terms and conditions of the Agreement, with such
conforming changes as shall be necessary to reflect the identity of the
Company Affiliate and to be consistent with the foregoing.
II. Additional Terms and Conditions
-------------------------------
Each Company Affiliate may elect to obtain from Sprint, and Sprint
shall be obligated to provide to the Company Affiliate any of (i) the Core
Services at the Rates and Charges, (ii) the Captive Services and the Shopping
Services at the rates and for the charges (commensurate with the volumes to be
purchased by such Company Affiliate) to be negotiated by Sprint and the Company
Affiliate in good faith; provided that in the event the Company subsequently
--------
elects to purchase any such Captive or Shopping Service, the Company Affiliate
may elect to purchase the Services at the Rates and Charges and subject to the
Performance Guarantees negotiated by the Company.
<PAGE>
ATTACHMENT BA
BILLING AND ACCOUNTING
This ATTACHMENT BA is annexed to that certain Services Agreement,
dated as of the 3rd day of February, 1997, between the Company and Sprint (the
"AGREEMENT"), and sets forth certain billing and accounting matters related to
the provision by Sprint of the Services to the Company. The information and
obligations set forth herein are deemed fully incorporated into the Agreement as
if set forth therein in their entirety. Reference is further made to SECTIONS
19.9 of the Agreement. Capitalized terms used without definition herein have
their respective meanings set forth in ATTACHMENT DE.
I. General Matters
---------------
Sprint shall satisfy the following timeliness, accuracy and
completeness requirements with respect to invoices delivered to the Company for
the Services provided under the Agreement:
A. TIMELINESS. Sprint shall account, and bill the Company, for not less than
(i) 97.0% of all usage no later than the first available monthly billing
cycle after the usage is recorded, (ii) 98.0% of all usage no later than
the second available monthly billing cycle after the usage is recorded and
(iii) 99.8% of all usage no later than the third available monthly billing
cycle after the usage is recorded. Sprint hereby waives all charges for any
usage not billed as set forth in the preceding sentence, unless (a) Sprint
can document in writing that the delayed billing was caused by the Company
or (b) the parties agree in writing to a longer time period.
B. ACCURACY. With respect to any monthly billing cycle, the accuracy of the
raw billing information supplied by Sprint to the Company shall not be less
than 99.0% unless (i) Sprint can document in writing that such raw billing
inaccuracy was caused by the Company or (b) the parties agree in writing to
a level of accuracy which differs from that set forth herein.
C. COMPLETENESS. Sprint shall bill the Company monthly for at least 99.0% of
all Service Elements with respect to the Services billed during the
relevant current monthly billing cycle, except when mutually agreed by the
parties.
<PAGE>
III. Payment Method Requirements
---------------------------
A. COST CATEGORIES FOR GENERAL LEDGER ACCOUNT PURPOSES. Sprint shall, to the
extent possible, provide billing at the Sprint rate element level,
including, without limitation, the following cost categories for Service
Elements at the Company's request for general ledger account purposes.
1. Network Line/Access Cost (TABLE 9 of ATTACHMENT PS)
2. Originating Access (TABLE 1 of ATTACHMENT PS)
3. Termination Access (TABLE 1 of ATTACHMENT PS)
4. Originating and Terminating Switch
5. Transport (TABLES 2 AND 3 of ATTACHMENT PS)
6. Calling Card Surcharges (TABLE 4 of ATTACHMENT PS)
7. Directory Assistance Surcharges (TABLE 7 of ATTACHMENT PS)
8. Operator Assistance Surcharges (TABLE 8 of ATTACHMENT PS)
9. Toll Free Access
<PAGE>
10. Other Categories in the Company's Discretion which Sprint is able to
provide without material cost or expense.
B. MANAGEMENT REPORTING. Sprint shall provide NDM feeds to the Company's
server and deliver any reports required to be delivered by Sprint pursuant
to ARTICLE 5 of the Agreement, each as set forth in ARTICLE 5 of the
Agreement for use by the Company in generating management reports and
performing billing analysis.
<PAGE>
ATTACHMENT DE
DEFINITIONS
This ATTACHMENT DE is annexed to that certain Services Agreement,
dated as of the 3rd day of February, 1997, between the Company and Sprint (the
"AGREEMENT"), and sets forth certain definitions used in the Agreement and the
Attachments. The definitions set forth herein are deemed fully incorporated into
the Agreement and the Attachments as if set forth therein, respectively, in
their entirety. Reference is made to SECTION 19.9 of the Agreement.
"ACCESS COMPONENT A" shall mean the originating (i) carrier common
line charges, (ii) residual interconnection charges and (iii) local switching,
line intercept, signaling and other metered recurring charges actually incurred
by Sprint on behalf of the Company in connection with the provision of the
Services, in each case as adjusted by actual non-complete call factors (such
adjustment for non-complete call factors not to exceed twelve percent (12%) of
the cost elements set forth in CLAUSES (I) THROUGH (III) above); provided that
--------
Access Component A shall not include associated tandem transport or tandem
switching charges. Access Component A may only be purchased together with Access
Component B and Transport Component C.
"ACCESS COMPONENT B" shall mean the originating local transport costs
incurred from a direct end-office trunk or an access tandem configuration and,
for purposes of the Agreement, shall, in any event, equal four percent (4%) of
the rate for Access Component A. Access Component B may only be purchased
together with Access Component A and Transport Component C.
"ACCESS COMPONENT D" shall mean the terminating local transport costs
incurred from a direct end-office trunk or an access tandem configuration and,
for purposes of the Agreement, shall, in any event, equal four percent (4%) of
the rate for Access Component E. Access Component D may only be purchased
together with Transport Component C and Access Component E.
"ACCESS COMPONENT E" shall mean the terminating (i) carrier common
line charges, (ii) residual interconnection charges, (iii) local switching
charges, line intercept, signaling and other metered recurring charges actually
incurred by Sprint on behalf of the Company in connection with the provision of
the Services and (iv) database query charges in the case of toll free services:
provided that Access Component E shall not include associated tandem transport
- --------
or tandem switched charges. Access Component E may only be purchased (i)
together with Access Component D and Transport Component C or (ii) in a Virtual
Bulk Transport configuration.
"ACCESS COMPONENTS" shall mean Access Component A, Access Component B,
Access Component D and Access Component E, as applicable.
<PAGE>
"ACCESS SERVICES" shall have the meaning set forth in PARAGRAPH I of
ATTACHMENT PS.
"ACF" shall mean access coordination fee.
"ACT" shall mean the Communications Act of 1934, as amended by the
Telecommunications Act of 1996, and as the same may be amended from time to
time.
"ADDITIONAL CORE SERVICES NOTICE" shall mean the notice in the form
set forth in EXHIBIT PS-II to ATTACHMENT PS.
"ADJUSTED INTERNATIONAL BENCHMARK" shall mean, with respect to any
foreign country, the actual net composite per MOU cost to Sprint of the
international traffic for such foreign country for any six (6) month period, and
shall equal, with respect to any foreign country, the quotient obtained by
dividing (i) Sprint's actual costs from International Transport Arrangements
for such foreign country during such six (6) month period by (ii) Sprint's total
volume of international traffic for such foreign country (based upon MOUs) for
such six (6) month period.
"AFFILIATE" shall have the meaning assigned to such term in the ACT;
provided that, for purposes of the Agreement only, SBCS and its Affiliates shall
- --------
be deemed to be Affiliates of the Company.
"AFFILIATE CONTRACT" shall have the meaning set forth in the preamble
to ATTACHMENT AS.
"AGGREGATE PROVISIONING DELAY" shall have the meaning set forth in
PARAGRAPH IV.4.A.2 of ATTACHMENT PG.
"AGREEMENT" shall mean the Services Agreement, to which this
ATTACHMENT DE is attached together with each Attachment attached thereto, as the
same may be amended from time to time in accordance with its terms.
"ALTERNATE PROVIDER" shall mean any Domestic Alternate Provider or
Foreign Alternate Provider.
"ANI" shall mean Automatic Number Identification.
"ANNUAL PRE-BILL CERTIFICATION CERTIFICATE" shall mean a written
certificate prepared by a nationally recognized independent firm expert in the
pre-bill certification process, mutually acceptable to Sprint and the Company,
which confirms that the pre-bill certification process referred to in the
Initial Pre-Bill Certification Certificate has been fully complied with, in all
material respects, or is otherwise in compliance, in all material respects, with
such modifications thereto as may have been adopted or implemented upon the
mutual agreement of each of Sprint and the Company.
<PAGE>
"ATTACHMENT AS" shall mean ATTACHMENT AS, as attached to the Agreement
and incorporated therein, as modified from time to time as permitted or required
by the Agreement.
"ATTACHMENT BA" shall mean ATTACHMENT BA, as attached to the Agreement
and incorporated therein, as modified from time to time as permitted or required
by the Agreement.
"ATTACHMENT CC" shall mean ATTACHMENT CC, as attached to the Agreement
and incorporated therein, as modified from time to time as permitted or required
by the Agreement.
"ATTACHMENT DE" shall mean this ATTACHMENT DE, as attached to the
Agreement and incorporated therein, as modified from time to time as permitted
or required by the Agreement.
"ATTACHMENT MR" shall mean ATTACHMENT MR, as attached to the Agreement
and incorporated therein, as modified from time to time as permitted or required
by the Agreement.
"ATTACHMENT PG" shall mean ATTACHMENT PG, as attached to the Agreement
and incorporated therein, as modified from time to time as permitted or required
by the Agreement.
"ATTACHMENT PS" shall mean ATTACHMENT PS, as attached to the Agreement
and incorporated therein, as modified from time to time as permitted or required
by the Agreement.
"ATTACHMENTS" shall mean, collectively, ATTACHMENT AS, ATTACHMENT BA,
ATTACHMENT CC, ATTACHMENT DE, ATTACHMENT MR, ATTACHMENT PG and ATTACHMENT PS.
"AVERAGE SPEED OF ANSWER" shall have the meaning set forth in
PARAGRAPH IV.1.C.2 of ATTACHMENT PG.
"BULK TRANSPORT CONFIGURATION: shall have the meaning set forth in
SECTION 6.2(a)(iv) of the Agreement.
"BULK TRANSPORT SERVICES" shall have the meaning set forth in
PARAGRAPH 11.7 of ATTACHMENT PS.
"BUSY HOURS" shall have the meaning set forth in PARAGRAPH IV.1.A.1 of
ATTACHMENT PG.
"CALL SET-UP TIME" shall have the meaning set forth in PARAGRAPH
IV.1.B.2 of ATTACHMENT PG.
<PAGE>
"CALLING CARD SERVICE CHARGE" shall have the meaning set forth in
TABLE 4 of ATTACHMENT PS.
"CALLING CARD SERVICES" shall have the meaning set forth in PARAGRAPH
II.4 of ATTACHMENT PS.
"CAPTIVE SERVICE" shall mean any telecommunications product, feature
or functionality which (i) relies upon any vertical platforms used in connection
with the provision of any Service, (ii) is an extension, enhancement or
modification to a Core Service or Captive Service (which the Company has elected
to obtain from Sprint) and (iii) the Company cannot reasonably obtain elsewhere
as a result of the network configuration established between the Company and
Sprint, including, without limitation, Clear 64 Channel (ISDN), VPN and Switched
56 Transport; provided that a Captive Service purchased by the Company in
accordance with SECTION 3.1(A) of the Agreement shall upon such purchase by the
Company thereafter be deemed a Core Service and cease to be considered a Captive
Service.
"CARRIER ORIGINATION CONFIGURATION" shall have the meaning set forth
in SECTION 6.2(A)(II) hereof.
"CARRIER TERMINATION CONFIGURATION" shall have the meaning set forth
in SECTION 6.2(A)(III) hereof.
"CARRIER TRANSPORT II DATE" shall mean the date on which Sprint
implements a Carrier Transport II System which is capable of (i) determining
actual access charges for each of Access Components A and E, (ii) calculating
charges for each of Access Components B and D, based upon corresponding Access
Components A and E and (iii) determining actual transport charges for each of
Transport Components C and F, in each case with respect to telecommunications
traffic attributable solely to the Company.
"CDDD" shall have the meaning set forth in PARAGRAPH IV.4 of
ATTACHMENT PG.
"CHANGE CONTROL" shall have the meaning set forth in the preamble to
ATTACHMENT CC.
"CHANGE CONTROL REQUEST" shall have the meaning set forth in PARAGRAPH
4(A) of ATTACHMENT CC.
"CHANGE CONTROL RESPONSE" shall have the meaning set forth in
PARAGRAPH 4(B) of ATTACHMENT CC.
"CIC" shall mean Carrier Identification Code.
"COC" shall mean central office connection.
<PAGE>
"COMMERCIAL COMMENCEMENT DATE" shall mean the date on which any
unaffiliated, third party end-user of the Company's telecommunications services
originates the first wire-line, commercial long distance telecommunications
service within the Region.
"COMPANY" shall have the meaning set forth in the preamble to the
Agreement, and shall also include (i) any wholly owned subsidiary of the Company
(which shall not be deemed Affiliates for purposes of the Agreement) and (ii)
any successor and assigns of the foregoing.
"COMPANY CONFIDENTIAL INFORMATION" shall have the meaning set forth in
the definition of "CONFIDENTIAL INFORMATION".
"COMPANY LOCATION" shall have the meaning set forth in PARAGRAPH I.2
of ATTACHMENT PS.
"COMPANY MATERIAL BREACH" shall mean any breach by the Company of any
material provision of the Agreement.
"CONFIDENTIAL INFORMATION" shall mean all non-public information
concerning the business of the Company or of any third party doing business with
the Company (including all of the Company's customers) that Sprint may obtain
from any source in the course of providing the Services under the Agreement
("COMPANY CONFIDENTIAL INFORMATION") or concerning the business of Sprint and
any third party doing business with Sprint that the Company may obtain from any
source in the course of its use of the Services ("SPRINT CONFIDENTIAL
INFORMATION"). Such information shall include the terms of the Agreement (and
discussions, negotiations and proposals from one party to the other related
directly thereto), network designs, communications usage figures, pricing,
financial data, statistics, software code, the identity and configuration of
equipment networks, CPNI, research, development (including development, plans
and specifications for any product or service that is specifically designed or
modified at the Company's request or expense pursuant to ATTACHMENT CC or
otherwise), strategic and other business plans, and related information. All
such information disclosed prior to the execution of the Agreement and during
the Term shall also be considered Confidential Information. All CPNI shall be
Company Confidential Information, as shall all telecommunications network
configuration, design and usage information concerning the Company and any
customer that Sprint acquires by virtue of its provision of the Services to the
Company. "CONFIDENTIAL INFORMATION" shall not include information that: (a) is
already rightfully known by the receiving party at the time it is obtained by
said party, free from any obligation to keep such information confidential, (b)
is or becomes publicly known through no wrongful act of the receiving party or
(c) is rightfully received by the receiving party from a third party without
restriction and without breach of the Agreement. Information equivalent to that
described above that is independently developed by either party without use of
any Confidential Information of the other shall not be considered Confidential
Information for purposes of the Agreement.
<PAGE>
"CONFIRMED DATE" shall have the meaning set forth in PARAGRAPH IV.4 of
ATTACHMENT PG.
"CORE SERVICES" shall mean (i) Domestic 1+ Carrier Termination
Services, Domestic 1+ Carrier Origination Services, Domestic 1+ Switchless
Resale Services, International Outbound Services, Calling Card Services,
Operator Services, Domestic Directory Assistance Services, Dedicated Access
Services, Bulk Transport Services, each as set forth in ATTACHMENT PS and (ii)
any Captive or Shopping Services which are purchased by the Company from Sprint
and added to EXHIBIT PS-II of ATTACHMENT PG, pursuant to SECTION 3.1(C)(A) of
the Agreement.
"CPA-POP" shall have the meaning set forth in PARAGRAPH I.2 of
ATTACHMENT PS.
"CPA-SWC" shall have the meaning set forth in PARAGRAPH I.2 of
ATTACHMENT PS.
"CPNI" shall mean Customer Proprietary Network Information, as such
term is defined in the Act and as that term is or may hereinafter be defined by
the FCC.
"DAMAGES" shall have the meaning set forth in SECTION 16.1 of the
Agreement.
"DEDICATED ACCESS SERVICES" shall have the meaning set forth in
PARAGRAPH I.2 of ATTACHMENT PS.
"DEDICATED ACCOUNT TEAM" shall have the meaning set forth in
PARAGRAPH I.I.A of ATTACHMENT PG.
"DEDICATED SERVICE METRIC" shall have the meaning set forth in
PARAGRAPH IV.2 of ATTACHMENT PG.
"DIRECT SERVICE AGREEMENT" shall mean any bilateral service
arrangement between the Company and a Foreign Country Carrier for International
Services in a particular foreign country.
"DIRECTORY ASSISTANCE SERVICES" shall have the meaning set forth in
PARAGRAPH II.6 of ATTACHMENT PS.
"DOCUMENTATION" shall mean those materials in Sprint's possession (or
reasonably available to Sprint but not to the Company) that are necessary for
the Company's use of the Services and the services software or that are normally
made available by Sprint to customers like the Company in the ordinary course of
its business (or by a third party carrier, where a service or software is
obtained by Sprint from another carrier).
"DOMESTIC" shall mean the fifty (50) states of the United States of
America and shall include Puerto Rico and the U.S. Virgin Islands.
<PAGE>
"DOMESTIC ALTERNATE PROVIDER" shall mean any carrier which provides
local exchange services other than a LEC.
"DOMESTIC CALL SET-UP TIME" shall have the meaning set forth in
PARAGRAPH IV.1.B.2 of ATTACHMENT PG.
"DOMESTIC OPERATOR SERVICES" shall have the meaning set forth in
PARAGRAPH II.5.A of ATTACHMENT PS.
"DOMESTIC SHORTFALL" shall have the meaning set forth in SECTION
6.3(A) of the Agreement.
"DOMESTIC TOLL FREE SERVICES" shall have the meaning set forth in
PARAGRAPH II.3 of ATTACHMENT PS.
"DOMESTIC TRANSPORT SERVICES" shall have the meaning set forth in
PARAGRAPH II.1 of ATTACHMENT PS.
"DOMESTIC VOLUME COMMITMENT CHARGE" shall mean (A) the Domestic
Shortfall multiplied by (B) the average charge for Access Component D during the
-------------
applicable Measurement Period.
"DS-1 (OUTSIDE POPs)" shall have the meaning set forth in PARAGRAPH
IV.2.A.2 of ATTACHMENT PG.
"DS-1 (POP to POP)" shall have the meaning set forth in PARAGRAPH
IV.2.A.1 of ATTACHMENT PG.
"DS-3 (OUTSIDE POPs)" shall have the meaning set forth in PARAGRAPH
IV.2.A.4 of ATTACHMENT PG.
"DS-3 (POP TO POP)" shall have the meaning set forth in PARAGRAPH
IV.2.A.3 of ATTACHMENT PG.
"EARLY TERMINATION PAYMENT" shall mean an amount equal to Fifty Five
Percent (55%) of the amount by which Three Hundred Million Dollars
($300,000,000) exceeds the total amount of actual billings to the Company and
its Affiliates (without regard to credits) from the date of the Agreement
through the date of termination; provided that, the Three Hundred Million
--------
Dollars ($300,000,000) referred to herein shall be reduced to the extent of any
reduction in the scope, or the cancellation, of the Services, including, but not
limited to, disruptions, interruptions or cancellations in the Services referred
to in ARTICLE 17 of the Agreement.
"ECONOMIC VALUE ADDED" shall mean, with respect to the provision of
the Services by Sprint under the Agreement for the applicable Renewal Year, the
amount determined by subtracting (A) the sum of (i) invested capital minus
non-debt liabilities plus (ii) the cost of capital, each as consistently
----
applied, from (B) net operating profits after taxes.
<PAGE>
"EFC" shall mean entrance facilities charge.
"END-TO-END GRADE OF SERVICE" shall have the meaning set forth in
PARAGRAPH IV.1.A.1 of ATTACHMENT PG.
"FCC" shall mean the Federal Communications Commission, and any
successor entity thereto responsible for enforcing or interpreting the Act.
"FOC" shall have the meaning set forth in PARAGRAPH IV.4 of ATTACHMENT
PG.
"FORCE MAJEURE EVENT" shall mean any unforeseeable event beyond the
control of the party claiming excusable delay or other failure to perform,
including any act of God, act of a public enemy, fires, floods, riots or the
enactment of any law or regulation of any governmental body of competent
jurisdiction; provided that, without limiting the provisions of SECTION 4.4 of
--------
the Agreement, a Force Majeure Event shall specifically not include any action
or inaction of any LEC or Domestic Alternate Provider, or any delay in the
performance of services for which a party has subcontracted or is otherwise
dependent on another party to the extent that any such delay is not the result
of any of the matters identified in the forepart of this definition.
"FOREIGN ALTERNATE PROVIDER" shall mean any Foreign Carrier or Foreign
Country Carrier.
"FOREIGN CARRIER" shall mean any foreign telecommunications service
provider other than a provider which is, as of the date of the applicable
International Service Arrangement with such Alternate Provider, predominantly
based in the Domestic United States.
"FOREIGN COUNTRY CARRIER" shall mean any Foreign Carrier that is in
authorized provider of international traffic for the applicable foreign country
(including Telmex) or other international carrier of record.
"GENERAL SERVICE METRIC" shall have the meaning set forth in PARAGRAPH
IV.3 of ATTACHMENT PG.
"HOLD TIME" shall have the meaning set forth in PARAGRAPH IV.1.C.1 of
ATTACHMENT PG.
"INITIAL PRE-BILL CERTIFICATION CERTIFICATE" shall mean a written
certificate prepared by nationally recognized independent firm expert in the
pre-bill certification process, mutually acceptable to Sprint and the Company,
which certifies that the pre-bill certification process adopted and implemented
by Sprint complies, in all material respects, with the requirements for such
pre-bill certification process established by Coopers & Lybrand or such other
mutually acceptable firm.
"INTELLECTUAL PROPERTY" shall mean any patentable idea, design,
concept, technique, invention, discovery or improvement, and any patent
application filed for, or
<PAGE>
patents issuing on, such patentable idea, design, concept, technique, invention,
discovery or improvement, any information, bond, assembly and module final test
know-how, computer software, in any form, tangible or intangible, including, but
not limited to, formulas, patterns, compilations, devices, methods, techniques,
and processes, trade secrets, mask works, works of authorship and any
information not heretofore enumerated, whether or not patentable, copyrightable
or otherwise protectable under statute or common law.
"INTERCONNECTION AND PRODUCT REVIEW TEAM" shall have the meaning set
forth in SECTION 3.3 of the Agreement.
"INTERNATIONAL BENCHMARK" shall mean, with respect to any foreign
country, the actual net composite per MOU costs to Sprint of international
traffic to such foreign country for the six (6) month period ended June 30,
1996, and shall equal, with respect to any foreign country, the quotient
obtained by dividing (i) Sprint's actual costs from all International Transport
Arrangements for such foreign country for the six (6) month period ended June
30, 1996 by (ii) Sprint's total volume of international traffic for such foreign
country (based upon MOUs) for such six (6) month period.
"INTERNATIONAL CALL SET-UP TIME" shall have the meaning set forth in
PARAGRAPH IV.1.B.2 of ATTACHMENT PG.
"INTERNATIONAL OPERATOR SERVICES" shall have the meaning set forth in
PARAGRAPH II.5.B of ATTACHMENT PS.
"INTERNATIONAL SERVICE ARRANGEMENTS" shall mean any arrangement for
the transport or delivery of international voice and data communications between
the Domestic United States and any foreign country, including International
Transport Arrangements.
"INTERNATIONAL SHORTFALL" shall have the meaning set forth in SECTION
6.3(A) of the AGREEMENT.
"INTERNATIONAL TRANSPORT ARRANGEMENTS" shall mean any international
form of transport arrangement for international voice and data communications to
any foreign country, including, without limitation. Direct Service Agreements,
direct operating agreements with foreign telecommunications providers,
international simple resale, refile or any other transit.
"INTERNATIONAL TRANSPORT SERVICES" shall have the meaning set forth in
PARAGRAPH II.2 of ATTACHMENT PS.
"INTERNATIONAL VOLUME COMMITMENT CHARGE" shall mean (A) the
International Shortfall multiplied by (B) the average per MOU costs to Sprint of
-------------
international traffic (i.e., Transport Component F) for the applicable
----
Measurement Period, weighted in accordance with the actual aggregate
distribution of traffic to particular foreign countries during such Measurement
Period.
<PAGE>
"INTERRUPTION" shall mean (i) any time a Service or Service Element
becomes unusable to the end-user because of a failure or a material degradation
of a facility or component used to furnish such Service or Service Element, as
provided by Sprint or its subcontractors or (ii) any failure of any Service or
Service Element to meet the Performance Guarantees under the conditions set
forth in the applicable Table of ATTACHMENT PG. Interruptions shall not include
(a) failures caused by the equipment of either the Company or the Company's
end-users, (b) failures resulting from a Force Majeure Event or (c) failures
resulting from actual network usage exceeding forecasted volume by One Hundred
Twenty Five percent (125%) as set forth in SECTION 13.3 of the Agreement.
Interruption is specifically not limited to total loss or discontinuance of the
Service or Service Element. An Interruption begins when Sprint is notified or
becomes aware of the failure, whichever occurs first. An Interruption shall be
deemed to continue until the restored Service is accepted by the Company.
"INTERRUPTION CREDIT" shall mean the credits referenced in TABLE 2B of
ATTACHMENT PG.
"LEC" shall mean the dominant local exchange carrier for a particular
geographic area.
"LIEN CLAIM" shall mean any lien, restriction, encumbrance, charge,
security interest or equitable claim which may be maintained by any
subcontractor, materialman or laborer for services performed.
"MARKET ENTRY DATE" shall mean the date targeted, as set forth in
SECTION 4.1 of the Agreement, for the Company's entry into each State within the
Region in connection with the scheduled delivery of the Services.
"MARKET FORCES" shall mean any decline in (i) the Company's aggregate
market share for the applicable market or (ii) the aggregate volume of traffic
in the applicable market.
"MATERIAL DEGRADATION OF QUALITY" shall mean a material and adverse
degradation in the quality and reliability of any Service or Service Element (i)
which continues, substantially unabated, for a period of not less than ninety
(90) days, (ii) which has resulted in the Company receiving complaints or other
notices of dissatisfaction from any of its end-users with respect to such
Service or Service Element on not less than three (3) occasions during such
period and (iii) with respect to which Sprint has received notice on not less
than two (2) occasions of such material and adverse degradation and has not
undertaken diligent measures to cure such degradation.
"MEAN TIME TO REPAIR" shall have the meaning set forth in PARAGRAPH
IV.I.C.1 of ATTACHMENT PG.
"MEASUREMENT PERIOD" shall have the meaning set forth in SECTION
6.3(A) hereof
<PAGE>
"MERGER" shall have the meaning set forth in PARAGRAPH I of ATTACHMENT
MR.
"MERGER AGREEMENT" shall have the meaning set forth in PARAGRAPH I of
ATTACHMENT MR.
"MOUS" shall mean minutes of use.
"NDM" shall mean a Network Data Mover Feed.
"NDM DATA" shall have the meaning set forth in SECTION 5.1 of the
Agreement.
"NETWORK OUTAGE" shall mean any reportable outage as defined, from
time to time, by the FCC, within the Region.
"NEW INTERNATIONAL PRICE" shall mean the price for any international
Service set forth in ATTACHMENT PS, as adjusted pursuant to SECTION 10.1(B) of
the Agreement.
"NO ACCESS" shall have the meaning set forth in PARAGRAPH IV.1.C.1 of
ATTACHMENT PG.
"NORTH AMERICAN SERVICE" shall mean any traffic originating or
terminating (i) in the Domestic United States and (ii) Mexico and Canada.
"NPA" shall mean Numbering Plan Area.
"NTF" shall have the meaning set forth in PARAGRAPH IV.1.B.1 of
ATTACHMENT PG.
"OLD INTERNATIONAL PRICE" shall mean the price for any international
Service set forth in ATTACHMENT PS as of the day next preceding the date on
which any adjustment thereto is required pursuant to SECTION 10.1(B) of the
Agreement.
"OPERATIONAL CONSOLIDATION EVENT" shall have the meaning set forth in
PARAGRAPH I.2 of ATTACHMENT MR.
"OPERATOR SERVICES" shall have the meaning set forth in PARAGRAPH II.5
of ATTACHMENT PS.
"OVERFLOW CONDITION" shall have the meaning set forth in SECTION 13.3
of the Agreement.
"OVERFLOW RATE" shall mean the actual Transport Component F charges
incurred by Sprint during an Overflow Condition.
<PAGE>
"PERFORMANCE GUARANTEES" shall mean the standards set forth in
ATTACHMENT PG or EXHIBIT PS-II and EXHIBIT PS-III of ATTACHMENT PS, as
applicable, which may be modified as mutually agreed to incorporate any
published service guarantee or assurance program offered at any time during the
Term by Sprint to any other customer.
"PERMIT" shall have the meaning set forth in SECTION 14.1(H) hereof.
"PERSON" shall mean any individual, corporation, trust, partnership,
limited partnership, governmental agency or body, joint venture, limited
liability company, political subdivision or any other entity.
"POP" shall mean point of presence.
"POSITIVE EVA" shall mean an Economic Value Added which exceeds zero.
"PRICE CHANGE MODIFICATION NOTICE" shall mean the notice described in
the preamble to ATTACHMENT PS, the form of which is set forth in EXHIBIT PS-I
thereto.
"PRIME RATE" shall mean the rate of interest established by Citibank,
N.A. or such other bank as may be mutually agreed from time to time as the
"prime rate" of such bank, with each change in such rate to be effective for
purposes of the Agreement on the day on which such change is effective for such
bank's purposes.
"PROCEDURES MANUAL" shall have the meaning set forth in PARAGRAPH 1.3
of ATTACHMENT PG.
"PROVISIONING DELAY" shall have the meaning set forth in SECTION
IV.4.A.1 of the Agreement.
"PROVISIONING DELAY CREDITS" shall mean the credits referenced in
TABLE 4 of ATTACHMENT PG.
"PSPs" shall have the meaning set forth in PARAGRAPH III.4 of
ATTACHMENT PS.
"PSP COMPENSATION" shall have the meaning set forth in PARAGRAPH III.4
of ATTACHMENT PS.
"PURCHASED SHOPPING SERVICE" shall mean a Shopping Service that is
purchased by the Company in accordance with SECTION 3.1(C)(B) of the Agreement
and added to EXHIBIT PS-III to ATTACHMENT PS.
"PURCHASED SHOPPING SERVICE NOTICE" shall mean that notice in the form
set forth on EXHIBIT PS-III of ATTACHMENT PS.
<PAGE>
"RATES AND CHARGES" shall mean the rates and charges for the Core
Services set forth in ATTACHMENT PS.
"RBOC" shall mean a Regional Bell Operating Company.
"RED ZONE" shall mean Sprint's failure, at any time, to satisfy fully
the PERFORMANCE GUARANTEES set forth under the caption "RED ZONE" on TABLES 1
THROUGH 3 of ATTACHMENT PG.
"REGION" shall mean the States of California and Nevada.
"RELIABILITY (POP TO POP)" shall have the meaning set forth in
PARAGRAPH IV.3.B. of ATTACHMENT PG.
"RENEWAL YEAR" shall have the meaning set forth in SECTION 2.2 of the
Agreement.
"REPORT CARD" shall mean the report card referred to in SECTION 5.3 of
the Agreement.
"REQUEST FOR PROPOSAL" shall mean the Request for Proposal dated April
18, 1996, as referenced in the recitals to the Agreement.
"REQUIRED APPROVAL" shall have the meaning set forth in SECTION 2.1 of
the Agreement.
"SBCS" shall mean Southwestern Bell Communications Services, Inc.
"SBCS AGREEMENT" shall have the meaning set forth in PARAGRAPH I of
ATTACHMENT MR.
"SENIOR EXECUTIVES" shall have the meaning set forth in SECTION
18.6(B) of the Agreement.
"SERVICE CHANGES" shall have the meaning set forth in PARAGRAPH 1 of
ATTACHMENT CC.
"SERVICE DEVELOPMENT" shall have the meaning set forth in SECTION
3.4(B) of the Agreement.
"SERVICE ELEMENT" shall mean a piece-part of a Service which can be
billed either separately or as part of the Service.
"SERVICES" shall mean (i) the Core Services, (ii) the additional Core
Services appended as EXHIBIT PS-II to ATTACHMENT PS and (iii) the Purchased
Shopping Services (as applicable) appended as EXHIBIT PS-III to ATTACHMENT PS.
<PAGE>
"SHOPPING SERVICE" shall mean any voice or data service, feature,
function or product offered by Sprint or its Affiliates now or in the future
which the Company may purchase from any other telecommunications vendor and for
which Sprint has the right to counter-offer pursuant to Article 7 of the
Agreement, other than Core Services and Captive Services, including, without
limitation, Prepaid Card, Frame Relay, Sprint Express, Country Direct, OC3s,
International Private Line, Bulk Transport with SS7 Signaling, SDS, VPN for
facility based carriers and complementary calling card; provided that a service
--------
shall no longer be deemed a Shopping Service to the extent that it is deemed (i)
an additional Core Service and set forth on EXHIBIT PS-II to ATTACHMENT PS or
(ii) a Purchased Shopping Service and set forth on EXHIBIT PS-III to ATTACHMENT
PS.
"SMC" shall have the meaning set forth in PARAGRAPH I.5 of ATTACHMENT
PG.
"SME" shall have the meaning set forth in PARAGRAPH I.1.A of
ATTACHMENT PG.
"SPECIAL INDEPENDENT AUDIT" shall mean an audit of Sprint requested by
the Company pursuant to SECTION 2.2 or ARTICLE 9 of the Agreement which shall be
conducted by an independent party unaffiliated with the Company or Sprint, who
shall be mutually agreed upon by the Company and Sprint and who shall have
substantial experience in the telecommunications industry.
"SPRINT" shall have the meaning set forth in the preamble to the
Agreement, and shall include any successors and assigns thereto.
"SPRINT AGREEMENT" shall have the meaning set forth in SECTION 3.2(B)
of the Agreement.
"SPRINT CONFIDENTIAL INFORMATION" shall have the meaning set forth in
the definition of "CONFIDENTIAL INFORMATION".
"SPRINT MATERIAL BREACH" shall mean (i) a failure to meet any Market
Entry Date which continues for more than thirty (30) days, (ii) a Material
Degradation of Quality which has, or, in the good faith determination of the
Company, is reasonably likely to have, a material adverse effect on the
business, condition (financial or otherwise) and prospects of the Company or
(iii) any breach of any other material provision of the Agreement not otherwise
expressly addressed by CLAUSES (I) AND (II) above.
"SPRINT PROVIDED ACCESS" shall have the meaning set forth in PARAGRAPH
1.2 of ATTACHMENT PS.
"STRATEGIC PARTNER" shall mean any Foreign Carrier with whom the
Company or an Affiliate of the Company enters into an alliance or a joint
venture agreement which contemplates, as a material part thereof, a
telecommunications venture (other than or in addition to an International
Service Arrangement).
<PAGE>
"SWC" shall have the meaning set forth in PARAGRAPH I.2 of ATTACHMENT
PS.
"SWITCHED ACCESS SERVICES" shall have the meaning set forth in
PARAGRAPH I.1 of ATTACHMENT PS.
"SWITCHED NETWORK AVAILABILITY" shall have the meaning set forth in
PARAGRAPH IV.1.A.2 of ATTACHMENT PG.
"SWITCHED SERVICE CREDITS" shall mean the credits referenced in TABLE
1B of ATTACHMENT PG.
"SWITCHED SERVICE METRIC" shall have the meaning set forth in
PARAGRAPH IV.1 of ATTACHMENT PG.
"SWITCHLESS CONFIGURATION" shall have the meaning set forth in SECTION
6.2(A)(I) hereof.
"TARIFF 8" shall mean Sprint's FCC Tariff 8, as applicable for the
term of the access loop.
"TARIFF TERM PLAN" shall mean, as applicable, the Sprint tariff term
plan referred to in Tariff 8.
"TELMEX" shall mean Telefonos de Mexico, S.A. DE C.V., a Mexican
corporation and its Affiliates.
"TERM" shall mean the term of the Agreement, as described in SECTION
2.1 of the Agreement and as extended by any Renewal Year or as earlier
terminated pursuant to the provisions of the Agreement.
"TERMINATION DATE" shall have the meaning set forth in PARAGRAPH 2 of
ATTACHMENT AS.
"TIGHT COUPLING" shall mean the interconnection of Sprint's network
and the Company's network in a manner which ensures the seamless hand-off of
voice and data messages across demarcation points.
"TIME TO FIX" shall have the meaning set forth in PARAGRAPH IV.1.C.1
of ATTACHMENT PG.
"TIME TO NOTIFY" shall have the meaning set forth in PARAGRAPH
IV.1.C.1. of ATTACHMENT PG.
"TRANSITION PERIOD" shall have the meaning set forth in SECTION
17.9(B).
<PAGE>
"TRANSPORT COMPONENT C" shall mean the Domestic transport component of
long distance traffic, the charges for which are set forth on TABLE 2 of
ATTACHMENT PS, as applicable.
"TRANSPORT COMPONENT F" shall mean the international transport
component of long distance traffic, the charges for which are set forth on TABLE
3 to ATTACHMENT PS, as applicable, as adjusted pursuant to the terms of the
Agreement.
"TRANSPORT COMPONENTS" shall mean Transport Component C and Transport
Component F, as applicable.
"TRANSPORT SERVICES" shall have the meaning set forth in PARAGRAPH
II.2 of ATTACHMENT PS.
"TROUBLE TICKET" shall have the meaning set forth in PARAGRAPH
IV.1.B.1 of ATTACHMENT PG.
"TROUBLES PER DROP" shall have the meaning set forth in PARAGRAPH
IV.2.B. of ATTACHMENT PG.
"TROUBLES PER 10K" shall have the meaning set forth in PARAGRAPH
IV.1.B.1 of ATTACHMENT PG.
"VIRTUAL BULK TRANSPORT CONFIGURATION" shall have the meaning set
forth in SECTION 7.1(A) hereof.
<PAGE>
ATTACHMENT PG
PERFORMANCE GUARANTEES
This ATTACHMENT PG is annexed to that certain Services Agreement,
dated as of the 3rd day of February 1997, between the Company and Sprint (the
"AGREEMENT"), and sets forth certain performance guarantees related to the
provision by Sprint of the Services to the Company. The information and
obligations set forth herein are deemed fully incorporated into the Agreement as
if set forth therein in their entirety. Reference is further made to SECTION
19.9 of the Agreement. Capitalized terms used without definition herein have
their respective meanings set forth in ATTACHMENT DE.
I. Sprint Support Services
-----------------------
1. DEDICATED ACCOUNT TEAM.
A. Sprint shall appoint, no later than thirty (30) days after execution
of the Agreement, a dedicated account team (the "DEDICATED ACCOUNT
TEAM") which shall include, but not be limited to, an Account Manager
and one or more subject matter experts (each, a "SME") capable of
addressing each of the following areas: customer sales, billing,
operator services, customer acquisition, product development and
network operations. All travel expenses for Sprint account support
personnel, including members of the Dedicated Account Team, shall be
borne by Sprint.
B. Sprint's Dedicated Account Team shall, either directly or through one
or more designees, (i) be authorized to initiate the process to seek
modification of (with the Company's prior consent) service order
intervals, maintenance response times, priorities for the restoration
of Interrupted Services and other performance standards by which the
Services shall be measured and managed, (ii) meet regularly with
designated Company representatives to review Sprint's performance
(including reviewing Sprint's performance statistics and reconciling
the Company's and Sprint's Interruption records), coordinate the
provision of the Services, discuss changes in the pricing of the
Services and discuss the Company's future service requirements, (iii)
ensure that Sprint personnel are available as needed at all reasonable
times and are adequate in number
<PAGE>
and quality, (iv) ensure that Sprint personnel are provided the tools,
training and support necessary for their work, (v) supervise Sprint
personnel and ensure that they provide the Services in accordance with
the Performance Guarantees set forth herein and in the Agreement and
(vi) except as otherwise expressly provided in the Agreement or this
ATTACHMENT PG, serve as the principal interface between Sprint and the
Company with respect to all issues relating to the Services provided
hereunder.
3. PROCEDURES MANUAL. Within one hundred and twenty (120) days of the
Agreement. Sprint shall develop and maintain a procedures manual (including
relevant material from the Agreement and the Attachments) (the "PROCEDURES
MANUAL") that shall address the service ordering process, procedures to be
followed to request or make inquiries concerning restoration of Interrupted
Services, the form and medium by which Sprint will report the availability
of dedicated Service Elements for acceptance testing by the Company,
training, billing, optimization, network management, dispute resolution and
escalation and all similar administrative and logistical matters related to
the provision of and payment for the Services. The Company shall review and
approve a draft outline of the manual prior to its final publication. The
manual shall be specifically
<PAGE>
adapted to the Company's needs and usage patterns and shall be updated
periodically as necessary. The manual shall identify those persons
authorized by the Company to place orders under the Agreement and
responsible for the management of the Agreement and the Services. Sprint
shall distribute copies of the manual and all updates or modifications
thereto to a reasonable number of the Company employees, which employees
shall be determined by the Company. The manual and all updates or
modifications thereto shall be maintained in confidence in accordance with
the terms of the Agreement and shall be subject to the Company's review and
prior written approval. The manual may be modified from time to time upon
the manual agreement of the parties, but in no event shall it amend, waive
or supersede any portion of the Agreement.
4. STAFFING; PERSONNEL ON CALL; ACCESS TO INFORMATION; TROUBLE REPORTING
A. Sprint shall provide a single telephone number for reporting all
levels of trouble.
B. Sprint shall provide names and telephone numbers for the appropriate
Sprint personnel with the requisite responsibility for providing the
Company the Services during normal business hours. Sprint shall
provide the pager number of such personnel for contacts made at times
other than normal business hours.
C. If requested, Sprint shall provide, at no additional cost. Sprint
personnel on the Company's premises. The Company shall provide, at its
expense, appropriate work space, telephone service, and similar
support systems, for use by Sprint's personnel on the Company's
premises.
D. Sprint shall provide personnel to participate in the creation and
implementation of any beta test plan for the Services purchased from
Sprint, at no additional cost.
E. Sprint and the Company shall exchange appropriate escalation lists.
5. SERVICE MANAGEMENT CENTER ESCALATION GUIDELINES. The Service Management
Center ("SMC") shall prioritize and work tickets based on their severity,
as mutually agreed upon and reflected in the Procedures Manual. Outside the
established escalation process, the Company reserves the right to begin
immediate escalation when situations warrant.
<PAGE>
ATTACHMENT PS
PRICING OF SERVICES
This ATTACHMENT PS is annexed to that certain Services Agreement,
dated as of the 3rd of February, 1997, between the Company and Sprint (the
"AGREEMENT") and sets forth certain information regarding the Services and
related Rates and Charges to be offered to the Company. The information and
obligations set forth herein are deemed fully incorporated into the Agreement as
if set forth therein in their entirety. Reference is further made to SECTION
19.9 of the Agreement. Capitalized terms used without definition herein have
their respective meanings as set forth in ATTACHMENT DE.
Except as otherwise provided herein (e.g., the adjustment of charges
----
for Access Components and adjustments of charges for Transport Component F), the
Rates and Charges set forth in this ATTACHMENT PS shall be subject to change
upon the mutual written agreement of each of the Vice President - Operations of
the Company (or any other authorized officer designated to act on behalf of the
Company pursuant to this paragraph) and the Vice President and General Manager
RBOC Services - Wholesale Services Group of Sprint (or any other authorized
officer designated to act on behalf of Sprint pursuant to this paragraph). Any
such change shall be effected by delivery of the Price Change Modification
Notice annexed hereto as EXHIBIT PS-I.
I. Access Services to be Offered
-----------------------------
This PARAGRAPH I sets forth the manner in which Switched Access
Services and Dedicated Access Services (the "ACCESS SERVICES") shall be provided
by Sprint to the Company under the terms of the Agreement, subject to the Rates
and Charges set forth in PARAGRAPH V hereof and the Tables attached thereto.
Access Services shall be provided, at the Company's sole and absolute
discretion, by Sprint or the Company, as the case may be, as more fully set
forth below. DIAGRAM 1 illustrates the Access Components for Switched and
Dedicated Access. Sprint shall provide the following Access Services, at the
request of the Company:
I. SWITCHED ACCESS SERVICES. Subject to the provisions of SECTION 6.2(A) AND
SECTION 10.1(A) of the Agreement, Sprint shall provide, at the request of
the Company, switched origination services ("SWITCHED ORIGINATION
SERVICES") to the Company at the applicable Rates and Charges (Access
Components A and B) and switched termination services ("SWITCHED
TERMINATION SERVICES") to the Company at the applicable Rates and Charges
(Access Components D and E). TABLE I, incorporated for illustrative
purposes only, sets forth an example of Sprint's rate structure for
Switched Origination Services and Switched Termination Services (together,
the "SWITCHED ACCESS SERVICES").
<PAGE>
2. DEDICATED ACCESS SERVICES. Sprint shall provide, at the request of the
Company, dedicated special access circuits ("DEDICATED ACCESS SERVICES")
connecting Sprint with any Domestic location of the Company or of any customer
of the Company (each, a "COMPANY LOCATION"). Dedicated Access Services shall
include, at the election of the Company, configurations whereby (i) Sprint
provides access between Sprint and the Company Location ("SPRINT PROVIDED
ACCESS"), (ii) the Company provides access to the serving wire center (the
"SWC") and Sprint provides access from the applicable Sprint POP to the SWC (the
"CPA-SWC") and (iii) the Company provides access into the Sprint POP
("CPA-POP"). The Rates and Charges for Dedicated Access Services are set forth
on TABLE 9.
II. Core Services to be Offered
---------------------------
This PARAGRAPH II sets forth the Core Services which Sprint shall
provide to the Company under the terms of the Agreement, subject to the Rates
and Charges set forth in PARAGRAPH V hereof and the Tables attached thereto.
1. DOMESTIC TRANSPORT SERVICES. Sprint shall provide full-duplex, bi-
directional, metered Domestic transport of baseband. Sprint circuit-
switched messages ("DOMESTIC TRANSPORT SERVICES") at the applicable Rates
and Charges set forth in TABLE 2 ("TRANSPORT COMPONENT C"). DIAGRAM 1
illustrates the provision of Sprint Domestic Transport Services. Billing
increments for Domestic Transport are set forth in TABLE 5. For purposes of
this Agreement, Domestic Transport Services shall be considered Core
Services to the extent that such Domestic Transport Services constitute a
necessary component of a Core Service otherwise listed in this PARAGRAPH
II.
2. INTERNAL TRANSPORT SERVICES. Sprint shall provide full-duplex,
unidirectional (Domestic originated and foreign terminated), metered
international transport of baseband Sprint gateway circuit-switched
messages ("INTERNATIONAL TRANSPORT SERVICES" and, together with Domestic
Transport, "TRANSPORT SERVICES") at the applicable Rates and Charges set
forth in TABLE 3 ("TRANSPORT COMPONENT F"), subject to SECTION 10.1(B) of
this Agreement. Transport Component F does not include charges for (i)
Access Services or (ii) Domestic Transport Services or Bulk Transport
Services, as applicable. DIAGRAM 1 illustrates the provision of Sprint
International Transport Services. Billing increments for International
Transport are set forth in TABLE 5.
3. DOMESTIC TOLL-FREE SERVICES. Sprint shall provide the Company with
applicable features and functions in connection with the provision of
domestic toll-free service ("DOMESTIC TOLL-FREE SERVICES"). The Company
shall pay Sprint the applicable service fees, surcharges and feature
charges for Domestic Toll-Free Services set froth in TABLE 6.
4. CALLING CARD SERVICES. Sprint shall provide the Company with those Core
Services which permit the Company to provide end-users with travel cards
which
<PAGE>
enable such end-users to originate calls from the Domestic United States
(to be terminated both Domestically and internationally) using a BTN-DID
and a four-digit pin number authorization code (the "CALLING CARD
SERVICES"). TABLE 4 sets forth charges for Calling Card Services and shall
be in addition to applicable charges for International Transport Services.
Complementary calling cards shall be a Shopping Service until otherwise
agreed by Sprint and the Company. Billing increments for Calling Card
Services are set forth in TABLE 5.
5. OPERATOR SERVICES. Sprint shall provide the Company with Domestic Operator
Services and International Operator Services (the "OPERATOR SERVICES") at
the Rates and Charges set forth on TABLE 8, which charges shall be in
addition to applicable charges for Access Services and Transport Services,
as applicable.
A. Domestic Operator Services. Sprint shall provide those Core Services
--------------------------
pursuant to which any of the Company's end-users may obtain live and
automated operator assistance for station-to-station, person-to-
person, general assistance, problem assistance, busy line interrupt
and verification and Domestic Originated Directory Assistance
Services ("DOMESTIC OPERATOR SERVICES"). Such Domestic Operator
Services shall be accessed by 0++, 0+ or 0- dialing. End-users of
Domestic Operator Services shall be permitted to use collect, third
party, local exchange calling cards and commercial credit cards: to
the extent that the Company has established arrangements as
appropriate for payment. Sprint shall provide operator services
support, including multi-lingual capabilities for Cantonese, French,
German, Italian, Japanese, Mandarin, Polish, Russian, Spanish and
Tagalog, for all interstate, intrastate and Domestic-to-international
calls.
B. International Operator Services. Sprint shall provide a wholesale
-------------------------------
feature which connects Domestic callers with an international operator
in any of approximately two hundred thirty (230) countries, currently
configured for the Services (the "INTERNATIONAL OPERATOR SERVICES").
The following International Operator Services may be provided before
the caller and foreign operator are connected: international Directory
Originated Assistance Services (as set forth in PARAGRAPH 6 hereof),
international general assistance, foreign language assistance for call
completion and access to additional countries.
6. DIRECTORY ASSISTANCE SERVICES. Sprint shall provide those Core Services
originated in the Domestic United States pursuant to which (i) calls are
routed to an operator center supported by an electronic database, (ii)
callers can receive listed phone numbers and related information as allowed
by law and (iii) Sprint's line operator center can complete most calls at
the caller's request (collectively, DIRECTORY ASSISTANCE SERVICES"). TABLE
7 sets forth the charges for Directory Assistance Services originated in
the Domestic United States. Directory Assistance Services will be branded
by the LEC or Alternate Service Provider.
<PAGE>
7. BULK TRANSPORT SERVICES. Sprint shall provide those Core Services pursuant
to which the Company may obtain point-to-point, dedicated, digital circuits
between Sprint's Domestic POPs which shall support data and voice
applications. Such digital access circuits shall provide line speeds of DS-
1 (1.544 Mbps) and DS-3 (45.736 Mbps) ("BULK TRANSPORT SERVICES"). As set
forth in PARAGRAPH 1.2 hereof, the associated access loops may be procured,
in the Company's discretion, by either Sprint or the Company. TABLE 10 sets
forth the Rates and Charges for Bulk Transport service.
III. Certain Other Matters
---------------------
1. SERVICE CHANGE RATE. Subject to the terms of ATTACHMENT CC and the
procedures described therein, the Company shall pay Sprint for all Service
Changes undertaken pursuant to SECTION 3.4(B) of the Agreement at the rate
of $81.50 per person hour, plus any directly related, reasonably incurred
travel expenses.
2. PIC PROCESSING FEE. Subject to SECTION 3.7 of the Agreement, the Company
shall pay Sprint $1.52 per ANI, and Sprint shall "pass-through" any
directly-related LEC charges actually incurred by Sprint in connection
therewith, plus five percent (5%) of such LEC charges, including "slamming"
charges.
3. BRANDING SERVICES. TABLE 11 sets forth the Rates and Charges for each
additional brand use to support the Company, as provided in SECTION 3.6(A)
of the Agreement.
4. PAYPHONE COMPENSATION. The parties acknowledge that Sprint, as a
facilities-based carrier, must compensate payphone service providers
("PSPS") for completed interstate and intrastate calls using the PSP's
payphone pursuant to FCC rules adopted in CC Docket No. 96-128 to implement
Section 276 of the act ("PSP COMPENSATION"). The Company shall reimburse
Sprint for all PSP Compensation actually paid by sprint to the Company's
PSPs. The method for such reimbursement shall be mutually agreed by the
parties.
IV. Support Systems
---------------
Sprint shall provide the following support systems, upon request and
as applicable to the services rendered, each as more fully detailed in
Sprint's Reseller Handbook, at no additional charge, and such other support
systems as Sprint may from time to time provide to any other wholesale customers
at no additional charge.
1. ANI BATCH ORDER PROCESSING
. Automated orders and confirmation process
. Error notification
<PAGE>
. Processed via SprintMail
. Once per day for 1+ and FONCard
. Twice per day for toll free
. ANI loading and error resolution for branding purposes
. One ANI file
2. DEDICATED ORDER PROCESSING
. Support DAL. DS-1 and DS-3 access
. Inbound, outbound and private line service types
. Processed via SprintMail and/or paper
. Cycle times dependent upon LEC/Domestic Alternate Provider
3. RESELLER DESKTOP MANAGER
. Provides means to view customer information
. Support switched Services (1+, FONCard, toll free)
. Additional users and access points are extra charge
4. PIC ACTIVATION (333)
. Mechanized PIC
. LEC reject processing without customer contact
. Company responsible for LOA, PIC disputes, and third party
verification
. Cycle times dependent upon each LEC contact
. Current Company configurations do not require PIC Activation
. Implementation will require coordination with Sprint with a minimum of
ninety (90) days notice
5. TOLL FREE CARRIER COMMAND CENTER
. SMS administration for Sprint 800 numbers
. RESPORG functions for Sprint 800 numbers
6. FRAUD MONITORING FOR SPRINT FONCARD PLATFORM
. Deactivation of cards and other ABS services when fraud threshold is
exceeded
. Notification given to Company when card is deactivated
. Reinstate customers requested by Company
7. SERVICES MANAGEMENT CENTER (ATTACHMENT PG PARAGRAPH 4)
. Company single point of contact for all network trouble reporting
. Track resolution activity
. Coordinate maintenance activity
. Obtain trouble report status updates and closure information
<PAGE>
. Escalation of resolution activities
. Company shall have Internet access to Sprint's on-line trouble
reporting system (Agreement (S)5)
8. PRIVATE LINE SERVICE CENTER FOR PRIVATE LINES PURCHASED FROM SPRINT
. Monitoring of domestic private lines
. Centrally install and maintain the entire private line network
. Technical assistance surveillance center notification of outages
9. WHOLESALE BILLING FOR SPRINT SERVICES USED BY COMPANY
. Wholesale invoicing on one or more cycles for the Company
. A minimum of one (1) invoice for wholesale services will be rendered
for each billing platform used to support the Services
. Bill summary reporting
10. NETWORK OPERATIONS CONTROL CENTER FOR SPRINT'S NETWORK
. Provide network management
. Interface with regional control centers to obtain geographical network
status
. National surveillance system
. Sprint to notify Company of any network events
11. BRANDING
. One brand for Company for Operator Services and Calling Card Services
when 800 access is used pursuant to SECTION 3.4(A) of the Agreement.
12. END-USER CUSTOMER CDR FEED
. One CDR feed per day for the Company
. One NDM-link for passing daily CDRs to Company
13. CIC ACTIVATION
. Reference is made to SECTION 3.4 of the Agreement
14. CLIENT/SERVER DATA DOWNLOADING CAPABILITY
. 1 NDM-link for Company
. Systems extract of Company data which can be uniquely identified
<PAGE>
15. NETWORK MANAGEMENT OF SPRINT NETWORK
. Grade of service management (ATTACHMENT PG IV)
. LEC and Domestic Alternate Provider trouble reporting
. Disaster recovery and restoration (Agreement (S)4.3)
. Maintenance of LEC and Domestic Alternate Provider facilities
(Agreement (S)4.1)
. Backbone monitoring
. Escalation (ATTACHMENT PG I.5)
. SS7 signaling with switched voice products
. Fundamental network infrastructure improvement (e.g., SONET)
----
. Use of Sprint's entrance facilities for certified LEC and Domestic
Alternate Provider
16. DEDICATED ACCOUNT TEAM AND TECHNICAL SUPPORT
. Dedicated account team (ATTACHMENT PG I.1)
. Access to WSG customer service support
V. Prices for Services
-------------------
This PARAGRAPH V, and the Tables incorporated herein, sets forth the
Rates and Charges which Sprint shall provide to the Company for the Services and
references, where appropriate, certain Captive and Shopping Services.
1. CORE SERVICES. Subject to the terms and conditions of the Agreement, Sprint
and the Company agree that during the Term, Sprint shall be obligated to
provide the Core Services referenced in this ATTACHMENT PS and the Tables
attached hereto.
2. ADDITIONAL CORE SERVICES. Sprint and the Company hereby agree that, subject
to the terms and conditions of the Agreement, Sprint's obligation to
provide, and the Company's obligation to purchase, any Captive Services or
Shopping Services (pursuant to SECTION 3.1(A) of the Agreement), shall be
subject to the mutual written agreement of authorized officers of each of
the Company and Sprint in the manner set forth on EXHIBIT PS-II, which
authorization shall be effective on the date such EXHIBIT PS-II is appended
to this ATTACHMENT PS.
3. PURCHASED SHOPPING SERVICES. No reference herein to a Shopping Service
shall be deemed to obligate Sprint to provide such Shopping Service to the
Company, or to obligate the Company to purchase such Shopping Service from
Sprint, until such time as the Company and Spring expressly agree in
writing that such Shopping Service shall be designated an additional Core
Service or a Purchased Shopping Service, pursuant to SECTION 3.1(C) of the
Agreement. Upon the mutual written agreement of authorized officers of each
of the Company and Sprint in the manner set forth on EXHIBIT PS-III, which
authorization shall be effective on the
<PAGE>
date such EXHIBIT PS-III is appended to this ATTACHMENT PS, such service shall
be deemed a Purchased Shopping Service for purposes of the Agreement.
<PAGE>
DIAGRAM 1
ACCESS SERVICES AND TRANSPORT SERVICES
[CHART OF ACCESS SERVICES AND TRANSPORT SERVICES APPEARS HERE]
A - Access Component A EO - End Office
B - Access Component B TT - Trunk Tandem
C - Transport Component C POP - Point of Presence
D - Access Component D
E - Access Component E
F - Transport Component F
<PAGE>
Interstate
DOMESTIC
PAC BELL RESET RATE: INTERSTATE
Originating
-----------
State LATA Comp A Comp B Comp D Comp E
----- ---- ------ ------ ------ ------
***
<PAGE>
TABLE 1
Switched Access Services
(Access Components A, B, D and E)
Access Components A, B, D and E are defined in Attachment DE. Other than
with respect to a Virtual Bulk Transport Service configuration, the Company may
only obtain (i) Access Components A and B together and (ii) Access Components D
and E together, each collectively with Transport Component C. The example of
Sprint's rate structure set forth below is applicable to both outbound and
inbound traffic. This table is included solely for illustrative purposes as the
charges set forth herein are subject to adjustment pursuant to Article 10 of the
Agreement, which is intended to provide for a "pass-through" of all such costs
as actually incurred by Sprint on behalf of the Company.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
ACCESS COMPONENTS
---------------------------------------------------------------------------------------
Interstate Intrastate
- -----------------------------------------------------------------------------------------------------------------------------
LATA LATA Name Originating Access Terminating Access Originating Access Terminating Access
- -----------------------------------------------------------------------------------------------------------------------------
A B D E A B D E
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
120 Maine *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
122 New Hampshire *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
124 Vermont *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
126 Western Mass *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
128 Eastern Mass *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
130 Rhode Island *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
132 New York Metro *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
133 Poughkeepsie NY *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
134 Albany NY *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
136 Syracuse NY *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
138 Binghamton NY *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
140 Buffalo NY *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
220 Atlantic Coastal NJ *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
222 Delaware Valley NJ *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
224 North Jersey NJ *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
226 Capital PA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
228 Philadelphia PA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
230 Altoona PA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
232 Northeast PA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
234 Pittsburgh PA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
236 Washington DC *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
ACCESS COMPONENTS
---------------------------------------------------------------------------------------
Interstate Intrastate
- -----------------------------------------------------------------------------------------------------------------------------
LATA LATA Name Originating Access Terminating Access Originating Access Terminating Access
- -----------------------------------------------------------------------------------------------------------------------------
A B D E A B D E
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
238 Baltimore MD *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
240 Hagerstown MD *** *** *** *** *** *** *** ***
- ---------------------------------------------------------------------------------------------------------------------------
242 Salisbury MD *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
244 Roanoke VA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
246 Culpepper VA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
248 Richmond VA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
250 Lynchburg VA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
252 Norfolk VA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
254 Charleston WV *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
256 Clarksburg WV *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
320 Cleveland OH *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
322 Youngstown OH *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
324 Columbus OH *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
325 Akron OH *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
326 Toledo OH *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
328 Dayton OH *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
330 Evansville IN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
332 South Bend IN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
334 Auburn Huntington IN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
336 Indianapolis IN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
338 Bloomington IN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
340 Detroit MI *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
342 Upper Peninsula MI *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
344 Saginaw MI *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
346 Lansing MI *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
348 Grand Rapids MI *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
350 Northeast WI *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
352 Northwest WI *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
354 Southwest WI *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
355 Southeast WI *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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Page PS -- Attachments-3
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
ACCESS COMPONENTS
---------------------------------------------------------------------------------------
Interstate Intrastate
- -----------------------------------------------------------------------------------------------------------------------------
LATA LATA Name Originating Access Terminating Access Originating Access Terminating Access
- -----------------------------------------------------------------------------------------------------------------------------
A B D E A B D E
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
358 Chicago IL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
360 Rockford IL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
362 Cairo IL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
364 Sterling IL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
366 Forrest IL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
368 Peoria IL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
370 Champaign IL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
374 Springfield IL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
376 Quincy IL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
420 Asheville NC *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
422 Charlotte NC *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
424 Greensboro NC *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
426 Raleigh NC *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
428 Wilmington NC *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
430 Greenville SC *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
432 Florence SC *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
434 Columbia SC *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
436 Charleston SC *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
438 Atlanta GA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
440 Savannah GA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
442 Augusta GA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
444 Albany GA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
446 Macon GA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
448 Pensacola FL FW EA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
450 Panama City FL MR EA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
452 Jacksonville FL LO EA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
454 Gainesville FL LO EA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
456 Daytona Beach FL PO EA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
458 Orlando FL WI EA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
460 Southeast FL GR EA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
ACCESS COMPONENTS
---------------------------------------------------------------------------------------
Interstate Intrastate
- -----------------------------------------------------------------------------------------------------------------------------
LATA LATA Name Originating Access Terminating Access Originating Access Terminating Access
- -----------------------------------------------------------------------------------------------------------------------------
A B D E A B D E
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
462 Louisville KY *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
464 Owensboro KY *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
466 Winchester KY *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
468 Memphis TN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
470 Nashville TN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
472 Chattanooga TN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
474 Knoxville TN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
476 Birmingham AL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
477 Huntsville AL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
478 Montgomery AL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
480 Mobile AL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
482 Jackson MS *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
484 Biloxi MS *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
486 Shreveport LA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
488 Lafayette LA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
490 New Orleans LA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
492 Baton Rouge LA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
520 St Louis MO *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
521 Westphalia MO *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
522 Springfield MO *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
524 Kansas City MO *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
526 Fort Smith AR *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
528 Little Rock AR *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
530 Pine Bluff AR *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
532 Wichita KS *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
534 Topeka KS *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
536 Oklahoma City OK *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
538 Tulsa OK *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
550 El Paso TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
552 Midland TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
ACCESS COMPONENTS
---------------------------------------------------------------------------------------
Interstate Intrastate
- -----------------------------------------------------------------------------------------------------------------------------
LATA LATA Name Originating Access Terminating Access Originating Access Terminating Access
- -----------------------------------------------------------------------------------------------------------------------------
A B D E A B D E
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
554 Lubbock TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
556 Amarillo TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
558 Wichita Falls TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
550 Abilene TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
552 Dallas TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
554 Longview TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
556 Waco TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
558 Austin TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
560 Houston TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
562 Beaumont TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
564 Corpus Christi TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
566 San Antonio TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
568 Brownsville TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
570 Hearns TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
620 Rochester MN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
624 Duluth MN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
626 St. Cloud MN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
628 Minneapolis MN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
630 Sioux City IA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
632 Des Moines IA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
634 Davenport IA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
635 Cedar Rapids IA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
636 Brainerd Fargo SD *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
638 Bismarck ND *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
640 South Dakota *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
642 Not Serviced *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
644 Omaha NE *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
646 Grand Island NE *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
648 Great Falls MT *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
650 Billings MT *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
ACCESS COMPONENTS
---------------------------------------------------------------------------------------
Interstate Intrastate
- -----------------------------------------------------------------------------------------------------------------------------
LATA LATA Name Originating Access Terminating Access Originating Access Terminating Access
- -----------------------------------------------------------------------------------------------------------------------------
A B D E A B D E
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
652 Idaho *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
654 Wyoming *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
656 Denver CO *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
658 Colorado Springs CO *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
660 Utah *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
664 New Mexico *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
666 Phoenix AZ *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
668 Tucson AZ *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
670 Eugene OR *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
672 Portland OR *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
674 Seattle WA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
676 Spokane WA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
720 Reno NV *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
721 Pahrump NV *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
722 San Francisco CA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
724 Chico CA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
726 Sacramento CA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
728 Fresno CA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
730 Los Angeles CA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
732 San Diego CA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
734 Bakersfield CA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
736 Monterey CA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
738 Stockton CA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
740 San Luis Obispo CA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
820 Puerto Rico *** *** *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------------
822 U.S. Virgin Islands *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
832 Alaska *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
834 Hawaii *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
920 Connecticut *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
921 Fishers Island NY *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
ACCESS COMPONENTS
---------------------------------------------------------------------------------------
Interstate Intrastate
- -----------------------------------------------------------------------------------------------------------------------------
LATA LATA Name Originating Access Terminating Access Originating Access Terminating Access
- -----------------------------------------------------------------------------------------------------------------------------
A B D E A B D E
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
922 Cincinnati OH *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
923 Lima-Mansfield OH *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
924 Erie PA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
927 Harrisburg VA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
928 Charlottesville VA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
929 Edinburg VA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
932 Blue Field WV *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
937 Richmond IN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
938 Terre Haute IN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
939 Ft. Myers EA FL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
949 Fayetteville NC *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
951 Rocky Mount NC *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
952 Tampa FL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
953 Tallahasse FL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
956 Bristol-Johnson City TN *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
958 Lincoln NE *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
960 Coeur d Alene ID *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
961 San Angelo TX *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
973 Palms Springs CA *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
974 Rochester NY *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
976 Mattison IL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
977 Macomb IL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
978 Olney IL *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
980 Navajo Territory AZ *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
981 Navajo Territory UT *** *** *** *** *** *** *** ***
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
PBC -- Service Agreement -- Attachment PS -- NY 191316 3 -- Execution Version --
Page PS -- Attachments-8
<PAGE>
TABLE 2
DOMESTIC TRANSPORT SERVICES
(TRANSPORT COMPONENT C)
Peak Off-Peak
---- --------
Transport Component C $*** $***
Notes to Table 2
- ----------------
All charges are presented on a per MOU basis. Charges for Domestic Transport
Services do not include charges for applicable Access Services. Transport
Component C is applicable to Transport Services within the Domestic United
States. The applicable time periods for peak Domestic Transport Services shall
be 8:00 a.m. to, but not including 5:00 p.m., Monday though Friday. The
applicable time periods for off-peak Domestic Transport Services shall be (i)
5:00 p.m. to, but not including, 8:00 a.m., Monday though Friday (subject to
CLAUSE (II) below) and (ii) 12:01 a.m. Saturday to, but not including 8:00 a.m.
Monday.
<PAGE>
TABLE 3
International Transport Services
(Transport Component F)
Country Standard Discount Economy
------- -------- -------- -------
***
<PAGE>
TABLE 4
CALLING CARD SERVICES
Sprint shall provide an automated calling card platform to process
Domestic-to-Domestic and Domestic-to-international calls under the Company's
private labeled (branded, except as provided herein) calling card. Prior to the
Commercial Commencement Date (i) the Company shall pay Sprint $*** per MOU for
Domestic Calling Card Services using Sprint's platform (the "CALLING CARD
SERVICE CHARGE") which charge includes applicable charges for Access Services
and Domestic Transport Services and (ii) charges for Access Services included in
the Calling Card Service Charge will be based on Sprint's nationally weighted
average charges for applicable Access Services. After the Commercial
Commencement Date, the Calling Card Service Charge will be adjusted based on
actual geographic-specific charges for Access Services. As soon as practical
after commencement of the Agreement, Sprint will segregate the charges for
Access Services from the Calling Card Service Charge in order that such charges
for Access Services can be periodically adjusted to reflect actual charges for
Access Services. The Calling Card Service Charges for FONcard direct dial
services are set forth in this TABLE 4 on a per call basis. Such Calling Card
Service Charges do not include charges for applicable International Transport
Services.
To
--
From: U.S. Mainland Alaska Hawaii International
- ---- ------------- ------ ------ -------------
U.S. Mainland $*** $*** $*** $***
Alaska $*** $*** $*** $***
Hawaii $*** $*** $*** $***
International N/A N/A N/A N/A
Operator-Assisted Station-to-Station $***
Operator-Assisted Person-to-Person $***
Director Assistance $***
Notes to Table 4
- ----------------
The Calling Card Service Charge for interstate FONcard direct dial services
including database query charges.
<PAGE>
TABLE 5
Billing Increments
(Transport Services and Calling Card Services)
Billing increments set forth below are presented on an initial
period/additional period format. All increments are in seconds (e.g., 18/6
represents an initial 18 seconds followed by an additional 6 seconds).
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Outbound Termination
- ------------------------------------------------------------------------------------
Origination U.S. AK/HI/USVI/PR Canada Mexico International Intrastate
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. *** *** *** *** *** ***
AK/HI/USVI/PR *** *** *** *** *** N/A
Canada N/A N/A N/A N/A N/A N/A
Mexico N/A N/A N/A N/A N/A N/A
International N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Inbound Termination
- ------------------------------------------------------------------------------------
Origination U.S. AK/HI/USVI/PR Canada Mexico International Intrastate
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. *** *** N/A N/A N/A 18/6
AK/HI/USVI/PR *** *** N/A N/A N/A N/A
Canada *** *** N/A N/A N/A N/A
Mexico *** *** N/A N/A N/A N/A
International *** *** N/A N/A N/A N/A
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Calling Card Termination
- ------------------------------------------------------------------------------------
Origination U.S. AK/HI/USVI/PR Canada Mexico International Intrastate
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. *** *** *** *** *** ***
AK/HI/USVI/PR *** *** *** *** *** N/A
Canada *** *** *** *** *** N/A
Mexico *** *** *** *** *** N/A
International *** *** *** *** *** N/A
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TABLE 6
DOMESTIC TOLL-FREE SERVICES
(SERVICE FEES, SURCHARGES AND FEATURES CHARGES)
1. 800 DATABASE QUERY CHARGES
Interstate $*** per call
Intrastate $*** per call
2. CUSTOMER ACCOUNT FEE
Switched Access Switchless Resale $*** per month
3. INBOUND DIRECTORY ASSISTANCE LISTING CHARGE
Charge Per Inbound Number "Pass-Through" of charges
(currently $*** per month)
4. NONCOMPLETE CALL SURCHARGE. In any month that the Company exceeds the
Maximum Noncomplete 800 Call Percentage for dedicated 800 and/or switched
800 traffic as stated below, the Company shall pay Sprint a surcharge equal
to the amount stated below for each Noncomplete 800 call in excess of the
Maximum Noncomplete 800 Call Percentage. This surcharge shall be calculated
for Resale Direct Toll Free Service and Resale Direct Toll free Extension
Service.
Dedicated and Switched Per
Toll-Free Maximum Noncomplete Call
Usage Type (Rate Element) 800 Call Percentage Surcharge
------------------------- ------------------- ---------
Intrastate/Interstate 15% $***
5. INBOUND FEATURES. Sprint shall provide the following inbound Domestic
features as set forth below:
Canadian (Toll-Free) Coverage $*** per month per toll-free number
$*** installation (waived)
Toll-Free Number Charge $*** per month per toll-free number
$*** installation (waived)
Uniform Call Distribution $*** per month per service group
$*** installation per service group
Dialed Number Identification $*** per month per service group
System $*** installation per service group
$*** per month per service group (waived)
<PAGE>
TABLE 7
DIRECTORY ASSISTANCE SERVICES
(DOMESTIC ORIGINATED)
<TABLE>
<CAPTION>
Switched Access Dedicated Access
--------------- ----------------
<S> <C> <C>
Interstate $*** $***
Intrastate $*** $***
Canada $*** $***
Caribbean $*** $***
International (all other) $*** $***
</TABLE>
Notes to Table 7
- ----------------
1. All charges are applied per call and includes charges for Access Services
and Transport Services.
2. International Directory Assistance Service charges include Domestic-to-
international service only.
<PAGE>
TABLE 8
OPERATOR SERVICES
(DOMESTIC AND INTERNATIONAL)
A. LIVE OPERATOR
Agent Work Time $*** per work second
B. AUTOMATED
LEC Calling Card $*** per attempt
Operator $*** per attempt
C. PROCESSING
Call Validation $*** per query
Call Rating $*** per message
Outclearing $*** per message
D. MULTI-LINGUAL SUPPORT
Sprint shall provide multi-lingual support at no additional cost to the
Company in languages referenced in PARAGRAPH II.5.A of ATTACHMENT PS.
E. CALL AND BILL TYPES SUPPORTED
(1) CALL TYPES SUPPORTED (0++, 0+ AND 0-)
Station-to-Station
Person-to-Person
Problem Assistance
General Assistance
Busy Line Interrupt and Verification
Directory Assistance
(2) BILL TYPES SUPPORTED
Reseller FONcard
LEC Calling Card
Collect
Third Party
Sent Paid
<PAGE>
TABLE 8
OPERATOR SERVICES
(DOMESTIC AND INTERNATIONAL)
F. APPLICABLE CHARGES, BY CALL TYPE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CALL TYPE COMPLETED CALLS UNBILLABLE ATTEMPTS
- --------------------------------------------------------------------------------
<S> <C> <C>
0++ Mechanized Calling Card Mechanized Calling Card
STATION-TO-STATION Validation Validation
LEC CALLING CARD Call Rating
Outclearing
LEC Billing (pass through)
Network Facilities
- --------------------------------------------------------------------------------
0+ Agent Work Time Agent Work Time
PERSON-TO-PERSON Validation Validation
LEC CALLING CARD Call Rating
Outclearing
LEC Billing (pass through)
Network Facilities
- --------------------------------------------------------------------------------
0+ Automated Operator Automated Operator
STATION-TO-STATION Validation Validation
LEC CALLING CARD Call Rating
Outclearing
LEC Billing (pass through)
Network Facilities
- --------------------------------------------------------------------------------
0- Agent Work Time Agent Work Time
STATION-TO-STATION Validation Validation
LEC CALLING CARD Call Rating
Outclearing
LEC Billing (pass through)
Network Facilities
- --------------------------------------------------------------------------------
0- Agent Work Time Agent Work Time
PERSON-TO-PERSON Validation Validation
LEC CALLING CARD Call Rating
Outclearing
LEC Billing (pass through)
Network Facilities
- --------------------------------------------------------------------------------
0- Agent Work Time Agent Work Time
STATION-TO-STATION Validation Validation
COLLECT Call Rating
Outclearing
LEC Billing (pass through)
Network Facilities
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
TABLE 8
OPERATOR SERVICES
(DOMESTIC AND INTERNATIONAL)
- --------------------------------------------------------------------------------
0- Agent Work Time Agent Work Time
DIRECTORY ASSISTANCE Validation Validation
LEC CALLING CARD Call Rating
Outclearing
LEC Billing (pass through)
Network Facilities
Directory Assistance
- --------------------------------------------------------------------------------
0- Agent Work Time Agent Work Time
PROBLEM ASSIST
GENERAL ASSIST
- --------------------------------------------------------------------------------
0- Agent Work Time Agent Work Time
BUSY LINE INTERRUPT AND Validation Validation
VERIFICATION Call Rating
LEC CALLING CARD Outclearing
LEC Billing (pass through)
Network Facilities
- --------------------------------------------------------------------------------
<PAGE>
TABLE 9
DEDICATED ACCESS SERVICES
T-1 CIRCUIT ACCESS CHARGES
(MONTHLY) SPA CPA-SWC CPA-POP
- --------------------------------------------------------------------------------
COC $*** $*** $***
ACF waived N/A N/A
EFC N/A $*** N/A
Local Access Loop ICB per Tariff 8 N/A N/A
Installation waived waived waived
Notes to Table 9
- ----------------
1. Minimum Monthly Usage is measured per port and is One Hundred Dollars
($***) per port.
2. Monthly recurring and non-recurring charges for the associated access loops
shall be as set forth in Tariff 8 pursuant to SECTION 8.1(B) of the
Agreement.
<PAGE>
TABLE 10
BULK TRANSPORT SERVICES
DS-1 CIRCUIT ACCESS CHARGES
(MONTHLY) SPA CPA-SWC CPA-POP
- --------------------------------------------------------------------------------
COC $*** $*** $***
ACF waived N/A N/A
EFC N/A $*** N/A
Local Access Loop ICB per Tariff 8 N/A N/A
Installation waived waived waived
MILEAGE RATE
Miles 1-250 251+
Minimum Monthly Charge $*** $***
DSO Rate/Mile/Month $*** $***
DS-3 CIRCUIT ACCESS CHARGES
(MONTHLY) SPA CPA-SWC CPA-POP
- --------------------------------------------------------------------------------
COC $*** $*** $***
ACF N/A N/A N/A
EFC N/A ICB N/A
Local Access Loop ICB N/A N/A
Installation waived waived waived
MILEAGE RATE
Minimum Monthly Charge $***
DSO rate/Mile/Month $***
Notes to Table 10
- -----------------
1. The minimum term for DS-1s and DS-3s shall be one (1) year.
2. To the extent that Sprint provides the associated DS-1 access loops, the
rates for such access loops shall be set forth in Tariff 8 pursuant to
SECTION 8.1(B) of the Agreement.
<PAGE>
TABLE 11
BRANDING SERVICES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
RESELLER BRANDED GENERIC BRANDED
- ------------------------------------------------------------------------------------------------------------------
TYPE OF SOLUTION OPERATOR SERVICES CALLING CARD OPERATOR SERVICES CALLING CARD
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ANI Initial $*** Initial $*** Initial $*** first. Initial $***
Monthly Monthly Initial $*** thereafter Monthly
Maintenance $*** Maintenance $*** Monthly Maintenance $*** Maintenance $***
- ------------------------------------------------------------------------------------------------------------------
CIP Solution with Initial $*** Initial $*** Initial $*** first. $*** first.
Reseller CIC Monthly Monthly Initial $*** thereafter $*** thereafter
Maintenance $*** Maintenance $*** Monthly Maintenance $*** Monthly
Maintenance $***
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Table 11
- -----------------
1. CIC activation charges are not included.
2. If the same brand can be used for both Operator Services and Calling Card
Services, only one OPART charge applies because only one OPART is needed to
support both Services.
3. The first reseller has an additional $*** charge because of the OPART
required. All subsequent resellers can use the same OPART as the first
reseller and shall not be charged for an OPART.
<PAGE>
EXHIBIT PS-I
PRICE CHANGE MODIFICATION NOTICE
This Price Change Modification Notice confirms that the following
rates and charges for the Services described are amended as of the date set
forth below:
1. Description of Service and Product:
2. Price Change
(a) Old Rates:
(b) New Rates:
3. Effective Date of New Rates:
Each of the undersigned confirms the information set forth herein and
that each such person has the requisite authority under the Agreement to effect
the modifications set forth herein.
SPRINT COMMUNICATIONS COMPANY, L.P.
By: _________________________________________
Name:
Title: Vice President and General Manager
RBOC Services - Wholesale Services
Group
PACIFIC BELL COMMUNICATIONS
By: _________________________________________
Name:
Title: Vice President - Operations
<PAGE>
EXHIBIT PS-II
ADDITIONAL CORE SERVICES NOTICE
This additional Core Services Notice confirms that the following
service has been incorporated by the Company and Sprint as a Core Service as of
the date set forth below:
1. Description of Service and Product:
2. Rate and Changes:
3. Performance Guarantees:
Each of the undersigned confirms the information set forth herein and
that each person has the requisite authority under the Agreement to effect the
modifications set forth herein.
SPRINT COMMUNICATIONS COMPANY, L.P.
By: ______________________________
Name:
Title: Vice President and General Manager
RBOC Services - Wholesale Services
Group
PACIFIC BELL COMMUNICATIONS
By: _______________________________
Name:
Title: Vice President - Operations
<PAGE>
EXHIBIT PS-III
PURCHASED SHOPPING SERVICE NOTICE
This Purchased Shopping Service Notice confirms that the following
service has been incorporated by the Company and Sprint as a Purchased Shopping
Service as of the date set forth below:
1. Description of Service and Product:
2. Exclusivity Terms:
3. Rates and Charges:
4. Performance Guarantees:
5. Modifications to Terms of the Agreement:
Each of the undersigned confirms the information set forth herein and
that each such person has the requisite authority under the Agreement to effect
the modifications set forth herein.
SPRINT COMMUNICATIONS COMPANY, L.P.
BY: ___________________________________
Name:
Title: Vice President and General Manager
RBOC Service - Wholesale Services
Group
PACIFIC BELL COMMUNICATIONS
By: ___________________________________
Name:
Title: Vice President - Operations
<PAGE>
EXHIBIT 10.5
ASSET PURCHASE AND SALE AGREEMENT
---------------------------------
THIS ASSET PURCHASE AND SALE AGREEMENT ("Agreement") is made as of June 8,
1998, by and among People's Choice TV Corp. ("PCTV Corp.") and Preferred
Entertainment, Inc. ("PEI") each a Delaware corporation (collectively PCTV Corp.
and PEI are referred to as "Sellers" and individually as a "Seller"), and
OnePoint Communications-Illinois, LLC, a Delaware limited liability company
("Buyer").
Sellers, through their ownership and operation of the Assets, as defined
below, provide video programming services to Subscribers at multiple dwelling
unit properties in the Chicago, Illinois, metropolitan area.
Sellers desire to sell to Buyer, and Buyer desires to purchase from
Sellers, the Assets, subject to the terms and conditions contained in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, Sellers and Buyer
agree as follows:
ARTICLE 1 Definitions
--------- -----------
As used in this Agreement, the following terms shall have the following
meanings:
Accounts Receivable. All accounts receivable of the Sellers representing
- -------------------
amounts owed to the Sellers in connection with their provision of Services to
the Properties.
Additional Closing. A purchase and sale of Assets subsequent to the Initial
- ------------------
Closing, pursuant to the terms of this Agreement.
Additional Closing Date. The date on which an Additional Closing occurs.
- -----------------------
Advance Subscriber Payments: All amounts paid by the Subscribers to the Sellers
- ---------------------------
for which Services have not yet been performed set forth on Schedule 3.11.
Affiliate. Any Person that directly or indirectly controls, is controlled by,
- ---------
or is under common control with, another Person.
Agreement. This Asset Purchase and Sale Agreement dated as of June 8, 1998
- ---------
among Sellers and Buyer, as the same may be amended from time to time.
AML Applications. The applications for point-to-point microwave authorizations
- ----------------
filed by Sellers at the FCC to provide Services to the AML Properties.
<PAGE>
AML Hub Sites. The locations where PEI has entered into Hub Site Agreements, as
- -------------
described in Schedule 3.8B.
AML Licenses. The point-to-point microwave licenses issued by the FCC and used
- ------------
for the provision of Services to the AML Properties including the Specchio
License, but not including the Excluded Licenses.
AML Properties. The Properties served by PEI's AML System as indicated on the
- --------------
attached Schedule 3.8A.
AML Signals. The satellite and broadcast programming channels which the
- -----------
Sellers make available to Subscribers at the AML Properties and listed on
Schedule 3.19.
AML System. The point-to-point microwave system by which PEI provides video
- ----------
programming services to the AML Properties.
Assets. All (a) rights of each Seller under or pursuant to all Contracts, (b)
- ------
AML Licenses and AML Applications, (c) Equipment, (d) all Accounts Receivable
(e) Subscribers and customer lists relating to the Assets, (f) Permits, (g) all
data, books and records relating to the Assets, (h) Inventory, and (i) Vehicles,
but excluding the Excluded Assets.
Assumed Liabilities. All liabilities of the Sellers assumed by Buyer relating
- -------------------
to the Assets set forth on Schedule 2.1, excluding the Excluded Liabilities.
Basic Subscriber. A Subscriber receiving basic video programming service ("Basic
- ----------------
Services") provided to a Property, whether on an individual or bulk basis. The
number of Basic Subscribers on a bulk basis shall be determined by dividing the
monthly revenue for such bulk Basic Subscribers by the Basic Subscriber Rate.
Basic Subscriber Rate. The weighted-average regular monthly fees and charges
- ---------------------
for the provision of basic Services to a Basic Subscriber in the Market.
Closing. Any purchase and sale of the Assets pursuant to the terms and
- -------
conditions of this Agreement.
Closing Date. The date on which a Closing occurs.
- ------------
Contracts. The contracts and agreements listed on Schedule 3.8B.
- ---------
Customer Deposits. All amounts held by Sellers which have been paid by
- -----------------
Subscribers as deposits for converter boxes set forth on Schedule 3.11.
Equipment. All (a) personal property owned or leased by the Sellers located at
- ---------
the Properties and used for the providing of Services at the Properties and
located at the AML Hub Sites and
2
<PAGE>
used for the receiving and distributing of AML Signals, including, without
limitation, all of the antennas and downleads, all electric equipment and
devices, towers, tower equipment, poles, pole attachments, above ground and
underground cable, underground pipes and conduit, distribution system, headend
amplifiers and associated equipment, line amplifiers, earth satellite receiving
stations and related equipment and microwave equipment, (b) the Equipment not
located at the Properties or the AML Hub Sites and listed on Schedule 3.10, and
(c) all converter boxes currently located at any Property.
Excluded Assets. All (a) video programming contracts; (b) Seller's insurance
- ---------------
policies and rights and claims thereunder; (c) all converter boxes except those
located in Properties (other than Inventory); (d) cash and cash equivalents; (e)
Sellers' rights under any contract, license, authorization, agreement or
commitment other than the Contracts, AML Licenses or Permits; (f) all claims,
rights and interests in and to any refunds for federal, state or local
franchise, income or other taxes or fees of any nature whatsoever relating to
the Assets for periods ending on or prior to the applicable Closing Date; (g)
Sellers' commercial, headend and transmit site leases, other than those listed
on Schedule 3.8, and any leasehold improvements (other than AML leasehold
improvements), including Seller's MMDS transmitters and related MMDS
transmission equipment, and Sellers twelve (12) fiber strands running from the
top to the bottom of the Sears Tower; (h) FCC frequencies (other than AML
Licenses), FCC channel leases, and BTA licenses; (i) other real or personal
property not located at the Properties or not related to the provision of
Services to the Properties, including MMDS testing equipment, computers and
related equipment, data processing equipment and phone systems (other than
Inventory); and (j) other right, interest or property of any Seller that is not
specifically included in the definition of Assets.
Excluded Liabilities. All liabilities and obligations, whether now or hereafter
- --------------------
existing, absolute, contingent or otherwise, known or unknown (a) of any Seller,
other than any Assumed Liability; (b) arising prior to the applicable Closing
Date under all Contracts; (c) arising out of any Seller's ownership, operation,
use or occupancy of any Assets prior to the applicable Closing Date, including
but not limited to, any tax or similar liability related to any of the Assets or
the providing of the Services; (d) arising from or relating to or incurred in
connection with any Excluded Asset; (e) relating to current or former employees
of Seller, excluding such obligations of Buyer which arise from the Buyer's
employment of any of Sellers' employees; and (f) any tax or similar liability,
(g) arising out of the collective bargaining agreement (or any breach thereof )
between Arc Communications Services, Inc. and IBEW Local 134, including, without
limitation, relating to any unfair labor practice with respect to any employee,
and (h) arising from, related to or incurred in connection with the failure to
file any applications with the FCC or failure to obtain any license from the FCC
prior to the operation or activation of any AML Signal.
FCC. The Federal Communications Commission or any successor agency.
- ---
Final Closing Date. The date that is six months after the Initial Closing Date,
- ------------------
unless extended by the mutual agreement of the parties.
3
<PAGE>
GAAP. Generally accepted accounting principles set forth in the opinions and
- ----
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board.
Government Entity. Any federal, state, local or municipal court, government or
- -----------------
governmental or administrative department, commission, instrumentality, board,
agency or authority, including the United States Internal Revenue Service and
other taxing authorities.
Hub Site Agreements. The agreements under which PEI leases space for its point-
- -------------------
to-point hub sites, as set forth on Schedule 3.8B.
Initial Closing. The initial purchase and sale of the Assets pursuant to the
- ---------------
terms and conditions of this Agreement.
Initial Closing Date. July 1, 1998.
- --------------------
Inventory. The inventory of Sellers related to the providing of the Services to
- ---------
the AML Properties, including three hundred (300) Gerrold 5507 converter boxes.
Legal Rules. The requirements of all federal, state, municipal or local laws,
- -----------
codes, statutes, ordinances, rules or regulations, permits , orders, writs,
judgments, injunctions, decrees or awards issued, enacted or promulgated by any
Government Entity or any arbitrator, including the rules and regulations of the
FCC.
Lien. Any lien (including any judgment or mechanic's lien, regardless of whether
- ----
liquidated), mortgage, assessment, security interest, easement, claim, pledge,
trust, deed of trust, option or other charge or encumbrance.
Market. Chicago, Illinois.
- ------
MMDS Properties. The Properties served by the Sellers' MMDS Systems as indicated
- ----------------
on the attached Schedule 3.8A.
MMDS Signals. The satellite and broadcast programming channels which the
- ------------
Sellers make available to Subscribers at the MMDS Properties and listed on
Schedule 3.19.
MMDS System. The multi-point microwave distribution system by which each of the
- -----------
Sellers provides video programming services to the MMDS Properties.
Permits. All permits, licenses, approvals and authorizations relating to the
- -------
use, operation or ownership of the Assets, or used to provide Services to the
Properties.
Person. Any natural person, corporation, business trust, association, limited
- ------
liability company, partnership, joint venture, Government Entity and any other
entity.
4
<PAGE>
Property. Any AML Property, any SMATV Property and any MMDS Property, as listed
- --------
on Schedule 3.8A.
Related Agreements. Each of the General Assignment and Bill of Sale Agreement
- ------------------
in the form attached as Exhibit A, the Assumption Agreement in the form attached
as Exhibit B, the Private Operational Fixed Microwave Service Non-Profit Shared
Use Agreements (the "Shared Used Agreements") attached hereto as Exhibit C, the
Non-Competition Agreements attached as Exhibit D, and the Service Agreement
attached as Exhibit E, the Owner's Acknowledgment Form attached as Exhibit F,
the Opinion of Counsel attached as Exhibit G, the Joint Marketing Agreement
attached as Exhibit H, the Required Consent in the form of Exhibit I, and if
necessary, the Escrow Agreement, attached as Exhibit J.
Required Consents. All consents, authorizations and approvals required for
- ------------------
Sellers to transfer the Assets to the Buyer in accordance with this Agreement, a
list of which is set forth on Schedule 3.4.
Right of Entry Agreements. The agreements under which each Seller provides the
- -------------------------
Services to the Properties, as set forth on Schedule 3.8B.
Services. The video programming services provided by the Sellers to the
- --------
residents of Properties.
Shared Use Agreement. Each of the Private Operational Fixed Microwave Service
- --------------------
Non-Profit Shared Use Agreements attached hereto as Exhibit C.
SMATV Properties. The Properties served by the Sellers' SMATV Systems as
- ----------------
indicated on the attached Schedule 3.8A.
SMATV Signals. The satellite and broadcast programming channels which the
- -------------
Sellers make available to Subscribers at the SMATV Properties and listed on
Schedule 3.19.
SMATV System. A satellite master antenna television system by which a Seller
- ------------
provides video programming services to a SMATV Property.
Specchio License. The AML License with Call Sign WPJA 879, licensed to Specchio
- ----------------
Developers, Ltd.
Subscriber. (a) Each Unit that pays for and receives Services at the
- ----------
Properties that is not bulk billed; and (b) each Unit at the Properties that is
bulk billed and for which the property owner or manager pays for the Services
(which number in (b) shall be determined by dividing the monthly revenue for all
such bulk Subscribers by the Basic Subscriber Rate).
Transport Consents. Consents from each programming vendor for each MMDS Signal
- ------------------
and AML Signal carried by the Sellers at a Property, which consent provides that
Buyer and the Sellers
5
<PAGE>
have the right to transport and receive the MMDS Signals and AML Signals as
contemplated in the Service Agreement.
Unit. Each individual dwelling unit located at a Property.
- ----
Vehicles. The trucks and vans listed on Schedule 3.28.
- --------
ARTICLE 2 Purchase and Sale
--------- -----------------
2.1 Purchase and Sale of Assets. Subject to the terms and conditions of this
---------------------------
Agreement, on the Initial Closing Date and, to the extent required, on each
Additional Closing Date, Buyer hereby agrees to purchase from Sellers, and
Sellers hereby agree to sell to Buyer all of their respective rights, title and
interests in and to all of the Assets, free and clear of all Liens (except Liens
which are to be assumed by Buyer hereunder as part of the Assumed Liabilities).
Subject to the terms and conditions of this Agreement, on the Initial Closing
Date and, to the extent required, on each Additional Closing Date, Buyer shall
assume and agree to pay and perform, when due only, those obligations that
constitute the Assumed Liabilities set forth on Schedule 2.1, with respect to
the Assets sold to Buyer on such Closing Date. Buyer shall not assume or have
any responsibility for any of the Excluded Liabilities.
2.2 Purchase Price and Payment.
--------------------------
(a) In addition to the assumption of the Assumed Liabilities, the consideration
to be paid for the Assets (the "Purchase Price") shall be paid to the Sellers as
follows:
(i) $500,000.00 as a deposit, which amount was delivered to the Sellers
prior to the date of this Agreement;
(ii) $12,500,000.00 (the "Cash Payment") at the Initial Closing Date,
subject to the applicable adjustments set forth in this Article 2.2;
(b) On the Initial Closing Date, the Cash Payment shall be decreased, if at
all, by an amount equal to the product of (i) four hundred forty-four dollars
($444) times (ii) the difference between Twenty-Nine Thousand Two Hundred Fifty
(29,250) and the aggregate number of Units at the Properties covered by Right of
Entry Agreements which Sellers assign to Buyer as of the Initial Closing Date.
If the Right of Entry Agreements for less than all of the Properties are
delivered on the Initial Closing Date because Required Consents have not been
obtained, then Additional Closings shall be held, as necessary, subject to the
satisfaction or waiver of the conditions to an Additional Closing set forth in
Articles 6 and 7. Such Additional Closings shall be held on the first day of
each month as set forth in Article 8.1 in accordance with Article 8 and the
Sellers shall deliver to Buyer any Required Consents obtained after the Initial
Closing Date, provided the last Additional Closing Date shall occur on or before
the Final Closing Date. At each Additional Closing, Buyer shall pay to Sellers
four hundred forty four dollars ($444) per Unit for
6
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each Right of Entry Agreement covering a Property transferred to the Buyer on
such Additional Closing Date; provided however, in no event shall the Buyer be
required to pay to the Sellers an amount greater than $13,000,000 for all of the
Assets. Not less than three business days prior to each Closing, Sellers shall
deliver to Buyer a certificate prepared in good faith of the number of Units at
the Properties transferred to the Buyer, and shall provide Buyer with such
information as Buyer may reasonably request to verify the number of Units so
designated in such certificate. Sellers shall permit Buyer and its agents and
employees to discuss with Sellers and their employees and representatives any
such certificate and information and procedures used in connection with the
preparation of the certificate.
(c) All revenues arising from the operation of the Assets until 12:01 a.m. on
the Closing Date on which such Assets are sold to Buyer (the "Adjustment Time"),
shall be prorated between Buyer and Sellers as of the Adjustment Time in
accordance with GAAP and on the principle that Sellers shall receive all
revenues relating to such Assets allocable to the period prior to the Adjustment
Time and Buyer shall receive all revenues relating to such Assets allocable to
the period after the Adjustment Time. PCTV Corp., jointly and severally, and PEI
severally shall be responsible for all Excluded Liabilities, and Buyer shall be
responsible for all Assumed Liabilities relating to the Assets transferred on
such Closing Date. Notwithstanding the above, the Sellers and Buyer agree that
no prorations shall be made between the parties at any Closing for Accounts
Receivable or for Advance Subscriber Payments related to Properties for which a
Closing is held, except that (i) Sellers shall credit Buyer with an amount equal
to the Customer Deposits related to Properties for which a Closing is held as of
the Closing Date, and (ii) Sellers shall credit Buyer with an amount equal to
three percent (3%) of all Accounts Receivable related to Properties for which a
Closing is held as of the Closing Date, which credits shall constitute a
reduction in the Purchase Price paid to Sellers at the Closing.
(d) On the Initial Closing Date, the Cash Payment shall be decreased, if at
all, by the amount of the Purchase Price Reduction as set forth in Article 5.18
and as agreed upon by the parties. Not less than three business days prior to
the Initial Closing Date, Sellers shall deliver to Buyer a certificate prepared
in good faith setting forth the amount, if any, of the Purchase Price Reduction,
and shall provide Buyer with such information as Buyer may reasonably request to
verify the amount of the Purchase Price Reduction. Sellers shall permit Buyer
and its agents and employees to discuss with Sellers and their employees and
representatives any such certificate and information and procedures used in
connection with the preparation of the certificate.
2.3 [Reserved]
----------
2.4 Preliminary and Final Adjustments At least three (3) business days prior
----------------------------------
to the Initial Closing Date, Sellers will deliver to Buyer a report (the
"Preliminary Adjustments Report"), prepared in good faith and on a reasonable
basis, setting forth in reasonable detail a pro forma determination as of the
Initial Closing Date of the adjustments and prorations set forth in Article
2.2(c). Within thirty (30) days after the Initial Closing Date, Sellers shall
deliver to Buyer a report (the "Final Adjustments Report"), prepared in a like
manner and setting forth in reasonable detail the final determination of all
adjustments that were not calculated as of the Initial Closing
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Date and containing any correction to the Preliminary Adjustments Report,
including the final measurements under the Service Standards, the final Purchase
Price Reduction under Article 5.18, if applicable, and the number of Units at
the Properties for which all Required Consents are transferred to Buyer as
provided in Article 2.2(b), in each case in accordance with this Agreement at
the Initial Closing Date. Sellers shall permit Buyer and its agents and
employees to review such report to review any materials necessary to verify the
accuracy of such report, to review and discuss with Sellers or their
representatives any work papers generated and the procedures used in connection
with the preparation of such report, and to have access in Shelton, Connecticut
during customary business hours to such books and records relating to the
Services and the Assets necessary to enable Buyer to review such work papers and
procedures. Buyer shall notify Sellers of its objections, if any within 15
business days following the receipt by Buyer of such report (the "Review
Period"). The Review Period shall be extended, on a day-for-day basis, for each
day that Sellers do not provide the access contemplated in this Article 2.4 to
Buyer or its agents or employees. Any amount which is not in dispute shall,
within five (5) business days of the expiration of the review period, be paid in
cash, to Sellers or Buyer, as the case may be. Any disputed amounts will be
determined within ninety (90) days after the Initial Closing Date by an
independent accounting firm of recognized standing mutually acceptable to the
parties, whose determination will be conclusive. Sellers and Buyer will bear
equally the fees and expenses payable to such firm in connection with such
determination. The payment required after determination of all disputed amounts
will be made by the responsible party by cash or wire transfer of immediately
available funds to the other party within three (3) business days after the
final determination. For any Additional Closings, the parties shall follow the
procedures set forth in this Article 2.4.
2.5 Allocation of Purchase Price. Sellers and Buyer acknowledge and consent to
-----------------------------
(a) the payments described in this Article 2 and the Assumed Liabilities being
allocated among the Assets as set forth in Schedule 2.5, and (b) the preparation
of and submission to the Internal Revenue Service of Form 8594 in accordance
with Section 1060 of the Internal Revenue Code of 1986, as amended, reflecting
the allocation of the payments described in this Article and Assumed Liabilities
among the Assets as set forth in Schedule 2.5.
2.6 Escrow Agreement.
----------------
(a) Prior to the Initial Closing, (i) PEI, Specchio Developers, Ltd., Specchio
Developers Investment Corp., and the Buyer shall file applications
requesting that the FCC consent to the assignment of the AML Applications
to Buyer, and (ii) PEI shall file AML Aplications for the Properties
covered by STAs. If the Wireless Bureau of the FCC does not approve all of
the AML Applications prior to the Initial Closing, Sellers, Buyer and
American National Bank and Trust Company of Chicago, as escrow agent, shall
enter into at the Initial Closing the Escrow Agreement attached as Exhibit
J. In order to fund the escrow, the Buyer shall deliver to the Escrow
Agent by certified check or wire transfer the amount of Two Million Eight
Hundred Fifty Thousand Dollars ($2,850,000) (the "Escrow Amount"), which
shall be deducted from the amount of the Purchase Price paid to the Sellers
at the Initial Closing. The Escrow Amount shall be pro rated at the
Initial Closing if some, but not all, of the AML Applications have been
8
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approved by the Wireless Bureau of the FCC, on the basis of the values on
the attached Schedule 2.6, referred to as the Application Amounts.
(b) Subject to the procedures set forth in the Escrow Agreement, the
Application Amount for each AML Application will be delivered to PCTV Corp. upon
the occurrence of any one of the following events:
---
(i) the Wireless Bureau of the FCC approves the transfer of the AML
Application to Buyer and the Wireless Bureau of the FCC approves the AML
Application and the FCC issues an AML License to Buyer;
(ii) the Buyer, at the request and full expense of the Sellers, files a new
AML application (the "OnePoint Application") to replace the pending AML
Application and the Wireless Bureau of the FCC approves the OnePoint
Application and issues an AML License to Buyer;
(iii) the Buyer ceases to provide video services to the Property related
to the AML Application, provided that such cessation is not related to the
fact that the AML Application for the Property has not been granted, or the
--
termination of the Right of Entry Agreement by the owner because of a
default under the Right of Entry Agreement by the Buyer, provided that such
default by the Buyer is not related to the fact that the AML Application
for the Property has not been granted; or
(iv) the Buyer commences service under a New Delivery Method to provide
service to the Property related to the AML Application, in accordance with
Article 2.6(f).
(c) Subject to the procedures set forth in the Escrow Agreement, the
Application Amount for each AML Application will be delivered to Buyer upon the
occurrence of all of the following three events: (i) the AML Application is
---
denied by the Wireless Bureau of the FCC, (ii) to the extent that the Sellers
have requested that the Buyer file a OnePoint Application, the OnePoint
Application is denied by the Wireless Bureau of the FCC, and (iii) Buyer
determines, in its sole discretion, that it is not able to serve the Property
related to the AML Application with a New Delivery Method, as described in
Article 2.6(f).
(d) Subject to the procedures set forth in the Escrow Agreement, on the day
that is two (2) years after the Initial Closing Date, any Application Amounts
remaining in the escrow account will be delivered to the Buyer. Pursuant to
Section 2(c) of the Escrow Agreement, this provision shall have no effect on any
amounts held by a court pursuant to an interpleader action.
(e) In the event that Sellers request that Buyer file OnePoint Applications as
described in Article 2.6(b) above, Buyer shall promptly file such applications
and cooperate with the Sellers to process such applications at the FCC. Sellers
agrees to bear all costs affiliated with the processing and filing of any such
OnePoint Applications.
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(f) At any time during the two (2) year period following the Initial Closing
Date, the Sellers may request that the Buyer use commercially reasonable efforts
to attempt to provide service to a Property for which an AML Application has
been filed from an existing AML Hub Site. The Sellers may also request that the
Buyer provide service to a Property by another means acceptable to the Buyer in
its sole discretion. Each method shall be referred to as a New Delivery Method.
The New Delivery Method shall not violate any applicable laws or regulations and
shall not result in any loss of quality of service at the Property. If Buyer is
able to provide service by a New Delivery Method, Sellers shall reimburse the
Buyer for all costs of designing, permitting, equipping, installing and
maintaining such New Delivery Method. Upon the successful installation of the
New Delivery Method, and the reimbursement by the Sellers of all costs of
designing, permitting, equipping and installing the New Delivery Method, Buyer
agrees that it shall direct the Escrow Agent to deliver the Application Amount
for such Property to the Sellers.
(g) Each of Buyer and each Seller agrees to make (i) only good faith requests
for distribution to it of funds in the Escrow Account and only in the case of
Buyer pursuant to the express terms of Article 2.6(c) or (d) or in the case of
Sellers pursuant to the express terms of Article 2.6(b), and (ii) only good
faith objections to any request by the other party for the release of funds in
the Escrow Account to such other party. The parties agree that should either
party deliver a written notice requesting an Escrow payment that is not made in
good faith pursuant to the express provisions of Article 2.6(b) or (c) or (d),
as applicable, or objects to a notice not in good faith (each a "Bad Faith
Notice"), the party delivering the Bad Faith Notice shall pay to the other party
all reasonable costs incurred by the other party (including reasonable attorneys
fees) in responding to, or defending against, such Bad Faith Notice.
(h) In the event a dispute arises between the parties concerning whether or not
an Application Amount should be paid by the Escrow Agent, the parties hereby
agree to negotiate in good faith for a period of forty (40) days after the
receipt of a Seller's Notice or a Buyer's Notice (each as defined in the Escrow
Agreement), as applicable (the "Notice Date"), to attempt to resolve the
dispute. If the dispute still is not resolved after the forty (40) day period,
the parties shall submit the dispute to a senior level executive of both Buyer
and Sellers, who will review the relevant materials and, at a time and location
acceptable to all parties, discuss the dispute and suggest a resolution. In the
event that the dispute cannot be resolved within 60 days after the Notice Date,
the parties agree that the Escrow Agent shall be required to interplead the
disputed amounts to the state court for Cook County, Illinois and request that
the court determine the parties rights under the Purchase Agreement and the
Escrow Agreement. Upon resolution of any dispute, the parties agree to instruct
the Escrow Agent to deliver the applicable Application Amount in accordance with
any such resolution.
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ARTICLE 3 Representations and Warranties of Sellers
--------- -----------------------------------------
PCTV Corp., jointly and severally, and PEI, represents and warrants to
Buyer, as of the Initial Closing Date and as of each Additional Closing Date,
the following:
3.1 Organization and Qualification Each Seller is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of Delaware, and
has all requisite power and authority to own, lease and use the Assets and to
provide the Services to the Properties. Each Seller is duly qualified or
licensed to do business and is in good standing under the laws of each
jurisdiction in which the character of the Assets or the nature of the Services
provided makes such qualification necessary. PCTV Gold, Inc. is a wholly-owned
subsidiary of PCTV Corp.
3.2 Authority. Each Seller has the corporate right, power and authority to
---------
execute, deliver and (subject to the receipt of the Required Consents) perform
its obligations under this Agreement and the Related Agreements. The execution,
delivery and performance of this Agreement and the Related Agreements by each
Seller and the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of each Seller.
3.3 Enforceability. This Agreement has been duly executed and delivered by
--------------
each Seller and constitutes, and upon the execution and delivery of Sellers of
the Related Agreements, each such Related Agreement shall constitute, the valid
and legally binding obligation of each Seller enforceable against each Seller in
accordance with the terms of the Agreement and the Related Agreements.
3.4 Approvals. Except for the Required Consents and the Transport Consents,
---------
the execution, delivery and performance of this Agreement and the Related
Agreements, and the consummation of the transaction contemplated hereby or
thereby, does not require any additional consent, notice, authorization or
approval of, filing with, or exemption from, any third party or any other Person
which has not been made, given or otherwise accomplished.
3.5 Compliance with Laws. Except as set forth on Schedule 3.5: (a) the
--------------------
provision of Services by Sellers does not violate any Legal Rule, the
enforcement of which would have a material adverse effect on the Assets taken as
a whole; (b) no Seller is in default in any material respect under any
executive, legislative, judicial, administrative or private ruling, order, writ,
injunction or decree which may affect any of the Assets or the provision of
Services at the Properties; (c) each Seller is in material compliance with all
Legal Rules imposed by any Government Entity having jurisdiction over the Assets
or the provision of Services, including the FCC; (d) each Seller has made all
required material registrations and filings with all applicable Government
Entities relating to the Assets and the provision of Services; and (e) no Seller
has received any notice of any alleged violation of any material Legal Rule
affecting the Assets or the provision of Services.
3.6 Compliance with Other Instruments. The execution and delivery of this
---------------------------------
Agreement and the Related Agreements and the consummation of the transactions
contemplated hereby and thereby
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<PAGE>
shall not (a) result in a breach or violation of any term or provision of, or
constitute a breach or default (including any event that, with the passage of
time or giving of notice, or both, would become a breach or default) under any
Seller's certificate of incorporation or bylaws, under any Contract, AML License
or Permit; (b) violate or result in the violation of any Legal Rule or any
order, judgment or decree applicable to or binding upon any Seller or any of the
Assets; or (c) result in the creation or imposition of any Lien upon any Asset.
3.7 Title and Encumbrances. Except as set forth on Schedule 3.7, the Sellers
----------------------
have good and marketable title to and possession of all of the Assets, free and
clear of all Liens. Upon each Closing, Sellers will transfer to the Buyer good
and marketable title to the Assets, free and clear of all Liens.
Notwithstanding the above, the wiring and distribution systems and the equipment
at the Properties are subject to the terms and conditions of the Right of Entry
Agreements, the Hub Site Leases and all applicable Legal Rules.
Except for all Excluded Assets, and except for tangible personal property
(a) located at the Sellers headend reception sites (not including Equipment and
Inventory), (b) located at Sellers transmission sites (not including Equipment
and Inventory), (c) used to transport signals between the headend reception
sites and transmission sites (not including Equipment and Fiber Leases), (d)
located within the Sears tower (not including Equipment and Inventory), (e)
located at any of Seller's offices or warehouse sites (not including Equipment
and Inventory) (f) used for the providing of service to single family customers
and commercial customers (non-MDU customers), (g) used by programmers,
broadcasters, and educational licensees to create, produce, transmit and deliver
the programming and programming content to the headend reception sites or
transmission sites, and (h) used by the individual customers in order to view
the video programming, including but not limited to, televisions, phone lines
and electrical outlets, the Assets constitute all tangible personal property
material to the providing of the Services at the Properties. Buyer is not aware
of any tangible personal property not included on the above list which is
material to the providing of the Services at the Properties.
3.8 Properties and Contracts. Schedule 3.8A sets forth a complete and
------------------------
accurate list of the Properties, along with the number of Units for each
Property. Schedule 3.8B contains a complete and accurate list of all Contracts
being transferred hereunder, including (a) all Right of Entry Agreements, (b)
all Hub Site Agreements, (c) all fiber leases, (d) all retransmission
agreements, and (e) all customer service agreement for Subscribers at the
Properties. The Right of Entry Agreements set forth on Schedule 3.8B constitute
all of the agreements under which Sellers provide Services to residential
multiple dwelling units in the Market. The Hub Site Leases set forth on
Schedule 3.8B constitute all the point-to-point microwave hub site agreements
used by Sellers for the providing of Services to the Properties. The fiber
leases set forth on Schedule 3.8B constitute all of the fiber leases used by
Sellers for the providing of Services to the Properties. Except for agreements
with ABC, CBS, and NBC, the retransmission agreements set forth on Schedule 3.8B
constitute the only retransmission agreements used by the Sellers for the
providing of Services to the Properties. The Subscriber Contracts set forth on
Schedule 3.8B constitute all of the Subscriber Contracts used by the Sellers for
the providing of Services to the Properties.
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Except as described in Schedule 3.8C, each Contract is in full force and
effect and constitutes a valid and binding obligation of the parties,
enforceable in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting generally the enforcement of creditors' rights and by general
principles of equity. Except as described in Schedule 3.8C: (a) Seller is not,
nor has any event or condition occurred or become known to any Seller that
constitutes or, with notice or the passage of time, or both, would constitute a
default by any Seller under any of the Contracts; (b) to the best of Sellers'
knowledge, no other party to any of the Contracts is in default under any of the
Contracts; (c) to the best of Seller's knowledge, no other Person is providing
video programming services to any of the Properties and no other Person has
asserted any such right to any Seller to provide video programming services to
the Properties, except as otherwise required or permitted by law; and (d) there
is no material agreement, arrangement or understanding, other than as contained
in the Contracts, between any Seller and any owner or manager of any Property
relating to the provision of Services to any Property; and (e) since the Balance
Sheet Date, Seller has not received written notice regarding the quality of any
Service provided by any Seller, the performance of any Seller under any
Contract, or the intent of any property owner or manager to terminate any
Contract. Except for the Subscriber Contracts (for which Sellers have provided
the most recent standard agreement used for the provision of the Services), a
complete and accurate copy of each Contract has been provided to Buyer.
3.9 AML Licenses. Except for FCC Licenses listed as Excluded Licenses on
------------
Schedule 3.9A, which are not being transferred to Buyer, Schedule 3.9B sets
forth a complete list of all FCC Licenses used to provide Services to the AML
Properties, and sets forth (a) the name of the Licensee, (b) the AML License
Call Sign, (c) the address of the transmit site, and (d) the location of the
destination point for the microwave path, including its geographic coordinates.
Except for the Excluded Licenses, the AML Licenses and the AML Applications
constitute all of the FCC licenses necessary to provide the Services to the
Properties. Each AML License was duly authorized and issued by the FCC, and is
in full force and effect, enforceable in accordance with its terms. The
execution, delivery and performance of this Agreement by each Seller and
consummation of the transactions contemplated by this Agreement will not result
in the revocation, suspension or limitation of any AML License. All fees and
payments due on or prior to the date hereof pursuant to the terms of each AML
License have been paid by the Sellers. A complete and accurate copy of each AML
License has been provided to Buyer.
Schedule 3.9C sets forth a list of all of the pending AML Applications for
new AML Licenses and applications for modifications to existing AML Licenses
filed by the Sellers and used to provide Services to the AML Properties. For
each AML Application, Schedule 3.9C sets forth: (a) the Call Sign of the
existing AML License, if any, for which a modification is sought, (b) the name
of the Licensee, (c) the location of the proposed transmit site, and (d) the
location of the proposed destination point for the microwave path, including its
geographic coordinates (each Property for which an AML Application has been
filed is referred to as an "Application Property"). The AML Applications marked
on Schedule 3.8C as "Filed Late" or "Currently STAs" were not filed at the FCC
prior to the activation of AML Signals to the Application
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<PAGE>
Properties. The failure to file an application prior to activation of the AML
Signals may constitute a violation of the FCC rules and regulations regarding
signal authorization.
PEI has received a notice from Transmission Holdings, Inc. ("Holdings")
that Holdings has filed a Petition to Deny at the FCC for paths filed by PEI
from 6230 N. Kenmore to 6807 North Sheridan Road, from 850 State to 400 East
Ohio, and 444 Fullerton to 401-11 Fullerton. The Petition states that PEI did
not properly conduct a prior coordination with Holdings and that PEI's proposed
paths may cause interference with paths licensed to Holdings. PEI believes that
all necessary prior coordination was conducted and PEI does not believe that
these paths will cause interference and is working with Holdings to seek
Holdings withdrawal of its Petition.
3.10 Equipment. Each Property contains the items of Equipment necessary to
---------
provide the Services to that Property in accordance with the Right of Entry
Agreements. Since the Balance Sheet Date, no item of Equipment has been
removed, modified, or altered at any of the Properties, except in the ordinary
course of business, consistent with past practices. All items of Equipment
located at the Properties are in satisfactory operating condition and are usable
and adequate for the provision of the Services, and have been installed in
material compliance with all applicable Legal Rules. There are at least Nine
Thousand Five Hundred (9,500) converter boxes currently in use at the
Properties. Schedule 3.10 sets forth a list of the Equipment not located at the
Properties or the AML Hub Sites which is being transferred to Buyer, which
Equipment, except if otherwise indicated on Schedule 3.10, is in satisfactory
operating condition.
3.11 Accounts Receivable, Customer Deposits and Advance Subscriber Payments.
----------------------------------------------------------------------
Schedule 3.11 contains a complete and accurate aging of all Accounts Receivable,
Customer Deposits and Advance Subscriber payments as of May 31, 1998. Three
business days prior to a Closing, Sellers shall provide an updated Schedule 3.11
which shall set forth a complete and accurate aging of all Accounts Receivable,
a complete and accurate listing of Customer Deposits of each Subscriber at each
Property, and a complete and accurate listing of all Advance Subscriber Payments
of each Subscriber at each Property to be transferred to Buyer at such Closing,
in each case as of such third business day prior to such Closing. The Customer
Deposits set forth on Schedule 3.11 are all amounts held by Sellers which have
been paid by Subscribers as deposits for converter boxes. The Advance
Subscriber Payments set forth in Schedule 3.11 are all amounts paid by the
Subscribers to the Sellers for which Services have not yet been performed. The
Customer Deposits are required to be repaid in accordance with the terms of the
Subscriber Contracts. All such Accounts Receivable have arisen in the ordinary
course of business. All such Accounts Receivable are valid and enforceable
claims, and the services sold and delivered that gave rise to such Accounts
Receivable were sold and delivered in conformity with all applicable express and
implied warranties, purchase orders, agreements and specifications. To the best
of Seller's knowledge, no Account Receivable is subject to any valid defense,
offset or counterclaim, except Customer Deposits. None of such Accounts
Receivable have been assigned to or for the benefit of any Person.
3.12 Basic Subscribers. At the Initial Closing, the Properties shall have at
-----------------
least Twelve Thousand Two Hundred Fifty (12,250) Basic Subscribers.
14
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3.13 Financial Statements and Related Information. The gross revenues earned
--------------------------------------------
by Sellers from providing video programming services at the Properties from
January 1, 1997 through December 31, 1997 (the "Period"), calculated in
accordance with the principles of GAAP, was not less than Five Million, Two
Hundred and Eight Thousand, Four Hundred and Seventy One Dollars ($5,208,471).
Schedule 3.13A sets forth (a) the number of Basic Subscribers as of December 31,
1997, which statement is subdivided between Subscribers who receive the Services
on an individual and a bulk basis, and (b) the weighted average Basic Subscriber
Rate charged to Subscribers of the Services at the Properties during the Period.
Schedule 3.13B sets forth the unaudited balance sheets and income
statements (together the "Financial Statements") for PEI for the one year period
ending December 31, 1997 (the "Balance Sheet Date"). The Financial Statements
fairly present the financial condition of PEI as of the Balance Sheet Date and
the results of operations for such entities for the one year period ending on
the Balance Sheet Date.
Schedule 3.13C sets forth the unaudited balance sheets and income
statements (together the "Quarter End Statements") for PEI for the three month
period ending March 31, 1998. The Quarter End Statements fairly present the
financial condition of PEI as of March 31, 1998 and the results of operations
for PEI for the three month period ending on March 31, 1998.
Buyer understands and acknowledges that the Financial Statements and
Quarter End Statements do not constitute any presentation of the financial
condition or results of operations of the Assets, which Assets are only a
portion of the assets and business operations covered by the Financial
Statements and the Quarter End Statements. There are no direct costs arising
from or in connection with the providing of Services at the Properties by
Sellers that are not reflected in the Financial Statements or Quarter End
Statements, excluding corporate overhead and certain other expenses of PEI that
are expensed through Sat-Tel Services, Inc.
3.14 Litigation. Except as set forth in Schedule 3.14, there is no claim,
----------
action, litigation, proceeding or investigation pending, or to the best of
Sellers' knowledge, threatened before any court or Government Entity, nor is
there any outstanding judgment, order, decree, award, stipulation or injunction
issued by any court or Governmental Entity which may affect any of the Assets or
the Services or impair any Seller from performing its obligations under this
Agreement and the Related Agreements.
3.15 Taxes. All taxes related to the Assets or the providing of Services,
-----
related to taxable periods or portions thereof ending on or prior to the
applicable Closing Date, have been reported and duly paid, collected or withheld
and remitted to the appropriate governmental agency, except for current taxes
not due and payable on or prior to the applicable Closing Date.
3.16 Broker Fees. Except for a fee owed to Communications Equity Associates by
-----------
Sellers, which constitutes an Excluded Liability, no broker, finder or similar
agent has been employed by or on behalf of Sellers in connection with this
Agreement or the Related Agreements and no
15
<PAGE>
Seller has entered into an agreement or understanding of any kind with any
Person for the payment of any brokerage commission, finder's fee or similar
compensation in connection with the Agreement and the Related Agreements.
3.17 Employee Matters. Except for the agreement between Arc Communications
----------------
Services, Inc. and International Brotherhood of Electrical Workers Union Local
No. 134 dated January 1, 1989, as amended, no Seller is a party to any contract
with any labor organization, nor has it agreed to recognize any union or other
collective bargaining unit nor has any union or other collective bargaining unit
been certified as representing any of its employees with respect to the
operation of the Assets or the provision of the Services.
3.18 Permits. Schedule 3.18 contains a complete and accurate list of all
-------
Permits (other than AML Licenses and AML Applications) used to provide the
Services to the Properties or to own, lease or operate the Assets. The
execution, delivery and performance of this Agreement by each Seller and
consummation of the transaction contemplated by this Agreement will not result
in the revocation, suspension or limitation of any Permit. Each Seller
possesses all Permits, all Permits are in full force and effect, and all fees
and payments due on or prior to the date hereof pursuant to the terms of each
Permit have been paid by Sellers. Each Seller is in material compliance with
the terms pursuant to which the Permit was issued. No suspension or
cancellation of any Permit is pending or, to the best of each Seller's
knowledge, threatened.
3.19 Signals. Schedule 3.19 sets forth a complete and accurate list of all
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MMDS Signals, SMATV Signals and AML Signals carried at the Properties.
3.20 Liabilities to Subscribers. No Seller has any obligation or liability to
--------------------------
any Subscriber except with respect to (i) Customer Deposits and Advance
Subscriber Payments, and (ii) the obligation to supply services to the
Subscribers in the ordinary course of business in accordance with and pursuant
to the terms of the Contracts.
3.21 Affiliations. Except for the Blackstone Group and its Affiliates, no
-------------
Seller or any officer, director or key employee of any Seller or any Affiliate
of any Seller has, directly or indirectly a material interest in (a) any Person
that owns or manages a Property, (b) any Person that provides programming
services to any Property or (c) any Person that manufactures any Equipment or
items in Inventory or distributes or sells Equipment to any Property or any
manager or owner of any Property.
3.22 Restoration. Other than in Seller's ordinary course of business
-----------
consistent with past practice, no claims have been brought by any Person that
any property has been damaged, destroyed, disturbed or removed in the process of
construction or maintenance of the Assets or providing of the Services at the
Properties, which has not been or will not be prior to the Initial Closing or
any applicable Additional Closing, repaired, restored or replaced.
3.23 Franchise Requirements. Except for the Chicago Cable Commission inquiry
----------------------
described in Schedule 3.14, no Seller has received notice from any Governmental
Entity of its intent to
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enforce any proposed or enacted ordinance pursuant to which such Seller will be
required to enter into a franchise agreement or similar agreement with a
Governmental Entity with respect to the Services. All locations where wire that
is used by the Sellers for the provision of the Services at the Properties that
crosses public rights-of-way are set forth on Schedule 3.23.
3.24 Disclosure. No written information contained in any Schedule delivered
----------
pursuant to this Agreement at the Initial Closing or any Additional Closing
contains or will contain any untrue statement of a material fact or omit to
state a material fact required to make the statements not misleading. To the
extent that any representation or warranty in this Article 3 is qualified as to
"knowledge" of any Seller, the representation and warranty shall be limited to
the actual knowledge of such Seller, its officers and directors (as listed on
the attached Schedule 3.24), as of the date hereof, after having made a
reasonable investigation sufficient to ascertain the accuracy of the information
to which such representation and warranty relates.
3.25 Rate Regulation. No Seller has received notice of any action taken or
---------------
proposed to be taken by any Governmental Entity to enable such Governmental
Entity to regulate the Basic Subscriber Rates or any cable television service
rates charged to Subscribers by such Seller under the Communications Act of
1934, as amended.
3.26 Telephony Services. No Seller has entered into a contract to provide
------------------
telephony services to a Property.
3.27 Inventory. The Inventory constitutes all material inventory of Sellers
---------
used in the provision of Services to the AML Properties. Except for items of
Inventory that may be utilized for conversion of a Property to AML pursuant to
the Joint Marketing Agreement, all items of Inventory are set forth on Schedule
3.27 and are usable and saleable in the ordinary course of business, consistent
with past practice.
3.28 Vehicles. Schedule 3.28 sets forth a complete and accurate list of the
--------
Vehicles being transferred and conveyed to the Buyer. At the Initial Closing,
Sellers shall payoff all amounts owed under the vehicle leases and Sellers shall
direct the leasing company to deliver title to the Vehicles, and the Buyer shall
receive good and marketable title to each and all of the Vehicles, free and
clear of all Liens. The Vehicles are being delivered "as is" with no
representations concerning the Vehicles' condition, quality or fitness for a
particular purpose.
3.29 No Changes. Except as set forth on Schedule 3.29, since the Balance Sheet
----------
Date there has not been any material adverse change in or condition affecting
the Assets taken as a whole.
3.30 Service Standard Reports. The Service Standard reports delivered to Buyer
------------------------
pursuant to Article 5.18 shall be true and correct on the date of delivery to
Buyer in accordance herewith and based on the books and records of Sellers.
ARTICLE 4 Representations and Warranties of Buyer
--------- ---------------------------------------
17
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Buyer represents and warrants to Sellers, as of the Initial Closing Date
and as of each Additional Closing Date, the following:
4.1 Organization and Qualification Buyer is a limited liability company duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and, prior to the Initial Closing, will be authorized to transact
business as a foreign limited liability company in the State of Illinois.
4.2 Authority Buyer has the limited liability company right, power, legal
---------
capacity and authority to execute, deliver and perform its obligations under
this Agreement. The execution, delivery and performance of this Agreement and
the Related Agreements by Buyer and the transactions contemplated hereby and
thereby have been duly authorized by all necessary limited liability company
action on the part of Buyer.
4.3 Enforceability Upon execution and delivery by Buyer, this Agreement and
--------------
the Related Agreements shall constitute the valid and legally binding obligation
of Buyer enforceable as against Buyer in accordance with the terms hereof.
4.4 Approvals Except for the Transport Consents, the execution, delivery and
---------
performance of this Agreement and the Related Agreements by Buyer and the
consummation by Buyer of the transactions contemplated hereby and thereby do not
require any consent, notice, authorization or approval which will not have been
made, given or otherwise accomplished by the Initial Closing Date.
4.5 Compliance with Laws. Neither the execution and delivery of this
---------------------
Agreement by Buyer nor the consummation of the transactions contemplated hereby
will violate or result in the violation of any Legal Rule applicable to Buyer.
4.6 Compliance with Other Instruments. The execution and delivery of this
---------------------------------
Agreement and the Related Agreements by Buyer and the consummation of the
transactions contemplated hereby and thereby shall not result in a breach or
violation of any term or provision of, or constitute a breach or default
(including any event that, with the passage of time or giving of notice, or
both, would become a breach or default) under Buyer's charter documents or under
any other agreement to which the Buyer is bound.
ARTICLE 5 Covenants of Sellers and Buyer
--------- ------------------------------
Commencing on the date hereof and continuing through the Final Closing Date
or as otherwise expressly provided in this Article 5, PCTV Corp., jointly and
severally, PEI, and the Buyer severally covenant and agree:
5.1 Access to Assets. Prior to the Initial Closing Date, Sellers shall give
----------------
Buyer, and their respective employees and representatives, during normal
business hours and with reasonable
18
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prior notice and provided a representative of Sellers is present at all times,
access to all of the Assets and the Properties (subject to the Property owners'
right to limit such access) and copies of the Contracts, the AML Licenses, AML
Applications, and Permits, and access to the Equipment, books and records,
Inventory, facilities, technical information, personnel and such other documents
and information regarding the Assets, Services, and the Properties that Buyer
and their representatives may reasonably request.
5.2 Qualification. Until the Final Closing Date, each Seller shall maintain
-------------
all qualifications to transact business and remain in good standing in Delaware
and under the laws of each jurisdiction in which the character of the properties
owned, leased or operated by it or the nature of the activities conducted by it
makes such qualification necessary.
5.3 Continuity and Maintenance of Operations. Sellers shall, from the date
----------------------------------------
hereof to the applicable Closing Dates with respect to the Assets: (a) provide
the Services to the Properties and use the Assets in the ordinary course
consistent with past practices and maintain the Equipment in satisfactory
operating condition; (b) use commercially reasonable efforts to preserve intact
the Contracts and its customers, business organizations and business
relationships related to the Assets; (c) maintain the Assets in satisfactory
condition and repair, ordinary wear and tear excepted; (d) maintain current
staffing levels and customer service performance in all material respects in
support of the Properties; (e) pay and perform their obligations with respect to
the Assets on a timely basis in accordance with the terms thereof; and (f)
provide the Services to the Properties in material compliance with all Legal
Rules. Sellers shall not (a) make any material changes in the methods by which
the Sellers collect Accounts Receivable or disconnect Subscribers, or (b) offer
to any Subscribers or any prospective subscribers free installations (except for
free installations during a conversion to AML) or provide discounts for the cost
of Sellers' Services not provided in the ordinary course of business.
Sellers shall not, from the date hereof to the applicable Closing Dates
with respect to the Assets: (a) distribute any Asset to its shareholders; (b)
mortgage, pledge or subject to any Lien any of the Assets except Liens in the
ordinary course of business; (c) sell, lease, license, transfer or otherwise
dispose of or engage in any transaction with respect to any Assets not in the
ordinary course of business; (d) cancel or forgive any Accounts Receivable,
except in the ordinary course, consistent with GAAP; (e) amend, modify or
terminate any Contract except with the consent of Buyer; or (f) change in any
material respect the pricing (including without limitation, the Basic Subscriber
Rate) for the providing of the Services at any Property.
5.4 Adverse Changes. Each Seller shall promptly notify Buyer in writing of
---------------
each material adverse change or condition affecting any of the Assets, any
Property or the Services for which a Closing has not yet occurred and which
becomes known to any Seller. If Seller is given a written notice of default or
termination for a Right of Entry Agreement for which a Closing has not yet been
held, Sellers shall notify Buyer within three (3) business days. Sellers shall
use their best efforts to cure any default and Buyer and Sellers shall
cooperate, at no expense to Buyer, to attempt to cure any such default. Subject
to the other terms and conditions of this Agreement, Sellers shall have the
right to assign the Right of Entry Agreement for which a default or
19
<PAGE>
cancellation notice has been delivered to any Seller if (a) Buyer has agreed to
accept the Right of Entry Agreement subject to the notice, (b) Sellers have
received written confirmation from the owner or property manager that the
default has been cured in full, or (c) Sellers have received oral confirmation
from the owner or property manager, reasonably acceptable to Buyer, that the
default has been cured in full. In no event shall Sellers be required to pay to
the owner or property manager any additional consideration in order to cure a
default or cancellation, except to satisfy the Sellers obligation to cure a
default.
5.5 Maintain Insurance. Each Seller shall maintain in full force and effect
------------------
all insurance policies with respect to such Assets until a Closing affecting the
Assets has occurred in amounts, scopes and coverages consistent with past
practices and shall not do, permit or allow to be done any act by which any of
such insurance policies may lapse or be suspended, impaired or canceled. Each
Seller shall give written notice to Buyer of any material damage to any of the
Assets or any of the Properties by fire or other casualty promptly upon becoming
aware of same.
5.6 Confidentiality. Each party shall keep the terms of this Agreement and
---------------
the Related Agreements and the transactions contemplated hereby and thereby, and
all information provided by any other party in connection herewith, confidential
and shall not disclose the same to any other Person except for legal counsel,
accountants, lenders, advisers and employees on a need-to-know basis in order to
carry out the terms of this Agreement. From and after the Initial Closing Date,
Sellers shall hold in confidence and shall not disclose to any Person any
confidential information with respect to the Assets, the Services or the
Properties without the prior written consent of the Buyer. Notwithstanding
anything contained in this Article 5.6, any party may disclose information if
required by applicable law or court order or in connection with either party's
disclosure or reporting obligations under any rule or regulation of the SEC,
NASDAQ, FCC or other Government Entity. If this Agreement is terminated, no
party shall use any confidential information for any business purpose, and each
party will keep confidential any information so obtained.
5.7 AML Cooperation. Sellers and Buyer acknowledge that each will be seeking
---------------
to develop their respective businesses in the Market, subject in the case of
each Seller to its compliance with the applicable Non-Competition Agreement.
(a) Sellers and Buyers agree that, as it relates to MMDS Properties being
assigned to Buyer under this Agreement, the Sellers shall use their best efforts
to cooperate with the Buyer's efforts to license any additional AML paths
required to serve the MMDS Properties. If a proposed AML path to an MMDS
Property (an "MMDS Path") causes potential interference to an existing AML path
controlled by Sellers or its affiliates (an "Existing Path"), Sellers and Buyer
agree to cooperate and attempt to develop an engineering plan that will cure any
unacceptable interference on the Existing Path and/or the MMDS Path. Both
parties agree that any such plan may involve the alteration or modification of
the engineering of the Existing Path or the MMDS Path or the use of new or
additional equipment. If, after both parties have used their best efforts to
reduce the interference to acceptable levels for both the MMDS Path and the
Existing Path, the interference has not been reduced to acceptable levels, the
Buyer shall have the right to require
20
<PAGE>
the Sellers to buy back the Right of Entry Agreement related to the MMDS Path.
Such right may be exercised, if at all, for a period of twelve (12) months after
the Initial Closing Date. Buyer shall give the Sellers thirty (30) days notice
of its intent to exercise this buy-back right. If Buyer exercise this buy-back
right, the Sellers shall pay to the Buyer the amount of $444.00 per Unit for
each Property for which a Right of Entry Agreement is assigned to Sellers, and
the Buyer shall assign the Right of Entry Agreement and the related equipment to
Sellers, free and clear of any Liens.
(b) For all other proposed AML paths, Sellers and Buyer agree that for a period
of five (5) years from the Initial Closing, they shall use each use their best
commercial efforts to resolve any interference issues related to any AML paths
or licenses . In each potential case of interference, the party that is licensed
(the "Accommodating Party") agrees to make any commercially reasonable changes
or take any commercially reasonable actions requested by the party seeking a new
license or modification (the "Interfering Party") which would reduce
interference to acceptable levels, as defined below.
Reasonable changes and actions shall include, but not be limited to: (a)
the Accommodating Party accepting interference on a licensed AML path so long as
the interference is at acceptable levels, (b) the Accommodating Party, agreeing
to test, at the Interfering Party's expense, engineering alternatives and to
implement such alternatives if the resulting interference is reduced to
acceptable levels, or (c) the Accommodating Party replacing equipment, at the
Interfering Party's expense, if the resulting interference is reduced to
acceptable levels. An Accommodating Party agrees that it shall not file any
motions to oppose the granting of a new license or the modification of an
existing license by an Interfering Party unless no commercially reasonable
alternatives changes or actions can be made or taken to reduce the interference
to acceptable levels. The Accommodating Party shall determine in its sole
discretion the acceptable level of interference for a given path based on
whether or not the interference causes a degradation in the signal of the
Accommodating Party.
5.8 No Shop Provision. In consideration of the substantial expenditure of
-----------------
time, effort and expenses to be undertaken by Buyer upon execution of this
Agreement, each Seller agrees that it will not, and will cause its directors,
officers, representatives, agents and Affiliates not to, directly or indirectly
solicit, entertain or encourage inquiries or proposals to dispose of, enter into
an agreement to dispose of, negotiate or enter into discussions with any other
party to dispose of, or enter into any merger or consolidation with respect to
the Assets. Each Seller further agrees that during such time, if any other
Person makes an inquiry with respect to any such disposition, Seller shall
immediately notify Buyer of such inquiry.
5.9 Owner's Acknowledgment Form. Within five (5) days of execution of this
---------------------------
Agreement, the Sellers will deliver to the owners or property managers of each
of the Properties an Owner's Acknowledgment Form in the form of Exhibit G. Upon
receipt of an executed Owner's Acknowledgment Form or other communications
related thereto, Sellers shall promptly send copies of such to the Buyer.
Sellers and Buyer shall discuss potential means to resolve any issue regarding
any Seller's performance under an Right of Entry Agreement or the assignment of
that
21
<PAGE>
Right of Entry Agreement to Buyer, presented in any Owner's Acknowledgment
Form. If an owner presents an issue, Sellers shall make reasonable efforts to
set up a meeting with the owner, Sellers and Buyer to discuss issues regarding
Sellers' performance and attend any such meeting. Notwithstanding the
foregoing, Sellers do not covenant that they will take any action to resolve any
issue presented and the resolution of any such issue shall not constitute a
condition precedent to Buyer's obligations to close under this Agreement.
Neither Buyer nor Sellers shall have any liability for the failure of an owner
or property manager to return the Owner's Acknowledgment Form and the return of
the Owner's Acknowledgment Forms by the owners and property managers shall not
constitute a condition precedent to Buyer's or Sellers' obligation to close
under this Agreement.
5.10 Digital Internet Service. Upon commencement of the provision of internet
------------------------
service by PEI in Chicago, PEI and Buyer will use their respective reasonable
efforts to negotiate for the providing of PEI's digital internet service to the
Subscribers of the Properties in the Market.
5.11 Employee Matters. PEI shall use commercially reasonable efforts to assist
----------------
Buyer in recruiting employees of PEI that provide technical and field service
for the Assets to accept employment with the Buyer. The parties shall mutually
agree on the employees to be recruited by the Buyer, and unless expressly agreed
to by the Sellers, the employment of any Seller employee by Buyer shall not
commence until the termination of Sellers' provision of field service in the
Services Agreement.
5.12 Satisfaction of Conditions. Each Seller shall use its best efforts to
--------------------------
cause (i) the representations and warranties set forth in Article 3 and the
Schedules and Exhibits herein to be true and correct as of each Closing Date and
(ii) the conditions precedent set forth in Article 6 to have been satisfied as
of each Closing Date. The Buyer shall use its best efforts to cause (i) the
representations and warranties set forth in Article 4 and the Schedules and
Exhibits herein to be true and correct as of each Closing Date and (ii) the
conditions precedent set forth in Article 7 to have been satisfied as of each
Closing Date. Sellers shall use their best efforts to assign all of the
Contracts to Buyer in accordance with this Agreement at the Initial Closing Date
and, if not so assigned, at each Additional Closing. Buyer shall use its best
commercial efforts to secure all Transport Consents as of the Initial Closing
Date.
5.13 Required Consents. Sellers shall use their best efforts to obtain all
-----------------
Required Consents, and Buyer shall fully cooperate with all reasonable requests
by Sellers to assist in securing Required Consents. In no case shall any Seller
or Buyer be obligated to pay any additional consideration to any property owner
in order to secure a Required Consent. The form of the Required Consent for the
Right of Entry Agreements requiring consent is attached hereto as Exhibit J.
5.14 Modification or Breach of Contracts. Commencing on the date hereof and
-----------------------------------
continuing until the applicable Closing Date, no Seller shall terminate or
modify, or commit or cause or suffer to be committed any act that will result in
a breach or violation of any term of or (with or without notice or passage of
time, or both) constitute a default under or otherwise give any Person a basis
for nonperformance under any Contract or any AML License, each of which each
Seller shall
22
<PAGE>
maintain in full force and effect. Each Seller shall perform all of its
contractual obligations in accordance with the respective terms thereof.
5.15 No Solicitation.
---------------
(a) Except as provided for in Article 5.11, for a two year period following the
Initial Closing Date, Buyer shall not and shall cause its Affiliates not to
knowingly contact or solicit for employment any person then employed by People's
Choice TV Corp. or any of its subsidiaries, without such entity's consent.
(b) For a two year period following the Initial Closing Date, Sellers shall not
and shall cause its Affiliates not to knowingly contact or solicit for
employment any person then employed by the Buyer, its Affiliates or its
subsidiaries without such entity's consent.
5.16 Turning In AML Licenses. Upon the completion of PEI's signal transport
-----------------------
obligations under the Services Agreement, PEI shall promptly turn in or cause to
be turned in FCC Licenses WNTU 820 and WPJA 878 (after the FCC has consented to
the assignment to Alda Wireless Holdings, Inc. of WNTX 820) to the FCC. Sellers
have requested that AML Licenses WNTT 479 and WNTX 520 be turned in to the FCC
by Specchio Developers, Ltd.
5.17 Release or Discharge of Liens on Assets. Each Seller shall take all
---------------------------------------
action necessary to cause to be released or discharged any and all Liens on the
Assets.
5.18 Service and Signal Standards
----------------------------
(a) Service Standards. From the date hereof to the Article 5.18 Date, as
-----------------
defined below, the Sellers shall maintain the following service standards
("Service Standards") as they relate to the Chicago Properties:
(1) The average weekly customer service call abandonment rate will not
exceed six (6%) percent of all calls, excluding calls in which the customer
hangs up prior to the commencement of the recorded message (the "Call
Abandonment Standard").
(2) The average weekly wait time to respond to customer service calls
shall not exceed fifty-three seconds (.53) (the "Call Wait Standard").
(3) The Sellers shall make available, and dispatch if the customer so
requests, a technician for installation (a) within two (2) business days from
receipt of a service order for ninety (90%) of all such service orders and (b)
within three (3) business days of receipt of a service order for one hundred
percent (100%) of all such service orders (the "Installation Standard").
(4) The Sellers shall make available, and dispatch if the customer so
requests, a technician for out of service reports by the end of the thirty six
hours after receipt of such report for fifty percent (50%) of all such reports
and by the end of forty eight hours after receipt of such report
23
<PAGE>
for one hundred percent (100%) of all such reports (the "Out of Service
Standard").
The Service Standards, and the Signal Quality Standards set forth below, shall
be measured weekly from the date of this Agreement until the Article 5.18 Date
(the "Measurement Period"). Measurements shall be omitted when calculating the
Service Standards with respect to a Property during any period in which an event
of Force Majeure is in effect or during a signal outage and the 24 hours
following the correction of a signal outage at such Property. Sellers shall
keep records of the above measurements for such week, deliver a weekly report to
Buyer setting forth the Sellers' calculations of such measurements for such
week, and make available at its offices in Countryside, Illinois during normal
business hours to the Buyer the necessary books and records to verify such
measurements.
(b) Signal Standards. From the date hereof to the Initial Closing Date, the
----------------
Sellers shall maintain the following signal quality standards ("Signal
Standards") as they relate to the Properties:
(1) The video signal measured each Wednesday morning at 10:00 CST at the
AML Demarcation Point and the MMDS Demarcation Point, all as defined below,
shall meet the following standards (the "Video Quality Standards"):
(A) 8.5 to 10.0 dBmV RF input level to optical electronic at all fibers
from the headend.
(B) Less than or equal to 7 dB peak to valley across the bandwidth of
channels provided.
(C) Less than or equal to 3 dB variance between adjacent channels.
(D) Greater than 40 dB carrier to noise ratio.
(E) Less than -55 dBc composite triple beat.
The AML Demarcation Point is the point at which the signal is input into the
Ameritech fiber transmitter at the Sears Tower and the point at which the signal
is input into the AML transmitters at the Sears Tower. The MMDS Demarcation
Point is the point at which the MMDS signal is input into the MMDS transmitters
at the Sears Tower. In order to measure the Video Quality Standards, Sellers
shall provide Buyer access to the Sears Tower on the measurement dates and
representatives of both the Buyer and the Sellers shall collectively take and
record the measurements. If the Buyer's representative shall fail to attend the
measurement meeting, the Sellers shall not be required to meet the Video Quality
Standards for that week.
(2) The Sellers shall have no complete signal outages greater than sixty
(60) minutes in length at the Sears Tower headend or the Milwaukee Avenue
downlink facility ( a "Headend Outage") during the Measurement Period. The
Sellers shall have no more than one (1) complete signal outage greater than one
hundred twenty (120) minutes at any Property (each a "Property Outage"),
excluding scheduled maintenance activities (for which the Buyer has been advised
in advance), during any one week.
Notwithstanding the above, the Sellers shall not be considered in breach of the
Video Quality Standards, the Headend Outage covenant or the Property Outage
covenant with respect to a
24
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Property during an event of Force Majeure affecting such Property.
(c) Purchase Price Reduction Subject to the restrictions and limitations set
------------------------
forth in this Article 5.18, in the event the Sellers fail to meet the Standards
set forth in this Article 5.18 during any week of the Measurement Period (except
for a Headend Outage which shall be measured during the entire Measurement
Period), the Sellers and Buyer agree that the Purchase Price payable on the
Initial Closing Date shall be reduced by the aggregate amount of Reduction
Amounts (as set forth below) for each Standard which the Sellers have failed to
perform in this Article 5.18.
Standard Reduction Amount
-------- ----------------
(i) Call Abandonment Standard $12,500
(ii) Call Wait Standard $12,500
(iii) Installation Standard $12,500
(iv) Out of Service Standard $12,500
(v) Video Quality Standard $25,000
(vi) Headend Outage $25,000 per outage
(vii) Property Outage $ 5,000 per outage
greater than one per week
Notwithstanding anything contained in this Article 5.18:
(i) the maximum amount the Purchase Price may be reduced pursuant to this
Article 5.18 shall be Two Hundred Sixty Thousand Dollars ($260,000.00).
(ii) except as provided for in Article 5.3, in no event shall the Sellers'
performance or non-performance of the Standards constitute a condition
precedent to the Buyer's obligations to close under this Agreement, and
(iii) Buyer's only remedy for the Sellers' failure to meet the Standards
in this Article are as set forth in Article 5.18, provided, that such
limitation on remedies shall not apply to the extent that Sellers' failure
to meet such Standards give rise to, provides the basis for, or
constitutes, an Excluded Liability, a breach of representation or warranty
or covenant (other than under this Article 5.18) or results in the failure
to satisfy a closing condition.
(d) Force Majeure. For purposes of this Article, a Force Majeure event shall
--------------
mean and the Purchase Price shall not be reduced, Sellers shall not be liable to
the Buyer under this Article, and Sellers shall not be considered in breach of
this Article, if the Sellers fail to perform their obligations under this
Agreement as a result of a cause beyond their reasonable control, including, but
not limited to, any natural calamity, severe storm, work stoppage, labor
dispute, act of God or a public enemy, act of any military, civil, or regulatory
authority, insurrection, riot, epidemic, fire, civil disturbance, explosion,
lightning strike, fiber lease failure or failure on the part of Ameritech to
maintain such fiber leases, satellite failure, failure of programmers to deliver
programming signals to Sellers' headend or power failure.
25
<PAGE>
(e) Survivability. This Article 5.18 shall be terminated and be of no further
-------------
force or effect upon the earlier of (a) midnight on July 1, 1998, or (b) the
date of the consummation of the Initial Closing (the "Article 5.18 Date") except
that the Article 5.18 Date shall be extended to the Initial Closing if the
Sellers shall have failed to satisfy a condition to Closing by July 1, 1998 and
Buyer has not waived such condition. As of the Article 5.18 Date, except as
provided in the Services Agreement, the Sellers shall no longer be required to
continue to meet any of the Service Standards or the Signal Standards.
5.19 New Right of Entry Agreements. Subject to Buyer's consent, PEI may enter
-----------------------------
into new Right of Entry Agreements to provide Services in the Market between the
date of execution of this Agreement and the Initial Closing, and subject to any
requirement that the Sellers obtain the owner's or manager's consent, shall
assign such new Right of Entry Agreements to the Buyer. The Schedules to this
Agreement and the calculation of the number of Units being assigned to Buyer
shall also be recalculated prior to the Initial Closing to reflect any new Right
of Entry Agreements entered into by PEI.
5.20 Audit Waiver. As part of its due diligence process, the Buyer requested
------------
that Arthur Anderson & Co. conduct an audit (the "PEI Audit") of the balance
sheet and income statements of PEI related to the Properties for the years 1996
and 1997 and for the three month period from January 1, 1998 to March 31, 1998.
The PEI Audit was completed prior to the execution of this Agreement. Sellers
permitted and cooperated with the PEI Audit under the condition that the Sellers
shall not have any liability to the Buyer based on the procedures used in, or
the results of, the PEI Audit (the "Audit Results"). The Buyer acknowledges and
agrees that the Sellers' representations and warranties concerning the financial
condition of PEI are contained solely in Articles 3.11 and 3.13 of this
Agreement and the related Schedules. The Buyer hereby waives its right to bring
any actions, claims or demands against, or seek indemnification from, the
Sellers based on the Audit Results; provided however, that Buyer does not waive
its right to bring any actions, claims or demands against or seek
indemnification from the Sellers for any breach of a representation, warranty or
covenant made or to be performed by any Seller based on any information
contained in the Audit Results.
5.21 Post-Closing Obligations. Schedule 5.21 sets forth a list of obligations
------------------------
contained in certain Right of Entry Agreements that have not yet been satisfied
or completed. Buyer agrees that it shall be solely responsible for all such
obligations that arise from and after the Closing Date for Contracts transferred
on such date, in accordance with the terms of such Contracts, and in accordance
with the Joint Marketing Agreement, including but not limited to any site
preparation, construction and re-engineering of the AML network or distribution
at each Property.
5.22 Transition Cooperation. From the date of execution of this Agreement until
----------------------
the termination of Billings Services under the Service Agreement, Sellers shall
use its best efforts to provide to the Buyer billing updates up to twice weekly,
as requested, for all active and pending Subscribers in a form reasonably
acceptable to Buyer. Sellers shall provide all relevant Subscriber and Property
data relating to Contracts to be assigned at least five days prior to any
26
<PAGE>
Closing. At Buyer's sole expense, Buyer shall have the right to include
notifications and bill stuffers in all Subscriber bills and shall reimburse
Sellers for any direct third party costs of such stuffers. Sellers agree to use
commercially reasonable efforts to assist Buyer to include the notifications and
bill stuffers in Subscriber bills. Sellers agree to use its best efforts to
assist the Buyer if Buyer adds additional programming services to the AML system
which enables transport of an enhanced AML line-up during the term of the
Service Agreement. Buyer shall reimburse Sellers for any extraordinary expenses
incurred by Sellers in providing such assistance.
5.23. Specchio License. Sellers shall use its best efforts to consummate the
----------------
transfer of good and marketable title to the Specchio License to Buyer, free and
clear of all Liens in accordance with this Agreement and the Shared Use
Agreement. Sellers and Buyer shall use best efforts to file the transfer
applications at the FCC for the Specchio License by June 15, 1998. Sellers shall
be responsible for all damage, cost and expense to Buyer arising from or
incurred in connection with Buyer's inability to utilize the Specchio License
because of Specchio Developers, Ltd.'s breach of the Shared Use Agreement.
ARTICLE 6 Conditions Precedent to Obligations of Buyer
--------- --------------------------------------------
6.1 Conditions Precedent of Buyer to Initial Closing The obligations of Buyer
------------------------------------------------
to consummate the transactions contemplated on the Initial Closing Date are
subject to the satisfaction, on or before the Initial Closing Date, of all the
following conditions:
(a) Each Seller shall have performed and complied with all covenants,
conditions and obligations required by this Agreement to be performed or
complied with by such Seller on or before the Initial Closing Date.
(b) All representations and warranties of each Seller contained in this
Agreement or in any Schedule or Exhibit shall be true, correct and complete in
all material respects on and as though made on the Initial Closing Date. For
purposes of the conditions contained in this Article 6.1(b) and Article 7.1(b),
material shall be defined as adverse changes to the representations and
warranties contained in this Agreement or Schedules and Exhibits that have a
value greater than $200,000 (individually or in the aggregate).
(c) Sellers shall have received and shall have delivered to Buyer the Required
Consents necessary to assign to the Buyer Right of Entry Agreements providing
Services to at least 21,500 Units and all the Required Consents necessary to
assign the Fiber Leases.
(d) Sellers shall have tendered to Buyer all documents which Sellers are
required by Article 8.2(a) and 8.2(c) to deliver to Buyer, in each case
executed.
(e) There shall be no pending litigation or government proceeding which seeks
to restrain or prohibit the consummation of the transactions contemplated by
this Agreement.
27
<PAGE>
(f) Since the date of this Agreement, there shall have been no material adverse
change in the financial condition, business or results of operations of the
business relating to the Assets taken as a whole, or the condition of the
Assets, taken as a whole.
(g) The parties shall have reached an agreement on the amount of the Purchase
Price Reduction, if any, as set forth in Article 5.18.
(h) The Sellers shall have provided to the Buyer the FCC transfer application
for the Specchio License, executed by Specchio Developers, Ltd.
(i) The Sellers shall have provided evidence to the Buyer of executed Shared
Use Agreements between Alda Wireless Holdings, Inc. and Specchio Developers,
Ltd. and Alda Wireless Holdings, Inc. and Evans Microwave, Inc. in the form of
Exhibit C and evidence of the documentation necessary for the assignment of all
the Excluded License held by Specchio Developers, Ltd. and Evans Microwave, Inc.
to Alda Wireless Holdings, Inc.
6.2 Condition Precedent of Buyer to Additional Closings. The obligations of
---------------------------------------------------
Buyer to consummate the transactions contemplated on each Additional Closing
Date are subject to the satisfaction, on or before each such Additional Closing
Date, of all the following conditions:
(a) Each Seller shall have performed and complied with all covenants,
conditions and obligations required by this Agreement to be performed or
complied with by such Seller on or before such Additional Closing Date.
(b) All representations and warranties of each Seller contained in this
Agreement or in any Schedule or Exhibit shall be true, correct and complete in
all material respects on and as though made on such Additional Closing Date.
(c) Sellers shall have tendered to Buyer all documents which Sellers are
required by Article 8.3 to deliver to Buyer, in each case fully executed.
6.3 Waiver Buyer may waive any or all of the conditions set forth in Article
------
6.1 or Article 6.2, in whole or in part; however, no such waiver of a condition
shall constitute a waiver by Buyer of any of its other rights or remedies under
this Agreement or otherwise at law or in equity if any Seller should be in
default of any of its covenants, agreements, representations or warranties under
this Agreement.
ARTICLE 7 Conditions Precedent to Obligations of Sellers
--------- ----------------------------------------------
7.1 Conditions Precedent The obligation of Sellers to consummate the
--------------------
transactions contemplated on the Initial Closing Date are subject to the
satisfaction, on or before the applicable Closing Date, of all the following
conditions:
28
<PAGE>
(a) Buyer shall have performed and complied with all covenants, conditions and
obligations required by this Agreement to be performed or complied with by Buyer
on or before the Initial Closing Date.
(b) All representations and warranties made by Buyer contained in this
Agreement or any Schedule or Exhibit shall be true, correct and complete in all
material respects on and as though made on the Initial Closing Date.
(c) Sellers shall have received the Required Consents necessary to assign to
the Buyer Contracts constituting at least 21,500 Units.
(d) Buyer shall have provided Sellers with Transport Consents for all of the
MMDS Signals and AML Signals.
(e) Buyer shall have tendered to Sellers the Purchase Price, subject to
adjustment in accordance with Article 2, or deposited a portion of the Purchase
Price with the Escrow Agent in accordance with Article 2.6, and all documents
which Buyer is required by Article 8.2(b) to deliver to Sellers.
(f) There shall be no pending litigation or government proceeding which seeks
to restrain or prohibit the consummation of the transactions contemplated by
this Agreement.
(g) The parties shall have reached an agreement on the amount of the Purchase
Price Reduction, if any, as set forth in Article 5.18.
7.2 Condition Precedent of Sellers to Additional Closings. The obligations of
-----------------------------------------------------
Sellers to consummate the transactions contemplated on each Additional Closing
Date are subject to the satisfaction, on or before each such Additional Closing
Date, of all the following conditions:
(a) Buyer shall have performed and complied with all covenants, conditions and
obligations required by this Agreement to be performed or complied with by Buyer
on or before such Additional Closing Date.
(b) All representations and warranties of Buyer contained in this Agreement or
in any Schedule or Exhibit shall be true, correct and complete in all material
respects on and as though made on such Additional Closing Date.
(c) Buyer shall have tendered to Sellers all documents which Buyer is required
by Article 8.3 to deliver to Sellers, in each case fully executed.
7.3 Waiver Sellers may waive any or all of the conditions set forth in
------
Article 7.1 or Article 7.2 hereof in whole or in part; however, no such waiver
of a condition shall constitute a waiver by Sellers of any of its other rights
or remedies under this Agreement or otherwise at law or in equity if Buyer
should be in default of any of the covenants, agreements, representations or
29
<PAGE>
warranties made by Buyer under this Agreement.
ARTICLE 8 Closing
-------------------
8.1 Closing The Initial Closing shall take place on the Initial Closing Date
-------
in the offices of Sellers in Chicago, Illinois on the first day of the first
month after all of the conditions to the Initial Closing set forth in Articles 6
and 7 have been satisfied or waived. The parties agree and acknowledge that
time is of the essence for the Initial Closing. At the Initial Closing, each of
the parties shall take all action and deliver all documents required under this
Agreement. Each Additional Closing, if any, shall be conducted via mail, on the
first day of the first month after the conditions to an Additional Closing set
forth in Articles 6 and 7 have been satisfied or waived in accordance herewith.
At each Additional Closing, if any, each of the parties shall take all action
and deliver all documents in accordance with Article 8.3.
8.2 Closing Documents
-----------------
(a) At the Initial Closing, Sellers shall deliver to Buyer all of the
following:
(i) a Certificate of the Secretary of each Seller dated the Initial
Closing Date certifying as true and correct copies of the resolutions of
the Board of Directors of each Seller, authorizing the execution, delivery
and performance of this Agreement, the Related Agreements and transactions
contemplated herein and the incumbency of the persons executing this
Agreement and the Related Agreements on behalf of such Seller;
(ii) a Certificate from each Seller dated the Initial Closing Date,
executed by a vice president of such Seller, certifying such Seller's
satisfaction of the conditions set forth in Article 6.1(a), 6.1(b), 6.1(c),
6.1(e), 6.1(f), 6.1(h) and 6.1(i).
(iii) an executed Assignment and Bill of Sale Agreement in the form of
Exhibit A;
(iv) all fully-executed Required Consents received by Sellers as of the
Initial Closing Date;
(vi) copies or originals (if available) of all Contracts being assigned
to the Buyer;
(vii) all data, books and records which relate directly to the provision
of Services to the Properties;
(viii) a Certificate of Good Standing of each Seller certified as of a
recent date by the Secretary of State of the State of Delaware;
(ix) an Opinion of Counsel in substantially the form of Exhibit G.
30
<PAGE>
(x) to the extent required to deliver the Assets free and clear of all
Liens, UCC termination statements.
(xi) all other assignments and other instruments reasonably necessary, in
accordance with this Agreement, to convey, assign and transfer to Buyer
good and marketable title to the Assets, free and clear of all Liens.
(b) At the Initial Closing, Buyer shall deliver to Sellers the following:
(i) a Certificate of the Secretary of Buyer certifying as to true and
correct copies of the resolutions of the Executive Board of the Buyer,
authorizing the execution, delivery and performance of this Agreement, the
Related Agreements and the transactions contemplated herein, and the
incumbency of the persons executing this Agreement and the Related
Agreements on behalf of the Buyer;
(ii) with respect to the Contracts, an Assumption Agreement executed by
Buyer and Sellers, in the form of Exhibit B;
(iii) a wire transfer of the Purchase Price (as adjusted pursuant to
Article 2) pursuant to instructions received from Sellers;
(iv) an Opinion of Counsel in substantially the form of Exhibit G; and
(v) the Transport Consents.
(c) At the Initial Closing, the parties shall execute and enter into the
following agreements:
(i) Shared Use Agreements between Buyer and PEI, Buyer and Specchio
Developers Investment Corp. ("SDIC") and Buyer and Specchio Developers,
Ltd. in the form of Exhibit C and all documentation necessary for the
assignment of all AML Licenses from Sellers, SDIC and Specchio Developers,
Ltd. to Buyer or its designee;
(ii) an executed Non-Competition Agreement by and between Buyer and each
Seller and by and between Buyer and each of Victor Oristano and Matthew
Oristano, in the form of Exhibit C; and
(iii) a Service Agreement in the form of Exhibit E.
(iv) the Escrow Agreement attached as Exhibit J, if required pursuant to
Article 2.6.
8.3 Additional Closings. For each Additional Closing, if any, for which the
-------------------
Sellers obtain the Required Consents, the Sellers shall deliver any such
Required Consents to the Buyer and the items set forth in Article 8.2(a)(ii),
(iii), (iv), and (vi) and Buyer shall deliver to the Sellers the items set forth
in Article 8.2(b)(ii) and the portion of the Purchase Price required to be
delivered
31
<PAGE>
at such Additional Closing pursuant to Article 2.2(b), subject to Adjustment in
Article 2.2.
ARTICLE 9 Indemnification
--------- ---------------
9.1 Indemnification by Sellers PCTV Corp. jointly and severally, and each
--------------------------
other Seller severally agrees to indemnify Buyer from and against any and all
losses, damages, expenses or costs ("Indemnifiable Losses") which Buyer may
suffer or incur by reason of or in connection with: (i) the inaccuracy of any
representation or warranty of any Seller contained in this Agreement, any
Exhibit, or Schedule or any Related Agreement, (ii) the breach by any Seller of
any covenant made by it in this Agreement, any Exhibit or Schedule or any
Related Agreement; (iii) the conduct of the business of any Seller relating to
any Property, the Services or the Assets, including any tax liability of any
Seller, on or prior to the Initial Closing Date (or with respect to Assets
transferred after the Initial Closing Date, on or prior to the Additional
Closing Date on which such Assets are transferred in accordance with Article
2.1), (iv) any Excluded Liability; or (v) any failure by any Seller to comply
with any bulk sales, bulk transfer or similar law applicable to the transactions
contemplated hereby, or (vi) the failure to consummate the transfer of good and
marketable title to the Specchio License, free and clear of all liens, to Buyer,
within one year of the Initial Closing Date or the inability of the Buyer to
--
utilize the Specchio License because of a breach of the Shared Use Agreement by
Specchio Developers, Ltd. Notwithstanding the foregoing, Sellers shall not be
obligated to indemnify Buyer under this Agreement for Indemnifiable Losses until
the Indemnifiable Losses exceed one percent (1%) of the Purchase Price, in which
event Sellers shall be obligated to indemnify Buyer for all Indemnifiable
Losses. Notwithstanding the foregoing, PCTV Corp. jointly and severally, and
each other Seller severally agrees to indemnify Buyer from and against any
Indemnifiable Losses which Buyer may suffer or incur by reason of or in
connection with (a) any Excluded Liability relating to tax matters under clause
(c) or (f) of the definition thereof, and (b) any fee, fine or penalty assessed
or imposed by the FCC as a result of or in connection with any Excluded
Liability under clause (h) of the definition thereof. The foregoing obligation
of Sellers shall be subject to and limited by each of the qualifications set
forth in Article 9.3 and 9.4.
9.2 Indemnification by Buyer. Buyer agrees to indemnify Sellers from and
------------------------
against any and all losses, damages, expenses or costs incurred ("Indemnifiable
Losses") which any Seller may suffer or incur by reason of or in connection
with: (i) the inaccuracy of any representation or warranty of Buyer contained in
this Agreement, any Exhibit, or Schedule or any Related Agreement, and (ii) the
breach by Buyer of any covenant made by it in this Agreement, any Exhibit or
Schedule or any Related Agreement; (iii) the conduct of the business of Buyer
relating to any Property, the Services or the Assets after the Initial Closing
Date (or with respect to Assets transferred after the Initial Closing Date,
after the Additional Closing Date on which such Assets are transferred in
accordance with Article 2.1); (iv) any Assumed Liability. Notwithstanding the
foregoing, Buyer shall not be obligated to indemnify Sellers under this
Agreement for Indemnifiable Losses until the Indemnifiable Losses exceed one
percent (1%) of the Purchase Price, in which event Buyer shall be obligated to
indemnity Buyer for all Indemnifiable Losses. The foregoing obligation of Buyer
shall be subject to and limited by each of the qualifications set forth in
Article 9.3 and 9.4.
32
<PAGE>
9.3 Notice and Right To Defend Third-Party Claims. Upon receipt of written
---------------------------------------------
notice of any claim or proceeding under which indemnity may be sought under this
Article 9, the party seeking indemnification (the "Indemnitee") shall promptly
inform the party against whom indemnification is sought (the "Indemnitor") in
writing. The Indemnitor shall, at its own cost, defend or settle such claim or
proceeding, except that the Indemnitor shall not settle any such claim or
proceeding without the consent of the Indemnitee, unless such settlement is
without cost or liability to the Indemnitee. The Indemnitee will at its own
expense cooperate with the Indemnitor in connection with any such claim in any
way that the Indemnitor reasonably requests in connection with the defense or
settlement of any such claim. The Indemnitee shall have the right to employ
separate counsel in any such action, claim or proceeding and to participate in
the defense at Indemnitee's cost; provided however, that (i) if the Indemnitor
does not assume the defense of or diligently pursue any such claim or
proceeding, or (ii) if the Indemnitee reasonably determines (x) that there may
be a conflict between the positions of the Indemnitor and Indemnitee in
defending such claim or action, or (y) that there may be legal defenses
available to Indemnitee different from or in addition to those available to
Indemnitor, than separate counsel for Indemnitee shall be entitled to
participate in and conduct the defense, in the case of (i) and (ii)(x), or such
different defenses, in the case of (ii)(y), and Indemnitor shall be liable for
reasonable legal and other expenses incurred by Indemnitee in connection with
such defense.
9.4 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of the parties contained herein shall survive for a period of
eighteen (18) months after the Initial Closing Date_(the "Survival Period").
The liabilities of the parties under their respective representations and
warranties shall expire as of the expiration of the Survival Period, unless
written notice setting forth in reasonable detail the claimed inaccuracy of any
such representation or warranty shall be delivered pursuant to Article 9.3 to
the party or parties against whom liability for the claimed inaccuracy is
charged on or before the expiration of the Survival Period.
ARTICLE 10 Termination
---------- -----------
10.1 Prior to Initial Closing. This Agreement may be terminated at any time
------------------------
prior to the Initial Closing:
(a) by mutual agreement of all of the parties;
(b) by Sellers, if the Initial Closing has not occurred on or before July 1,
1998, and Sellers have satisfied all condition to closing.
(c) by Buyers, if the Initial Closing has not occurred on or before July 1,
1998, and Buyers have satisfied all condition to closing (not including for this
purpose, Article 7.1(c).
(d) by Sellers if there have been a material misrepresentation, breach of
warranty or breach of covenant by Buyer under this Agreement and no Seller is in
material default of it obligations hereunder; or
33
<PAGE>
(e) by Buyer is there has been a material misrepresentation, breach of
warranty, or breach of covenant by any Seller under this Agreement, and Buyer is
not in material default of its obligations hereunder.
10.2 Notice of Termination. The party giving notice of termination in
---------------------
accordance with Article 10.1(d) or Article 10.1(e) shall specify with
particularity the basis for such termination, and give the other party an
opportunity to cure. The termination shall be effective ten (10) business days
after the giving of such notice, unless the default has been cured before such
effective date.
10.3 Effect of Termination.
---------------------
(a) In the event of a termination of this Agreement pursuant to Article 10.1(a)
or 10.1(b) or 10.1(c), this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party or their respective
directors, officers, employees, agents or other representatives, except for the
respective obligations of the parties under Articles 5.6, 10.3(c), and 11.11,
which shall remain in full force and effect.
(b) In the event of termination of this Agreement pursuant to Article 10.1(d)
or 10.1(e), all obligations of the parties hereunder shall terminate, except for
the respective obligations of the parties under Articles 5.6, 10.3(c), and
11.11, which shall remain in full force and effect, and except that such
termination shall be without prejudice to any right that the terminating party
may have against the other party or any other Person under the terms of this
Agreement, including but not limited to Article 9, or otherwise.
(c) In the event of termination of this Agreement pursuant to Article 10.1(a),
Article 10.1(c) or Article 10.1(d), Sellers shall immediately repay the Buyer by
wire transfer of immediately available funds, $300,000, the deposit paid by
Buyer to PCTV Corp. prior to the date of this Agreement. In the event of a
termination of this Agreement pursuant to Article 10.1(b) or Article 10.1(d),
Sellers shall be entitled to keep all deposits paid to the Sellers.
10.4 Termination Prior to Final Additional Closing. The Agreement may be
---------------------------------------------
terminated (a) by the Buyer with respect to the Assets not transferred to Buyer
if title to the Assets has not been transferred to the Buyer in accordance
herewith by the Final Closing Date and the Buyer has not delayed the Additional
Closing, and (b) by the Sellers with respect to the Assets not transferred to
Buyer if title to the Assets has not been transferred to the Buyer by the date
that is three months after the Final Closing Date and the Sellers have not
delayed the Additional Closing. Termination of this Agreement pursuant to this
Article 10.4 shall not in any way limit or impair any right of remedy available
to either party under this Agreement, under law, at equity or otherwise.
ARTICLE 11 General
---------- -------
11.1 Assignment. Neither Sellers, on the one hand, nor Buyer on the other, may
----------
assign its rights
34
<PAGE>
and obligations under this Agreement to any third party without the express
written consent of the other party, which consent may be withheld in the sole
discretion of the other party.
11.2 Parties in Interest. All of the terms and provisions of this Agreement
-------------------
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and permitted assigns of the parties hereto.
11.3 Time of Essence. Time is of the essence in each and every provision in
---------------
this Agreement.
11.4 Severability. Any provision of this Agreement that is invalid or
------------
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining provisions of this Agreement or affecting the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
11.5 Amendment. Except as otherwise provided herein, Buyer and Sellers may
---------
amend, modify or supplement this Agreement at any time, but only in writing duly
executed by the parties.
11.6 Entire Understanding. The terms set forth in this Agreement including
--------------------
its Schedules and Exhibits are intended by the parties as a final, complete and
exclusive expression of the terms of their agreement and may not be
contradicted, explained or supplemented by evidence of any prior agreement, or
any prior or contemporaneous oral agreement among the parties with respect to
the subject matter hereof, including, without limitation, the Letter of Intent
dated November 24, 1997 between PCTV Corp. and Buyer, and as amended. The
Schedules and Exhibits attached to this Agreement are incorporated herein by
this reference and made a part of this Agreement.
11.7 Counterparts. This Agreement may be executed simultaneously in any
------------
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.8 Applicable Law. This Agreement shall be governed by and construed and
--------------
enforced in accordance with the laws (but not the laws of choice of law) of the
State of Illinois.
11.9 Notices. Any notice or demand desired or required to be given hereunder
-------
shall be in writing and deemed given when personally delivered, sent by
telecopier, overnight courier or deposited in the mail, postage prepaid, sent
certified or registered, return receipt requested, and addressed as set forth
below or to such other address as either party shall have previously designated
by such a notice. Any notice so delivered personally shall be deemed to be
received on the date of delivery; any notice so delivered by telecopy shall be
deemed to be received upon confirmation of transmission by telecopy; any notice
so sent by overnight courier shall be deemed to be received one Business Day
after the date sent; and any notice so mailed shall be deemed to be received on
the date stamped on the receipt.
35
<PAGE>
If to Buyer: OnePoint Communications-Illinois, LLC
c/o The VenCom Group, Inc.
2201 Waukegan Road, Suite E-200
Bannockburn, Illinois 60015
Attention: General Counsel
Telephone: (847) 374-7000
Telecopier (847) 374-1070
If to Sellers: People's Choice TV Corp.
2 Corporate Drive
Suite 249
Shelton, Connecticut 06484
Attention: General Counsel
Telephone: (203) 929-2800
Telecopier: (203) 929-1454
11.10 Further Acts. If, at any time before, on or after any Closing Date, any
------------
further action by any party is necessary or desirable to carry out the purposes
of this Agreement, at the reasonable request of any other party, such party
shall take or cause to be taken all such necessary or desirable action and
execute, deliver and file or cause to be executed, delivered and filed all
necessary or desirable documentation.
11.11 Expenses.
--------
(a) Each party shall each bear its own costs and expenses incurred in
connection with the negotiation, preparation and execution of this Agreement
(including, but not limited to, any attorneys', accountants', brokers', finders'
and investment bankers' fees), whether or not the Closing occurs.
(b) Any sales, transfer or use tax assessed or imposed in connection with the
transfer of the Assets hereunder shall be borne equally by the Buyer and the
Sellers.
11.12 Attorneys' Fees. If any action or proceeding is commenced between the
---------------
parties with respect to this Agreement, the prevailing party shall be entitled
to all fees and expenses incurred by it in connection with such action or
proceeding, including reasonable attorneys' fees.
11.13 Judicial Proceeding. Each party consents to the exclusive jurisdiction
-------------------
over it of the courts of the State of Illinois and of the United States District
Courts sitting in Chicago, Illinois for the purpose of any action, claim or
cause of action arising our of or based upon this Agreement or relating to the
subject matter hereof and agrees that personal service of process may be made by
registered or certified mail pursuant to the provisions of Article 11.9. Each
party to this Agreement hereby (i) waives, to the extent not prohibited by
applicable law, and agrees not to assert, any claim that it is not subject
personally to the jurisdiction of the above-named courts, any action brought in
any such court is improper or that this Agreement or the subject matter
36
<PAGE>
may not be enforced in or by any such court, and (ii) agrees not to commence or
maintain any action, claim or cause of action arising out of or based upon this
Agreement or relating to the subject matter other than before on the above-named
courts nor make any motion or take any other action seeking to cause the
transfer or removal of any such action, claim or cause of action to any court
other than one of the above-named courts.
11.14 Cumulative Remedies. Except for the limitations on indemnification under
-------------------
this Agreement as expressly set forth in Article 9, none of the rights, powers
or remedies conferred upon any party hereto shall be mutually exclusive, and
each such right, power or remedy shall be cumulative and in addition to every
right, power, or remedy, whether conferred hereby or now or hereafter available
at law, in equity, by statute or otherwise.
11.15 No Publicity. No party shall make any public statement or announcement
------------
with respect to this Agreement or the transactions contemplated hereby without
the prior written consent of the other parties hereto, which consent shall not
be unreasonably withheld or delayed, except as to the extent that such party
shall be obligated by law, in which case the other parties shall be so advised
and the parties shall use their best efforts to cause a mutually agreeable
statement or announcement to be issued. Notwithstanding the above, the parties
shall agree to a form of press release to be used immediately after the
execution of this Agreement and PCTV Corp. shall have the right to file this
Agreement as part of its SEC and NASDAQ reporting and disclosure obligations.
[SIGNATURE PAGE FOLLOWS THIS PAGE]
37
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its duly authorized representative as of the date and year first
written above.
PEOPLE'S CHOICE TV CORP. ONEPOINT COMMUNICATIONS-
ILLINOIS, LLC
By ____________________________ By _____________________________
Its __________________________ Its ___________________________
PREFERRED ENTERTAINMENT, INC.
By: ___________________________
Its: __________________________
OnePoint Communications Corp. hereby guarantees the performance by OnePoint
Communications-Illinois, LLC of all of the obligations of OnePoint
Communications-Illinois, LLC under this Agreement and the Related Agreements to
which OnePoint Communications-Illinois, LLC is a party.
ONEPOINT COMMUNICATIONS CORP.
By: ___________________________
Its:___________________________
38
<PAGE>
Schedule 2.1
Assumed Liabilities
All obligations of Sellers under the Contracts and Permits (not including
repayment of Customer Deposits and Advance Subscriber Payments dealt with in
clause (3)) assigned to Buyer to be performed or satisfied after the Closing
Date on which such Contract or Permit is assigned to Buyer in accordance with
this Agreement.
All obligations arising out of Buyer's ownership, operation, use or occupancy of
any Assets after the Closing Date on which such Asset is assigned to Buyer in
accordance with this Agreement.
The repayment of all Customer Deposits and performance of services related to
Advance Subscriber Payments with respect to Subscriber Contracts assigned to
Buyer in accordance with this Agreement.
<PAGE>
Schedule 2.5
Tax Allocation
[To be determined prior to Initial Closing]
<PAGE>
Schedule 2.6
Escrow Agreement
Application Amounts
<TABLE>
<CAPTION>
================================================================================
# Property Bill Units Application
Type Amount
================================================================================
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
1 *** Opt. *** ***
- --------------------------------------------------------------------------------
2 *** Opt. *** ***
- --------------------------------------------------------------------------------
3 *** Opt. *** ***
- --------------------------------------------------------------------------------
4 *** Opt. *** ***
- --------------------------------------------------------------------------------
5 *** Opt. *** ***
- --------------------------------------------------------------------------------
6 *** Opt. *** ***
- --------------------------------------------------------------------------------
7 *** Opt. *** ***
- --------------------------------------------------------------------------------
8 *** Opt. *** ***
- --------------------------------------------------------------------------------
9 *** Opt. *** ***
- --------------------------------------------------------------------------------
10 *** Opt. *** ***
- --------------------------------------------------------------------------------
11 *** Opt. *** ***
- --------------------------------------------------------------------------------
12 *** Bulk *** ***
- --------------------------------------------------------------------------------
13 *** Bulk *** ***
- --------------------------------------------------------------------------------
14 *** Bulk *** ***
- --------------------------------------------------------------------------------
15 *** Bulk *** ***
- --------------------------------------------------------------------------------
16 *** Opt. *** ***
- --------------------------------------------------------------------------------
17 *** Opt. *** ***
- --------------------------------------------------------------------------------
18 *** Bulk *** ***
- --------------------------------------------------------------------------------
19 *** Opt. *** ***
- --------------------------------------------------------------------------------
20 *** Opt. *** ***
- --------------------------------------------------------------------------------
================================================================================
20 Total *** ***
================================================================================
</TABLE>
<PAGE>
Schedule 3.4
Required Consents
***
<PAGE>
***
<PAGE>
***
<PAGE>
Schedule 3.5
Non-Compliance
1. *** an AML Property in Chicago, receives its signal feed
directly from a leased Ameritech fiber cable from the Sears Tower, which may be
a violation of the FCC rules concerning the crossing of public rights of way
without a cable franchise.
2. PEI activated its signal for the microwave paths listed as AML Applications
prior to filing FCC applications for the paths. Activation of a signal prior to
filing an application may constitute a violation of FCC rules and regulations.
The Sellers have disclosed these violations to the FCC and the FCC has taken no
action with regards to these AML Applications.
<PAGE>
Schedule 3.7
Title Exceptions
1. Credit Facility between PEI and the Meritor Bank dated February 17, 1994 in
an amount not to exceed Twenty Million Dollars ($ 20,000,000.00). The
collateral for the Credit Facility consists of all PEI's assets of any kind or
nature related to the wireless cable business in Chicago.
<PAGE>
Schedule 3.8A
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
Schedule 3.8B
Contracts
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
***
<PAGE>
Schedule 3.8C
Defaults and Other Disclosures
The owner/manager of *** receives its signal from an adjacent property through a
cable connected to reception equipment at the adjacent property. PEI has no
contractual rights with the adjacent property owners to allow the reception
equipment to remain on the adjacent property.
The owner/manager of *** gave notice of service default under the Right of Entry
Agreement for that Property on January 29, 1998. PEI has cured the default.
The owner/manager of *** gave notice on January 29, 1998 that it was canceling
the Right of Entry Agreement for that Property effective in 30 days. The
agreement is currently month to month and PEI has proposed to the
owner/manager a new agreement to provide services to the Property.
The owner/manager of *** gave notice that it intended to seek new provider if
service was not improved. PEI has cured the default.
The owner/manager of *** notified PEI of poor service. PEI has cured the
default.
<PAGE>
Schedule 3.9A
Excluded Licenses
All MMDS, MDS and ITFS Licenses and BTA License that are controlled by People's
Choice TV Corp., its subsidiaries and Alda Wireless Holdings, Inc.
All MMDS, MDS and ITFS Licensees with whom PCTV Corp. and its subsidiaries have
entered into lease or license agreements to utilize frequencies.
WNTT 480, licensed to Specchio Developers, Ltd. (Milwaukee Avenue to Sears
Tower).
WNTU 820, licensed to Specchio Developers, Ltd. (Sears Tower to 50 E. Bellevue
and 10 East Ontario (colinear)).
WPJA 878, licensed to PEI (Sears Tower to 525 S. Dearborn, 600 S. Dearborn, 850
N. State, and 200 N. Dearborn).
WNTT 479, licensed to Specchio Developers, Ltd. (50 East Bellvue to Sears
Tower).
WNTX 520, licensed to Specchio Developers, Ltd. (10 E. Ontario to 400 Ohio and
535 N. Michigan).
WLU 616, licensed to Evans Microwave, Inc. (895 Milwaukee Ave. to Sears Tower).
WLA 866, licensed to Specchio Developers Ltd. (New Trier Campus to Sears Tower).
WLW 435, licensed to Specchio Developers Ltd. (New Trier Campus to Sears Tower).
WMP 211, licensed to Specchio Developers Ltd. (New Trier Campus to Sears Tower
and Hancock Building).
AML Licenses controlled by various ITFS Licensees in the Chicago area with whom
Sellers have contractual relationships.
<PAGE>
- -------------------------------------------------------------------------------
Conditional 6807 Sheridan 42-00-21.O N 87-39-38.O W
- -------------------------------------------------------------------------------
Schedule 3.9B
AML Licenses (including Conditional Licenses and STAs)
***
<PAGE>
***
<PAGE>
Schedule 3.9B Codes
-------------------
MMDS: Property Currently Served by MMDS.
- ----
LOST: Property no longer served by PEI.
- ----
NSP: Property Never Served by PEI.
- ---
DHS: Property Served by Different Hub Site or Sears Tower.
- ---
HL: Property Served by Hard Line from Adjacent Property.
- --
MSP: Property Might be Served in Future.
- ---
AP: AML Equipment Located at Adjacent Property.
- --
STA: Special Temporary Authority Which Has Been Filed.
- ---
K: Keep Authorization.
- -
TI: Authorization to be Turned In.
- --
<PAGE>
Schedule 3.9C
AML Applications
***
<PAGE>
Schedule 3.10
Equipment
<TABLE>
<CAPTION>
DATE OF INVENTORY: 6/2/98
- ----------------------------------------------------------------------------------------------------------------------------------
AML/MDU EQUIPMENT AT MILWAUKEE/SEARS
- ----------------------------------------------------------------------------------------------------------------------------------
PART ITEM NEW ABOVE BELOW TOTAL REPLACEMENT TOTAL
# DESCRIPTION UNUSED AVERAGE AVERAGE QUANTITY COST REPLACEMENT
QUANTITY QUANTITY QUANTITY COST
- ----------------------------------------------------------------------------------------------------------------------------------
AML EQUIPMENT AT SEARS TOWER HEAD-END:
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
00015 TRANSMITTER,AML,HOT 1 1 $39,500.00 $ 39,500.00
- ----------------------------------------------------------------------------------------------------------------------------------
00013 TRANSMITTER,AML,LOT 1 1 $16,000.00 $ 16,000.00
- ----------------------------------------------------------------------------------------------------------------------------------
00025 MOUNTING BRACKETS 2 2 $ 290.00 $ 580.00
- ----------------------------------------------------------------------------------------------------------------------------------
00017 2' DISH W/MAST MOUNT 4 4 $ 840.00 $ 3,360.00
- ----------------------------------------------------------------------------------------------------------------------------------
00018 4' DISH W/MAST MOUNT 1 1 $ 1,050.00 $ 1,050.00
- ----------------------------------------------------------------------------------------------------------------------------------
00023 WAVEGUIDE (FT) 3 3 $ 7.73 $ 23.19
- ----------------------------------------------------------------------------------------------------------------------------------
NO# WAVEGUIDE CONNECTORS 6 6 $ 3.00 $ 18.00
- ----------------------------------------------------------------------------------------------------------------------------------
NO# MAGIC T POWER DIVIDERS 2 2 $ 250.50 $ 501.00
- ----------------------------------------------------------------------------------------------------------------------------------
NO# POWER COUPLER, 6Db 1 1 Unknown Unknown
- ----------------------------------------------------------------------------------------------------------------------------------
NO# WAVEGUIDE EXTENSIONS, 2"x3" 2 2 Unknown Unknown
- ----------------------------------------------------------------------------------------------------------------------------------
NO# SUPERFLEX WAVEGUIDE 2 2 $ 297.50 $ 595.00
- ----------------------------------------------------------------------------------------------------------------------------------
00026 GALVANIZED PIPE MASTS 2 2 $ 6.10 $ 12.20
- ----------------------------------------------------------------------------------------------------------------------------------
91250 POWER SUPPLY 9a, 60v 2 2 $ 273.00 $ 546.00
- ----------------------------------------------------------------------------------------------------------------------------------
NO# LINE POWER INSERTERS 2 2 Unknown Unknown
- ----------------------------------------------------------------------------------------------------------------------------------
NO# S.A. 6250 IRC DEMODULATORS 10 10 $ 1,800.00 $ 18,000.00
- ----------------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL SEARS: $ 80,185.39
----------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
AML EQUIPMENT AT MILWAUKEE AVE. DOWNLINK/UPLINK FACILITY:
- ----------------------------------------------------------------------------------------------------------------------------------
NO# INTEGRATED/RECEIVER DESCRAMBLERS SA 9660 4 4 $ 2,000.00 $ 8,000.00
- ----------------------------------------------------------------------------------------------------------------------------------
NO# GI DIGITAL DESCRAMBLER DSR 1500 1 4 $ 1,900.00 $ 7,600.00
- ----------------------------------------------------------------------------------------------------------------------------------
NO# NEXUS VM2000 IRC DEMODULATORS 2 18 $ 1,500.00 $ 27,000.00
- ----------------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL MILWAUKEE: $ 42,600.00
--------------------------------------------------------
--------------------------------------------------------
TOTAL SEARS/MILWAUKEE: $ 122,785.39
--------------------------------------------------------
</TABLE>
<PAGE>
Schedule 3.11
Accounts Receivable, Customer Deposits and Advance Subscriber Payments
Accounts Receivable (from oldest due date)
- -------------------
<TABLE>
<CAPTION>
<S> <C>
0-30 days $216,139.01
31-60 days $100,763.99
61-90 days $ 39,290.17
91 days and older $ 4,161.02
Total $360,354.19
Customer Deposits $156,571.05
- -----------------
Advance Subscriber $324,361.00
- ------------------
Payments
- ---------
</TABLE>
Schedule 3.11 shall be updated three business days prior to Closing.
<PAGE>
Schedule 3.13A
Number of Basic Subscribers as of December 31, 1997:
Basic Subscribers: 12,829
Individual: 8350
Bulk: 4479
Average Basic Subscriber Rate charged to Subscribers During the Period:
$23.24
<PAGE>
Schedule 3.13B
Financial Statements
One Year Period Ending 12.31.97
<PAGE>
Schedule 3.13C
Three Month Period Ending 3.31.98
<PAGE>
Schedule 3.14
Litigation
Agreed Permanent Injunction between Communications & Cable of Chicago, Inc. and
H.A. Langer & Associates and PEI dated May 12, 1997.
Agreed Permanent Injunction between Communications & Cable of Chicago, Inc. and
Stephen Murphy and PEI dated May 14, 1997.
Agreed Permanent Injunction between Communications & Cable of Chicago, Inc. and
Murdoch, Coll & Lillibridge and PEI dated May 14, 1997.
Settlement Agreement and Releases between Communications & Cable of Chicago,
Inc. and LaSalle Telecommunications, Inc. and PEI, H.A. Langer & Associates,
Stephen Murphy and Murdoch, Coll & Lillibridge dated May, 1997.
Request for information by the Chicago Cable Commission concerning PEI's
operations in the multi-unit property market in Chicago, including letters
dated October 24, 1997 and March, 1998 (referred to in this Agreement as the
"Chicago Cable Commission Inquiry").
Local 134, International Brotherhood of Electrical Workers, AFL-CIO v. Arc
Communications Services, Inc. and People's Choice TV, dated January 3, 1998.
<PAGE>
Schedule 3.18
Permits
Consent to Retransmit Station WYCC, Channel 20, by letter dated December 8,
1995.
Consent to Retransmit Station WGBO, Channel 66, by undated letter.
PBS Channel 11 has given the Sellers verbal assurance that it may retransmit the
Channel.
<PAGE>
Schedule 3.19
MMDS, AML and SMATV Signals
AML Properties
- --------------
WBBM (CBS 2) WFBT (23)
WMAQ (NBC 5) WCIU (26)
WLS (ABC 7) WFLD (FOX 32)
WB (WGN 9) WPWR (UPN 50)
WTTW (PBS 11) WGBO (66)
WYCC (20)
PREVUE ESPN 2
FAMILY CHANNEL TNN
CNN WTBS
CNBC MTV
CNN HEADLINE NEWS A & E
CSPAN 1 BET
CSPAN 2 VH 1
WEATHER CHANNEL NICKELODEON
ROMANCE CLASSICS LIFETIME
TBS EWTN
USA HISTORY
AMC TLC
BRAVO DISCOVERY
TNT TRAVEL
FOX SPORTS COMEDY CENTRAL
ESPN QVC
HBO STARZ!
HBO 2 STARZ! 2
CINEMAX DISNEY
ACTION SPICE
REQUEST 1 PLAYBOY
REQUEST 2 ENCORE
The following AML Properties also carry Request 3, Request 4, and Request 5:
*** *** ***
*** *** ***
*** *** ***
*** *** ***
***
<PAGE>
MMDS Properties:
- ----------------
WBBM (CBS 2) WFLD (FOX 32)
WMAQ (NBC 5) WPWR (UPN 50)
WLS (ABC 7) WGBO (66)
WB (WGN 9) WYCC (20)
WTTW (PBS 11)
FAMILY CHANNEL (pt) FOX SPORTS
CNN FOX SPORTS PLUS (pt)
PREVUE GUIDE (pt) ESPN
CNBC ESPN 2
WEATHER CHANNEL (pt) MTV
WTBS TNN (pt)
USA NICKELODEON
DISCOVERY AMC
TNT A & E
LIFETIME (pt) BET
EWTN
(pt: part time channels)
HBO STARZ!
HBO 2 STARZ! 2
ENCORE
REQUEST SPICE
<PAGE>
SMATV/MMDS:
- -----------
In addition to the MMDS lineup the following Properties also carry the Russian
Channel as a premium service:
***
***
***
***
***
***
***
***
***
In addition to the MMDS line-up, *** carries VH-1, CNN Headline, CSPAN 1, CSPAN
2, Travel, Comedy Central.
In addition to the MMDS line-up, *** carries:
E! CSPAN 1
CINEMAX CSPAN 2
DISNEY HEADLINE NEWS
HISTORY CHANNEL VH 1
BRAVO COMEDY CENTRAL
COURT TV TLC
TRAVEL CHANNEL
In addition to the MMDS line-up, the following Properties carry Disney as a
premium service:
***
***
***
*** carries the MMDS line-up and C-Span.
<PAGE>
Schedule 3.23
Right of Way Crossings
*** an AML Property in Chicago, receives its signal feed directly from a leased
Ameritech fiber cable from the Sears Tower, which may be a violation of the FCC
rules concerning the crossing of public right of way without a cable franchise.
<PAGE>
Schedule 3.24
Officers and Directors of Sellers
People's Choice TV Corp.
- ------------------------
Directors
- ---------
Matthew Oristano
Victor Oristano
Anthony Grillo
James Mossman
Terry Lee Scott
Officers
- --------
Matthew Oristano Chairman and Chief Executive Officer
Victor Oristano Vice Chairman
Todd A. Rowley Senior Vice President, Market Development
Charles F. Schwartz Senior Vice President, Chief of Staff, Chief
Financial Officer
Peter Lynch Senior Vice President, Chief Operating Officer
Robert Young Senior Vice President
Donald E. Olander Vice President, General Counsel, Secretary
Michael Denny Vice President, Engineering
Smith Murrin Vice President, Market Development
Michael Whalen Vice President, Finance and Acquisitions
Donald Kent Vice President, Programming
Ronald Dunagan Vice President, Internet Marketing
Sunil Kripalani Vice President, Information Systems
James Yard Vice President, New Technology
John Crowley Vice President, Internet Product
Lynne Stewart Controller
Andrew Zehner Assistant Secretary
<PAGE>
Preferred Entertainment, Inc.
- ------------------------------
Director
- --------
Matthew Oristano
Officers
- --------
Matthew Oristano Chairman and Chief Executive Officer
Todd A. Rowley Senior Vice President
Charles F. Schwartz Senior Vice President
Donald E. Olander Vice President, Secretary
Andrew Zehner Assistant Secretary
<PAGE>
Schedule 3.27
Inventory
<TABLE>
<CAPTION>
DATE OF INVENTORY : 6/2/98
- -----------------------------------------------------------------------------------------------------------------------------------
AML/MDU INVENTORY AT PREFERRED WAREHOUSE
- -----------------------------------------------------------------------------------------------------------------------------------
PART ITEM NEW ABOVE BELOW TOTAL REPLACEMENT TOTAL
# DESCRIPTION UNUSED AVERAGE AVERAGE QUANTITY COST REPLACEMENT
QUANTITY QUANTITY QUANTITY COST
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0001 TRANSMITTER,AML,HOT 1 1 $39,500.00 $39,500.00
- -----------------------------------------------------------------------------------------------------------------------------------
0001 ANTENNA,2',AML 3 3 $550.00 $1,650.00
- -----------------------------------------------------------------------------------------------------------------------------------
0001 ANTENNA,4',AML 1 1 $1,050.00 $1,050.00
- -----------------------------------------------------------------------------------------------------------------------------------
0002 WAVEGUIDE,ELIPTICAL 150 225 375 $7.73 $2,898.75
- -----------------------------------------------------------------------------------------------------------------------------------
0002 MOUNT,ANTENNA,3X3X1/4 9 9 $380.00 $3,420.00
- -----------------------------------------------------------------------------------------------------------------------------------
0002 MOUNT,ANTENNA,2X2X1/4 9 9 $290.00 $2,610.00
- -----------------------------------------------------------------------------------------------------------------------------------
0002 CONDUIT,GALVANIZED,4" 32 32 $6.10 $195.20
- -----------------------------------------------------------------------------------------------------------------------------------
0002 STOCK,THREADED,AML 10 169 179 $1.75 $313.25
- -----------------------------------------------------------------------------------------------------------------------------------
0003 KIT,FLANGE,AML 2 1 3 $50.40 $151.20
- -----------------------------------------------------------------------------------------------------------------------------------
0003 KIT,HANGER,HARDWARE 10 1 11 $21.70 $238.70
- -----------------------------------------------------------------------------------------------------------------------------------
0003 DEHYDRATOR,AML,STATIC DESICATING 16 16 $46.50 $744.00
- -----------------------------------------------------------------------------------------------------------------------------------
0003 REFILL,SILCA,GEL,COLOR INDICATING 2 2 $22.50 $45.00
- -----------------------------------------------------------------------------------------------------------------------------------
0004 RECEIVER,AML,COR 18511 4 4 $10,323.00 $41,292.00
- -----------------------------------------------------------------------------------------------------------------------------------
0004 RECEIVER,AML,COR 18512 WITH AGC 5 5 $10,970.50 $54,852.50
- -----------------------------------------------------------------------------------------------------------------------------------
0004 WAVEGUIDE,FLEXTWIST 4 1 5 $297.50 $1,487.50
- -----------------------------------------------------------------------------------------------------------------------------------
0004 ANTENNA,2' H.P. AML 1 1 $651.00 $651.00
- -----------------------------------------------------------------------------------------------------------------------------------
**** All AML inventory will change after three upcoming SUBTOTAL AML $151,099.10
conversions are completed. INVENTORY:
- -----------------------------------------------------------------------------------------------------------------------------------
0100 GBPH MODULE CH-8 9 9 $29.99 $269.91
- -----------------------------------------------------------------------------------------------------------------------------------
0101 GBPH MODULE CH-10 6 6 $29.99 $179.94
- -----------------------------------------------------------------------------------------------------------------------------------
0101 GBPH MODULE CH-12 6 6 $29.99 $179.94
- -----------------------------------------------------------------------------------------------------------------------------------
0110 GLBS AGC AMP,MODULE CH-4 7 7 $62.12 $434.84
- -----------------------------------------------------------------------------------------------------------------------------------
0110 GLBS AGC AMP,MODULE CH-5 2 2 $62.12 $124.24
- -----------------------------------------------------------------------------------------------------------------------------------
0110 GLBS AGC AMP,MODULE CH-7 4 4 $62.12 $248.48
- -----------------------------------------------------------------------------------------------------------------------------------
0110 GLBS AGC AMP,MODULE CH-9 4 4 $62.12 $248.48
- -----------------------------------------------------------------------------------------------------------------------------------
0111 GLBS AGC AMP,MODULE CH-11 8 8 $62.12 $496.96
- -----------------------------------------------------------------------------------------------------------------------------------
0111 GLBS AGC AMP,MODULE CH-13 5 5 $62.12 $310.60
- -----------------------------------------------------------------------------------------------------------------------------------
0150 COMBINER, CH. 12, PICO 10 43 53 $42.65 $2,260.45
- -----------------------------------------------------------------------------------------------------------------------------------
0151 COMBINER, CH. 16, PICO 1 1 $139.20 $139.20
- -----------------------------------------------------------------------------------------------------------------------------------
0211 CONVERTER, UHF/VHF 20-3, XUV 1 0 1 $136.38 $136.38
- -----------------------------------------------------------------------------------------------------------------------------------
0212 CONVERTER, UHF/VHF 26-6, XUV 3 0 3 $136.38 $409.14
- -----------------------------------------------------------------------------------------------------------------------------------
0213 CONVERTER, UHF/VHF 32-12, XUV 5 0 5 $136.38 $681.90
- -----------------------------------------------------------------------------------------------------------------------------------
0215 CONVERTER, UHF/VHF 50-10, XUV 3 0 3 $136.38 $409.14
- -----------------------------------------------------------------------------------------------------------------------------------
0216 CONVERTER, UHF/VHF 66-8, XUV 2 0 2 $136.38 $272.76
- -----------------------------------------------------------------------------------------------------------------------------------
0220 FILTER BAND PASS CH 5 7 13 0 20 $75.00 $1,500.00
- -----------------------------------------------------------------------------------------------------------------------------------
0220 FILTER, BANDPASS, CH. 7 0 0 $75.00 $0.00
- -----------------------------------------------------------------------------------------------------------------------------------
0220 FILTER, BANDPASS, CH.9 0 0 $75.00 $0.00
- -----------------------------------------------------------------------------------------------------------------------------------
0221 FILTER, BANDPASS, CH. 12 0 0 $75.00 $0.00
- -----------------------------------------------------------------------------------------------------------------------------------
0245 MODULATOR, AGILE HMA-500 7 18 25 $376.50 $9,412.50
- -----------------------------------------------------------------------------------------------------------------------------------
0245 DEMODULATOR, AGILE HDM-500 5 14 19 $186.25 $3,538.75
- -----------------------------------------------------------------------------------------------------------------------------------
0270 AMP, SINGLE CHANNEL, CH. 5 10 0 10 $125.80 $1,258.00
- -----------------------------------------------------------------------------------------------------------------------------------
0270 AMP, SINGLE CHANNEL, CH.6 1 0 1 $125.80 $125.80
- -----------------------------------------------------------------------------------------------------------------------------------
0271 AMP, SINGLE CHANNEL, CH.11 0 0 $125.80 $0.00
- -----------------------------------------------------------------------------------------------------------------------------------
0271 AMP, SINGLE CHANNEL, CH. 12 0 0 $125.80 $0.00
- -----------------------------------------------------------------------------------------------------------------------------------
0271 AMP, SINGLE CHANNEL, CH.13 0 0 $125.80 $0.00
</TABLE>
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0300 GENERATOR, CHARACTER, TM-1 1 1 $575.00 $575.00
- -----------------------------------------------------------------------------------------------------------------------------------
0300 GENERATOR,CHARECTER,HI-PRF 0 0 $850.00 $0.00
- -----------------------------------------------------------------------------------------------------------------------------------
0910 RACK, STEEL, 19" X 71" 71 71 $78.13 $5,547.23
- -----------------------------------------------------------------------------------------------------------------------------------
3130 AMP, LINE, EQ 0.0 2 2 $0.28 $0.56
- -----------------------------------------------------------------------------------------------------------------------------------
3150 CABLE, P-3, 500 U.G. 500 40 540 $0.28 $151.20
- -----------------------------------------------------------------------------------------------------------------------------------
3150 CABLE, JACKETED, P-3, .500 1000 150 1150 $0.34 $391.00
- -----------------------------------------------------------------------------------------------------------------------------------
3150 CABLE, P-3 500, MESSENGER 2325 2325 $0.04 $93.00
- -----------------------------------------------------------------------------------------------------------------------------------
5120 CLIP, RUBBER COATED, 2-HOLE 1638 1638 $0.38 $622.44
- -----------------------------------------------------------------------------------------------------------------------------------
5610 CLAMP, GROUND ROD, 5/8" 21 21 $0.56 $11.76
- -----------------------------------------------------------------------------------------------------------------------------------
7010 PLATE, WALL, SINGLE, WHITE 3500 188 3688 $0.09 $331.92
- -----------------------------------------------------------------------------------------------------------------------------------
7208 SPLITTER, 8-WAY, APT. 4 4 $2.49 $9.96
- -----------------------------------------------------------------------------------------------------------------------------------
7920 TRAP FM 95-108 40 40 $1.39 $55.60
- -----------------------------------------------------------------------------------------------------------------------------------
7921 TRAP, CH. 7-13 (HIGHBAND) 84 84 $7.48 $628.32
- -----------------------------------------------------------------------------------------------------------------------------------
7922 TRAP, CH. 2-6 (LOWBAND) 188 188 $7.48 $1,406.24
- -----------------------------------------------------------------------------------------------------------------------------------
7923 TRAP, CH. J-W (SUPERBAND) 163 163 $7.48 $1,219.24
- -----------------------------------------------------------------------------------------------------------------------------------
7924 TRAP, POSITIVE,G 14 14 $4.55 $63.70
- -----------------------------------------------------------------------------------------------------------------------------------
9100 AMP, 30DB GAIN, F-TYPE, 115V, 450MHZ 0 117 117 $109.19 $12,775.23
- -----------------------------------------------------------------------------------------------------------------------------------
9100 AMP, HSE, 10DB GAIN, 115 VAC 7 7 $9.49 $66.43
- -----------------------------------------------------------------------------------------------------------------------------------
9110 AMP, DISTRIBUTION HOUSING 3 3 $170.91 $512.73
- -----------------------------------------------------------------------------------------------------------------------------------
9111 AMP, L.E. HOUSING 3 3 $46.10 $138.30
- -----------------------------------------------------------------------------------------------------------------------------------
9121 AMP, POWER SUPPLY, DIST. 5 5 $60.58 $302.90
- -----------------------------------------------------------------------------------------------------------------------------------
9125 POWER SUPPLY, 9A 60V 1 0 1 $273.00 $273.00
- -----------------------------------------------------------------------------------------------------------------------------------
9130 AMP, LINE, EQ 0.0 2 2 $17.28 $34.56
- -----------------------------------------------------------------------------------------------------------------------------------
9131 AMP, LINE, EQ 13.5 2 2 $17.28 $34.56
- -----------------------------------------------------------------------------------------------------------------------------------
9150 AMP, LINE, PAD 0 4 4 $4.25 $17.00
- -----------------------------------------------------------------------------------------------------------------------------------
9150 AMP, LINE, PAD 1 6 6 $4.25 $25.50
- -----------------------------------------------------------------------------------------------------------------------------------
9150 AMP, LINE, PAD 2 2 2 $4.25 $8.50
- -----------------------------------------------------------------------------------------------------------------------------------
9150 AMP, LINE, PAD 3 4 4 $4.25 $17.00
- -----------------------------------------------------------------------------------------------------------------------------------
9150 AMP, LINE, PAD 4 3 3 $4.25 $12.75
- -----------------------------------------------------------------------------------------------------------------------------------
9150 AMP, LINE, PAD 5 2 2 $4.25 $8.50
- -----------------------------------------------------------------------------------------------------------------------------------
9150 AMP, LINE, PAD 6 5 5 $4.25 $21.25
- -----------------------------------------------------------------------------------------------------------------------------------
9150 AMP, LINE, PAD 7 1 1 $4.25 $4.25
- -----------------------------------------------------------------------------------------------------------------------------------
9150 AMP, LINE, PAD 8 4 4 $4.25 $17.00
- -----------------------------------------------------------------------------------------------------------------------------------
9150 AMP, LINE, PAD 9 3 3 $4.25 $12.75
- -----------------------------------------------------------------------------------------------------------------------------------
9151 AMP, LINE, PAD 10 6 6 $4.25 $25.50
- -----------------------------------------------------------------------------------------------------------------------------------
9151 AMP, LINE, PAD 11 4 4 $4.25 $17.00
- -----------------------------------------------------------------------------------------------------------------------------------
9151 AMP, LINE, PAD 12 5 5 $4.25 $21.25
- -----------------------------------------------------------------------------------------------------------------------------------
9151 AMP, LINE, PAD 13 7 7 $4.25 $29.75
- -----------------------------------------------------------------------------------------------------------------------------------
9151 AMP, LINE, PAD 14 7 7 $4.25 $29.75
- -----------------------------------------------------------------------------------------------------------------------------------
9151 AMP, LINE, PAD 15 5 5 $4.25 $21.25
- -----------------------------------------------------------------------------------------------------------------------------------
9151 AMP, LINE, PAD 16 5 5 $4.25 $21.25
- -----------------------------------------------------------------------------------------------------------------------------------
9151 AMP, LINE, PAD 17 5 5 $4.25 $21.25
- -----------------------------------------------------------------------------------------------------------------------------------
9151 AMP, LINE, PAD 18 9 9 $4.25 $38.25
- -----------------------------------------------------------------------------------------------------------------------------------
9151 AMP, LINE, PAD 19 6 6 $4.25 $25.50
- -----------------------------------------------------------------------------------------------------------------------------------
9160 INSERTER, POWER 1 1 $18.85 $18.85
- -----------------------------------------------------------------------------------------------------------------------------------
9190 AMP, 2-WAY SPLITTER, DIST. 4 4 $10.50 $42.00
- -----------------------------------------------------------------------------------------------------------------------------------
9191 AMP, RF FLOW JUMPER, DIST. 9 9 $7.94 $71.46
- -----------------------------------------------------------------------------------------------------------------------------------
9195 COMPENSATOR, THERMAL 1 1 $26.78 $26.78
- -----------------------------------------------------------------------------------------------------------------------------------
9200 SPLITTER, 3-WAY, LINE 3 3 $23.85 $71.55
- -----------------------------------------------------------------------------------------------------------------------------------
9211 MULTI-PORT TAP D.C. 16 16 16 $2.85 $45.60
- -----------------------------------------------------------------------------------------------------------------------------------
9220 TAP, LINE, 2-WAY, 4db 2 2 $7.95 $15.90
- -----------------------------------------------------------------------------------------------------------------------------------
9220 TAP, LINE, 2-WAY, 8db 1 1 $7.95 $7.95
- -----------------------------------------------------------------------------------------------------------------------------------
9221 TAP, LINE, 2-WAY, 11db 1 1 $7.95 $7.95
- -----------------------------------------------------------------------------------------------------------------------------------
9221 TAP, LINE, 2-WAY, 17db 3 3 $7.95 $23.85
- -----------------------------------------------------------------------------------------------------------------------------------
9222 TAP, LINE, 2-WAY, 20db 1 1 $7.95 $7.95
- -----------------------------------------------------------------------------------------------------------------------------------
9222 TAP, LINE, 2-WAY, 26db 26 26 $7.95 $206.70
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
9222 TAP, LINE, 2-WAY, 29db 44 44 $7.95 $349.80
- ---------------------------------------------------------------------------------------------------------------------------------
9241 TAP, LINE, 4-WAY, 11db 2 2 $8.20 $16.40
- ---------------------------------------------------------------------------------------------------------------------------------
9241 TAP, LINE, 4-WAY, 14db 4 4 $8.20 $32.80
- ---------------------------------------------------------------------------------------------------------------------------------
9241 TAP, LINE, 4-WAY, 17db 1 1 $8.20 $8.20
- ---------------------------------------------------------------------------------------------------------------------------------
9242 TAP, LINE, 4-WAY, 23db 1 1 $8.20 $8.20
- ---------------------------------------------------------------------------------------------------------------------------------
9242 TAP, LINE, 4-WAY, 26db 1 1 $8.20 $8.20
- ---------------------------------------------------------------------------------------------------------------------------------
9281 TAP, LINE, 8-WAY, 11db 4 4 $16.69 $66.76
- ---------------------------------------------------------------------------------------------------------------------------------
9281 TAP, LINE, 8-WAY, 14db 3 3 $16.69 $50.07
- ---------------------------------------------------------------------------------------------------------------------------------
9282 TAP, LINE, 8-WAY, 20db 18 18 $16.69 $300.42
- ---------------------------------------------------------------------------------------------------------------------------------
9282 TAP, LINE, 8-WAY, 23db 33 33 $16.69 $550.77
- ---------------------------------------------------------------------------------------------------------------------------------
9282 TAP, LINE, 8-WAY, 26db 19 19 $16.69 $317.11
- ---------------------------------------------------------------------------------------------------------------------------------
9282 TAP, LINE, 8-WAY, 29db 16 16 $16.69 $267.04
- ---------------------------------------------------------------------------------------------------------------------------------
9283 TAP, LINE, 8-WAY, 32bd 3 3 $16.69 $50.07
- ---------------------------------------------------------------------------------------------------------------------------------
9420 CONDUIT, 2", PVC, COUPLER 2 2 $0.44 $0.88
- ---------------------------------------------------------------------------------------------------------------------------------
9515 MOLDING, 1.25", FLAT CORNER 80 80 $0.75 $60.00
- ---------------------------------------------------------------------------------------------------------------------------------
9515 MOLDING, 1.25", INSIDE CORNER 0 $0.75 $0.00
- ---------------------------------------------------------------------------------------------------------------------------------
9515 MOLDING, 1.25", OUTSIDE CORNER 122 122 $0.75 $91.50
- ---------------------------------------------------------------------------------------------------------------------------------
9515 MOLDING, 1.25", TEE 91 91 $1.35 $122.85
- ---------------------------------------------------------------------------------------------------------------------------------
9515 MOLDING, 1.25", SEAM COVER 181 181 $0.47 $85.07
- ---------------------------------------------------------------------------------------------------------------------------------
9520 MOLDING, 2" X 2" X 8', BEIGE 248 248 $0.84 $208.32
- ---------------------------------------------------------------------------------------------------------------------------------
9520 MOLDING, 2" X 2", BEIGE, END 54 54 $1.20 $64.80
- ---------------------------------------------------------------------------------------------------------------------------------
9520 MOLDING, 2" X 2", BEIGE, FLAT 48 48 $1.20 $57.60
ELBOW
- ---------------------------------------------------------------------------------------------------------------------------------
9520 MOLDING, 2" X 2", BEIGE, 47 47 $1.20 $56.40
INSIDE ELBOW
- ---------------------------------------------------------------------------------------------------------------------------------
9525 MOLDING, 2.13", BRACKET 1334 1334 $0.42 $560.28
- ---------------------------------------------------------------------------------------------------------------------------------
9525 MOLDING, 2.13", SEAM COVER 15 15 $0.95 $14.25
- ---------------------------------------------------------------------------------------------------------------------------------
9595 MOLDING, ADAPTING CONNECTOR 0 $1.65 $0.00
- ---------------------------------------------------------------------------------------------------------------------------------
9595 MOLDING, 2.13", TEE 24 24 $2.80 $67.20
- ---------------------------------------------------------------------------------------------------------------------------------
9601 LOCKBOX, 12" X 18" X 8" 5 5 $42.70 $213.50
- ---------------------------------------------------------------------------------------------------------------------------------
9602 LOCKBOX, 18" X 24" X 8" 24 24 $56.20 $1,348.80
- ---------------------------------------------------------------------------------------------------------------------------------
9654 PEDESTAL, TV-40 8 8 $10.90 $87.20
- ---------------------------------------------------------------------------------------------------------------------------------
9709 CONNECTOR, LINE 90 5 5 $5.50 $27.50
- ---------------------------------------------------------------------------------------------------------------------------------
9720 CONNECTOR, HOUSING TO HOUSING 171 171 $2.40 $410.40
- ---------------------------------------------------------------------------------------------------------------------------------
9721 CONNECTOR, HOUSING TO F 20 41 61 $1.62 $98.82
- ---------------------------------------------------------------------------------------------------------------------------------
9730 SPLICE, BLOCK, 1 1/2" 5 5 $8.62 $43.10
- ---------------------------------------------------------------------------------------------------------------------------------
9740 COUPLER, D.C. 8 2 2 $23.95 $47.90
- ---------------------------------------------------------------------------------------------------------------------------------
7412 COUPLER, D.C.12 4 4 $23.95 $95.80
- ---------------------------------------------------------------------------------------------------------------------------------
9750 CONNECTOR, P-3, 500 PIN 13 13 $2.95 $38.35
- ---------------------------------------------------------------------------------------------------------------------------------
9766 ADAPTER, RCA TO F 1684 1684 $0.39 $656.76
- ---------------------------------------------------------------------------------------------------------------------------------
9790 TERMINATOR, HOUSING 5 5 $3.15 $15.75
- ---------------------------------------------------------------------------------------------------------------------------------
9900 TAG, DROP I.D. 884 884 $0.10 $88.40
- ---------------------------------------------------------------------------------------------------------------------------------
9921 HEAT SHRINK, 1.5" X 12" 1 1 $1.21 $1.21
- ---------------------------------------------------------------------------------------------------------------------------------
9922 HEAT SHRINK, 2" X 12" 896 896 $2.47 $2,213.12
- ---------------------------------------------------------------------------------------------------------------------------------
9930 STRIP, MULTI-OUTLET SURGE 42 42 $10.00 $420.00
PROTECTOR
- ---------------------------------------------------------------------------------------------------------------------------------
NO# CONVERTER, UHF/VHF 50-8, XUV 2 2 $136.38 $272.76
- ---------------------------------------------------------------------------------------------------------------------------------
7922 TRAP, J-W 284 284 $7.48 $2,124.32
- ---------------------------------------------------------------------------------------------------------------------------------
NO# CONVERTER, UHF/VHF 20-8, XUV 1 1 $136.38 $136.38
- ---------------------------------------------------------------------------------------------------------------------------------
NO# CONVERTER, UHF/VHF 66-12, XUV 1 1 $136.38 $136.38
- ---------------------------------------------------------------------------------------------------------------------------------
NO# CONVERTER, UHF/VHF 66-10, XUV 1 1 $136.38 $136.38
- ---------------------------------------------------------------------------------------------------------------------------------
NO# CONVERTER, UHF/VHF 22-4, XUV 6 6 $136.38 $818.28
- ---------------------------------------------------------------------------------------------------------------------------------
NO# CONVERTER, UHF/VHF 32-13, XUV 1 1 $136.38 $136.38
- ---------------------------------------------------------------------------------------------------------------------------------
NO# CONVERTER, UHF/VHF 26-3, XUV 2 2 $136.38 $272.76
- ---------------------------------------------------------------------------------------------------------------------------------
NO# CONVERTER, UHF/VHF 22-4, XUV 0 0 $136.38 $0.00
- ---------------------------------------------------------------------------------------------------------------------------------
NO# PCM-55 AUDIO/VIDEO CH-13 0 0 $125.82 $0.00
- ---------------------------------------------------------------------------------------------------------------------------------
NO# ENDCODER,PICO,GENERATER 1 1 $75.85 $75.85
- ---------------------------------------------------------------------------------------------------------------------------------
NO# MODULATOR,AGILE,ISS 2610 5 5 $376.50 $1,882.50
- ---------------------------------------------------------------------------------------------------------------------------------
NO# STANDARD AGILE SAT REC 32CK 5 32 37 $270.50 $10,008.50
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NO# STANDARD AGILE SAT REC 24CK 1 1 $265.50 $265.50
- ---------------------------------------------------------------------------------------------------------------------------------
NO# ISS SAT.REC GL5000A 1 1 $385.85 $385.85
- ---------------------------------------------------------------------------------------------------------------------------------
NO# STANDARD AGILE SAT REC 40CK 4 4 $295.50 $1,182.00
- ---------------------------------------------------------------------------------------------------------------------------------
NO# DRAKE,VM 2310 MODULATOR 1 1 $376.50 $376.50
- ---------------------------------------------------------------------------------------------------------------------------------
NO# DRAKE,VM 2410 MODULATOR 1 1 $376.50 $376.50
- ---------------------------------------------------------------------------------------------------------------------------------
NO# STANDARD AGILE VIDEOCIPHER 2 12 3 15 $275.50 $4,132.50
- ---------------------------------------------------------------------------------------------------------------------------------
NO# STANDARD AGILE VIDEOCIPHER PC 12 4 16 $250.50 $4,008.00
BRDS
- ---------------------------------------------------------------------------------------------------------------------------------
MISC MISCELLANEOUS TO FOLLOW 2000 2000 $1.00 $2,000.00
(ESTIMATE)
- ---------------------------------------------------------------------------------------------------------------------------------
Misc equipment will consist of 50 ohm connectors , cctv connectors,
tee connectors geomax fuses etc.
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,5kkvpc117 2 2 $7.50 $15.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,5kvo 3 3 $7.50 $22.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,6 nf ab 9 9 $7.50 $67.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,ETN-4 22 22 $5.00 $110.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,ETN-11 10 10 $5.00 $50.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,ETN-13 16 16 $5.00 $80.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,ETN-8 31 31 $5.00 $155.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,SKVD60/80 4 4 $7.50 $30.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,ETN-12 18 18 $5.00 $90.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,ETN-9 23 23 $5.00 $115.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,ETN-10 16 16 $5.00 $80.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,ETN-7 17 17 $5.00 $85.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,5SKVP-D 1 1 $7.50 $7.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,ETN-3 21 21 $5.00 $105.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,ETN-6 46 46 $5.00 $230.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,NF-I 28 28 $4.50 $126.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,5KHP-216 22 22 $7.50 $165.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,ETN-2 25 25 $5.00 $125.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,5KV-QQ 24 24 $7.50 $180.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,5KLP-311 58 58 $7.50 $435.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,5KHP-324 57 57 $7.50 $427.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,ETN-5 60 60 $5.00 $300.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,5KLP-299 26 26 $7.50 $195.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,6NF7-13 83 83 $5.00 $415.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,POSITIVE-C 691 691 $5.50 $3,800.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,POSITIVE-D 929 929 $5.50 $5,109.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,POSITIVE-E 735 735 $5.50 $4,042.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,POSITIVE-H 351 351 $5.50 $1,930.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,POSITIVE-G 15 15 $5.50 $82.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,POSITIVE-I 34 34 $5.50 $187.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,CH-8 1 1 $5.50 $5.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,CH-10 1 1 $5.50 $5.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,CH-12 11 11 $5.50 $60.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,NF-2 3 3 $5.50 $16.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,NF-3 3 3 $5.50 $16.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,NF-4 2 2 $5.50 $11.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,NF-5 2 2 $5.50 $11.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,NF-11 1 1 $5.50 $5.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,ETD-B 1 1 $5.50 $5.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,ETD-A 1 1 $5.50 $5.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,MP-A 2 2 $5.50 $11.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,619-HB-324 1 1 $7.50 $7.50
- ---------------------------------------------------------------------------------------------------------------------------------
no# Trap,MN-F 1 1 $5.00 $5.00
- ---------------------------------------------------------------------------------------------------------------------------------
no# GLBS AGC AMP,MODULE CH-2 3 3 $62.12 $186.36
- ---------------------------------------------------------------------------------------------------------------------------------
no# GLBS AGC AMP,MODULE CH-3 6 6 $62.12 $372.72
- ---------------------------------------------------------------------------------------------------------------------------------
no# GHBS AGC AMP,MODULE CH-8 7 7 $62.12 $434.84
- ---------------------------------------------------------------------------------------------------------------------------------
no# GHBS AGC AMP,MODULE CH-10 5 5 $62.12 $310.60
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
no# GHBS AGC AMP,MODULE CH-13 2 2 $62.12 $124.24
- ------------------------------------------------------------------------------------------------------------------------------------
no# GHBS AGC AMP,MODULE CH-12 5 5 $62.12 $310.60
- ------------------------------------------------------------------------------------------------------------------------------------
no# GBPL MODULE CH-3 8 8 $29.99 $239.92
- ------------------------------------------------------------------------------------------------------------------------------------
no# GBPL MODULE CH-4 6 6 $29.99 $179.94
- ------------------------------------------------------------------------------------------------------------------------------------
no# GBPL MODULE CH-5 8 8 $29.99 $239.92
- ------------------------------------------------------------------------------------------------------------------------------------
no# GBPL MODULE CH-6 6 6 $29.99 $179.94
- ------------------------------------------------------------------------------------------------------------------------------------
no# GBPH MODULE CH-9 6 6 $29.99 $179.94
- ------------------------------------------------------------------------------------------------------------------------------------
no# GBPH MODULE CH-7 5 5 $29.99 $149.95
- ------------------------------------------------------------------------------------------------------------------------------------
no# GBPH MODULE CH-13 5 5 $29.99 $149.95
- ------------------------------------------------------------------------------------------------------------------------------------
no# GBPH MODULE CH-11 4 4 $29.99 $119.96
- ------------------------------------------------------------------------------------------------------------------------------------
no# GBPL MODULE CH-2 2 2 $29.99 $59.98
- ------------------------------------------------------------------------------------------------------------------------------------
no# Geomax,ch,conv 22-16 1 1 $27.00 $27.00
- ------------------------------------------------------------------------------------------------------------------------------------
no# Geomax,ch,conv 32-12 3 3 $27.00 $81.00
- ------------------------------------------------------------------------------------------------------------------------------------
no# Geomax,ch,conv 20-3 5 5 $27.00 $135.00
- ------------------------------------------------------------------------------------------------------------------------------------
no# Geomax,ch,conv 22-4 4 4 $27.00 $108.00
- ------------------------------------------------------------------------------------------------------------------------------------
no# Geomax,ch,conv 26-6 2 2 $27.00 $54.00
- ------------------------------------------------------------------------------------------------------------------------------------
no# Geomax,ch,conv 50-10 5 5 $27.00 $135.00
- ------------------------------------------------------------------------------------------------------------------------------------
no# Geomax,ch,conv 66-8 5 5 $27.00 $135.00
- ------------------------------------------------------------------------------------------------------------------------------------
no# Geomax less than single ch modulator13 1 1 $21.00 $21.00
- ------------------------------------------------------------------------------------------------------------------------------------
no# Geomax less than single ch 1 1 $21.00 $21.00
modulatorTYPE A 13
- ------------------------------------------------------------------------------------------------------------------------------------
9210 Tap,multi-port DC-8 20 20 $2.85 $57.00
- ------------------------------------------------------------------------------------------------------------------------------------
9211 Tap,multi-port DC-12 11 11 $2.85 $31.35
- ------------------------------------------------------------------------------------------------------------------------------------
9211 Tap,multi-port DC-16 35 35 $2.85 $99.75
- ------------------------------------------------------------------------------------------------------------------------------------
9212 Tap,multi-port DC-20 17 17 $2.85 $48.45
- ------------------------------------------------------------------------------------------------------------------------------------
9212 Tap,multi-port DC-24 20 20 $2.85 $57.00
- ------------------------------------------------------------------------------------------------------------------------------------
9213 Tap,multi-port DC-30 5 5 $2.85 $14.25
- ------------------------------------------------------------------------------------------------------------------------------------
9221 TAP, LINE, 2-WAY, 14db 3 3 $7.95 $23.85
- ------------------------------------------------------------------------------------------------------------------------------------
9240 TAP, LINE, 4-WAY, 8db 1 1 $8.20 $8.20
- ------------------------------------------------------------------------------------------------------------------------------------
9242 TAP, LINE, 4-WAY, 20db 3 3 $8.20 $24.60
- ------------------------------------------------------------------------------------------------------------------------------------
9242 TAP, LINE, 4-WAY, 29db 2 2 $8.20 $16.40
- ------------------------------------------------------------------------------------------------------------------------------------
9243 TAP, LINE, 4-WAY, 32db 2 2 $8.20 $16.40
- ------------------------------------------------------------------------------------------------------------------------------------
9281 TAP, LINE, 8-WAY, 17db 1 1 $16.69 $16.69
- ------------------------------------------------------------------------------------------------------------------------------------
no# Tap,multi-port DC-6 31 31 $2.85 $88.35
- ------------------------------------------------------------------------------------------------------------------------------------
no# Tap,multi-port DC-9 51 51 $2.85 $145.35
- ------------------------------------------------------------------------------------------------------------------------------------
no# Tap,multi-port DC-27 31 31 $2.85 $88.35
- ------------------------------------------------------------------------------------------------------------------------------------
9300 DCW-6 17 17 $0.80 $13.60
- ------------------------------------------------------------------------------------------------------------------------------------
9300 DCW-9 9 9 $0.80 $7.20
- ------------------------------------------------------------------------------------------------------------------------------------
9301 DCW-12 16 16 $0.80 $12.80
- ------------------------------------------------------------------------------------------------------------------------------------
9301 DCW-16 9 9 $0.80 $7.20
- ------------------------------------------------------------------------------------------------------------------------------------
9302 DCW-20 24 24 $0.80 $19.20
- ------------------------------------------------------------------------------------------------------------------------------------
9302 DCW-24 171 171 $0.80 $136.80
- ------------------------------------------------------------------------------------------------------------------------------------
9302 DCW-27 247 247 $0.80 $197.60
- ------------------------------------------------------------------------------------------------------------------------------------
9303 DCW-30 243 243 $0.80 $194.40
- ------------------------------------------------------------------------------------------------------------------------------------
0221 Filter,band-pass,ch-12 1 1 $75.00 $75.00
- ------------------------------------------------------------------------------------------------------------------------------------
9140 amp,line,eq,0.0db 28 28 $17.28 $483.84
- ------------------------------------------------------------------------------------------------------------------------------------
9140 amp,line,eq,3db 6 6 $17.28 $103.68
- ------------------------------------------------------------------------------------------------------------------------------------
9140 amp,line,eq,7.5db 5 5 $17.28 $86.40
- ------------------------------------------------------------------------------------------------------------------------------------
9141 amp,line,eq,13.5db 7 7 $17.28 $120.96
- ------------------------------------------------------------------------------------------------------------------------------------
9141 amp,line,eq,16.5db 2 2 $17.28 $34.56
- ------------------------------------------------------------------------------------------------------------------------------------
0400 Camera. CCTV 1 1 $147.00 $147.00
- ------------------------------------------------------------------------------------------------------------------------------------
0413 Camera,Mating ring 3 3 $6.00 $18.00
- ------------------------------------------------------------------------------------------------------------------------------------
1000 Antenna,off-air,channel 2 2 2 $13.81 $27.62
- ------------------------------------------------------------------------------------------------------------------------------------
1000 Antenna,off-air,channel 5 1 1 $11.36 $11.36
- ------------------------------------------------------------------------------------------------------------------------------------
1000 Antenna,off-air,channel 7 3 3 $10.55 $31.65
- ------------------------------------------------------------------------------------------------------------------------------------
1000 Antenna,off-air,channel 9 2 2 $10.55 $21.10
- ------------------------------------------------------------------------------------------------------------------------------------
1001 Antenna,off-air,channel 11 2 2 $9.73 $19.46
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
7203 Splitter,3-way Apt 26 26 $1.23 $31.98
- ------------------------------------------------------------------------------------------------------------------------
7204 Splitter,4-way Apt 5 5 $2.49 $12.45
- ------------------------------------------------------------------------------------------------------------------------
7208 Splitter,8-way Apt 4 4 $2.49 $9.96
- ------------------------------------------------------------------------------------------------------------------------
8999 Tap,Bracket,Mounting 132 132 $1.79 $236.28
- ------------------------------------------------------------------------------------------------------------------------
9100 Amp, Ca-30,F-Type (need repair) 117 117 $109.19 $12,775.23
- ------------------------------------------------------------------------------------------------------------------------
9102 Amp,Lindsay,750mhz 3 3 $360.00 $1,080.00
- ------------------------------------------------------------------------------------------------------------------------
9103 Amp, NEXUS 9 9 $314.00 $2,826.00
- ------------------------------------------------------------------------------------------------------------------------
9160 Amp,Equal. Lindsay,750mhz, 2db 12 12 $10.75 $129.00
- ------------------------------------------------------------------------------------------------------------------------
9160 Amp,Equal. Lindsay,750mhz, 4db 1 1 $10.75 $10.75
- ------------------------------------------------------------------------------------------------------------------------
9160 Amp,Equal. Lindsay,750mhz, 6db 3 3 $10.75 $32.25
- ------------------------------------------------------------------------------------------------------------------------
9160 Amp,Equal. Lindsay,750mhz, 8db 3 3 $10.75 $32.25
- ------------------------------------------------------------------------------------------------------------------------
9161 Amp,Equal. Lindsay,750mhz, 10db 2 2 $10.75 $21.50
- ------------------------------------------------------------------------------------------------------------------------
9161 Amp,Equal. Lindsay,750mhz, 12db 2 2 $10.75 $21.50
- ------------------------------------------------------------------------------------------------------------------------
9162 Amp,Equal. Lindsay,750mhz, 16db 1 1 $10.75 $10.75
- ------------------------------------------------------------------------------------------------------------------------
9162 Amp,Equal. Lindsay,750mhz, 22db 2 2 $10.75 $21.50
- ------------------------------------------------------------------------------------------------------------------------
9162 Amp,Equal. Lindsay,750mhz, 24db 2 2 $10.75 $21.50
- ------------------------------------------------------------------------------------------------------------------------
9162 Amp,Equal. Lindsay,750mhz, 26db 2 2 $10.75 $21.50
- ------------------------------------------------------------------------------------------------------------------------
9170 Pad,Attenuator,Lindsay,750mhz, 0db 29 29 $7.45 $216.05
- ------------------------------------------------------------------------------------------------------------------------
9170 Pad,Attenuator,Lindsay,750mhz, 1db 2 2 $7.45 $14.90
- ------------------------------------------------------------------------------------------------------------------------
9170 Pad,Attenuator,Lindsay,750mhz, 2db 3 3 $7.45 $22.35
- ------------------------------------------------------------------------------------------------------------------------
9170 Pad,Attenuator,Lindsay,750mhz, 3db 2 2 $7.45 $14.90
- ------------------------------------------------------------------------------------------------------------------------
9170 Pad,Attenuator,Lindsay,750mhz, 5db 1 1 $7.45 $7.45
- ------------------------------------------------------------------------------------------------------------------------
9170 Pad,Attenuator,Lindsay,750mhz, 6db 1 1 $7.45 $7.45
- ------------------------------------------------------------------------------------------------------------------------
9170 Pad,Attenuator,Lindsay,750mhz, 7db 1 1 $7.45 $7.45
- ------------------------------------------------------------------------------------------------------------------------
9171 Pad,Attenuator,Lindsay,750mhz, 10db 1 1 $7.45 $7.45
- ------------------------------------------------------------------------------------------------------------------------
9171 Pad,Attenuator,Lindsay,750mhz, 14db 3 3 $7.45 $22.35
- ------------------------------------------------------------------------------------------------------------------------
9171 Pad,Attenuator,Lindsay,750mhz, 16db 2 2 $7.45 $14.90
- ------------------------------------------------------------------------------------------------------------------------
Total: $280,893.05
--------------------------
</TABLE>
<PAGE>
Schedule 3.28
Vehicles
<TABLE>
<CAPTION>
VEHICLE # IN DESCRIPTION VEHICLE I.D. LICENSE #
US VIC
<S> <C> <C> <C> <C> <C> <C>
1 94045 (C0009) 5/19/94 94 FORD AEROSTAR 2WD VAN 1FTCA14U6RZ806197 MHM868
2 94046 (C0010) 5/19/94 94 FORD AEROSTAR 2WD VAN 1FTCA14U2RZ806195 MHM873
3 94047 (C0011) 5/19/94 94 FORD AEROSTAR 2WD VAN 1FTCA14U4RZB06196 MHM867
4 94048 (C0013) 6/1/94 94 FORD AEROSTAR 2WD VAN 1FTCA14U9RZB06193 MHZ677
5 94053 (C0012) 3/22/94 94 FORD AEROSTAR 2WD VAN 1FTDA14U7RZA00751 5985 JH
6 94071 (C0020) 5/18/94 94 DODGE DAKOTA 2WD PU 124" 1B7FL26XORW116021 514OJLB
7 95184 (C0019) 1/4/95 95 FORD AEROSTAR 2WD VAN 1FTDA14U9SZA38472 J19243
8 95185 (C0001) 1/4/95 95 FORD AEROSTAR 2WD VAN 1FTDA14U9SZA39797 HSK-473
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 3.29
Changes since December 31, 1997
All relevant Defaults and Other Disclosures made in Schedule 3.8C shall be
considered incorporated and made a part of this Schedule 3.29.
The PEI customer service function was relocated to the Tucson area in January,
1998.
The Right of Entry Agreement for * * * expired and the Property has converted to
a new provider.
PEI no longer provides service to * * * .
The Right of Entry Agreement for * * * term ended on May 15, 1998 and is
currently month-to-month.
The owner/manager of * * * notified PEI that it intends to cancel service upon
the expiration of the Right of Entry Agreement effective August 31, 1998.
The owner/manager of * * * has notified PEI that it intends to cancel service
upon the expiration of the Right of Entry Agreement effective August 15, 1998.
PEI no longer provides service to * * * .
The programming service known as Request PPV will be changed to Viewer's Choice
effective July 1, 1998.
<PAGE>
Schedule 5.21
The Right of Entry Agreement for * * * requires the Property to be upgraded to
AML, which upgrade has not yet been provided.
The Right of Entry Agreement for * * * requires the Property to be upgraded to
AML, which upgrade has not yet been provided.
The Right of Entry Agreement for * * * requires the Property to be upgraded to
AML, which upgrade has not yet been provided.
The Right of Entry Agreement for * * * requires the Property to be upgraded to
AML, which upgrade has not yet been provided.
The Right of Entry Agreement for * * * requires the Property to be upgraded to
AML, which upgrade has not yet been provided.
The Right of Entry Agreement for * * * requires the Property to be upgraded to
AML, which upgrade has not yet been provided.
The Right of Entry Agreement for * * * requires the Property to be upgraded to
enhanced AML, which upgrade has not yet been provided.
The Right of Entry Agreement for * * * requires the Property to be upgraded to
enhanced AML, which upgrade has not yet been provided.
The Right of Entry Agreement for * * * requires the Property to be upgraded to
enhanced AML, which upgrade has not yet been provided.
The Right of Entry Agreement for * * * requires the Property to be upgraded to
enhanced AML, which upgrade has not yet been provided.
The Right of Entry Agreement for * * * requires the Property to be upgraded to
enhanced AML, which upgrade has not yet been provided.
The Right of Entry Agreement for * * * requires the Property to be upgraded to
enhanced AML, which upgrade has not yet been provided.
The Right of Entry Agreement for * * * and the Hub Site Agreement for the same
Property require an AML hub site to be constructed and the Property to be
upgraded to AML, which upgrade has not yet been provided.
The Right of Entry Agreement for * * * requires the Property to be upgraded to
AML, which upgrade has not yet been provided.
<PAGE>
The Right of Entry Agreement for * * * requires the Property to be upgraded to
AML, which upgrade has not yet been provided.
The Right of Entry Agreement for * * * requires the Property to be upgraded to
AML, which upgrade has not yet been provided.
The Right of Entry Agreement for * * * requires the Property to be upgraded to
AML, which upgrade has not yet been provided.
<PAGE>
CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT
This CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT (the "Master Agreement")
is entered into as of this 27th day of Sept.,1996, between CSG Systems, Inc., a
Delaware corporation with its principal place of business at 2525 North 117th
Avenue, Omaha, Nebraska 68164 ("CSG"), and Ventures In Communications RMTS d/b/a
TelCom Plus, a Delaware limited liability company with its principal place of
business at 2201 Waukegan Road, E200, Bannockburn, IL 60015, (the "Customer").
CSG and Customer agree as follows:
Subject to the terms and conditions of this Master Agreement, Customer hereby
agrees to purchase and/or license from CSG its subscriber management system
solution utilizing the CSG services and products which are identified, provided
and/or licensed as set forth in the attached Schedules which are hereby
incorporated into and made a part of this Master Agreement by this reference,
including, but not necessarily limited to:
. Schedule A - CSG's CCS system for cable and telephony subscriber
----------
billing management (the "CCS Services").
. Schedule B - Advanced Business Solutions services (the "ABS
----------
Services").
. Schedule C - CSG's ASCR(TM), CIT(TM), Scripting(TM) and Computer
----------
Based Training add-on products (the "CCS Products").
. Schedule G - CSG's Print and Mail Services (the "Print and Mail
----------
Services").
The CCS Services, the ABS Services, the Print and Mail Services and any other
CSG service subsequently provided in an executed Schedule attached to this
Master Agreement are collectively referred to in this Master Agreement as the
"Services". CSG's ASCR(TM), CIT(TM), Scripting(TM), Computer Based Training
add-on products, and any other CSG product subsequently licensed to Customer in
an executed Schedule attached to this Master Agreement are collectively referred
to in this Master Agreement as the "Products".
GENERAL TERMS AND CONDITIONS
1. FEES AND EXPENSES. The Products and Services will be provided for the fees
set forth on Schedule F. Customer shall also reimburse CSG for reasonable
----------
out-of-pocket expenses, subject to Customer's monthly review and approval,
including travel and travel-related expenses that are consistent with CSG's
standard travel reimbursement policies, incurred by CSG in connection with CSG's
performance of its obligations under this Master Agreement.
2. INVOICES. Unless otherwise provided herein, Customer shall pay amounts due
hereunder within thirty (30) days after receipt of invoice therefor. Any amount
not paid when due shall thereafter bear interest until paid at a rate equal to
the lesser of one and one-half percent (1 1/2%) per month or the maximum rate
allowed by applicable law.
3. TAXES. All amounts payable by Customer to CSG under this Master Agreement are
exclusive of any applicable value added, use, sales, service, property or other
taxes (other than those taxes based on CSG's income), tariffs or contributions
that may be assessable in connection with this Agreement. Customer will pay any
applicable value added, use, sales, service, property or other taxes, tariffs or
contributions, in addition to the amount due and payable. Customer will promptly
furnish CSG with the official receipt of payment of these taxes to the
appropriate taxing authority.
4. ADJUSTMENT TO FEES. CSG shall not adjust any of the fees specified in
Schedule F or otherwise specified in Schedules hereto prior to the first
- ----------
anniversary date of the Effective Date (as defined below in Section 19).
Thereafter, CSG may from time to time by giving Customer at least thirty (30)
days prior written notice thereof, adjust any or all such fees; provided,
however, that the amount of all such increases during any 12-month period shall
not on the average exceed *** or 100 percent of the percentage increase in the
Consumer Price Index, Urban Consumers, All Cities Averaged 1982-84 Equals 100,
during the prior calendar year as published by the U.S. Department of Labor or
any successor index, whichever is greater.
5. SHIPMENT. CSG will ship the Products, any Incorporated Third Party Software,
and any other third party software from its distribution center, subject to
delays beyond CSG's control. CSG will select the method of shipment via tape or
by electronic file transfer for Customer's account. Risk of loss will pass to
Customer upon receipt of the Products, any Incorporated Third Party Software,
and any other third party software by Customer.
6. DOCUMENTATION. For the fees that may be set forth in the attached Schedules,
CSG agrees to provide copies of all published user manuals and documentation
that CSG makes generally available for its Products, which may include user and
system manuals, training material in machine readable, electronic or printed
form, program material, technical material, test data, flow charts, source code
1
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
listings, data file listings, scripts, and record layouts (collectively,
"Documentation") for use, operation and technical support of the Products. The
first five sets of the CCS User Guides will be provided at no additional charge
to the Customer. Documentation shall be furnished to the customer at or before
the delivery of Products to Customer, unless otherwise mutually agreed between
the parties. CSG shall also provide, at no additional cost to Customer, one copy
of each update or revision to such Documentation which CSG may make generally
available for its Products.
7. EQUIPMENT PURCHASE. Customer is fully responsible for obtaining and
installing all computer hardware, software, peripherals and necessary
communications facilities, including, but not limited to printers, servers,
power supply, workstations, printers, concentrators, communications equipment,
and routers (the "Required Equipment") that are necessary at Customer's place of
business in order for Customer to utilize the Services and the Products as
defined in this Master Agreement. Customer shall bear responsibility for the
Required Equipment, including, but not limited to, the costs of procuring,
installing, operating and maintaining such Required Equipment. At Customer's
request and subject to the terms and conditions of Schedule B, CSG will consult
----------
with, assist and advise Customer regarding Customer's discharge of its
responsibilities with respect to the Required Equipment, and CSG will obtain for
Customer any Required Equipment a CSG's then-current prices and on terms and
conditions set forth in a separately executed purchase agreement.
8.WORK DONE BY OTHERS. If any of the Services or other work performed by CSG is
dependent upon work done by others, CSG shall inspect such work and promptly
report to Customer any defect therein that renders such other work unsuitable
CSG's proper performance. CSG's silence shall constitute approval of such other
work as being fit, proper and suitable for CSG's performance of the Services.
9. PRODUCTS WARRANTIES AND REMEDIES.
(a.) Limited Warranty. Except as provided in Section 11 and 12, CSG warrants
----------------
that (i) the Products will conform to CSG's published specifications in effect
on the date of delivery and (ii) the Products will perform in a certified
"Designated Environment" (as defined in Schedules C, D and E) substantially as
described in the accompanying Documentation for a period of ninety days after
the date of delivery (the "Waranty Period"). Except as set forth in Schedule H,
----------
CSG provides all third party software, including the "Incorporated Third Party
Software" (as defined below in Section 10), AS IS. Customer acknowledges that
(i) the Products and the Incorporated Third Party Software may not satisfy all
of Customer's requirements and (ii) the use of the Products and the Incorporated
Third Party Software may not be uninterrupted or error-free. Customer further
acknowledger that (i) the fees set forth in Schedule F and other charges
----------
contemplated under this Master Agreement are based on the limited waranty,
disclaimers and limitation of liability specified in this Section and Sections
11, 12, 16, 17, and 18 and (ii) such charges would be substantially higher if
any of these provisions were unenforceable. During the Warranty Period or for
the period that may be set forth below, whichever is longer, CSG also represents
and warrants to Customer as follows:
(1.) Each time Software is delivered to Customer, CSG warrants that it has
the right to grant to Customer a license to use such Software;
(2.) Except as disclosed in the published specifications, Documentation, or
Exhibits attached hereto, when delivered, the Software contains no
"computer viruses" or other contaminants, including with limitation any
codes or instructions that may be used to access, modify, delete, damage or
disable Customer's computer systems;
(3.) During the term the Software is licensed to Customer, the Software
shall be substantially compatible with, and may be used in conjunction with
other software and/or operating systems to the extent described in CSG's
then current published specifications in the certified Designated
Environment;
(4.) The Software does not contain any disabling code which would render
the Software unusable until a patch or new password is entered on the
platforms on which it operates;
(5.) Any magnetic medium on which portions of the Software is furnished
shall be free from defects in material, workmanship and recording under
normal use;
(6.) If Phoenix and/or VantagePoint are licensed to Customer and used prior
to, during or after the calendar year 2000 such software shall include at a
sufficient time to meet Customer's requirements, at no additional charge, year
2000 capabilities. For the purpose of this section, year 2000 capability means
that Phoenix and VantagePoint: (i) will manage and manipulate data involving
dates, including single century formulas and multi-century formulas, and will
not cause and abnormal ending scenario within the application or result in
incorrect values generated involving such date; (ii) will provide all
date-related user interface functionalities and date fields including an
indication of century; and (iii) will provide that all date-related functions,
including generated code, will include indication the century.
(b.)Remedies. In case of breach of Warranty or any other duty related to the
quality of the Products, CSG or its representative will correct or replace any
defective Product or, if not practicable, CSG will accept the return of the
defective Product and refund to Customer (i) the amount actually paid to CSG
allocable to the defective Product, and (ii) a pro rata share of the maintenance
fees that Customer actually paid to CSG
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THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
for the period that such Product was not usable. Customer acknowledges that this
Subsection 9(b) sets forth Customer's exclusive remedy, and CSG's exclusive
liability, for any breach of warranty or other duty related to the quality of
the Products. THE REMEDIES SET FORTH IN THIS PARAGRAPH ARE SUBJECT TO THE
"LIMITATION OF REMEDIES" SET FORTH BELOW IN SECTION 17.
10. INCORPORATED THIRD PARTY SOFTWARE. Customer acknowledges that the Products
may incorporate certain third party computer programs and documentation (the
"Incorporated Third Party Software") and are subject to the additional or
alternative terms and conditions as may be set forth in Schedule H, as
----------
applicable (the "Incorporated Licenses"). In case of any conflict between this
Master Agreement and the Incorporated Licenses, the terms of the Incorporated
Licenses will prevail with respect to that particular item of Incorporated Third
Party Software. CSG will be responsible for paying any fees for the Incorporated
Third Party Software that may be due in connection with this Master Agreement.
Customer will execute the additional documents that such vendors may require to
enable CSG to deliver the Incorporated Third Party Software to Customer. Except
as otherwise provided in Schedule H, CSG makes no warranty and provides no
----------
indemnity with respect to the Incorporated Third Party Software.
11. OTHER THIRD PARTY SOFTWARE. Customer acknowledges that CSG will deliver the
System together with certain third party software other than Incorporated Third
Party Software, and that Customer's rights and obligations with respect to such
other third party software are subject to the license terms accompanying the
specific item of third party software. CSG is not a party to any license between
Customer and any licensor of such third party software, and CSG makes no
warranty and provides no indemnity with respect thereto.
12. ABS SERVICES WARRANTY. CSG represents and warrants that (i) CSG will
perform the ABS Services in a good workmanlike manner and (ii) the Deliverables
as defined in Schedule B will substantially conform to the applicable
----------
specifications set forth in the statement of works attached to Schedule B for a
----------
period of ninty (90) days from Customer's receipt of the Deliverable. In case of
breach of this ABS Services' warranty or any other legal duty to Customer for
the ABS Services, CSG's exclusive liability, and Customer's exclusive remedy,
will be to obtain (i) the reperformance of the ABS Service or the correction or
replacement of the Deliverable or (ii) if the parties agree that such remedies
are not at all practicable, a refund of the Project Fees (as defined in Schedule
--------
B) allocable to such ABS Service or Deliverable. ALL OTHER WARRANTIES OR
CONDITIONS, WHETHER EXPRESS OR IMPLIED (INCLUDING BUT NOT LIMITED TO, ANY
IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, TITLE OR
NON-INFRINGEMENT), ARE HEREBY DISCLAIMED.
13. EMERGENCY SUPPORT. CSG shall provide Customer with a periodically updated
current listing of technical support personnel, together with telephone contact
procedures to assist Customer in solving out-of-service conditions. CSG shall
make available the name, title, phone number and location of a technically
competent individual from CSG who is able to provide telephone support and
information on a twenty-four hour basis.
14. INSURANCE,. CSG agrees to maintain at all times during the term of this
Agreement appropriate insurance coverages and amounts of insurance for its
activities under this Agreement. CSG agrees to furnish certificates or other
acceptable proof of such insurance at the request of Customer.
15. INDEMNITY.
(a) Indemnity. Except as otherwise provided in Exhibit C-1, if an action is
- -------------- -----------
brought against Customer claiming that the Products infringe a patent or
copyright within the jurisdiction where the "Designated Environment" (as defined
in the applicable Schedules, attached hereto) is situated (the "Territory"), CSG
---------
will defend Customer at CSG's expense and, subject to this Section and Section
18, pay the damages and costs finally awarded against Customer in the
infringement action, but only if (i) Customer notifies CSG promptly upon
learning that the claim might be asserted, and (ii) CSG has sole control over
the defense of the claim and any negotiation for its settlement or compromise.
(b) Alternative Remedy. If a claim described in Section 15(a.) may be or has
- ------------------------
been asserted, Customer will permit CSG, at CSG's option and expense, to (i)
procure the right to continue using the Product if reasonably practicable, (ii)
replace or modify the Product to climinate the infringement while providing
functionally equivalent performance and responsiveness or (iii) accept the
return of the Product and refund to Customer the amount of the fees actually
paid to CSG and allocable for such Product, less amortization based on a 5-year
straight-line amortization schedule and a pro rata share of any maintenance fees
that Customer actually paid to CSG for the period that such Product was not
usable.
(c) Limitation. CSG shall have no indemnity obligation to Customer under this
- ---------------
Section if the patent or copyright infringement claim results from (i) a
correction or modification of the Product not provided by CSG, (ii) the failure
to promptly install an Update or Enhancement provided by CSG (as defined in the
applicable Schedules, attached hereto) or (iii) the combination of the Product
---------
with other items not provided or recommended by CSG (note: this, of course, does
not include the Incorporated Third Party Software, if any, and equipment and
other items certified by CSG as part of the Designated Environment).
16. PAY-PER-VIEW LIABILITY. Notwithstanding anything to the contrary herein,
CSG's total liability with respect to each pay-per-view event for any and all
claims, damages, losses or expenses incurred by Customer arising directly or
indirectly out of CSG's
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THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
processing of pay-per-view information shall be limited to the amount of fees
actually received by CSG from Customer applicable to such pay-per-view
processing services related to the specific event giving rise to such liability.
17. LIMITATION OF REMEDIES. EXCEPT AS EXPRESSLY PROVIDED IN THIS MASTER
AGREEMENT, AND THE SCHEDULES AND ATTACHMENTS HERETO, ALL WARRANTIES, CONDITIONS,
REPRESENTATIONS, INDEMNITIES AND GUARANTEES WITH RESPECT TO THE PRODUCTS, THE
INCORPORATED THIRD PARTY SOFTWARE, OTHER THIRD PARTY SOFTWARE, AND THE SERVICES,
WHETHER EXPRESS OR IMPLIED, ARISING BY LAW, CUSTOM, PRIOR ORAL OR WRITTEN
STATEMENTS BY CSG, ITS AGENTS OR OTHERWISE (INCLUDING, BUT NOT LIMITED TO ANY
WARRANTY OF MERCHANTABILITY, SATISFACTION, FITNESS FOR PARTICULAR PURPOSE, TITLE
OR NON-INFRINGEMENT) ARE HEREBY OVERRIDDEN, EXCLUDED AND DISCLAIMED. CUSTOMER
ACKNOWLEDGES THAT THE PRODUCTS AND SERVICES BEING PROVIDED AS AGREED TO HEREIN
ENTAIL THE LIKELIHOOD OF SOME HUMAN AND MACHINE ERRORS, OMISSIONS, DELAYS AND
LOSSES, INCLUDING, BUT NOT LIMITED TO, INADVERTENT MUTILATION OF DOCUMENTS AND
LOSS OF DATA, WHICH MAY GIVE RISE TO LOSS OR DAMAGE. CUSTOMER AGREES THAT CSG
SHALL NOT BE LIABLE DUE TO SUCH ERRORS, OMISSIONS, DELAYS AND LOSSES UNLESS
CAUSED BY CSG'S GROSS NEGLIGENCE OR WILLFUL AND INTENTIONAL MISCONDUCT.
18. NO CONSEQUENTIAL DAMAGES. UNDER NO CIRCUMSTANCES WILL CSG OR ITS RELATED
PERSONS BE LIABLE TO CUSTOMER OR CSG'S LICENSORS BE LIABLE TO CUSTOMER FOR ANY
CONSEQUENTIAL, INDIRECT, SPECIAL, PUNITIVE OR INCIDENTAL DAMAGES OR LOST
PROFITS, WHETHER FORESEEABLE OR UNFORESEEABLE, BASED ON CUSTOMER'S CLAIMS OR
THOSE OF ITS CUSTOMERS (INCLUDING, BUT NOT LIMITED TO, CLAIMS FOR LOSS OF DATA,
GOODWILL, USE OF MONEY OR USE OF THE PRODUCTS, THE INCORPORATED THIRD PARTY
SOFTWARE, OR OTHER THIRD PARTY SOFTWARE, RESULTING REPORTS, THEIR ACCURACY OR
THEIR INTERPRETATION, INTERRUPTION IN USE OR AVAILABILITY OF DATA, STOPPAGE OF
OTHER WORK OR IMPAIRMENT OF OTHER ASSETS), ARISING OUT OF BREACH OR FAILURE OF
EXPRESS OR IMPLIED WARRANTY, BREACH OF CONTRACT, MISREPRESENTATION, NEGLIGENCE
STRICT LIABILITY IN TORT OR OTHERWISE. IN NO EVENT WILL THE AGGREGATE LIABILITY
WHICH CSG OR ITS LICENSORS MAY INCUR IN ANY ACTION OR PROCEEDING EXCEED THE
AMOUNT ACTUALLY PAID BY CUSTOMER ALLOCABLE TO THE SPECIFIC ITEM OR SERVICE THAT
DIRECTLY CAUSED THE DAMAGE, DESPITE THE FOREGOING EXCLUSION AND LIMITATION, THIS
SECTION WILL NOT APPLY TO THE EXTENT THAT APPLICABLE LAW SPECIFICALLY REQUIRES
LIABILITY.
19. TERM. This Master Agreement shall be effective on the date of execution and
acceptance by CSG (the "Effective Date"). From the Effective Date, this Master
Agreement shall remain in effect and continue thereafter indefinitely unless
earlier terminated pursuant to Section 20. The term of any license for the
Products and the term for any Services to be provided shall be set forth in the
Schedules attached hereto and shall be effective from the date set forth therein
and continue as provided for therein, unless terminated pursuant to Section 20
of this Master Agreement.
20. TERMINATION. This Master Agreement or any one more of the Schedules attached
hereto may be terminated for cause as follows:
(a) If either party materially or repeatedly defaults in the performance of
their respective obligations hereunder, except for Customer's obligation to pay
fees, and fails either to substantially cure such default within thirty (30)
days after receiving written notice specifying the default, then the party not
in default may, by giving written notice to the defaulting party, terminate this
Master Agreement or any one or more of its Schedules as of a date specified in
such notice of termination.
(b) If Customer fails to pay when due any amounts owed hereunder and fails
either to substantially cure such default within thirty (30) days after
receiving written notice specifying the default, then CSG may, by giving written
notice thereof to Customer, terminate this Master Agreement or at CSG's option,
CSG may terminate any one or more of the Schedules attached hereto, as of a date
specified in such notice of termination.
(c) In the event that either party hereto becomes or is declared insolvent or
bankrupt, is the subject of any proceedings related to its liquidation,
insolvency or for the appointment of a receiver or similar officer for it, makes
an assignment for the benefit of all or substantially all of its creditors, or
enters into an agreement for the composition, extension or readjustment of all
or substantially all of its obligations, then the other party hereto may, by
giving written notice thereof to such party, terminate this Master Agreement as
of the date specified in such notice of termination.
(d) If Customer or any of Customer's employees or consultants breach any term or
condition of any Schedule attached hereto for the license of a Product(s) or of
any license agreement for software or products distributed by or through CSG,
including the Incorporated Third Party Software, CSG may, at CSG's option,
terminate the Master Agreement or terminate any one or more of the Schedules
attached hereto upon 30 days advance written notice and without judicial or
administrative resolution.
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THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
Upon the termination of the Master Agreement or any one or more of the Schedules
attached hereto, for any reason, all rights granted to Customer under this
Master Agreement or the terminated Schedule(s) will cease, and Customer will
promptly (i) purge all the Products from the Designated Environment and all of
Customer's other computer systems, storage media and other files; (ii) destroy
the Products and all copies thereof; (iii) deliver to CSG an affidavit which
certifies that Customer has complied with these termination obligations; and
(iv) pay to CSG all fees that are due pursuant to this Master Agreement.
Notwithstanding the foregoing, if only one or more of the Schedules are
terminated, Customer must comply with the requirements of this paragraph only
with respect to the specific Products set forth in the terminated Schedule(s).
21. TERMINATION ASSISTANCE. Upon expiration or earlier termination of this
Master Agreement or termination of Schedule A or Schedule D, if applicable, by
---------- -------------------------
either party for any reason, CSG will provide Customer, reasonable termination
assistance for up to ninety (90) days relating to the transition to another
vendor. This termination assistance will be provided to Customer at CSG's then
standard rates unless CSG has materially defaulted under the terms of this
Master Agreement, in which case no additional charge for the termination
assistance shall apply. If this Master Agreement expires or is terminated
earlier by CSG, then Customer will pay CSG, in advance, on the first day of each
calendar month and as a condition to CSG's obligation to provide termination
assistance to Customer during that month, an amount equal to CSG's reasonable
estimate of the total amount payable to CSG for such termination assistance for
that month.
22. CONFIDENTIALITY.
(a.) Definition. Customer and CSG will provide to each other or will come into
----------
possession information relating to each other's business, CSG's Products and
Services and the Incorporated Third Party Software which is considered
confidential (the "Confidential Information"). Customer acknowledges that
confidentiality restrictions are imposed by CSG's licensors or vendors.
Confidential Information shall include, without limitation, all of Customer's
and CSG's trade secrets, and all know-how, design, invention, plan or process
and Customer's data and information relating to Customer's and CSG's respective
business operations, services, products, research and development, CSG's
vendors' or licensors' information and products, and all other information that
is marked "confidential" or "proprietary" prior to or upon disclosure, or which,
if disclosed orally, is identified by the disclosing party at the time as being
confidential or proprietary and is confirmed by the disclosing party as being
Confidential Information in writing within thirty (30) days after its initial
disclosure.
(b.) Restrictions. Each party shall use its reasonable best efforts to maintain
------------
the confidentiality of such Confidential Information and not show or otherwise
disclose such Confidential Information to any third parties, including, but not
limited to, independent contractors and consultants, without the prior written
consent of the disclosing party. Each party shall use the Confidential
Information solely for purposes of utilizing the Products and performing its
obligations under this Master Agreement. Each party shall indemnify the other
for any loss or damage the other party may sustain as a result of the wrongful
use or disclosure by such party (or any employee, agent, licensee, contractor,
assignee or delegatee of the other party) of its Confidential Information.
Customer will not allow the removal or defacement of any confidentiality or
proprietary notice placed on any CSG documentation or products. The placement of
copyright notices on these items will not constitute publication or otherwise
impair their confidential nature.
(c.) Disclosure. Neither party shall have any obligation to maintain the
----------
confidentiality of any Confidential Information which: (i) is or becomes
publicly available by other than unauthorized disclosure by the receiving party;
(ii) is independently developed by the receiving party; or (iii) is received
from a third party who has lawfully obtained such Confidential Information
without a confidentiality restriction. If required by any court of competent
jurisdiction or other governmental authority, the receiving party may disclose
to such authority, data, information or materials involving or pertaining to
Confidential Information to the extent required by such order, provided that the
receiving party shall first have advised the disclosing party so that the
disclosing may obtain a protective order sufficient to maintain the
confidentiality of such data, information or materials. If an unauthorized use
or disclosure of Confidential Information occurs, the parties will take all
steps which may be available to recover the documentation and/or products and to
prevent their subsequent unauthorized use or dissemination.
(d.) Limited Access. Each party shall limit the use and access of Confidential
--------------
Information to such party's bona fide employees or agents who have a need to
know such information for purposes of conducting the receiving party's business
and who agree to comply with the use and non-disclosure restrictions applicable
to the products and documentation under this Master Agreement. If requested,
receiving party shall cause such employees and consultants to execute
appropriate confidentiality agreements in favor of the disclosing party. Each
party shall notify all employees and agents who have access to Confidential
Information or to whom disclosure is made that the Confidential Information is
the confidential, proprietary property of the disclosing party and shall
instruct such employees and agents to maintain the Confidential Information in
confidence.
23. SURVIVAL. Termination of this Master Agreement shall not impair either
party's then accrued rights, obligations, liabilities or remedies.
Notwithstanding any other provisions of this Master Agreement to the contrary,
the terms and conditions of Sections 9, 10, 11, 12, 16, 17, 18, 20, 21, 22, 23,
26, and 34 shall survive termination of this Master Agreement.
24. NON-WAIVER. No course of dealing or failure of either party to enforce
strictly any term, right or condition of this Agreement shall be construed as a
waiver of such term, right or condition. The waiver by Customer of any default
of CSG hereunder shall not be deemed a waiver of any other default of CSG.
5
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
25. NATURE OF RELATIONSHIP. CSG, in furnishing Services and licensing Products
to Customer hereunder, is acting only as an independent contractor. CSG does not
undertake by this Master Agreement or otherwise to perform any obligation of
Customer, whether regulatory or contractual, or to assume any responsibility for
Customer's business or operations. Customer understands and agrees that CSG may
perform similar services for third parties and license same or similar products
to third parties. Nothing in this Master Agreement shall be deemed to constitute
a partnership or joint venture between CSG and Customer. Neither party shall
hold itself out as having any authority to enter into any contract or create any
obligation or liability on behalf of or binding upon the other party.
26. OWNERSHIP. All trademarks, service marks, patents, copyrights, trade
secrets and other proprietary rights in or related to the Products, the
"Deliverables" as defined under Schedule B, the Incorporated Third Party
----------
Software and other third party software (collectively the "Software Products")
are and will remain the exclusive property of CSG or its licensors, whether or
not specifically recognized or perfected under applicable law. Customer will not
take any action that jeopardizes CSG's or its licensor's proprietary rights or
acquire any right in the Software Products, except the limited use rights
specified in the Schedules to this Master Agreement. CSG or its licensor will
own all rights in any copy, translation, modification, adaptation or derivation
of the Software Products, including any improvement or development thereof.
Customer will use its best efforts to promptly obtain, at CSG's request, the
execution of any instrument that may be appropriate to assign these rights to
CSG or its designee or perfect these rights in CSG's or its licensor's name.
27. RESTRICTED RIGHTS. Use, duplication or disclosure by the U.S. Government or
any of its agencies is subject to restrictions set forth in the Commercial
Computer Software and Commercial Computer Software Documentation clause at DFARS
227.7202 and/or the Commercial Computer Software Restricted Rights clause at FAR
52.227.19(c) CSG Systems, Inc., 2525 North 117th Street, Omaha, Nebraska 68164.
28. INSPECTION. During the term of this Master Agreement and for twelve (12)
months after its termination or expiration for any reason, CSG or its
representative may, upon prior notice to Customer, inspect the files, computer
processors, equipment and facilities of Customer during normal working hours to
verify Customer's compliance with this Master Agreement. While conducting such
inspection, CSG or its representative will be entitled to copy any item that
Customer may possess in violation of this Master Agreement.
29. FORCE MAJEURE. Neither party will be liable for any failure or delay in
performing an obligation under this Master Agreement that is due to cause beyond
its reasonable control, including but not limited to, fire, explosion,
epidemics, earthquake, lightening, failures or fluctuations in electrical power
or telecommunications equipment, accidents, floods, acts of God, the elements,
war, civil disturbances, acts of civil or military authorities or the public
enemy, fuel or energy shortages, strikes, labor disputes, regulatory
restrictions, restraining orders or decrees of any court, changes in law or
regulation or other acts of governmental, transportation stoppages or slowdowns
or the inability to procure parts or materials. These causes will not excuse
Customer from paying accrued and outstanding amounts due to CSG through any
available lawful means acceptable to CSG. If a force majeure condition occurs,
the affected party shall; (1) immediately give notice thereof to the other
party; and (2) use its best effort to perform notwithstanding the force majeure
condition.
30. ASSIGNMENT. Neither party may assign, delegate or otherwise transfer this
Master Agreement or any of its rights or obligations hereunder without the other
party's prior written consent, which consent shall not be unreasonably withheld.
Any attempt to do so without such approval will be void. Notwithstanding the
foregoing, CSG or Customer may assign this Master Agreement, upon notice to the
other party, to a related or unrelated person in connection with a sale,
acquisition, consolidation or other reorganization of CSG's or Customer's
business, in whole or in part, and CSG and Customer hereby consent to such
assignment in advance.
31. QUALITY ASSURANCE. Products and Services furnished hereunder by CSG shall be
subject to CSG's quality control activities and procedures, including any
performance measurements, testing, quality process reviews and inspections to
implement such procedures. Upon reasonable notification by Customer, CSG shall
make available to Customer that data obtained through CSG's quality control
procedures which demonstrate the results of CSG's quality procedures and the
quality of furnished products. Such data shall be sufficient to demonstrate that
the Products meet CSG's specified quality and reliability measurements. If
requested by Customer, CSG shall: (1) provide Customer a copy or CSG's quality
manual; (2) provide Customer a copy of CSG's current quality inspection
procedures and product specifications; and (3) permit Customer the accessibility
and assistance necessary to perform an on-site quality program review of CSG's
quality program at CSG's facilities.
32. NOTICES. Any notice or approval required or permitted under this Master
Agreement will be given in writing and will be sent by telefax, courier or mail,
postage prepaid, to the address specified below or to any other address that may
be designated by prior written notice. Any notice or approval delivered by
telefax (with answer back) will be deemed to have been received the day it is
sent. Any notice or approval sent by courier will be deemed received one day
after its date of posting. Any notice or approval sent by mail will be deemed to
have been received on the 5th business day after its date of posting.
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<PAGE>
<TABLE>
<S> <C>
If to Customer: If to CSG:
Telcom Plus CSG Systems, Inc.
2201 Waukegan Road Stc.E200 2525 N. 117th Ave.
Bannockburn, IL 60015 Omaha, NE 68164
Tel: (874) 374-7000 Fax: Tel: (402) 431-7000 Fax: (402) 431-7278
Attn: Mr. William F. Wallace, President Attn: President and copy to Corporate Counsel
</TABLE>
With Copy to:
Mid Atlantic Cable
5335 Wisconsin Ave., Suite 750
Washington, DC 20015
Attn: Ms. Joan Miller, VP
33. ARBITRATION
(a.) General. Any controversy or claim arising out of or relating to this Master
-------
Agreement or the existence, validity, breach or termination thereof, whether
during or after its term, will be finally settled by compulsory arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), as modified or supplemented under this Section 33.
(b.) Proceeding. To initiate arbitration, either party will file the appropriate
----------
notice at the Regional Office of the AAA in Chicago, Illinois. The arbitration
proceeding will take place in Chicago, Illinois. The arbitration panel will
consist of three (3) arbitrators, one arbitrator appointed by each party and a
third neutral arbitrator appointed by the two arbitrators designated by the
parties. Any communication between a party and any arbitrator will be directed
to the AAA for transmittal to the arbitrator. The parties expressly agree that
the arbitrators will be emprowered to, at either party's request, grant
injunctive relief.
(c.) Award. The arbitral award will be the exclusive remedy of the parties for
-----
all claims, counterclaims, issues or accountings presented or plead to the
arbitrators. The award will (i) be granted and paid in U.S. dollars exclusive of
any tax, deduction or offset and (ii) include interest from the date of that the
award is rendered until it is fully paid, computed at the maximum rate allowed
by applicable law. Judgment upon the arbitral award may be entered in any court
that has jurisdiction thereof. Any additional costs, fees or expenses incurred
in enforcing the arbitral award will be charged against the party that resists
its enforcement.
(d.) Legal Actions. Nothing in this Section will prevent party from seeking
-------------
interim injunctive relief against the other party in the courts having
jurisdiction over the other party. Nothing in this Section will prevent CSG from
filing any debt collection action against Customer in the local courts.
34. MISCELLANEOUS. All notices or approvals required or permitted under this
-------------
Master Agreement must be given in writing. Any waiver or modification of this
Master Agreement will not be effective unless executed in writing and signed by
CSG. This Master Agreement will bind Customer's successors-in-interest. This
Master Agreement will be governed by and interpreted in accordance with the laws
of Illinois, U.S.A, to the exclusion of its conflict of laws provisions. If any
provision of this Master Agreement is held to be unenforceable, in whole or in
part, such holding will not affect the validity of the other provisions of this
Master Agreement. This Master Agreement, together with the Schedules, Exhibits
and attachments hereto which are hereby incorporated into this Master Agreement,
constitutes the complete and entire statement of all conditions and
representations of the agreement between CSG and Customer with respect to its
subject matter and supersedes all prior writings or understandings.
THIS AGREEMENT IS NOT EFFECTIVE UNTIL SIGNED ON BEHALF OF BOTH PARTIES.
IN WITNESS WHEREOF, the parties have executed this Master Agreement the day
and year first above written.
CSG Systems, Inc., a Delaware corporation. Ventures In Communications RMTS,
("CSG") d/b/a Telcom Plus ("Customer")
By: /s/ George F. Haddix By: /s/ William F. Wallace
-------------------- ----------------------
Name: George F. Haddix Name: William F. Wallace
----------------- ------------------
Title: President Title: President
----------------- ------------------
[STAMP APPEARS HERE]
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<PAGE>
SCHEDULE A
CCS SUBSCRIBER BILLING SERVICES
1. CCS SERVICES. Subject to the terms and conditions of the Master Agreement
and for the fees described in Schedule F, CSG will provide to Customer, and
----------
Customer will purchase from CSG, all of Customer's requirements for the data
processing services, applications and other telephony, cable and video services
(the "CCS Services") for all of Customer's subscriber accounts using CSG' CCS
system. The CCS Services will provide Customer with an on-line terminal facility
(not the terminals themselves), service bureau access to CCS processing
software, adequate computer time and other mechanical data processing services
as more specifically described in the user documents; the User Guide, User Data
File Manual, User Training Manual, Conversion Manual, Operations Guide, and
Customer Bulletins issued by CSG (the "Documentation"). Customer's personnel
shall enter all payments and non-monetary changes on terminal(s) located at
Customer's offices, or provide CSG payment information on magnetic tape or
electronic record in CSG's format. CSG and Customer acknowledge and agree that
the Documentation describing the CCS Services is subject to ongoing review and
modification from time to time. The CSG Telephony services are further described
as set forth in Exhibit A-3.
2. COMMUNICATIONS SERVICES AND FEES. CSG shall provide, at Customer's expense,
a data communications line from the CSG data processing center to each of
Customer's system site locations identified in Exhibit A-1 attached hereto (the
"System Sites"). Customer shall pay all fees and charges in connection with the
installation and use of and peripheral equipment related to the data
communications line in accordance with the fees described in Schedule F attached
---------
hereto.
3. IMPLEMENTATION/CONVERSION SERVICES AND FEES. CSG shall provide services as
described on Exhibit A-3 attached hereto in connection with Customer's
conversion of each System Site and for those added by mutual agreement of the
parties to CSG's data processing system subsequent to the execution of this
Master Agreement (the "Implementation/Conversion Services"). For System Sites
added to Exhibit A-1 subsequent to the Effective Data of the Master Agreement,
Customer shall pay CSG the fees set forth in Exhibit A-3 for the performance of
the Implementation/Conversion Services.
4. DECONVERSION SERVICES AND FEES. If Customer sells, transfers, assigns or
disposes of any of the assets of or any ownership or management interest in any
System Site (the "Disposed Site(s)"), Customer agrees to pay CSG the per set
deconversion tape fee of $7500 and CSG's then current rates for processing and
deconverting subscribers, including online access fees, which amounts shall be
due and payable thirty (30) days prior to the intended deconversion of any such
Disposed Site(s) from the CCS Services. CSG shall be under no obligation or
liability to provide any deconversion tapes or records until all amounts due
hereunder, and as otherwise provided in the Master Agreement, shall have been
paid in full.
5. OPTIONAL AND ANCILLARY SERVICES. At Customer's request, CSG shall provide
optional and ancillary services at the fees set forth on Schedule F.
----------
6. CUSTOMER INFORMATION. Any original documents, data and files provided to
CSG hereunder by Customer ("Customer Data") are and shall remain Customer's
property, and upon termination of this Master Agreement for any reason or
deconversion of any System Site, such Customer Data shall be returned to
Customer by CSG, subject to the payment of CSG's then-current rates for
processing and delivering the Customer Data, any applicable deconversion fees
required under Section 4 hereof and all unpaid charges for services and
equipment, if any, including late charges incurred by Customer. Customer Data
will not be utilized by CSG for any purpose other than those purposes related to
rendering the services to Customer under the Master Agreement. Data to be
returned to Customer includes: Subscriber Master File (including Work Orders,
Converters and General Ledger), Computer-Produced Reports (reflecting activity
during period of 90 days immediately prior to Schedule A termination), House
----------
Master File, Any other related data or files held by CSG on behalf of Customer.
7. PROCESSING MINIMUM. If at any time the fees and charges for the CCS
services incurred as computed pursuant to Schedule F are less than a minimum of
*** in total processing fees per month (the "Minimum"), Customer agrees to pay
the Minimum.
8
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
8. TERM. The first day of the calendar month in which the CCS Services
commence shall be referred to as the "Commencement Date." The CCS Services
shall continue from the Commencement Date for a period of three (3) years.
AGREED AND ACCEPTED THIS 27TH DAY OF SEPT., 1996, BY:
CSG SYSTEMS, INC. ("CSG") VENTURE IN COMMUNICATIONS RMTS D/B/A TELCOM PLUS
("Customer")
By: /s/ George F. Haddix By: /s/ William F. Wallace
----------------------- ---------------------------
Exhibit A-1 - SYSTEM SITES;
Exhibit A-2 - IMPLEMENTATION/CONVERSION SERVICES;
Exhibit A-3 - TELEPHONY SERVICES
9
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT A-1
SYSTEMS LOCATIONS ESTIMATED CONVERSION DATE
Largo, MD January 1997
10
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT A-2
Conversion and Start-up
FOR SITE CONVERSIONS WITH SUBSCRIBER COUNTS OF LESS THAN 20,000:
- ---------------------------------------------------------------
Manual conversions are recommended on all sites with less than 20K subscribers.
Clients are responsible for data entry.
CSG Start-Up Fee *** Includes:
. - 5 Sets of CCS Documentation
. - File Set-Up
. - 3 Months Access to CBT
. - 1 Week's Management Training in Omaha
. - Manuel Data Base Instructions/Procedures
CSG Support - Travel Expenses Plus ***/day
On Data Bases Over 10K Subs, CSG will offer the following:
. . Programmatic Load of House Data - ***
. . Programmatic Load of Converter Data - ***
<TABLE>
<CAPTION>
CONVERSION FEE SCHEDULE - SITE SIZE
-------------------------------------------------------------------------
20,000 - 59,999 60,000 - 89,999 90,000 - 149,999 more than 150,000
--------------- --------------- ---------------- --------
<S> <C> <C> <C> <C>
PROCESSOR
- ---------
KNOWN
=====
Excluding Travel & Entertainment - - - -
Total Conversion/Implementation Fee *** *** *** ***
</TABLE>
KNOWN PROCESSORS:
BSI, EDS - System 1 (CMS), Service Electric, CableData, ISD, Toner, CableMax,
Parallex, Touchstone, Cablestar, Quickdata.
1) 20,000 - 59,999 SUBSCRIBERS CATEGORY ___________________________
INCLUDES:
- ---------
A) TRAINING AIDS AND DOCUMENTATION - 5 SETS
MANUALS AND JOB AIDS FOR YOUR CABLE SYSTEM STAFF. These manuals and job
aids are used to complement your CBT courses. Each employee would be
provided the necessary job aids and manuals.
JOB AIDS: Logon/Sign On, logoff/Sign Off, CBT Training Systems, House
File, Sales Support, Adjustment Transactions, Adjustment Practice Sheet,
Converter Inventory/Addressability Transactions, Converter Sample Invoices,
Select System
ADDTIONAL COPIES: *** for the Job Aids and *** for the Manual.
FIVE FOUR VOLUME SETS OF THE "CABLE SOURCE" CABLE CONTROL SYSTEM USER
GUIDES. This system documentation explains all reports and transactions of
the Cable Control System.
ADDITIONAL COPIES: *** per set or *** per volume.
FIVE CCS CONVERSION MANUALS. This manual describes the major components
necessary for set-up and conversion/implementation to the CCS system.
ADDITIONAL COPIES: CSG's then-current prices
FIVE "CABLESOURCE USER DATA FILE" MANUALS. This manual describes the 300
plus parameters provided to allow you flexibility in establishing your
processing requirements. This manual will be primarily reviewed by the
Conversion Specialist during your first visit.
ADDITIONAL COPIES: CSG's then-current prices
A TEST SYSTEM that provides for the opportunity to practice "hands on"
training without impacting your actual data base. (Deaccessed after
conversion)
11
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT A-2 (PAGE 2 OF 4)
-------------------------
5 COPIES OF RMS MANUAL. This manual describes all functionality and commands of
the CSG print package. Additional copies: CSG's then-current print package.
Additional copies: CSG's then-current prices.
B) RECOMMENDED SITE VISITS
-----------------------
INITIAL VISIT
. Overview of the conversion/implementation process. This incorporates
reviewing conversion tasks, timeline and responsible parties.
. Establish and/or review of corporate standards, as they relate to User Data
File, Code Tables, Service Codes and Report settings.
. Define Conversion Specifications. This process defines fields, values and
variables used on current billing processor and how that will be converted
to CCS.
PRE-CONVERSION REVIEW
. Review set up of User Data File, Code Tables and reports.
. Review pricing and taxing structure of cable site.
. Review and approve Conversion/Implementation Specifications.
. Train office personnel on use of the CCS system as it pertains to their job
function using CBT and a pre-established test system.
. Review statement file settings.
. Assist the site with defining new procedures for policies that pertain to
the billing system.
POST CONVERSION
. Audit converted data the morning after merge.
. Coordinate input of accumulated backlog (work orders, payments, adjustments
and PPV)
. Review exceptions created through conversion/implementation process and
take necessary action.
. Review pricing and taxing structure.
. Balance cash.
. Review reports and assist with determining needs for daily distribution.
. Review and release first cycle of generated statements.
THIRD WEEK
. Review reports.
. Assist with monthend financial balancing.
. Provide potential solutions for day to day procedural issues. (i.e. work
order printing, routing, dispatch, converter inventory).
C) DATABASE CLEAN-UP
-----------------
HOMES PASSED. All addresses that currently reside on your database will be
compared against the Group One Zip + 4 files. The following items will occur:
. Street names, suffixes (street, avenue) will be standardized in accordance
with U.S.P.S. records.
. Nine digit zip code established - normally from 90-98% of address will be
assigned the 4 digit add-on list of addresses that did not meet U.S.P.S
standards will be provided. Rural areas may have lower percentages.
. Bar-coding of Zip +4 statement will be performed by CSG.
. Re-zip of your data base occur every quarter - this allows CSG to continue
to qualify for the highest postal discounts.
. List of duplicate address records will be provided for cleanup purposes.
12
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT A-2 (PAGE 3 OF 4)
-------------------------
CONVERTER DATA BASE. All converters will be passed through CCS edit programs,
the following items will occur:
. Listing of duplicate serial numbers including the location of the box will
be provided.
. If you are addressable, a listing of duplicate terminal address (prom
number) will be provided.
. Invalid model numbers, invalid serial number formats will be identified.
SUBSCRIBER DATA BASE. Standard CCS edits requirements will be performed along
with any specific site requested information. The following items are provided
as examples:
. Site requested service codes, discount codes.
. Site requested campaign codes.
. Subscribers receiving free services.
. Invalid phone numbers.
. Any specific site requested data.
D) MANAGEMENT TRAINING IN OMAHA
. In depth lecture seminar designed for managers and supervisors.
. Covers all aspects of the Cable Control system.
. Includes a detailed training manual and all additional training materials.
. Opportunity to tour the CSG Mail Facility.
II) 60,000 - 89,999 SUBSCRIBERS CATEGORY________________________________________
INCLUDES EVERYTHING AS LISTED ABOVE IN SECTION I, EXCEPT REGARDING:
RECOMMENDED SITE VISITS:
- -----------------------
TRAINING
. CSG training will be on-site to conduct "Train the Trainer" courses for
site's training staff.
. CSG trainers will train site staff on CCS facets and functionality, based
upon agenda and needs created by Cable site management.
III) 90,000 - 149,999 SUBSCRIBERS AND 150,000 + SUBSCRIBERS CATEGORIES__________
INCLUDES EVERYTHING AS LISTED ABOVE IN SECTION II, EXCEPT REGARDING:
RECOMMENDED SITE VISITS:
- -----------------------
SPECIALITY TRIPS
. Addressability Specialist - 1 trip
. Financial Analyst - 1 trip
. Conversion Specialist - 1 trip to review output with site
. Conversion Specialist - 1 trip to define new procedures for policies that
pertain to the billing system.
MANAGEMENT TRAINING (This training is usually on-site because of the volume of
managers to be trained.)
. In depth lecture seminar designed for managers and supervisors.
. Covers all aspects of the Cable Control system.
Includes a detailed training manual and all additional training materials.
13
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT A-2 (PAGE 4 0F 4)
-------------------------
THE FOLLOWING IMPLEMENTATION (START-UP) SERVICES ARE AVAILABLE FOR THE FEES SET
FORTH ON SCHEDULE F:
----------
1) CUSTOMER PREPARATION:
. Formalize operational system requirements and specifications.
. Coordinate all vendor activities pertaining to telephony support,
functionality, including operational networks and database management.
. Determine and implement all billing and financial management parameters.
. Advance reporting design and development.
. Validate the design and implementation of the telephony operational
environment.
2) TRAINING:
. 15 days of On-Site Training
. 5 sets of Documentation
14
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT A-3
-----------
TELEPHONY SERVICES
In addition to the services set forth in Schedule A, CSG shall provide Customer
----------
with the following CSG Telephony Services:
1. E911 PROCESSING. CSG shall provide a logical interface for routing
required data to Customer's selected E911 provider. Customer shall be
responsible for any logical interface requirements necessary for its selected
E911 provider. Customer is also responsible for any additional requirements that
are not in CSG standard package.
2. DIRECTORY LISTING INFORMATION. CSG shall provide an interface for routing
required data to Customer's selected directory listing provider. Customer shall
be responsible for any special interface requirements necessary for is selected
directory listing provider. Customer is also responsible for any additional
requirements that are not in CSG standard package.
3. SERVICE NUMBER PORTABILITY. CSG shall provide a logical interface for
routing required data to Customer's selected service number portability
provider. Customer shall be responsible for any logical interface requirements
necessary for its selected service number portability provider. Customer is also
responsible for any additional requirements that are not in CSG standard
package.
4. CARRIER ACCESS RECORD EXCHANGE (CARE). CSG shall provide a logical
interface for routing required data to Customer's selected CARE provider.
Customer shall be responsible for any logical interface requirements necessary
for its selected CARE provider. Customer is also responsible for any additional
requirements there are not in CSG standard package.
5. RATING. CSG shall classify and determine rates of message toll service
charges, local exchange charges and general exchange charges for call records
provided to CSG in accordance with the tariffs System Sites provide to CSG. From
the message toll data processed for System Sites, CSG shall extract and forward
the required data to any message processing or sampling center in accordance
with any billing and collection agreement System Sites may have with an
interexchange carrier; provided System Sites have furnished a copy of such
agreement to CSG at least sixty (60) days prior to the time such sampling
process is to occur.
6. CARRIER ACCESS BILLING. CSG shall provide carrier access billing service
for Feature Group C or Feature Group D service in accordance with the tariffs
and charges which System Sites provide to CSG. Carrier access bills will be
prepared and forwarded to the appropriate carrier or in accordance with
instructions provided by the System Sites.
7. EDIT AND REVIEW. CSG shall create a weekly edit to verify that sequence
numbers of polled data match. CSG shall verify that there are call records
comparable to the daily volume of call records expected on an exchange or
company basis. If any abnormal variation is identified by the edit or review,
CSG shall notify the general manager of System Sites, or such representative as
System Sites designate in writing to CSG, of the variation as soon as is
reasonably possible by telephone. System Site shall then be responsible for
examining its switch to determine if there is missing or incorrect data and if
there is, providing the missing or correct data to CSG. In addition, CSG shall
perform post rating edits after the toll cutoff date to determine if any
inconsistencies exist in the data.
In addition to any other Customer obligations set forth in Schedule A or the
----------
Master Agreement, Customer has the following obligations:
1. INFORMATION. System Sites shall provide CSG with any information which CSG
deems reasonably necessary to perform the services under this Schedule A. System
----------
Sites shall provide a schedule of all tariffs and service charges to be used by
CSG. In addition, System Sites shall provide the following specific information
defined in the following items:
(a) Local Exchange Charges. Any Unit Sensitive Pricing (USP) table changes
----------------------
shall be provided to CSG at least five (5) days prior to the date on which such
charges are to be applied by CSG to billing services.
(b) Intralata Optional Calling Plans. Any additions, deletions and changes to
--------------------------------
intralata optional calling plan tables shall be provided to CSG prior to the
System Site toll cutoff date. System Sites shall notify CSG as soon as possible
of the implementation of any new optional calling plans, other than AT&T Plans,
and CSG will respond to System Sites with the implementation date of the new
plan within ten (10) days of being notified by the System Sites.
(c) Rebills. Any information related to the rebilling of any intralata or
-------
interlata toll messages shall be provided to CSG at least five (5) days prior to
your toll cutoff date.
(d) AT&T Interlata Billing, Rating and Optional Calling Plan Charges. System
----------------------------------------------------------------
Sites shall notify CSG of the implementation of new or changes to existing
billing formats, rating and optional calling plans through the use of the Time
and Cost Process as defined in Exhibit B of AT&T Article 8-2 (Billing and
Collection Services Contract between System Sites and AT&T). CSG will comply
with all "Change Requests" as defined in Section 6.0 of Exhibit B of Article 8-2
on behalf of the System Sites.
15
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EX.A-3 (PAGE 2 OF 2)
--------------------
(e) Other Carrier Interlata and Intralata Calling Plans. System Sites shall
---------------------------------------------------
notify CSG of the implementation of new or changes to existing billing formats,
rating and optional calling plans and CSG will respond to System Sites with the
implementation date of the new plan within ten (10) days of being notified by
the System Sites. Any additions, deletions and changes to intralata and
interlata optional calling plan tables shall be provided to CSG prior to the
System Sites toll cutoff date.
If CSG receives any of the information defined in Section 1(a)-(e) above later
than the defined periods, CSG will make every reasonable effort to include those
changes in the current billing. If processing for the current month has
progressed past the point at which these changes can be implemented, the changes
will be implemented for the monthfollowing the current month. All parties agree
to reasonably work together with the System Sites and the Carrier to complete
such projects and data updates in a businesslike manner.
2. DATA. System Sites shall be responsible for making all necessary "AMA"
data recorded on System Sites' switch available to CSG in the manner set forth
in this Section 2. System Sites shall notify CSG of any proposed, actual or
pending changes in the composition of the data stored on the switch of System
Sites as soon as possible prior to the change. Such notice shall be required for
any of the following:
(a) A scheduled or unscheduled software change or upgrade to the System Sites
switch and/or polling unit;
(b) Scheduled or unscheduled maintenance to the switch and/or polling unit;
(c) A scheduled or unscheduled change to the format (i.e. structure code
changes) of the recorded data;
(d) An addition or deletion of WATS recording numbers.
Such notice shall be given by calling CSG's Computer Operations Support
Department at (402) 426-6222 (extension 385) during normal business hours.
3. DATA TRANSFER. In addition to anything else set forth in this Schedule A,
----------
CSG and System Sites shall have the following responsibilities depending upon
the means by which the data to be processed is transmitted to CSG. The parties
shall initial below the method of data transfer to be used.
(a) Polling. If CSG receives the data by polling the switch of System Sites,
-------
the responsibilities shall be:
(1) CSG shall poll System Sites' switch on a scheduled basis.
(2) System Sites shall maintain their switch and connecting telephone line
such that CSG can poll the data at any time.
(3) System Sites shall retain all data on their switch for at least
forty-five (45) days to provide data redundance to the data CSG has
polled on a scheduled basis.
(b) Bulletin Board System. If System Sites transmit the data to CSG's bulletin
---------------------
board system, the responsibilities shall be:
(1) System Sites shall have the data from their switch read into a
personal compute file and then transmitted to CSG's bulletin board
system.
(2) CSG shall perform a directory function on its bulletin board system on
a scheduled basis to determine if any new files have been received.
(3) System Sites shall maintain the original magnetic tapes, on which data
was transferred from the switch, for at least sixty (60) days from the
date the data is transferred to CSG's bulletin board system.
(4) System Sites shall retransmit any data upon request from CSG.
(c) Tape. If System Sites transmit the data by sending the original magnetic
----
tape from the switch, the responsibilities shall be:
(1) System Sites shall identify, by external labels, all magnetic tapes
submitted to CSG with the name of System Site, the number of messages
on the tape and beginning and ending tapes.
(2) System Sites shall be responsible for the delivery of magnetic tapes
to CSG.
(3) CSG shall maintain a log containing the following information in
relation to any magnetic tapes received from System Sites: the date
received and the identifying matter on the external labels.
(4) CSG shall store the magnetic tapes it receives from System Sites for
sixty (60) days. After such period, CSG shall degauss and return the
tapes the System Sites.
16
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
SCHEDULE B
CSG ADVANCED BUSINESS SOLUTIONS SERVICES
----------------------------------------
1. GENERAL. Subject to the terms and conditions of the Master Agreement and
for the fees and expenses described below, Customer hereby hires CSG, and CSG
hereby agrees, to provide the design, development and/or other consulting
services described in the Statement of Works contemplated under Section 2
(collectively, the "ABS Services") to Customer as its independent contractor.
2. ABS SERVICES.
(a) REASONABLE EFFORTS. CSG will use its reasonable commercial efforts to
------------------
perform all ABS Services in a timely and professional manner satisfactory to
Customer and in accordance with the applicable Statement of Work.
(b) PROJECTS SCHEDULES. CSG and Customer will execute a schedule substantially
------------------
similar to Exhibit B-1 (the "Statement of Work") for each design, development
and/or other consulting project that Customer wants CSG to undertake. CSG and
Customer acknowledge that all Statement of Works will form an integral part of
this Schedule B.
----------
(c) LOCATION AND ACCESS. CSG may perform the ABS Services at Customer's
-------------------
premises, CSG'S premises or such other premises that Customer and CSG may deem
appropriate. Customer will permit CSG to have reasonable access to Customer's
premises, personnel and computer equipment for the purposes of performing the
ABS Services at Customer's premises.
(d) INSURANCE. CSG will be solely responsible for obtaining and maintaining
---------
appropriate insurance coverage for its activities under this Schedule B,
----------
including, but not limited to, comprehensive general liability (bodily injury
and property damage) insurance and professional liability insurance.
3. CONSIDERATION.
(a) PROJECT FEES. In consideration for performing the ABS Services, Customer
------------
will pay CSG the fees that may be contemplated under the Statement of Works (the
"Project Fees").
(b) REIMBURSABLE EXPENSES. Unless otherwise contemplated under the Statement of
---------------------
Work, Customer will reimburse CSG for the necessary and reasonable travel,
lodging and related out-of-pocket expenses that CSG may incur in performing the
ABS Services ("Reimbursable Expenses").
(c) PAYMENT. Customer will pay the Project Fees to CSG according to the
-------
applicable terms set forth in the Statement of Work. Unless otherwise
contemplated in the Statement of Work, Customer will pay CSG the Reimbursable
Expenses within thirty (30) days after the receipt of CSG's invoice and
supporting receipts. All payments will be made in U.S. dollars by check or wire
transfer to CSG's designated bank account. Any late payment will accrue interest
at the rate of 1.5% until paid in full.
(d) TAXES. CSG will specify on all invoices issued to Customer any sales, use
-----
or other tax that may be assessable in connection with this Schedule B. Customer
----------
will pay such taxes or provide CSG with any applicable certificate of exemption
acceptable to the appropriate taxing authorities.
4. CSG RIGHTS. Customer acknowledges that all patents, copyrights, trade
secrets or other proprietary rights in or to the work product that CSG may
create for Customer under this Schedule B (the "Deliverables"), including, but
----------
not limited to, any ideas, concepts, inventions or techniques that CSG may use,
conceive or first reduce to practice in connection with the ABS Services, are
and will be the exclusive property of CSG, except as and to the extent otherwise
specified in the applicable Statement of Work. During and after the term of this
Schedule B, CSG and Customer will execute the instruments that may be
- ----------
appropriate or necessary to give full legal effect to this Section 4.
5. DELIVERY OF ITEMS. Upon the expiration or termination of this Schedule B
----------
for any reason, Customer will promptly pay CSG the Project Fees and Reimbursable
Expenses that may be due and outstanding for the ABS Services and Deliverables
that CSG has performed, and CSG will deliver to Customer all notebooks,
documentation and other items that contain, in whole or in part, any
Confidential Information that Customer disclosed to CSG in performance of the
ABS Services under this Schedule B.
----------
6. TERM. The term of this Schedule B shall continue indefinitely unless
----------
earlier terminated pursuant to Section 20 of the Master Agreement.
Agreed and accepted this 27th day of Sept. 1996, by:
CSG SYSTEMS, INC.("CSG") VENTURES IN COMMUNICATIONS RMTS d/b/a Telcom Plus
("Customer")
By: /s/ George F. Haddix By: /s/ William F. Wallace
--------------------- -----------------------
EXHIBIT B-1........ SAMPLE STATEMENT OF WORK
EXHIBIT B-2........ STATEMENT OF WORK - Integration of Operational Systems with
CCS/ACSR
17
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT B-1
STATEMENT OF WORK (sample)
THIS STATEMENT OF WORK is made as of _____________199__, between CSG
SYSTEMS, INC. ("CSG"), and Ventures In Communications RMTS d/b/a TelCom Plus
("Customer"), pursuant to Schedule B of the Master Agreement that CSG and
----------
Customer executed as of ____________, 199__, and of which this Statement of Work
forms an integral part.
OBJECTIVE:
- ---------
PROCEDURES:
- ----------
TIMETABLE: Commencement Date: _______________.
- ---------
Completion Date: _________________.
DELIVERABLES:
- ------------
PROJECT FEES AND PAYMENTS TERMS:
- -------------------------------
IN WITNESS WHEREOF, CSG and Customer cause this Statement of Work to be
duly executed below.
CSG SYSTEMS, INC. ("CSG") VENTURES IN COMMUNICATIONS RMTS d/b/a TelCom Plus
("Customer")
By:_________________________ By:_________________________
Name:_______________________ Name:_______________________
Title:______________________ Title:______________________
Date:_______________________ Date:_______________________
18
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
STATEMENT OF WORK
THIS STATEMENT OF WORK is made as of 9/27 1996, between CSG Systems, Inc.
----
("CSG"), and Ventures In Communications RMTS d/b/a Telcom Plus ("Customer"),
pursuant to Schedule B of the Master Agreement that CSG and Customer executed as
----------
of 9/27, 1996, and of which this Statement of Work forms an integral part.
----
1. TITLE: Integration of Operational Systems with CCS/ACSR
-----
2. OBJECTIVE: To ensure successful implentation of an integrated customer
---------
management system, it is necessary to integrate the financial and network
management systems with the customer care and billing system (CCS/ACSR).
3. PROCEDURES: ABS will work with Telcom Plus and Mid Atlantic Cable to define
----------
the business requirements and processes involved in integrating a network
management system, and integrating the network management system with CCS/ACSR.
ABS will assist Telecom Plus in:
. Determining network requirements, such as alarm information, mean time
between failure, mean time between repair, asset provisioning, and asset
tracking.
. Determining requirements for feeding network management system alarms to
the CCS/ACSR system.
. Selecting vendors providing the required pieces of network management.
. Selecting vendors providing the required pieces of asset management.
. Selecting vendors providing network interface units.
. Selecting vendors providing trouble ticket management.
. Overall program management.
ABS will work with Telcom Plus to define the business requirements and processes
involved in integrating financial management packages. ABS will assist Telcom
Plus in:
. Determining requirements for feeding CCS/ACSR financial information into
the Vencom and Mid-Atlantic Cable financial systems.
. Determining requirements for integrating the disparate financial systems
into one financial package for Telcom Plus and Mid-Atlantic cable.
4. DELIVERABLES.: The deliverable for each portion of the project will be the
------------
Business Requirements and Definitions Document.
5. TIMETABLE: Estimated effort is 75 days.
---------
Commencement Date: October 2, 1996.
----------------
Completion Date: To Be Determined.
-----------------
6. FEES: Customer will be billed at $1,500 per day, plus reasonable and
----
customary expenses, payable monthly.
IN WITNESS WHEREOF, CSG and Customer cause this Statement of Work to be duly
executed below.
CSG SYSTEMS, INC. ("CSG") VENTURES IN COMMUNICATIONS RMTS d/b/a TelCom Plus
("Customer")
By: /s/ George F. Haddix By: /s/ William F. Wallace
---------------------- ------------------------
Name: George F. Haddix Name: William F. Wallace
-------------------- ----------------------
Title: President Title: President
------------------- ---------------------
Date: 10/1/96 Date: 9/27/96
-------------------- ----------------------
19
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
SCHEDULE C
CCS PRODUCTS SOFTWARE LICENSE
-----------------------------
CSG VANTAGE(TM), ASCR(TM), CIT(TM), SCRIPTING(TM) AND CSG TELEPHONY
1. LICENSE. CSG hereby grants Customer, and Customer hereby accepts from CSG,
a non-exclusive, non-transferable and perpetual right to use the software
products known as CSG Vantage, ACSR, CIT, Scripting, Computer Based Training and
CSG Telephony for use with the CCS Services described in Section 2 below (the
"CCS Products") in the designated environment described in Section 3 below (the
"Designated Environment"), for the fees set forth in Schedule F and subject to
the terms and conditions specified below and in the Master Agreement.
2. CCS PRODUCTS. "CCS Products" as described in the Product Schedule attached
hereto as Exhibit C-1 includes (i) the machine-readable object code version of
CSG Vantage, ACSR, CIT, Scripting, Computer Based Training and CSG Telephony
software (the "Software"), whether embedded on disc, tape or other media; (ii)
the published user manuals and documentation that CSG may make generally
available for the Software (the "Documentation"), (iii) the fixes, updates,
upgrades or new versions of the Software or Documentation that CSG may provide
to Customer under this Schedule C (the "Enhancements") and (iv) any copy of the
Software, Documentation or Enhancements. Nothing in this Schedule C will entitle
Customer to receive the source code of the Software or Enhancements, in whole or
in part.
3. DESIGNATED ENVIRONMENT. "Designated Environment" means the combination of
the other computer programs and hardware equipment CSG specified for use with
the CCS Products as set forth in Exhibit C-2, or otherwise approved by CSG in
writing for Customer's use with the CCS Products at the system sites set forth
on Exhibit C-1 (the "System Locations"). Customer may use the CCS Products only
in the Designated Environment and will be solely responsible for upgrading the
Designated Environment to the specifications that CSG may provide from time to
time. If Customer fails to do so, CSG will have no obligation to continue
maintaining and supporting the CCS Products. CSG shall certify the Designated
Environment prior to the commencement of CSG's obligations under this Schedule
C, including its obligations to maintain and support the CCS Products. Any other
use or transfer of the CCS Products will require CSG's prior approval, which may
be subject to additional charges.
4. USE. Customer may use the CCS Products only in object code form on the
workstations set forth on Exhibit C-1 and in the Designated Environment and at
the System Locations, and only for the term set forth below, and only for
Customer's own internal purposes and business operations with the CCS Services
for providing accounting and billing services to its cable subscribers. In
addition to the Incorporated Third Party Software, if third party products are
provided to Customer as part of the CCS Products, by opening the package
containing the third party product or downloading it, Customer agrees to be
bound by the terms of the third party's standard license. Customer will not use
the CCS Products to provide any such service to or on behalf of any third
parties in a service bureau capacity and will not permit any other person to use
the CCS Products, whether on a time-sharing, remote job entry or other multiple
user arrangement. Customer will not install the Software, Enhancements or
Customization on a network or other multi-user computer system unless otherwise
specified in the Exhibits to this Schedule, in which case the Designated
Environment may be used to provide database or file services to other of
Customer's computers across the network, up to the number of workstations
specified in Exhibit C-1. Customer may make only one back-up archival copy of
the Software, Enhancements or Customization. Customer will reproduce all
confidentiality and proprietary notices on each of these copies and maintain an
accurate record of the location of each of these copies. Customer will not
otherwise copy, translate, modify, adapt, decompile, disassemble or reverse
engineer the CCS Products, except as and to the extent expressly authorized by
applicable law.
5. MAINTENANCE AND SUPPORT.
(a) Maintenance and Support. Following expiration of the Warranty Period, CSG
- ----------------------------
will provide Customer the Support and maintenance as described on Exhibit C-3
(the "Support Services"). Any telephone consultation may be provided remotely by
telephone, fax or other electronic communication during CSG's normal business
hours. Customer will bear all telephone and other expenses that it may incur in
connection with CSG's Support Services. Annual Maintenance does not include
maintenance and support of the Incorporated Third Party Software or any other
third party software except to the extent set forth in Schedule H.
----------
(b) Optional Support. At Customer's request, CSG may agree to provide and at
- ---------------------
CSG's discretion, CSG may offer Customer additional Support Services or other
support, including but not limited to, the optional support services listed on
Exhibit C-3, at CSG's then current price or charge.
20
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
(c) Limitation. Enhancements in this Schedule C will not include any upgrade or
----------
new version of the CCS Products that CSG decides, in its sole discretion, to
make generally available as a separately priced item. This Schedule C will not
require CSG to (i) develop and release Enhancements (ii) customize the
Enhancements to satisfy Customer's particular requests or (iii) obtain
Enhancements to any third party product. If an Enhancement replaces the prior
version of the CCS Product, Customer will destroy such prior version and all
archival copies upon installing the Enhancement.
6. TERM. This Schedule C shall be effective from the Effective Date as defined
in the Master Agreement and will remain in effect thereafter indefinitely unless
terminated pursuant to Section 20 of the Master Agreement.
AGREED AND ACCEPTED THIS 27TH DAY OF SEPT., 1996, BY:
CSG SYSTEMS, INC. ("CSG") VENTURES IN COMMUNICATIONS RMTS D/B/A TELCOM PLUS
("Customer")
By: /s/ George F. Haddix By: /s/ William F. Wallace
------------------------ ----------------------------
EXHIBIT C-1 PRODUCT SCHEDULE
EXHIBIT C-2 DESIGNATED ENVIRONMENT
EXHIBIT C-3 INSTALLATION, MAINTENANCE AND SUPPORT
21
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT C-1
VANTAGE/TELEPHONY/ACSR/CIT/SCRIPTING/CBT
----------------------------------------
PRODUCT SCHEDULE
Software:
- ---------
TELEPHONY-
CSG Telephony is offered with ACSR to provide customer management for telephone
customers. With CSG Telephony, both cable and telephone services may be managed
by a single customer management package. Included in CSG Telephony are
integrated ordering and manual provisioning, telephone number assignment, usage
billing for a single bill of multiple products, product packaging and pricing,
E911, directory listing updates, CARE and service number portability.
CSG VANTAGE-
Vantage is a database which enables Customer to evaluate product and service
performance, conduct customer analysis and lifetime values, and transform raw
data into real-time reports and graphs.
ADVANCED CUSTOMER SERVICE REPRESENTATIVE (ACSR)-
ASCR is a graphical user interface for CSG's CCS service bureau subscriber
management system. ACSR significantly reduces training time and eliminates the
need for CSR's to memorize transactions and codes. CSRs instead are allowed
easily to access reference tools, help screens and customer data. As companies
consolidate and cluster disparate systems with different codes and procedures,
ASCR ensures the accounts can be serviced by the same CSR. ASCR also enables
CSR's to communicate with one another through a self contained messaging system.
ASCR is designed so that module based functionality such as CIT and Scripting
can be added as needed.
CUSTOMER INTERACTION TRACKING (CIT)-
CIT is a module offered with ASCR that provides enhanced methods for tracking
the interaction with the customer base. It provides note taking functionality as
well as an interaction history feature that allows specific actions to be
recorded in a transaction history log. CIT also allows for the scheduling of
customer call backs. These call backs can be reviewed by management as well as
moved between CSR's.
SCRIPTING-
Scripting allows companies to create specific scripts for common situations that
help CSR'S relay consistent messages across the customer base. These scripts can
apply to trouble-shooting activities where a CSR starts with a general problem
and successfully selects the appropriate response and solution. The scripts can
also apply to marketing situations where a CSR can successfully up-sell or
cross-sell customers.
COMPUTER BASED TRAINING FOR ASCR,CIT AND SCRIPTING (Note: Notwithstanding
Section 15(a) of the Master Agreement, CSG provides no indemnification for
intellectual property infringements with respect to Computer Based Training).
________________________________________________________________________________
System Site(s) and Number of Workstations:
- -----------------------------------------
Number of
---------
Site Workstations
---- ------------
Largo, Maryland 30
Delivery Date:
- -------------
Vantage - TBD
ACSR, CIT, Scripting - TBD
Computer Based Training - TBD
Telephony - TBD
22
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT C-2 (page 1 of 4)
TELEPHONY/VANTAGE/ACSR/CIT/SCRIPTING
------------------------------------
DESIGNATED ENVIRONMENT
CSG TELEPHONY:
- -------------
Workstations
- ------------
Compaq Prolinea 5166 4x4 Model 1200 Pentium (32 MB RAM, Windows NT V3.51)
IBM PC350 133MHz Pentium (32 MB RAM, Windows NT V3.51)
Minimum video resolution supported, 1024x768x256 colors, small font, 1.2GB Hard
Drive
Minimum 15" SVGA monitor
Workstation Software
- --------------------
Microsoft Windows NT V3.51 (with Service Pack 4 applied)
NetManage Swift 2.0 (3270 Emulator) or Chameleon NFS 5.0
Oracle SQL Forms 4.5.7.0.10 for NT Runtime
Oracle SQl Net 2.2.2.1.0 for NT Runtime
Servers
- -------
Sun Sparc 20
Sun Sparc 1000E
Server model, number of CPU's, memory, and disk storage requirements are based
on Customer sizing
Server Software
- ---------------
Minimum 8GB hard drive
Brixton PU2.1 for Solaris 2.5 v3.0.5
Solaris V2.5
Oracle Version 7.3.2 Runtime
Tuxedo V6.1
EPM (UNIVISION) V3.0.3
Sterling CONNECT:Direct Software V.1.4.0 (for 911 interface)
Postal Soft V5.00a rev3 for parsing address for E911 interface
Hylafax freeware V4.0
Platinum/Autopsys Agent V3.3 release 5
Samba V1.9.15 p8
Brixton 3270 Client for Solaris 2.5 (v2.3.0.10) 1 copy
Concentrators
- -------------
Bay Networks (Synoptics) 2813-04 (managed 16-port ethernet hub)
Bay Networks (Synoptics) 2803 (non-managed 16-port ethernet hub)
Bay Networks (Synoptics) 2712B-04 (managed 16-port token ring hub)
Bay Networks (Synoptics) 2702-C (non-managed 16-port token ring hub)
Network Card Device
- -------------------
3 Com Etherlink III 3C509
Sun Quad Ethernet Card
Aurora Technologies Multiport 400S A/Sync Series
100 MB Fast Ethernet card
Printers
- --------
IBM 4226 (533cps)
IBM 6408 (800 LPM)
Hewlett Packard LaserJet4
Hewlett Packard Jet Direct EX
23
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT C-2 (PAGE 2 OF 4)
Routers
- -------
Cisco 2500
Cisco 4000
Cisco 7000
Rockwell NetHopper
Cisco Software
- --------------
Version 9.1.4 Release 6
Version 10.0 Release 3
Version 10.0 Release 5
Nethopper Software
- ------------------
Version 4.03
VANTAGE:
- -------
PC Hardware/Software Requirements
- ---------------------------------
Minimum PC requirements:
IBM or Compaq 486DX 33MHz, 8meg.RAM, 340 megabyte hard drive
Recommended PC requirements:
IBM or Compaq Pentium 90Mhz or better, 16 meg. RAM or better, 870
megabyte hard drive or larger.
PC OS; MD DOS 6.2x with Windows 3.1x, or *Windows 95, or *Windows NT
EDA/Link for Windows 2.2 or higher
EDA ODBC Extender - 2.0 or higher (packaged with EDA/Link)
Forest & Trees 3.x
Attachmate's Extra! Mainframe for Windows 3.5 or higher, or
Irma Workstation for Windows - 2.0 or higher (current version recommended)
Connectivity Requirements
- --------------------------
. IBM 3174 Controller or
. Novell OS version 3.1 or greater on a Token Ring or Ethernet LAN.
. The 3270 Gateway must be an Attachmate SAA Gateway or an IPX/SPX Novell SAA
Gateway. If Novell version is 1.2 and you will use Attachmate's Extra!
Mainframe for Windows, you must use a version prior to extra! for Windows
4.1. Novell SAA Gateway version 2.0 or higher will require Attachmate's
Extra! Mainframe for Windows 4.1 or higher.
. If Customer currently has a network that is not Novell, or a gateway that is
not Novell or Attachmate, chmate, the LAN and
gateway can be tested for possible certification.
Using Vantage in the ACSR Product environment
- --------------------------------------------
The ACSR product runs on an IP LAN with a SUN Server. A Brixton gateway on the
SUN Server is used to provide the Vantage Host link. When running Vantage in
that environment, Brixton TN3270 applications run on the SUN Server and Extra!
Mainframe for Windows is configured for a TN3270 network connection versus an
SAA gateway or SNA gateway. ACSR currently runs 16 bit PC OS only. ACSR required
OS is Microsoft Windows v3.11. If the Vantage PC will be used in the ACSR
environment, the ACSR PC Workstation Requirements should be used for both
Vantage and ACSR. Vantage will only run on a PC workstation.
________________________________________________________________________________
ACSR/CIT/Scripting:
- ------------------
Workstations
- ------------
Compaq Prolinea 5166 4x4 Model 1200 Pentium, 16MB RAM, MSDOS 6.22
IBM PC350 166MHz Pentium, 16MB RAM, IBM DOS 6.3
SparcStation 4, 24MB RAM minimum, Solaris 2.4
SparcStation 5/70MHz,16MB RAM, Solaris 2.3
Minimum 16MB required to run ACSR on a Windows workstation
300MB of free hard drive space required to run ACSR on a Windows workstation
Minimum 540MB hard drive required to run ACSR on SparcStation workstation
Minimum video resolution supported 1024x768x256 colors, small font Minimum 15"
SVGA monitor
24
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT C-2 (PAGE 3 OF 4)
Workstation Software
- --------------------
Microsoft Windows V3.11
Chameleon NFS (Version 4.6)
Brixton 3270 client for Windows (Version 3.0.0.6)
Additional Workstation Software to Support Scripting
- ----------------------------------------------------
Oracle SQL *NET Version 2 (Used for PC's that run Script Designer)
Additional Workstation Software to Support CIT
- ----------------------------------------------
Tuxedo (Version 4.2.2)
Servers
- -------
SUN SPARC 20
SUN SPARC 1000E
This configuration must be made on a case-by-case basis.
Memory requirements for the server are based on the number of ACSR users,
minimum 64MB
Minimum 2GB disk required in server; minimum 4GB disk if running CIT or
Scripting
Server Software
- ---------------
Solaris V2.5
Brixton Server PU2.1 for Solaris 2.5 (Version 2.3.2)
Brixton 3270 Client for Solaris 2.5 (Version 2.3.0.10)
Hewlett Packard Unix Jet Direct interface software
Additional Server Hardware & Software to Support Scripting
- ----------------------------------------------------------
Minimum 2 GB hard drive
Oracle (Version 7.1.6)
UniVision (Version 2.1.4); DBVision & Server Vision
Additional Server Hardware & Software to Support CIT
- ----------------------------------------------------
Minimum 2 GB hard drive
Oracle (Version 7.1.6)
Tuxedo (Version 4.2.2)
UniVision (Version 2.1.4); DBVision & ServerVision
Concentrators
- -------------
BayNetworks (Synoptics) 2813-04 (managed 16-port ethernet hub)
BayNetworks (Synoptics) 2803 (non-managed 16-port ethernet hub)
BayNetworks (Synoptics) 2712B-04 (managed 16-port token ring hub)
BayNetworks (Synoptics) 27062B-C (non-managed 16-port token ring hub)
Network Cards/Devices
- ---------------------
3Com Etherlink III 3C509
SUN Quad Ethernet card
Hewlett Packard Jet Direct EX
Aurora Technologies Multiport 400S A/Sync Series
Printers
- --------
IBM 4226 (533 cps)
IBM 6408 (800 LPM)
Hewlett Packard LaserJet4
Routers
- -------
Cisco 2500
Cisco 4000
Cisco 7000
Rockwell NetHopper
25
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT C-2 (page 4 of 4)
Cisco software supported: Version 9.14 Release 6
Version 10.0 Release 3
Version 10.0 Release 5
NetHopper software supported: Version 4.03
________________________________________________________________________________
26
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT C-3 (PAGE 1 OF 2)
TELEPHONY/VANTAGE/ACSR/CIT/SCRIPTING
------------------------------------
SOFTWARE INSTALLATION, MAINTENANCE AND SUPPORT
TELEPHONY INSTALLATION AND TRAINING SERVICES:
- --------------------------------------------
Customer start-up services as set forth in Exhibit A-2
Configuration validation & testing (excluding ACSR)
NOTE: ACSR and ESP are required with use of CSG Telephony Services.
________________________________________________________________________________
VANTAGE INSTALLATION SERVICES:
- -----------------------------
The following services will be provided by CSG with respect to start-up of the
Vantage product.
1. Initial load of the Vantage data base.
2. Unlimited phone support for installation of hardware and software that is
certified by CSG Systems, Inc.
3. For non-certified environments, CSG Systems, Inc. will provide the necessary
phone support to determine if the non-certified environment can or should be
certified
4. If the environment is deemed certifiable, the costs associated with
certifying the environment will be communicated to the customer.
5. On-site assistance by CSG can be provided upon customer request.
VANTAGE TRAINING SERVICES:
- -------------------------
1. Basic Vantage training at a regular scheduled Omaha training class, as space
permits.
2. Basic Vantage training at a scheduled regional training class, as space
permits.
3. Basic Vantage training at a customer requested time and/or location is
available on request.
VANTAGE MAINTENANCE AND SUPPORT:
- -------------------------------
The following services will be provided by CSG for all Vantage users:
1. Telephone consultation for trained users for questions and problems regarding
Vantage.
2. Up to one (1) hour of telephone consultation for troubleshooting a previously
certified hardware/software environment.
3. Attendance at regularly scheduled basic and advanced Vantage training classes
offered in Omaha or at a scheduled regional training location, as space
permits.
4. Daily updates to the Vantage database.
5. Storage of thirteen (13) months of financial data.
OPTIONAL SERVICES FOR VANTAGE:
- -----------------------------
The following additional services are also available to Vantage customers:
1. Static Database - 10 CSG month-end loaded tables; one time set-up, monthly
load, monthly disk storage.
2. Monetary Transactions - All system and manually generated monetary
transactions; one time set-up, monthly load, monthly disk storage.
3. Additional Work Order History - Storage of work order history beyond the
standard two years; one time set-up, monthly load, monthly disk storage.
4. Scheduling Calender - A summary of the scheduling calendar updated three
times per day; one time set-up, monthly load, monthly disk storage.
5. Cluster Coding - Annual subscription
6. Query Building - Consulting services for developing new queries.
7. Additional Training - Training beyond training provided in Schedule F.
----------
8. Systems Integration and Support
-Certifying non-certified hardware/software environment
-Troubleshooting existing hardware/software environment (first hour is free
for certified environments)
-On-site support as requested by customer
9. Output Charges
<PAGE>
EXHIBIT C-3 (PAGE 2 OF 2)
- --------------------------------------------------------------------------------
ACSR INSTALLATION SERVICES INCLUDE:
- -----------------------------------
Initial site visit/survey
Site network diagram
Systems admin training
1 day onsite installation assistance
1 day user business start-up assistance from business project manager
1 day user training
ACSR MAINTENANCE AND SUPPORT:
- -----------------------------
Customer support is provided during CSG's customer service hours for support of
questions, functionality, workflow, training, and non-catastrophic software
defects. System support of ACSR is provided as part of the CCS Services for
problems resulting from defects in ACSR. If Customer does not have a certified
Designated Environment or Customer has modified the network, third party
software, third party hardware or Products, customized support is provided for
$125.00/hour under a Schedule B Statement of Work (or an optional $2500.00/month
----------
support is available covering up to fifty (50) hours of support).
OPTIONAL SERVICES FOR ACSR:
- ---------------------------
LAN Cabling
Workstation, LAN Hub 1, Router, Modem and Printer Install
User Guides - Paper
User Guides - Electronic w/right to copy (annual)
User Guide Right to Copy - Paper (annual)
Annual Fee for User Guide Updates - Paper
Custom Technical Support - Hourly
Custom Technical Support - Monthly contract
Additional User Training - Up to 8 Students
Hourly Technical Support, Consulting, Systems Integration
AOI API License Fee (per application interfaced)
AOI API Annual Maintenance Fee (per application interfaced
- --------------------------------------------------------------------------------
NOTE: The maintenance and support for third party products, including any
Incorporated Third Party Products, is provided by the licensor of those
products. Although CSG may assist in this maintenance and support, CSG will have
no liability with respect thereto and Customer must look solely to the licensor.
The third party maintenance fees are subject to adjustment from time to time due
to changes by the third party vendor.
28
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
SCHEDULE F
----------
MASTER FEE SCHEDULE
-------------------
INDEX
1................ CCS Services
2................ CCS Products
3................ Print and Mail Services
4................ Data Communications Pricing
1
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
1. CCS SERVICES FEES
- --------------------
Basic Monthly Subscriber Charge - ***
-------------------------------------------------------------------------------
SYSTEM SIZE INCREMENTAL DISCOUNTS ACCUMULATIVE DISCOUNT
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
0 - 4,999 *** ***
-------------------------------------------------------------------------------
5,000 - 9,999 *** ***
-------------------------------------------------------------------------------
10,000 - 24,999 *** ***
-------------------------------------------------------------------------------
25,000 - 49,999 *** ***
-------------------------------------------------------------------------------
50,000 - 99,999 *** ***
-------------------------------------------------------------------------------
100,000 - 199,999 *** ***
-------------------------------------------------------------------------------
200,000 - up *** ***
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
MSO SIZE INCREMENTAL DISCOUNTS ACCUMULATIVE DISCOUNT
-------------------------------------------------------------------------------
0 - 99,999 *** ***
-------------------------------------------------------------------------------
100,000 - 249,999 *** ***
-------------------------------------------------------------------------------
250,000 - 499,999 *** ***
-------------------------------------------------------------------------------
500,000 - 999,999 *** ***
-------------------------------------------------------------------------------
1,00,000 - up *** ***
-------------------------------------------------------------------------------
Monthly Per System/Principle Charge ***
BASIC PROCESSING RELATED SERVICES
Basic processing related services fee include the following:
- ------------------------------------------------------------
. Three years of work order history
. All transactions posting to accounts
. All on-line transactions
. All basic subscriber accounts on file
. Up to four (4) work orders on file per subscriber
. Up to 25% inactive subscriber accounts on file
. Up to six (5) SIS statements stored on file
. Up to twenty-five (25) SIS details stored on file
. Up to four (4) SIS memos stored on file
. Addressability function (excluding converter inventory and pay-per-view)
. Credit and collection function (excluding mailing services)
. Work order and service call repair function (excluding forms)
. Financial reports
. Management/audit trail reporting
. User Data File parameter changes
. Service code rate changes
. Individualized customer service support
. Cycle billing function - with up to 28 billing cycles
. Real time USPS Zip + 4 address zip code verification function
. Software release enhancements accompanied by user documentation and updates
. User group participation
. Technical network support 24 hours per day
. Production reports package (over 260 reports available) and report spool
functions
. Guaranteed performance standards
. Ongoing customer analysis and training support
2
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
On-Line Allowance And Overage Charges:
------------------------------------------------------------------
Item Monthly On-Line Monthly Per
Allowance Per Subscriber Overage Charge
------------------------------------------------------------------
A. Work Orders on file *** ***
------------------------------------------------------------------
B. Statements stored on-line *** ***
------------------------------------------------------------------
C. Details stored on-line *** ***
------------------------------------------------------------------
D. Memos stored on-line *** ***
------------------------------------------------------------------
E. Inactive subscribers on file *** ***
------------------------------------------------------------------
CCS ANCILLARY SERVICE FEES
---------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Ancillary Service Fees
- --------------------------------------------------------------------------------------------------------
ITEM ONE TIME MONTHLY MONTHLY
CHARGE PER CHARGE CHARGE PER PER ITEM
SYSTEM PER SYSTEM SUBSCRIBER
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I. REPORTING & DECISION
SUPPORT SERVICES
- --------------------------------------------------------------------------------------------------------
A. Microfiche
- --------------------------------------------------------------------------------------------------------
A. Originals ***
- --------------------------------------------------------------------------------------------------------
B. Duplicates ***
- --------------------------------------------------------------------------------------------------------
B. Selects
- --------------------------------------------------------------------------------------------------------
(1). Set-up fee per report ***
- --------------------------------------------------------------------------------------------------------
(2). Records read ***
- --------------------------------------------------------------------------------------------------------
(3). Records accepted ***
- --------------------------------------------------------------------------------------------------------
(4). Records spooled ***
- --------------------------------------------------------------------------------------------------------
(5). Auto dialer
- --------------------------------------------------------------------------------------------------------
a. Records read ***
- --------------------------------------------------------------------------------------------------------
b. Minimum charge per report ***
- --------------------------------------------------------------------------------------------------------
c. Maximum charge per report ***
- --------------------------------------------------------------------------------------------------------
II. FINANCIAL SERVICES
- --------------------------------------------------------------------------------------------------------
A. Credit Card Processing
- --------------------------------------------------------------------------------------------------------
(1). Start up fee ***
- --------------------------------------------------------------------------------------------------------
(2). Maintenance fee ***
- --------------------------------------------------------------------------------------------------------
(3). Accepted transaction fee
- --------------------------------------------------------------------------------------------------------
0-1,000 transactions ***
- --------------------------------------------------------------------------------------------------------
1,001-2000 transactions ***
- --------------------------------------------------------------------------------------------------------
2,001-3,000 transactions ***
- --------------------------------------------------------------------------------------------------------
3,001-4,000 transactions ***
- --------------------------------------------------------------------------------------------------------
4,001-5,000 transactions ***
- --------------------------------------------------------------------------------------------------------
5,001 and up transactions ***
- --------------------------------------------------------------------------------------------------------
B. Collections Quote
- --------------------------------------------------------------------------------------------------------
III. OTHER ANCILLARY SERVICES
- --------------------------------------------------------------------------------------------------------
A. Equipment Inventory
- --------------------------------------------------------------------------------------------------------
1. Non-addressable converters ***
- --------------------------------------------------------------------------------------------------------
2. Addressable converters ***
- --------------------------------------------------------------------------------------------------------
3. Other non-addressable ***
- --------------------------------------------------------------------------------------------------------
B. Tape transmission (lockbox)
- --------------------------------------------------------------------------------------------------------
1. Per remittance processor ***
- --------------------------------------------------------------------------------------------------------
2. Lockbox reversal ***
- --------------------------------------------------------------------------------------------------------
C. Audio response units
- --------------------------------------------------------------------------------------------------------
1. Start up fee (per billable subscriber) ***
- --------------------------------------------------------------------------------------------------------
*** maximum, *** minimum
</TABLE>
3
CONFIDENTIAL AND PROPRIETARY INFORMATION -FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Ancillary Service Fees
- --------------------------------------------------------------------------------------------------------
ITEM ONE TIME MONTHLY MONTHLY
CHARGE PER CHARGE CHARGE PER PER ITEM
SYSTEM PER SYSTEM SUBSCRIBER
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2. Access fee ***
- --------------------------------------------------------------------------------------------------------
3. Transaction charge (per PPV item) ***
- --------------------------------------------------------------------------------------------------------
D. Automatic Number Identification (ANI)
- --------------------------------------------------------------------------------------------------------
1. Start up fee (per billable subscriber) ***
- --------------------------------------------------------------------------------------------------------
*** maximum, *** minimum
- --------------------------------------------------------------------------------------------------------
2. Access fee ***
- --------------------------------------------------------------------------------------------------------
3. Transaction fee (per PPV item) ***
- --------------------------------------------------------------------------------------------------------
4. Transaction fee with confirmation ***
- --------------------------------------------------------------------------------------------------------
5. Zenith Phonevision ***
- --------------------------------------------------------------------------------------------------------
6. Upgrade from standard ANI to Televue ***
ANI with confirmation
- --------------------------------------------------------------------------------------------------------
7. Local to centralized conversion ***
- --------------------------------------------------------------------------------------------------------
E. Autopackaging (maximum ***) ***
- --------------------------------------------------------------------------------------------------------
F. Pay Per View
- --------------------------------------------------------------------------------------------------------
1. PPV events (per event) ***
- --------------------------------------------------------------------------------------------------------
2. Build events, per supplier tape
- --------------------------------------------------------------------------------------------------------
a. Stand alone ***
- --------------------------------------------------------------------------------------------------------
b. With Auto Auth codes ***
- --------------------------------------------------------------------------------------------------------
c. Auto Auth codes only ***
- --------------------------------------------------------------------------------------------------------
3. Event Schedule download *** ***
- --------------------------------------------------------------------------------------------------------
4. Output of Authorization Profiles ***
- --------------------------------------------------------------------------------------------------------
G. Account number format change* ***
- --------------------------------------------------------------------------------------------------------
H. Addition for a system, principle or agent*
- --------------------------------------------------------------------------------------------------------
1. Setup of new system ***
- --------------------------------------------------------------------------------------------------------
2. Setup of new principal/agent ***
- --------------------------------------------------------------------------------------------------------
3. Add new agents (up to 10) ***
- --------------------------------------------------------------------------------------------------------
I. Equipment Interfaces
- --------------------------------------------------------------------------------------------------------
1. Startup/conversion for:*
- --------------------------------------------------------------------------------------------------------
a. Jerrold AH-4, -4E or -8 ***
- --------------------------------------------------------------------------------------------------------
b. Jerrold AI-O, ACC 1000, ACC ***
2000 or ACC 4000
- --------------------------------------------------------------------------------------------------------
c. Jerrold AH-2, -1, or -2E ***
- --------------------------------------------------------------------------------------------------------
d. Scientific Atlanta SM III, IV or V ***
- --------------------------------------------------------------------------------------------------------
e. Tocom ***
- --------------------------------------------------------------------------------------------------------
f. Zenith intel, PC or HP 1000 ***
- --------------------------------------------------------------------------------------------------------
g. DCR (ARC 1000) ***
- --------------------------------------------------------------------------------------------------------
h. Pioneer M1 M2 M3 or M5 ***
- --------------------------------------------------------------------------------------------------------
i. SA IPPV ***
- --------------------------------------------------------------------------------------------------------
j. Pioneer IPPV ***
- --------------------------------------------------------------------------------------------------------
k. Jerrold IPPV ***
- --------------------------------------------------------------------------------------------------------
l. Tocom IPPV ***
- --------------------------------------------------------------------------------------------------------
m. Zenith Phonevision or IPPV ***
- --------------------------------------------------------------------------------------------------------
n. IPPV add-on for existing customer ***
- --------------------------------------------------------------------------------------------------------
o. DCR for existing Jerrold AH4-E ***
customer
- --------------------------------------------------------------------------------------------------------
p. Upgrade-same vendor-multiple ***
controllers
- --------------------------------------------------------------------------------------------------------
q. Hardware/software upgrades - ***
- --------------------------------------------------------------------------------------------------------
</TABLE>
4
CONFIDENTIAL AND PROPRIETARY INFORMATION -FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Ancillary Service Fees
- --------------------------------------------------------------------------------------------------------
ITEM ONE TIME MONTHLY MONTHLY
CHARGE PER CHARGE CHARGE PER PER ITEM
SYSTEM PER SYSTEM SUBSCRIBER
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
same vendor
- --------------------------------------------------------------------------------------------------------
r. Hardware/software change - ***
different vendor (if one-way)
- --------------------------------------------------------------------------------------------------------
s. Hardware/software change - ***
different vendor (if PPV)
- --------------------------------------------------------------------------------------------------------
t. PCB change ***
- --------------------------------------------------------------------------------------------------------
u. Fleet management *** ***
- --------------------------------------------------------------------------------------------------------
J. Conversion/Implementation customer Based on quote
preparation (per system)
- --------------------------------------------------------------------------------------------------------
K. Documentation
- --------------------------------------------------------------------------------------------------------
1. Cable user guides (4 volumes) ***
- --------------------------------------------------------------------------------------------------------
2. Cable user date file (1 volume) ***
- --------------------------------------------------------------------------------------------------------
L. File maintenance (each request) Quote
- --------------------------------------------------------------------------------------------------------
M. Special reports (each request)
- --------------------------------------------------------------------------------------------------------
1. Duplicate terminal address reports ***
- --------------------------------------------------------------------------------------------------------
2. Duplicate house address report ***
- --------------------------------------------------------------------------------------------------------
3. Duplicate house/sub compare report ***
- --------------------------------------------------------------------------------------------------------
4. Duplicate sub/converter compare report ***
- --------------------------------------------------------------------------------------------------------
5. Duplicate phone report ***
- --------------------------------------------------------------------------------------------------------
6. Month-end printed at CSG ($250 minimum ***
/mo.)
- --------------------------------------------------------------------------------------------------------
7. Trouble call reports ***
- --------------------------------------------------------------------------------------------------------
8. Financial reports (CPSM 318) ***
- --------------------------------------------------------------------------------------------------------
N. Tape Requests (per request) ***
- --------------------------------------------------------------------------------------------------------
O. PC Software
- --------------------------------------------------------------------------------------------------------
1. Data formatter
- --------------------------------------------------------------------------------------------------------
a. First copy ***
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
b. Additional copies (each) ***
- --------------------------------------------------------------------------------------------------------
2. Conversion/Implementation software
- --------------------------------------------------------------------------------------------------------
a. First copy ***
- --------------------------------------------------------------------------------------------------------
b. Additional copies (each) ***
- --------------------------------------------------------------------------------------------------------
P. User data/report data files - special
services
- --------------------------------------------------------------------------------------------------------
1. Late user data file cards ***
- --------------------------------------------------------------------------------------------------------
2. Late reports data file cards ***
- --------------------------------------------------------------------------------------------------------
3. Late statement message card ***
- --------------------------------------------------------------------------------------------------------
4. Special user data file build ***
- --------------------------------------------------------------------------------------------------------
5. Special reports data file build ***
- --------------------------------------------------------------------------------------------------------
Q. Cable radio
- --------------------------------------------------------------------------------------------------------
1. DCR Startup ***
- --------------------------------------------------------------------------------------------------------
2. Local DMX startup ***
- --------------------------------------------------------------------------------------------------------
3. Centralized DMX startup ***
- --------------------------------------------------------------------------------------------------------
R. Deconversion fees
- --------------------------------------------------------------------------------------------------------
1. Per set of deconversion tapes ***
- --------------------------------------------------------------------------------------------------------
2. Online access fee ***
- --------------------------------------------------------------------------------------------------------
S. Training ***/day +
T & E Expense
- --------------------------------------------------------------------------------------------------------
</TABLE>
5
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
TELEPHONY BASIC PROCESSING SERVICES
- -----------------------------------
- --------------------------------------------------------------------------------
STANDARD MONTHLY BASIC PROCESSING FEE PER SUBSCRIBER: $0.50
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------
Message Processing Per Month
- -------------------------------------------------------------------------
1 to 500,000 messages *** per message
- -------------------------------------------------------------------------
500,001 to 1,000,000 messages *** per message
- -------------------------------------------------------------------------
1,000,001 messages and above *** per message
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Rating of Toll Messages Per Month
- -------------------------------------------------------------------------
1 to 100,000 messages *** per message
- -------------------------------------------------------------------------
100,001 to 250,000 messages *** per message
- -------------------------------------------------------------------------
25,001 to 400,000 messages *** per message
- -------------------------------------------------------------------------
400,001 messages and above *** per message
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Carrier Access Billing Per Month
- -------------------------------------------------------------------------
Per Carrier ***
- -------------------------------------------------------------------------
Per Access Line ***
- -------------------------------------------------------------------------
(minimum *** per month)
- -------------------------------------------------------------------------
(maximum *** per month)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Switch Polling
- -------------------------------------------------------------------------
Actual cost of long distance phone calls (dial-up) or dedicated circuit
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Directory Listing Update
- -------------------------------------------------------------------------
Per Update ***
- -------------------------------------------------------------------------
(minimum *** per month)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
E911 Updates
- -------------------------------------------------------------------------
Per Update ***
- -------------------------------------------------------------------------
(minimum *** per month)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Other Services
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Start-up & special programming fee Quote
- ------------------------------------------------------------------------------------------------
Consulting Services:
- ------------------------------------------------------------------------------------------------
Systems Integration Quote
- ------------------------------------------------------------------------------------------------
Business Planning & Operational Specifications Quote
- ------------------------------------------------------------------------------------------------
Training Quote
- ------------------------------------------------------------------------------------------------
</TABLE>
*Note: ACSR and ESP are required with use of CSG Telephony Services
Prices on this Exhibit are subject to change annually
6
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
CCS IMPLEMENTATION AND CONVERSION
---------------------------------
For site conversions with subscriber counts of less than 20,000:
---------------------------------------------------------------
CSG Start-Up Fee - ****
CSG Support - Travel Expenses Plus ***/day
On Data Bases Over 10K Subs, CSG will offer the following:
. Programmatic Load of House Data - ****
. Programmatic Load of Converter Date - ****
<TABLE>
<CAPTION>
Conversion Fee Schedule- Site Size
Programmable Conversion (4)
-------------------------------------------------------------------------------------------
20,000 - 60,000 - 90,000 - more than 150,000
-------- -------- -------- ---------
59,999 89,999 149,999
------ ------ -------
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Processor
--------------------------------------------------------------------------------------------
Known
--------------------------------------------------------------------------------------------
Excluding Travel & Entertainment
--------------------------------------------------------------------------------------------
Total Conversion/Implementation Fee *** *** *** ***
--------------------------------------------------------------------------------------------
</TABLE>
Known Processors: BSI, EDS - System 1 (CMS), Service Electric, CableData,
ISD, Toner, CableMax, Parallex, Touchstone, Cablestar, Quickdata.
3. CCS PRODUCTS FEES (ACSR/CIT/SCRIPTING/COMPUTER BASED TRAINING):
--------------------------------------------------------------
<TABLE>
<CAPTION>
ACSR/CIT/SCRIPTING SOFTWARE
- -------------------------------------------------------------------------------------------------
COMPONENTS CHECKLIST QTY COST EXTENDED
COST
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ACSR/CIT/Scripting Perpetual License Fee 30 *** ***
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Brixton PU2.1 SNA Core Software 1 *** ***
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Brixton session for SNA server (Blocks of 20 only) 200 *** ***
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Brixton 3270 Solaris Client 1 *** ***
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Chameleon NFS for Windows 3.1 (20-49 units) 30 *** ***
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Tuxedo Workstation License 30 *** ***
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Platinum Univision 1 *** ***
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
ACSR Computer Based Training (CBT) 1 *** ***
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Scripting Computer Based Training (CBT) 1 *** ***
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
CIT Computer Based Training (CBT) 1 *** ***
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
PostalSoft 1 *** ***
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Autosys 1 *** ***
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Forest and Trees 1 *** ***
- -------------------------------------------------------------------------------------------------
</TABLE>
TOTAL ACSR/CIT/SCRIPTING SOFTWARE: ***
1) All software fees are for networks utilizing intel based workstations.
2) Per workstation fees include required third party license fees where
applicable.
3) Licenses for 3rd party server software are included with server prices
reflected under Hardware Configuration.
4) Additional workstations can be added at CSG's then current list price.
7
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
ACSR AND THIRD PARTY SOFTWARE MAINTENANCE (Required)
----------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
COMPONENTS CHECKLIST QTY ANNUAL EXTENDED
COST COST
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ACSR/CIT/Scripting Software 30 *** ***
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Tuxedo Workstation 30 *** ***
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Platinum Univision Server 1 *** ***
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Forest and Trees 1 *** ***
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
ACSR CBT 1 *** ***
-----------------------------------------------------------------------------------------------------
Scripting CBT 1 *** ***
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
CIT CBT 1 *** ***
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Netmanage Chameleon NFS (per w/s) 30 *** ***
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Brixton PU2 1 Gateway 1 *** ***
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
PostalSoft - Maintenance 1 *** ***
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
PostalSoft - Directory Updates 1 *** ***
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
AutoSys 1 *** ***
-----------------------------------------------------------------------------------------------------
</TABLE>
Total Annual ACSR & Third Party Software Maintenance: ***
Installation For ACSR/CIT/SCRIPTING
-----------------------------------
1) Prices are for simple single site, single server ACSR installation. CIT &
Scripting will require additional services.
2) Prices assume customer managed installation except for services indicated.
Additional services available on request.
ACSR/CIT/SCRIPTING. HARDWARE CONFIGURATION
------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
COMPONENTS CHECKLIST QTY COST EXTENDED
COST
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SERVER
---------------------------------------------------------------------------------------------------------
SUN Spare 1000, 6 CPU, 512M, 4Gb, 4MM tape, 1 *** ***
CD-ROM, quad ethernet card.
---------------------------------------------------------------------------------------------------------
SUN Spare storage array with fiber channel cable & 12.6G 1 *** ***
---------------------------------------------------------------------------------------------------------
25MB Fiber Host Adaptor 1 *** ***
---------------------------------------------------------------------------------------------------------
6x2.1 GB SCSI-2 Disk Drives (array) 1 *** ***
---------------------------------------------------------------------------------------------------------
16-32GB 4mm DDS-2 Tape Auto Loader 1 *** ***
---------------------------------------------------------------------------------------------------------
1x2.1 GB Disk Drive (Main Cabinet) 1 *** ***
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
UN-INTERRUPTABLE POWER SUPPLY
---------------------------------------------------------------------------------------------------------
American Power Smart UPS-2000 VA 1 *** ***
---------------------------------------------------------------------------------------------------------
Ameican PowerChute management software for Solaris 1 *** ***
</TABLE>
8
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
WORKSTATIONS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IBM PC350 Pentium P133 16M RAM, 1.6Ghd,,
w/SVGA 15" monitor, 3Com, Windows 3.11 30 *** ***
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
PRINTERS
- ------------------------------------------------------------------------------------------------------------------
IBM 4226 (533 cps, FDP-400 cps, DP-200 cps, NLQ) 1 *** ***
HP Laser Jet4 with Jet Direct Card 1 *** ***
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
DATA COMMUNICATIONS EQUIPMENT
- ------------------------------------------------------------------------------------------------------------------
Decision Data 4030 protocol converter (1 async, 1 coax, 56K) 1 *** ***
Modem sharing device (MSD) 4 Port 1 *** ***
V.35 Cable 6ft. 1 *** ***
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
CONCENTRATORS (FOR ETHERNET)
- ------------------------------------------------------------------------------------------------------------------
Synoptics 10baset Ethernet 16 port managed (2813-04) 2 *** ***
Synoptics 10baset Ethernet passive 16 port (2803) 1 *** ***
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
ROUTERS
- ------------------------------------------------------------------------------------------------------------------
Dial-up Router (Nethopper) 1 *** ***
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL HARDWARE: ***
1) All prices are for networks utilizing intel based workstations.
2) Prices are for simple single site ACSR installation.
3) Additional workstations and/or subscribers can be added at CSG's then
current list price.
HARDWARE MAINTENANCE(Optional)
------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COMPONENTS CHECKLIST QTY ANNUAL EXTENDED
COST COST
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SERVERS
- --------------------------------------------------------------------------------------------------------------------
Sun Spare 1000 1 *** ***
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
WORKSTATIONS
- --------------------------------------------------------------------------------------------------------------------
IBM VP 486DX/33 Desktop 30 *** ***
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
CONCENTRATORS (For Ethernet)
- --------------------------------------------------------------------------------------------------------------------
Synoptics 10 baset Ethernet 16 port Managed 2 *** ***
Synoptics 10 baset Ethernet 16 port Passive 1 *** ***
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL OPTIONAL ANNUAL HARDWARE MAINTENANCE: ***
HARDWARE INSTALLATION AND CERTIFICATION
---------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COMPONENTS CHECKLIST QTY COST EXTENDED
COST
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Site-survey (1 for each location) 1 *** ***
- --------------------------------------------------------------------------------------------------------------------
Workstation wiring installation and certification 30 *** ***
- --------------------------------------------------------------------------------------------------------------------
Site Diagram 1 *** ***
- --------------------------------------------------------------------------------------------------------------------
Concentrator installation and certification 3 *** ***
- --------------------------------------------------------------------------------------------------------------------
Server Configuration and Software Installation 1 *** ***
- --------------------------------------------------------------------------------------------------------------------
Server installation and certification 1 *** ***
- --------------------------------------------------------------------------------------------------------------------
Workstation installation and certification 30 *** ***
- --------------------------------------------------------------------------------------------------------------------
Printer installation and certification 2 *** ***
- --------------------------------------------------------------------------------------------------------------------
Decision data 4030 1 *** ***
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL HARDWARE INSTALLATION AND CERTIFICATION: ****
9
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
ANCILLARY SERVICES FOR ACSR/CIT/SCRIPTING
- -----------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
DESCRIPTION PRICE PER PRICE PER PRICE PER PRICE PER PRICE PER
DAY DEVICE HOUR ITEM MONTH
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
1 Day User Training ***
- --------------------------------------------------------------------------------------------------------------------
LAN Cabling ***
- --------------------------------------------------------------------------------------------------------------------
Workstation Install ***
- --------------------------------------------------------------------------------------------------------------------
LAN Hub Install ***
- --------------------------------------------------------------------------------------------------------------------
Router Install ***
- --------------------------------------------------------------------------------------------------------------------
Modem Install ***
- --------------------------------------------------------------------------------------------------------------------
Printer Install ***
- --------------------------------------------------------------------------------------------------------------------
User Guides - Paper (One set of ***
Paper User Guides is provided to
each System Site at no additional
charge)
- --------------------------------------------------------------------------------------------------------------------
User Guides - Electronic w/right ***
to copy (annual)
- --------------------------------------------------------------------------------------------------------------------
User Guide Right to Copy - Paper ***
(Annual)
- --------------------------------------------------------------------------------------------------------------------
Annual Fee for User Guide ***
Updates - Paper (One set of Paper
User Guides Updates is provided
to each System Site at no
additional charge)
- --------------------------------------------------------------------------------------------------------------------
Custom Technical Support - ***
Hourly
- --------------------------------------------------------------------------------------------------------------------
Custom Technical Support - ***
Monthly Contract
- --------------------------------------------------------------------------------------------------------------------
User Training - Up to 8 Students ***
- --------------------------------------------------------------------------------------------------------------------
Hourly Technical Support, ***
Consulting, Systems Integration
- --------------------------------------------------------------------------------------------------------------------
AOI API License Fee (per ***
application interfaced)
- --------------------------------------------------------------------------------------------------------------------
AOI API Annual Maintenance ***
Fee (per application interfaced)
- --------------------------------------------------------------------------------------------------------------------
Forest & Trees License Fee (for ***
CIT and Scripting)
- --------------------------------------------------------------------------------------------------------------------
Forest & Trees Annual ***
Maintenance Fee (for CIT and
Scripting)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Customer support is provided during CSG's customer service hours for
support of questions, functionality, workflow, training, and non-catastrophic
software defects. System support of ACSR, CIT and Scripting is provided as part
of the maintenance fees for problems resulting from defects in ACSR, CIT and
Scripting. If Customer does not have a certified Designated Environment or
Customer has modified the network, third party software, third party hardware or
ACSR, CIT or Scripting, customized support is provided for *** hour (or an
optional *** month support contract is available covering up to fifty (50) hours
of support).
NOTE: CSG is not responsible for providing a backup and recovery plan for ACSR,
CIT and Scripting.
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
10
<PAGE>
VANTAGE:
- --------
One Time Start-up Fee: ***
- ---------------------
Monthly Subscriber Fee: *** minimum based on 2.0 CPU Minutes per 1,000 Basic
- ----------------------
Subs at the rate of *** per subscriber. Includes daily database updates,
installation and training services, ongoing support, and CPU usage.
Systems Integration and Support Fee: ***/hour + T&E
- -----------------------------------
. Certifying non-certified hardware/software environment
. Troubleshooting existing hardware/software environment (first hour is free
for certified Designated Environments)
. On-site support as requested by customer
. All maintenance and support fees are subject to an annual increase in
accordance with the CPI Index for Urban Wage Earners.
Training:
- --------
. Basic Vantage training at a regularly scheduled Omaha training class, as
space permits. This will be allocated at one (1) class for up to four (4)
people for the first *** (or portion of) of the "Monthly Subscriber Fee"
for Vantage. For each additional *** (or portion of) of the "Monthly
Subscriber Fee", one (1) additional person may attend the training class.
. Basic Vantage training at a scheduled regional training class, as space
permits. This will be allocated at one (1) class for up to four (4) people
for the first *** (or portion of) of the "Monthly Subscriber Fee" for
Vantage. For each additional *** (or portion of) of the "Monthly Subscriber
Fee", one (1) additional person may attend the training class.
. Basic Vantage training at a customer requested time and/or location is
available on at the rate of ***/day + T&E
Static Database
- ---------------
. One Time Set-up: Fee ***
. Monthly Load Fee: ***/data base
. Monthly Disk Storage: ***/megabyte (minimum of *** per month)
Monetary Transactions
- ---------------------
*Customer may store between one and six months of data.
. One Time Set-up: Fee ***
. Monthly Processing Fee: *** per sub, *** minimum
. Monthly Disk Storage: ***/megabyte (minimum of *** per month)
Additional Work Order History
- -----------------------------
. One Time Set-up: Fee ***
. Monthly Processing Fee: *** for each month beyond two years for each
database
. Monthly Disk Storage: ***/megabyte (minimum of *** per month)
Scheduling Calendar
- -------------------
. One Time Set-up: Fee ***
. Monthly Processing Fee: *** for each monthly schedule stored
. Monthly Disk Storage: ***/megabyte (minimum of *** per month)
Cluster Coding: Annual subscription pricing available on request
- --------------
Query Development: ***/hour
- ------------------
11
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
Third Party Software (A separate purchase order shall be executed for third
--------------------
party software)
Forest & Trees ***/workstation
Forest & Trees Annual Maintenance ***/workstation (first 90 days at no charge)
EDA/Link by Information Builders ***/workstation
3270 Emulation, Windows ***/workstation
(Attachemate Extra, DCA Irma, or IBM 3270)
Additional CPU usage (per minute): ***
- --------------------
Output Charges: Per agreement
- --------------
NOTE: CSG will store up to 13 months of Customer's financial data and up to
- ----
24 months Customer's work order data in the CSG Vantage database for so long
as Customer pays the Fees and Charges for Vantage.
3. PRINT AND MAIL SERVICES FEES
----------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PRINT AND MAIL SERVICE FEES
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM/DESCRIPTION PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
I. ESP Processing Fees*
- ------------------------------------------------------------------------------------------------------------------------------------
A. First Physical Page, Duplexed (Front & Back), Black & White Print Only
- ------------------------------------------------------------------------------------------------------------------------------------
1. Generic Format **** per statement
- ------------------------------------------------------------------------------------------------------------------------------------
2. Data Warehouse Format **** per statement
- ------------------------------------------------------------------------------------------------------------------------------------
3. CSG Phoenix Statement Format Quote
- ------------------------------------------------------------------------------------------------------------------------------------
4. CCS ACSR/Technony Format Quote
- ------------------------------------------------------------------------------------------------------------------------------------
5. Custom Format (e.g., Long Distance Comparisons) Quote
- ------------------------------------------------------------------------------------------------------------------------------------
B. Additional Physical Pages, Duplexed (Front & Back), Black & White Print Only
- ------------------------------------------------------------------------------------------------------------------------------------
1. Statement **** per physical page
- ------------------------------------------------------------------------------------------------------------------------------------
2. Ad Page/Coupon Page **** per physical page
- ------------------------------------------------------------------------------------------------------------------------------------
*NOTE: An additional physical page means text items, such as billing details or system-generated statement messages that
overflow onto an additional physical page with no more graphics than those graphics tied to messages via the statement
message module and no programmer intervention. The page may include static company information, such as, policies and
procedures, payment locations, franchise authorities, etc. Only graphics from the ESP graphics library may be used on the
additional physical page. Set-up and changes to this page are billed at the ESP Development and Programming Fee.
An ad page/coupon means targeted messages, coupons or advertisememts using text, graphics and coupon borders generated on
an additional physical page. No reverses or dark photos may be used, only gray scale graphics. This page may be duplexed,
but only text may be printed on the back side. The conditional logic for this page can be by zip code or franchise. Set-up
and changes to this page are billed at the ESP Development and Programming Fee.
- ------------------------------------------------------------------------------------------------------------------------------------
II. Postage Fees
- ------------------------------------------------------------------------------------------------------------------------------------
Cost plus Mail Preparation Fee **** per Statement per
Mailing
- ------------------------------------------------------------------------------------------------------------------------------------
III. Print and Mail Ancillary Service Fees
- ------------------------------------------------------------------------------------------------------------------------------------
A. Microfiche
- ------------------------------------------------------------------------------------------------------------------------------------
1. Original Copy **** each
- ------------------------------------------------------------------------------------------------------------------------------------
2. Duplicate Copy **** each
- ------------------------------------------------------------------------------------------------------------------------------------
B. CD-ROM **** per simplex statement
page plus postage
- ------------------------------------------------------------------------------------------------------------------------------------
C. One-Time Start-Up Fee Per System Site
- ------------------------------------------------------------------------------------------------------------------------------------
1. Generic Statement ****
- ------------------------------------------------------------------------------------------------------------------------------------
2. Custom Statement **** Quote
- ------------------------------------------------------------------------------------------------------------------------------------
D. Past Due Notices (excludes postage)
- ------------------------------------------------------------------------------------------------------------------------------------
1. Generic, per notice ****
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
PRINT AND MAIL SERVICE FEES
- ------------------------------------------------------------------------------------
ITEM/DESCRIPTION PRICE
<S> <C>
- ------------------------------------------------------------------------------------
2. Generic, with bold lettering, per notice ***
- ------------------------------------------------------------------------------------
3. Custom, per notice Quote
- ------------------------------------------------------------------------------------
E. Computer Letters (excludes postage)
- ------------------------------------------------------------------------------------
1. Generic, per letter ***
- ------------------------------------------------------------------------------------
2. Custom, per letter Quote
- ------------------------------------------------------------------------------------
F. Delinquency Labels
- ------------------------------------------------------------------------------------
1. Spooled to site *** per label
- ------------------------------------------------------------------------------------
2. Printed 4-up labels *** per label
- ------------------------------------------------------------------------------------
3. Printed Cheshire labels *** per label
- ------------------------------------------------------------------------------------
4. Printed LAB labels *** per label
- ------------------------------------------------------------------------------------
5. Reports (*** minimum charge) *** per report,
per site
- ------------------------------------------------------------------------------------
G. ESP Development and Programming *** per hour
- ------------------------------------------------------------------------------------
H. Special Request Build Fee ***
- ------------------------------------------------------------------------------------
I. Paper, Envelope, Supply Purchasing Quote
- ------------------------------------------------------------------------------------
J. Inserts
- ------------------------------------------------------------------------------------
1. Printing Services
- ------------------------------------------------------------------------------------
a. Marketing/ad inserts Quote
- ------------------------------------------------------------------------------------
b. Other communication Quote
- ------------------------------------------------------------------------------------
2. Processing (maximum of 5 inserts per statement) *** per insert
- ------------------------------------------------------------------------------------
3. Set-up charge
- ------------------------------------------------------------------------------------
a. Cycle size per site less than 5,000
statements *** per cycle
- ------------------------------------------------------------------------------------
b. Cycle size per site more than 10,000
statements No Charge
- ------------------------------------------------------------------------------------
c. Maximum of one set-up per cycle per site ***
- ------------------------------------------------------------------------------------
4. Late insert notification *** per version
per site
- ------------------------------------------------------------------------------------
5. Late arrival of inserts *** per version
per site
- ------------------------------------------------------------------------------------
6. Holds or notification of insufficient inserts ***
- ------------------------------------------------------------------------------------
7. Returns to customer (handling fee) *** (Shipping costs
passed to
customer)
- ------------------------------------------------------------------------------------
K. ESP Deconversion Fee Quote
- ------------------------------------------------------------------------------------
L. Special Build Fee *** per build per
System site
- ------------------------------------------------------------------------------------
</TABLE>
13
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
4. DATA COMMUNICATIONS PRICING
- --------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
MAXIMUM PRINTERS CIRCUIT SPEED INSTALLATION MONTHLY
SUPPORTED CHARGE CHARGE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(M-P= Multiple Locations per Circuit)
- -----------------------------------------------------------------------------------------------------
(P-P= Dedicated Circuit per Location)
- -----------------------------------------------------------------------------------------------------
2-600 LPM P-P 56 KBPS/SNA *** ***
- -----------------------------------------------------------------------------------------------------
2-475 LPM
- -----------------------------------------------------------------------------------------------------
* Requires 3174-91R controller or SNA gateway.
** Printers just being used for screen print are counted as devices but are not included here.
*** Includes all modems and maintenance fees for installations and centralized help desk in the
Continental U.S.
For point-to-point circuits running at 9.6 KBPS; 14.4 KBPS; and 19.2 KBPS, dial-back-up
capability price *** per month, one time installation ***. Each site must supply two business
lines to connect to the dial-back-up modem. In addition, customer will pay any usage charges
incurred. This capability backs up only the circuit, does not support modems or node. 56 KBPS/
SNA circuit is required for each server running to ACSR software.
- -----------------------------------------------------------------------------------------------------
</TABLE>
TCP/IP CONNECTIONS
DATA COMMUNICATIONS PRICING
HOST SERVER REQUIRED AT CUSTOMER LOCATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
CIRCUIT INSTALLATION MONTHLY
SPEED CHARGE CHARGE*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
PRIMARY/CONNECTION
- -----------------------------------------------------------------------------------------------------
56 KBPS *** ***
- -----------------------------------------------------------------------------------------------------
128 KBPS *** ***
- -----------------------------------------------------------------------------------------------------
256 KBPS *** ***
- -----------------------------------------------------------------------------------------------------
512 KBPS *** ***
- -----------------------------------------------------------------------------------------------------
1,544 MBPS *** ***
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
SECOND LEASED LINE IS AVAILABLE UP TO PRIMARY SPEED
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
PRIMARY/CONNECTION
- -----------------------------------------------------------------------------------------------------
56 KBPS *** ***
- -----------------------------------------------------------------------------------------------------
128 KBPS *** ***
- -----------------------------------------------------------------------------------------------------
256 KBPS *** ***
- -----------------------------------------------------------------------------------------------------
512 KBPS *** ***
- -----------------------------------------------------------------------------------------------------
1,544 MBPS *** ***
- -----------------------------------------------------------------------------------------------------
</TABLE>
Token ring or SDLC adapter card can be installed in any of the above
configurations.
Token Ring Card ***
SDLC Adaptor Card ***
Includes all modems and maintenance fees for installations and centralized help
desk in the Continental U.S. For point-to-point circuits running at 9.6 KBPS;
14.4 KBPS; and 19.2 KBPS, dial-back-up capability price *** per month, one time
installation ***. Each site must supply two business lines to connect to the
dial-back-up modem. In addition, customer will pay any usage charges incurred.,
This capability backs up only the circuit, does not support modems or node.
Also, 56 KBPS circuit is required to support CSG's data warehouse product.
The fees listed above are subject to change without notice.
14
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
WIRE TRANSFER INSTRUCTIONS:
- --------------------------
Norwest Bank of Nebraska, NA
20th Street and Farnam Street
Omaha, Nebraska USA 68102
ABA 104000058
Account Number 1155026349
Agreed and accepted this 27th day of Sept., 1996, by:
CSG SYSTEMS, INC. ("CSG") ("Customer")
By: /s/ George F.Haddix By: /s/ William F. Wallace
------------------------ --------------------------
15
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
SCHEDULE G
PRINT AND MAIL SERVICES
1. SERVICES. Subject to the terms and conditions of the Master Agreement, CSG
will provide to Customer, and Customer will purchase from CSG, all of Customer's
requirements for the Print and Mail Services set forth in this Schedule G for
all of Customer's subscriber accounts.
2. POSTAGE. CSG agrees to purchase the postage required to mail statements to
Customer's subscribers ("Subscriber Statements"), notification letters generated
by CSG, past due notices and other materials mailed by CSG on behalf of
Customer. Customer shall reimburse CSG for all postage expenses incurred in the
performance of the Print and Mail Services based on the then current first class
postal rate for each item of first class mail processed by CSG.
3. COMMUNICATIONS SERVICES. CSG shall provide, at Customer's expense, a data
communications line from the CSG data processing center to each of Customer's
system site locations identified in Exhibit G-1 attached hereto (the "System
Sites"). Customer shall pay all fees and charges incurred by CSG in connection
with the installation and use of and peripheral equipment related to the data
communications line in accordance with the fees described in Schedule F attached
----------
hereto. Customer shall electronically transmit all data to CSG in a format
approved by CSG. Customer shall, at its expense, obtain all software and
equipment necessary for the transmission of data to CSG, and Customer shall be
responsible for retransmission of data if any errors occur during transmission.
4. ANCILLARY SERVICES. CSG shall provide the ancillary services described in
Schedule F attached hereto (the "Ancillary Services") at the rates described in
- ----------
Schedule F.
- ----------
5. ENHANCED STATEMENT PRESENTATION SERVICES. For the fees set forth in
Schedule F CSG shall develop a customized billing statement (the "ESP
- ----------
Statement") for Customer's subscribers utilizing CSG's enhanced statement
presentation services. Customer agrees that CSG's enhanced statement
presentation service shall be Customer's sole and exclusive method of mailing
Subscriber Statements. The ESP Statements may include CSG's or Customer's
intellectual property. "Customer's Intellectual Property" means the trademarks,
service marks, other indicia of origin, copyrighted material and art work owned
or licensed by Customer that CSG may use in connection with designing, producing
and mailing ESP Statements and performing its other obligations pursuant to this
Agreement. "CSG Intellectual Property" means trademarks, service marks, other
indicia of origin, copyrighted material and art work owned or licensed by CSG
and maintained in CSG's public library that may be used in connection with
designing, producing and mailing ESP Statements.
(b) Development and Production of ESP Statements. CSG will perform the design,
--------------------------------------------
development and programming services related to design and use of the ESP
Statements (the "Work") and create the work product deliverables (the "Work
Product") set forth in a separately executed and mutually agreed upon ESP Work
Order (the "Work Order") after the effective date set forth on the Work Order.
The ESP Statement will contain the CSG Intellectual Property set forth on the
Work Order. Customer shall pay CSG the Development Fee for the Work and the Work
Product set forth on the Work Order upon acceptance of the ESP Statements in
accordance with the Work Order. Except with respect to Customer's Intellectual
Property, Customer agrees that the Work and Work Product shall be the sole and
exclusive property of CSG. Customer shall have no proprietary interest in the
Work Product or in CSG's billing and management information software and
technology and agrees that the Work Product is not a work specially ordered and
commissioned for use as a contribution to a collective work and is not a work
made for hire pursuant to United States copyright law. After CSG has completed
the Work and the Work Product, CSG will produce ESP Statements for Customer.
(c) Supplies. CSG will suggest and Customer will select the type and quality of
--------
the paper stock, carrier envelopes and remittance envelopes for the ESP
Statements (the "Supplies"). CSG shall purchase Customer's requirements of
Supplies necessary for production and mailing of the ESP Statements. CSG shall
charge Customer the rates set forth in Schedule F for purchase of Supplies.
(d) License of Customer's Intellectual Property. Customer licenses to CSG to
-------------------------------------------
use all of Customer's Intellectual Property necessary to design, produce and
mail the ESP Statements and perform CSG's other rights and obligations pursuant
to Section 5(b) of this Schedule G, including, but not limited to, the
----------
Intellectual Property listed in the Work Order. CSG shall have the right by
notice to Customer to cease use of any of Customer's Intellectual Property on
ESP Statements at any time. Customer represents and warrants that it owns or has
licensed all Customer's Intellectual Property and has full power and authority
to grant CSG the license set forth herein and that CSG's use of Customer's
Intellectual Property on the ESP Statements will not constitute a misuse or
infringement of the Customer's Intellectual Property or an infringement of the
rights of any third party. Customer will use best efforts to maintain its rights
to use and license Customer's Intellectual Property and will immediately advise
CSG of the loss of Customer's right to use any Customer's Intellectual Property
and will advice CSG of all copyright and other notices that must be used in
connection with Customer's Intellectual Property and of any restrictions on use
of Customer's Intellectual Property relevant to CSG.
(e) Indemnification Relating to ESP Statements. Customer shall indemnify,
------------------------------------------
defend and hold CSG harmless from any claims, demands, liabilities, losses,
damages, judgments or settlements, including all reasonable costs expenses
related thereto (including attorney's fees),
42
CONFIDENTIAL AND PRORIETARY INFORMATION - USE BY AUTHORIZED EMPLOYEES FOR THE
PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
directly or indirectly resulting from Customer's breach of any representation or
warranty under this Section 5, Customer's Intellectual Property, the Work
Product, and the printing and mailing of ESP Statements, except for those
arising out of CSG Intellectual Property.
(f) If Customer ceases utilizing CSG's enhanced statement presentation services
as method of mailing Subscriber Statements for any System Site and converts to
CSG's generic statement format, Customer agrees to pay CSG the deconversion fee
set forth in Schedule F.
----------
6. PER CYCLE MINIMUM. As of the Commencement Date as defined in Section 11
below, for each month that this Agreement is in effect, Customer will maintain
per each billing cycle a minimum of three thousand (3000) subscribers on the CSG
System. Per System Site, Customer will have a minimum of four (4) cycles per
month but no more than twenty-eight (28) cycles per month.
7. PROCESSING MINIMUM. If at any time, the fees and charges incurred as
computed pursuant to Schedule F for the Print and Mail Services are less than a
----------
minimum of ***** in processing fees per month (the "Minimum"), Customer agrees
to pay the Minimum.
9. DEPOSIT. At least seven (7) days prior to the Commencement Date of the
Print and Mail Services set forth in Section 11 below, Customer shall pay CSG a
security deposit (the "Deposit") for the payment of the expenses described in
Sections 2, 3 and 4 of this Schedule G (the "Disbursements"). The Deposit will
----------
equal the estimated amount of Disbursements for one (1) month as determined by
CSG based upon the project volume of applicable services to be performed monthly
by CSG. If Customer incurs Disbursements greater than the Deposit for any month,
Customer shall, within thirty (30) days of receipt of a request from CSG to
increase the Deposit, pay CSG the additional amount to be added to the Deposit.
If Customer fails to pay the additional amount requested within such 30-day
period, CSG may terminate this Master Agreement as provided for in Section 20.
Upon written request from Customer, CSG will return to Customer a portion of the
Deposit if the Disbursements incurred by Customer on a monthly basis are less
than the Deposit for three (3) consecutive months. In addition to the foregoing,
CSG shall have the right to apply the Deposit to the payment of any invoice from
CSG which remains unpaid during the term of this Agreement, and Customer agrees
to replenish any such Deposit amount as set forth above. Any portion of the
Deposit that remains after the payment of all amounts due to CSG following the
termination or expiration of this Master Agreement will be returned to Customer.
Customer shall not be entitled to receive interest on the Deposit while it is
maintained by CSG.
10. TERM. The first day of the calendar month in which the Print and Mail
Services commence shall be referred to as the "Commencement Date." The Print and
Mail Services shall continue for a period of three (3) years from Commencement
Date.
AGREED AND ACCEPTED THIS 27th DAY OF SEPT., 1996, BY:
CSG SYSTEMS, INC.("CSG") VENTURES IN COMMUNICATIONS RMTS D/B/A TELCOM PLUS
("Customer")
BY: /s/ SIGNATURE ILLEGIBLE^^ BY: /s/ SIGNATURE ILLEGIBLE^^
-------------------------- --------------------------
Exhibit D-1................ SYSTEM SITES
43
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT G-1
-----------
SYSTEM SITES
Largo, MD
44
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
SCHEDULE H
INCORPORATION THIRD PARTY SOFTWARE AND LICENSES
ADDITIONAL TERMS AND CONDITIONS
The following terms and conditions supplement, and where in conflict,
supersede the terms and conditions contained in the Master Agreement, but solely
with respect to the identified item of Incorporated Third Party Software.
[NOTE: THE PRODUCTS LICENSED UNDER SCHEDULE C DO NOT CONTAIN ANY INCORPORATED
----------
THIRD PARTY PRODUCTS.]
45
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES FOR
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT 10.11
[LOGO OF BEECHWOOD DATA SYSTEMS APPEARS HERE]
INTERCOM
END-USER LICENSE AGREEMENT
BETWEEN
BDSI, INC. D/B/A BEECHWOOD DATA SYSTEMS and ONE POINT COMMUNICATIONS
100 WALNUT AVE. 5335 WISCONSIN AVENUE
CLARK, NEW JERSEY 07066 WASHINGTON, DC 20015
("Beechwood") ("Licensee")
"Effective Date" ______________
This Agreement is made and entered into as of the Effective Data between
Beechwood and Licensee. This Agreement is the complete and exclusive statement
of the parties obligations and responsibilities to each other and supersedes any
other proposal, representation, or other communication by or on behalf of
Beechwood relating to the subject matter herein, except as explicitly stated
herein. Exhibit A product and services descriptions and pricing attached hereto,
is made part of this License Agreement.
1. DEFINITIONS
1.1 "Licensed Program" or "Licensed Programs" shall mean the computer software
in executable code form described in Exhibit A (together with all manuals
and updates, as may be modified by Beechwood from time to time at
Beechwood's sole discretion).
1.2 "License Fee" or "License Fees" shall mean the fees payable by Licenses to
Beechwood in exchange for the license granted for the Licensed Programs.
The License Fees are set forth in Exhibit A.
1.3 "Primary License Location" and Secondary License Location" shall mean
those locations as described in Exhibit A.
1.4 "Authorized Processor" shall mean the computer system(s) on which the
Licensed Program is authorized to run, as described in Exhibit A.
1.5 "Warranty Period" shall mean the period of time described in Exhibit A as
the Warranty Period.
1.6 "Error" shall mean any failure of the Licensed Program to conform in all
material respects to the functional specifications as described in the End
User Manual and the System Administrator Guide for the Licensed Program
published from time to time by Beechwood.
1.7 "Error Correction" shall mean a software modification or addition that,
when made or added to the Licensed Program, establishes material conformity
of the Licensed Program to the functional specifications, or a procedure of
routine that, when observed in the regular operation of the Licensed
Program, eliminates the practical adverse effect on Licensee of such
nonconformity.
1.8 "Maintenance Release" shall mean a new version of the Licensed Program
which contains one or more Error Corrections.
1.9 "Enhancement" shall mean any modifications or addition that, when made or
added to the Licensed Program, materially changes or improves its utility,
efficiency or functional capability beyond what is described in the
functional specifications. Enhancements may be designated by Beechwood as
minor or major, depending on Beechwood's assessment of their value and of
the function added to the pre-existing Licensed Program.
1.10 "Upgrade" shall mean a new version of the Licensed Program which contains
one or more Enhancements.
1.11 "Releases" shall mean new versions of the Licensed Program, which new
versions may include either Maintenance Releases, Enhancement Releases or
Functional Releases. Now Releases delivered to Licensee shall be considered
part of the Licensed Program and shall replace previous Releases delivered
to Licensee.
1.12 All references to the "sale" of Licensed Programs shall mean the granting
of a license or sublicense to the user of the Licensed Programs.
1.13 "Normal Working Hours" shall mean the hours between 9:00 A.M, and 6:00 P.M,
(Beechwood local time) on the days Monday through Friday, excluding
regularly scheduled holidays of Beechwood.
1.14 "Maintenance Request" (MR) shall mean a request from Licensee to correct an
Error deleted in the Licensed Program or a written request for an
enhancement to the Licensed Program.
1.15 "Severity Level 1" shall mean that the Licensed Program is inoperative and
the Licensee's inability to use the Licensed Program has a critical effect
on the Licensee's operations. This condition is generally characterized by
complete system failure, but it is not restricted to that description.
Severe degradation of advertised system functionality, or other degradation
of service by the system in question is also a characteristic of a Severity
Level 1 condition. Severity #1 troubles require immediate response, and
continuous (7x24) attention until the problem is resolved to the customer's
satisfaction.
1.16 "Severity Level 2" shall mean that a major feature of the Licensed Program
is inoperative, but the system is usable by the Licensee to a limited
degree. The inoperative feature of the Licensed Program severely restricts
Licensee operations, but has a less critical effect than a Severity Level 1
condition.
1.17 "Severity Level 3" shall mean that the Licensed Program is usable by the
Licensee, but a non-critical feature is missing or inoperative. The
condition is not critical to overall customer operations, and does not
severely restrict such operations.
1.18 "Severity Level 4" shall mean that the Licensed Program has non-critical or
intermittent defects which do not cause any features to be inoperative.
Questions concerning system operation, configuration, functionally or other
system related matters may be classified as Severity Level 4.
2. LICENSE
2.1 In consideration of the payment of the License Fees in accordance with the
schedule and in the amounts set forth in Exhibit A, Beechwood grants
Licensee a perpetual, non-transferable non-exclusive license to use the
Licensed Programs in machine-readable form solely on the computers and at
the locations set forth herein and to use related user documentation
provided to Licensee by Beechwood, subject to the terms and conditions of
this Agreement.
3. SCOPE OF RIGHTS
3.1 Licensee may:
3.1.1 Install the Licensed Program at the Primary License Location.
3.1.2 Use the Licensed Program on the Authorized Processor situated at
the Primary License Location, for the sole purpose of serving the
internal needs of Licensee and its subsidiaries.
<PAGE>
3.1.3 make a number of copies, as set forth in Exhibit A, of the Licensed
Program in machine-readable form, for resting purposes only, on
secondary processors, provided that Beechwood's proprietary legends
are included. These secondary processors may be located at either
the Primary License Location or the Secondary License Location.
3.1.4 maintain at all times a single copy of the Licensed Program for
back-up and archival purposes.
3.2 Licensee may not
3.2.1 use, copy or modify the Licensed Program, or any copy, adaptation,
transcript, or merged portion thereof, except as expressly
authorized, in writing, by Beechwood:
3.2.2 transfer Licensee's rights or obligations under this Agreement
3.2.3 install the Licensed Program on any other computer systems or use it
at any other location not authorized by this Agreement,
3.2.4 reverse engineer or decompile the Licensed Program or any component
thereof:
3.2.5 remove any copyright notices, trademark notices, or other
proprietary legends on the Licensed Program.
3.2.6 rent, lease, or loan the Licensed Program or any portion thereof to
any third party.
3.2.7 use the Licensed Program to act as a service bureau, provide
multiuser licensing capability to any party, or enter into a
timesharing arrangement by which any third party may utilize the
Licensed program.
3.2.8 register or use any propriety legends of Beechwood including but not
limited to copyright and trademarks without the prior written
permission of Beechwood.
4. OBLIGATIONS OF LICENSEE
4.1 The Licensee shall pay the License Fee in accordance with the terms set
forth in Exhibit A. Failure of Licensee to pay amounts due within sixty
(60) days of the invoice shall give Beechwood the right to terminate this
Agreement. Invoices and payments may be transmitted electronically by prior
arrangement.
4.2 Licensee is solely responsible for the payment of any taxes, (including but
not limited to sales or use taxes, intangible taxes, and customs duty)
resulting from Licensee's acceptance of this License and Licensee's
possession and use of the Licensed Program. Beechwood reserves the right to
have Licensee pay any such taxes as they fall due to Beechwood for
remittance to the appropriate authority. Licensee agrees to hold harmless
Beechwood from any and all claims and liability arising out or from
Licensee's failure to report or pay such taxes.
4.3 Licensee hereby indemnifies Beachwood and any other party having a
proprietary interest in the Licensed Program from all claims, including but
not limited to attorneys fees, expert fees and costs of defense, settlement
or verdict or any other liability arising out of Licensee's use of the
Licensed Program.
5. INSTALLATION AND ACCEPTANCE
5.1 Licensee shall be responsible for the installation of the Licensed Program,
except as otherwise provided in Exhibit A.
5.2 The Licensed Program shall be deemed accepted by Licensee after thirty (30)
days from the date of installation or when put into production unless
Licensee provides Beechwood within ten (10) days thereafter with a written
description of any bona fide material defects in the Licensed Program.
6. PROPRIETARY PROTECTION OF LICENSED PROGRAM.
6.1 Beechwood shall have sole and exclusive ownership of all rights, title, and
interest in and to the Licensed Program and all modifications and
enhancements thereof (including ownership of all trade secrets and
copyrights pertaining thereof), subject only to the rights and privileges
expressly granted by Beechwood to Licensee by this Agreement. This
Agreement does not provide Licensee with title or ownership of the Licensed
Program, but only a right of limited use. Licensee must keep the Licensed
Program free and clear of all claims, liens and encumbrances.
6.2 The Licensed Program is a commercially valuable proprietary product of
Beechwood, and the design and development of which reflect the effort of
skilled development experts and the Investment of considerable time and
money. The Licensed Program is treated by Beechwood as confidential and
contains substantial trade secrets of Beechwood which Beechwood has
entrusted to Licensee in confidence to use only as expressly authorized by
this Agreement. Beechwood reserves all rights and benefits afforded under
U.S. Federal Copyright Law and applicable International treaties, in all
software programs and user materials that constitute the Licensed Program,
and in all system documentation related thereto.
6.3 Licensee may not, at any time, disclose or disseminate the Licensed Program
to any person who does not need to obtain access thereto consistent with
Licensee's rights under this Agreement. Under no circumstances may Licensee
disclose or disseminate the Licensed Program to any competitor of
Beechwood. Licensee will devote its best efforts to insure that all
Licensee's personnel and other persons afforded access to the Licensed
Program shall protect it against improper use, dissemination or disclosure.
Licensee shall use its best efforts to assist Beechwood in identifying and
preventing any unauthorized use or disclosure of the Licensed Program or
any portions thereof or any of the algorithms or logic contained therein.
Without limitation of the foregoing, Licensee shall advise Beechwood
immediately in the event Licensee learns of or has reason to believe that
any person who Licensee has given access to the License Program, or any
portion thereof, has violated or intends to violate the terms of this
Agreement or any related non-disclosure agreement and the Licensee will, at
Licensee's expense, cooperate with Beechwood in seeking injunctive or other
equitable relief in the name of Licensee or Beechwood against any such
person.
6.4 Licensee acknowledges that, in the event of Licensee's breach of any of the
foregoing provisions, Beechwood will not have an adequate remedy in money
or damages, Beechwood shall therefore be entitled to obtain an injunction
against such breach from any court, or forum of competent jurisdiction
immediately upon request. Beechwood's right to obtain injunctive relief
shall not limit its rights to seek further remedies.
6.5 Licensee's obligations hereunder shall survive the termination of this
Agreement.
7. MAINTENANCE AND SUPPORT SERVICES
7.1 The Maintenance Agreement is attached hereto and made a part of this
Agreement. During the Initial Term and each Renewal Term, as long as
maintenance is made generally available by Beechwood to its customers.
Beechwood shall provide the maintenance services (the "Maintenance
Services") described in the Maintenance Agreement.
8. TERM AND TERMINATION
8.1 Upon execution of this Agreement by both parties and payment of all license
fees, Beechwood grants to Licensee and Licensee hereby accepts a perpetual
license to use the Licensed Program in accordance with the terms of this
Agreement.
8.2 In addition to its rights as set forth elsewhere in this Agreement,
Beechwood shall have the right to terminate this Agreement upon ten (10)
days written notice to Licensee upon: (a) violation or breach by Licensee,
its officers or employees of any provisions of this Agreement (b) failure
of Licensee to pay all license fees within sixty (60) days of receipt of
invoice; (c) the termination of the business of the Licensee; (d) voluntary
or involuntary filing of bankruptcy petition or similar proceeding under
state law with respect to Licensee; or (e) Licensee's becoming insolvent or
making any assignment for the benefit of creditors.
8.3 The termination of this Agreement, shall automatically, and without any
further action by Beechwood, terminate and extinguish all licenses granted
herein, in the event of termination of this Agreement pursuant to any
provision of this Agreement, Beechwood shall have the right, at any time,
to take immediate possession of the licensed Program, and all copies
thereof wherever located, without demand or notice. Within five (5) days
after the termination of the License granted hereunder, Licensee shall
return to Beechwood the Licensed Program, or upon request of Beechwood,
destroy the Licensed Program and all copies thereof and certify in writing
that the same have been destroyed. Notwithstanding the foregoing, all
provisions hereof relating to confidentiality or non-disclosure shall
survive the termination or expiration of this Agreement.
<PAGE>
9. PROPRIETARY RIGHTS AND CONFIDENTIALITY
9.1 Beechwood represents, and Licensee acknowledges that Beechwood owns all
right, title and interest in the Products, trademarks, copyrights, and all
intellectual property relating thereto, subject to the rights expressly
granted by Beechwood hereunder.
9.2 Notwithstanding anything contained herein to the contrary, Beechwood, at
its own expense, shall indemnify and hold harmless Licensee and defend any
action brought against same, with respect to any claim, demand, cause of
action, or proceeding to the extent that it is based upon a claim that the
Licensed Program infringes or violates any patents, copyrights, trade
secrets, licenses or other proprietary rights of any third party. Beechwood
shall have the right to defend, or as its option settle, any such claim,
and Beechwood will have sole control of any such action or settlement
negotiations. Licensee may, at its own expense, assist in such defense if
it so chooses, provided that Beechwood shall control such defense and all
negotiations relative to the settlement of any such claim. Licensee shall
promptly notify Beechwood of any claim which Licensee believes fails within
the scope of this Section. Furthermore, in the event that any such Licensed
Program is held to constitute an infringement and its use is enjoined,
Beechwood shall have the obligation, at its option and at its own expense,
to either (a) procure for Licensee the right to continue to use the
infringing Licensed Program, (b) replace it with suitable non-infringing
software, (c) suitably modify the Licensed Program so it no longer
infringes, or (d) refund the unamortized portion of the License Fee paid by
Licensee to Beechwood under this Agreement based upon a five (5) year
straightline depreciation and terminate this Agreement. The foregoing
states Beechwood's entire liability with regard to the infringement of any
rights of any third party and Licensee hereby expressly waives any other
such liabilities.
9.3 As used in this Agreement the term "Confidential Information" shall mean
any information in tangible form disclosed by one party to another pursuant
to this Agreement, which is marked "Confidential", "Proprietary" or in some
other manner to indicate its confidential nature. Confidential Information
may also include oral information disclosed by one party to another
pursuant to this Agreement, provided that such information is designated as
confidential at the time of disclosure and reduced to a written summary by
the disclosing party, within thirty (30) days, after its oral disclosure.
9.4 Each party shall treat as confidential all Confidential Information
provided by the other party, shall not use such Confidential Information
except as expressly set forth herein or otherwise authorized in writing,
shall implement reasonable procedures to prohibit the disclosure,
unauthorized duplication, misuse or removal of the Confidential Information
and shall not disclose such Confidential Information to any third party.
Without limiting the foregoing, each of the parties shall use at least the
same procedures and degree of care which it uses to prevent the disclosure
of its own confidential information of like importance to prevent the
disclosure of Confidential Information, and shall in any event use no less
than reasonable procedures and a reasonable degree of care.
9.5 Notwithstanding the above, neither party shall have liability to the other
with regard to any Confidential Information which:
9.5.1 was generally known and available in the public domain at the time
it was disclosed or becomes generally known and available in the
public domain through no fault of the receiver.
9.5.2 was known to the receiver at the time of disclosure as shown by the
files to the receiver in existence at the time of disclosure;
9.5.3 is disclosed with the prior written approval of the discloser.
9.5.4 becomes known to the receiver from a source other than the discloser
without breach of this Agreement by the receiver and in a manner
which is otherwise not in violation of the discloser's rights; or
9.5.5 is disclosed pursuant to the order or requirement of a court,
administrative agency, or other governmental body; provided, that
the receiver shall provide reasonable advance notice thereof to
enable the discloser to seek a protective order or otherwise prevent
such disclosure.
10. WARRANTY
10.1 Beechwood warrants that the Licensed Program will perform substantially as
set forth in the documentation during the Warranty Period as specified in
Exhibit A.
10.2 TO THE FULL EXTENT PERMITTED BY LAW. Beechwood HEREBY DISCLAIMS ANY
CONDITIONS, PROMISES, REPRESENTATIONS, AND WARRANTIES, WHETHER IMPOSED BY
STATUTE OR BY OPERATION OF LAW OR OTHERWISE, WITH RESPECT TO THE LICENSED
PROGRAM, INCLUDING ITS CONFORMITY TO ANY REPRESENTATIONS OR DESCRIPTIONS
NOT EXPRESSLY SET OUT HEREIN, Beechwood HEREBY DISCLAIMS THE EXISTENCE OF
ANY OTHER WARRANTIES OR CONDITIONS WHATSOEVER INCLUDING THE IMPLIED
WARRANTY OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, NO ORAL
OR WRITTEN INFORMATION OR ADVICE GIVEN BY Beechwood, ITS AGENTS OR
REPRESENTATIVES SHALL CREATE A WARRANTY OR CONDITION OR IN ANY WAY INCREASE
THE SCOPE OF THIS WARRANTY.
10.3 Nothing in this Agreement is intended or shall be construed as excluding or
modifying any statutory rights, warranties or conditions which are
applicable to this Agreement or the software supplied hereunder by virtue
of any national or state Fair Trading, Trade Practices or other consumer
legislation and which may not be modified or excluded. If permitted by such
legislation, however, Beechwood's liability for any breach of any such
warranty or condition shall be and is hereby limited to, as Licensee's
exclusive and sole remedy for any breach of warranty for which Beechwood
may be responsible, return of any License Fees paid to Beechwood by
Licensee.
10.4 IN NO EVENT SHALL Beechwood BE LIABLE FOR ANY LOSS OF PROFIT, ANY
INCIDENTAL, SPECIAL, INDIRECT, EXEMPLARY OR CONSEQUENTIAL DAMAGES;
(INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION, AND LOSS OF BUSINESS INFORMATION OR COMPUTER
PROGRAMS OR BUSINESS RECORDS) EVEN IF Beechwood HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH CLAIMS OR DEMANDS, THE LIMITATION UPON DAMAGES AND
CLAIMS INTENDED TO APPLY WITHOUT REGARD TO WHICH OTHER PROVISIONS OF THIS
AGREEMENT HAVE BEEN BREACHED OR HAVE PROVEN INEFFECTIVE. In any event the
cumulative liability of any party to Licensee for all claims related to the
Licensed Program and this Agreement whether in contract, ?????, strict
liability or otherwise, shall not exceed the License Fee paid to Beechwood
hereunder.
10.5 This warranty and limitation of liability reflects an allocation of risk
between the parties as is permitted by the Uniform Commercial Code as
adopted in New Jersey, U.S.A.
10.6 In any event the cumulative liability of any party to Licensee for all
claims related to the Licensed Program and this Agreement, whether in
contract, ????, or strict liability, shall not exceed the total amount of
License Fee paid to Beechwood hereunder.
11. ARBITRATION
11.1 Unless otherwise set forth in this Agreement any dispute arising from or
related to this Agreement, with the exception of any violation of
Beechwood's proprietary rights, shall be settled by binding arbitration.
The arbitration shall be venued in New Jersey and be conducted under the
auspices and, unless otherwise set forth herein, pursuant to the rules to
the American Arbitration Association. Licensee hereby submits itself to the
jurisdiction of the American Arbitration Association in New Jersey. A panel
of three (3) arbitrators shall be selected from the American Arbitration
Association computer disputes panel. The New Jersey Rules of Evidence in
effect as of the hearing shall be applicable. Both parties shall be
entitled to full discovery except for depositions. The decision of the
arbitrator shall be binding and may be entered as a judgment and finding of
fact in any court of competent jurisdiction in the United States in any
state.
12. GENERAL
12.1 This Agreement shall be goverened by and construed in accordance with the
laws of the State of New Jersey, U.S.A.
12.2 No modification of this Agreement shall be binding unless it is in writing
and is signed by an authorized representative of both parties.
12.3 Any notices required or permitted under this Agreement shall be in writing
and delivered in person or sent by Registered of Certified Mail, Return
Receipt Requested, with proper postage affixed, Federal Express, UPS or
such other private carrier which provides the sender with a proof of
delivery. Notice shall be deemed effective upon proof of receipt.
12.4 The relationship of Beechwood and Licensee established herein is that of
independent contractors, and nothing contained in this Agreement shall be
<PAGE>
construed (i) to give either party the power to direct or control the
day-to-day activities of the other, or (ii) to constitute the parties as
partners, joint ventures, or otherwise as participants in a joint
undertaking, Licensee, its agents and employees are not the
representatives of Beechwood for any reason, and shall have no power to
represent, act for, bind, or otherwise create or assume any obligation on
behalf of Beechwood.
12.5 Force Majeure. Neither party shall be liable to the other for its failure
to perform any of its obligations hereunder during any period in which
such performance is delayed by circumstance beyond its reasonable control
including, but not limited to: fire, flood, war, embargo, strike, riot,
inability to secure materials and transportation facilities, or the
intervention of any government authority. If such delaying cause shall
continue for more than ninety (90) days, the party injured by the
inability of the other to perform shall have the right upon written
notice to either (1) terminate the Agreement with respect to materials
not already shipped, or (2) treat this Agreement as suspended during the
delay, and postpone any deadlines by the duration of the delay.
12.6 This Agreement is the complete and exclusive statement of the parties'
obligations and responsibilities to each other and supersedes any other
proposal, representation, or other communication by or on behalf of
Beachwood relating to the subject matter herein, except as explicitly
stated herein, Exhibit A, attached hereto, is made part of this License
Agreement.
12.7 In the event that any of the terms of this Agreement is or becomes or is
declared to be invalid or void by an Court or tribunal of competent
jurisdiction, such terms or term shall be null and void and shall be
deemed severed from this Agreement and all the remaining terms of this
Agreement shall remain in full force and effect.
12.8 Licensee hereby submits itself to personal jurisdiction in the State
Courts and Federal Courts located in the State of New Jersey and to an
appropriate court of competent jurisdiction for injunctive relief and to
the venue of the New Jersey office of the American Arbitration
Association in the event of other disputes arising from or out of this
Agreement.
12.9 The failure of Beachwood to enforce any provision of this Agreement shall
not constitute or be construed as a waiver of Beachwood's rights to do
so.
12.10 In the event that Beachwood retains counsel and/or consultants or expert
witnesses to enforce any right under this Agreement and is successful in
the prosecution of its claims or in its defense. Licensee agrees to pay
to Beachwood the actual dollar fees incurred by Beachwood for counsel
fees, consultant fees, and expert witness fees, collection agency costs
or any other costs of any nature whatsoever in addition to all costs of
suit incurred in connection with the prosecution of any such matter.
12.11 Any purchase orders or other documents sent to Beachwood by Licensee,
subsequent to the execution of this Agreement in so far as any terms of
such document(s) are inconsistent with this Agreement shall be void and
the terms of this Agreement shall prevail.
12.12 The Licensee may not assign its rights of duties under this Agreement
without the prior written consent of Beachwood.
12.13 The parties agree that the Uniform Commerical Code shall apply to this
Agreement.
12.14 The waiver by either party of any term of this Agreement shall not be
deemed to constitute a continuing waiver thereof nor of any further or
additional right that such party may hold under this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their authorized representatives.
BDSI, INC. ONEPOINT COMMUNICATIONS
- ----------------------------------- ----------------------------------------
("Beachwood") ("Licensee")
/s/ Paul Hummel /s/ William F. Wallace
- ----------------------------------- ----------------------------------------
SIGNATURE SIGNATURE
Paul Hummel William F. Wallace
- ----------------------------------- ----------------------------------------
NAME NAME
President President
- ----------------------------------- ----------------------------------------
TITLE TITLE
3/7/97 2-28-97
- ----------------------------------- ----------------------------------------
DATE DATE
<PAGE>
EXHIBIT A
PRODUCT AND SERVICES DESCRIPTIONS AND PRICING
ONEPOINT COMMUNICATIONS
INTERCOM Software:
. LSR Send Component
. Data Translator
. Message Formatter
. External Communication Engine
. Industry standard LSR validation and editing rules
. Web Forms GUI Interface
. API Contracts
Total License Fee:
INTERCOM core and one trading partner implementation; $375,000
Additional trading partner implementation (LSR Send) $ ***
Total Maintenance Fee:
INTERCOM core and one trading partner implementation; $ ***
Pricing for Additional INTERCOM modules; (pricing good for 2 years)
1. Two Additional Trading Partner Implementations (LSR Send) $ ***
2. Directory Service Requests* $ ***
3. Pre-Service* $ ***
4. Maintenance for Items 1, 2 ,3 $ ***
* OnePoint agrees to act as a Beta test site (30 days) for these INTERCOM
modules including Implementation testing with up to (4) Trading Partners.
Payment Terms:
Lease Fees: 50% due upon approval of contract $217,500
50% due upon delivery of INTERCOM software $217,500
Maintenance Fee: Annual maintenance payable in advance and will be
invoiced at the end of the warranty period.
(LSR Send) $ ***
Maintenance Fee for other components $ ***
Annual Maintenance Fee (not to exceed) $ ***
<PAGE>
[LOGO OF BEECHWOOD DATASYSTEMS APPEARS HERE]
Addendum No.1
to
Software license Agreement
Between
OnePoint Communications
and
BDSI, Inc.
Date of Agreement: February 28 1997
Date of this Addendum: February 28, 1997
Licensor: BDSI, Inc.
<PAGE>
1.16 Beechwood shall from time to time issue new or modified documentation
to reflect functional changes in the Licensed Program.
2. FEES AND CHARGES
2.1 Licensee shall pay to Beechwood the Maintenance Service fees and
charges based on the rate schedule set forth in Exhibit A. Beechwood
reserves the right to change its rate schedule from time to time,
provided that no such change will be effective until at least 90 days
after Beechwood has given Licensee written notice of such change.
2.2 Beechwood shall invoice Licensee at the beginning of each calendar year
for all Maintenance Service fees and charges for that coming year, and
Licensee shall pay the invoiced amount within 30 days of receipt of
such invoice.
2.3 Licensee shall be responsible for procuring, installing, and
maintaining all equipment, telephone lines, communications interfaces,
and other hardware, and third party software (other than the hardware
and third party software maintained by Beechwood at Beechwood's
facilities) necessary to operate the Licensed Program.
3. TERMINATION
3.1 This Maintenance Agreement shall immediately terminate upon the
termination of the License Agreement.
3.2 This Maintenance Agreement may be terminated by either party upon the
expiration of the then-current term of the Maintenance Agreement,
provided that at least 90 days prior written notice is given to the
other party.
3.3 This Maintenance Agreement may be terminated by either party upon 45
days prior written notice if the other party has materially breached
the provisions of this Maintenance Agreement and has not cured such
breach within such period.
3.4 Following termination of this Agreement, Beechwood shall immediately
invoice Licensee for all accrued fees and charges and all reimbursable
expenses, and Licensee shall pay the invoiced amount immediately upon
receipt of such invoice. Licensee may continue to use any work supplied
to Licensee by Beechwood for the remaining term of the Licensee
Agreement. Any amount not paid within 30 days after the invoice date
shall bear interest at the lesser 1-1/2 percent per month or the
highest rate allowed by applicable law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their authorized representatives.
BDSI, Inc. OnePoint Communications
- ------------------------------------- --------------------------------------
(Beechwood) ("Licensee")
/s/ Paul Hummel /s/ William F. Wallace
- ------------------------------------- --------------------------------------
SIGNATURE SIGNATURE
Paul Hummel William F. Wallace
- ------------------------------------- --------------------------------------
NAME NAME
President President
- ------------------------------------- --------------------------------------
TITLE TITLE
3/7/97 2-28-97
- ------------------------------------- --------------------------------------
DATE DATE
<PAGE>
[LOGO OF BEECHWOOD DATASYSTEMS APPEAR HERE]
Addendum No.1
to
InterCom Maintenance Agreement
Between
OnePoint communications
and
BDSI, Inc.
Date of Agreement: February 28 1997
Dated of this Addendum: February 28, 1997
Licensor: BDSI, Inc.
<PAGE>
[LOGO] BEECHWOOD
DATA SYSTEMS
INTERCOM
MAINTENANCE AGREEMENT
BETWEEN
BDSI, INC. O/B/A BEECHWOOD DATA SYSTEMS and ONEPOINT COMMUNICATIONS
100 WALNUT AVE. 5335 WISCONSIN AVENUE
CLARK, NEW JERSEY 07066 WASHINGTON, DC 20015
("Beechwood") ("Licensee")
"Effective Date":____________
This Maintenance Agreement is made and entered into as of the Effective Date
between Beechwood and Licensee.
WITNESSETH:
WHEREAS, Beechwood and Licensee entered into an End-User License Agreement
effective date _________ (the "License Agreement") under which Licensee obtained
a non-exclusive, non-transferrable license to use certain computer software in
executable code form and related user documentation (the "Licensed Program") on
certain terms and conditions:
WHEREAS, Beechwood by this document offers the maintenance modifications,
enhancements, and new releases provided for herein; and
WHEREAS, Beechwood desires to offer Licensee certain services with respect to
the Licensed Program on the terms and conditions set forth herein:
NOW THEREFORE, in consideration of the premises hereof, and the mutual
obligations herein, the parties hereto, intending to be legally bound, hereby
agrees as follows:
1. MAINTENANCE SERVICES
1.1 Maintenance services will be effective from the end of the warranty
period through December of the then current year or on an annual basis
from January 1 through December 31 of the then current year. This
Maintenance Agreement will automatically renew for a one year period
beginning on January 1 of each year, unless terminated by either party
with ninety (90) day written notice.
1.2 Beechwood shall maintain capability to receive MRs, assign a severity
level and to provide reasonable consultation and assistance in resolving
Errors during Beechwood's Normal Working Hours.
1.3 Beechwood shall maintain a trained staff capable of rendering the
Maintenance Services. Licensee shall designate one primary and one backup
contact person. All communications between Licensee and Beechwood
regarding maintenance shall be made through the primary contact person,
if available, otherwise through the backup contact person. Licensee may
replace such contact persons upon written notice to Beechwood.
1.4 Beechwood shall take one or more of the following actions in regards to
resolution of all Errors: (1) an Error Correction consisting of an
update, patch, revision, or temporary bypass solution; or (2) a statement
that more information is required from Licensee to diagnose or reproduce
the Error, or (3) a statement that the Error will be corrected in a
future Maintenance Release of the software.
1.5 Periodically, Beechwood shall issue a "Maintenance Release" of the
Licensed Program. These Maintenance Releases will contain corrections to
error conditions for which MRs have been created within a reasonable time
prior to such release.
1.6 The "Enhancement Releases" of the Licensed Programs will be scheduled to
coincide with the order releases as defined by the Ordering and Billing
Forum (OBF) of ATIS. These releases will contain any industry defined
charges to the components listed in Exhibit A.
1.7 An Enhancement Release may also contain error corrections which have been
detected since the previous Maintenance Release.
1.8 Beechwood shall not be responsible for correcting Errors in any version
of the Licensed Program other than the most recent Maintenance or
Enhancement Release whichever is most recent. Beechwood shall continue to
support a prior release for a reasonable period of time sufficient to
allow Licensee to implement the newest Maintenance or Enhancement
Release, not to exceed 90 days.
1.9 Beechwood may from time to time issue new "Functional Releases" of the
Licensed Program to its Licensees. A Functional Release will generally
contain Error Corrections, minor enhancements and if Beechwood elects,
major enhancements. At Beechwood's discretion "Functional Releases" may
not be covered by this Maintenance Agreement.
1.10 There will be at least one scheduled maintenance release per year.
1.11 From time to time, Beechwood may subcontract with one or more third party
organizations to provide Maintenance Services on behalf of Beechwood.
1.12 Beechwood shall not be responsible for providing Maintenance Services for
Errors caused by Licensee's misuse or improper use of the Licensed
Program, use of the Licensed Program in connection with any hardware or
software not supplied by Beechwood or approved by Beechwood,
modifications made to the Licensed Program by Licensee or modifications
made to the operating environment by Licensee.
1.13 Additional support services will be available from Beechwood billed
separately from the annual maintenance.
1.14 An Enhancement Release of a Trading Partner map specified in Exhibit A
will require sixty day notice to Beechwood, at which time the Licensee
will supply Beechwood with the complete requirements of the mapping
changes. Beechwood will supply up to two Enhancement Releases of Trading
Partner maps per year.
1.15 When a Release is issued, Maintenance, Enhancement or Functional, the API
will reflect any necessary changes or additions.
<PAGE>
[LOGO OF BEECHWOOD DATASYSTEMS APPEARS HERE]
- --------------------------------------------------------------------------------
Rider to InterCom Maintenance Agreement
- --------------------------------------------------------------------------------
The following changes are hereby incorporated into the Intercom Maintenance
Agreement between BDSI, Inc. and OnePoint Communications:
Section 1.3
In the last sentence, please replace "written notice" with the following:
"written or verbal notice".
Section 1.9
Please insert the following sentence at the end of the paragraph:
"In the event that the "Functional Release" is not covered by this Maintenance
Agreement, Licensee has the right to terminate this agreement provided that at
least ten (10) days written notice is given to Beechwood".
<PAGE>
[LOGO APPEARS HERE]
BEECHWOOD
DATASYSTEMS
______
RIDER TO INTERCOM END USER LICENSE AGREEMENT
The following changes are hereby incorporated into the InterCom End User License
Agreement between BDSI, Inc. and OnePoint Communications:
Section 2.1
In the third line, after the words non-transferable, insert the words "(except
to an affiliate or successor of Licensee by merger, acquisition or other
refinancing/restructuring.)".
Section 3.1.2
At the end of this section, after the word subsidiaries, insert the words "and
affiliates".
Section 3.2.2
Insert after the word `agreement', "(except to an affiliate or successor of
Licensee by merger, acquisition or other refinancing/restructuring.)".
Section 3.2.3
At the end of the second line, insert the words "or any amendment hereto".
Section 3.2.7
In the second line, after the word `party', and in the third line after the
words "third party", insert the words "other than affiliates of Licensee".
Section 8.0
Insert the following section:
"8.0 If written ten (10) business days of receiving the Application Program
Interface Specifications, Licensee deems that for either technical or economic
reasons implementation of the licensed program is not feasible, Licensee shall
have the right to terminate this Agreement for a full and complete refund of all
fees paid to Beechwood associated with this License. In this event, all
provisions relating to confidentiality, non-disclosure, and proprietary
protection (in particular Section 6), shall survive the termination of this
agreement.
Section 12.5
In the second sentence, please replace the phrase "more than ninety (90) days"
with the following:
"more than thirty (30) days".
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports with respect to the financial statements of: OnePoint
Communications Corp. dated February 12, 1999 (except for the fourth paragraph
of Note 10 as to which the date is March 5, 1999 and Note 21 as to which the
date is March 30, 1999) and VIC-RMTS-DC, LLC dated February 12, 1999 (except
for the fifth paragraph of Note 9 as to which the date is March 5, 1999 and
Note 10 as to which the date is March 30, 1999), in Amendment No. 2 to the
Registration Statement (Form S-4 No. 333-63787) and the related Prospectus
of OnePoint Communications Corp. for the registration of $101,750,000 of its
14 1/2% Senior Notes due 2008, Series B.
/s/ Ernst & Young LLP
Vienna, Virginia
April 28, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the use of our report dated
February 19, 1999, on our audit of the financial statements of Mid-Atlantic
Telcom Plus, LLC as of December 31, 1997 and 1998, and for the years then
ended, and to our report dated April 4, 1997, on our audit of the consolidated
and combined financial statements of Mid-Atlantic Cable Companies as of
December 31, 1996, and for the year then ended (and to all references to our
Firm) included in or made a part of this registration statement on Form S-4 of
OnePoint Communications Corp.
Beers & Cutler PLLC
Washington, DC
April 28, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Stamford, Connecticut,
April 28, 1999
<PAGE>
EXHIBIT 23.5
CONSENT OF STURGILL & ASSOCIATES LLP
We consent to the reference to our firm under the caption "Experts" and to
the use of our report by James G. Sturgill, CVA dated September 4, 1998 on the
valuation of warrants as of May 14, 1998, in the Registration Statement (Form
S-4 No. 333-63787) and the related Prospectus of One Point Communications
Corp. for the registration of $101,750,000 of its 14 1/2% Senior Notes due
2008, Series B.
Sturgill & Associates LLP
Columbia, Maryland
April 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1998 AND BY THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001070703
<NAME> ONEPOINT COMMUNICATIONS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,730
<SECURITIES> 13,118
<RECEIVABLES> 3,146
<ALLOWANCES> 216
<INVENTORY> 0
<CURRENT-ASSETS> 27,875
<PP&E> 12,332
<DEPRECIATION> 1,409
<TOTAL-ASSETS> 149,307
<CURRENT-LIABILITIES> 12,676
<BONDS> 138,503
35
0
<COMMON> 10
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 149,307
<SALES> 6,953
<TOTAL-REVENUES> 6,953
<CGS> 8,765
<TOTAL-COSTS> 8,765
<OTHER-EXPENSES> 29,328
<LOSS-PROVISION> 209
<INTEREST-EXPENSE> 15,846
<INCOME-PRETAX> (44,625)
<INCOME-TAX> 0
<INCOME-CONTINUING> (44,625)
<DISCONTINUED> 0
<EXTRAORDINARY> 19,799
<CHANGES> 0
<NET-INCOME> (24,826)
<EPS-PRIMARY> (24.82)
<EPS-DILUTED> (24.82)
</TABLE>
