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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission File No: 333-63787
OnePoint Communications Corp.
(Exact name of registrant as specified in its charter)
State of Delaware 36-4225811
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Conway Park 60045
150 Field Drive, Suite 300 (Zip Code)
Lake Forest, IL
(Address of principal executive offices)
Telephone number, including area code: 847-582-8800
(Former name, former address and former fiscal year,
if changed since last report)
2201 Waukegan Road 60015
Bannockburn, IL (Zip Code)
Telephone number, including area code: 847-374-3700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
14 1/2 % Senior Notes due 2008
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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As of March 31, 2000, all voting stock was held by affiliates of the
Company.
As of March 31, 2000, the Company had 1,000,000 shares of Common
Stock outstanding.
Documents Incorporated by Reference:
None
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PART I
Item 1. Business
OnePoint Communications Corp., together with its subsidiaries, ("OnePoint"
or the "Company provides bundled voice, data 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 voice, data 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 voice, data and video services by entering into long-term contracts
providing preferential rights for on-site marketing of voice, data 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").
The Company consists of OnePoint Communications Corp., the parent company
and its wholly-owned subsidiaries, OnePoint Communications-Colorado, L.L.C.,
OnePoint Communications-Illinois, L.L.C., OnePoint Communications-Georgia,
L.L.C., OnePoint Communications Holdings, L.L.C. ("OPC Holdings"), and its
majority-owned subsidiary OnePoint Services, LLC ("OPS") in which the Company
maintains a 71.3% interest and has been consolidated in the Company's financial
statements. In addition, through OPC Holdings, the Company maintains a 75.52%
interest in VIC-RMTS-DC, L.L.C.
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 9.9% of the Common Stock of the
Company. Of the remainder, 89.1% of the Company's Common Stock is indirectly
owned by James A. Otterbeck, the Company's Chairman and Chief Executive Officer
and 1% is indirectly owned by CAIS Internet, Inc.
The Company's current markets are Atlanta, Charlotte/Raleigh/Durham,
Chicago, Denver, Phoenix, and Washington/Baltimore/Philadelphia, in each of
which it has aggregated over 20,000 passings. The Company is an authorized
competitive local exchange carrier ("CLEC") and has obtained authority for the
resale of local exchange services in twelve states (Arizona, Colorado, Delaware,
Florida, Georgia, Illinois, Maryland, North Carolina, Pennsylvania, South
Carolina, Tennessee and Virginia) and the District of Columbia. The Company
anticipates expanding service to include certain Florida and Tennessee market
during 2000. The Company has also received authorization to resell domestic and
international long distance voice services.
Commencing in 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. Through December 1999, the Company was actively marketing voice
services in 1,037 MDUs with a total of 275,500 passings, and was actively
marketing video services to approximately 29,500 units in 167 MDUs.
The Company's deployment of a next generation internet protocol based
("IP-based") network, which commenced in Phoenix in late 1999, enables the
delivery of voice, data and certain video services over a single integrated
network. During 1999 the Company decided to focus its resources on the higher
growth and higher margin services which can be provided over this single
integrated network on a national basis. This led to the Company's decision to
divest its private cable assets which are delivered over a separate delivery
platform. In March 2000, the Company realized an initial $22.4 million from the
sale of
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the assets of Mid-Atlantic Telcom Plus, LLC ("Mid-Atlantic"), a minority-owned
subsidiary which provided private cable services in the
Washington/Baltimore/Philadelphia market. The Company is in negotiations to sell
its wholly-owned Subsidiary, OnePoint Communications - Illinois, LLC. As yet the
Company has not signed a definitive purchase agreement. Proceeds from these
sales will be directed toward the deployment of the Company's IP-based network
and development of the related IP-based service offerings.
The Company's Services
The Company offers a wide range of voice, data and video services, which
it tailors to meet the specific needs of the customers in its target markets.
The Company offers the following services:
Local Voice Services. The Company offers a full range of local voice
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.
Long Distance Voice Services. The Company offers domestic and
international long distance voice services, including "1+" outbound
calling and inbound toll free service through a resale agreement with an
IXC. The Company also offers prepaid local, long distance and
international calling cards.
Data Services. With the installation of its IP-based network,
OnePoint is providing high speed internet access at speeds ranging up to
1.5 Mbps by leveraging DSL technology. The Company also has a joint
marketing agreement with CAIS Internet, a Tier 1 Internet service provider
("ISP"), for the provision of high-speed Internet access to the Company's
off-network properties. The Company intends to expand its data services to
include web hosting, content, software and certain E-Commerce services.
Video Services. Historically, as a private cable operator, the
Company offers multi-channel television programming customized to the
demographic profile and special interests of residents. The Company offers
74 channels at most properties, with basic video programming featuring
major cable and broadcast networks and premium movie and pay-per-view
services. 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. Going forward, the Company intends to provide
video streaming and video on demand services over its IP-based network.
Marketing
The Company focuses on MDU customers in order to concentrate its
marketing, service and sales efforts. 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 services offer MDU Managers
the opportunity to earn additional income through revenue sharing arrangements
and also differentiate the property. On-site leasing staff are an important part
of the Company's marketing strategy, because they provide 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 Sales Representatives work with MDU Managers and
leasing staff to increase subscription rates. The Sales Representatives also
provide initial and ongoing training and marketing materials and sponsor launch
events to build product and brand awareness and encourage residents to
subscribe. 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.
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Voice and Video Rights of Entry
Voice Rights of Entry. Through December 1999, the Company had entered into
long term contracts with national REITs and other MDU Managers providing for
approximately 237,300 voice passings in 919 MDUs in the Company's 6 targeted
markets. Each Right of Entry agreement has an initial term 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
communications 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 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
voice 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.
Video Rights of Entry. Through December 1999, the Company had entered into
contracts with numerous MDU Managers providing for video Rights of Entry
covering approximately 29,500 passings in 167 MDUs 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 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. A
single, integrated bill is distributed to each customer for all of the services
provided by the Company to that
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customer.
Information Systems
The Company has developed information systems to enter, schedule,
provision and track a customer's order from the point of sale to the
installation and testing of service and also include or interface with trouble
management, inventory, billing, collection and customer care systems. Voice
services are provisioned through direct electronic data interfaces ("EDI") 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 Columbia Services Group Inc. ("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.
Delivery Platform
Voice Services
The Company currently delivers voice services through the resale of
services provided by the ILECs and an IXC. During 1999, the Company began
deployment of an IP-based network based on the next-generation packet-switching
technology which supports a full range of voice, data and video applications.
This eliminates the "last mile" bottleneck and extends an IP-based network to
MDU residents by installing equipment at MDU properties and leveraging DSL
technology to deliver voice over IP ("VOIP") services to individual apartment
units. Traditional distance limitations for DSL services are eliminated as this
network provides high-speed voice and data services over existing copper wiring
within each MDU served. With the installation of its first switch in November
1999, the Company has commenced rolling out data services in the Phoenix market.
VOIP services are scheduled to launch in June 2000. Two more switches are
planned to be deployed by mid-2000 with an additional four more installations
during the fourth quarter of 2000.
Data Services
With the installation of its IP-based network, the Company is providing
high speed internet access at speeds up to 1.5 Mbps by leveraging DSL
technology. High speed data services are delivered over the same integrated
network utilized for VOIP services, thereby leveraging the network investment.
The Company has a joint marketing agreement with CAIS Internet, a Tier 1
Internet service provider ("ISP") and 1% owner of the Company, for the provision
of high-speed Internet access to properties not served directly by the Company's
IP-based network.
Video Services
Video services are currently delivered through point-to-point microwave
links originating from the Company's state-of-the-art headend in Chicago. Those
properties that are out of range of the microwave signal are served through
Satellite Master Antenna Television ("SMATV") or DBS systems located on-site. As
the Company deploys its IP-based network, certain video streaming and video on
demand services will be provided over its integrated network.
Competition
The Company has a large number of competitors for each of the services
that it provides. The residential voice, data 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, the Company
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faces significant competition from larger, better-financed ILECs, IXCs, ISPs and
cable companies, and the Company competes directly with incumbent providers
which have historically dominated their respective local voice, long distance
voice and cable television markets. These incumbents have numerous advantages as
a result of their historic monopoly control of their respective markets.
SBC has announced that in connection with its merger with Ameritech
Corporation ("Ameritech"), the company resulting from the SBC-Ameritech 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 would be competing with OnePoint if it elected to target
residential customers residing in MDUs other than through 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, the Company cannot predict the effect of entry of the
Combined Company into such markets, including the effect on the Company'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.
With respect to local voice services, the Company 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 voice service. MCI WorldCom, Inc. ("MCI WorldCom"), Sprint
Communications Co. ("Sprint") and AT&T Corp. ("AT&T") 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 voice, long distance, Internet and other services to customers via
cable facilities.
With respect to long distance voice 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 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 the Company and proposed by the three largest
IXCs (AT&T, MCI WorldCom and Sprint).
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 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
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to Internet access, including software, content and e-mail services. Recently,
major personal computer vendors, web portal sites and other content providers
have become increasingly active in providing or jointly marketing these
services.
Other new technologies, including wireless and Internet-based
services, may become competitive with services that the Company 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 operations of the Company.
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 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. The Company
also competes with wireless program distribution services such as multichannel
multipoint distribution service" ("MMDS") which use low-power microwave
frequencies to transmit video programming over-the-air to subscribers.
The Company believes that among the existing competitors, the ILECs, IXCs,
incumbent cable providers and other CLECs provide the most direct competition to
the Company in the delivery of voice, data and video services to residential
customers in concentrated communities.
Governmental Regulation
The Company's networks and the provision of telecommunications services
are subject to significant regulation at the federal, state and local levels.
Federal 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 of 1996 (the "Telecommunications Act") is
intended to increase competition. The act opens the local services market by
requiring ILECs to permit interconnection to their
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networks and establishing obligations with respect to:
Reciprocal Compensation. Requires all ILECs and CLECs to transport
and complete calls originated by competing carriers under reciprocal
compensation arrangements. Such compensation arrangements 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).
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.
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. The Company has entered into interconnection agreements with US
West and BellSouth. Agreement negotiations are underway with Bell Atlantic.
The Company is subject to significant federal regulation, with resulting
compliance reporting obligations causing the Company to incur significant
expense.
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. 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
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distance telephony companies are therefore still required to file tariffs.
With respect to its domestic toll and switched access 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.
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.
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 asked the FCC to modify several of these
rules. The 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. In September 1999, the FCC
adopted an Order that simplified and to a certain extent liberalized the rules
regarding CPNI permitting use of CPNI for "winback" campaigns, etc. Before Order
release however, decision was taken vacating the initial CPNI rules. Legal
proceedings continue.
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. Currently, the FCC is calculating
assessments based on the prior year's revenues.
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
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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, but only the petition of Bell Atlantic - New York has been granted.
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. 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
ILECs subject to the FCC's price cap rules ("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.
Reciprocal Compensation
All ILECs and CLECs must complete calls originated by other carriers under
reciprocal compensation arrangements. 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. Handling of locally originated interstate bound traffic
remains an issue both at the FCC and in the courts.
Internet Regulation
The Company believes that its Internet service offerings are 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.
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 ISP. 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 Internet protocol 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 will be the subject of a further proceeding.
9
<PAGE>
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
ISPs 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.
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 multichannel video
programming distributors ("MVPDs").
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 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. 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.
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
10
<PAGE>
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.
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.
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. 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.
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. 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 ends regulations holding down the price franchise
cable operators can charge for expanded basic service effective 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,
11
<PAGE>
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 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 18GHz 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.
12
<PAGE>
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 the
retransmit, the Company must rely on a statutory blanket license which they
obtain by filing semi-annual reports and making payments into a
federally-administered royalty pool.
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 remains subject to rulemaking proceedings, arbitration
proceedings, legal appeals, 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.
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,
13
<PAGE>
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 currently authorized as a
facilities based provider in Arizona, Colorado, Georgia, Illinois, Florida,
South Carolina, North Carolina, Pennsylvania, and Virginia. The Company has
filed for facilities based certification in Tennessee, Maryland and the District
of Columbia. The Company is also authorized to resell long distance telephone
services in these jurisdictions. In addition, the Company expects that it will
offer more intrastate services, including intrastate switched services, as its
business expands. 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, right-of-way requirements, 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.
Employees
As of December 31, 1999, the Company had approximately 444 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.
14
<PAGE>
Item 2. Description of Properties
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Location Square Footage Owned/Leased Principal Function
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bannockburn, Illinois 21,600 Leased (1) Headquarters
Lake Forest, Illinois 40,000 Leased Headquarters
Herndon, Virginia 80,000 Leased Regional Headquarters
Largo, Maryland 18,500 Leased Mid-Atlantic Regional Operations
Alpharetta, Georgia 7,200 Leased Southeast Regional Operations
Atlanta, Georgia 20,000 Leased (1) Southeast Regional Operations
Aurora, Colorado 11,000 Leased Western Regional Operations
Chicago, Illinois 11,900 Leased Central Regional Operations
Phoenix, Arizona 7,700 Leased Western Regional Operations
Phoenix, Arizona 3,248 Leased Western Regional Switch Site
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) These offices are currently being subleased by the Company
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. Certain of the Company's obligations under its leases for
its Lake Forest, Illinois, Bannockburn, Illionois and Alpharetta, Georgia
offices are guaranteed by SBC.
Item 3. 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 Senior
Notes.
On August 6, 1998 the Company made a demand for arbitration of certain
disputes under the Mid-Atlantic Telecom Plus, LLC ("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 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. On March 30, 1999, the Company filed a demand for
arbitration seeking a declaratory ruling on the equity ownership of VIC-RMTS-DC,
LLC. On December 14, 1999 the Company, Mid-Atlantic and other related parties
entered into a second Settlement Agreement ("Second Settlement Agreement") which
resolved the disputes covered by these arbitration demands.
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.
15
<PAGE>
One former and one current employee of the Company have recently filed
complaints with the EEOC. The Company has conducted an internal investigation
and is vigorously contesting the charges. The Company believes that costs from
these actions will be covered by insurance.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
As of March 31, 2000, the Company had outstanding an aggregate of 1,000,000
shares of Common Stock. OnePoint is a closely held company and its shares are
not traded in any stock market.
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 . The holders of common stock are entitled to receive dividends
as determined by the Board of Directors. The Company does not expect to pay
dividends on its common stock for the foreseeable future.
16
<PAGE>
Item 6. Selected 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, 1997, 1998 and 1999 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. 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
filing.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1998 December 31, 1999
----------------- ------------------ -----------------
(dollars in thousands)
<S> <C> <C> <C>
Statement of Operations Data:
Net revenue....................................... $ 43 $ 6,953 $ 22,138
Cost of revenue:.................................. 83 8,765 22,006
Selling, general and administrative expenses...... 12,788 27,873 53,667
Depreciation and amortization..................... 235 1,455 3,060
Loss from operations.............................. (13,063) (31,140) (56,595)
Other income (expense)............................ 44 (9,787) (12,735)
Loss on equity investments........................ (3,072) (3,698) (3,828)
Extraordinary item................................ -- 19,799 20,432
Net loss.......................................... $ (16,091) $ (24,826) $ (52,726)
========== ========== =========
Basic Earnings Per Share:
Loss before extraordinary item.................... $ (16.09) $ (44.62) $ (73.16)
Extraordinary item................................ -- 19.80 20.43
Net loss.......................................... $ (16.09) $ (24.82) $ (52.73)
========== ========== =========
Weighted average common shares used in computing
basic loss per share: 1,000,000 1,000,000 1,000,000
========== ========== =========
As of December 31,
1997 1998 1999
---- ---- ----
(dollars in thousands)
Consolidated balance sheet data:
Cash and cash equivalents......................... $ 5,463 $ 5,730 $ 6,608
Working capital................................... 3,851 15,509 6,224
Total assets...................................... 19,681 149,307 81,408
Long term debt.................................... 1,500 138,503 102,437
Redeemable preferred stock........................ -- 35,000 35,000
Unitholders'/stockholders' equity/(deficit)....... 15,373 (36,872) (90,264)
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1997 Decenber 31, 1998 December 31,1999
----------------- ----------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C>
Other Financial Data:
Adjusted EBITDA (1)................................. $ (12,845) $ (29,688) $ (54,190)
Net cash used in operating activities............... (11,427) (37,672) (58,442)
Net cash (used in) provided by investing
activities (2)..................................... (2,573) (118,572) 71,747
Net cash from (used in) financing activities........ 19,360 156,511 (12,427)
Capital expenditures................................ 2,440 9,374 12,408
Ratio of losses to fixed charges (3)................ -- -- --
</TABLE>
- ------------------
(1) Adjusted EBITDA is defined as net income (loss) before income taxes and
depreciation, amortization, extraordinary gain on debt repurchases, 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.
(2) 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,
1999, 1998 and 1997 were $134, $5,199 and $13,000 respectively.
(3) 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 December 31, 1997, and for the years ended December
31, 1998 and 1999 were approximately $629, $1,107 and $2,643 respectively.
For the period ended December 31, 1997 and the years ended December 31,
1998 and 1999 the Company's deficiency of earnings to cover fixed charges
was approximately $16.1 million, $24.8 million, and $43.5 million
respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Results of Operations - OnePoint Communications Corp.
Year Ended December 31, 1999 Compared with Year Ended December 31, 1998
Revenue
The Company began actively marketing its services in January 1998 in the
Washington/Baltimore/ Philadelphia metropolitan area, in February 1998 in the
Atlanta and Chicago and in March 1998 in the Charlotte/Raleigh/Durham, Denver
and Phoenix. Total revenues for 1999 were $22.1 million compared to $7.0 million
in 1998. Telephony revenues and cable television revenues for 1999 were $17.5
million and $4.6 million, respectively. The increase of $15.1 million is
primarily due to an increase in MDUs and subscribers as the Company continues to
expand its customer base and penetration into its customers' usage of telephony,
video and internet services.
18
<PAGE>
Cost of Revenue
Cost of revenue (consisting of primarily programming, telecommunication
service costs and payments to owners and employees of MDUs) was $22.0 million in
1999 as compared to $8.8 million in 1998. Cost of revenues increased accordingly
as revenues increased due to the increase in the number of Subscribers. Revenue
for the twelve months ended December 31, 1999 exceeded cost of revenues by
$132. In addition, developer payments in 1999 as compared to 1998 increased $2.0
million while the associated revenues increased $15.2 million. Total costs of
telephony revenues and cable television revenues for 1999 were $15.0 million and
$2.4 million, respectively; as compared to $7.1 million and $1.6 million,
respectively for 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $53.7 million in 1999
compared to $27.9 million in 1998, an increase of $25.8 million, or 92.5%. This
was primarily the result of increases in personnel and related costs associated
with the preparation for deployment of its network facilities and corresponding
provisioning of retail telephony services. Included in the personnel cost is
$4.2 million non-cash compensation expense attributable to the Company's stock
appreciation rights plan recognized in 1999 due to the significant increase in
the Company's estimated fair market value. 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 1999 from 9% to 18% of trade receivables as the
Company has experienced an increased volume of non-pay disconnections. The
Company is currently implementing credit scoring and deposit procedures to
address the high rate of bad debt.
Depreciation and Amortization
Depreciation and amortization was $3.1 million in 1999 compared to $1.5
million in 1998, an increase of $1.6 million, or 106.7%. The increase is
primarily attributable to an increase in cable equipment related to the
conversion of equipment acquired from PCTV. In addition the Company acquired a
significant amount of new computers, furniture and equipment to support the
additional staffing and recognized additional depreciation expense in 1999
related to those newly acquired assets.
Interest Income and Expenses
Interest expense was $15.3 million in 1999 compared to $15.8 million in
1998. Interest income was $3.2 million in 1999 compared to $6.0 million in 1998.
The decrease was as a result of a reduction in the investment in marketable
securities to $28.8 million in 1999 from $99.8 million in 1998. The proceeds
from the securities were used to fund the Company's capital expenditures and
operating losses for 1999.
Equity in Losses in Unconsolidated Subsidiaries
The Company recognized an equity loss of $3.8 million from the operations
of Mid-Atlantic and Mid-Atlantic Telcom Plus Interactive ("MAC Interactive")
during the twelve months ended December 31, 1999 compared to an equity loss of
$3.7 million from such investees for the same period in 1998. In March of 2000,
Mid-Atlantic sold substantially all of its assets, net of certain liabilities to
Comcast Corporation. The Company's proportionate share of the net proceeds
related thereto was approximately $34.0 million, of which approximately $11.6
million is subject to certain escrow and holdback provisions. The Company will
recognize a gain of approximately $20.0 million in the first quarter of 2000
related to this transaction.
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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 $43 in 1997.
Telephony revenues and cable television revenues for 1998 were $4.4 million and
$2.5 million, respectively.
Cost of Revenue
Cost of Revenue (consisting of primarily programming, telecommunication
service costs and payments to owners and employees of MDUs) was $8.8 million in
1998 as compared to $83 in 1997. Cost of Revenue for the twelve months ended
December 31, 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. 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 1998 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.
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 in 1997. The
increase results from the interest accrued on the Company's 14 1/2% Senior Notes
due 2008, which were issued in May 1998 (the "Senior Notes"). Interest income
was $6.0 million in 1998, compared to $72 in 1997. The increase reflects
interest income from short-term investment of the proceeds from the offering of
the Senior Notes.
Equity in Losses in Unconsolidated Subsidiaries
The Company recognized an equity loss of $3.7 million from the operations
of Mid-Atlantic and MAC Interactive during the twelve months ended December 31,
1998 compared to an equity loss of $3.1 million from such investees for the same
period in 1997.
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Results of Operations - VIC-RMTS-DC, LLC
In December 1999, a subsidiary of SBC purchased a 24% direct ownership interest
in VIC-RMTS-DC, LLC a majority-owned subsidiary of the Company, from OPC
Holdings, a wholly-owned subsidiary of the company, in exchange for $10.0
million. This agreement provided OPC Holdings the right to sell up to an
additional 24% direct ownership interest in VIC-RMTS-DC, LLC on the same terms
during the first quarter of 2000.
Year Ended December 31, 1999 Compared with Year Ended December 31, 1998
Revenue
VIC-RMTS-DC, LLC's total revenues for 1999 were $4.7 million compared
to $1.7 million in 1998. This was primarily due to the expansion of its
operations during 1999 including the addition of approximately 62 net new MDUs
and approximately 5,000 net new subscribers.
Cost of Revenue
Cost of Revenue (consisting primarily of telecommunication service
costs and payments to owners and employees of MDUs) was $5.6 million in 1999 as
compared to $2.8 million in 1998. Cost of Revenue for the twelve months ended
December 31, 1999 exceeded revenue by $0.9 million primarily because payments to
certain MDU owners are structured on a per passing basis without regard to
actual fees charged to occupants of the MDU.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $11.2 million in
1999 as compared to $10.3 million in 1998, an increase of $0.9 million, or 8.7%.
This was primarily the result of increases in personnel and related cost
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 1999 from 9% to 20% of
trade receivables as VIC-RMTS-DC, LLC experienced an increased volume of non-pay
disconnections. VIC-RMTS-DC, LLC is currently implementing credit scoring and
deposit programs to address its high rate of bad debt.
Depreciation and Amortization
Depreciation and amortization was $447 for the year ended
December 31, 1999 as compared to $287 in 1998 and increase of $160 or 55.8%.
This increase is primarily attributable to an increase in capitalized assets
related to its property network equipment and related depreciation expense.
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Revenue
VIC-RMTS-DC, LLC's total revenues for 1999 were $1.7 million compared
to $43 in 1998. This was primarily due to the expansion of its operations during
1998.
Cost of Revenue
Cost of Revenue (consisting primarily of telecommunication service
costs and payments to owners and employees of MDUs) was $2.8 million in 1998 as
compared to $82 in 1997. Cost of
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Revenue for the twelve months ended December 31, 1998 exceeded revenue by $1.2
million primarily because payments to certain MDU owners are structured on a per
passing basis without regard to actual fees charged to occupants of the MDU.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $10.3 million in
1999 as compared to $4.6 million in 1997, an increase of $5.7 million, or
123.9%. This was primarily the result of increases in personnel and related cost
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.
Depreciation and Amortization
Depreciation and amortization was $287 for the year ended
December 31, 1998 as compared to $157 in 1997 and increase of $130 or
82.8%. This increase is primarily attributable to an increase in capitalized
assets related to its telephone systems and related depreciation expense.
Results of Operations - OnePoint Services, LLC
OnePoint Services, LLC commenced operations on November 30, 1999
OnePoint Services, LLC's total revenues for 1999 were $416. Cost of
Revenue (consisting primarily of telecommunication costs to provide prepaid
phone service) was $401 in 1999. Selling, general and administrative
expenses were $211 in 1999. Depreciation and amortization was $31 for
the year ended December 31, 1999. Interest income was $8 for the year ended
December 31, 1999 comprised of interest on funds available for anticipated needs
in 2000.
Liquidity and Capital Resources - OnePoint Communications Corp.
The Company has financed its development through December 1999 with
proceeds from the issuance of $175.0 million in Senior Notes, $35.0 million of
funding provided by Ventures in Communications, LLC ("VIC"), $80 of equity
invested by VenCom, L.L.C., borrowings under a $9.0 million credit facility from
Northern Trust (the "Credit Facility"), a second $16.0 million credit facility
from Northern Trust (the "Second Credit Facility"), and a $10.0 million equity
investment in VIC-RMTS-DC, LLC by SBC Comventures, Inc., a subsidiary of SBC. As
of December 31, 1999: (i) Ventures in Communications II, LLC ("VIC2") owned all
of the Company's outstanding capital stock; (ii) Mr. Otterbeck indirectly owned
89.1% of VIC2's common membership units; (iii) SBC indirectly owned 9.9% of
VIC2's common membership units, and had a priority on the first $35.0 million of
distributions by VIC2 (less all principal and interest payments on the VIC2
Note), and VIC had warrants exercisable for 11.9% of VIC2's equity; and (iv)
CAIS Internet, Inc. owned 1% of VIC2's common membership units.
From February to June 1997, the Company made investments totaling
approximately $12.0 million in Mid-Atlantic, a joint venture the Company entered
into to provide video service in the mid-atlantic region, and in December 1997
the Company invested $750 in Mid-Atlantic Telcom Plus Interactive, LLC ("MAC
Interactive") to establish a separate joint venture with the other investors in
Mid-Atlantic to secure exclusive marketing rights for certain
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programming services from an affiliated company. The Company completed the
orderly disposition of MAC Interactive in 1999 and realized gross proceeds of
approximately $135 on the sale of substantially all of the assets, net of
certain liabilities of MAC Interactive to an unrelated third party, resulting in
no additional gain or loss recognition in 1999 as all losses attributable to
this disposition were recognized in 1998. In March of 2000, Mid-Atlanitc sold
substantially all of its assets, net of certain liabilities to Comcast
Corporation. The Company's proportionate share of the net proceeds related
thereto was approximately $34.0 million, of which approximately $11.6 million is
subject to certain escrow and holdback provisions. The Company will recognize a
gain of approximately $20.0 million in the first quarter of 2000 related to this
transaction.
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 People's Choice TV Corp. ("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.
During the course of 1999 the Company invested approximately $5.8 million in
capital expenditures to upgrade the existing PCTV equipment to newer technology.
In March 1998, the Company obtained a $9.0 million credit facility from
Northern Trust (the "Credit Facility"). Borrowings under the Credit Facility
outstanding as of December 15, 1998, (approximately $8.75 million) 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 31,1999, the Company had
outstanding $8.4 million and obtained a $0.25 million letter of credit under the
facility. On August 30, 1999 the Company established the Second Credit Facility
with the same bank enabling the Company to borrow up to an additional $16.0
million. The terms of the Credit Facility are similar to those contained in the
previous agreement. On the same date the Credit Facility was amended in order to
make the default provisions consistent under both facilities. As of December 31,
1999 the Company had $14.4 million outstanding on the Second Credit Facility and
obtained $1.6 million in letters of credit.
In May 1998, the Company offered 175,000 units each consisting of a $1
principal amount of 14 1/2% Senior Notes due 2008 (the "Senior Notes") and a
warrant to purchase 0.635 shares of the common stock of the Company (a
"Warrant") for gross proceeds of $175.0 million (collectively, the "Unit
Offering"). The Company used approximately $80.5 million of the net proceeds
from the Unit Offering to purchase securities pledged with a trustee to fund
future interest payments on the Senior Notes (the "Pledged Securities"). The
Company also used a portion of the proceeds to pay down the borrowings under the
Credit Facility which the Company has since borrowed again since that time. The
Company completed open market purchases of Senior Notes having an aggregate
principal amount of $92.3 million between November 9, 1998 and June 30, 1999 at
various prices for an aggregate total cost of approximately $47.9 million,
including accrued interest and transaction fees. The Company recognized an
extraordinary gain on the early extinguishment of this debt of $19.8 million in
the fourth quarter of 1998 and recognized an extraordinary gain of approximately
$20.4 million in the first and second quarters 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 and $11.5 million on July
8, 1999 upon request by the Company. Based on market conditions, the Company
will continue to evaluate the repurchase of Senior Notes and may continue to
utilize existing cash to fund additional purchases. The balance of the net
proceeds have been, or will be, to invest in network infrastructure, to support
voice and data services, to fund additional open market purchases of Senior
Notes, to fund future capital calls by the Company's subsidiaries and to fund
working capital and for general corporate purposes, including operating losses.
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Cash flows used in operating activities were $58.4 million and $37.7
million in 1999 and 1998, respectively, an increase of $20.7 million or 53.9%.
The expansion of business operations, as mentioned previously in the Selling
General and Administrative section of Results of Operations, during 1999
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 1999 totaled $12.4 million, compared to $9.4 million in 1998, an
increase of $3.0 million or 31.9%. This increase was primarily due to the
equipment investment to upgrade video assets in the Chicago market. As of
December 31, 1999 the Company had an accumulated deficit of $95.7 million, and
had cash and cash equivalents of $6.6 million and available investments of $5.5
million, net of the Pledged Securities totaling $23.3 million.
Cash flows provided by investing activities in 1999 were $71.7 million.
Cash flows used in investing activities in 1998 were $118.6 million. The
significant variance is primarily due to the purchase of marketable securities
in 1998 from the proceeds of the notes compared to the sales of marketable
securities in 1999 to fund operations, purchases of capitalized assets,
repurchases of the Senior Notes, and proceeds from the sale of VIC-RMTS-DC, LLC
units to SBC Comventures, Inc. offset by purchases of capitalized assets. Cash
flows used in financing activities were $12.4 million in 1999. Cash flows
provided by financing activities in 1998 were $156.5 million. The significant
variance from 1998 to 1999 was primarily attributable to the proceeds from the
Senior Note issuance and Credit Facility in 1998 compared to the repurchases of
the Senior Notes in 1999 and repayments of scheduled maturities of the Credit
Facility in 1999 offset by the proceeds from the Second Credit Facility obtained
in 1999. As of December 31, 1999 the Company had $6.6 million of cash and cash
equivalents, excluding the Pledged Securities.
During 1998 and 1999 the Company incurred liquidated damages resulting
from its failure to have its Registration Statement with respect to its Senior
Notes declared effective by the Commission by November 17, 1998. The Company
incurred liquidated damages of approximately $390 through August 6, 1999 at
which time the Company's registration became effective. As of December 1, 1999
all liquidated damages were paid to note holders of record.
In November of 1999 OnePoint Services LLC, a majority owned subsidiary was
formed by the Company. On November 30, 1999 OnePoint Services, LLC purchased
100% of RCP Communications, Inc. ("RCP"), a prepaid telephony service company,
for a total consideration of $985 and 1.425 million restricted common units. Of
these amounts $891 and 1.050 million restricted common units are being withheld
subject to the revenue and cash flow targets. The consolidated results of
operations, for the month of December 1999, of OnePoint Services, LLC and RCP
are included in the Company's 1999 consolidated results of operations.
In December 1999 the Company sold 6.889 units of VIC-RMTS-DC, LLC units
for the sum of $10.0 million to SBC Comventures, Inc. The Company exercised its
option to sell an additional 3.445 units to SBC in February 2000 for the sum of
$5.0 million and did not exercise its option to sell an additional 3.445 units
in March 2000. The Company has the right to call the units at any time for the
purchase price plus 15% per annum. In
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addition, SBC has the right to put the VIC-RMTS-DC, LLC units acquired from the
Company directly to James Otterbeck, the Company's Chairman and the sole member
of VenCom, L.L.C. (an 89.1% owner of the Company), personally, under the same
terms and conditions as the Company's call rights.
On March 20, 2000 the Company invested $100 for 10 redeemable units or
1% of ComPlus LP, an engineering services company, which provides services to
the Company and is 98% owned by VIC, LLC and 1% owned by AMI-Vcom2, Inc. In
addition the Company made a loan to ComPlus LP for $900 which accrues interest
at 15% per annum. The investment will be accounted for pursuant to the equity
method and is not expected to be material to the Company's consolidated results
of operations or financial position.
As the Company begins deployment of its IP-based network capable of
providing a full range of voice, data and video services the company is in the
process of divesting its remaining private cable assets in Illinois and Georgia.
During the first quarter of 2000, the Company received multiple offers to buy
its private cable assets in Illinois.
The Company has entered into employment agreements with certain key
executives and other employees that provide for certain levels of benefits for
such employees, notices in the event of termination by either party, minimum
annual compensation and bonuses, and other customary terms, including
non-compete and non-disclosure requirements placed on the employees during their
employment with the Company and for specified periods thereafter.
The Company will be required to raise significant additional capital
during 2000 in order to fund its current business plan. The Company's business
plan entails the expansion into new markets and the deployment of considerable
network equipment in multiple work during 2000 which will enable the Company to
provide differentiated and higher margin facilities-based voice and data
services. Without sufficient capital to purchase this equipment and fund market
expansion, the Company will be forced to reduce its network deployment which
will result in the continuation of operating losses from its current resale
platform and restrict its ability to offer competitive high-speed data services.
In addition, in the event the Company is unable to raise sufficient additional
capital, the Company's results of operations, financial position, and ability to
continue operations may experience material adverse effects.
In addition to its current capital requirements, the Company expects
significant ongoing 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 voice, data 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, data and video services and the pricing of such
services, (iii) the rate at which the Company deploys network facilities, the
cost of equipment required to do so, and its ability to aggregate traffic onto
the Company's facilities, (iv) the expansion to additional markets, if any.
However, there can be no assurances that the Company will be able to obtain the
aforementioned capital.
During the course of 1999 the Company retained the services of an
investment bank to assist in raising private equity. The Company would like to
finalize this equity offering during the second quarter of 2000. However, there
can be no assurances that the Company will be successful in completing this
private equity infusion or that the terms of such a transaction will be
economically favorable to the Company, its current Senior Note holders or its
current shareholders.
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
through the second quarter of 2000, with additional financing available if and
when the Company sells private equity and certain cable assets. In the event the
Company is unsuccessful in raising the additional private equity or selling its
wholly-owned subsidiary, OnePoint Communications-Illinois, LLC, the Company may
not be able to fund its network deployment, operating losses or debt
obligations.
Liquidity and Capital Resources - VIC-RMTS-DC, LLC
VIC-RMTS-DC, LLC has financed its development with $31.9 million of contributed
equity by unit holders.
Cash flows used in operating activities were $11.9 million and $12.1
million for the years ended December 31, 1999 and 1998 respectively, a decrease
of $0.2 million or 1.7%. Cash flows used in operating activities can vary 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
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accrued liabilities.
Net cash used by VIC-RMTS-DC, LLC for acquisitions of property and
equipment during the year ended December 31, 1999 was $0.6 million compared to
$1.2 million for the year ended December 31, 1998. As of December 31, 1999
VIC-RMTS has an accumulated deficit of $30.6 million, and had no cash or cash
equivalents.
Cash flows used in investing activities in the year ended December
31, 1999 were $0.6 million. Cash flows used in investing activities in the year
ended December 31, 1998 were $1.2 million. Cash flows provided by financing
activities were $12.5 million and $13.3 million for the years ended December 31,
1999 and December 31, 1998 respectively.
The Company will be required to raise significant additional capital
during 2000 in order to fund its current business plan. The Company's business
plan entails the expansion into new markets and the deployment of considerable
network equipment in multiple markets during 2000 which will enable the Company
to provide differentiated and higher margin facilities-based voice and data
services. Without sufficient capital to purchase this equipment and fund market
expansion, the Company will be forced to reduce its network deployment which
will result in the continuation of operating losses from its current resale
platform and restrict its ability to offer competitive high-speed data services.
In addition, in the event the Company is unable to raise sufficient additional
capital, the Company's results of operations, financial position, and ability to
continue operations may experience material adverse effects.
In addition to its current capital requirement VIC-RMTS-DC, LLC
expects significant ongoing 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 on VIC-RMTS-DC, LLC's facilities, and (iv) the expansion to
additional markets, if any. However there can be no assurances that the Company
will be able to obtain the aforementioned capital.
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 would be sufficient to meet operating and
capital needs through the second quarter of 2000, additional funding will be
required in 2000 and is expected to be provided by OnePoint Communications
Corp., the majority-owner of VIC-RMTS-DC, LLC. OnePoint Communications Corp.
anticipates additional financing will be available if and when the Company sells
private equity and certain cable assets. In the event the Company is
unsuccessful in raising the additional private equity or selling its wholly-
owned subsidiary, OnePoint Communications-Illinois, LLC, the Company may not be
able to fund VIC-RMTS-DC, LLC network deployment, operating losses or debt
obligations.
Liquidity and Capital Resources - OnePoint Services, LLC
OnePoint Services, LLC began operations in December 1999 and has
financed its development with $3.2 million of contributed equity by unit
holders.
Cash flows generated from operating activities were $1.5 million for
the period from inception to December 31, 1999. These cash flows came from the
acquisition of the equity of RCP Communications, Inc. ("RCP") in November 1999.
Cash flows used in operating activities can vary 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 OnePoint Services, LLC for the acquisitions of
property and equipment of RCP during the period from inception to December 31,
1999 was $0.4 million. As of December 31, 1999 OnePoint Services, LLC has an
accumulated deficit of $(0.2) million, and had $1.5 million of cash and cash
equivalents.
Cash flows used in investing activities in the period from inception
to December 31, 1999 were $3.2 million for the acquisition of intangible assets
in connection with the acquisition of RCP. Cash flows provided by financing
activities were $3.2 million for the year ended December 31, 1999.
OnePoint Services, LLC expects significant ongoing cash requirements
for at least the next several years due to continued expansion of its customer
base and the need to invest in equipment to support telephony services. OnePoint
Services, LLC's future cash requirements will depend on a number
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of factors including (i) the number of new markets entered (ii) the level of
penetration achieved in the new markets for telephony services and the pricing
of such services, (iii) the rates negotiated with its carriers for domestic and
international service, (iv) the cost of the equipment to support additional
markets and (v) the payment terms of primary carriers.
OnePoint Services, LLC's future results of operations will be
materially impacted by its ability to finance its planned business strategies.
OnePoint Services, LLC expects that its current financing is sufficient to meet
operating and capital needs through 2000.
Year 2000 Issue
The Company is aware of the implications associated with the "Year 2000"
as it relates to software information systems and other outside implications on
the Company's operations. The "Year 2000" has not had a material impact on the
Company's current information systems. As a result, the Company's incremental
expenditures to ensure that its information systems were "Year 2000" compliant
were not material to the Company's liquidity, financial position or results of
operations. The Company estimates that it spent approximately $300,000 to date
on "Year 2000."
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 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.
Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), 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, 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 recognized 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.
This Form 10-K contains certain forward-looking statements, including,
without limitation, statements concerning the Company's future financial
position, business strategy, budgets, projected costs and plans and objectives
of management for future operations. These forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 (which do not apply to initial public offerings). Forward-
looking statements generally can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "intend," "estimate," "anticipate,"
"believe," "should," "plans," or "continue" or the negative thereof or
variations thereon or similar terminology. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
These forward-looking statements
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are subject to a number of risks and uncertainties, including, without
limitation, those related to the Company's substantial leverage and debt service
requirements, the Company's dependence on significant customers and on certain
suppliers, the effects of competition on the Company, risks related to the year
2000 issue, and the other factors discussed in the Company's filings with the
Securities and Exchange Commission. Actual results could differ materially from
these forward-looking statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
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The Company has certain exposure to financial market risks, including
changes in the interest rates and other relevant market prices. Specifically, an
increase or decrease in interest rates would affect interest costs relating to
our Credit Facility and our Second Credit Facility. At December 31, 1999, the
Company has an outstanding loan balance of $8.4 million and $14.4 million on the
Credit Facility and the Second Credit Facility respectively. The outstanding
loan balances represent approximately 22% of our outstanding long-term debt.
The Company also maintains securities which are classified as "available
for sale" valued at $28.8 million as of December 31, 1999. An immediate increase
or decrease in interest rates could have a material impact on the fair value of
these financial instruments or on our short-term investment portfolio.
Changes in interest rates do not have a direct impact on interest expense
relating to our remaining fixed rate long-term debt, although the fair market
value of our fixed rate debt is sensitive to changes in interest rates. If
market rates declined, our interest payments could exceed those based on our
current market rate. We currently do not use interest rate derivative
instruments to manage our exposure to interest rate changes, but may do so in
the future.
Item 8. Financial Statements.
- -------------------------------
Financial statements and supplementary data required by this Item 8 are
attached as Exhibit A.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- --------------------------------------------------------------------------------
None.
28
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
- ------------------------------------------------------------
The executive officers and directors of the Company, and their ages as of
March 31, 1999 are set forth below:
Name Age Position
- ---- --- --------
James A. Otterbeck 39 Chairman, Director
William F. Wallace 45 President and Chief Executive Officer,
Director
Mark C. Fuller 44 President, Network Services
Jon D. Bergman 44 Chief Information Officer
Laurel A. Dent 35 Executive Vice President, Sales &
Marketing
John D. Stavig 35 Chief Financial Officer, Director
Linda L. Pace 36 Director
The present principal occupations and recent employment history of each of
the executive officers and directors of the Company listed above are set forth
below.
Mr. Otterbeck has served as Chairman since the Company's inception in
March 1996, and as Chief Executive Officer from inception until December 1999.
Mr Otterbeck has served as President of The VenCom Group, Inc. ("VenCom"), 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 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 Kellog Graduate School of
Management at Northwestern University.
Mr. Wallace has served as the President and Chief Operating Officer since
June of 1996, and as President and Chief Executive Officer since December 1999.
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 practice. Mr. Wallace brings over 16 years
experience in telecommunications. Mr Wallace received his B.A. from Harvard
College and his M.B.A. from Harvard Graduate School of Business.
Mr. Fuller has served as the President of Network Services since January
1999. From 1994 to 1998 Mr. Fuller worked for E.Spire Communications in various
senior management positions, most recently as Vice President of Platform
Implementation. From 1993 to 1994 Mr. Fuller worked at Teleport Communications
Group where he served as Director of Sales. Between 1988 and 1993 Mr Fuller
worked with MCI as Market Support Manager. Prior to 1988 Mr. Fuller served as an
Officer with the United States Army. Mr. Fuller received his B.S. from United
States Military Academy, West Point.
Mr. Bergman has served as Chief Information Officer since January 2000 and
Executive Vice President of Support Operations 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
29
<PAGE>
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.
Ms. Dent has served as Executive Vice President, Sales and Marketing since
April 1999. From November 1997 to April 1999, Ms. Dent served as Vice President,
General Manager--South East Region and Vice President, Marketing. 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. Mr. Stavig has served
as Chief Financial Officer and Director since March 1998. From 1995 to 1998, Mr.
Stavig served as Vice President of VenCom while also serving 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 VIC, which also
indirectly owns 9.9% 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.
The term of office for each officer and director of the Company is one
year.
30
<PAGE>
Item 11. Executive Compensation.
- --------------------------------
The following table summarizes the compensation paid by the Company and
its subsidiaries in and with respect to 1999 to the Company's Chief Executive
Officer and four other most highly compensated executive officers at December
31, 1999 (collectively, the "Named Executive Officers") for services rendered to
the Company in 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
--------------------------------------------- -------------------
Other Annual Securities All Other
Salary Bonus Compensation Underlying Compensation
Name and Principal Position Year ($) ($) (1) Option/SARs ($) (2)
- ----------------------------------- -------- ------------- ------------- ----------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James A. Otterbeck 1999 -- -- -- -- --
Chairman, (5) 1998 -- -- -- -- --
1997 -- -- -- -- --
William F. Wallace 1999 375,000 150,000 -- -- 5,554
President, Chief Executive Officer 1998 375,000 125,000 5,492 -- 6,547
1997 375,000 200,000 -- -- --
John D. Stavig 1999 185,000 75,000 -- -- 1,000
Chief Financial Officer (3) 1998 131,667 150,000 188 -- 523
1997 -- -- -- -- --
Laurel A. Dent 1999 186,817 45,000 -- -- 32,000
Executive Vice President, 1998 140,000 60,000 -- -- 1,000
Sales & Marketing 1997 135,000 41,000 -- -- --
Mark C. Fuller 1999 195,223 50,000 -- -- --
President 1998 -- -- -- -- --
Network Services (4) 1997 -- -- -- -- --
</TABLE>
- -------------------
(1) Other Annual Compensation was not reportable.
(2) Reflects reimbursement of premiums for life insurance for William F.
Wallace, ($5,554) relocation expenses for Laurel A. Dent ($32,000) and
Company contributions under a 401(k) plan .
(3) Salary reflects start date of March 15, 1998.
(4) Salary reflects start date of February 15, 1999.
(5) Mr. Otterbeck does not receive compensation from the Company, but is paid
by VenCom. An annual management fee of $750,000 is paid to VenCom.
31
<PAGE>
Stock Appreciation Rights Plan
In August of 1998, the Company implemented a Stock Appreciation Rights
Plan, pursuant to which employees of the Company received contractual rights to
receive a portion of the appreciation of the market value of the Company. Pegged
to a multiple of historical EBITDA or a qualifying triggering event, these
rights are subject to vesting requirements and broad discretion of the
Compensation Committee of the Board of Directors.
The following table sets forth information with respect to all options
granted in fiscal 1999 to the Named Executive Officers.
SAR Grants in 1999
<TABLE>
<CAPTION>
Individual Grants Grant Date Value
- ------------------------------------------------------------------------------------------------------ -------------------
Percent of
Number of Total
Securities SARs
Underlying Granted to Exercise or Grant Date
SARs Employees in Base Price Expiration Present Value (1)
Name Granted Fiscal Year ($/Sh) Date ($)
- -------------------------- ------------------- ------------------- ----------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
James A. Otterbeck 0 0.0% $0 1/1/09 $ 0
William F. Wallace 0 0.0% $0 1/1/09 $ 0
John D. Stavig 0 0.0% $0 1/1/09 $ 0
Laurel A. Dent 1,000 3.1% $67.50 1/1/09 $ 0
Mark C. Fuller 10,000 30.7% $135.00 1/1/09 $ 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. For 1999 the Company valued the
stock based on the valuation performed in conjunction with the CAIS
Internet, Inc. investment. 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.
32
<PAGE>
The following table sets forth information with respect to all options
exercised in fiscal 1999 and the year-end value of unexercised options held by
the Named Executive Officers.
Aggregated SAR Exercises in 1999 And
Fiscal Year-End SAR Values
No options or SARs were exercised in 1999.
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
SARs at SARs at Fiscal
Fiscal Year End Year-End
Exercisable/ Exercisable/
Unexercisable Unexercisable
Name (#) ($)
- ------------------------------------- --------------------- ------------------------
<S> <C> <C>
James A. Otterbeck -- $ --
William F. Wallace 0 / 969 0 / 184,013
John D. Stavig 0 / 1,200 0 / 227,880
Laurel A. Dent 0 / 7,000 0 / 1,261,800
Mark Fuller 0 / 10,000 0 / 1,224,000
</TABLE>
(1) All SARs listed above are unexercisable.
(2) SAR valuations are based on the vested portion in a value of $257.40 per
share as determined by a company valuation performed in conjunction with
the CAIS Internet, Inc. investment.
33
<PAGE>
Item 12. 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, 2000 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 of 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, Two Conway Park, 150 Field Drive,
Suite 300, Lake Forest, Illinois 60045.
<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) 205,379 18.5 -- --
James A. Otterbeck (4) 797,972 71.8 35,000 100.0%
William F. Wallace -- -- -- --
Mark C. Fuller -- -- -- --
Laurel A. Dent -- -- -- --
John D. Stavig -- -- -- --
Linda L. Pace -- -- -- --
All executive officers and directors as a group (4 persons) 797,972 71.8 -- --
</TABLE>
- -----------
(1) Includes rights to acquire shares which are exercisable within 60 days of
March 1, 2000.
(2) Rights to acquire shares which are exercisable within 60 days of March 1,
2000 are considered outstanding for the purpose of determining the
percent of the class held by the holder of such rights.
(3) Through certain wholly owned subsidiaries, SBC owns 99% of the common
membership units of VIC, which in turn owns 10.0% of the equity interests
of VIC2, thus resulting in SBC's indirect ownership of 9.9% of the equity
interests of the Company. VIC owns warrants to purchase 11.9% of the
membership units of VIC2, and after giving effect to the exercise of such
warrants, SBC would indirectly own 20.5% of the membership units of VIC2.
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 89.0% of the common membership units of VIC2 (or 78.4%
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 has full
voting and dispositive power with respect to such securities.
34
<PAGE>
Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------
The Recapitalization
The Company is the successor to OnePoint Communications, L.L.C. (the
"Predecessor"). The Predecessor was initially formed in 1996 by 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, 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 (the "Recapitalization"). Pursuant to the
Recapitalization, VIC agreed to guarantee up to $9 million of collateralized
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, 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, through VenCom, L.L.C., 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. 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 $1.5 million promissory note payable by the Predecessor to VIC to 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 $1.5 million promissory note payable to VIC exchanged for
shares of the Company's common stock and preferred stock. As a result of the
April 1998 merger transactions, the Company became a Delaware corporation which
is a wholly owned by VIC2.
In August 1999, VenCom, L.L.C. purchased 9.8% of the common units and all
of the preferred units of VIC2 and a non-interest bearing promissory note for
$1.5 million issued by VIC2 from VIC in exchange for a 12% interest bearing note
in the amount of $60.7 million. As of March 1, 2000 the membership interests of
VIC2 were owned by VIC (10.0%), VenCom, L.L.C. (89.0%) and CAIS Internet, Inc.
(1.0%) and VIC also owned warrants to purchase 11.9% of the membership units of
VIC2. See Item 12 "Securities Ownership of Certain Beneficial Owners and
Management."
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.
35
<PAGE>
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.
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. SBC currently holds a 9.9% equity ownership
interest in the sole stockholder of OnePoint. 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.
The Company reimburses SBC for such services based on SBC's costs of providing
such services. At December 31, 1998 and 1999 the Company had accrued $208 and $0
respectively in accounts payable due to SBC in respect of such services.
Affiliate Loans, Guarantees and Investments
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 two Credit Facilities are
guaranteed by SBC. The Company's payment obligations under two of its leases for
office space are also guaranteed by SBC.
In December of 1999, SBC Comventures, Inc. invested $10 million to obtain a
24% direct ownership interest in VIC-RMTS-DC, LLC. This agreement enabled the
Company to sell up to an additional 24% direct ownership interest in
VIC-RMTS-DC, LLC. during 2000. In February 2000, the Company exercised its
option to sell 12% of its interest in VIC-RMTS-DC, LLC to SBC Comventures, Inc.
for $5 million. SBC Comventures, Inc. is a wholly-owned subsidiary of SBC.
36
<PAGE>
Executive Non-Competition Agreements
Mr. Wallace has entered into non-disclosure and non-competition agreement
with the Company which provide that he 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. Each
of Messrs. Wallace, Fuller, Dent and Stavig have entered into stock appreciation
right award agreements which contain restrictions on disclosures of information
and competition with the Company throughout their employment with the Company
and for a period of twelve months thereafter.
Mid-Atlantic Joint Venture Non-Competition Agreements
In connection with the Company's investment in Mid-Atlantic, 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, the cable joint venture company investee of the
Company, 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 Company and its subsidiaries
are under no additional non-competition restrictions as a result of the sale of
the assets of Mid-Atlantic in March of 2000.
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, 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 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 $1.8 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 accrued consulting fees payable of $3.5 million from the
Unit Offering, of which, approximately $3.2 million and $3.4 million remained
unpaid as of December 31, 1999 and 1998, respectively. 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 1999 and 1998.
MAC Interactive
During 1997, the Predecessor entered into a joint venture with the entity
that the other member of Mid-Atlantic to form MAC Interactive. The initial
capitalization of the joint venture was used to purchase certain assets and
marketing rights. In December 1998, the Company took over control of the joint
venture and subsequently terminated the joint venture during 1999. The Company
realized a loss on disposal of the assets and liabilities of the joint venture
of approximately $0.5 million in 1998.
37
<PAGE>
Customer Care Facility
The Company reimburses Mid-Atlantic for rent and for certain payroll and
other expenses with respect to shared employees at its customer care facility.
In addition, the Company was a co-tenant with Mid-Atlantic with respect to two
of the companies' offices, and was jointly and severally liable for lease
payments with respect to space used by Mid-Atlantic through December 1999. As of
December 31, 1998 and 1999, the Company had receivable balances from Mid-
Atlantic primarily due to the sharing of general and administrative resources
totaling approximately $653 and $266, respectively. For the same period the
Company had accounts payable balances of approximately $733 and $956 for
services provided by Mid-Atlantic in 1998 and 1999, respectively. Minor
differences between these intercompany balances and the resulting Mid-Atlantic
intercompany balances are being reconciled by the companies.
ComPlus LP
On March 20, 2000 the Company invested $100 for 10 redeemable units or 1%
of ComPlus LP, an engineering services company, which provides services to the
Company and is 99% owned by VIC, LLC and 1% owned by AMI2, Inc. In addition the
Company made a loan to ComPlus LP for $900 which accrues interest at 15% annum.
The Company completed this investment to secure access to personnel for the
design and installation of certain of its network facilities. VIC indirectly
owns 10.0% of the Common Stock of the Company. The investment will be accounted
for pursuant to the equity method and is not expected to be material to the
overall results of operations or financial position.
38
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- -------------------------------------------------------------------------
The following documents are filed as part of this report:
(a) (1) The consolidated financial statements included in
Item 8 hereof and set forth as Exhibit A on pages
F-1 through F-79.
(2) The exhibits listed in the Index to the Exhibits.
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description Footnote
- ------- ----------- --------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated April 29, 1998 of OnePoint
Communications, LLC with and into the Company 1
3.1 Amended and Restated Certificate of Incorporation of the Registrant,
as of April 29, 1998 1
3.2 Bylaws of the Registrant, as amended 1
4.1 Purchase Agreement, dated as of May 15, 1998 by and between the
Company, the Subsidiary Guarantors, Bear, Sterns and Co., Inc. and
NationsBank Montgomery Securities LLC 1
4.2 Indenture dated as of May 21, 1998 by and between the Company, the
Subsidiary Guarantors and Harris Trust and Savings Bank 1
4.3 Form of 14 1/2% Senior Notes due 2008 1
4.4 Registration Rights Agreement dated as of May 21, 1998 by and between
the Company, Bear, Stearns & Co. Inc. and Nations Bank Montgomery
Securities, as Initial Purchasers relating to the Notes 1
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") 1
4.6 Specimen Certificate for the Warrants of the Company 1
4.7 Warrant Registration Rights Agreement dated as of May 21, 1998 by and
between the Company and Harris Trust and Savings Bank 1
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. 1
4.9 Guarantee of the Subsidiary Guarantors dated May 21, 1998 1
4.10 Registration Agreement dated April 29, 1998 between the Company and
Ventures in Communication II, LLC 1
4.11 Supplemental Indenture for OnePoint Services, LLC dated November 30,
1999
10.1 Professional Services Agreement dated May 15, 1998 by and between the
Company and the VenCom Group, Inc. 1, 2
10.2 Letter Agreement by and between the Company and Sprint Communications
dated April 23, 1998 electing renewal of the Affiliate Services
Agreement 1
10.3+ Affiliate Services Agreement by and between the Company and Sprint
Communications dated April 4, 1997 1
10.4+ Asset Purchase and Sale Agreement dated June 8, 1998 by and between
the Company and People's Choice TV Corp. and Preferred Entertainment,
Inc. 1
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C>
10.5 Amended and Restated Security Agreement dated April 29, 1998 by and
between the Company and The Northern Trust Company 1
10.6 Amended and Restated Call on Term-Term Note dated April 29, 1998
evidencing the Company's indebtedness to The Northern Trust Company 1
10.7 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 1
10.8 Stock Appreciation Rights program of the Company, effective as of
January 1, 1998 1
10.9+ CSG Master Subscriber Management Agreement dated September 27, 1998 by
and between the Company and CSG Systems, Inc. 1
10.1O+ End User License Agreement dated March 7, 1997 by and between the
Company and BDSI, Inc. D/B/A Beechwood Data Systems 1
10.11 Resale Agreement dated as of May 28, 1997 by and between VIC-RMTS-DC,
LLC and Bell Atlantic - Virginia, Inc., as amended 1
10.12 Resale Agreement dated as of August 1, 1997 by and between VIC-RMTS-
DC, LLC and Bell Atlantic - Washington, D,C., Inc., as amended 1
10.13 Resale Agreement dated as of August 1, 1997 by and between VIC-RMTS-
DC, LLC and Bell Atlantic - Pennsylvania, Inc., as amended 1
10.14 Resale Agreement dated as of May 7, 1997 by and between VIC-RMTS-DC,
LLC and Bell Atlantic - Maryland, Inc., as amended 1
10.15 Resale Agreement dated as of March 25, 1998 by and between VIC-RMTS-
DC, LLC and Bell Atlantic - Delaware, Inc., as amended 1
10.16 Agreement for Sale of Telecommunications Services dated July 21, 1997
by and between OnePoint Communications - Georgia, LLC and BellSouth
Telecommunications, Inc. 1
10.17 Agreement for Sale of Telecommunications Services dated February 6,
1998 by and between OnePoint Communications - Colorado, LLC and US
WEST Communications, Inc. 1
10.18 Lease Agreement at Lake Forest, Illinois for headquarters
10.19 Lease Agreement at Herndon, Virginia for regional headquarters
10.20 Demand Note between COMPLUS, LP and the Company dated March 20, 2000
10.21 Stock Purchase Agreement by and among RCP Communications, Inc. and the
Company dated November 30, 1999
10.22 Purchase Agreement by and among SBC Comventures, Inc. and the Company
dated December 16, 1999
10.23 Purchase Agreement between COMPLUS, LP and the Company dated March
17, 2000
10.24 Security Agreement between COMPLUS, LP and the Company dated March 20,
2000
10.25 COMPLUS, LP Admission Agreement between the Company and COMPLUS, LP
dated March 20, 2000
10.26 Purchase Agreement by and between Mid-Atlantic and Comcast Corporation
dated October 21, 1999
10.27 Call on Term-Term Note executed by OnePoint Communications Corp. August
30, 1999
10.28 Guaranty on Call Term-Term Note by SBC Communications, Inc. dated
August 30, 1999
10.29 First Amendment dated as of August 30, 1999 to loan documents and
guaranty
10.30 Purchase Agreement between VIC-I RMTS, LLC and OnePoint
Communications Holdings, LLC dated December 31, 1999
10.31 Securities Purchase Agreement dated October 1999 between Ventures in
Communications II, LLC, OnePoint Communications Corp. and CAIS Internet
Inc.
10.32 OnePoint Services, LLC Limited Liability Company Agreement
21.1 Subsidiaries of the Registrant 1
27.1 Financial Data Schedule 1
- -----------
(1) Incorporated by reference in the Company's S-4 Registration Statement, File No. 333-63787.
(2) Management contract or compensatory plan or arrangement.
(+) Confidential treatment requested
</TABLE>
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 30, 2000.
ONEPOINT COMMUNICATIONS CORP.
By: /s/ JOHN D. STAVIG
-------------------------
John D. Stavig
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on March 30, 2000.
Signature Title
--------- -----
/s/ JAMES A. OTTERBECK Chairman and Chief Executive Officer, Director
- ---------------------------- (Principal Executive Officer)
James A. Otterbeck
/s/ WILLIAM F. WALLACE President and Chief Operating Officer, Director
- ---------------------------- (Principal Operating Officer)
William F. Wallace
/s/ JOHN D. STAVIG Chief Financial Officer, Director
- ---------------------------- (Principal Financial Officer)
John D. Stavig
/s/ WILLIAM J. MCMOIL Treasurer
- ---------------------------- (Principal Accounting Officer)
William J. McMoil
/s/ LINDA L. PACE
- ---------------------------- Director
Linda L. Pace
41
<PAGE>
EXHIBIT A
FINANCIAL STATEMENTS (Item 8)
Index to Financial Statements
OnePoint Communications Corp.
|X| Report of Independent Accountants F - 3
|X| Consolidated Statements of Operations for the years
ended December 31, 1997, 1998 and 1999 F - 4
|X| Consolidated Statements of Comprehensive Loss for the
years ended December 31, 1997, 1998 and 1999 F - 5
|X| Consolidated Balance Sheets as of December 31, 1998 and 1999 F - 6
|X| Consolidated Statements of Changes in
Unitholders'/Stockholders' Equity/(Deficit) for the
years ended December 31, 1997, 1998 and 1999 F - 8
|X| Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1998 and 1999 F - 9
|X| Notes to Consolidated Financial Statements F - 11
Mid-Atlantic Telcom Plus Holding, LLC
|X| Report of Independent Accountants F - 38
|X| Balance Sheets as of December 31, 1998 and 1999 F - 39
|X| Statement of Operations for the years ended
December 31, 1998 and 1999 F - 41
|X| Statements of Changes in Members' Equity for the
years ended December 31,1997, 1998 and 1999 F - 42
|X| Statement of Cash Flows for the years ended
December 31,1997, 1998 and 1999 F - 43
|X| Notes to Financial Statements F - 44
VIC-RMTS-DC, LLC
|X| Report of Independent Accountants F - 53
|X| Statements of Operations for the years ended
December 31, 1997, 1998 and 1999 F - 54
|X| Balance Sheets as of December 31, 1998, 1999 F - 55
|X| Statements of Changes in Unitholders' Equity for
the years ended December 31, 1997 1998, 1999 F - 56
|X| Statements of Cash flows for the years ended
December 31, 1997, 1998 and 1999 F - 57
|X| Notes to Financial Statements F - 58
OnePoint Services, LLC
|X| Report of Independent Accountants F - 66
|X| Statements of Operations for the period
ended December 31, 1999 F - 67
|X| Balance Sheets as of December 31, 1999 F - 68
|X| Statements of Changes in Unitholders' Equity for the
period ended December 31, 1999 F - 69
|X| Statements of Cash Flows for the period ended
December 31, 1999 F - 70
|X| Notes to Financial Statements F - 71
F-1
<PAGE>
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 Communications Corp., which include all
guarantors. The guarantors are wholly-owned (other than VIC-RMTS-DC, LLC and
OnePoint Services, LLC, which are majority-owned). All non-guarantor
subsidiaries are inconsequential, individually and in 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-2
<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, 1999 and 1998, and the related
consolidated statements of operations, comprehensive income,
unitholders'/stockholder's equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1999. 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 Holdings, LLC, an investment in
a 41.4% owned unconsolidated subsidiary, which statements reflect total assets
of $58.5 million and $57.2 million as of December 31, 1999 and 1998,
respectively, and total revenues of $19.8 million, $16.5 million and the $14.0
million for each of the three years in the period ended December 31, 1999. 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 Holdings, LLC, is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
February 29, 2000 /s/ Ernst & Young LLP
McLean, Virginia
F-3
<PAGE>
OnePoint Communications Corp.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
December 31
1999 1998 1997
---------------------------------------------
(In Thousands, except per share data)
<S> <C> <C> <C>
Revenue $ 22,138 $ 6,953 $ 43
Cost of revenue 22,006 8,765 83
---------------------------------------------
Gross margin (loss) 132 (1,812) (40)
Expenses:
Selling, general and administrative 53,667 27,873 12,788
Depreciation and amortization 3,060 1,455 235
---------------------------------------------
Loss from operations (56,595) (31,140) (13,063)
Other income (expense):
Interest income 3,197 6,042 72
Interest expense (15,277) (15,846) (11)
Other income (loss) (285) 17 (17)
Loss on disposals of equipment (96) -- --
Loss-abandonment of leasehold improvements (274) -- --
---------------------------------------------
(12,735) (9,787) 44
---------------------------------------------
(69,330) (40,927) (13,019)
Equity in losses of unconsolidated subsidiaries (3,828) (3,698) (3,072)
---------------------------------------------
Loss before extraordinary items (73,158) (44,625) (16,091)
Extraordinary Items:
Gain on bond repurchases 20,432 19,799 --
---------------------------------------------
Net loss $ (52,726) $ (24,826) $ (16,091)
=============================================
Basic and diluted earnings per share:
Loss before extraordinary items $ (73.16) $ (44.62) $ (16.09)
Extraordinary items 20.43 19.80 --
---------------------------------------------
Net loss $ (52.73) $ (24.82) $ (16.09)
=============================================
Shares used in computing loss per share:
---------------------------------------------
Weighted average common shares--basic
and diluted 1,000,000 1,000,000 1,000,000
=============================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
OnePoint Communications Corp.
Consolidated Statements of Comprehensive Loss
<TABLE>
<CAPTION>
December 31
1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Net loss $(52,726) $(24,826) $(16,091)
Other comprehensive income, net of tax:
Unrealized (loss) gain arising during the year on
securities (666) 701 --
------------------------------------
Comprehensive loss $(53,392) $(24,125) $(16,091)
====================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
OnePoint Communications Corp.
Consolidated Balance Sheet
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31
1999 1998
----------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,608 $ 5,730
Restricted cash 134 5,199
Investment in marketable securities, current 4,230 13,118
Accounts receivable:
Trade, net 2,722 2,277
Related party 266 653
Prepaid expenses 3,358 898
----------------------
Total current assets 17,318 27,875
Investment in marketable securities, noncurrent
($23,390 and $73,377 restricted at December 31, 1999 24,570 86,705
and 1998, respectively)
Investments in unconsolidated subsidiaries 2,240 6,283
Property and equipment, net 20,378 10,923
Intangible assets, net 10,909 11,799
Other assets 5,993 5,722
----------------------
Total assets $ 81,408 $149,307
======================
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
December 31
1999 1998
------------------------
<S> <C> <C>
Liabilities, minority interest, redeemable preferred stock, and Common
Stockholder's deficit
Current liabilities:
Accounts payable and accrued expense $ 17,232 $ 6,857
Related Party payable 3,778 3,558
Accrued interest payable 1,152 1,701
Current portion of long-term debt 980 250
------------------------
Total current liabilities 23,142 12,366
Deferred obligations 864 310
Deferred gain on sale of equity interest in consolidated
Subsidiary 9,188 --
Minority interest in consolidated subsidiaries 1,041 --
Long-term debt 102,437 138,503
Redeemable preferred stock, $1.00 par value, 35,000
shares authorized, 35,000 shares issued and outstanding
at redemption value 35,000 35,000
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 10
Additional capital 6,870 6,870
Note receivable - stockholder (1,500) (1,500)
Accumulated deficit (95,679) (42,953)
Other comprehensive income 35 701
------------------------
Total common stockholder's deficit (90,264) (36,872)
Total liabilities, minority interest, redeemable preferred stock, and common
stockholder's deficit $ 81,408 $ 149,307
========================
</TABLE>
See accompanying notes
F-7
<PAGE>
OnePoint Communications Corp.
Consolidated Statements of Unitholder's/Stockholder's Equity/(Deficit)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Member Units Notes
Redeemable Units Founders Units Receivable
Units Amount Units Amount Unitholder/Stockholder
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ -- $ -- 10,000 $ 15,640 $ --
Additional unitholder contributions -- -- -- 12,000 --
Issuance of units - 1999 -- -- -- 1,580 (1,580)
recapitalization 199,000 33,500 791,000 27,640 --
1997 Recapitalization
Comprehensive Income: -- -- -- --
-------------------------------------------------------------------------------
Balance, December 31, 1997 199,000 33,500 801,000 1,580 (1,580)
1998 recapitalization (Note 1) (199,000) (33,500) (801,000) (1,580) --
Unit-holder payment -- -- -- -- 80
Warrants -- -- -- -- --
Comprehensive income:
Net (loss) -- -- -- -- --
Net unrealized gain on marketable
securities -- -- -- -- --
-------------------------------------------------------------------------
Balance, December 31, 1998 -- -- -- -- (1,500)
Comprehensive income:
Net (loss) -- -- -- -- --
Net unrealized loss on marketable
securities -- -- -- -- --
-------------------------------------------------------------------------
Balance, December 31, 1999 -- $ -- -- $ -- $ (1,500)
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Common Additional Accumulative Comprehensive Total
Stock Capital Deficit Income Equity
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ -- $ -- $ (2,036) $ -- $13,604
Additional unitholder contributions -- -- -- -- 12,000
Issuance of units - 1999 -- -- -- -- --
recapitalization -- -- -- -- 5,860
1997 Recapitalization
Comprehensive Income:
-------------------------------------------------------------------------------
Balance, December 31, 1997 -- -- (18,127) -- 15,373
1998 recapitalization (Note 1) 10 1,570 -- -- (33,500)
Unit-holder payment -- -- -- -- 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 6,870 (42,953) 701 (36,872)
Comprehensive income:
Net (loss) -- -- (52,726) -- (52,726)
Net unrealized loss on marketable
securities -- -- -- (666) (666)
-----------------------------------------------------------------------
Balance, December 31, 1999 $ 10 $ 6,870 $(95,679) $ 35 $ (90,264)
=======================================================================
</TABLE>
See accompanying notes
F-8
<PAGE>
OnePoint Communications Corp.
Consolidated Statements of Cash Flow
(dollars in thousands)
<TABLE>
<CAPTION>
December 31
1999 1998 1997
-------------------------------------
<S> <C> <C> <C>
Operating activities
Net loss $(52,726) $(24,826) $(16,091)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on disposals of equipment 96 -- --
Loss on abandonment of leasehold improvements 274 -- --
Depreciation and amortization 3,060 1,455 235
Amortization of premium (discount) of securities acquired
included in interest income (499) 499 --
Amortization of debt discount and issuance cost included in interest --
expense 513 552
Amortization of warrants included in interest expense 299 63 --
Amortization of developer payments included in reselling costs 367 173 --
Losses in equity interest of unconsolidated investments 3,828 3,698 3,072
Extraordinary gain on bond repurchases (20,432) (19,799) --
Unrealized loss (gain) on investments in marketable securities (666) (701) --
Change in allowance for doubtful accounts 383 208 7
Changes in operating assets and liabilities:
Trade receivable (828) (2,454) (39)
Related party receivable 387 (620) (51)
Developer payments PCTV acquisition -- (5,400) --
Prepaid expenses (2,460) -- (1,121)
Other assets (638) (50) 180
Accounts payable and accrued expenses 10,375 4,281 2,370
Related party payable 220 3,559 --
Accrued interest (549) 1,690 11
Other Deferred 554 -- --
-------------------------------------
Net cash used in operating activities (58,442) (37,672) (11,427)
</TABLE>
F-9
<PAGE>
OnePoint Communications Corp.
Consolidated Statements of Cash Flow (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
December 31
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Investing activities
Restricted cash, net 5,065 (5,199) 13,000
Acquisition of intangible assets (2,135) (4,467) --
Purchase of equity investments -- -- (13,133)
Proceeds from sale of marketable securities 108,782 85,179 --
Purchase of marketable securities (37,260) (184,711) --
Acquisition of property and equipment (12,408) (9,374) (2,440)
Acquisition of other intangible assets (432) -- --
Proceeds from sale of unconsolidated subsidiary 135 -- --
Proceeds from sale of equity interest in consolidated subsidiary 10,000 -- --
-----------------------------------------
Net cash used in investing activities 71,747 (118,572) (2,573)
Financing activities
Proceeds from issuance of long-term debt 14,434 $ 188,050 $ 1,500
Repayment of long-term debt (27,090) (22,151) --
Minority interest 229 -- --
Debt discount and issuance costs -- (9,468) --
Unitholder contributions -- 80 17,860
-----------------------------------------
Net cash provided by financing activities (12,427) 156,511 19,360
-----------------------------------------
Net increase in cash 878 267 5,360
Cash at the beginning of period 5,730 5,463 103
-----------------------------------------
Cash at the end of period $ 6,608 $ 5,730 $ 5,463
=========================================
</TABLE>
See accompanying notes
F-10
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
For the Years ended December 31, 1999, 1998 and 1997
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
("MDUs"). 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.
The Company consists of OnePoint Communications Corp., the parent company and
its wholly- owned subsidiaries, OnePoint Communications-Colorado, L.L.C.,
OnePoint Communications-Illinois, L.L.C., OnePoint Communications-Georgia,
L.L.C., OnePoint Communications Holdings, L.L.C. ("OPC Holdings"), and its
majority-owned subsidiary OnePoint Services, LLC ("OPS") in which the Company
maintains a 71.3% interest and has been consolidated in the Company's financial
statements. In addition, through OPC Holdings, the Company maintains (i) a
75.52% interest in VIC-RMTS-DC, L.L.C., which has been consolidated in the
Company's financial statements and (ii) 41.38% interest in Mid-Atlantic Telcom
Plus, L.L.C. (Mid-Atlantic), a subsidiary accounted for under the equity method
(see Note 7).
In October 1997, AMI-VCOM2, Inc. ("AMI2") transferred to Ventures In
Communications, LLC ("VIC") its membership units of the Predecessor. Mr.
Otterbeck, the Company's chairman 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
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.("VenCom"), 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.
F-11
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
1. Organization and Recapitalization (continued)
Organization (continued)
In April 1998, in order to convert the Predecessor into a corporation, VenCom,
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 preferred stock. As a result of the
April 1998 merger transactions, the Company became a Delaware corporation, which
is wholly owned by VIC2.
The operating agreement of VIC2 entered into 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 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; (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.
In August 1999, VenCom purchased 9.8% of the common units and all of the
preferred units of VIC2 and a non-interest bearing promissory note for $1,500
issued by VIC2 from VIC in exchange for an interest bearing note in the amount
of $60,700.
In October 1999, CAIS Internet, Inc. made a $2,574 equity investment in VIC2.
This investment gave CAIS Internet Inc. a 1.0 % indirect ownership in the
Company, with the remaining membership interest owned by VIC (9.9%) and VenCom,
LLC (89.1%). VIC also owns warrants to purchase 11.9% of the membership units of
VIC2.
In November 1999, the Company established a 71.3% owned subsidiary, OnePoint
Services, LLC, ("OPS") to acquire 100% of the equity of RCP Communications,
Inc., a provider of pre-paid telephony services. The remaining minority
ownership interest is held by management of OnePoint Services. Total
consideration for this acquisition, recorder pursuant to the purchase method of
accounting, was $985 and 1,425,000 of restricted common units. Of these amounts
F-12
<PAGE>
1. Organization and Recapitalization (continued)
Organization (continued)
$891 and 1,050,000 million restricted common units are being withheld subject to
the achievement of certain revenue and cash flow performance criteria. The
Company acquired assets with a fair market value of $800 and assumed liabilities
of $3,020 resulting in goodwill of $2.5 million. Goodwill will increase if the
revenue and cash flow performance criteria are met and related contingent
consideration is paid by the Company and will decrease if certain assumed
liabilities are settled at lesser amounts due to negotiations or valuations
allowances recorded against deferred tax assets are release in subsequent
periods.
In December 1999, a subsidiary of SBC Communications, Inc. ("SBC"), purchased a
24% direct ownership interest in a majority-owned subsidiary of the Company,
from OPC Holdings, a wholly-owned subsidiary of the company, in exchange for
$10,000. This agreement provided the Company the right to sell up to an
additional 24% direct ownership interest in VIC-RMTS-DC on the same terms during
2000.
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 accounting principles
generally accepted in the United States 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.
F-13
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
2. Significant Accounting Policies (continued)
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 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 five to ten years.
Leasehold improvements are depreciated over the shorter of their useful lives or
the lease term, not to exceed fifteen years. The Company classifies installed
wiring and hardware costs in construction in progress 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"); goodwill representing the
excess of cost over net assets acquired resulting from the purchase of 100% of
the equity interest of RCP Communications, Inc. ("RCP"); and 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
F-14
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
2. Significant Accounting Policies (continued)
Intangible Assets (continued)
amortized using the straight-line method over a fifteen-year period. Deferred
financing charges are amortized under the effective interest method as a
component of interest expense over the life of the related debt.
Impairment of Long Lived Assets
The Company assesses the impairment of long-lived assets including intangible
assets in accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be Disposed of ("Statement No. 121"). Statement No. 121 requires impairment
losses to be recognized for long-lived assets when indicators of impairment are
present and the undiscounted cash flows are not sufficient to recover the
assets' carrying amounts. Intangibles are also evaluated for recoverability by
estimating the projected undiscounted cash flows, excluding interest, of the
related business activities. The impairment loss of these assets, including
goodwill, is measured by comparing the carrying amount of the asset to its fair
value with any excess of carrying value over fair value written off. Fair value
is based on market prices where available, an estimate of market value, or
determined by various valuation techniques including discounted cash flow.
Research and Development
All research and development costs are charged to operations as incurred.
Revenue Recognition
The Company recognizes revenue as services are provided to MDU customers.
Prepaid phone card revenues are recognized upon delivery of the cards to OPS's
customer as the Company has no ongoing performance obligation after transfer of
title upon delivery.
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, 1999 and 1998, respectively.
F-15
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
2. Significant Accounting Policies (continued)
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 years ended December 31, 1999,
1998 and 1997, marketing costs were approximately $1,914, $1,921 and $484,
respectively.
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 and warrants to purchase the Company's common stock 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, 1999, 1998, and 1997 as the effects of
potentially dilutive instruments are anti-dilutive.
F-16
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
2. Significant Accounting Policies (continued)
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.
Accounting for Derivative Instruments and Hedging Activities
The FASB agreed to defer for one year the implementation date of FASB Statement
133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement
No. 133). In agreeing to the deferral, the FASB acknowledged constituent
concerns about the need for the FASB to provide guidance on significant
implementation issues. As amended, Statement 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. Early application
continues to be encouraged. The Company has not adopted Statement No. 133 as of
December 31, 1999. The adoption of this Statement is not expected to have a
material impact on the Company's financial position or results from operations.
3. Acquisitions
On November 30, 1999, OPS, one of the Company's subsidiaries entered into a
definitive stock purchase agreement to acquire 100% of the equity interest of
RCP, an Arizona-based retailer of prepaid telephone cards, for a total
consideration of $985,000 in cash and 1,425,000 million of restricted common
membership units of OPS. Of these amounts $891,000 and 1,050,000 million of
restricted common membership units are being withheld subject to the achievement
of revenue and cash flow performance criteria. Such amounts have been treated as
contingent consideration in this acquisition and will be recognized in OPS's
financial statements when and if earned by the former shareholders of RCP. The
RCP acquisition was recorded pursuant to the purchase method of accounting.
Pursuant to the stock purchase agreement, on the first anniversary of the
closing date the Company is obligated to pay, provided RCP meets certain
performance criteria, the amount of the initial holdback less any existing
reserves as stated in the agreement.
F-17
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
3. Acquisitions (continued)
The results of operations of the RCP acquisition have been included in the
Company's consolidated financial statements from the date of acquisition through
December 31, 1999. The Company amortizes the goodwill over a period of ten
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.
4. Restricted Cash
At December 31, 1999 and 1998 the Company had restricted cash of $134 and $125,
respectively, which represented security deposits on certain leased office
space. In addition, at December 31, 1998 the Company had restricted cash of
$5,000 plus accrued interest held 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 and released the restrictions on such cash balance and
accrued interest thereon.
5. Trade Receivables
Trade receivables consist of the following:
December 31
1999 1998
-----------------------
Customers $ 3,307 $ 2,487
Other 14 6
-----------------------
Total trade receivables 3,321 2,493
Allowance for doubtful accounts (599) (216)
-----------------------
Trade receivables, net $ 2,722 $ 2,277
=======================
The Company provides an allowance for doubtful accounts for trade receivable
amounts deemed uncollectible as determined by management.
F-18
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
5. Trade receivables (continued)
Activity in the allowance for doubtful accounts was as follows:
December 31
1999 1998 1997
---------------------------------------
Opening balance $ 216 $ 7 $ -
Bad debt charge-offs (3,692) (568) -
Adjustments to reserves 4,075 777 7
---------------------------------------
Ending balance $ 599 $ 216 $7
=======================================
6. Investments in Marketable Securities
This is a summary of marketable securities, all of which were classified as
available-for-sale, as of December 31, 1999 and 1998:
[CAPTION]
<TABLE>
Unrealized Unrealized Accrued Estimated
Cost Losses Gains/(Loss) Interest Fair Value
---------------------------------------------------------------------------------------
1999
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-restricted:
Municipal/provincial
bonds $1,275 $- $- $5 $1,280
Commercial paper 3,816 - - 5 3,821
Mutual funds 394 - - 14 408
Restricted:
U.S. treasury notes and
securities 20,649 - 35 1,768 22,452
Money market 839 - - - 839
---------------------------------------------------------------------------------------
$26,973 $- $35 $1,792 $28,800
=======================================================================================
1998
---------------------------------------------------------------------------------------
Non-restricted:
Municipal/provincial
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 - - - 3,780
---------------------------------------------------------------------------------------
$98,792 $- $701 $330 $99,823
=======================================================================================
</TABLE>
F-19
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
6. Investments in Marketable Securities (continued)
The net adjustment to unrealized holding gains (losses) on available-for-sale
securities included as comprehensive income in shareholders' equity totaled
$(666) and $701 in 1999 and 1998, respectively. The Company did not hold
investments in marketable securities in 1997.
The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1999 and 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 $12,417
which mature within twelve months as noncurrent investments in the accompanying
consolidated balance sheet.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------------------------------------------------------------
Estimated Estimated
Cost Fair Value Cost Fair Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $14,411 $15,400 $36,969 $37,248
Due after one year through three years 10,054 10,873 58,704 59,435
Due after three years 1,275 1,280 - -
----------------------------------------------------------------------
25,740 27,553 95,673 96,683
Mutual funds and money market 1,233 1,247 3,119 3,140
----------------------------------------------------------------------
$27,973 $28,800 $98,792 $99,823
======================================================================
</TABLE>
7. Investment in Unconsolidated Subsidiaries
The Company has an investment of 41% in one company and accounts for this
investment using the equity method.
The daily operations of Mid-Atlantic are managed by an entity which owns the
other 59% interest. The Company maintains certain veto rights on significant
transactions and as defined in the operating agreement between the unit-holders.
The results of operations and financial position as of December 31, 1999 and
1998 is summarized
F-20
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
7. Investment in Unconsolidated Subsidiaries (continued)
below for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Condensed operating information:
Net sales $ 19,886 $ 16,494 $ 14,040
Loss from operations (4,753) (3,919) (3,367)
Net loss (9,337) (7,717) (6,142)
Condensed balance sheet information:
Current assets $ 2,032 $ 2,192
Noncurrent assets 56,497 55,183
Current liabilities 52,112 7,233
Noncurrent liabilities -- 34,257
Net worth 6,417 15,885
</TABLE>
Investments in net assets of companies accounted for under the equity method was
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Opening balance $ 6,283 $ 10,061 $ --
Purchase of equity interests -- -- 12,750
Equity losses of unconsolidated subsidiaries (3,828) (3,698) (3,072)
MAC Interactive write off (135) -- --
Other investment costs 463
Amortization of other investment costs (80) (80) (80)
-------- -------- --------
Balance at December 31 $ 2,240 $ 6,283 $ 10,061
======== ======== ========
</TABLE>
F-21
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
8. Property and Equipment
Property and equipment consist of the following:
December 31
1999 1998
----------------------
Furniture and equipment $ 6,194 $ 3,157
Computer equipment 3,424 1,942
Facility equipment 10,306 3,176
Vehicles 854 791
Leasehold improvements 2,389 1,828
Switch equipment 1,014 --
-------- --------
24,181 10,894
Less accumulated depreciation (3,807) (1,409)
-------- --------
20,374 9,485
Construction in progress 4 1,438
-------- --------
$ 20,378 $ 10,923
======== ========
The Company recognized depreciation expense of $2,607, $1,155 and $235 in 1999,
1998 and 1997, respectively.
9. Intangible Assets
Intangible assets consist of the following as of December 31:
<TABLE>
<CAPTION>
1999 1998
----------------------
<S> <C> <C>
Issuance costs and original issuance discount on Senior Notes $ 4,477 $ 7,250
Goodwill 7,250 5,215
Other 462 30
----------------------
12,189 12,495
Accumulated amortization (1,280) (696)
----------------------
$ 10,909 $ 11,799
======================
</TABLE>
During the years ended December 31, 1999 and 1998, the Company repurchased
$51,250 and $41,000 of its 14 1/2% Senior Notes and wrote off $2,547 and $2,111
of issuance costs and
F-22
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
9. Intangible Assets (continued)
original issuance discount on the Senior Notes, net of accumulated amortization
of $226 and $107, respectively.
Amortization expense for the years ended December 31, 1999, 1998 and 1997
totaled $374, $775 and $0, respectively.
Amortization related to the issuance costs and original issuance discount on the
Senior Notes during the years ended December 31, 1999 and 1998 of $513 and $552
was recognized as a component of interest expense.
10. Long-Term Debt
Unit Offering
During May 1998, the Company offered units each consisting of $1 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
and reduction of the carrying amount of the Senior Notes 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
F-23
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
10. Long-Term Debt (continued)
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, for the years ended December 31, 1999
and 1998, $299 and $63, respectively, of amortization of the discount of the
Senior Notes resulting from the issuance of the Warrants has been recorded in
the accompanying financial statement.
The Company completed open market purchases of Senior Notes having an aggregate
principal amount of $92,250 between November 9, 1998 and June 9, 1999 at various
prices for an aggregate total cost of approximately $47,947, including accrued
interest and transaction fees. For the years ended December 31, 1999 and 1998,
the Company recognized an extraordinary gain on the early extinguishment of this
debt of $20,432 and $19,799, respectively. Pursuant to the restricted securities
agreement entered into in connection with the Unit Offering, the trustee of the
Pledged Securities had released approximately $38,200 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 the years ended December 31, 1999 and 1998, the Company
paid $13,256 and $10,656, respectively, of interest related to the Senior Notes
and paid approximately $390 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 to June 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.
Percentage
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%
F-24
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
10. Long-Term Debt (continued)
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, 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 at December 31, 1999 and 1998 were
$80,546 and $130,003 respectively, net of a discount of $2,204 and $3,997,
respectively, relating to the value assigned to the Warrants. Interest accrued
under the Senior Notes at December 31, 1999 and 1998 was $1,019 and $1,678,
respectively.
The Company is required to comply with specified covenants described in the
Senior Notes Indenture. These covenants include limitations on sales of
subsidiaries and certain assets, mergers, the acquisition of additional debt,
the distribution of capital 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 accrued at a
rate of $0.05 per week per $1,000 principal amount of Senior Notes for the first
ninety days beyond November 17, 1998, and thereafter increase by $0.05 per week
per $1,000 outstanding principal amount of the Senior Notes each ninety-day
period, up to a maximum of $0.50 per week per $1,000 principal amount of Senior
Notes. Liquidated damages ceased to accrue on August 6, 1999 when the
registration statement was declared effective. The Company paid, on December 1,
1999, a total of $390 in total liquidated damages.
F-25
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
10. Long-Term Debt (continued)
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. The interest rate on borrowings under the Credit Facility is, at the
Company's election: (i) the Lender's prime rate less 0.75%; (ii) LIBOR plus 50
basis points; or (iii) the federal funds rate (as defined) plus 50 basis points.
As of December 31, 1999, the effective interest rate on the Credit Facility was
approximately 5.75% per annum. Through December 1998, the Company borrowed
$8,750 with the additional $250 of availability securing a letter of credit.
Principal payments began 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, 1999, the
outstanding principal balance and accrued interest was $8,437 and $46
respectively on this Credit Facility.
On August 30, 1999 the Company established an additional borrowing facility (the
"Second Credit Facility") with the same bank enabling the Company to borrow up
to an additional $16,000 that matures on January 1, 2004. The terms of the
Second Credit Facility are similar to those contained in the previous agreement.
On the same date the first Credit Facility was amended in order to make the
default provisions consistent with the Second Credit Facility. As of December
31, 1999, the outstanding principal balance and accrued interest of the Second
Credit facility was $14,434 and $80 respectively.
The following future minimum debt payments are required for the Company's
borrowings as of December 31, 1999:
2000 $ 980
2001 3,210
2002 7,820
2003 8,507
Thereafter 85,104
---------
105,621
Less remaining debt
discounts attributable
to warrants issued (2,204)
---------
$ 103,417
=========
F-26
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
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 per share. 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") - the Company granted a total of 44,200 and 71,719 SARs with
an exercise price of $67.50 or $135.00 per SAR in 1998 and 1999, respectively,
to certain officers and employees of the Company pursuant to agreements with
each grantee. All SARs issued have an expiration date of ten years and are
F-27
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
12. Stock Appreciation Rights Plan (continued)
subject to certain vesting schedules, typically five 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. The Company recognized compensation
expense related to these stock appreciation rights totaling approximately $4,193
and $0 in 1999 and 1998 respectively, in the accompanying financial statements.
No form of stock based compensation was issued prior to 1998.
Year ended December 31
1999 1998 1997
---------------------------
Stock appreciation rights outstanding, beginning 69,944 -- --
Granted 44,200 71,919 --
Exercised -- -- --
Forfeited (30,625) (1,975) --
---------------------------
Stock appreciation rights outstanding, ending 83,519 69,944 --
===========================
The Company had no SARs that were exercisable as of December 31, 1999. The
weighted average grant-date estimated market value of common stock underlying
the SARs granted during the years ended December 31, 1999 and 1998 was
approximately $101.26 and $67.50 per share, respectively. 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 approximately the same as reported amounts.
The company's estimation of the fair value of stock appreciation rights granted
during 1998 was estimated 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. For 1999 the Company valued the stock based on the valuation performed in
conjunction with the CAIS Internet, Inc. investment which yielded a value of
$257.40 per share.
13. Related Party Transactions
Receivable
As of December 31, 1999 and 1998, the Company had receivable balances from
Mid-Atlantic, primarily resulting from a shared cash receipts lockbox, totaling
approximately $266 and $653, respectively.
F-28
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
13. Related Party Transactions (continued)
Other
Certain officers of the Company are officers of VIC and VIC2.
The Company shared certain operations with Mid-Atlantic, a company in which the
Company holds a 41.4% interest. The Company paid approximately $266, $836 and
$250 for services provided by Mid-Atlantic in 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, the Company had accrued $0 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., ("VenCom") in April 1998, pursuant to which VenCom 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 and a fee of 2% of the amount of any capital raising
activity or acquisition 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, Credit Facility, $320 from the Second Credit Facility, $58 from the
RCP Acquisition and $200 from the sale of VIC-RMTS-DC, LLC interest to SBC of
which, approximately $3,778 and $3,350 remained unpaid as of December 31, 1999
and 1998, respectively. Amortization of this debt issuance cost has been
recognized as a component of interest expense. Under this agreement, the Company
paid VenCom $900 during 1999 and 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 unit-holders
individually. As of December 31, 1998, the Company had net tax operating loss
carryforwards of approximately $47,546 and $20,350, respectively. These losses
were generated from April 1998 through December 31, 1999 will expire through
2018 and 2019.
F-29
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
14. Income Taxes (continued)
Net operating loss carryforwards may be used to offset future taxable income
generated by the Company. The Company's ability to utilize $410 of the net
operating losses attributable to one on its subsidiaries will be limited to the
future taxable income, if any, of that subsidiary prior to the expiration date
of the carryforward period as the subsidiary is not included in the Company's
consolidated income tax return. 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 $27.4 million and $8.3
million at December 31, 1999 and 1998 respectively. 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, 1999 and 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:
December 31 December 31 December 31
1999 1998 1997
---------------------------------------------
Federal tax rate (benefit) 34.0% (34.0)% -- %
State tax, net of federal tax (6.6) (7.0) --
Valuation allowance 40.5 33.8 --
Nondeductible expenses 0.1 6.9 --
Change in entity tax status -- (0.1) --
Other -- 0.4 --
---------------------------------------------
Effective rate 0.0% 0.0% -- %
=============================================
The net deferred tax liabilities in the accompanying balance sheets include the
following components:
December 31 December 31
1999 1998
------------------------------
Deferred tax assets:
Intangibles $ 2,541 $ --
Deferred income 3,580 --
Incentive compensation 1,702 --
Net operating losses 19,296 8,258
Other 1,242 88
------------------------------
28,361 8,346
December 31 December 31
1999 1998
------------------------------
Deferred tax liabilities:
Fixed assets $ 978 $ --
------------------------------
Net deferred tax asset 27,383 8,346
Valuation allowance (27,383) (8,346)
------------------------------
Net deferred tax asset $ -- $ -
==============================
F-30
<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 $152, $47, and $0 to the 401(k) Savings Plan and Trust for
the years ended December 31, 1999, 1998 and 1997, respectively.
16. Leases
The Company currently leases office space and equipment under noncancelable
operating leases. The future minimum lease payments under noncancelable
operating leases at December 31, 1999, are as follows:
December 31,
2000 $ 3,758
2001 3,928
2002 3,963
2003 3,412
Thereafter 17,749
-----------------
Total $ 32,810
=================
Most leases provide for the pass-through of increases in operating expenses and
real estate taxes. Rent expense for 1999, 1998 and 1997 was approximately
$2,643, $1,107 and $629, respectively.
17. Other Information
During the years ended December 31, 1999, 1998 and 1997, the Company made cash
payments of $13,256, $10,656 and $0 for interest, respectively. During 1998, the
Company recapitalized long-term debt totaling $1,500 through the issuance of
preferred stock. During 1999, 1998 and 1997 the Company made no cash payments
for 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.
F-31
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
17. Other Information (continued)
Approximately 74%, 70% and 50% of the Company's cost of revenues for the years
ended December 31, 1999, 1998 and 1997, respectively, were purchased from five
suppliers, each of whom supplied between 6% and 20% of the total cost of
revenues during such periods.
18. Arbitration Proceedings
On August 6, 1998, 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. During the fourth quarter
of 1999, the parties engaged in settlement discussions, ultimately leading to
the execution of a settlement and dismissal of the claims asserted. In addition,
and in connection therewith, OPC Holdings consented to the sale by Mid-Atlantic
of the assets of another joint venture between the parties, Mid-Atlantic Telcom
Plus, LLC ("Cableco"), to Comcast Corporation. OPC Holdings released
Mid-Atlantic from any claims it may have currently or in the future relating to
the Comcast transaction.
Net proceeds to the Company from the sale of the assets of the Cableco are
estimated to be $34.0 million, subject to adjustments. The transaction closed
during March 2000. The Company received approximately $22.4 million in March
2000 and anticipates receiving and additional $11.7 million of contingent
consideration and hold-back upon expiration of such periods over the subsequent
12 months.
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.
F-32
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
19. Segment Information (continued)
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.
The following table provides certain financial information for each business
segment:
December 31
1999 1998 1997
---------------------------------------
Revenues:
Central Region $ 6,187 $ 2,690 $ --
Mid-Atlantic Region 4,653 1,660 43
Southeast Region 6,129 1,670 --
Western Region 5,107 911 --
Other 62 22 --
---------------------------------------
$ 22,138 $ 6,953 $ 43
=======================================
Loss from operations:
Central Region (15,705) $ (5,817) $ (3,138)
Mid-Atlantic Region (12,571) (11,772) (4,686)
Southeast Region (11,841) (6,938) (2,853)
Western Region (11,601) (5,585) (2,411)
Other (4,877) (1,028) 25
---------------------------------------
$ (56,595) $ (31,140) $ (13,063)
=======================================
Identifiable assets:
Central Region $ 20,600 $ 15,515 $ 1,039
Mid-Atlantic Region 4,190 4,378 1,860
Southeast Region 3,306 2,206 595
Western Region 9,580 908 465
Other 43,732 126,300 15,722
---------------------------------------
$ 81,408 $ 149,307 $ 19,681
=======================================
F-33
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
19. Segment Information (continued)
December 31
1999 1998 1997
--------------------------------
Capital expenditures:
Central Region $ 6,926 $ 4,677 $ 816
Mid-Atlantic Region 595 1,200 1,004
Southeast Region 376 837 364
Western Region 2,366 390 199
Other 2,419 2,270 57
--------------------------------
$12,682 $ 9,374 $ 2,440
================================
December 31
1999 1998 1997
--------------------------------
Depreciation and
amortization:
Central Region $ 1,565 $ 684 $ 94
Mid-Atlantic Region 347 287 57
Southeast Region 197 111 30
Western Region 166 74 20
Other 785 299 34
--------------------------------
$ 3,060 $1,455 $ 235
================================
The following table provides gross revenues on a service line basis:
December 31,
--------------------------------
1999 1998 1997
--------------------------------
Revenues:
Telephony $17,475 $4,463 $ 43
Video 4,601 2,462 -
High-speed Internet 62 28 -
--------------------------------
$22,138 $6,953 $ 43
================================
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
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
20. Consolidating Condensed Financial Statements (continued)
Notes, and (iii) its majority owned subsidiaries (VIC-RMTS-DC, LCC and OnePoint
Services, LLC), on a combined basis, which are a guarantors under the Senior
Notes as required by the Securities and Exchange Commission's Staff Accounting
Bulletin No. 53 follows.
The Consolidating Condensed Balance Sheets
as of December 31, 1999 and 1998
<TABLE>
<CAPTION>
Wholly- Owned Majority- Owned
Guarantor Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1999
Current assets $ 21,420 $ 4,681 $ 3,634 $ - $ 17,318
Noncurrent assets 49,968 26,045 5,883 (30,223) 64,090
Current liabilities 14,735 4,733 3,674 - 23,142
Noncurrent liabilities 111,688 630 171 - 112,489
Redeemable preferred stock 35,000 - - - 35,000
Minority interests 229 812 - - 1,041
Total stockholders'
equity/(deficit) $ (90,264) $ 24,551 $ 5,672 $ (30,223) $ (90,264)
December 31, 1998
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 3,750 1,063 - 12,366
Noncurrent liabilities 138,503 310 - - 138,813
Redeemable preferred stock 35,000 - - - 35,000
Minority interests - - - - -
Total unit-holders' equity (deficit)
(36,872) 23,871 3,315 (27,186) (36,872)
</TABLE>
F-35
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
20. Consolidating Condensed Financial Statement (continued)
Consolidating Condensed Statements of Operations
for the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Wholly- Majority-
Owned Owned
Guarantor Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-----------------------------------------------------------------------------------------
For the Year Ended December 31, 1999
<S> <C> <C> <C> <C> <C>
Revenues $ $ 17,069 $ $ $
- 5,069 - 22,138
Cost of revenues - 15,987 6,019 - 22,006
Loss from continuing
operations before
extraordinary items (73,158) (38,951) (12,802) 51,753 (73,158)
-----------------------------------------------------------------------------------------
Net loss $ (52,726) $ (33,287) $ (13,659) $ 46,946 $ (52,726)
=========================================================================================
For the Year Ended December 31, 1998
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)
=========================================================================================
For the Year Ended December 31, 1997
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)
=========================================================================================
</TABLE>
21. Subsequent Events
In February 2000, SBC Comventures, Inc., a wholly-owned subsidiary of SBC,
invested $5.0 million to obtain additional 12% direct ownership interest in a
majority-owned subsidiary of the Company, VIC-RMTS-DC, LLC. This transaction
will result in an additional deferred gain of $3.7 million.
F-36
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements (Continued)
21. Subsequent Events (continued)
In March of 2000, Mid-Atlantic sold substantially all of its assets, net of
certain liabilities to Comcast Corporation. The Company's proportionate share of
the net proceeds related thereto was approximately $34.0 million, of which
approximately $11.6 million is subject to certain earn-out provisions. The
Company will recognize a gain of approximately $20.0 million in the first
quarter of 2000 related to this transaction, after giving effect to the carrying
value of its investment in and amounts due from Mid-Atlantic of approximately
$2.2 million of $0.2 million, respectively. The Company will recognize the
remaining $11.6 million gain attributable to the contingent sales price in the
period such amounts are determinable.
In March 2000, the Company purchased a 1% redeemable equity interest in ComPlus,
LP, and affiliated vendor of engineering and installation services, in exchange
for $100 in cash. This investment secured the resources to engineer and install
the Company's network. ComPlus, LP also issued a secured promissory note,
payable on demand to the Company in exchange for $900 in cash. VIC owns 99% of
the equity interests of ComPlus, LP.
As the Company begins deployment of its IP-based network capable of providing a
full range of voice, data and video services, the Company is in the process of
divesting its private cable assets in Illinois and Georgia. During the first
quarter of 2000, the Company received multiple offers to purchase its wholly-
owned subsidiary, OnePoint Communications-Illinois, LLC.
<PAGE>
Independent Auditors' Report
To the Members of
the Mid-Atlantic Telcom Plus Holding, LLC
Washington, D.C.
We have audited the accompanying consolidated balance sheets of Mid-Atlantic
Telcom Plus Holding, LLC as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in members' equity and cash flows
for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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
Holding, LLC as of December 31, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999 in conformity with generally accepted accounting principles.
/s/ Beers & Cutler PLLC
BEERS & CUTLER PLLC
Washington, DC February 11, 2000,
except for Notes 4, 5 and 9, as to which the
date is March 3, 2000.
F-38
<PAGE>
MID-ATLANTIC TELCOM PLUS HOLDING, LLC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
Assets
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Current Assets
Cash $ 273,180 $ 359,065
Accounts receivable - trade, net of allowance for
doubtful accounts of $159,325 and $191,207 1,169,079 1,119,000
Accounts receivable - other 44,859 445,848
Prepaid expenses and other assets 544,937 268,488
------------ -----------
Total current assets 2,032,055 2,192,401
------------ -----------
Fixed Assets
Cable TV systems, net of accumulated depreciation
of $8,461,736 and $4,859,157 23,287,492 18,838,667
Other property and equipment, net of accumulated
depreciation of $1,675,442 and $923,238 2,503,902 2,249,085
------------ -----------
Total fixed assets 25,791,394 21,087,752
------------ -----------
Intangible Assets
Goodwill 39,216,251 39,059,812
Loan origination costs 834,778 758,635
Other intangible assets 2,915,897 1,764,898
Accumulated amortization (12,261,486) (7,622,960)
------------ -----------
Total intangible assets 30,705,440 33,960,385
------------ -----------
Total assets $ 58,528,889 $57,240,538
============ ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-39
<PAGE>
MID-ATLANTIC TELCOM PLUS HOLDING, LLC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
Current Liabilities
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current Liabilities
Accounts payable - trade $ 2,591,068 $ 3,021,031
Accrued expenses 1,102,078 1,576,054
Accrued interest - CIBC 291,933 168,558
Accrued interest - Allied - 331,048
Due to affiliates, net 332,940 947,169
Deferred revenue 834,636 764,490
Current maturities of notes payable - CIBC 34,800,000 -
Subordinated debt - Allied 11,411,596 -
Current maturities of notes payable - other 405,928 213,324
Current maturities of leases payable 328,045 197,155
Deferred rent - current 13,806 10,706
----------- -----------
Total current liabilities 52,112,030 7,229,535
----------- -----------
Long-Term Liabilities
Note payable - CIBC - 22,757,296
Subordinated debt - Allied - 10,751,826
Notes payable - other - 250,000
Other long-term liabilities - 215,573
Leases payable - 282,746
----------- -----------
Total long-term liabilities - 34,257,441
----------- -----------
Total liabilities 52,112,030 41,486,976
Members' Equity 6,416,859 15,753,562
----------- -----------
Total liabilities and members' equity $58,528,889 $57,240,538
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-40
<PAGE>
MID-ATLANTIC TELCOM PLUS HOLDING, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenue
Cable TV revenue $19,886,408 $16,493,994 $14,039,818
----------- ----------- -----------
Operating Expenses
Operating 22,523,803 18,588,140 15,520,687
Selling and general and administrative 2,115,686 1,827,321 1,886,599
----------- ----------- -----------
Total operating expenses 24,639,489 20,415,461 17,407,286
----------- ----------- -----------
Loss from operations (4,753,081) (3,921,467) (3,367,468)
----------- ----------- -----------
Other Income (Expense)
Interest income 43,936 26,217 186,129
Interest expense (4,610,105) (3,191,034) (3,001,174)
(Loss) Gain on disposal of assets (17,453) (17,342) 39,701
----------- ----------- -----------
Total other income (expense) (4,583,622) (3,182,159) (2,775,344)
----------- ----------- -----------
Net loss $(9,336,703) $(7,103,626) $(6,142,812)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-41
<PAGE>
MID-ATLANTIC TELCOM PLUS HOLDING, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
OnePoint
Mid-Atlantic Communication
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, January 1, 1999 9,892,931 5,860,631 15,753,562
Net Loss (5,471,308) (3,865,395) (9,336,703)
----------- ----------- -----------
Balance, December 31, 1999 $ 4,421,623 $ 1,995,236 $ 6,416,859
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-42
<PAGE>
MID-ATLANTIC TELCOM PLUS HOLDING, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (9,336,703) $ (7,103,626) $(6,142,812)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 9,197,387 7,956,365 6,682,508
Loss (gain) on disposal of assets 17,453 17,342 (39,701)
Changes in current assets and liabilities
Accounts receivable - trade and offer 350,910 (408,792) (69,468)
Prepaid and other assets (276,449) (123,748) 126,329
Accounts payable, accrued interest payable
accrued expenses and deferred rent (512,149) 1,657,791 (941,529)
Due to affiliates, net (614,228) 347,344 (3,416,693)
Deferred revenue 70,146 (20,274) (45,688)
------------ ------------ ------------
Net cash provided by (used in) operating activities (1,103,633) 2,322,402 (3,847,054)
------------ ------------ ------------
Cash Flow from Investing Activities
Capital expenditures (9,106,222) (9,154,465) (5,210,216)
Proceeds from sale of fixed assets 15,910 15,310 193,139
Acquisition of intangible assets (1,573,224) (7,015,846) (2,601,597)
------------ ------------ ------------
Net cash used in investing activities (10,663,536) (16,155,001) (7,618,674)
------------ ------------ ------------
Cash Flows from Financing Activities
Proceeds from issuance of note payable - CIBC 12,042,704 - -
Capital contribution - Holdings - 5,000,000 184,702
Capital contribution - OPC - - 12,000,000
Proceeds from issuance of subordinated debt - 10,500,000 -
Repayments of debt, net (209,564) (1,699,504) (1,249,164)
Advances from affiliate - 365,000 -
Repayments of leases payable (151,856) (127,934) (125,277)
Proceeds from issuance of long-term debt - - 809,569
------------ ------------ ------------
Net cash provided by financing activities 11,681,284 14,037,562 11,619,830
------------ ------------ ------------
Net (Decrease) Increase in Cash and Cash Equivalents (85,885) 204,963 154,102
Cash and Cash Equivalents, beginning of year 359,065 154,102 -
------------ ------------ ------------
Cash and Cash Equivalents, end of year $ 273,180 $ 359,065 $ 154,102
============ ============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 4,037,527 $ 2,655,883 $ 2,553,752
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-43
<PAGE>
MID-ATLANTIC TELCOM PLUS HOLDING, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Mid-Atlantic Telcom Plus, LLC (Telcom Plus) was formed as of January 1, 1997
under the laws of Delaware as a limited liability company. Telcom Plus 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 Telecom Plus for an original 50% ownership
interest. The remaining original 50% ownership interest is 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 Telcom Plus 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 Telcom Plus in 1998.
On January 15, 1999, Telcom Plus and OPC agreed to the formation of a new
holding company, Mid-Atlantic Telcom Plus Holding, LLC (Telcom Plus Holding) to
own the membership interest in Telcom Plus. Telcom Plus Holding is controlled
and owned 58.6% by Holdings. The remaining 41.4% is held by OPC. The
accompanying consolidated financial statements include the accounts of Telcom
Plus Holding and its wholly owned subsidiary Telcom Plus (collectively referred
to herein as "the Company"). For periods prior to January 15, 1999, the
Company's accounts and activities, and therefore the accompanying consolidated
statements, consist only of Telcom Plus. All intercompany transactions are
eliminated.
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.
F-44
<PAGE>
MID-ATLANTIC TELCOM PLUS HOLDING, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies - Continued
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 $4,369,219,
$3,279,021 and $2,842,349 in 1999, 1998 and 1997, respectively. In accordance
with Statement of Financial Accounting Standards No. 121 ("SFAS 121"), the
Company periodically reviews the carrying value of the investment in cable TV
systems and equipment based on the related contract to provide cable services.
The evaluation involves comparing whether the expected cash flows for the
contract will be sufficient to recover the carrying value of the equipment
investment, deferred costs and goodwill related to the contract, with any excess
of carrying value over expected cash flows written off.
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 $4,828,168, $4,677,344 and $3,840,159 in 1999, 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. The evaluation involves
consideration of whether the expected cash flows for the contract will be
sufficient to recover the equipment investment, deferred costs and goodwill
related to the contract.
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.
F-45
<PAGE>
MID-ATLANTIC TELCOM PLUS HOLDING, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies - Continued
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 in 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 was $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 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 determined were
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 as of December 31, 1998. 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,
which commenced in 1998 and continued into 2000. Approximately $84,000 and
$741,000 of the purchase price paid by the Company is escrowed by CAI at
December 31, 1999 and 1998, respectively.
F-46
<PAGE>
MID-ATLANTIC TELCOM PLUS HOLDING, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. Long-Term Debt
1999 1998
----------- -----------
Notes Payable to Financial Institutions
- ---------------------------------------
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% (9.438% and
8.375% at December 31, 1999 and 1998, respectively.)
Interest payments are paid monthly or quarterly. $30,000,000 $22,757,296
CIBC Line of Credit, dated September 7, 1999 in the
amount of $5,000,000. The Line was increased January
2000 to $7 million. Rates and payments are the same as
the Revolving Credit Facility. 4,800,000
Subordinated Debt - Allied Capital
- ----------------------------------
Subordinated 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 $659,770 and
$251,826 in 1999 and 1998, respectively. Commencing
June 2003 until maturity, quarterly payments of deferred
interest and principal will be required. Compound
interest on deferred interest is due at maturity. 11,411,596 10,751,826
F-47
<PAGE>
MID-ATLANTIC TELCOM PLUS HOLDING, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. Long-Term Debt - Continued
1999 1998
----------- -----------
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. 253,760 456,392
Note payable bearing interest at 10.50%. Monthly
principal and interest payments of $611 were required.
The note matured in December 1999. - 6,932
----------- -----------
Total notes payable $46,465,356 $33,972,446
=========== ===========
Borrowings under the CIBC Reducing, Revolving Credit Facility (The CIBC
Facility) for 1998 were limited to $27,136,296 and has an original maturity of
December 2004. As discussed in Note 1, the formation of Telcom Plus Holding
eliminated the OPC pledge. Therefore, borrowing capacity from CIBC was increased
to $30,000,000 in January 1999 and further increased with the line of credit
entered into in September 1999. The Line of Credit has an original maturity date
of March 31, 2000. As discussed in Note 9, the CIBC Facility, the Allied Capital
Subordinated Debt and other liabilities were paid in full on March 3, 2000, in
connection with the sale of the Company's assets. Therefore, the related debt
has been classified as a current liability in the accompanying consolidated
balance sheet.
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 1999, 1998 and 1997, the Company was not
in compliance with certain of the financial covenants. Waivers of default were
received from the lenders related to covenants for 1999, 1998 and 1997.
F-48
<PAGE>
MID-ATLANTIC TELCOM PLUS HOLDING, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. Long-Term Debt - Continued
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, 1999 and 1998.
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, 1999 and 1998, the notional amount was $13,000,000, with a
fixed payment rate of 5.2%.
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.
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
$568,705, $439,632 and $391,233 for 1999, 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:
December 31, 2000 $ 803,904
2001 813,036
2002 829,895
2003 891,254
2004 886,069
Thereafter 2,840,029
-----------
$ 7,064,187
===========
49
<PAGE>
MID-ATLANTIC TELCOM PLUS HOLDING, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. Lease Commitments - 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:
December 31, 2000 $ 381,441
2001 390,484
2002 387,082
2003 382,726
2004 393,047
Thereafter 1,327,661
-----------
$ 3,262,441
===========
The Company is evaluating its options with respect to its office space as a
result of the sale discussed in Note 9. During 1999, 1998 and 1997, the Company
purchased $67,138, $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 $484,445 and $309,275, totals $424,975 and $533,006, in 1999 and
1998, respectively. The capital lease obligations were paid in full in
connection with the sale of the Company's assets as described in Note 9.
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, 1999
and 1998, the Company owed the OPC affiliate approximately $260,000 and
$680,000, respectively, related to these relationships. During 1997, the OPC
affiliate reimbursed the Company $221,186 in accordance with the cost sharing
agreement.
F-50
<PAGE>
MID-ATLANTIC TELCOM PLUS HOLDING, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. Related Party Transactions - Continued
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 this 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.
Included in Due to Affiliates at December 31, 1999 and 1998 is $385,000 and
$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, but will occur in 2000,
and therefore is classified as a current liability in the accompanying
consolidated balance sheet.
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 $167,151, $179,671
and $182,118 for 1999, 1998 and 1997, respectively. Amounts due from these
affiliates as of December 31, 1999 and 1998 are $277,540 and $162,617,
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. No contributions were made in 1999 or 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-51
<PAGE>
MID-ATLANTIC TELCOM PLUS HOLDING, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. Subsequent Event
On March 3, 2000, the Company and its affiliates, PW and CT, completed the sale
of all of their operating cable television assets, including municipal
franchises, private system contracts and cable television subscribers to Comcast
Corporation in accordance with the Asset Purchase Agreement dated October 21,
1999, as amended on March 3, 2000, for a net sales price of $148 million after
working capital adjustments.
Approximately $18.6 million of the proceeds allocable to the Company have been
escrowed until certain contract extensions are granted, certain post-closing
consents are obtained, and for general indemnity protection of the buyer.
After the sale, Comcast is using certain office facilities of the Company, which
did not and will not transfer as part of the transaction. Comcast is reimbursing
the Company for rent expenses and all other operating expenses at these
facilities until such time as they can incorporate these functions into their
own facilities.
F-52
<PAGE>
Report of Independent Auditors
Unit-holders
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, 1999 and
1998, and the related statements of operations, unitholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
February 29, 2000 /s/ Ernst & Young LLP
McLean, Virginia
F-53
<PAGE>
VIC-RMTS-DC, LLC
Statement of Operations
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 4,653 $ 1,660 $ 43
Cost of revenue 5,618 2,840 82
------------------------------------------------------
(965) (1,180) (39)
Expenses:
Selling, general and administrative 11,159 10,305 4,575
Depreciation and amortization 447 287 157
------------------------------------------------------
Loss from operations (12,571) (11,772) (4,771)
Loss on abandonment of leasehold improvements (57) - -
Loss on impairment of intangible assets (800) - -
------------------------------------------------------
Net loss $ (13,428) $ (11,772) $ (4,771)
======================================================
Basic loss per unit $ (2,238,000) (1,962,000) (795,167)
======================================================
Units used in the computation of basic
loss per unit 6 6 6
======================================================
</TABLE>
See accompanying notes.
F-54
<PAGE>
VIC-RMTS-DC, LLC
Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
1999 1998
------------------------------------------
<S> <C> <C>
Assets
Current assets:
Receivables:
Trade, net $ 554 $ 490
Related party 263 139
Prepaid expenses 730 336
------------------------------------------
Total current assets 1,547 965
Property and equipment, net 2,439 2,248
Intangible assets, net - 800
Other assets 204 265
------------------------------------------
Total assets $ 4,190 $ 4,278
==========================================
Liabilities and unitholders' equity Current liabilities:
Accounts payable and accrued expenses $ 1,744 $ 1,005
------------------------------------------
Total current liabilities 1,744 1,005
Other deferred obligations 171 52
Unitholders' equity:
Contributed capital 32,916 20,434
Accumulated deficit (30,641) (17,213)
------------------------------------------
Total unitholders' equity 2,274 3,221
------------------------------------------
Total liabilities and unit-holders' equity $ 4,190 $ 4,278
==========================================
</TABLE>
See accompanying notes.
F-55
<PAGE>
VIC-RMTS-DC, LLC
Statements of Unitholders' Equity
(dollars in thousands, except per unit data)
<TABLE>
<CAPTION>
Contributed Total
Units Capital Accumulated Deficit Unitholders' Equity
---------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
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
Additional unitholders' contributions - 12,482 - 12,482
Net loss - - (13,428) (13,428)
---------- -------------------- -------------------- --------------------
Balance, December 31, 1999 6 $ 32,916 $ (30,641) $ 2,274
========== ==================== ==================== ====================
</TABLE>
See accompanying notes.
F-56
<PAGE>
VIC-RMTS-DC, LLC
Statements of Cash Flow
(dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net loss $ (13,428) $ (11,772) $ (4,771)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 347 287 157
Change in allowance for doubtful accounts 91 39 7
Loss on abandonment of leasehold improvements 57 - -
Loss on impairment of intangible assets 800 - -
Changes in operating assets and liabilities:
Accounts receivable (155) (503) (34)
Affiliates receivable (124) (139) -
Prepaid expenses (394) 254 (587)
Other assets 61 (254) (9)
Accounts payable and accrued expenses 739 (38) 941
Other deferred obligations 119 - -
-----------------------------------------------------
Net cash used in operating activities (11,887) (12,126) (4,296)
Investing activities
Acquisition of property and equipment (595) (1,206) (1,055)
-----------------------------------------------------
Net cash used in investing activities (595) (1,206) (1,055)
Financing activities
Unitholder contributions 12,482 13,332 5,351
-----------------------------------------------------
Net cash provided by financing activities 12,482 13,332 5,351
Net increase (decrease) in cash - - -
Cash at the beginning of period - - -
-----------------------------------------------------
Cash at the end of period $ - $ - $ -
=====================================================
</TABLE>
See accompanying notes.
F-57
<PAGE>
VIC-RMTS-DC, LLC
Notes to Financial Statements
December 31, 1999 and 1998
1. Organization
VIC-RMTS-DC, LLC, (the "Company") was formed to provide telephone services to
multiple dwelling units ("MDUs") 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 was 50% held by OPC Holdings and South Central
Development L.P until December 1999. In April 1998, OnePoint Communications, LLC
merged with and into OnePoint Communications Corp. ("OnePoint").
In December 1999 VIC-1 RMTS, LLC, a company owned by OnePoint Communications
Corp. chairman, bought Mid-Atlantic RMTS's interest in the Company for a total
consideration of $175. Also in December 1999 VIC-1 RMTS, LLC sold 49% of
Mid-Atlantic RMTS to OPC Holdings for $172.
On December 16, 1999, OPC Holdings entered into a "Purchase Agreement" with SBC
Comventures, Inc., a wholly-owned subsidiary of SBC Communications Inc. ("SBC")
to sell, transfer and assign to SBC Comventures, Inc. all of OPC Holdings,
right, title and interest in and to 6.89 units or 24% of the OPC Holdings
membership in the Company for a total consideration of $10,000. This agreement
enabled OPC Holdings to sell up to an additional 12% direct ownership interest
in the Company under the same terms during February and 12% interst in March
2000. OPC Holdings has the right to repurchase all of the membership units
purchased by SBC Comventures, Inc. at a price equal to the price paid for the
purchased units plus 15% per annum. SBC Comventures, Inc. has the right to put
its interest in the Company to OnePoint Communications, Corp.'s chairman and
controlling shareholder under the same terms as the OPC Holdings call
provisions.
As a result, OPC Holdings had direct and indirect investments in the Company
totaling 75.52% as of December 31, 1999. The Company is included as a
consolidated subsidiary in OnePoint Communications Corp.'s consolidated
financial statements.
F-58
<PAGE>
VIC-RMTS-DC, LLC
Notes to Financial Statements (Continued)
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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 three to five years.
Leasehold improvements are depreciated over the shorter of their useful lives or
the lease term, not to exceed fifteen years. The Company classifies installed
wiring and hardware costs in construction in progress until the installation is
completed at which time the balances are classified as leasehold improvements.
Revenue Recognition
The Company recognizes revenue as services are provide
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, 1999 and 1998, respectively.
Marketing Costs
Marketing costs are expensed as incurred. For the years ended December 31, 1999,
1998, and 1997, marketing costs were approximately $61, $140, and $136,
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-59
<PAGE>
VIC-RMTS-DC, LLC
Notes to Financial Statements (Continued)
2. Significant Accounting Policies (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, 1999, 1998, and 1997; 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 1999, 1998 or 1997. 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.
F-60
<PAGE>
VIC-RMTS-DC, LLC
Notes to Financial Statements (Continued)
3. Trade Receivables
Trade receivables consists of amounts due from customers. The Company provides
an allowance for doubtful accounts for amounts deemed uncollectible as
determined by management. Activity in the allowance for doubtful accounts was as
follows:
<TABLE>
<CAPTION>
December, 31
------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------
<S> <C> <C> <C>
Opening balance $ 46 $ 7 $ -
Bad debt charge-offs (916) (261) -
Adjustments to reserves 1,010 300 7
------------------------------------------------------------
Ending balance $ 137 $ 46 $ 7
============================================================
</TABLE>
4. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1999 1998
----------------------------------------
<S> <C> <C>
Furniture and equipment $ 362 $ 343
Computer equipment 261 254
Facility equipment 1,852 483
Vehicles 295 232
Leasehold improvements 229 280
----------------------------------------
2,999 1,592
Less accumulated depreciation (560) (246)
----------------------------------------
2,439 1,346
Construction in progress - 902
----------------------------------------
$2,439 $2,248
========================================
</TABLE>
The Company recognized depreciation expense of $347, $187 and $57 in 1999, 1998
and 1997, respectively.
5. Intangible Assets
Intangible assets consisted of goodwill with an acquisition value of
approximately $1,000 as of December 31, 1998, less accumulated amortization of
$200. Goodwill was amortized under the straight-line method over a ten-year
period. On October 21, 1999, Comcast Corporation and Mid-Atlantic etal entered
into an Asset Purchase Agreement related to the
F-61
<PAGE>
VIC-RMTS-DC, LLC
Notes to Financial Statements (Continued)
5. Intangible Assets (continued)
purchase of substantially all of the assets, net of certain liabilities, of Mid-
Atlantic cable by Comcast. This transaction closed in the first quarter of 2000.
Therefore, the Company recognized an impairment loss equal to the net carrying
value of the goodwill as all benefits attributable to the Company's affiliation
with its co-joint venturer and customer lists and relationships related thereto
ceased to have any ongoing value to the Company subsequent to December 1999.
6. Unit-holders' 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 did not meet capital calls made during 1998 and 1999.
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 one
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 unit-holders' 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, 1999 and 1998, the Company had related party receivable
balances of $263 and $139, respectively, due from Mid-Atlantic TelcomPlus, LLC.
F-62
<PAGE>
VIC-RMTS-DC, LLC
Notes to Financial Statements (Continued)
7. Related Party Transactions (continued)
The Company shares certain operations with an affiliate of the Company. The
Company paid approximately $266, $836, and $250 for services provided by this
affiliate in 1999, 1998 and 1997, respectively.
SBC 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 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 $11, $7, and $0 to the Plan for the
years ended December 31, 1999, 1998, and 1997, respectively.
9. Guarantor of the Debt of Others
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 $92,250 between November 9, 1998 and June 9, 1999, at
various prices for an aggregate total cost of approximately $47,947, 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 had released approximately $38,200, 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 the years ended December 1999 and 1998, OnePoint paid
$13,256 and $10,656, respectively, of interest related to the Senior Notes and
accrued approximately $390 of liquidated damages as described below. OnePoint is
not required to make
F-63
<PAGE>
VIC-RMTS-DC, LLC
Notes to Financial Statements (Continued)
9. Guarantor of the Debt of Others (continued)
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.
Percentage
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%
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 at December 31, 1999 and 1998 were
$82,750 and $134,000, less a discount of $2,204 and $3,997 relating to the value
assigned to the Warrants. Interest accrued under the Senior Notes at December
31, 1999 and 1998 were $1,019 and $1,678, respectively.
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
F-64
<PAGE>
9. Guarantor of the Debt of Others (continued)
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
ninety days beyond November 17, 1998, and thereafter increase by $0.05 per week
per $1,000 outstanding principal amount of the Senior Notes each ninety-day
period, up to a maximum of $0.50 per week per $1,000 principal amount of Senior
Notes. Liquidated damages cease to accrue on August 6, 1999 when the
registration statement was declared effective. OnePoint paid on December 1, 1999
$390 in total damages.
10. Subsequent events
On February 2, 2000 SBC Comventures, Inc. invested $5.0 million to obtain
an additional 12% direct ownership of the Company.
F-65
<PAGE>
Report of Independent Auditors
UnitHolders
OnePoint Services, LLC
We have audited the accompanying balance sheet of OnePoint Services, LLC, (the
"Company"), a majority-owned subsidiary of OnePoint Communications Corp., as of
December 31, 1999, and the related statement of operations, unitholders' equity
and cash flows for the period from November 30, 1999 (inception) to December 31,
1999. 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 audit in accordance with auditing standards generally accepted
in the United States. 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 financial position of OnePoint Services, LLC at
December 31, 1999 and the results of its operations and its cash flows for the
period from November 30, 1999 (inception) to December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
February 29, 2000 /s/ Ernst & Young LLP
McLean, Virginia
F-66
<PAGE>
OnePoint Services, LLC
Statement of Operations
(dollars in thousands, except per unit data)
<TABLE>
<CAPTION>
Period from November 30,
1999 (inception) to
December 31, 1999
<S> <C>
Revenue $ 416
Cost of revenue 401
--------------------------
15
Expenses:
Selling, general and administrative 211
Depreciation and amortization 31
--------------------------
(227)
Other Income:
Interest Income 8
==========================
Net loss $ (219)
Basic and diluted loss per unit $ (0.03)
==========================
Units used in the computation of basic and diluted loss per unit 7,074,300
==========================
</TABLE>
See accompanying notes.
F-67
<PAGE>
OnePoint Services, LLC
Balance Sheet
(dollars in thousands, except for per unit data)
<TABLE>
<CAPTION>
December 31,
1999
--------------------------
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,549
Trade receivables, net 73
Inventory 70
Prepaid expenses 1
--------------------------
Total current assets 1,693
Property and equipment, net 415
Intangible assets, net 2,774
Other assets 82
--------------------------
Total assets $ 4,964
==========================
Liabilities and unitholders' equity Current liabilities:
Accounts payable and accrued expenses $ 478
Other current liabilities 1,471
--------------------------
Total current liabilities 1,949
Unitholders' equity:
Preferred Units par value, units authorized and units issued and outstanding 923
Common Units par value, units authorized and units issued and outstanding 2,706
Subscriptions receivable (395)
Accumulated Deficit (219)
--------------------------
Total unitholders' equity 3,015
--------------------------
Total liabilities and unitholders' equity $ 4,933
==========================
</TABLE>
See accompanying notes.
F-68
<PAGE>
OnePoint Services, LLC
Statement of Changes in Unitholders' Equity
For the Period November 30, 1999 (inception) to December 31, 1999
(dollars in thousands, except per unit data)
<TABLE>
<CAPTION>
Preferred Common
--------------------------------------------------------------------------------------------
Subscription Accumulated Deficit
Units Amounts Units Amounts Receivable Total
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1999 - $ - - $ - $ - $ - $ -
Initial unitholders' contribution 1,629,300 923 5,445,000 2,706 (500) - 3,129
Additional contributions - - - - 105 - 105
Net loss - - - (219) (219)
--------------------------------------------------------------------------------------------
Balance, December 31, 1999 - $ 923 5,445,000 $ 2,706 $ (395) $ (219) $ 3,015
============================================================================================
</TABLE>
See accompanying notes.
F-69
<PAGE>
OnePoint Services, LLC
Statement of Cash Flow
For the Period from November 30, 1999
(inception) to December 31, 1999
(dollars in thousands, except for per unit data)
<TABLE>
<CAPTION>
<S> <C>
Operating activities
Net loss $ (219)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 31
Change in allowance for doubtful accounts 1
Changes in operating assets and liabilities:
Trade receivables (74)
Inventory (70)
Prepaid expenses (1)
Other assets (82)
Accounts payable and accrued expenses 478
Other current liabilities 1,471
------------------
Net cash provided by operating activities 1,535
Investing activities
Acquisition of property and equipment (425)
Acquisition of intangible assets (2,795)
------------------
Net cash used in investing activities (3,220)
Financing activities
Issuance of preferred and common membership units 3,629
Subscriptions receivable (395)
------------------
Net cash provided by financing activities 3,234
Net increase in cash 1,549
Cash at the beginning of period
-
------------------
Cash at the end of period $ 1,549
==================
</TABLE>
See accompanying notes.
F-70
<PAGE>
OnePoint Services, LLC
Notes to Financial Statements
Period from November 30, 1999 (inception)
to December 31, 1999
(Dollars in thousands except for per unit data)
1. Organization
OnePoint Services, LLC (the "Company") was formed to provide services in the
prepaid retail telecommunications market, which includes prepaid telephone
cards, prepaid residential and prepaid cellular services in the Phoenix, Arizona
metropolitan area. The Company was formed on November 30, 1999 as a limited
liability company, with an initial capitalization from OnePoint Communications,
Corp. ("OPC") and a minority ownership interest held by the Company's
management. On the same date, the Company entered into a Securities Purchase
Agreement with RCP Communicatios, Inc. ("RCP"), pursuant to which, the Company
acquired all of the outstanding shares of RCP's stock.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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 a maturity of three
months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost and depreciated on the straight-line
method over their estimated useful lives, ranging from three to five years.
F-71
<PAGE>
OPC Services. LLC
Notes to Financial Statements (Continued)
2. Significant Accounting Policies (continued)
Intangible Assets
Intangible assets consist of goodwill representing the excess of cost over net
assets acquired from the purchase of certain assets and liabilities from RCP.
Goodwill is amortized using the straight line method over a 10 year period.
Revenue Recognition
Prepaid phone card revenues are recognized upon delivery of the cards to OPS's
customer as the Company has no ongoing performance obligation after transfer of
title upon delivery.
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, 1999.
Marketing Costs
Marketing costs are expensed as incurred. During the period from November 23,
1999 to December 31, 1999, marketing costs were approximately $50.
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. The income or losses reported by RCP will be reported separately
for income tax purposes. RCP 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. RCP has incurred losses for both financial and
tax reporting. Accordingly, no provision or benefit for income tax has been
recorded in the accompanying consolidated financial statements.
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 for the year ended December 31, 1999; however, the
Company did not have any items of comprehensive income. Accordingly, the
adoption of this Statement did not have an impact on the Company's financial
position or results from operations.
F-72
<PAGE>
OPC Services. LLC
Notes to Financial Statements (Continued)
2. Significant Accounting Policies (continued)
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. Acquisition
On November 30, 1999, the Company entered into a definitive stock purchase
agreement to acquire all of the shares of the stock of RCP Communications, Inc
("RCP"); an Arizona-based retailer of prepaid telephone cards, for a total
consideration of $985 and 1.425 million of restricted common units. Of these
amounts $891 and 1.050 million restricted common units are being withheld
subject to the revenue and cash flow targets. The Company acquired assets with a
fair market value of $0.7 million and assumed liabilities of $2.8 million
resulting in goodwill of $2.4 million. Goodwill will increase if the revenue and
cash flow targets are met and related contingent consideration is paid by the
Company. The RCP acquisition was recorded pursuant to the purchase method of
accounting.
Pursuant to the stock purchase agreement, on the first anniversary of the
closing date the Company is obligated to pay, provided RCP meets certain
performance criteria, the amount of the initial holdback less any existing
reserves as stated in the agreement.
The results of operations of this acquisition have been included in the
Company's financial statements from the date of acquisition through the end of
the period presented. The Company's results for the period ended December 31,
1999 represent the operations
F-73
<PAGE>
OPC Services. LLC
Notes to Financial Statements (Continued)
3. Acquisition (continued)
of the acquired company. The Company amortizes the goodwill acquired over a
period of ten 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.
4. Trade Receivables
Trade receivables consists of amounts due from customers. The Company provides
an allowance for doubtful accounts for amounts deemed uncollectible as
determined by management.
Activity in the allowance for doubtful accounts was as follows:
December 31
1999
-------------------
Opening balance $ -
Bad debt charge-offs -
Adjustments to reserves 1
-------------------
Ending balance $ 1
===================
5. Property and Equipment
Property and equipment consist of the following:
December 31
1999
-------------------
Furniture and equipment $ 5
Computer equipment 32
Switch equipment 388
-------------------
425
Less accumulated depreciation (10)
-------------------
$ 415
===================
From the period November 30 (inception) to December 31, 1999 the Company
recognized depreciation expense of $10.
F-74
<PAGE>
OPC Services. LLC
Notes to Financial Statements (Continued)
6. Intangible Assets
Intangible assets consist of the following as of December 31:
1999
---------------------
Goodwill $ 2,533
Other 262
---------------------
2,795
Accumulated amortization (21)
---------------------
$ 2,774
=====================
Amortization expense for the period from November 23, 1999 (inception) to
December 31, 1999 totaled $21.
7. Long-Term Debt
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.
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
F-75
<PAGE>
OPC Services. LLC
Notes to Financial Statements (Continued)
7. Long-Term Debt (continued)
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 $92,250 between November 9, 1998 and June 9, 1999, at
various prices for an aggregate total cost of approximately $47,947, 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 had released approximately $38,200, 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 the years ended December 1999 and 1998, OnePoint paid
$13,256 and $10,656, respectively, of interest related to the Senior Notes and
accrued approximately $390 of liquidated damages as described below. 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.
Percentage
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%
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.
F-76
<PAGE>
OPC Services. LLC
Notes to Financial Statements (Continued)
7. Long-Term Debt (continued)
Amounts outstanding under the Senior Notes at December 31, 1999 and 1998 were
$82,750 and $134,000, less a discount of $2,204 and $3,997 relating to the value
assigned to the Warrants. Interest accrued under the Senior Notes at December
31, 1999 and 1998 were $1,019 and $1,678, respectively.
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
ninety days beyond November 17, 1998, and thereafter increase by $0.05 per week
per $1,000 outstanding principal amount of the Senior Notes each ninety-day
period, up to a maximum of $0.50 per week per $1,000 principal amount of Senior
Notes. Liquidated damages cease to accrue on August 6, 1999 when the
registration statement was declared effective. OnePoint paid on December 1, 1999
$390 in total damages.
8. Unitholder's Equity
The Company has authorized 8,420,000 units, divided into Preferred and Common
membership units. OPC acquired 1,629,300 of the Preferred Units and 4,370,000
Common Units for an aggregate capital contribution of $3,400 of which $2,900 was
paid in cash and $500 to be paid upon notification, net of any expenses paid on
behalf of the Company by OPC.
At any time the Preferred Units may be converted into a number of Common Units.
The initial conversion ratio is 1:1.
As part of the purchase price for the RCP acquisition, an aggregate of
1,435,000 common membership units, 375,000 common membership units are subject
to a two year
F-77
<PAGE>
OPC Services. LLC
Notes to Financial Statements (Continued)
8. Unitholder's Equity (continued)
restriction on transferability, are non-voting for such period, and certain
other restrictions and will receive the remaining 1,050,000 common membership
units provided that the Company meets certain performance criteria. The common
membership units subject to performance criteria are deemed to be contingent
consideration and will be recognized as such, along with increases to recognized
goodwill, upon the achievement of the performance criteria.
Certain executives of the Company received 150,000 common membership units
subject to forfeiture and certain other restrictions for a two year period in
exchange for a capital contribution of $0.005 per common membership unit. The
Company has determined the aggregate compensation expense related to this below
market grant of restricted common membership units was approximately $85 and has
recognized approximately $5 of expense and contributed capital in 1999 and will
recognize the remaining amounts in 2000 and 2001 as the restrictions lapse. In
addition, such executives received an additional 555,000 common membership units
subject to forfeiture in the event certain performance criteria are not met
within specified time periods in exchange for $0.005 per common membership unit.
As the ultimate number of common membership units that will be released from the
restrictions is not determinable as of December 31, 1999, the Company will
measure the fair value of such common membership units upon achievement of the
performance criteria and recognize the compensation expense and related capital
contributions, if any, at that time.
An additional 290,000 in Uncommitted Common Units shall be reserved by the
Company and may be issued to members or additional members pursuant to the
limited liability company agreement.
9. Stock Appreciation Rights
The Company's founders and certain employees are eligible to participate in the
OPC Stock Appreciation Rights Plan (the "SAR Plan") under certain circumstances.
As of December 31, 1999, no OPC SARs have been granted to the Company's
employees or founders.
F-78
<PAGE>
OPC Services. LLC
Notes to Financial Statements (Continued)
10. Leases
The Company currently leases office space and equipment under noncancelable
operating leases. The future minimum lease payments under noncancelable
operating leases at December 31, 1999, were as follows:
2000 $ 62
2001 15
-------------
Total $ 77
=============
Most leases provide for the pass-through of increases in operating expenses and
real estate taxes. Rent expense for the period from November 23, 1999
(inception) to December 31, 1999 was approximately $6.
11. Related Party Transactions
As of December 31, 1999, the Company had receivable balances from OPC primarily
resulting from OPC's initial capitalization subscription receivable of $500 less
$105 payments made by OPC on the Company's behalf. Such amount has been
reflected as a reduction of unitholders' equity as of December 31, 1999.
12. Income Taxes
As of December 31, 1999, RCP had net tax operating loss carryforwards of
approximately $572 which will expire in 2019. Net operating loss carryforwards
may be used to offset future taxable income generated by RCP and are not
available to offset future taxable income generated by other members of the
consolidated group due to limitation under Internal Revenue Code Section 382.
RCP had net deferred tax assets of approximately $0.9 million at December 31,
1999. The components of the 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, 1999, RCP has incurred losses 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 the 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
1999
-------------
<S> <C>
Federal tax rate (benefit) (34.0)%
State tax, net of federal tax (6.6)
Valuation allowance 40.3
Nondeductible expenses 0.3
-------------
Effective rate 0.0%
=============
</TABLE>
F-79
<PAGE>
The net deferred tax liabilities in the accompanying balance sheets include the
following components:
<TABLE>
<CAPTION>
December 31
1999
-------------
<S> <C>
Deferred tax asset and other temporary differences
deductible in the future $ 650,436
Deferred tax asset for net operating loss 232,104
Valuation allowance (882,540)
-------------
Net deferred tax liability $ -
=============
</TABLE>
F-80
<PAGE>
SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated
as of November 30, 1999, among ONEPOINT SERVICES, L.L.C. (the "Guaranteeing
Subsidiary"), a subsidiary of ONEPOINT COMMUNICATIONS CORP. (or its permitted
successor, a Delaware corporation (the "Company"), the Company, the other
Subsidiary Guarantors (as defined in the Indenture referred to herein) and
HARRIS TRUST AND SAVINGS BANK, as trustee under the indenture referred to below
(the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to
the Trustee an indenture (the "Indenture"), dated as of May 21, 1998 providing
for the issuance of an aggregate principal amount of up to $175,000,000 of 14
1/2% Notes due 2008 (the "Notes");
WHEREAS, the Indenture provides that under certain
circumstances the Guaranteeing Subsidiary shall execute and deliver to the
Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary
shall unconditionally guarantee all of the Company's Obligations under the Notes
and the Indenture on the terms and conditions set forth herein (the "Subsidiary
Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the
Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall
have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees as
follows:
(1) Along with all Subsidiary Guarantors named in the Indenture, to
jointly and severally Guarantee to each Holder of a Note authenticated
and delivered by the Trustee and to the Trustee and its successors and
assigns, irrespective of the validity and enforceability of the
Indenture, the Notes or the obligations of the Company hereunder or
thereunder, that:
<PAGE>
(1) the principal of and interest on the Notes will be promptly paid
in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal of
and interest on the Notes, if any, if lawful, and all other
obligations of the Company to the Holders or the Trustee
hereunder or thereunder will be promptly paid in full or
performed, all in accordance with the terms hereof and thereof;
and
(2) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, that same will be
promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. Failing payment when due
of any amount so guaranteed or any performance so guaranteed for
whatever reason, the Subsidiary Guarantors shall be jointly and
severally obligated to pay the same immediately.
(2) The obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of the Notes or the Indenture, the
absence of any action to enforce the same, any waiver of consent by any
Holder of the Notes with respect to any provisions of the Indenture, this
Supplemental Indenture or the Notes, the recovery of any judgment against
the Company, any action to enforce the same or any other circumstances
which might otherwise constitute a legal or equitable discharge or defense
of a guarantor.
(3) The following is hereby waived: diligence presentment, demand of payment,
filing of claims with a court in the event of insolvency or bankruptcy of
the Company, any right to require a proceeding first against the Company,
protect, notice and all demands whatsoever.
(4) This Subsidiary Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes and the Indenture.
(5) If any Holder or the Trustee is required by any court or otherwise to
return to the Company, the Subsidiary Guarantors, or any custodian,
Trustee, liquidator or other similar official acting in relation to either
the Company or the Subsidiary Guarantors, any amount paid by either to the
Trustee or such Holder, this Subsidiary Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect.
(6) The Guaranteeing Subsidiary shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed
hereby.
2
<PAGE>
(7) As between the Subsidiary Guarantors, on the one hand, and the Holders and
the Trustee, on the other hand, (x) the maturity of the obligations
guaranteed hereby may be accelerated as provided in Article 6 of the
Indenture for the purposes of this Subsidiary Guarantee, notwithstanding
any stay, injunction or other prohibition preventing such acceleration in
respect of the obligations guaranteed hereby, and (y) in the event of any
declaration of acceleration of such obligations as provided in Article 6 of
the Indenture, such obligations (whether or not due and payable) shall
forthwith become due and payable by the Subsidiary Guarantors for the
purpose of this Subsidiary Guarantee.
(8) The Subsidiary Guarantors shall have the right to seek contribution from
any non-paying Subsidiary Guarantors so long as the exercise of such right
does not impair the rights of the Holders under the Subsidiary Guarantees.
(9) Pursuant to Section 10.02 of the Indenture, after giving effect to any
maximum amount and any other contingent and fixed liabilities that are
relevant under any applicable Bankruptcy or fraudulent conveyance laws, and
after giving effect to any collections from, rights to receive contribution
from or payments made by or on behalf of any other Subsidiary Guarantor in
respect of the obligations of such other Subsidiary Guarantor under Article
10 of the Indenture shall result in the obligations of such Subsidiary
Guarantor under its Subsidiary Guarantee not constituting a fraudulent
transfer or conveyance.
3. EXECUTION AND DELIVERY. Each Guaranteeing Subsidiary agrees that the
Subsidiary Guarantees shall remain in full force and effect notwithstanding
any failure to endorse on each Note a notation of such Subsidiary
Guarantee.
4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
(1) The Guaranteeing Subsidiary may not consolidate with or merge with or
into (whether or not such Guaranteeing Subsidiary is the surviving
Person) another corporation, Person or entity whether or not
affiliated with such Guaranteeing Subsidiary unless;
(1) subject to Section 10.05 of the Indenture, the Person formed by
or surviving any such consolidation or merger (if other than a
Subsidiary Guarantor or the Company) 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,
3
<PAGE>
the Indenture, the Pledge Agreement and the Registration Rights
Agreement on the terms set forth herein or therein; and
(2) immediately after giving effect to such transaction, no Default
or Event of Default exists.
(3) 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 Section 4.09 of the Indenture.
In case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor Person, by supplemental
indenture, executed and delivered to the Trustee and satisfactory
in form to the Trustee, of the Subsidiary Guarantee endorsed upon
the Notes and the due and punctual performance of all of the
covenants and conditions of the Indenture to be performed by the
Subsidiary Guarantor, such successor Person shall succeed to and
be substituted for the Subsidiary Guarantor with the same effect
as if it had been named as a Subsidiary Guarantor. Such successor
Person thereupon may cause to be signed any or all of the
Subsidiary Guarantees to be endorsed upon all of the Notes
issuable under the Indenture which theretofore shall not have
been signed by the Company and delivered to the Trustee. All the
Subsidiary Guarantees so issued shall in all respects have the
same legal rank and benefit under the Indenture as the Subsidiary
Guarantees theretofore and thereafter issued in accordance with
the terms of the Indenture as though all of such Subsidiary
Guarantees had been issued at the date of the execution of the
Indenture.
Except as set forth in Articles 4 and 5 of the Indenture, and
notwithstanding clauses (i) and (ii) above, nothing contained in
this Supplemental Indenture, the Indenture or in any of the Notes
shall prevent any consolidation or merger of a Subsidiary
Guarantor with or into the Company or another Subsidiary
Guarantor, or shall prevent any sale or conveyance of the
property of a Subsidiary Guarantor as an entirety or
substantially as an entirety to the Company or another Subsidiary
Guarantor.
(2) In case of such consolidation, merger, sale or conveyance and upon the
assumption by the successor Person, by supplemental indenture,
executed and delivered to the Trustee and satisfactory in form to the
Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the
due and punctual performance of all of the covenants and conditions of
the Indenture to be
4
<PAGE>
performed by the Subsidiary Guarantor, such successor Person shall
succeed to and be substituted for the Subsidiary Guarantor. Such
successor Person thereupon may cause to be signed any or all of the
Subsidiary Guarantees to be endorsed upon all of the Notes issuable
hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Subsidiary Guarantees so issued
shall in all respects have the same legal rank and benefit under the
Indenture as the Subsidiary Guarantees theretofore and thereafter
issued in accordance with the terms of the Indenture as though all of
such Subsidiary Guarantees had been issued at the date of the
execution hereof.
(3) Except as set forth in Articles 4 and 5 of the Indenture, and
notwithstanding clauses (a) and (b) above, nothing contained in the
Indenture or in any of the Notes shall prevent any consolidation or
merger of a Subsidiary Guarantor with or into the Company or another
Subsidiary Guarantor, or shall prevent any sale or conveyance of the
property of a Subsidiary Guarantor as an entirety or substantially as
an entirety to the Company or another Subsidiary Guarantor.
5. RELEASES.
(1) 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 to the capital stock
of any Subsidiary Guarantor, then such Subsidiary Guarantor (in the
event of a sale or other disposition, by way of merger, consolidation
or otherwise, of all of the capital stock of such Subsidiary
Guarantor) or the Person acquiring the property (in the event of a
sale or other disposition of all or substantially all of the assets of
such Subsidiary Guarantor) will be released and relieved of any
obligations under its Subsidiary Guarantee; provided that the Net
Proceeds of such sale or other disposition are applied in accordance
with the applicable provisions of the Indenture, including without
limitation Section 4.10 of the Indenture. Upon delivery by the Company
to the Trustee of an Officers' Certificate and an Opinion of Counsel
to the effect that such sale or other disposition was made by the
Company in accordance with the provisions of the Indenture, including
without limitation Section 4.10 of the Indenture, the Trustee shall
execute any documents reasonably required in order to evidence the
release of any Subsidiary Guarantor from its obligations under its
Subsidiary Guarantee.
(2) Any Subsidiary Guarantor not released from its obligations under its
Subsidiary Guarantee shall remain liable for the full amount of
principal of
5
<PAGE>
and interest on the Notes and for the other obligations of any
Subsidiary Guarantor under the Indenture as provided in Article 10 of
the Indenture.
6. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, stockholder or agent of the Guaranteeing
Subsidiary, as such, shall have any liability for any obligations of the Company
or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantees, the
Indenture or this Supplemental Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of the
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 and the
Subsidiary Guarantees. Such waiver may not be effective to waive liabilities
under the federal securities laws and its is the view of the Commission that
such a waiver is against public policy.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL
GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING
EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
8. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
9. EFFECT OF HEADINGS. The Section headings herein are for convenience only
and shall not affect the construction hereof.
10. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity of this Supplemental Indenture or
for or in respect of the recitals contained herein, all of which recitals are
made solely by the Guaranteeing Subsidiary and the Company.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
DATED: November 30, 1999
ONEPOINT SERVICES, L.L.C.
By: OnePoint Communications Corp.
Its: Manager
By:_______________________________
Name:_____________________________
Title:____________________________
ONEPOINT COMMUNICATIONS CORP.
By:_______________________________
Name:_____________________________
Title:____________________________
HARRIS TRUST AND SAVINGS BANK, as Trustee
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
SCHEDULE I
SCHEDULE OF SUBSIDIARY GUARANTORS
The following schedule lists each Subsidiary Guarantor under
the Indenture as of the Issue Date:
OnePoint Communications Holdings, LLC
OnePoint Communications - Georgia, LLC
OnePoint Communications - Illinois, LLC
OnePoint Communications - Colorado, LLC
VIC-RMTS-DC, LLC
OnePoint Services, L.L.C.
RCP Communications, Inc.
<PAGE>
OFFICE LEASE -- TWO CONWAY PARK
THIS OFFICE LEASE (this "Lease") is made as of November 18, 1999, by and between
-----
"Landlord" Riggs & Company, a division of Riggs Bank, N.A. as Trustee of the
--------
Multi-Employer Property Trust, a trust organized under 12 C.F.R.
Section 9.18 and
"Tenant" OnePoint Communications Corp.
<PAGE>
BRONSON & KAHN
ATTORNEYS AT LAW
300 WEST WASHINGTON STREET - 14TH FLOOR
CHICAGO, ILLINOIS 60606
(312) 553-1700
FAX (312) 553-1733
January 4, 2000
BY REGULAR MAIL
- ---------------
Peter Speranza, Esq.
Speranza & Bates
560 Oakwood Avenue
Suite 10 1
Lake Forest, Illinois 60045
Re: Lease for OnePoint Communications Corp. at Two Conway Park
Dear Peter:
As we agreed, enclosed is changed page no. 1 of the Lease for OnePoint
Communications at Two Conway Park and changed page no. 3 of the Tenant Work
Letter. Please substitute these pages into the original documents for your
client and I will do the same for the landlord.
Please call me if you have any questions.
Very truly yours,
Harlan D. Kahn
HDK/krs
Enclosure
cc: Scott Price
<PAGE>
SECTION 1: DEFINITIONS
----------------------
1 - 1 Definitions. Each underlined term in this section shall have the
-------------
meaning set forth next to that underlined term. Capitalized terms that are used
in this Lease without definition but are defined in any of the Exhibits to this
Lease shall have the meanings ascribed to those terms in the applicable Exhibit.
1.2 Access Laws: The Americans With Disabilities Act of 1990 (including the
-------------
Americans with Disabilities Act Accessibility Guidelines for Building and
Facilities) and all other Governmental Requirements relating to the foregoing.
1.3 Additional Rent: Defined in paragraph 3.4 captioned "Additional Rent".
----------------- ------------------
1.4 Base Amount Allocable to the Premises: Defined in paragraph 3.4.5.
---------------------------------------
1.5 Base Rent: Base Rent shall be as follows:
-----------
(a) March 1, 2000 through February 28, 2001; Sixty-One Thousand Two
Hundred Eighty-Six and 30/100 Dollars ($61,286.30) per month;
(b) March 1, 2001 through February 28, 2002; Sixty-Three Thousand One
Hundred Twenty-Four and 88/100 Dollars ($63,124.88) per month;
(c) March 1, 2002 through February 28, 2003; Sixty-Five Thousand
Eighteen and 63/100 Dollars ($65,018.63) per month;
(d) March 1, 2003 through February 29, 2004; Sixty-Six Thousand Nine
Hundred Sixty-Nine and 19/100 Dollars ($66,969.19) per month;
(e) March 1, 2004 through February 28, 2005; Sixty-Eight Thousand
Nine Hundred Seventy-Eight and 26/100 Dollars ($68,978.26) per month; (f) March
1, 2005 through February 28, 2006; Seventy-One Thousand FortySeven and 61/100
Dollars ($71,047.61) per month;
(g) March 1, 2006 through February 28, 2007; Seventy-Three Thousand
One Hundred Seventy-Nine and 04/100 Dollars ($73,179.04) per month;
(h) March 1, 2007 through February 29, 2008; Seventy-Five Thousand
Three Hundred Seventy-Four and 41/100 Dollars ($75,374.41) per month;
(i) March 1, 2008 through February 28, 2009; Seventy-Seven Thousand
Six Hundred Thirty-Five and 64/100 Dollars ($77,635.64) per month; and
0) March 1, 2009 through February 28, 2010; Seventy-Nine Thousand
Nine Hundred Sixty-Four and 71/100 Dollars ($79,964.71) per month.
<PAGE>
within five (5) business days of receipt of Landlord's comments. The revised
Preliminary Architectural Plans when approved by Landlord are referred to herein
as the "Architectural Plans". The "Preliminary Architectural Plans", the
"Preliminary Space Plans", the "Mechanical/Electrical Drawings" and the
"Architectural Plans" are herein collectively referred to as the "Plans". Tenant
must submit to Landlord a copy of the building permit before the start of the
Tenant Work. The Architectural Plans and the Mechanical/Electrical Drawings
shall be produced on CAD.
(f) Notwithstanding anything contained herein to the contrary, Tenant
agrees to and shall engage, or cause its general contractor to engage, V.A.
Smith & Company, as the subcontractor to perform the Tenant's Work pertaining to
the heating, ventilating and air conditioning system in the Premises; provided
that V.A. Smith & Company agrees to perform such work for a competitive price
which is equal in all material respects to (or less than) the lowest of other
competitive, bona-fide arms-length bids received by Tenant for the same work.
Otherwise, Tenant shall be free to hire the (or one of the) lower competitive
bidders to perform such work.
(g) Tenant represents to Landlord that Tenant has reviewed its needs
and the above-specified delivery dates with the Interior Space Planner and that
Tenant has assured itself that, with Landlord's cooperation, the Plans can be
delivered as herein above required. Tenant agrees to cooperate with the Interior
Space Planner as promptly as possible and in any event in sufficient time to
cause the Plans to be prepared and timely delivered as herein above required.
(h) Neither review nor approval by Landlord of any of the Plans shall
constitute a representation or warranty by Landlord that such Plans either (i)
are complete or suitable for their intended purpose or (ii) comply with
applicable laws, ordinances, codes and regulations, it being expressly agreed by
Tenant that Landlord assumes no responsibility or liability whatsoever to Tenant
or to any other person or entity for such completeness, suitability or
compliance, except as provided in the Lease.
3. Cost of Tenant's Work.
(a) Before commencement of any portion of the Tenant's Work, Tenant
shall enter into a contract (the "Buildout Contract") to perform the Tenant's
Work with Development Solutions, Inc., as its general contractor. The Buildout
Contract shall provide that the Tenant's Work shall be completed by March 1,
2000 and shall further provide that the general contractor shall not be entitled
to payment of more than ninety percent (90%) of the total contract price prior
to the date upon which the Landlord pays or is required to pay the Retention
Amount (as defined herein) to Tenant under the terms and provisions of this Work
Letter. Tenant agrees to promptly give Landlord a copy of the Buildout Contract.
Tenant shall cause the general contractor to use only those subcontractors
approved by Landlord, which approval shall not be unreasonably withheld. All of
the Tenant's Work shall be performed by one or more licensed general contractors
and their respective subcontractors, all of whom shall be signatory to a
collective bargaining agreement or other agreement with an appropriate labor
organization affiliated with the Building and Construction Trades Department of
the AFL-CIO. The Landlord shall have the right to approve all contracts and
subcontracts with any of the aforementioned general contractors and
subcontractors, which approval shall not be unreasonably withheld.
<PAGE>
[LETTERHEAD OF SPERANZA & BATES ATTORNEYS AT LAW]
December 22, 1999
VIA FACSIMILE 312-553-1733
Harlan D. Kahn, Esq.
Bronson & Kahn
300 West Washington Street
14/th/ Floor
Chicago IL 60606
Re: Lease for OnePoint Communications Corp. at Two Conway Park
Dear Harlan:
Pursuant to our conversation, sent herewith is the proposed rider to the
DS1 contract. Paragraph 7 incorporates the tenant work letter as we discussed.
Subsequent to our conversation, I talked to my contact at OnePoint. She confirms
that DSI has signed off on both the rider sent herewith as it was amended
(sections other than section 7 were changed) and your proposed rider. Although I
am uncertain as to why both riders were signed, apparently DS1 anticipates a
merger of the two riders which will then be reexecuted by the parties. After
your review, please call so that I may finalize the rider in the form which is
acceptable to all parties for execution.
Also, pursuant to our conversation, you have agreed that an oversight
occurred in the final draft of the lease which was executed. As you know, the
commencement date is March 1, 2000. Unfortunately, section 1.5 of the lease
provides that rent is to begin on February 1, 2000. You have agreed that the
date rent is to begin is March 1, 2000. The work letter in section 3 provides
that the tenant work will be completed by February 1, 2000 and we have agreed
that date should also be changed to March 1, 2000. You stated that you will
be out of the office as of tomorrow for the balance of the year and would make
these changes in appropriate form after your return in the new year.
Please contact me tomorrow at your convenience regarding the DSI contract.
truly yours,
SPNATE, BATES
Peter A. Speranza
PAS:ams cc: J. DiGuido
<PAGE>
Speranza & Bates
560 Oa4wood Avenue
Suite 101
Lake Forest, Illinois 60045
(847)615-1090
Fax (847)615-1096
Confidential Facsimile
To: I Joanne DiGuido
Fax: 1 847-374-1070 1
--------------------------------------------
From: I Peter A. Speranza
-------------------
Date: I January 4, 2000 1
-------------------------------------------
Subject: I Two Conway Park Lease. I
-------------------------------------------
Pages: I Four (4) including cover sheet
--
The documents that accompany ibis facsimile contain
confidential and privileged information and are
intended solely for the use of the individual or
entity to whom this transmission is directed. Any
disclosure of the information herein is an
authorized and strictly prohibited.
<PAGE>
[LETTERHEAD OF BRONSON & KAHN]
January 4, 2000
Peter Speranza, Esq
Speranza & Rates
560 Oakwood Avenue
Suite 101
Lake Forest, Illinois 60045
Re: Lease. for OnePoint Communications Corp-at Two Conway Park
Dear Peter:
As we discussed, enclosed are changed pages to the Lease for OnePoint
Communications at Two Conway Park. Please call me with your approval and to
arrange substitution of the changed pages into the final lease.
Also, please send me a copy of the contract/rider signed with DSL
Very truly yours,
Harlan D. Kahn
HDK/krs Enclosure
cc: Scott Price
<PAGE>
SECTION I DEFINITIONS
---------------------
I Definitions. Each underlined term in ibis section shall have the
-----------
meaning set forth next To that underlined term Capitalized terms that are used
in this Lease without definition but are defined in any of the Exhibits to this
Lease shall have the meanings ascribed to those terms in the applicable Exhibit.
1.2 Access Lam: The Americans With Disabilities Act of 1990 (including
-------
the Americans with Disabilities Act Accessibility Guidelines for Building and
Facilities) and all other Governmental Requirements relating to the foregoing.
1.3 Additional Rent: Defined in paragraph 3.4 captioned "Additional
--------------- ----------
Rent".
1.4 Base Amount Allocable to the Premises: Defined in paragraph 3.4 5
1.5 Base Rent. Base Rent shall be as follows:
---------
(a) March 1, 2000 through February 28, 2001; Sixty-One Thousand Two
Hundred Eighty-Six and 30/100 Dollars ($61,286.30) per month;
(b) March 1, 2001 through February 28, 2002; Sixty-Three Thousand
One Hundred Twenty-Four and 88/100 Dollars ($63,124.88) per month;
(c) March 1, 2002 through February 28, 2003; Sixty-Five Thousand
Eighteen and 63/100 Dollars ($65,018.63) per month.
(d) March 1, 2003 through February 29, 2004; Sixty-Six Thousand
Nine Hundred Sixty-Nine and 19/100 Dollars ($66,969.19) per month;
(c) March 1, 2004 through February 28, 2005, Sixty-Eight Thousand
Nine Hundred Seventy-Eight and 26/100 Dollars ($68,978.26) per month,
(f) March 1, 2005 through February 28, 2006; Seventy-One Thousand
Forty-Seven and 61/100 Dollars ($71,047.61) per month:
(g) March 1, 2006 through February 28, 2007; Seventy-Three Thousand
One Hundred Seventy-Nine and 04/100 Dollars ($73,179.04) per month;
(h) March 1, 2007 through February 29, 2008; Seventy-Five Thousand
Three Hundred Seventy-Four and 41/100 Dollars ($75,374.41) per month;
(i) March 1, 2008 through February 28, 2009; Seventy-Seven Thousand
Six Hundred Thirty-Five and 64/100 Dollars ($77.635.64) per month; and
0) March 1, 2009 through February 28, 2010; Seventy-Nine Thousand
Nine Hundred Sixty-Four and 71/100 Dollars ($79,964.71) per month.
<PAGE>
within five (5) business days of receipt of Landlord's comments. The revised
Preliminary Architectural Plans when approved by Landlord are referred to herein
as die "Architectural Plans" The "Preliminary Architectural Plans", the
"Preliminary Space Plans", the "Mechanical/Electrical Drawings" and the
"Architectural Plans" are herein collectively referred to as the "Plans". Tenant
must submit to Landlord a copy of the building permit before the start of the
Tenant Work. The Architectural Plans and the Mechanical/Electrical Drawings
shall be produced on CAT).
(f) Notwithstanding anything contained herein to The contrary, Tenant
agrees to and shall engage, or cause its general contractor to engage, V.A.
Smith & Company, as The subcontractor To perform the Tenant's Work pertaining to
The heating, ventilating and air conditioning system in The Premises; provided
that V.A. Smith & Company agrees TO perform such work for a competitive price
which is equal in all material respects to (or less than) the lowest of other
competitive, bona-fide arms-length bids received by Tenant for the same work.
Otherwise, Tenant shall be free to hire the (or one of the) lower competitive
bidders to perform such work.
(g) Tenant represents to Landlord that Tenant has reviewed its needs
and the above-specified delivery dates with The Interior Space Planner and that
Tenant has assured itself that, with Landlord's cooperation, the Plans can be
delivered as herein above required. Tenant agrees to cooperate with the Interior
Space Planner as promptly as possible and in any event in sufficient time to
cause the Plans to be prepared and timely delivered as herein above required.
(h) Neither review nor approval by Landlord of any of the Plans shall
constitute a representation or warranty by Landlord that such Plans either (i)
are complete or suitable for their intended purpose or (ii) comply with
applicable laws, ordinances, codes and regulations, it being expressly agreed by
Tenant that Landlord assumes no responsibility or liability whatsoever to Tenant
or to any other person or entity for such completeness, suitability or
compliance, except as provided in the Lease
3. Cost of Tenant's Work.
(a) Before commencement of any portion of the Tenant's Work, Tenant
shall enter into a contract (the "Buildout Contract") to perform the Tenant's
Work with Development Solutions, Inc., as its general contractor. The
Buildout Contract shall provide That the Tenant's Work shall be completed by
March 1, 2000 and shall further provide that the general contractor shall not
be entitled to payment of more than ninety percent (90%) of the total
contract price prior to the date upon which the Landlord pays or is required
to pay the Retention Amount (as defined herein) to Tenant under The terms and
provisions of this Work Letter. Tenant agrees to promptly give Landlord a
copy of the Buildout Contract. Tenant shall cause the general contractor to
use only those subcontractors approved by Landlord, which approval shall not
be unreasonably withheld. All of the Tenant's Work shall be
<PAGE>
[LETTERHEAD OF SPERANZA & BATES]
December 1, 1999
VIA FEDERAL EXPRESS
- -------------------
PERSONAL AND CONFIDENTIAL
Ms. JoAnne DiGuido
OnePoint Communications Corp.
2201 Waukegan Road
Building D, Suite E-200
Bannockburn, IL 60015
Re: Lease for Two Conway Park
Dear JoAnne:
Enclosed is a fully executed original Lease for the above-referenced
property for your records. I have retained an executed original as well for my
file. If you need an additional executed original, please let me know and I will
forward mine to you.
If you have any questions, please contact me.
Very truly yours,
RANZA & BATES
PAS:sp
Enclosure
<PAGE>
<TABLE>
SECTION A: TABLE OF CONTENTS
<S> <C>
SECTION 1: DEFINITIONS...................................................... 1
SECTION 2: PREMISES AND TERM................................................. 5
2.1 Lease of Premises....................................................... 5
2.2 Lease Term.............................................................. 5
2.3 Plans and Specifications................................................ 5
2.4 Intentionally Omitted................................................... 5
2.5 Intentionally Omitted .................................................. 5
2.6 Intentionally Omitted .................................................. 5
2.7 Ownership and Removal of Tenant Improvements............................ 5
2.8 Tenant and Landlord Delays.............................................. 6
2.9 Memorandum of Commencement Date......................................... 6
2.10 Use and Conduct of Business.................................. 6
2.12 Renewal Option............................................... 7
2.13 Intentionally Omitted........................................ 7
2.14 Antenna Rights............................................... 8
2.15 Storage Space................................................ 8
SECTION 3: BASE RENT, ADDITIONAL RENT AND OTHER SUMS PAYABLE UNDER
LEASE........................................................................ 8
3.1 Payment of Rental............................................. 8
3.2 Base Rent..................................................... 9
3.3 Security Deposit/Letter of Credit............................. 9
3.4 Additional Rent............................................... 11
3.5 Utilities..................................................... 15
3.6 Holdover...................................................... 15
3.7 Late Charge................................................... 16
3.8 Default Rate.................................................. 16
SECTION 4: GENERAL PROVISIONS................................................ 16
4.1 - Maintenance and Repair by Landlord.......................... 16
4.2 Maintenance and Repair by Tenant.............................. 16
4.3 Common Areas/Security/Parking................................. 17
4.4 Building Services ............................................ 17
4.5 Tenant Alterations............................................ 18
4.6 Tenant's Work Performance..................................... 18
4.7 Surrender of Possession....................................... 20
4.8 Removal of Property........................................... 20
4.9 Access........................................................ 20
4.10 Damage or Destruction......................................... 21
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.11 Condemnation.................................................. 22
4.12 Intentionally Omitted......................................... 22
4.13 Indemnification............................................... 22
4.14 Tenant Insurance.............................................. 23
4.15 Landlord's Insurance.......................................... 23
4.16 Waiver of Subrogration........................................ 24
4.17 Assignment and Subletting by Tenant........................... 24
4.18 Assignment by Landlord........................................ 27
4.19 Estoppel Certificates and Financial Statements................ 28
4.20 Modification for Lender....................................... 28
4.21 Hazardous Substances.......................................... 28
4.22 Access Laws................................................... 29
4.23 Quiet Enjoyment............................................... 30
4.24 Signs......................................................... 30
4.25 Subordination................................................. 31
4.26 Workers Compensation Immunity................................. 31
Brokers....................................................... 31
4.27 Exculpation and Limitation of Liability....................... 31
4.28 Intentionally Omitted......................................... 31
4.29 Mechanic's Liens and Tenant's Personal Property Taxes......... 32
4.30 Intentionally Omitted......................................... 32
SECTION 5: DEFAULT AND REMEDIES.............................................. 32
5.1 Events of Default.............................................. 32
5.2 Remedies....................................................... 33
5.3 Right to Perform............................................... 35
5.4 Landlord's Default............................................. 35
SECTION 6: MISCELLANEOUS PROVISIONS.......................................... 35
6.1 Notices........................................................ 35
6.2 Attorney's Fees and Expenses................................... 36
6.3 No Accord and Satisfaction..................................... 36
6.4 Successors; Joint and Several Liability........................ 36
6.5 Choice of Law.................................................. 36
6.6 No Waiver of Remedies.......................................... 36
6.7 -Offer to Lease................................................ 37
6.8 Force Majeure.................................................. 37
6.9 Landlord's Consent............................................. 37
6.10 Severability; Captions........................................ 37
6.11 Interpretation................................................ 37
6.12 Incorporation of Prior Agreement; Amendments.................. 37
6.13 Authority..................................................... 38
6.14 Time of Essence............................................... 38
6.15 Survival of Obligations....................................... 38
6.16 Consent to Service............................................ 38
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
6.17 Landlord's Authorized Agents.................................. 38
6.18 Waiver of Jury Trial.......................................... 39
</TABLE>
LISTING OF EXHIBITS
- -------------------
Exhibit A Legal Description of the Land
Exhibit B Drawing Showing Location of the Premises
Exhibit C Tenant Improvements or Workletter, as applicable
Exhibit D Form of Memorandum of Commencement Date
Exhibit E Rules and Regulations
Exhibit F Description of Cleaning Services
Exhibit G Letter of Credit
Exhibit H Location of Parking Spaces
iii
<PAGE>
SECTION 1: DEFINITIONS
----------------------
1 - 1 Definitions. Each underlined term in this section shall have the
-----------
meaning set forth next to that underlined term. Capitalized terms that are used
in this Lease without definition but are defined in any of the Exhibits to this
Lease shall have the meanings ascribed to those terms in the applicable Exhibit.
1.2 Access Laws: The Americans With Disabilities Act of 1990 (including
-----------
the Americans with Disabilities Act Accessibility Guidelines for Building and
Facilities) and all other Governmental Requirements relating to the foregoing.
1.3 Additional Rent: Defined in paragraph 3.4 captioned "Additional Rent".
--------------- ----------------
1.4 Base Amount Allocable to the Premises: Defined in paragraph 3.4.5.
-------------------------------------
1.5 Base Rent: Base Rent shall be as follows:
---------
(a) February 1, 2000 through January 31, 2001; Sixty-One Thousand Two
Hundred Eighty-Six and 30/100 Dollars ($61,286.30) per month;
(b) February 1, 2001 through January 31, 2002; Sixty-Three Thousand
One Hundred Twenty-Four and 88/100 Dollars ($63,124.88) per month;
(c) February 1, 2002 through January 31, 2003; Sixty-Five Thousand
Eighteen and 63/100 Dollars ($65,018.63) per month;
(d) February 1, 2003 through January 31, 2004; Sixty-Six Thousand
Nine Hundred Sixty-Nine and 19/100 Dollars ($66,969.19) per month;
(e) February 1, 2004 through January 31, 2005; Sixty-Eight Thousand
Nine Hundred Seventy-Eight and 26/100 Dollars ($68,978.26) per month;
(f) February 1, 2005 through January 31, 2006; Seventy-One Thousand
Forty-Seven and 61/100 Dollars ($71,047.61) per month;
(g) February 1, 2006 through January 31, 2007; Seventy-Three Thousand
One Hundred Seventy-Nine and 04/100 Dollars ($73,179.04) per month;
(h) February 1, 2007 through January 31, 2008; Seventy-Five Thousand
Three Hundred Seventy-Four and 41/100 Dollars ($75,374.41) per month;
(i) February 1, 2008 through January 31, 2009; Seventy-Seven Thousand
Six Hundred Thirty-Five and 64/100 Dollars ($77,635.64) per month; and
(j) February 1, 2009 through January 31, 2010; Seventy-Nine Thousand
Nine Hundred Sixty-Four and 71/100 Dollars ($79,964.71) per month.
<PAGE>
1.6 Brokers: Tenant was represented in this transaction by The Grubb &
-------
Ellis Company, a licensed real estate broker. Landlord was represented in this
transaction by Insignia/ESG, Inc., a licensed real estate broker.
1.7 Building: The building located on the Land at 150 Field Drive, Lake
--------
Forest, Illinois 60045 commonly known as Two Conway Park and containing
approximately 119,997 rentable square feet.
1.8 Business Day: Calendar days, except for Saturdays and Sundays and the
------------
following holidays: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
1.9 Business Hours: From 7:00 a.m. to 6:00 p.m. on Monday through Friday
--------------
and from 9:00 a.m. to 1:00 p.m. on Saturday.
1.10 Claims: An individual and collective reference to any and all claims,
------
demands, damages, injuries, losses, liens, liabilities, penalties, fines,
lawsuits, actions, other proceedings and expenses (including attorneys' fees and
expenses incurred in connection with the proceeding whether at trial or on
appeal).
1.11 Commencement Date: The earlier to occur of: (a) March 1, 2000; or (b)
-----------------
the date on which Tenant occupies any portion of the Premises for conducting its
ordinary business therein (as distinguished from occupancy for purposes of
completing Tenant Improvements).
1.12 ERISA: The Employee Retirement Income Security Act of 1974, as now or
-----
hereafter amended, and the regulations promulgated under it.
1.13 Estimated Operating Costs Allocable to the Premises: Defined in
---------------------------------------------------
paragraph 3.4.5.
1.14 Events of Default: One or more of those events or states of facts
-----------------
defined in the paragraph captioned "Events of Default"
-----------------
1.15 Force Majeure: Any one or more of the following: act of God, strike,
-------------
lockout, labor trouble or dispute, inability to procure or shortage of material
or labor, failure of power or utility, delay in transportation, fire, vandalism,
accident, flood, severe weather, other casualty, Governmental Requirements
(including mandated changes in the Plans and Specifications or the Tenant
Improvements resulting from changes in pertinent Governmental Requirements or
interpretations thereof), riot, insurrection, civil commotion, sabotage,
explosion, war, natural or local emergency, act or omission of others, including
Tenant, or other reasons of a similar or dissimilar nature not solely the fault
of, or under the exclusive control of, Landlord.
1.16 Governmental Agency: The United States of America, the State in which
-------------------
the Land is located, any county, city, district, municipality or other
governmental subdivision, court or agency or quasi-governmental agency having
jurisdiction over the Land and any board, agency or authority
-2-
<PAGE>
associated with any such governmental entity, including the fire department
having jurisdiction over the Land.
1.17 Governmental Requirements: Any and all statutes, ordinances, codes,
-------------------------
laws, rules, regulations, orders and directives of any Governmental Agency as
now or later amended.
1.18 Hazardous Substance(s): Asbestos, PCBs, petroleum or petroleum-based
----------------------
chemicals or substances, urea formaldehyde or any chemical, material, element,
compound, solution, mixture, substance or other matter of any kind whatsoever
which is now or later defined, classified, listed, designated or regulated as
hazardous, toxic or radioactive by any Governmental Agency.
1.19 Land: The land upon which the Building is located in Lake County,
----
State of Illinois, as legally described in Exhibit A attached to this Lease.
---------
1.20 Landlord: The trust named on the first page of this Lease, or its
--------
successors and assigns as provided in paragraph captioned "Assignment by
-------------
Landlord".
- --------
1.21 Landlord's Agents: Any and all partners, officers, agents, employees,
-----------------
trustees, investment advisors and consultants of Landlord.
1.22 Lease Term: Commencing on the Commencement Date, and ending one
----------
hundred twenty (120) months later, provided that, if the Commencement Date is a
-------------
date other than the first day of a calendar month, the Lease Term shall be
extended by the number of calendar days remaining in the month in which the
Commencement Date occurs.
1.23 Manager: Insignia/ESG, Inc., or its replacement as specified by
-------
written notice from Landlord to Tenant.
1.24 Manager's Address: 311 South Wacker Drive, Chicago, Illinois 60606,
-----------------
which address may be changed by written notice from Landlord to Tenant.
1.25 012grating Costs: Defined in paragraph captioned "Additional Rent".
---------------- ---------------
1.26 Operating Costs Allocable to the Premises: Defined in paragraph 3.4.5.
-----------------------------------------
1.27 Permitted Use: General office uses consistent with Governmental
-------------
Requirements and first-class buildings of the same or similar use as the
Building located in the City of Lake Forest, Illinois.
1.28 Plans and Specifications: (a) Those certain plans and specifications
------------------------
for the Tenant Improvements as listed in Exhibit C and any modifications to them
---------
approved in writing by Landlord and Tenant; or (b) if Exhibit C does not include
---------
a listing of such plans and specifications, then such plans and specifications
shall be prepared in accordance with the Workletter attached hereto as Exhibit
C.
- -
-3-
<PAGE>
1.29 Prepaid Rent: None.
------------
1.30 Premises: The portion of the Building depicted on the plan attached to
--------
this Lease as Exhibit B which consists of approximately 41,318 rentable square
---------
feet. Tenant agrees that such square footage shall be the square footage of the
Premises for all purposes of this Lease, except as may be modified pursuant to
the expansion option granted herein.
1.31 Prime Rate: Defined in paragraph captioned "Default Rate".
----------- ------------
1.32 Property Taxes: (a) Any form of ad valorem real or personal property
--------------
tax or assessment imposed by any Governmental Agency on the Land, Building,
related improvements or any personal property owned by Landlord located on the
Land, Building or improvements; (b) any other form of tax or assessment, license
fee, license tax, tax or excise on rent or any other levy, charge, expense or
imposition made or required by any Governmental Agency on any interest of
Landlord in such Land, Building, related improvements or personal property; (c)
any fee for services charged by any Governmental Agency for any services such as
fire protection, street, sidewalk and road maintenance, refuse collection,
school systems or other services provided or formerly provided to property
owners and residents within the general area of the Land; (d) any governmental
impositions allocable to or measured by the area of any or all of such Land,
Building, related improvements or personal property or the amount of any base
rent, additional rent or other sums payable under any lease for any or all of
such Land, Building, related improvements or personal property, including any
tax on gross receipts or any excise tax or other charges levied by any
Governmental Agency with respect to the possession, leasing, operation,
maintenance, alteration, repair, use or occupancy of any or all of such Land,
Building, related improvements, personal property or the rent earned by any part
of or interest in such Land, Building, related improvements or personal
property; (e) any impositions by any Governmental Agency on any transaction
evidenced by a lease of any or all of such Land, Building, related improvements
or personal property or charge with respect to any document to which Landlord is
a party creating or transferring an interest or an estate in any or all of such
Land, Building, related improvements or personal property; and (f) any increase
in any of the foregoing based upon construction of improvements or change of
ownership of any or all of such Land, Building, related improvements or
personal property. Property Taxes shall not include taxes on Landlord's net
income or any inheritance, estate or gift taxes.
1.33 Punch List Work: Minor items of repair, correction, adjustment or
---------------
completion as such phrase is commonly understood in the construction industry in
the northern suburbs of Chicago.
1.34 Security Deposit: None.
----------------
1.35 Scheduled Commencement Date: March 1, 2000.
---------------------------
1.36 Intentionally Omitted.
---------------------
1.37 Tenant: The person or entity named on the first page of this Lease.
1.38 Tenant Alterations: Defined in paragraph captioned "Tenant
------------------- ------
Alterations".
- -----------
<PAGE>
1.39 Tenant Delay: Defined in paragraph captioned "Tenant Delay".
------------ ------------
1.40 Tenant Improvement Allowance: The maximum amount to be expended by
-----------------------------
Landlord, if any, for the cost of Tenant Improvements (including architectural,
engineering, permitting, space planning and construction management fees), which
maximum shall not exceed One Million Six Hundred Fifty-Two Thousand Seven
Hundred Twenty Dollars ($1,652,720.00).
1.41 Tenant Improvements: Those alterations or improvements to the Premises
--------------------
as appear and are depicted in the Plans and Specifications, or as are otherwise
set forth in Exhibit C.
---------
1.42 Tenant's Agents: Any and all officers, partners, contractors,
---------------
subcontractors, consultants, licensees, agents, concessionaires, subtenants,
servants, employees, customers, guests, invitees or visitors of Tenant.
1.43 Tenant's Pro Rata Share is Thirty-four and 4325/10,000 percent
-----------------------
(34.4325%).
1.44 Unused Allowance Portion: That portion of the Tenant Improvement
------------------------
Allowance, if any, that is not expended hereunder, up to but in no event in
excess of Two Hundred Six Thousand Five Hundred Ninety Dollars ($206,590.00).
1.45 Year: A calendar year commencing January I and ending December 31.
----
SECTION 2: PREMISES AND TERM
----------------------------
2.1 Lease of Premises. Landlord leases the Premises to Tenant, and Tenant
-----------------
leases the Premises from Landlord, upon the terms and conditions set forth in
this Lease.
2.2 Lease Term. The Lease Term shall be for the- period stated in the
----------
definition of that term, unless earlier terminated or extended as provided in
this Lease.
2.3 Plans and Specifications. The terms and provisions of Exhibit C shall
------------------------ ---------
apply to this Lease. Terms used in Exhibit C but not defined therein shall have
---------
the meaning given in this Lease.
2.4 Intentionally Omitted.
---------------------
2.5 Intentionally Omitted,
---------------------
2.6 Intentionally Omitted.
---------------------
2.7 Ownership and Removal of Tenant Improvements. All Tenant Improvements,
--------------------------------------------
regardless of which party constructed them, shall be the property of Landlord
and shall remain upon and be surrendered with the Premises upon the expiration
or earlier termination of this Lease; provided
--------
-5-
<PAGE>
that, at Landlord's election and upon written notice to Tenant within ten (10)
- ----
Business Days of Landlord's receipt of the Plans and Specifications, Tenant
shall be required to remove all or any portion of the Tenant Improvements upon
the expiration or earlier termination of this Lease. Said written notice to
Tenant shall specify which Tenant Improvements are required to be removed upon
the expiration or earlier termination of this Lease.
2.8 Tenant and Landlord Delays.
--------------------------
2.8.1 A "Tenant Delay" is (b) any delay in the construction of the
------------
Tenant Improvements caused by an act or omission of Tenant or any of Tenant's
Agents, (c) any delay caused in furnishing long lead time materials or
components required by Tenant, (d) any delay caused by revisions to the space
plans which may be included as part of the workletter attached as Exhibit C or
---------
Plans and Specifications which are requested by Tenant or Tenant's Agents, (e)
any delay caused by the performance or nonperformance of any work or activity by
Tenant or Tenant's Agents; (f) any delay caused by any other fault, omission or
delay by Tenant or Tenant's Agents; or (g) if subpart (b) of the definition of
Plans and Specifications is applicable, any one or more of the following: (1)
Tenant's failure to approve Tenant Construction Documents or Engineering
Documents within two (2) Business Days after receipt; (2) any delay caused by
Tenant's failure to approve the final budget within five (5) calendar days
following the initial submission thereof, or delays caused by any redesign of
the Tenant Improvements or rebidding thereof; or (3) any delay caused by
revisions to space plans, Tenant Construction Documents or Engineering Documents
requested by Tenant after their approval. Any Tenant Delay shall not affect the
Commencement Date.
2.8.2 A "Landlord Delay" is, (a) any delay by Landlord in the approval
--------------
or requested revision of construction documents delivered to Landlord by Tenant
or Tenant's Agents; provided that in each case Landlord shall have not less than
five (5) Business Days to approve or request revisions to such documents, (b)
any delay in the construction of the Tenant Improvements caused by a negligent
or intentionally wrongful act or omission of Landlord or any of Landlord's
Agents, or (c) any delay caused by revisions to space plans and documents
included as part of the workletter attached as Exhibit C which are requested by
---------
Landlord after Landlord's final approval.
2.9 Memorandum of Commencement Date. At Landlord's election and request,
-------------------------------
Tenant shall execute a Memorandum of Commencement Date in the form attached as
Exhibit D. In no event shall Tenant record this Lease or the Memorandum of
- ---------
Commencement Date.
2.10 Use and Conduct of Business. The Premises are to be used only for the
---------------------------
Permitted Uses, and for no other business or purpose without the prior consent
of Landlord. Landlord makes no representation or warranty as to the suitability
of the Premises for Tenant's intended use. Tenant shall, at its own cost and
expense, obtain and maintain any and all licenses, permits, and approvals
necessary or appropriate for its use, occupation and operation of the Premises.
Tenant's inability to obtain or maintain any such license, permit or approval
necessary or appropriate for its use, occupation or operation of the Premises
shall not relieve it of its obligations under this Lease, including the
obligation to pay Base Rent and Additional Rent. No act shall be done in or
about the Premises that is unlawful or that will increase the existing rate of
insurance on any or all of the Land or Building. Tenant shall not commit or
allow to be committed or exist: (a) any waste upon the Premises, (b) any public
or
-6-
<PAGE>
private nuisance, or (c) any act or condition which disturbs the quiet enjoyment
of any other tenant in the Building, creates or contributes to any work
stoppage, strike, picketing, labor disruption or dispute, interferes in any way
with the business of Landlord or any other tenant in the Building or with the
rights or privileges of any contractors, subcontractors, licensees, agents,
concessionaires, subtenants, servants, employees, customers, guests, invitees or
visitors or any other persons lawfully in and upon the Land or Building. Tenant
shall not, without the prior consent of Landlord, use any apparatus, machinery
or device in or about the Premises which will cause any substantial noise or
vibration or any increase in the normal consumption level of electric power. If
any of Tenant's machines and equipment should disturb the quiet enjoyment of any
other tenant in the Building, then Tenant shall provide, at its sole cost and
expense, adequate insulation or take other such action, including removing such
machines and equipment, as may be necessary to eliminate the disturbance.
2.11 Compliance with Governmental Requirements and Rules and Regulations.
-------------------------------------------------------------------
Tenant shall comply with all Governmental Requirements relating to its use,
occupancy and operation of the Premises and shall observe such reasonable rules
and regulations as may be adopted and published by Landlord from time to time
for the safety, care and cleanliness of the Premises, the Building and the Land,
and for the preservation of good order in the Building, including the Rules and
Regulations attached to this Lease as Exhibit E.
---------
2.12 Renewal Option. Provided an Event of Default has not occurred and is
not then continuing, Tenant shall have the right and option to renew this Lease
(the "Renewal Option") for one (1) sixty (60) month lease term (the "Renewal
Term") by providing Landlord written notice thereof (a "Renewal Option Exercise
Notice") not less than two hundred seventy (270) days' prior to the expiration
of the initial Lease Term (the "Renewal Option Exercise Date"). If Landlord does
not receive a Renewal Option Exercise Notice by the Renewal Option Exercise
Date, the Renewal Option shall expire and be null and void thereafter. If a
Renewal Option Exercise Notice is received by Landlord by the Renewal Option
Exercise Date, then Landlord shall within thirty (30) days reasonably and in
good faith determine what it believes to be the current market rental rate,
considering rental payments and other concessions given to tenants including,
but not limited to, free rent and improvement allowances (the "CMRR") for
comparable first ' class office buildings in Lake Forest, Illinois for renewal
tenants, and deliver written notice thereof (the "CMRR Notice") to Tenant within
said 30 day period. Within thirty (30) days of Tenant's receipt of the CMRR
Notice, Tenant shall, in a writing delivered to Landlord, either (i) elect to
exercise the Renewal Option (at a rental rate equal to CMRR), which election
shall be irrevocable by Tenant and binding upon Tenant and Landlord, or (ii)
elect not to exercise the Renewal Option, in which event Tenant's right to
exercise the Renewal Option shall be deemed to be null and void and of no
further force or effect. If Tenant elects to exercise the Renewal Option within
the time period set forth herein, the Base Rent shall be adjusted for the first
annual period of the Renewal Term to an amount which is equal to CMRR; and for
each succeeding annual period of the Renewal Term, the Base Rent shall be
adjusted to one hundred three percent (103%) of the immediately preceding annual
Base Rent amount. If Tenant neither elects to exercise its Renewal Option nor
elects not to exercise its Renewal Option, such inaction shall be deemed an
election to not exercise the Renewal Option.
2.13 Intentionally Omitted,
---------------------
-7-
<PAGE>
2.14 Antenna Rights". Tenant shall have the right, at no additional rent or
--------------
other cost imposed by Landlord, for the duration of the Lease Term only, to
install, maintain and operate telecommunications equipment, including without
limitation, a satellite dish/antenna (collectively, the "Antenna") on the
Building's roof (the "Roof"). The location for said Antenna shall be approved by
Landlord. Tenant must obtain the prior approval of Landlord of the exact design
and specifications of the Antenna and of the plans for the installation
(including screening) of the Antenna, which approval shall not be unreasonably
withheld or delayed. All costs of installation, maintenance and removal and any
required repairs to the Building due to such removal (if required by Landlord,
in its sole discretion), upon expiration or termination of this Lease shall be
paid by Tenant. Tenant may only enter upon the Roof to install or maintain the
Antenna with the accompaniment of a Building engineer. Tenant's Antenna may not
interfere with the operation of any other telecommunication equipment installed
on the Roof by Landlord or its licensees or any other tenant. The Antenna shall
be used solely by Tenant and Tenant shall not permit use of, or access to, the
Antenna by any third party, without Landlord's express prior written consent.
Tenant hereby indemnifies Landlord from all claims, damages, costs and expenses
arising out of the installation, maintenance, use or removal of the Antenna by
Tenant. Tenant may also use the Building's risers, conduits and towers, subject
to Landlord's prior approval of the installation and exact location thereof, for
purposes of installing cabling from the Antenna to the Premises in the interior
of the Building.
2.15 Storage Space. Tenant shall have the right to occupy, on an exclusive
-------------
basis and solely for the purpose of storage, that certain space comprising
approximately 830 square feet in the basement of the Building (the "Storage
Space") at $10.00 per square foot of Storage Space. The rent to be paid for the
Storage Space shall be added to Base Rent and shall be due as and when Base Rent
is due and payable. Tenant shall not be liable to pay any Additional Rent with
respect to its occupancy of the Storage Space. Tenant shall occupy the Storage
Space in its "as is" condition, with all faults and with all risks; provided,
however that Tenant shall not be required to make any repairs or improvements to
the Storage Space unless Tenant causes damage thereto and provided further that
Tenant shall maintain the Storage Space in a good condition and shall keep the
Storage Space free of any rubbish, debris and other waste materials. Landlord
makes no representation or warranty regarding the Storage Space whatsoever.
Tenant's right to occupy the Storage Space shall terminate automatically and
immediately upon (i) the expiration or earlier termination of this Lease, or
(iii) the occurrence of an Event of Default (which Event of Default is not cured
as provided herein) hereunder. Upon termination of Tenant's occupancy of the
Storage Space, Tenant shall immediately vacate the Storage Space in a broom
clean condition.
SECTION 3: BASE RENT. ADDITIONAL RENT AND OTHER SUMS PAYABLE UNDER
------------------------------------------------------------------
LEASE
- -----
3.1 Payment of Rental.
-----------------
3.1.1 Tenant agrees to pay Base Rent, Additional Rent and any other
sum due under this Lease to Landlord without demand, deduction, credit,
adjustment or offset of any kind or nature, in lawful money of the United States
when due under this Lease, at the offices of Manager at Manager's Address, or to
such other party or at such other place as Landlord may from time to time
designate in
<PAGE>
writing. If this Lease does not specify a due date with respect to any sum
payable by Tenant hereunder, such sum shall be due thirty (30) calendar days
after written demand for such payment is given to Tenant.
3.1.2 Provided an Event of Default has not occurred and is not then
continuing, Tenant shall be entitled to an abatement of Base Rent and Additional
Rent hereunder in an amount equal to twenty-four and 2025/10,000 percent
(24.2025%) of the each payment of Base Rent and Additional Rent due and payable
during the first twelve (12) full calendar months of this Lease (commencing with
the first full calendar month, as opposed to any partial month which may
commence the Term), which abatement may be deducted from such amounts as and
when due and payable to Landlord.
3.1.3 Provided an Event of Default has not occurred and is not then
continuing, Tenant shall receive a credit against Base Rent due and payable
hereunder in the amount of the Unused Allowance Amount, which such credit shall
be applied against Base Rent on a month by month basis, commencing upon the
Commencement Date, until applied in full.
3.2 Base Rent. Subject to Sections 3.1.2 and 3.1.3, Tenant agrees to pay
---------
Base Rent to Landlord without demand, in advance on or before the first day of
each calendar month of the Lease Term. Base Rent for any partial month at the
beginning or end of the Lease Term shall be prorated. On execution of this
Lease, Tenant has paid to Landlord the amount specified in the definition of
Prepaid Rent for the month specified in the definition of that term. Base Rent
for any partial month at the beginning of the Lease Term shall be paid by Tenant
on the Commencement Date. Rent for the Storage Space shall be added to and
incorporated as part of Base Rent hereunder, all subject to the provisions of
paragraph 2.15.
3.3 Security Deposit/Letter of Credit.
---------------------------------
3.3.1 As security for the full and faithful payment of all sums due
under this Lease and the full and faithful performance of every covenant and
condition of this Lease to be performed by Tenant, Tenant agrees to pay to
Landlord upon execution of this Lease the sum specified in the definition of the
term Security Deposit. If Tenant shall breach or default with respect to any
payment obligation or other covenant or condition of this Lease, Landlord may
apply all or any part of the Security Deposit to the payment of any sum in
default or any damage suffered by Landlord as a result of such breach or
default, and in such event, Tenant shall, upon demand by Landlord, deposit with
Landlord the amount so applied so that Landlord shall have the full Security
Deposit on hand at all times during the Lease Term. Landlord's use or
application of all or any portion of the Security Deposit shall not impair any
other rights or remedies provided under this Lease or under applicable law and
shall not be construed as a payment of liquidated damages. If Tenant shall have
fully complied with all of the covenants and conditions of this Lease, the
Security Deposit shall be repaid to Tenant, without interest, within ten (10)
calendar days after the expiration of this Lease. Tenant may not mortgage,
assign, transfer or encumber the Security Deposit and any such act on the part
of Tenant shall be without force or effect. In the event any bankruptcy,
insolvency, reorganization or other creditor-debtor proceedings shall be
instituted by or against Tenant, the Security Deposit shall be deemed to be
applied first to the payment of Base Rent, Additional Rent and all other sums
payable
-9-
<PAGE>
under this Lease to Landlord for all periods prior to the institution of such
proceedings and the balance, if any, may be retained by Landlord and applied
against Landlord's damages. If at any time or times the amount of the Base Rent
is increased during the Lease Term above that set forth in subpart (a) of the
definition of Base Rent, whether pursuant to the terms of this Lease or
otherwise, then the required Security Deposit amount shall be proportionately
increased; and Tenant shall pay to Landlord such additional Security Deposit
within ten (10) calendar days after the effective date of the increase in the
Base Rent.
3.3.2 As soon as practicable and in any event not less than ten Business
Days prior to commencement of the Tenant Improvements hereunder, Tenant shall
cause to be delivered to Landlord by SBC Communications, Inc., an irrevocable,
standby letter of credit (the "Letter of Credit") issued by Citibank N.A. (the
"Bank") for the benefit of Landlord in the amount of Seven Hundred Fifty
Thousand Dollars ($750,000). The Letter of Credit shall remain in effect for
five years, expiring on February 1, 2005; provided, however, that the amount of
the Letter of Credit shall be reduced as of each February I anniversary date,
commencing as of February 1, 2001, by an amount equal to One Hundred Fifty
Thousand Dollars ($150,000), such that the amount of the Letter of Credit shall
be reduced to $600,000 as of February 1, 2001, $450,000 as of February 1, 2002,
$300,000 as of February 1, 2003, $150,000 as of February 1, 2004, and expiring
on February 1, 2005. The Letter of Credit shall be in substantially the form of
Exhibit G attached to this Lease. With respect to the Letter of Credit, Landlord
and Tenant agree as follows:
(a) Upon the occurrence of a Draw Event (as defined herein) and
pursuant to subparagraph (b) of this paragraph 3.3.2, Landlord may apply for
payment (a "Draw") under the Letter of Credit by providing the Bank with a
certificate required under, and attached as part of, the Letter of Credit (the
"Draw Certificate"). A "Draw Event" shall mean and refer to (i) Tenant's failure
to satisfy its obligations as set forth in Exhibit C of this Lease (the Tenant
Work Letter), or (ii) the occurrence of an Event of Default (provided such Event
of Default is not cured by Tenant in accordance with the provisions regarding
cure, as the case may be, under this Lease).
(b) Landlord may Draw from the Letter of Credit, in accordance with
the terms and conditions thereof and hereof, an amount equal to the Loss (us
defined below). Upon presentation of a Draw Certificate and the Letter of
Credit, Bank shall pay to Landlord the amount of the Loss set forth in the Draw
Certificate in accordance with the terms of the Letter of Credit. Bank shall pay
Landlord the amount of the Loss as set forth in the Draw Certificate presented
to it, without any qualification, reservation, deduction, offset, and
notwithstanding any objection or claim by Tenant.
(c) For purposes of this Lease, if Landlord is entitled to Draw on
the Letter of Credit, then Landlord may Draw under the Letter of Credit an
amount (a "Loss") equal to all Claims of or against Landlord which are then
known to Landlord.
(d) Notwithstanding anything to the contrary contained herein,
Landlord shall not Draw upon the Letter of Credit unless it is entitled to
payment hereunder. If the actual Claims suffered by Landlord as a result of a
Draw Event exceed the amount of any Loss set forth in a Draw Certificate,
Landlord may Draw a further Loss amount in a subsequent Draw Certificate upon
presentation of the actual Claim to the Bank. If the amount of any Loss set
forth in a Draw Certificate exceeds the actual
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<PAGE>
Claims suffered by Landlord as a result of a Draw Event, then Landlord shall
return such excess to Tenant promptly upon Landlord's determination of such
excess. Landlord shall be entitled to Draw upon the Letter of Credit any number
of times as may be necessary depending upon the occurrence of subsequent Draw
Events and in order to cover any Loss suffered by Landlord. The Bank's honoring
of a Draw by Landlord shall not prejudice any rights and remedies which Landlord
may have against Tenant with respect to this Lease.
(e) Tenant shall be responsible for the payment of any and all
fees of the Bank in connection with the Letter of Credit. Tenant shall pay such
fees when due. In the event Tenant fails to make payment in a timely manner,
Landlord may pay such fees on Tenant's behalf and such payment by Landlord shall
constitute a Draw Event hereunder and may be included in a Draw by Landlord as a
Loss hereunder.
3.4 Additional Rent. Definitions of certain terms used in this paragraph
---------------
are set forth in subparagraph 3.4.5. Tenant agrees to pay to Landlord additional
rent as computed in this paragraph (individually and collectively the
"Additional Re"):
-------------
3.4.1 Rental Adjustment for Estimated Operating Costs. Landlord
-----------------------------------------------
shall furnish Tenant a written statement of Estimated Operating Costs Allocable
to the Premises for each Year and the amount payable monthly by Tenant for such
Costs shall be computed as follows: one-twelfth (1/12) of the amount, if any, by
which the Estimated Operating Costs Allocable to the Premises exceeds the Base
Amount Allocable to the Premises shall be Additional Rent and shall be paid
monthly by Tenant for each month during such Year after the Commencement Date.
If Landlord fails to deliver a written statement of the Estimated Operating
Costs for any Year, Tenant shall continue to make monthly payments on account of
the Estimated Operating Costs in an amount equal to the estimated monthly
payment amount established for the preceding Year. If any such written statement
is furnished after the commencement of the Year (or as to the first Year during
the Lease Term, after the Commencement Date), Tenant shall also make a
retroactive lump-sum payment to Landlord equal to the monthly payment amount
multiplied by the number of months during the Year (or as to the first Year
during the Lease Term, after the Commencement Date) prior to delivery of such
written statement, less any payments made by Tenant for Estimated Operating
Costs for such period.
3.4.2 Actual Costs. Within four (4) months after the close of
------------
each Year, Landlord shall deliver to Tenant a written statement setting forth
the Operating Costs Allocable to the Premises during the preceding Year. If such
Operating Costs Allocable to the Premises for any Year exceed the Estimated
Operating Costs Allocable to the Premises paid by Tenant to Landlord pursuant to
subparagraph 3.4.1 for such Year, Tenant shall pay the amount of such excess to
Landlord within thirty (30) calendar days after receipt of such statement by
Tenant. If such statement shows the Operating Costs Allocable to the Premises to
be less than the Estimated Operating Costs Allocable to the Premises paid by
Tenant to Landlord pursuant to subparagraph 3.4.1, then the amount of such
overpayment shall be paid by Landlord to Tenant within thirty (30) calendar days
following the date of such statement or, at Landlord's option, shall be credited
towards the installment(s) of Additional Rent next coming due from Tenant.
-11-
<PAGE>
3.4.3 Determination. The determination of Operating Costs Allocable
-------------
to the Premises shall be made by Landlord. Any sums payable under this Lease
pursuant to this paragraph shall be Additional Rent and, in the event of
nonpayment of such sums, Landlord shall have the same rights and remedies with
respect to such nonpayment as it has with respect to nonpayment of the Base Rent
due under this Lease. Tenant shall have the right to contest any determination
of Operating Costs Allocable to the Premises within forty-five (45) days after
delivery of Landlord's statement of same to Tenant. Landlord shall make its
books and records available to Tenant and/or Tenant's agent at Landlord's place
of business during Landlord's normal business hours. Notwithstanding the
foregoing in the event such contest indicates gross negligence or fraud on
Landlord's part, and the Tenant overpaid the excess operating costs by more than
5% of the actual Operating Costs Allocable to the Premises, Landlord shall
reimburse Tenant for the cost of Tenant's inspection of Landlord's books and
records. In any event, if a contest reveals that any excess amount was
incorrectly charged to Tenant, such excess amount shall be promptly refunded by
Landlord to Tenant.
3.4.4 End of Term. If this Lease shall terminate on a day other than
-----------
the last day of a Year, (a) Landlord shall estimate the Operating Costs
Allocable to the Premises for such Year predicated on the most recent reliable
information available to Landlord; (b) the amount determined under clause (a) of
this sentence shall be prorated by multiplying such amount by a fraction, the
numerator of which is the number of calendar days within the Lease Term in such
Year and the denominator of which is 365; (c) the Base Amount Allocable to the
Premises shall be prorated in the manner described in clause (b); (d) the clause
(c) amount (i.e., the prorated Base Amount Allocable to the Premises) shall be
deducted from the clause (b) amount (i.e., the prorated Operating Costs
Allocable to the Premises); (e) if the clause (d) amount exceeds the Estimated
Operating Costs Allocable to the Premises paid by Tenant for the last Year in
the Lease Term, then Tenant shall pay the excess to Landlord within thirty (30))
calendar days after Landlord's delivery to Tenant of a statement for such
excess; and (f) if the Estimated Operating Costs Allocable to the Premises paid
by Tenant for the last Year in the Lease Term exceeds the clause (d) amount,
then Landlord shall refund to Tenant the excess within the thirty (30) calendar
day period described in clause (e). Landlord's and Tenant's obligations under
this paragraph shall survive the expiration or other termination of this Lease.
3.4.5 Definitions. Each underlined term in this subparagraph shall
-----------
have the meaning set forth next to that underlined term:
Base Amount Allocable to the Premises: (Zero (0) if not filled in).
Estimated Operating Costs Allocable to the Premises: Landlord's
---------------------------------------------------
estimate of Operating Costs allocable to the Premises for a Year to be
given by Landlord to Tenant pursuant to subparagraph 3.4. 1.
Operating Costs: All expenses paid or incurred by Landlord for
---------------
maintaining, operating, owning and repairing any or all of the Land,
Building, related improvements, and the personal property used in
conjunction with such Land, Building and related improvements,
including all expenses paid or incurred by Landlord for: (a)
utilities, including electricity, water, gas, sewers, refuse
collection, telephone charges,
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<PAGE>
cable television or other electronic or microwave signal reception,
steam, heat, cooling or any other service which is now or in the
future considered a utility and which are not payable directly by
tenants in the Building; (b) supplies; (c) cleaning and janitorial
services (including window washing), landscaping and landscaping
maintenance (including irrigating, trimming, moving, fertilizing,
seeding and replacing plants), snow removal and other services; (d)
security services, if any; (e) insurance; (f) management fees; (g)
Property Taxes, tax consultant fees and expenses, and costs of appeals
of any Property Taxes; (h) services of independent contractors; (i)
compensation (including employment taxes and fringe benefits) of all
persons who perform duties in connection with any service, repair,
maintenance, replacement or improvement or other work included in this
subparagraph; 0) license, permit and inspection fees; (k) assessments
and special assessments imposed by the Conway Park Owners Association;
(1) rental of any machinery or equipment; (in) audit fees and
accounting services related to the Building, and charges for the
computation of the rents and charges payable by tenants in the
Building (but only to the extent the cost of such fees and services
are in addition to the cost of the management fee); (n) maintenance
and service contracts; (o) cost of maintenance, repairs and
replacements (of non-capital items); (p) roof repairs, resurfacing and
replacements (with such replacements being amortized over their useful
lives, pursuant to generally accepted accounting and management
principles, together with market interest on their unamortized
balances); (q) parking lot maintenance, repairs, resurfacing and
replacements (with such replacements being amortized over their useful
lives, pursuant to generally accepted accounting and management
principles, together with market interest on their unamortized
balances); (r) legal fees and other similar expenses to the extent
that they benefit the tenants or project generally; (s) costs incurred
by Landlord for compliance with Access Laws, as set forth in the
paragraph captioned "Access Laws"; (t) elevator service and repair, if
-----------
any; and (u) any other expense or charge which in accordance with
generally accepted accounting and management principles would be
considered an expense of maintaining, operating, owning or repairing
the Building. Operating Costs shall also include an amount necessary
to amortize the cost of improvements installed with reasonable
expectations of improving operating efficiency or to reduce or
maintain Operating Costs, the cost to replace carpeting, draperies and
wall coverings for the common areas of the Building and the cost of
all capital improvements required by governmental agencies; all
amortized over their useful lives together with market interest on
their unamortized balances.
Operating Costs shall not include any of the following: (a) costs,
including marketing costs, legal fees, space planners' fees, advertising
and promotional expenses, and brokerage fees incurred in connection with
the original construction or development, or original or future leasing of
the Building, and costs, including permit, license and inspection costs,
incurred with respect to the installation of tenant improvements made for
new tenants initially occupying space in the Building after the
Commencement Date or incurred in renovating or otherwise improving,
decorating, painting or redecorating vacant space for tenants or other
occupants of the Building (excluding, however, such costs relating to any
common areas of the Building or parking facilities); (b) depreciation,
interest and principal payments on mortgages and other debt costs,
-13-
<PAGE>
and penalties and interest with respect thereto, if any, (c) costs of
capital improvements, except for those capital improvement items which are
includable within Operating Costs in the immediately preceding paragraph;
(d) costs for which the Landlord is reimbursed by any tenant or occupant of
the Building or by insurance by its carrier or any tenant's carrier, and
electric power costs for which any tenant directly contracts with the local
public service company; (e) any bad debt loss, rent loss, or reserves for
bad debts or rent loss; (f) costs associated with the operation of the
business of the entity which constitutes the Landlord which are unrelated
to the Building or the Land; (g) costs of defending any lawsuits with any
mortgagee (except as the actions of the Tenant may be in issue); (h) costs
of selling, syndicating, financing, mortgaging or hypothecating any of the
Landlord's interest in the Building, (i) costs incurred in connection with
any disputes between Landlord and its employees, between Landlord and
Building management, or between Landlord and other tenants or occupants; 0)
Landlord's general corporate overhead and general and administrative
expenses, except that portion thereof which is attributable to the Building
and the Land, which is includable within Operating Costs in the immediately
preceding sentence; (k) the wages and benefits of any employee above the
level of Building manager; (1) except for a Building management fee to the
extent allowed pursuant to the immediately preceding sentence, overhead and
profit increment paid to the Landlord or to subsidiaries or affiliates of
the Landlord for services in the Building to the extent the same exceeds
the costs of such services rendered by qualified, first-class unaffiliated
third parties on a competitive basis; (in) costs of rented equipment used
at the Building to the extent that the cost to purchase the equipment, if
purchased, would constitute a capital improvement exclusive of capital
improvements includable within Operating Costs pursuant to the immediately
preceding paragraph; (n) costs, other than those incurred in ordinary
maintenance and repair, for sculpture, paintings, fountains or other
objects of art; (o) any costs expressly excluded from Operating Costs
elsewhere in this Lease; (p) costs arising from the gross negligence or
willful misconduct of Landlord or its agents, employees, vendors,
contractors, or providers of materials or services; (q) costs incurred to
remove, remedy, contain, or treat Hazardous Substances, which Hazardous
Substances are brought into the Building or onto the Building after the
date hereof by Landlord and is of such a nature, at that time, that a
Governmental Agency, if it had then had knowledge of the presence of such
Hazardous Substances, in the state, and under the conditions, that it then
exists in the Building or on the Building, would have then required the
removal of such Hazardous Substances or other remedial or containment
action with respect thereto; (r) costs arising from Landlord's charitable
or political contributions; (s) any gifts provided to any single entity,
including, but not limited to, Tenant, other tenants, employees, vendors,
contractors, prospective tenants and agents, except that Landlord may give
reasonable and customary gifts to groups of persons, taken as a whole (i.e.
all tenants, all employees, all agents) so long as such gifts are given to
all members of any such group, which gifts may be included within Operating
Costs pursuant to the immediately preceding sentence; and (t) the cost of
any magazine, newspaper, trade or other subscriptions.
If less than ninety-five percent (95%) of the net rentable area of the
Building is occupied by tenants at all times during any Year, then
Operating Costs for such Year shall include a reasonable estimate of
Operating Costs that would have been incurred had ninety-five percent (95
%) of the Building been occupied at all times during such Year by tenants,
but shall not include real estate taxes.
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<PAGE>
Operating Costs Allocable to the Premises: The product of
-----------------------------------------
Tenant's Pro Rata Share times Operating Costs.
3.5 Utilities.
----------
3.5.1 Landlord shall have the right from time to time to select
the company or companies providing local telephone and telecommunication
services to the Building (and Ameritech is the current local telephone service
provider at the Building). Tenant shall have the right from time to time to
select the company or companies providing local telephone and telecommunication
services to the Premises. Tenant shall contract directly and pay for all
telephone and other telecommunication services used on or from the Premises
together with any taxes, penalties, surcharges or similar charges relating to
such services. If Tenant desires to use the services of a provider of local
telephone or telecommunication services whose equipment is not then servicing
the Building, no such provider shall be permitted to install its lines or other
equipment within the Building without the prior written consent of Landlord.
3.5.2 Tenant shall, as part of the Tenant Improvements, at
Tenant's expense, install necessary electricity meter reading devices and
separately meter the Premises for the provision of electricity to the Premises
and may use the Landlord's electrical distribution system with respect to such
installation. Tenant may select the electric utility provider to provide
electricity to the Premises; provided, however, that Landlord reserves the right
to select, at any time and from time to time, the electric utility provider to
the Building (which such right shall take precedence over Tenant's right to
select the electric utility provider for the Premises in the event of a conflict
regarding same) and that the obligation of Landlord to make available
electricity or other utilities at the Building shall be subject to the rules and
regulations of the supplier of such utilities and of any municipal or other
governmental authority regulating the business of providing such utility
service. Tenant shall pay for electricity based on such meters directly. All
charges for electricity incurred by Landlord for electricity consumed at the
Premises shall be payable as Additional Rent, with the installment of Base Rent
with which they are billed, or if billed separately, shall be due and payable
within twenty (20) calendar days after such billing. Tenant shall not use any
electrical equipment which may overload the wiring installations or electrical
load capacity of the system or interfere with the use of electricity by Landlord
or other tenants of the Building. Tenant shall not at any time submeter the
Premises without Landlord's prior written consent. Notwithstanding anything
contained herein to the contrary, in any and all events, Tenant shall be
responsible to pay for all electricity consumed in the Premises during the Lease
Term. If at any time during the Term the Premises are not separately metered, or
the Tenant's electricity is not being provided by or through such separate
metering, whether temporarily, sporadically or permanently, Tenant shall pay for
electricity based on Landlord's reasonable estimate of Tenant's usage.
3.6 Holdover. If Landlord agrees in writing that Tenant may hold over
--------
after the expiration or termination of this Lease, and Landlord and Tenant do
not otherwise agree in writing on the terms of such holding over, then the hold
over tenancy shall be subject to termination by Landlord at any time upon not
less than five (5) days advance written notice, or by Tenant at any time upon
not less than thirty (30) days advance written notice, and all of the other
terms and provisions of this Lease shall be
-15-
<PAGE>
applicable during that period, except that Tenant shall pay Landlord from time
to time upon demand, as Base Rent for the period of any hold over, an amount
equal to 150% of the Base Rent in effect on the termination date, computed on a
daily basis for each day of the hold over period. Such payment shall not release
the Tenant from Tenant's obligation to pay Additional Rent and any other sums
due under this Lease. No holding over by Tenant, whether with or without consent
of Landlord, shall operate to extend this Lease except as otherwise expressly
agreed by Landlord in writing. The foregoing notwithstanding, if Landlord does
not agree in writing that Tenant may hold over after the expiration or
termination of this Lease, Tenant shall pay the daily Base Rent, Additional Rent
and other sums during the period of such holding over as set forth above, and
Landlord shall be entitled to pursue all remedies at law and in equity to which
Landlord is entitled, including, without limitation, rights to ejectment and
damages.
3.7 Late Charge. If Tenant fails to make any payment of Base Rent,
-----------
Additional Rent or other amount when due under this Lease more than one time in
a calendar year, Tenant shall also pay a late charge equal to five percent (5 %)
of the amount of any such payment. Landlord and Tenant agree that this charge
compensates Landlord for the administrative costs caused by the delinquency. The
parties agree that Landlord's damage would be difficult to compute and the
amount stated in this paragraph represents a reasonable estimate of such damage.
Assessment or payment of the late charge contemplated in this paragraph shall
not excuse or cure any Event of Default or breach by Tenant under this Lease or
impair any other right or remedy provided under this Lease or under law.
3.8 Default Rate. Any Base Rent, Additional Rent or other sum payable
------------
under this Lease which is not paid when due shall bear interest at a rate equal
to the lesser of: (a) the published prime rate of Riggs Bank, N.A. or such other
national banking institution designated by Landlord if such bank ceases to
publish a prime rate (the "Prime Rate"), then in effect, plus two (2) percentage
----------
point, or (b) the maximum rate of interest per annum permitted by applicable law
(the "Default Rate"), but the payment of such interest shall not excuse or cure
------------
any Event of Default or breach by Tenant under this Lease or impair any other
right or remedy provided under this Lease or under law.
SECTION 4: GENERAL PROVISIONS
-----------------------------
4.1 Maintenance and Repair by Landlord. Subject to the paragraphs
----------------------------------
captioned "Damage or Destruction" and "Condemnation", Landlord shall maintain
- ----------------- ------------
the public and common areas of the Building in reasonably good order and
condition, except for damage occasioned by the act or omission of Tenant or
Tenant's Agents which shall be paid for entirely by Tenant upon demand by
Landlord, and ordinary wear and tear. In the event any or all of the Building
becomes in need of maintenance or repair which Landlord is required to make
under this Lease, Tenant shall immediately give written notice to Landlord, and
Landlord shall not be obligated in any way to commence such maintenance or
repairs until a reasonable time elapses after Landlord's receipt of such notice,
unless such condition creates a dangerous or unsafe condition, in which case the
Landlord shall commence such maintenance or repairs immediately.
4.2 Maintenance and Repair by Tenant. Except as is expressly set forth as
--------------------------------
Landlord's responsibility pursuant to the paragraphs captioned "Maintenance and
----------------
Repair by Landlord" and
- ------------------
-16-
<PAGE>
"Building Services", Tenant shall at Tenant's sole cost and expense keep and
-----------------
maintain the Premises in good condition and repair. If Tenant fails to maintain
or repair the Premises in accordance with this paragraph, then Landlord may, but
shall not be required to, enter the Premises upon three (3) calendar days prior
written notice to Tenant (or immediately without any notice in the case of an
emergency) to perform such maintenance or repair at Tenant's sole cost and
expense. Tenant shall pay to Landlord the cost of such maintenance or repair
within thirty 30 calendar days after written demand from Landlord.
4.3 Common Areas/Security/Parking.
-----------------------------
4.3.1 The common areas of the Building shall be subject to
Landlord's sole management and control. Without limiting the generality of the
immediately preceding sentence, Landlord reserves the exclusive right as it
deems necessary or desirable to install, construct, remove, maintain and operate
lighting systems, facilities, improvements, equipment and signs on, in or to all
parts of the common areas; change the number, size, height, layout, or locations
of walks, driveways and truckways or parking areas now or later forming a part
of the Land or Building; make alterations or additions to the Building or common
area; close temporarily all or any portion of the common areas to make repairs,
changes or to avoid public dedication; grant easements to which the Land will be
subject, replat, subdivide, or make other changes to the Land; place, relocate
and operate utility lines through, over or under the Land and Building; and use
or permit the use of all or any portion of the roofs of the Building.
4.3.2 Landlord has no duty or obligation to provide any security
services in, on or around the Premises, Land or Building, and Tenant recognizes
that security services, if any, provided by Landlord will be for the sole
benefit of Landlord and the protection of Landlord's property and under no
circumstances shall Landlord be responsible for, and Tenant waives any rights
with respect to, Landlord providing security or other protection for Tenant or
Tenant's Agents or property in, on or about the Premises, Land or Building.
4.3.3 During the Lease Term, as may be extended, and provided
that an Event of Default has not occurred (which has not been cured) and is not
then continuing, Tenant shall be entitled to sixteen (16) underground reserved
parking spaces at the Building, two of which shall be located in reasonably
close proximity to the door leading to the elevator lobby area, as shown in
Exhibit H. Landlord shall maintain a 4.0/1,000 square foot ratio for outdoor
surface parking spaces at the Building and the Land; provided that Landlord
reserves the right to relocate parking areas and driveways and to build
additi6nal improvements in the common areas of the Building and the Land;
provided that the parking areas shall remain in reasonably close proximity to
the Building.
4.4 Building Services.
-----------------
4.4.1 Landlord shall use diligent efforts to provide the
following services and facilities to the Premises:
(a) Landlord shall provide heating, ventilating and air
conditioning during Business Hours, in temperature ranges at various times as
are customarily provided in first class office buildings
-17-
<PAGE>
located in the surrounding geographic area as the Building, and subject to such
regulations as the Department of Energy or other Governmental Agency shall adopt
from time to time. Tenant agrees to cooperate fully with Landlord and to abide
by all the rules and regulations which Landlord may reasonably prescribe for the
proper functioning and protection of the heating, ventilating and air
conditioning systems. If Tenant requires heating, ventilation and air
conditioning service at times other than Business Hours, Landlord shall use
diligent efforts to supply the same upon reasonable prior notice, to be paid for
by Tenant, within ten (10) calendar days of billing, at a rate to be determined
from time to time by Landlord, which rate shall equal Landlord's reasonably
estimated actual cost for such service, which the parties acknowledge is
currently estimated to equal $75.00 per hour.
(b) Cleaning and maintenance of common areas in the Building.
(c) Continuous passenger elevator service during Business Hours, and
service via at least one (1) elevator car at all other times (24 hours per day,
7 days per week).
(d) Janitorial services, including cleaning of the Premises, in
accordance with Exhibit F. Landlord shall not be required to furnish cleaning
---------
services to any kitchens, lunchrooms or non-Building standard lavatories in the
Premises.
(e) Water for lavatory and drinking purposes.
4.4.2 Tenant shall reimburse Landlord for any and all additional
cleaning expenses incurred by Landlord, including garbage and trash removal
expenses over and above the normal cleaning provided by Landlord or due to the
presence of a lunchroom or kitchen or food or beverage dispensing machines
within the Premises. No food or beverage dispensing machines shall be installed
by Tenant in the Premises without the prior written consent of Landlord.
4.4.3 The services described in this paragraph 4.4 may be subject to
slowdown, interruption or stoppage due to the order of any Governmental Agency,
Force Majeure, or the maintenance, repair, replacement or improvement of any of
the equipment involved in the furnishing of any such service. No such slowdown,
interruption or stoppage of any such service shall be construed as an eviction,
actual or constructive, of Tenant, nor shall same cause any abatement of Base
Rent or Additional Rent or relieve Tenant from any of its obligations under this
Lease. Landlord agrees to use reasonable efforts to resume the affected service
promptly following any such slowdown, interruption or stoppage. Landlord will
provide Tenant, whenever reasonably possible, advance notice of any scheduled
s6rvice slowdowns, interruptions or stoppages of which it has knowledge.
4.5 Tenant Alterations. After Tenant Improvements are completed and Tenant
------------------
has taken occupancy, Tenant shall not make any alterations, additions or
improvements in or to the Premises, or make changes to locks on doors, or add,
disturb or in any way change any floor covering, wall covering, fixtures,
plumbing or wiring (individually and collectively "Tenant Alterations"), without
------------------
first obtaining the consent of Landlord which may be withheld in Landlord's
discretion. Tenant shall deliver to Landlord full and complete plans and
specifications for any proposed Tenant Alterations and, if consent by Landlord
is given, all such work shall be performed at Tenant's expense by Landlord or by
Tenant. Tenant shall reimburse Landlord, upon receipt of demand therefor, for
all out-of-pocket
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<PAGE>
costs and expenses incurred by Landlord related to its review of Tenant's plans
and specifications (regardless of whether Landlord approves Tenant's request).
Without limiting the generality of the foregoing, Landlord may require Tenant,
at Tenant's sole cost and expense, to obtain and provide Landlord with proof of
insurance coverage, in forms, amounts and by companies acceptable to Landlord.
All Tenant Alterations to the Premises, regardless of which party constructed
them, shall become the property of Landlord and shall remain upon and be
surrendered with the Premises upon the expiration or earlier termination of this
Lease; provided that, at Landlord's election and upon notice to Tenant prior to
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commencing Tenant Alterations, Tenant shall be required to remove some or all of
the Tenant Alterations as designated in Landlord's notice to Tenant. If Tenant
fails to remove any such Tenant Alterations as required by Landlord's consent,
Landlord may do so and Tenant shall pay to Landlord the entire cost thereof plus
an administrative charge of fifteen percent (15%) within ten (10) calendar days
after Tenant's receipt of Landlord's written demand therefor. Nothing contained
in this paragraph or the paragraph captioned "Tenant's Work Performance" shall
-------------------------
be deemed a waiver of the provisions of the paragraph captioned "Mechanic's
----------
Liens". Notwithstanding anything contained above to the contrary, Tenant may
- -----
perform Tenant Alterations which do not exceed $10,000 in cost; provided that
such Tenant Alterations do not affect any structural elements or mechanical or
other operating systems of the Building or the Premises, and provided further
that Tenant shall give Landlord not less than ten (10) Business Days prior
written notice of the contemplated Tenant Alterations, providing reasonable
detail and copies of the plans thereof.
4.6 Tenant's Work Performance. Tenant shall perform Tenant Alterations
-------------------------
using contractors employed by Tenant under one or more construction contracts,
in form and content approved in advance in writing by Landlord (which approval
shall be subject to Landlord's reasonable discretion and may include a
requirement that the prime contractor and the respective subcontractors: (a) be
parties to, and bound by, a collective bargaining agreement with a labor
organization affiliated with the Building and Construction Trades Council of the
AFL-CIO and (b) employ only members of such labor organizations to perform work
within their respective jurisdictions). Tenant's contractors, workers and
suppliers shall work in harmony with and not interfere with workers or
contractors of Landlord or other tenants of Landlord. If Tenant's contractors,
workers or suppliers do, in the opinion of Landlord, cause such disharmony or
interference, Landlord's consent to the continuation of such work may be
withdrawn upon written notice to Tenant. All Tenant Alterations shall be (1)
completed in accordance with the plans and specifications approved by Landlord;
(2) completed in accordance with all Governmental Requirements; (3) carried out
promptly in a good and workmanlike manner; (4) of all new materials; (5) free of
defect in materials and workmanship; and (6) inspected for quality control
(punchlisted) by Landlord's construction manager. Any and all portions of the
Tenant Alterations not meeting Landlord's quality and building standards shall
be corrected by Tenant, at Tenant's expense, within thirty (30) days after
notification of such defects by Landlord. If Tenant fails to bring the work in
question up to the required standards within such 30 day period, Landlord may
complete such work (but shall have no obligation to do so) and Tenant shall pay
the entire cost thereof to Landlord within ten (10) calendar days after Tenant's
receipt of Landlord's written demand therefor. Upon completion of the Tenant
Alterations and upon presentation of an invoice from Landlord, Tenant shall pay
Landlord an amount equal to Landlord's actual costs and expenses incurred in
coordinating, supervising and inspecting the Tenant Alterations. Tenant shall
pay for all damage to the Premises, Building and Land caused by Tenant or
Tenant's Agents. Tenant shall indemnify, defend and hold
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harmless Landlord and Landlord's Agents from any Claims arising as a result of
any defect in design, material or workmanship of any Tenant Alterations.
4.7 Surrender of Possession. Subject to the last subparagraph of the
-----------------------
paragraph captioned "Insurance", Tenant shall, at the expiration or earlier
---------
termination of this Lease, surrender and deliver the Premises to Landlord in as
good condition as when received by Tenant from Landlord or as later improved,
reasonable use and wear excepted. Tenant shall give written notice to Landlord
at least twenty (20) calendar days prior to vacating the Premises and shall
arrange to meet with Landlord for a joint inspection of the Premises prior to
vacating.
4.8 Removal of Property. Upon expiration or earlier termination of this
-------------------
Lease, Tenant may remove its trade fixtures, office supplies and office
furniture and equipment if (a) such items are readily moveable and are not
attached to the Premises; (b) such removal is completed prior to the expiration
or earlier termination of this Lease; (c) Tenant is not in default of any
covenant or condition of this Lease at the time of such removal; and (d) Tenant
immediately repairs all damage caused by or resulting from such removal; and
Tenant shall immediately remove all such property if requested to do so by
Landlord. All other property in the Premises and any Tenant Alterations
(including, wall-to-wall carpeting, paneling, wall covering or lighting fixtures
and apparatus) or any other article affixed to the floor, walls, ceiling or any
other part of the Premises or Building, shall become the property of Landlord
and shall remain upon and be surrendered with the Premises, except as may be
otherwise provided in the paragraph captioned "Tenant Alterations" or the
------------------
paragraph captioned "Tenant's Contribution to Tenant Improvement Costs". Tenant
-------------------------------------------------
waives all rights to any payment or compensation for such property. If, at the
expiration or earlier termination of this Lease or at such time as Landlord
exercises its right of re-entry, Tenant has failed to remove any property from
the Premises, Building or Land which it is entitled or required to remove as
provided in this Lease, Landlord may, at its option, remove and store such
property without liability for loss of or damage to such property, such storage
to be for the account and at the expense of Tenant. If Tenant fails to pay the
cost of storing any such property, Landlord may, at its option, sell or permit
to be sold, any or all such property at public or private sale (and Landlord may
become a purchaser at such sale), in such manner and at such times and places as
Landlord in its sole discretion may deem proper, without notice to Tenant, and
Landlord shall apply the proceeds of such sale: first to the cost and expense of
such sale, including reasonable attorney's fees actually incurred; second to the
------
payment of the costs or charges for storing any such property; third, to the
payment of any other sums of money which may then be or later become due
Landlord from Tenant under this Lease; and, fourth the balance, if any, to
Tenant.
4.9 Access. Upon reasonable prior notice to Tenant, Tenant shall permit
------
Landlord and Landlord's Agents to enter into the Premises at any reasonable time
for the purpose of inspecting the same or for the purpose of repairing, altering
or improving the Premises or the Building. Nothing contained in this paragraph
shall be deemed to impose any obligation upon Landlord not expressly stated
elsewhere in this Lease. When reasonably necessary, Landlord may temporarily
close Building or Land entrances, Building doors or other facilities, without
liability to Tenant by reason of such closure and without such action by
Landlord being construed as an eviction of Tenant or as relieving Tenant from
the duty of observing or performing any of the provisions of this Lease.
Notwithstanding anything contained in the immediately preceding sentence to the
contrary, if, as a result of the negligence of Landlord or Landlord's Agents,
Tenant is unable to access the Premises for a period in excess of two
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(2) consecutive full calendar days after notice to Landlord by Tenant, all
regularly payable Base Rent required under this Lease shall abate from the third
consecutive day that the Premises is inaccessible until the date Tenant once
again is able to access the Premises. Upon reasonable prior notice to Tenant
Landlord shall have the right to enter the Premises for the purpose of showing
the Premises to prospective tenants within the period of two hundred seventy
(270) calendar days prior to the expiration or sooner termination of this Lease
and to erect on the Premises a suitable sign indicating the Premises are
available. Landlord shall not be liable for the consequences of admitting by
passkey, or refusing to admit to the Premises, Tenant or any of Tenant's Agents,
or other persons claiming the right of admittance.
4.10 Damage or Destruction.
----------------------
4.10.1 If the Premises are damaged by fire, earthquake or other
casualty, Tenant shall give immediate written notice thereof to Landlord. If
Landlord estimates that the damage can be repaired within two-hundred-seventy
(270) calendar days after Landlord is notified by Tenant of such damage and if
there are sufficient insurance proceeds available to repair such damage, then
Landlord shall proceed with reasonable diligence to restore the Premises to
substantially the condition which existed prior to the damage and this Lease
shall not terminate. If, in Landlord's estimation, the damage cannot be repaired
within such 270 day period or if there are insufficient insurance proceeds
available to repair such damage, Landlord may elect in its absolute discretion
to either: (a) terminate this Lease or (b) restore the Premises to substantially
the condition which existed prior to the damage and this Lease will continue. If
Landlord restores the Premises under this paragraph, then (1) the Lease Term
shall be extended for the time required to complete such restoration, (2) Tenant
shall pay to Landlord, upon demand, Tenant's Pro Rata Share of any applicable
deductible amount specified under Landlord's insurance and (3) Landlord shall
not be required to repair or restore any or all furniture, fixtures, equipment,
inventory, improvements or other property which was in or about the Premises at
the time of the damage, Tenant Alterations or Tenant Improvements which are in
excess of the building standard Tenant Improvements. Base Rent, Additional Rent
and any other sum due under this Lease during any reconstruction period shall be
abated on an equitable basis in proportion to the extent of the damage or
destruction, commencing on the date of such damage or destruction and continuing
until the Premises is once again made tenantable. Tenant agrees to look to the
provider of Tenant's insurance for coverage for the loss of Tenant's use of the
Premises and any other related losses or damages incurred by Tenant during any
reconstruction period.
4.10.2 If the Building is damaged by fire, earthquake or other
casualty and more than fifty percent (50%) of the Building is rendered
untenantable, without regard to whether the Premises are affected by such
damage, Landlord may in its absolute discretion and without limiting any other
options available to Landlord under this Lease or otherwise, elect to terminate
this Lease by notice in writing to Tenant within sixty (60) calendar days after
the occurrence of such damage. Such notice shall be effective thirty (30)
calendar days after receipt by Tenant unless a later date is set forth in
Landlord's notice.
4.10.3 Notwithstanding anything contained in this Lease to the
contrary, if there is damage to the Premises, or Building and the holder of any
indebtedness secured by a mortgage or deed of trust covering any such property
requires that the insurance proceeds be applied to such
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indebtedness, then Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within fifteen (15) calendar
days after such requirement is made by such holder.
4.11 Condemnation. If all of the Premises, or such portions of the
-------------
Building as may be required for the Tenant's reasonable use of the Premises, are
taken by eminent domain or by conveyance in lieu thereof, this Lease shall
automatically terminate as of the date the physical taking occurs, and all Base
Rent, Additional Rent and other sums payable under this Lease shall be paid to
that date. In case of taking of a part of the Premises or a portion of the
Building not required for the Tenant's reasonable use of the Premises, then this
Lease shall continue in full force and effect and the Base Rent shall be
equitably reduced based on the proportion by which the floor area of the
Premises is reduced, such reduction in Base Rent to be effective as of the date
the physical taking occurs. Additional Rent and all other sums payable under
this Lease shall not be abated but Tenant's Pro Rata Share shall be redetermined
as equitable under the circumstances. Landlord reserves all rights to damages or
awards for any taking by eminent domain relating to the Premises, Building, Land
and the unexpired term of this Lease. Tenant assigns to Landlord any right
Tenant may have to such damages or award and Tenant shall make no claim against
Landlord for damages for termination of its leasehold interest or interference
with Tenant's business. Tenant shall have the right, however, to claim and
recover from the condemning authority compensation for any loss to which Tenant
may be entitled for Tenant's moving expenses or other relocation costs; provided
--------
that, such expenses or costs may be claimed only if they are awarded separately
- ----
in the eminent domain proceedings and not as a part of the damages recoverable
by Landlord.
4.12 Intentionally Omitted.
---------------------
4.13 Indemnification. Tenant shall indemnify, defend and hold harmless
---------------
Landlord and Landlord's Agents from and against any and all Claims, arising in
whole or in part out of (a) the possession, use or occupancy of the Premises or
the business conducted in the Premises, (b) any act, omission or negligence of
Tenant or Tenant's Agents, or (c) any breach or default under this Lease by
Tenant. Neither Landlord nor Landlord's Agents shall, to the extent permitted by
law, have any liability to Tenant, or to Tenant's Agents, for any Claims arising
out of any cause whatsoever, including repair to any portion of the Premises;
interruption in the use of the Premises or any equipment therein; any accident
or damage resulting from any use or operation by Landlord, Tenant or any person
or entity of heating, cooling, electrical, sewerage or plumbing equipment or
apparatus; termination of this Lease by reason of damage to the Premises or
Building; fire, robbery, theft, vandalism, mysterious disappearance or any other
casualty; actions of any other tenant of the Building or of any other person or
entity; inability to furnish any service required of Landlord as specified in
this Lease; or leakage in any part of the Premises or the Building from rain,
ice or snow, or from drains, pipes or plumbing fixtures in the Premises or the
Building; except for Claims arising solely out of the gross negligence or
willful misconduct of Landlord in failing to repair or maintain the Building as
required by this Lease after notice by Tenant as required by the paragraph
captioned "Maintenance and Repair by Landlord"; provided that, in no event
---------------------------------- -------------
shall Landlord be responsible for any interruption to Tenant's business or for
any indirect or consequential losses suffered by Tenant or Tenant's Agents. The
obligations of this paragraph shall be subject to the paragraph captioned
"Waiver of Subrogation". Except to the extent arising out of the intentional or
---------------------
negligent acts of Tenant, Tenant's Agents or employees, Landlord shall indemnify
and hold harmless Tenant and Tenant's Agents from and against
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<PAGE>
any and all Claims arising out of the negligence or willful misconduct of
Landlord, Landlord's Agents or employees.
4.14 Tenant Insurance.
----------------
4.14.1 Tenant shall, throughout the Lease Term, at its own expense,
keep and maintain in full force and effect:
(a) A policy of commercial general liability insurance, including a
contractual liability endorsement covering Tenant's obligations under the
paragraph captioned "Indemnification", insuring against claims of bodily injury
---------------
and death or property damage or loss with a combined single limit at the
Commencement Date of this Lease of not less than Two Million Dollars
($2,000,000.00), which limit shall be reasonably increased during the Lease Term
at Landlord's request to reflect both increases in liability exposure arising
from inflation as well as from changing use of the Premises or changing legal
liability standards, which policy shall be payable on an "occurrence" rather
than a "claims made" basis, and which policy names Landlord and Manager and, at
Landlord's request Landlord's mortgage lender(s) or investment advisors, as
additional insureds;
(b) A policy of extended property insurance (which is commonly called
"all risk") covering overstandard Tenant Improvements, Tenant Alterations, and
any and all furniture, fixtures, equipment, inventory, improvements and other
property in or about the Premises which is not owned by Landlord, for one
hundred percent (100%) of the then current replacement value of such property;
and
(c) Business interruption insurance in an amount sufficient to cover
costs, damages, lost income, expenses, Base Rent, Additional Rent and all other
sums payable under this Lease, should any or all of the Premises not be usable
for a period of up to nine (9) months.
4.14.2 All insurance policies required under this paragraph shall be
with companies having a Best's rating of A-VIII or better, and each policy shall
provide that it is not subject to cancellation or reduction in coverage except
after thirty (30) calendar days' written notice to Landlord. Tenant shall
deliver to Landlord and, at Landlord's request Landlord's mortgage lender(s),
prior to the Commencement Date and from time to time thereafter, certificates
evidencing the existence and amounts of all such policies.
4.14.3 If Tenant fails to acquire or maintain any insurance or
provide any certificate required by, this paragraph, Landlord may, but shall not
be required to, obtain such insurance or certificates and the costs associated
with obtaining such insurance or certificates shall be payable by Tenant to
Landlord on demand.
4.15 Landlord's Insurance. Landlord shall, throughout the Lease Term, keep
--------------------
and maintain in full force and effect:
4.15.1 A policy of commercial general liability insurance, insuring
against claims of bodily injury and death or property damage or loss with a
combined single limit at the Commencement Date of not less than Five Million
Dollars ($5,000,000.00), which policy shall be payable on an "occurrence" rather
than a "claims made" basis; and
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<PAGE>
4.15.2 A policy of extended property insurance (what is commonly
called "all risk") covering the Building, building standard Tenant Improvements
and Landlord's personal property, if any, located on the Land in the amount of
one hundred percent (100%) of the then current replacement value of such
property.
Landlord may, but shall not be required to, maintain property
insurance coverage for earthquakes, floods and such other perils in such amounts
as Landlord deems appropriate. Such policies may be "blanket" policies which
cover other properties owned by Landlord and shall be with an insurance company
having a Best rating of A-VIII or better. The cost of all insurance policies
maintained by Landlord relating to the Land, Building or Premises or the income
therefrom shall be Operating Costs. To the extent that any payment on an
insurance claim under any Landlord's policy is reduced by a deductible, such
deductible shall be an Operating Cost.
4.16 Waiver of Subrogation. Notwithstanding anything in this Lease to the
---------------------
contrary, Landlord and Tenant hereby each waive and release the other from any
and all Claims or any loss or damage that may occur to the Land, Building,
Premises, or personal property located therein, by reason of fire or other
casualty regardless of cause or origin, including the negligence or misconduct
of Landlord, Tenant, Landlord's Agents or Tenant's Agents, but only to the
extent of the insurance proceeds paid to such releaser under its policies of
insurance or if it fails to maintain the required policies, the insurance
proceeds that would have been paid to such releaser if it had maintained such
policies. Each party to this Lease shall promptly give to its insurance company
written notice of the mutual waivers contained in this subparagraph, and shall
cause its insurance policies to be properly endorsed, if necessary, to prevent
the invalidation of any insurance coverages by reason of the mutual waivers
contained in this subparagraph.
4.17 Assignment and Subletting by Tenant.
-----------------------------------
4.17.1 Tenant shall not have the right to assign, transfer, mortgage
or encumber this Lease in whole or in part, nor sublet the whole or any part of
the Premises, nor allow the occupancy of all or any part of the Premises by
another, without first obtaining Landlord's consent; except that Tenant shall
have the right to grant to The VenCom Group, Inc. a license to occupy and use a
portion (but not in excess of 12,000 square feet) of the Premises during the
Term of this Lease, in accordance with all of the terms and provisions of this
Lease. Notwithstanding any permitted assignment or subletting, Tenant shall at
all times remain directly, primarily and fully responsible and liable for the
payment of all sums payable under this Lease and for compliance with all of its
other obligations as tenant under this Lease. Upon the occurrence of an Event of
Default, if the Premises or any part of the Premises are then subject to an
assignment or subletting, Landlord, in addition to any other remedies provided
in this Lease or by law, may at its option collect directly from such assignee
or subtenant all rents becoming due to Tenant under such assignment or sublease
and apply such rents against any sums due to Landlord from Tenant under this
Lease, and no such collection shall be construed to constitute a novation or
release of Tenant from the further performance of Tenant's obligations under
this Lease. Tenant makes an absolute assignment to Landlord of such assignments
and subleases and any rent, security deposits and other sums payable under such
assignments and subleases as collateral to secure the performance of the
obligations of Tenant under this Lease. Tenant shall cause The VenCom Group,
Inc. to comply with all of the terms and provisions of this Lease applicable to
Tenant. Upon any Event of Default hereunder, or upon the termination of the The
VenCom Group, Inc.'s affiliation with Tenant, the license granted by Tenant to
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The VenCom Group, Inc. and Tenant's right to grant said license shall
automatically terminate, without any notice or action of or by Landlord, and The
VenCom Group Inc.'s occupancy and use of the Premises shall immediately cease.
Notwithstanding anything contained in this Section 4.17 to the contrary, in the
event Tenant and The VenCom Group, Inc. terminate their affiliation, Tenant may,
upon not less than twenty (20) days' prior written notice to Landlord, sublease
a portion (but not in excess of 12,000 square feet) of the Premises to The
VenCom Group, Inc. Tenant's written notice to Landlord shall provide (i) written
documentation or reasonably detailed information pertaining to the termination
of affiliation, (ii) financial and other substantive information pertaining to
The VenCom Group, Inc. subsequent to termination of affiliation, and (iii) a
copy of a written sublease agreement which conforms to the terms and provisions
of this Lease, including an express agreement by The VenCom Group, Inc. to
comply with each and every term and provision of this Lease. Based upon
compliance with the foregoing, Landlord hereby acknowledges its acceptance of
and consent to The VenCom Group, Inc. as a subtenant hereunder pursuant to the
terms hereof.
4.17.2 In the event Tenant desires to assign this Lease or to sublet
all or any portion of the Premises, Tenant shall give written notice of such
desire to Landlord setting forth the name of the proposed subtenant or assignee,
the proposed term, the proposed commencement date of the assignment or sublease,
the nature of the proposed subtenant's or assignee's business to be conducted on
the Premises, the rental rate, and any other particulars of the proposed
subletting or assignment that Landlord may reasonably request. Without limiting
the preceding sentence, Tenant shall also provide Landlord with: (a) such
financial information as Landlord may reasonably request concerning the proposed
subtenant or assignee, including recent financial statements certified as
accurate, complete and prepared in conformance with generally accepted
accounting principles by the president, managing partner or other appropriate
officer of the proposed subtenant or assignee; (b) proof satisfactory to
Landlord that the proposed subtenant or assignee will immediately occupy and
thereafter use the entire Premises (or any sublet portion of the Premises) for
the remainder of the Lease Term (or for the entire term of the sublease, if
shorter) in compliance with the terms of this Lease; and (c) a copy of the
proposed sublease or assignment or letter of intent.
4.17.3 In determining whether to grant or withhold consent to a
proposed assignment or sublease, Landlord may reasonably consider, and weigh,
any- commercial factors relevant in leasing the Premises. Without limiting what
may be construed as a factor considered by Landlord in good faith, Tenant agrees
that any one or more of the following will be proper grounds for Landlord's
disapproval of a proposed assignment or sublease:
(a) The proposed assignee or subtenant does not, in Landlord's good
faith judgment, have financial worth or creditworthiness equal to or greater
than that of Tenant as of the execution date of this Lease or sufficient
financial worth to insure the full and timely performance under this Lease;
(b) Landlord has documented evidence that the proposed assignee or
subtenant has been involved in lawsuits, claims and similar disputes which call
into question its fulfillment of its contractual obligations, or otherwise as a
tenant of real property;
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<PAGE>
(c) Landlord has received from any prior lessor of the proposed
assignee or subtenant a negative report concerning such prior lessor's
experience with the proposed assignee or subtenant;
(d) Landlord has had prior negative leasing experience with the
proposed assignee The use of the Premises by the proposed assignee or
subtenant is not a general
(f) In Landlord's judgment, the proposed assignee or subtenant is
engaged in a business, or the Premises or any part of the Premises will be used
in a manner, that is not in keeping with the then standards of the Building, or
that is not compatible with the businesses of other tenants in the Building, or
that is inappropriate for the Building, or that will violate any negative
covenant as to use contained in any other lease of space in the Building;
(g) The use of the Premises by the proposed assignee or subtenant
will violate any Governmental Requirement or create a violation of Access Laws;
(h) Tenant is in default of any obligation of Tenant under this
Lease;
(i) Landlord does not approve of any of the tenant improvements
required for the proposed assignee or subtenant; or
(j) The proposed assignee or subtenant is a current tenant or a
subtenant of the Building, or Landlord has had contact with the proposed
assignee or subtenant in the six (6) months preceding Tenant's request,
regarding the leasing of space by such proposed assignee or subtenant in the
Building or any other buildings owned by Landlord in the metropolitan area in
which the Land is located.
4.17.4 Within twenty (20) calendar days after Landlord's receipt of
all required information to be supplied by Tenant pursuant to this paragraph,
Landlord shall notify Tenant of Landlord's approval, disapproval or conditional
approval of any proposed assignment or subletting, or of Landlord's election to
recapture the space as provided in subparagraph 4.17.7. Landlord shall notify
Tenant if additional information is requires for it to render a decision
pursuant to this Section. Landlord shall have no obligation to respond unless
and until all required information has been submitted. In the event Landlord
approves of any proposed assignment or subletting, Tenant and the proposed
assignee or sublessee shall execute and deliver to Landlord an assignment (or
subletting) and assumption agreement in form and content satisfactory to
Landlord.
4.17.5 Any transfer, assignment or hypothecation of any of the stock
or interest in, or the assets of, Tenant which is either: (a) greater than fifty
percent (50%) of such stock, interest or assets or (b) intended as a subterfuge
denying Landlord the benefits of this paragraph, shall be deemed to be an
assignment within the meaning and provisions of this paragraph and shall be
subject to the provisions of this paragraph.
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4.17.6 If Landlord consents to any assignment or sublease and Tenant
receives rent or any other consideration, either initially or over the term of
the assignment or sublease, in excess of the Base Rent and Additional Rent (or,
in the case of a sublease of a portion of the Premises, in excess of the Base
Rent paid by Tenant on a square footage basis under this Lease), Tenant shall
pay to Landlord fifty percent (50%) of such excess, after deducting Tenant's
out-of-pocket expenses incurred in obtaining such sublease or assignment.
4.17.7 If Tenant delivers a notice to Landlord requesting approval of
a proposed assignment or sublease, then Landlord may elect to terminate this
Lease as of the date set forth in that notice for the proposed commencement date
of the assignment or the sublease; provided that, if no date is set forth in
-------------
Tenant's notice, then Landlord may elect to terminate this Lease as of a date at
least sixty (60) calendar days after the date of the notice. Landlord shall
exercise its rights under this subparagraph by written notice to Tenant no later
than twenty (20) calendar days after its receipt of the last of the materials
delivered by Tenant to Landlord under this paragraph 4.17.
4.17.8 Notwithstanding anything to the contrary contained
hereinabove, Tenant may, without obtaining Landlord's prior written consent,
assign or sublease all or any portion of the Premises to the following parties
on the following conditions: (i) any subsidiary or affiliate in which Tenant
has, directly or indirectly, a voting, equity ownership interest of more than
50%; (ii) any direct or ultimate parent of Tenant; (iii) any subsidiary or
affiliate in which Tenant's parent owns, directly or indirectly, a voting equity
ownership interest of more than 50%; or (iv) any corporation into which Tenant
may be merged or consolidated or which purchases all or substantially all of the
assets of Tenant provided that the resulting corporation has a net worth at
least equal to Tenant's net worth as of the date hereof. A sale or transfer of
stock in Tenant pursuant to a public offering, including publicly traded stock
of Tenant shall be permitted without obtaining Landlord's prior written consent.
As soon as practical prior to the effective date of the transactions permitted
under this Section 4.17.8, Tenant will provide Landlord with documentation
evidencing such transaction in such other evidence as Landlord may reasonably
require to establish that such transaction falls within the terms and provisions
of this Section. Nothing contained herein, despite the consummation thereof,
shall be deemed to imply or constitute a release of Tenant from the obligations
of this Lease. Nothing contained in this Section 4.17 shall be deemed to imply
or constitute Landlord's approval of or consent to any subsequent sublease or
assignment, whether made by a previously approved subtenant or assignee for the
same space, or made by Tenant with respect to the same or different space, or
otherwise.
4.18 Assignment by Landlord. Landlord shall have the right to transfer and
----------------------
assign, in whole or in part, its rights and obligations under this Lease and in
any and all of the Land or Building. If Landlord sells or transfers any or all
of the Building, including the Premises, Landlord and Landlord's Agents shall,
upon consummation of such sale or transfer, be released automatically from any
liability relating to obligations or covenants under this Lease to be performed
or observed after the date of such transfer, and in such event, Tenant agrees to
look solely to Landlord's successor-in-interest with respect to such liability;
provided that, as to the Security Deposit, if any, and Prepaid Rent, Landlord
- -------------
shall not be released from liability therefor unless Landlord has delivered (by
direct transfer or credit against the purchase price) the Security Deposit, if
any, or Prepaid Rent to its successor-in-interest.
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4.19 Estoppel Certificates and Financial Statements. Tenant shall, from
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time to time, but no more than once per year, upon the written request of
Landlord, execute, acknowledge and deliver to Landlord or its designee a written
statement stating: (a) the date this Lease was executed and the date it expires;
(b) the date Tenant entered into occupancy of the Premises; (c) the amount of
monthly Base Rent and Additional Rent and the date to which such Base Rent and
Additional Rent have been paid; and (d) certifying that (1) this Lease is in
full force and effect and has not been assigned, modified, supplemented or
amended in any way (or specifying the date of the agreement so affecting this
Lease); (2) Landlord is not in breach of this Lease (or, if so, a description of
each such breach) and that no event, omission or condition has occurred which
would result, with the giving of notice or the passage of time, in a breach of
this Lease by Landlord; (3) this Lease represents the entire agreement between
the parties with respect to the Premises; (4) all required contributions by
Landlord to Tenant on account of Tenant Improvements have been received; (5) on
the date of execution, there exist no defenses or offsets which the Tenant has
against the enforcement of this Lease by the Landlord; (6) no Base Rent,
Additional Rent or other sums payable under this Lease have been paid in advance
except for Base Rent and Additional Rent for the then current month; (7) no
security has been deposited with Landlord (or, if so, the amount of such
security); (8) it is intended that any Tenant's statement may be relied upon by
a prospective purchaser or mortgagee of Landlord's interest or an assignee of
any such mortgagee; and (9) such other information as may be reasonably
requested by Landlord. If Tenant fails to respond within ten (10) calendar days
of its receipt of a written request by Landlord as provided in this paragraph,
such shall be a breach of this Lease and Tenant shall be deemed to have admitted
the accuracy of any information supplied by Landlord to a prospective purchaser,
mortgagee or assignee. In addition, Tenant shall, from time to time, upon the
written request of Landlord, deliver to or cause to be delivered to Landlord or
its designee then current financial statements (including a statement of
operations and balance sheet) certified as accurate, complete and prepared in
conformance with generally accepted accounting principles by the president,
managing partner or other appropriate officer for Tenant and any entity
constituting an assignee of Tenant under this Lease pursuant to Section 4.17.8.
4.20 Modification for Lender. If, in connection with obtaining
-----------------------
construction, interim or permanent financing for the Building or Land,
Landlord's lender, if any, shall request reasonable modifications to this Lease
as a condition to such financing, Tenant will not unreasonably withhold or delay
its consent to such modifications; provided that, such modifications do not
-------------
increase the obligations of Tenant under this Lease or materially adversely
affect Tenant's rights under this Lease.
4.21 Hazardous Substances.
--------------------
4.21.1 Tenant agrees that neither Tenant, any of Tenant's Agents nor
any other person will store, place, generate, manufacture, refine, handle, or
locate on, in, under or around the Land or Building any Hazardous Substance,
except for storage, handling and use of reasonable quantities and types of
cleaning fluids and office supplies in the Premises in the ordinary course and
the prudent conduct of Tenant's business in the Premises, provided that, (a)
-------------
the storage, handling and use of such permitted Hazardous Substances must at all
times conform to all Governmental Requirements and to applicable fire, safety
and insurance requirements; (b) the types and quantities of permitted Hazardous
Substances which are stored in the Premises must be reasonable and appropriate
to the nature and size of Tenant's operation in the Premises and reasonable and
appropriate for a first-class building of the same or
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similar use and in the same market area as the Building; (c) no Hazardous
Substance shall be spilled or disposed of on, in, under or around the Land or
Building or otherwise discharged from the Premises or any area adjacent to the
Land or Building; and (d) in no event will Tenant be permitted to store, handle
or use on, in, under or around the Premises any Hazardous Substance which will
increase the rate of fire or extended coverage insurance on the Land or
Building, unless: (1) such Hazardous Substance and the expected rate increase
have been specifically disclosed in writing to Landlord; (2) Tenant has agreed
in writing to pay any rate increase related to each such Hazardous Substance;
and (3) Landlord has approved in writing each such Hazardous Substance, which
approval shall be subject to Landlord's sole discretion.
4.21.2 Tenant shall indemnify, defend and hold harmless Landlord and
Landlord's Agents from and against any and all Claims arising out of any breach
of any provision of this paragraph, which expenses shall also include laboratory
testing fees, personal injury claims, clean-up costs and environmental
consultants' fees. Tenant agrees that Landlord may be irreparably harmed by
Tenant's breach of this paragraph and that a specific performance action may
appropriately be brought by Landlord; provided that, Landlord's election to
-------------
bring or not bring any such specific performance action shall in no way limit,
waive, impair or hinder Landlord's other remedies against Tenant.
4.21.3 As of the execution date of this Lease, Tenant represents and
warrants to Landlord that, except as otherwise disclosed by Tenant to Landlord,
Tenant has no intent to bring any Hazardous Substances on, in or under the
Premises except for the type and quantities authorized in the first paragraph of
the paragraph captioned "Hazardous Substances."
--------------------
4.21.4 Landlord represents and warrants to Tenant that, to the best of
its knowledge, no Hazardous Substances exist at the Building or the Land in
violation of any Governmental Requirements pertaining to Hazardous Substances.
4.22 Access Laws.
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4.22.1 Tenant agrees to notify Landlord immediately if Tenant receives
written notification or otherwise has actual knowledge of. (a) any condition or
situation on, in, under or around the Land or Building which may constitute a
violation of any Access Laws or (b) any threatened or actual lien, action or
notice that the Land or Building is not in compliance with any Access Laws. If
Tenant is responsible for such condition, situation, lien, action or notice
under this paragraph, Tenant's notice to Landlord shall include a statement as
to the actions Tenant proposes to take in response to such condition, situation,
lien, action or notice.
4.22.2 Tenant shall not alter or permit any assignee or subtenant or
any other person to alter the Premises in any manner which would violate any
Access Laws or increase Landlord's responsibilities for compliance with Access
Laws, without the prior approval of the Landlord. In connection with any such
approval, Landlord may require a certificate of compliance with Access Laws from
an architect, engineer or other person acceptable to Landlord. Tenant agrees to
pay the reasonable fees incurred by such architect, engineer or other third
party in connection with the issuance of such certificate of compliance.
Landlord's consent to any proposed Tenant Alteration shall (a) not relieve
Tenant of its obligations or indemnities contained in this paragraph or this
Lease or (b) be construed as a warranty that such proposed alternation complies
with any Access Law.
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<PAGE>
4.22.3 Tenant shall be solely responsible for all costs and expenses
relating to or incurred in connection with: (a) failure of the Premises to
comply with the Access Laws; and (b) bringing the Building and the common areas
of the Building into compliance with Access Laws, if and to the extent such
failure or noncompliance arises out of or relates to: (1) Tenant's use of the
Premises in violation of this Lease; or (2) Tenant Alterations to the Premises;
or (3) Tenant Improvements which differ from building standard.
4.22.4 Landlord represents and warrants to Tenant that, to the best of
Landlord's knowledge, as of the date hereof, the Land, Building and the Premises
are not in violation of Access Laws. Landlord shall be responsible for all costs
and expenses relating to or incurred in connection with bringing the common
areas of the Building into compliance with Access Laws, unless such costs and
expenses are Tenant's responsibility as provided in the preceding subparagraph.
Any cost or expense paid or incurred by Landlord after initial construction to
bring the Premises or common areas of the Building into compliance with Access
Laws which is not Tenant's responsibility under the preceding subparagraphs
shall be amortized over the useful economic life of the improvements using an
amortization rate reasonably determined by Landlord, and shall be an Operating
Cost for purposes of this Lease.
4.22.5 Tenant agrees to indemnify, defend and hold harmless Landlord
and Landlord's Agents from and against any and all Claims arising out of or
relating to any failure of Tenant or Tenant's Agents to comply with Tenant's
obligations under this paragraph.
4.22.6 The provisions of this paragraph shall supersede any other
provisions in this Lease regarding Access Laws, to the extent inconsistent with
the provisions of any other paragraphs.
4.23 Quiet Enjoyment. Landlord covenants that Tenant, upon paying Base
---------------
Rent, Additional Rent and all other sums payable under this Lease and performing
all covenants and conditions required of Tenant under this Lease shall and may
peacefully have, hold and enjoy the Premises without hindrance or molestation by
Landlord.
4.24 Signs. Tenant shall have the right to display its corporate name and
-----
the name "The VenCom Group, Inc. on the "top slot" of the Building monument sign
to be erected adjacent to the Building main entrance; provided that any colors,
logo, typeface and the general style and appearance of the corporate name shall
be subject to Landlord's approval. The monument sign will be erected at
Landlord's sole cost and expense. The actual Tenant corporate name sign to be
posted on the monument shall be constructed and posted at Tenant's sole cost and
expense. Tenant's rights to display its corporate name on a monument sign to be
located near the entrance to the Building as set forth herein shall, in all
cases, be consistent with other monument signage approved for other tenants of
Conway Park, and shall be subject to (i) applicable laws, statutes, and
municipal requirements, (ii) covenants, conditions and restrictions of record
affecting the Land, (iii) rules and regulations of the Conway Park Owner's
Association and (iv) Landlord's reasonable approval. Except as set forth in the
immediately preceding sentences, Tenant shall not install any signs on the
Building exterior or inscribe, post, place, or in any manner display any sign,
notice, picture, placard or poster, or any advertising matter whatsoever,
anywhere in or about the Land or Building (including without limitation the
interior of the Premises) at
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<PAGE>
places visible (either directly or indirectly as an outline or shadow on a glass
pane) from anywhere Outside the Premises without first obtaining Landlord's
consent.
4.25 Subordination. Tenant subordinates this Lease and all rights of Tenant
under this Lease to any mortgage, deed of trust, ground lease or vendor's lien,
or similar instrument which may from time to time be placed upon the Premises
(and all renewals, modifications, replacements and extensions of such
encumbrances), and each such mortgage, deed of trust, ground lease or lien or
other instrument shall be superior to and prior to this Lease. Notwithstanding
the foregoing, the holder or beneficiary of such mortgage, deed of trust, ground
lease, vendor's lien or similar instrument shall have the right to subordinate
or cause to be subordinated any such mortgage, deed of trust, ground lease,
vendor's lien or similar instrument to this Lease. Tenant further covenants and
agrees that if the lender or ground lessor acquires the Premises as a purchaser
at any foreclosure sale or otherwise, Tenant shall recognize and attorn to such
party as landlord under this Lease, and shall make all payments required
hereunder to such new landlord without deduction or set-off and, upon the
request of such purchaser or other successor, execute, deliver and acknowledge
documents confirming such attornment. Tenant waives the provisions of any law or
regulation, now or hereafter in effect, which may give or purport to give Tenant
any right to terminate or otherwise adversely affect this Lease or the
obligations of Tenant hereunder in the event that any such foreclosure or
termination or other proceeding is prosecuted or completed.
4.26 Workers Compensation Immunity. If and to the extent that Tenant is
-----------------------------
obligated to indemnify, defend or hold harmless Landlord or Landlord's Agents
from any Claims arising from its use of the Premises or any act or failure to
act by Tenant or Tenant's Agents or otherwise, Tenant expressly waives, to and
in favor of Landlord and Landlord's Agents, its statutory workers compensation
act employers immunity relative to any injury to an employee or employees of
Tenant.
4.27 Brokers. Each party to this Lease shall indemnify, defend and hold
harmless the other party from and against any and all Claims asserted against
such other party by any real estate broker, finder or intermediary relating to
any act of the indemnifying party in connection with this Lease.
4.28 Exculpation and Limitation of Liability. Landlord has executed this
---------------------------------------
Lease by its trustee signing solely in a representative capacity.
Notwithstanding anything contained in this Lease to the contrary, Tenant
confirms that the covenants of Landlord are made and intended, not as personal
covenants of the trustee, or for the purpose of binding the trustee personally,
but solely in the exercise of the representative powers conferred upon the
trustee by its principal. Liability with respect to the entry and performance of
this Lease by or on behalf of Landlord, however it may arise, shall be asserted
and enforced only against the Landlord's estate and interest in the Building and
----
Landlord shall have no personal liability in the event of any claim against
Landlord arising out of or in connection with this Lease, the relationship of
Landlord and Tenant or Tenant's use of the Premises. Further, in no event
whatsoever shall any Landlord's Agent have any liability or responsibility
whatsoever arising out of or in connection with this Lease, the relationship of
Landlord and Tenant or Tenant's use of the Premises. Any and all personal
liability, if any, beyond that which may be asserted under this paragraph, is
expressly waived and released by Tenant and by all persons claiming by, through
or under Tenant.
4.29 Intentionally Omitted.
---------------------
<PAGE>
4.30 Mechanic's Liens and Tenant's Personal Property Taxes.
------------------------------------------------------
4.30.1 Tenant shall have no authority, express or implied, to create
or place any lien or encumbrance of any kind or nature whatsoever upon, or in
any manner to bind, the interest of Landlord or Tenant in the Premises or to
charge the rentals payable under this Lease for any Claims in favor of any
person dealing with Tenant, including those who may furnish materials or perform
labor for any construction or repairs. Tenant shall pay or cause to be paid all
sums legally due and payable by it on account of any labor performed or
materials furnished in connection with any work performed on the Premises on
which any lien is or can be validly and legally asserted against its leasehold
interest in the Premises and Tenant shall indemnify, defend and hold harmless
Landlord from any and all Claims arising out of any such asserted Claims. Tenant
agrees to give Landlord immediate written notice of any such Claim. If Tenant
desires to contest any claim, Tenant must either arrange for release of such
lien and substitution of a bond or other collateral (in accordance with
Governmental Requirements) or furnish Landlord adequate security of at least
150% of the amount of the claim, plus estimated cost in interest and, if for a
final judgment establishing the validity of any lien is entered, Tenant shall
immediately pay and satisfy the same. If Tenant fails to proceed as aforesaid,
Landlord may pay such amount and any costs, and the amount paid, together with
reasonable attorney's fees incurred, shall be immediately due Landlord upon
notice.
4.30.2 Tenant shall be liable for all taxes levied or assessed against
personal property, furniture or fixtures placed by Tenant in the Premises. If
any such taxes for which Tenant is liable are levied or assessed against
Landlord or Landlord's property and Landlord elects to pay them or if the
assessed value of Landlord's property is increased by inclusion of such personal
property, furniture or fixtures and Landlord elects to pay the taxes based on
such increase, Tenant shall reimburse Landlord for the sums so paid by Landlord,
upon demand by Landlord.
4.31 Intentionally Omitted.
---------------------
SECTION 5: DEFAULT AND REMEDIES
-------------------------------
5.1 Events of Default.
-----------------
5.1.1 The occurrence of any one or more of the following events shall
constitute a material default and breach of this Lease by Tenant ("Event of
--------
Default"):
- -------
(a) failure by Tenant to make any payment of Base Rent, Additional
Rent or any other sum payable by Tenant under this Lease within five (5) days of
the due date;
(b) an assignment of this Lease by Tenant or a sublease of any or all
of the Premises without Landlord's permission;
(c) failure by Tenant to observe or perform any covenant or condition
of this Lease, other than the making of payments, where such failure shall
continue for a period of thirty (30) calendar days after written notice from
Landlord;
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(d) (1) the making by Tenant of any general assignment or general
arrangement for the benefit of creditors; (2) the filing by or against Tenant of
a petition in bankruptcy, including reorganization or arrangement, unless, in
the case of a petition filed against Tenant, unless the same is dismissed within
sixty (60) calendar days; (3) the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located in the Premises or of
Tenant's interest in this Lease; (4) any execution, levy, attachment or other
process of law against any property of Tenant or Tenant's interest in this
Lease, unless the same is dismissed within twenty (20) calendar days; (5)
adjudication that Tenant is bankrupt; (6) the making by Tenant of a transfer in
fraud of creditors; or (7) the failure of Tenant to generally pay its debts as
they become due; or
(e) any information furnished by or on behalf of Tenant to Landlord
in connection with the entry of this Lease is determined to have been materially
false, misleading or incomplete when made.
5.1.2 Tenant shall notify Landlord promptly of any Event of Default
or any facts, conditions or events which, with the giving of notice or passage
of time or both, would constitute an Event of Default.
5.1.3 If a petition in bankruptcy is filed by or against Tenant, and
if this Lease is treated as an "unexpired lease" under applicable bankruptcy law
in such proceeding, then Tenant agrees that Tenant shall not attempt nor cause
any trustee to attempt to extend the applicable time period within which this
Lease must be assumed or rejected.
5.2 Remedies. If any Event of Default occurs, Landlord may after providing
--------
Tenant written notice five (5) Business Days after such occurrence, with or
without notice or demand except as stated in this paragraph, and without
limiting Landlord in the exercise of any right or remedy at law which Landlord
may have by reason of such Event of Default, if Tenant has not cured such Event
of Default, exercise the rights and remedies, either singularly or in
combination, as are specified or described in the subparagraphs of this
paragraph.
5.2.1 Landlord may terminate this Lease and all rights of Tenant
under this Lease either immediately or at some later date by giving Tenant
written notice that this Lease is terminated. If Landlord so terminates this
Lease, then Landlord may recover from Tenant the sum of:
(a) the unpaid Base Rent, Additional Rent and all other sums payable
under this Lease which have been earned at the time of termination;
(b) interest at the Default Rate on the unpaid Base Rent, Additional
Rent and all other sums payable under this Lease which have been earned at the
time of termination; plus
(c) the amount by which the unpaid Base Rent, Additional Rent and all
other sums payable under this Lease which would have been earned after
termination until the time of award exceeds the amount of such rental loss, if
any, as Tenant affirmatively proves could have been reasonably avoided and
interest on such excess at the Default Rate; plus
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(d) the amount by which the aggregate of the unpaid Base Rent,
Additional Rent and all other sums payable under this Lease for the balance of
the Lease Term after the time of award exceeds the amount of such rental loss,
if any, as Tenant affirmatively proves could be reasonably avoided, with such
difference being discounted to present value at the Prime Rate at the time of
award; plus
(e) any other amount necessary to compensate Landlord for the
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease or which, in the ordinary course of things, would be likely to
result from such failure, including, leasing commissions, tenant improvement
costs, renovation costs and advertising costs; plus
(f) all such other amounts in addition to or in lieu of the foregoing
as may be permitted from time to time by applicable law.
5.2.2 Landlord shall also have the right, with or without terminating
this Lease, to re-enter the Premises and remove all persons and property from
the Premises. Landlord may cause property so removed from the Premises to be
stored in a public warehouse or elsewhere at the expense and for the account of
Tenant.
5.2.3 Landlord shall also have the right, without terminating this
Lease, to accelerate and recover from Tenant the sum of all unpaid Base Rent,
Additional Rent and all other sums payable under the then remaining term of the
Lease, discounting such amount to present value at the Prime Rate.
5.2.4 If Tenant surrenders the Premises without Landlord's consent,
or if Landlord re-enters the Premises as provided in subparagraph 5.2.2 or takes
possession of the Premises pursuant to legal proceedings or through any notice
procedure provided by law, then, if Landlord does not elect to terminate this
Lease, Landlord may, without terminating this Lease, recover all Base Rent,
Additional Rent and all other sums payable under this Lease as they become due;
provided that Landlord shall, upon Tenant's written request, use reasonable
efforts, without terminating this Lease, to relet the Premises or any part of
the Premises on behalf of Tenant for such term or terms, at such rent or rents
and pursuant to such other provisions as Landlord, in its sole discretion, may
deem advisable, all with the right, at Tenant's cost, to make repairs to the
Premises and recover any deficiency from Tenant as set forth in
subparagraph 5.2.5.
5.2.5 None of the following remedial actions, singly or in
combination, shall be construed as an election by Landlord to terminate this
Lease unless Landlord has in fact given Tenant written notice that this Lease is
terminated: an act by Landlord to maintain or preserve the Premises; any efforts
by Landlord to relet the Premises; any repairs or alterations made by Landlord
to the Premises; re-entry, repossession or reletting of the Premises by Landlord
pursuant to this paragraph; or the appointment of a receiver, upon the
initiative of Landlord, to protect Landlord's interest under this Lease. If
Landlord takes any of the foregoing remedial action without terminating this
Lease, Landlord may nevertheless at any time after taking any such remedial
action terminate this Lease by written notice to Tenant.
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5.2.6 If Landlord relets the Premises, Landlord shall apply the
revenue from such reletting as follows: first, to the payment of any
indebtedness of Tenant to Landlord other than Base Rent, Additional Rent or any
other sums payable by Tenant under this Lease; second, to the payment of any
cost of reletting (including finders' fees and leasing commissions); third, to
the payment of the cost of any alterations, improvements, maintenance and
repairs to the Premises; and fourth, to the payment of Base-Rent, Additional
Rent and other sums due and payable and unpaid under this Lease. Landlord shall
hold and apply the residue, if any, to payment of future Base Rent, Additional
Rent and other sums payable under this Lease as the same become due, and shall
deliver the eventual balance, if any, to Tenant. Should revenue from letting
during any month, after application pursuant to the foregoing provisions, be
less than the sum of the Base Rent, Additional Rent and other sums payable under
this Lease and Landlord's expenditures for the Premises during such month,
Tenant shall be obligated to pay such deficiency to Landlord as and when such
deficiency arises.
5.2.7 Pursuit of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies provided in this Lease or by law (all such
remedies being cumulative), nor shall pursuit of any remedy provided in this
Lease constitute a forfeiture or waiver of any Base Rent, Additional Rent or
other sum payable under this Lease or of any damages accruing to Landlord by
reason of the violation of any of the covenants or conditions contained in this
Lease.
5.3 Right to Perform. If Tenant shall fail to perform any other act on its
-----------------
part to be performed under this Lease, and such failure shall continue for ten
(10) calendar days after notice of such failure by Landlord, or such shorter
time if reasonable under the circumstances, Landlord may, but shall not be
obligated to, and without waiving or releasing Tenant from any obligations of
Tenant, make such payment or perform such other act on Tenant's part to be made
or performed as provided in this Lease. Landlord shall have (in addition to any
other right or remedy of Landlord) the same rights and remedies in the event of
the nonpayment of sums due under this paragraph as in the case of default by
Tenant in the payment of Base Rent.
5.4 Landlord's Default. In the event that Landlord defaults under or
-------------------
breaches this Lease, Tenant shall notify Landlord of such default or breach in
writing, and Tenant shall not exercise any right or remedy which Tenant may have
under this Lease or at law if Landlord commences to cure such default or breach
within thirty (30) calendar days after receipt of Tenant's notice and thereafter
diligently prosecutes the cure to completion.
SECTION 6: MISCELLANEOUS PROVISIONS
-----------------------------------
6.1 Notices. Any notice, request or written communication required or
--------
permitted to be delivered under this Lease shall be: (a) in writing; (b)
transmitted by personal delivery, express or courier service, United States
Postal Service in the manner described below, or electronic means of
transmitting written material; and (c) deemed to be delivered on the earlier of
the date received or four (4) calendar days after having been deposited in the
United States Postal Service, postage prepaid. Such writings shall be addressed
to Landlord or Tenant, as the case may be, at the respective designated
addresses set forth opposite their signatures, or at such other address(es) as
they may, after the execution date of this Lease, specify by written notice
delivered in accordance with this paragraph,
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with copies to the persons at the addresses, if any, designated opposite each
party's signature. Those notices which contain a notice of breach or default or
a demand for performance may be sent by any of the methods described in clause
(b) above, but if transmitted by personal delivery or electronic means, shall
also be sent concurrently by certified, return receipt requested.
6.2 Attorney's Fees and Expenses. In the event either party requires the
-----------------------------
services of an attorney in connection with enforcing the terms of this Lease, or
in the event suit is brought for the recovery of Base Rent, Additional Rent or
any other sums payable under this Lease or for the breach of any covenant or
condition of this Lease, or for the restitution of the Premises to Landlord or
the eviction of Tenant during the Lease Term or after the expiration or earlier
termination of this Lease, the non-breaching party shall be entitled to a
reasonable sum for attorney's and paralegal's fees, expenses and court costs,
including those relating to any appeal.
6.3 No Accord and Satisfaction. No payment by Tenant or receipt by Landlord
---------------------------
of an amount less than the Base Rent or Additional Rent or any other sum due and
payable under this Lease shall be deemed to be other than a payment on account
of the Base Rent, Additional Rent or other such sum, nor shall any endorsement
or statement on any check or any letter accompanying any check or payment be
deemed an accord and satisfaction, nor preclude Landlord's right to recover the
balance of any amount payable or Landlord's right to pursue any other remedy
provided in this Lease or at law.
6.4 Successors: Joint and Several Liability. Except as provided in the
----------------------------------------
paragraph captioned "Exculpation and Limitation of Liability" and subject to the
paragraph captioned "Assignment and Subletting by Landlord", all of the
covenants and conditions contained in this Lease shall apply to and be binding
upon Landlord and Tenant and their respective heirs, executors, administrators,
successors and assigns. In the event that more than one person, partnership,
company, corporation or other entity is included in the term "Tenant," then each
such person, partnership, company, corporation or other entity shall be jointly
and severally liable for all obligations of Tenant under this Lease.
6.5 Choice of Law. This Lease shall be construed and governed by the laws
--------------
of the state in which the Land is located. Each of the parties hereby
irrevocably submits to the jurisdiction and venue of the State of Illinois in
the Circuit Court of Lake County or Cook County or in the U.S. District Court
for the Northern District of Illinois, Eastern Division.
6.6 No Waiver of Remedies. The waiver by Landlord of any covenant or
----------------------
condition contained in this Lease shall not be deemed to be a waiver of any
subsequent breach of such covenant or condition nor shall any custom or practice
which may develop between the parties in the administration of this Lease be
construed to waive or lessen the rights of Landlord to insist on the strict
performance by Tenant of all of the covenants and conditions of this Lease. No
act or thing done by Landlord or Landlord's Agents during the Lease Term shall
be deemed an acceptance or a surrender of the Premises, and no agreement to
accept a surrender of the Premises shall be valid unless made in writing and
signed by Landlord. The mention in this Lease of any particular remedy shall not
preclude Landlord from any other remedy it might have, either under this Lease
or at law, nor shall the waiver of or redress for any violation of any covenant
or condition in this Lease or in any of the rules or regulations attached to
this Lease or later adopted by Landlord, prevent a subsequent act, which would
have originally constituted a violation, from having all the force and effect of
an original violation.
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The receipt by Landlord of Base Rent, Additional Rent or any other sum payable
under this Lease with knowledge of a breach of any covenant or condition in this
Lease shall not be deemed a waiver of such breach. The failure of Landlord to
enforce any of the rules and regulations attached to this Lease or later
adopted, against Tenant or any other tenant in the Building, shall not be deemed
a waiver. Any waiver by Landlord must be in writing and signed by Landlord to be
effective.
6.7 Offer to Lease. The submission of this Lease to Tenant or its broker
---------------
or other agent does not constitute an offer to Tenant to lease the Premises.
This Lease shall have no force or effect until: (a) it is executed and delivered
by Tenant to Landlord; and (b) it is executed and delivered by Landlord to
Tenant.
6.8 Force Majeure. In the event that Landlord shall be delayed, hindered
--------------
in or prevented from the performance of any act or obligation required under
this Lease by reason of Force Majeure, then performance of such act or
obligation shall be excused for the period of the delay and the period for the
performance of any such act or obligation shall be extended for the period
equivalent to the period of such delay.
6.9 Landlord's Consent. Unless otherwise provided in this Lease, whenever
-------------------
Landlord's consent, approval or other action is required under the terms of this
Lease, such consent, approval or action shall be subject to Landlord's
reasonable judgment or discretion exercised in good faith and shall be delivered
in writing and which consent shall not be unreasonably delayed, conditioned or
withheld.
6.10 Severability: Captions. If any clause or provision of this Lease is
-----------------------
determined to be illegal, invalid, or unenforceable under present or future
laws, the remainder of this Lease shall not be affected by such determination,
and in lieu of each clause or provision that is determined to be illegal,
invalid or unenforceable, there be added as a part of this Lease a clause or
provision as similar in terms to such illegal, invalid or unenforceable clause
or provision as may be possible and be legal, valid and enforceable. Headings or
captions in this Lease are added as a matter of convenience only and in no way
define, limit or otherwise affect the construction or interpretation of this
Lease.
6.11 Interpretation. Whenever a provision of this Lease uses the term (a)
---------------
"include" or "including", that term shall not be limiting but shall be construed
as illustrative, (b) "covenant", that term shall include any covenant,
agreement, term or provision, (c) "at law", that term shall mean at law or in
equity, or both, and (d) "day", that uncapitalized word shall mean a calendar
day. This Lease shall be given a fair and reasonable interpretation of the words
contained in it without any weight being given to whether a provision was
drafted by one party or its counsel. For purposes of this Lease, any reference
to Landlord's "knowledge" shall mean, refer and be limited to the actual
knowledge, without imputation of knowledge, of officers of the trustee of
Landlord having responsibility for the Building.
6.12 Incorporation of Prior Agreement; Amendments. This Lease contains all
---------------------------------------------
of the agreements of the parties to this Lease with respect to any matter
covered or mentioned in this Lease, whether oral or written, and no prior or
contemporaneous agreement or understanding pertaining to any such matter shall
be effective for any purpose. No provision of this Lease may be amended or added
to except by an agreement in writing signed by the parties to this Lease or
their respective successors in interest.
-37-
<PAGE>
6.13 Authority. If Tenant is a partnership, company, corporation or other
----------
entity, each individual executing this Lease on behalf of Tenant represents and
warrants to Landlord that he or she is duly authorized to so execute and deliver
this Lease and that all partnership, company, corporation or other entity
actions and consents required for execution of this Lease have been given,
granted or obtained. If Tenant is a partnership, company, corporation or other
business organization, it shall, within ten (10) calendar days after demand by
Landlord, deliver to Landlord satisfactory evidence of the due authorization of
this Lease and the authority of the person executing this Lease on its behalf.
If Landlord is a partnership, company, corporation or other entity, each
individual executing this Lease on behalf of Landlord represents and warrants to
Tenant that he or she is duly authorized to so execute and deliver this Lease
and that all partnership, company, corporation or other entity actions and
consents required for execution of this Lease have been given, granted or
obtained.
6.14 Time of Essence. Time is of the essence with respect to the
----------------
performance of every covenant and condition of this Lease.
6.15 Survival of Obligations. Notwithstanding anything contained in this
------------------------
Lease to the contrary or the expiration or earlier termination of this Lease,
any and all obligations of either party accruing prior to the expiration or
termination of this Lease shall survive the expiration or earlier termination of
this Lease, and either party shall promptly perform all such obligations whether
or not this Lease has expired or terminated. Such obligations shall include any
and all indemnity obligations set forth in this Lease.
6.16 Consent to Service. Tenant irrevocably consents to the service of
-------------------
process of any action or proceeding at the address of the Premises. Nothing in
this paragraph shall affect the right to serve process in any other manner
permitted by law.
6.17 Landlord's Authorized Agents. Notwithstanding anything contained in
-----------------------------
the Lease to the contrary, including without limitation, the definition of
Landlord's Agents, only officers of Riggs Bank, N.A. are authorized to amend,
renew or terminate this Lease, or to compromise any of Landlord's claims under
this Lease or to bind Landlord in any manner. Without limiting the effect of
the previous sentence, no property manager or broker shall be considered an
authorized agent of Landlord to amend, renew or terminate this Lease or to
compromise any of Landlord's claims under this Lease or to bind Landlord in any
manner.
6.18 Waiver of Jury Trial. Landlord and Tenant agree to waive trial by jury
---------------------
in any action, proceeding or counterclaim brought by either against the other on
any matter arising out of or relating in any way to this Lease.
-38-
<PAGE>
IN WITNESS WHEREOF, this Lease has been executed the day and year first
above set forth.
<TABLE>
<CAPTION>
LANDLORD: TENANT:
<S> <C>
Riggs and Company a division of Riggs Bank. OnePoint Communications Corp...-a
N.A. as Trustee of the Multi-Employer. %on
Property Trust- a trust organized under 12
C.F,R. Section .1
By: ............................................ By:
............................................ Name:
............................................ Its:
Designated Address for Landlord:............................. Designated Address for Tenant:
c/o Riggs and Company
Attn: Sam Kubiak Actra -4 cA
808 17th Street. N.W.
Washington, DC 20006 2oc)
Facsimile: 202-835-6887
Bannockburn., IL (PtC) 1,5
with copy to Manager at: Facsimile:
Insignia/ESG. Inc.
311 South Wacker Drive
Chicago, IL 60606..............................
Attn: Mitchell Lovernan
</TABLE>
-39-
<PAGE>
EXHIBIT A to Lease
LEGAL DESCRIPTION OF LAND
-------------------------
<PAGE>
PARCEL 1:
LOT 1 IN CONWAY PARK AT LAKE FOREST RESUBDIVISION NO. 1- PHASE 1, BEING A
RESUBDIVISION OF LOTS 2 TO 6, INCLUSIVE, IN CONWAY PARK AT LAKE FOREST
SUBDIVISION - PHASE 1, BEING A SUBDIVISION OF PARTS OF THE NORTHWEST 1/4,
SOUTHWEST 1/4, AND SOUTHEAST 1/4, OF SECTION 36, TOWNSHIP 44 NORTH, RANGE 11,
EAST OF THE THIRD PRINCIPAL MERIDIAN, IN THE CITY OF LAKE FOREST, LAKE COUNTY,
ILLINOIS.
PARCEL 2:
THAT PART OF LOT I IN CONWAY PARK AT LAKE FOREST SUBDIVISION - PHASE I, BEING A
SUBDIVISION OF PARTS OF THE NORTHWEST 1/4, SOUTHWEST 1/4 AND SOUTHEAST 1/4 OF
SECTION 36, TOWNSHIP 44 NORTH, RANGE 11, EAST OF THE THIRD PRINCIPAL MERIDIAN,
ACCORDING TO THE PLAT THEREOF RECORDED APRIL 6,1987 AS DOCUMENT 2552397
DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHWEST CORNER OF LOT I AFORESAID;
THENCE NORTH 0 DEGREES 15 MINUTES 22 SECONDS WEST, ALONG THE WEST LINE OF SAID
LOT, 410.90 FEET TO A CORNER OF SAID LOT; THENCE NORTH 32 DEGREES 44 MINUTES 57
SECONDS WEST, ALONG THE SOUTHWEST LINE OF SAID LOT, 139.11 FEET; THENCE NORTH 57
DEGREES 15 MINUTES 03 SECONDS EAST, ALONG A LINE DRAWN PERPENDICULAR TO SAID
SOUTHWEST LINE, 63.01 FEET; THENCE SOUTH 39 DEGREES 17 MINUTES 26 SECONDS EAST,
771.07 FEET TO A POINT ON THE SOUTHERLY LINE OF SAID LOT; THENCE NORTH 80
DEGREES 30 MINUTES 22 SECONDS WEST, ALONG SAID SOUTHERLY LINE BEING ALSO THE
NORTHERLY LINE OF ROUTE 60, DISTANCE OF 65.19 FEET TO CORNER OF SAID LOT, THENCE
NORTH 85 DEGREES 33 MINUTES 41 SECONDS WEST, ALONG SAID SOUTHERLY LINE, 400.61
FEET TO THE POINT OF BEGINNING, IN LAKE COUNTY, ILLINOIS.
<PAGE>
Exhibit B to Lease
LOCATION OF PREMISES
--------------------
<PAGE>
[PLAN APPEARS HERE]
<PAGE>
EXHIBIT C
Tenant Work Letter
This is the Tenant Work Letter ("Work Letter") referred to in the Lease of
even date herewith (the "Lease") wherein One Point Communications Corp.
("Tenant") has agreed to lease certain premises from Riggs & Company, a division
of Riggs Bank, N.A. as Trustee of the Multi-Employer Property Trust
("Landlord"), at Two Conway Park, Lake Forest, Illinois. Unless otherwise
defined herein, all capitalized terms used herein shall have the respective
meanings assigned to them in the Lease.
1. Base Building Condition.
(a) Tenant acknowledges that Landlord has put the Premises into base
building condition and Tenant accepts the Premises in its current condition for
purposes of commencing and performing the Tenant's Work (as such term is
hereinafter defined).
(b) Upon execution of the Lease, Landlord shall provide Tenant with copies
of the base building drawings, plans and specifications relevant to the
performance by Tenant of the Tenant's Work. Landlord represents and warrants to
Tenant that the Building was constructed in a good and workmanlike manner, and
to the best of Landlord's knowledge, is in compliance with all applicable
Governmental Requirements and Access Laws.
2. Tenant's Work.
(a) Tenant shall provide the construction material, hardware and equipment
and the labor to construct and install the improvements to the Premises
described in the Plans (as that term is hereinafter described) and incorporated
into the Premises (collectively, the "Tenant's Work"). Subject to the provisions
of this Work Letter, Tenant shall proceed diligently to cause the Tenant's Work
approved by Landlord to be completed in accordance with the terms and conditions
of the Lease and this Work Letter.
(b) Tenant agrees to cause its architect or interior space planner (the
"Interior Space Planner") to deliver to Landlord on or before November 23, 1999
plans for the Premises ("Preliminary Space Plans").
(c) On or before November 30, 1999, Tenant shall deliver to Landlord
architectural construction drawings (which shall include (i) furniture plans
showing details of space occupancy; (ii) sprinkler locations; (iii) reflected
ceiling plans; (iv) partition and door location plans; (v) electrical and
telephone plans noting any special requirements; (vi) fire safety systems; (vii)
detail plans; and (viii) finish plans and schedules) and also specifications for
the Tenant's Work to be performed in the Premises which architectural
construction drawings and specifications are acceptable to Tenant and sufficient
in all respects for Tenant to cause Tenant's mechanical/electrical engineer (the
"Engineer") to prepare the Mechanical/Electrical Drawings (as hereinafter
defined). Such architectural drawings and specifications shall be subject to
Landlord's prior written approval, which approval shall not be unreasonably
withheld or delayed, within five (5) business days of
<PAGE>
receipt by Landlord of a complete set of such architectural construction
drawings and specifications. If Landlord does not approve the same, Landlord
shall advise Tenant in writing with reasonable specificity of the changes
required in such architectural construction drawings and specifications so that
they will meet with Landlord's approval. Landlord's specifications shall be
reasonable and within industry standards for Tenant's Work. Tenant shall cause
the Interior Space Planner to revise such architectural construction drawings
and specifications pursuant to Landlord's comments and to deliver to Landlord,
within five (5) business days after receipt by Tenant of such comments, revised
architectural construction drawings and specifications noting the changes for
Landlord's approval. Landlord's approval shall not be unreasonably withheld.
Landlord shall continue to comment on such architectural construction drawings
and specifications and Tenant shall continue to revise said architectural
construction drawings and specifications within five (5) business days of
receipt of comments from Landlord until such architectural construction drawings
and specifications are approved by Landlord. Such architectural construction
drawings and specifications when approved by Landlord are referred to herein as
the "Preliminary Architectural Plans". Landlord and Landlord's architect shall
work in a good faith and in a reasonable manner in reviewing and revising the
Preliminary Architectural Plans.
(d) Tenant agrees to cause the Interior Space Planner and the Engineer to
prepare mechanical and electrical drawings for the Premises and deliver said
drawings to Landlord within ten (10) business days after Landlord approves the
Preliminary Architectural Plans. Tenant and the Engineer shall cooperate fully
to provide all information necessary for the timely completion of the mechanical
and electrical drawings and approval thereof by Landlord. Landlord agrees to
either approve or disapprove said mechanical and electrical drawings in writing
within five (5) business days of receipt thereof by Landlord. Approval shall not
be unreasonably withheld. If Landlord disapproves of said drawings, Landlord
agrees to advise Tenant in writing with reasonable specificity of the required
changes. Landlord's specifications shall be reasonable and within industry
standards for Tenant's Work. Tenant shall deliver to Landlord mechanical and
electrical drawings revised pursuant to Landlord's comments within five (5)
business days of receipt of Landlord's comments. This procedure shall be
repeated until Landlord approves the mechanical and electrical drawings for the
Premises. The mechanical and electrical drawings for the Premises which are
approved by Landlord shall be referred to herein as the "Mechanical/Electrical
Drawings". Landlord and Landlord's architect shall work in a good faith and in a
reasonable manner in reviewing and revising the Mechanical/Electrical Drawings.
(e) Landlord and Tenant acknowledge that Tenant has made application for a
building permit for the Tenant's Work. Notwithstanding Tenant's application for,
and eventual receipt of, a building permit, Landlord shall have the right to
approve or disapprove said revised Preliminary Architectural Plans by written
notice to Tenant within five (5) business days of receipt by Landlord of such
revised plans. If Landlord does not approve the same, Landlord shall advise
Tenant in writing with reasonable specificity of the changes required in such
plans so that they meet with Landlord's approval. Landlord's approval shall not
be unreasonably withheld. Landlord's specifications shall be reasonable and
within industry standards for Tenant's Work. Tenant shall cause such plans to be
revised until they meet with Landlord's approval. Further, if Landlord
determines that as a result of such revisions, the Mechanical/Electrical
Drawings should be revised,
-2-
<PAGE>
then Landlord shall inform Tenant of such changes with reasonable specificity in
writing and Tenant shall cause the Mechanical/Electrical Drawings to be revised
to Landlord's reasonable satisfaction within five (5) business days of receipt
of Landlord's comments. The revised Preliminary Architectural Plans when
approved by Landlord are referred to herein as the "Architectural Plans". The
"Preliminary Architectural Plans", the "Preliminary Space Plans", the
"Mechanical/Electrical Drawings" and the "Architectural Plans" are herein
collectively referred to as the "Plans". Tenant must submit to Landlord a copy
of the building permit before the start of the Tenant Work. The Architectural
Plans and the Mechanical/Electrical Drawings shall be produced on CAD.
(f) Notwithstanding anything contained herein to the contrary, Tenant
agrees to and shall engage, or cause its general contractor to engage, V.A.
Smith & Company, as the subcontractor to perform the Tenant's Work pertaining to
the heating, ventilating and air conditioning system in the Premises; provided
that V.A. Smith & Company agrees to perform such work for a competitive price
which is equal in all material respects to (or less than) the lowest of other
competitive, bona-fide arms-length bids received by Tenant for the same work.
Otherwise, Tenant shall be free to hire the (or one of the) lower competitive
bidders to perform such work.
(g) Tenant represents to Landlord that Tenant has reviewed its needs and
the above-specified delivery dates with the Interior Space Planner and that
Tenant has assured itself that, with Landlord's cooperation, the Plans can be
delivered as herein above required. Tenant agrees to cooperate with the Interior
Space Planner as promptly as possible and in any event in sufficient time to
cause the Plans to be prepared and timely delivered as herein above required.
(h) Neither review nor approval by Landlord of any of the Plans shall
constitute a representation or warranty by Landlord that such Plans either (i)
are complete or suitable for their intended purpose or (ii) comply with
applicable laws, ordinances, codes and regulations, it being expressly agreed by
Tenant that Landlord assumes no responsibility or liability whatsoever to Tenant
or to any other person or entity for such completeness, suitability or
compliance, except as provided in the Lease.
3. Cost of Tenant's Work.
(a) - Before commencement of any portion of the Tenant's Work, Tenant shall
enter into a contract (the "Buildout Contract") to perform the Tenant's Work
with Development Solutions, Inc., as its general contractor. The Buildout
Contract shall provide that the Tenant's Work shall be completed by February 1,
2000 and shall further provide that the general contractor shall not be entitled
to payment of more than ninety percent (90%) of the total contract price prior
to the date upon which the Landlord pays or is required to pay the Retention
Amount (as defined herein) to Tenant under the terms and provisions of this Work
Letter. Tenant agrees to promptly give Landlord a copy of the Buildout Contract.
Tenant shall cause the general contractor to use only those subcontractors
approved by Landlord, which approval shall not be unreasonably withheld. All of
the Tenant's Work shall be performed by one or more licensed general contractors
and their respective subcontractors, all of whom shall be signatory to a
collective bargaining agreement or other agreement with an appropriate labor
organization affiliated with the Building and Construction
-3-
<PAGE>
Trades Department of the AFL-CIO. The Landlord shall have the right to approve
all contracts and subcontracts with any of the aforementioned general
contractors and subcontractors, which approval shall not be unreasonably
withheld.
(b) Landlord shall pay Tenant pursuant to the terms of this Work Letter an
amount up to One Million Six Hundred Fifty-two Thousand Seven Hundred Twenty
Dollars ($1,652,720.00) (the "Tenant Improvement Allowance") towards the cost of
the Tenant's Work. Tenant shall pay, as and when due, all costs of the Tenant's
Work in excess of the Tenant Improvement Allowance, subject to the provisions of
Section 3(a) above.
(c) Tenant shall pay and reimburse Landlord for any third party costs and
out-of-pocket expenses of Landlord in connection with the prosecution of the
Tenant's Work (the "Reimbursement Fee"), including, without limitation, the
following: (i) the cost of Landlord's architects' and construction manager's
preliminary and ongoing review of any of the Plans and other construction
documents; (ii) the cost of temporary electricity, temporary toilets and hot and
cold water to the Premises during the construction period; (iii) initiation and
monitoring of the Tenant's Work and punchlist process by the Landlord's
architects and construction manager; and (iv) freight dock services and normal
Building security during Tenant's construction and move-in period. In addition,
in connection with the Tenant's Work, Tenant shall provide and pay for (i) trash
removal and disposal (subject to paragraph 5(c) hereof) and (ii) final cleanup
of the construction site and the Premises, provided such payments are not
duplicated as part of the Reimbursement Fee. Notwithstanding the foregoing, in
no event shall the Reimbursement Fee exceed an amount equal to the product of
One Dollar ($1.00) multiplied by the square footage of the Premises. The
Reimbursement Fee shall be deducted by Landlord from the Tenant Improvement
Allowance.
(d) Payment of the Tenant Improvement Allowance shall be made by Landlord
one time each month during the period of the construction of the Tenant's Work,
upon Tenant's submission of a Draw Request (as defined herein below), all in
accordance with the provisions of subparagraphs 3(e) and 3(f) below. Payment
shall be made directly by Landlord pursuant to the Draw Request. Notwithstanding
anything contained herein to the contrary, Landlord shall have no obligation to
make any payment of any Draw Request at any time that Tenant is in default under
the terms and provisions of this Work Letter or if an Event of Default (as
defined in the body of the Lease) has occurred. -
(e) On the fifteenth (15th) day of each month during the performance of
the Tenant's Work hereunder, Tenant shall submit to Landlord a letter requesting
a disbursement of funds covering that portion of the Tenant's Work which has
been completed through the date of said letter (the "Draw Request"). Draw
Requests shall be made by Tenant once each month only. The Draw Request shall be
accompanied by (i) invoices (or paid receipts for each item paid by Tenant and
for which Tenant is seeking reimbursement), (ii) sworn statements and final or
partial or conditional lien waivers (for lienable items) required by the
Landlord, and (iii) such other documentation as Landlord may reasonably request.
-4-
<PAGE>
(f) Upon receipt of the Draw Request, Landlord will review the Tenant's
Work and the items accompanying the Draw Request and advise Tenant in writing
within three (3) Business Days of any respects in which the Draw Request is
disapproved and the reason for such disapproval. Approval shall not be
unreasonably withheld. Such advice need not comply with the notice provisions of
the Lease. Otherwise, the Draw Request will be deemed approved. In any event,
payment of the Draw Request shall be made within fifteen (15) Business Days of
approval of a Draw Request. For purposes of this Work Letter, payment by
Landlord of a Draw Request shall constitute and be discharged by payment of
actually only ninety percent (90%) of the Draw Request made, with the balance of
the Draw Request (ten percent (10%)) being withheld from such payment by
Landlord (such collective balance withheld from each Draw Request being referred
to herein as the "Retention Amount"). Landlord and Tenant agree to cooperate in
attempting to resolve disapproved portions of any Draw Request.
(g) Notwithstanding anything contained herein to the contrary, Landlord
and Tenant shall conduct a walk-thru of the Premises after completion of
Tenant's Work and prior to any disbursement of the Retention Amount. During the
walk-thru, Landlord and Tenant shall, reasonably and in good faith, prepare a
"punchlist" of items relating to the Tenant's Work which are incomplete or in
need of correction or repair. Landlord shall be entitled to hold back and retain
from any payment of the Retention Amount to Tenant an amount equal to 150% of
the reasonably estimated cost to complete, correct or repair any punchlist items
pertaining to the Tenant's Work until such completion, correction or repair is
accomplished, at which time Landlord shall thereafter promptly disperse said
Retention Amount to Tenant.
(h) Before commencing Tenant's Work, Tenant shall submit to Landlord a
total project budget (the "Budget") outlining the cost of the Tenant's Work to
be incurred by Tenant in connection with the Premises. Tenant shall deliver to
Landlord any updated Budget, as and when revised.
(i) If the Budget, as may be revised from time to time by Tenant, by
virtue of any change order for Tenant's Work or other-wise, exceeds or is
reasonably likely to exceed the Tenant Improvement Allowance, then Tenant shall
contribute and pay such excess amount toward the Draw Requests next coming due,
prior to Landlord being obligated to pay any further Draw Requests hereunder.
4. Access By Tenant; Work in Harmony.
Landlord shall permit Tenant and Tenant's agents, representatives,
employees, suppliers, contractors, subcontractors, mechanics and workmen to
enter the Premises to perform the Tenant's Work. Tenant agrees for itself and
its agents, representatives, employees, suppliers, contractors, subcontractors,
workmen, mechanics, and suppliers, that all such parties shall work in harmony
and not unreasonably interfere with Landlord and Landlord's agents,
representatives, employees, suppliers, contractors, subcontractors, mechanics,
and workmen, or other tenants and their respective contractors and agents, at
the Building.
-5-
<PAGE>
5. Construction Requirements.
(a) Tenant agrees that the entry into the Premises by Tenant and its
contractors shall be deemed to be under all of the terms, covenants, conditions
and provisions of the Lease except as to the covenant to pay Rent and Additional
Rent, and Tenant further agrees that in connection therewith Landlord shall not
be liable in any way for any injury, loss or damage which may occur to any of
Tenant's Work or installations made in the Premises or to property placed
therein before the Commencement Date and thereafter, the same being at Tenant's
sole risk. In addition, Tenant shall require all entities performing work on
behalf of Tenant to provide protection for existing improvements to an extent
that is reasonably satisfactory to Landlord and shall allow Landlord access to
the Premises, for inspection purposes, at all times during the period when
Tenant is undertaking construction activities therein. If any entity performing
work on behalf of Tenant causes any injury to any person or any damage to the
Premises, the Building, or any other property of Landlord or any other person,
then Tenant agrees to indemnify, defend and hold Landlord harmless from any
loss, damage or injury suffered in connection with any such damage or injury.
Further, Tenant shall cause such damage to be repaired at Tenant's expense and
if Tenant fails to cause such damage to be repaired promptly upon Landlord's
demand therefor, Landlord may in addition to any other rights or remedies
available to Landlord under this Lease or at law or equity cause such damage to
be repaired, in which event Tenant shall promptly upon Landlord's demand pay to
Landlord the cost of such repairs.
(b) All contractors and subcontractors shall use only those service
corridors and service entrances designated by Landlord for ingress and egress of
personnel and the delivery and removal of equipment and material through or
across any common areas of the Building shall only be permitted with the written
approval of Landlord and during hours determined by Landlord. Landlord shall,
upon its discovery or knowledge thereof, notify the Tenant or any contractor or
subcontractor who violates the requirements of this paragraph 5 of this Work
Letter of the violation of same. In the event Tenant or any contractor or
subcontractor fails to correct said violation, the Landlord shall have the right
to order Tenant or any contractor or subcontractor who violates the above
requirements to cease work in the Building and leave the Building and remove its
equipment and its employees from the Building and, at Landlord's option, and at
Tenant's expense, restore any portion of the Building on which it has done work
to its original condition.
(c) During the performance of Tenant's Work, Landlord may provide trash
removal service from a location designated by Landlord. Tenant shall be
responsible for breaking down boxes and placing trash in Landlord's containers
at such designated location. Trash shall not include construction debris, which
Tenant shall remove at its expense. Tenant shall accumulate its trash in
containers supplied by Landlord and Tenant shall not permit trash to accumulate
within the Premises or in the corridors or public areas adjacent to the
Premises. Tenant shall cause each entity employed by it to perform work on the
Premises to abide by the provisions of this Work Letter as to the storage of
trash and shall require each such entity to perform its work in a way that dust
or dirt is contained entirely within the Premises and not within any other
portion of the Building and shall cause Tenant's contractors to leave the
Premises in broom clean condition at the end of each day. Should Landlord deem
it necessary to remove Tenant's trash because of accumulation, Tenant shall pay
to
-6-
<PAGE>
Landlord an additional reasonable charge for such removal on a time and material
basis. The cost to Tenant for Landlord removing such trash will be based on
reasonable and competitive cost which Tenant could have secured independently
had Landlord not provided such service.
(d) Tenant agrees that all Tenant's Work and other work performed by
Tenant, its agents, contractors, or employees at the Premises, including
installation of telephones, carpeting, materials and personal property delivered
to the Premises shall be done in a first-class workmanlike manner using only
good grades of material and shall be performed only by persons covered by a
collective bargaining agreement with the appropriate trade union.
(e) Tenant agrees to protect, indemnify, defend and hold Landlord and its
agents, partners, contractors, and employees harmless from and against any and
all losses, damages, liabilities, claims, liens, costs and expenses, including
reasonable attorneys' fees, of whatever nature, including without limitation,
those to the person and property of Landlord or Tenant, their respective
employees, agents, invitees, licensees and others, arising out of or in
connection with the activities of Tenant or Tenant's contractors in or about the
Premises or the Building, the cost of any repairs to the Premises or the
Building necessitated by activities of Tenant or Tenant's contractors, and any
injury to any person or any damage to the Premises, the Building, or any other
property of Landlord or any other person caused by Tenant or Tenant's
contractors.
(f) Tenant shall secure, pay for, and maintain during the continuance of
its work within the Premises, policies of insurance with such coverages and such
amounts as Landlord may reasonably require, including builder's risk insurance
as to Tenant's Work and general comprehensive liability, in an amount not less
than those amounts set forth in the Lease, which policies shall be endorsed to
include Landlord and its contractor and their respective employees and agents
and Landlord's mortgagees as additional insured parties and which shall provide
thirty (30) days' prior written notice of any alteration or termination of
coverage, in such amounts and insuring such risks as Landlord may require.
Tenant shall not permit Tenant's contractors to commence any work until all
required insurance has been obtained by Tenant and certificates evidencing such
coverage have been delivered to Landlord.
(g) Tenant shall cause its agents, contractors, subcontractors and vendors
to abide by and govern themselves in accordance with customary and generally
recognized behavioral and procedural guidelines established and followed by
reputable first-rate construction contractors in the greater metropolitan
Chicago area pertaining to, without limitation, worker health and safety and
worksite conditions.
(h) Tenant shall cause its general contractor, and any and all
subcontractors, suppliers, mechanics, materialmen, and workmen providing
warranties to Tenant to make or assign concurrent warranties to Landlord, on the
same terms and conditions originally promised to Tenant, which warranties may be
enforced by Landlord as owner of the Building. In the event any warrantor fails
to comply with the terms of a warranty or otherwise fails to perform its
obligations regarding repairs, replacements, and other corrections of faulty or
defective labor or materials, then Tenant shall be liable, at its own expense to
remedy the same. In the absence of a warranty, or in the event of any
<PAGE>
default, negligence or misconduct by any of Tenant's general contractor,
subcontractors, suppliers, mechanics, materialmen and workmen in connection with
the Tenant's Work, Tenant shall be liable for timely and proper prosecution of
the Tenant's Work in accordance with the terms of this Work Letter. Furthermore,
in the event of a default, negligent act or misconduct by any of Tenant's
general contractor, subcontractors, suppliers, mechanics, materialmen and
workmen, Landlord may take any and all reasonable actions in its best interest
in protecting the Building and in completing the Tenant's Work as Landlord deems
reasonable and appropriate, and Tenant shall comply with the provisions of
paragraph 5(e) above with respect to any such breach, negligent act or
misconduct.
6. Miscellaneous.
(a) Except as expressly set forth herein and in the Lease, Landlord has no
other agreement with Tenant and has no other obligation to do any other work or
pay any amounts with respect to the Premises. Any other work in the Premises
which may be permitted by Landlord pursuant to the terms and conditions of the
Lease shall be done at Tenant's sole cost and expense and in accordance with the
terms and conditions of the Lease.
(b) This Work Letter shall not be deemed applicable to any additional space
added to the original Premises at any time or from time to time, whether by any
options under the Lease or otherwise, or to any portion of the original Premises
or any additions thereto in the event of a renewal or extension of the initial
term of the Lease, whether by any options under the Lease or otherwise, unless
expressly so provided in the Lease or any amendment or supplement thereto.
(c) The failure by Tenant to pay any monies due Landlord pursuant to this
Work Letter within the time period herein stated shall be deemed an Event of
Default under the terms of the Lease for which Landlord shall be entitled to
exercise all remedies available to Landlord for nonpayment of Rent. All late
payments shall bear interest and shall be subject to a late charge pursuant to
the Lease.
(d) This Work Letter is being executed in conjunction with the Lease and is
subject to each and every term and condition thereof, including, without
limitation, the limitations of Landlord's liability set forth therein.
Furthermore, no delay or other failure to complete the Tenant's Work hereunder,
except for Landlord Delays as defined in the Lease, shall affect the
Commencement Date under the Lease (being March 1, 2000) and Tenant's obligation
to pay Rent in accordance with the terms of the Lease. In the event of Landlord
Delays, the Commencement Date shall be delayed by the number of days
attributable to Landlord Delays.
(e) Tenant shall be solely responsible to determine at the site all
dimensions of the Premises and the Building which affect any work to be
performed by or for Tenant hereunder.
-8-
<PAGE>
DATED this 18th day of November, 1999.
LANDLORD:
RIGGS & COMPANY, a division of Riggs Bank, N.A. as
Trustee the Multi-Employer Property Trust
By:
Its:
TENANT:
ONE POINT COMMUNICATIONS CORP.
By;
---
Its:
<PAGE>
EXHIBIT D to Lease
FORM OF MEMORANDUM OF COMMENCEMENT DATE
---------------------------------------
Riggs and Company, a division of Riggs Bank, N.A. as trustee of the Multi-
Employer Property Trust, a trust organized under 12 C.F.R. Section 9.18, as
Landlord, and OnePoint Communications Corp. as Tenant, executed that certain
Office Lease dated as of November 18, 1999 (the "Lease").
The Lease contemplates that upon satisfaction of certain conditions
Landlord and Tenant will agree and stipulate as to certain provisions of the
Lease. All such conditions precedent to that stipulation have been satisfied.
Landlord and Tenant agree as follows:
1. The Commencement Date of the Lease is
2. The Termination Date of the Lease is
3. The Premises consist of rentable square feet.
4. Base Rent is as follows:
through $ per month
through $ per month
through $ per month
through $ per month
5. Tenant's Pro Rata Share is percent(
IN WITNESS WHEREOF, the parties have caused this Memorandum to be duly executed
as of ,2000.
LANDLORD: TENANT
Riggs and Company, a division of Riggs Bank
N.A. as trustee of the Multi-Employer Property OnePoint Communications Corp.
Trust, a trust organized under 12 C.F.R.
Section 9.18 By:
Name:
By: - Its:
Name:
Its:
<PAGE>
EXHIBIT E to Lease
RULES AND REGULATIONS
---------------------
1 No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Building or
Land without the prior written consent of the Landlord. Landlord shall have the
right to remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule. All approved signs or lettering on doors
and walls shall be printed, painted, affixed or inscribed at the expense of
Tenant by a person chosen by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades, screens
or hanging plants or other similar objects attached to or used in connection
with any window or door of the Premises, Tenant shall immediately discontinue
such use. Tenant shall not place anything against or near glass partitions or
doors or windows which may appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalk, halls, passages, exits,
entrances, elevators, escalators, or stairways of the Building. The halls,
passages, exits, entrances, elevators, escalators and stairways are not open to
the general public. Landlord shall in all cases retain the right to control and
prevent access to such areas of all persons whose presence in the judgment of
Landlord would be prejudicial to the safety, character, reputation and interest
of the Land, Building and the Building's tenants; provided that, nothing in this
---------------
Lease contained shall be construed to prevent such access to persons with whom
any Tenant normally deals in the ordinary course of its business, unless such
persons are engaged in illegal activities. Tenant shall not go upon the roof of
the Building.
4. The directory of the Building will be provided exclusively for the
display of the name and location of tenants only, and Landlord reserves the
right to exclude any other names therefrom.
5. All cleaning and janitorial services for the Building and the Premises
shall be provided exclusively through Landlord. Tenant shall not cause any
unnecessary labor by carelessness or indifference to the good order and
cleanliness of the Premises. Landlord shall not in any way be responsible to any
Tenant for any loss of property on the Premises, however occurring, or for any
damage to any Tenant's property by the janitor, any of Landlord's Agents or any
other person.
6. - Landlord will furnish Tenant, free of charge, two (2) keys to each
door lock in the Premises. Landlord may make a reasonable charge for any
additional keys. Tenant shall not make or have made additional keys, and Tenant
shall not alter any lock or install a new additional lock or bolt on any door of
its Premises. Tenant, upon the termination of its tenancy, shall deliver to
Landlord the keys of all doors which have been furnished to Tenant, and in the
event of loss of any keys so furnished, shall pay Landlord therefor.
7. If Tenant requires telegraphic, telephonic, computer circuits, burglar
alarm or similar services, it shall first obtain Landlord's consent, and comply
with, Landlord's instructions for their installation, and shall pay the entire
cost of such installation(s).
-1-
<PAGE>
8. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by Governmental Requirements. Landlord shall have the right to
prescribe the weight, size and position of all equipment, materials, furniture
or other property brought into the Building. Heavy objects shall, if considered
necessary by Landlord, stand on such platforms as determined by Landlord to be
necessary to properly distribute the weight. Business machines and mechanical
equipment belonging to Tenant, which cause noise or vibration that may be
transmitted to the structure of the Building or to any space in the Building or
to any other tenant in the Building, shall be placed and maintained by Tenant,
at Tenant's expense, on vibration eliminators or other devices sufficient to
eliminate noise or vibration. The persons employed to move such equipment in or
out of the Building must be acceptable to Landlord. Landlord will not be
responsible for loss of, or damage to, any such equipment or other property from
any cause, and all damage done to the Building by maintaining or moving such
equipment or other property shall be repaired at the expense of Tenant.
9. Tenant shall not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
permitted by the Lease. Tenant shall not use or permit to be used in the
Premises any foul or noxious gas or substance, or permit or allow the Premises
to be occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors or vibrations nor
shall Tenant bring into or keep in or about the Premises any birds or animals.
10. Tenant shall not use any method of heating or air-conditioning other
than that supplied by Landlord.
11. Tenant shall not waste any utility provided by Landlord and agrees to
cooperate fully with Landlord to assure the most effective operation of the
Building's heating and air-conditioning and to comply with any governmental
energy-saving rules, laws or regulations of which Tenant has actual notice.
12. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
13. Landlord reserves the right to exclude from the Building during non-
Business Hours, or such other hours as may be established from time to time by
Landlord, and on Sundays and legal holidays, any person unless that person is
known to the person or employee in charge of the Building and has a pass or is
properly identified. Tenant shall be responsible for all persons for whom it
requests passes and shall be liable to Landlord for all acts of such persons.
Landlord shall not be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. Landlord reserves the
right to prevent access to the Building in case of invasion, mob, riot, public
excitement or other commotion by closing the doors or by other appropriate
action.
14. Tenant shall close and lock the doors of its Premises and entirely
shut off all water faucets or other water apparatus, and electricity, gas or air
outlets before Tenant and its employees leave the Premises. Tenant shall be
responsible for any damage or injuries sustained by other tenants or occupants
of the Building or by Landlord for noncompliance with this rule.
15. Tenant shall not obtain for use on the Premises ice, drinking water,
food, beverage, towel or other similar services, except at such hours and under
such regulations as may be fixed by Landlord.
-2-
<PAGE>
16. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be deposited
in them. The expenses of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by Tenant if it or its employees or
invitees shall have caused it.
17. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant shall not make any room-to-room
solicitation of business from other tenants in the Building. Tenant shall not
use the Premises for any business or activity other than that specifically
provided for in the Lease.
18. Tenant shall not install any radio or television antenna, loudspeaker
or other device in, on or about the Premises or Building. Tenant shall not
interfere with radio or television broadcasting or reception from or in the
Building or elsewhere.
19. Tenant shall not mark, drive nails, screws or drill into the
partitions, woodwork, doors, or plaster or in any way deface the Premises.
Landlord reserves the right to direct electricians as to where and how telephone
and telegraph wires are to be introduced to the Premises. Tenant shall not cut
or bore holes for wires. Tenant shall not affix any floor covering to the floor
of the Premises in any manner except as approved by Landlord. Tenant shall
repair any damage resulting from noncompliance with this rule.
20. Tenant shall not install, maintain or operate upon the Premises any
vending machine without the written consent of Landlord.
21. Canvassing, soliciting and distribution of handbills or any other
written material, and peddling in the Building or Land are prohibited, and
Tenant shall cooperate to prevent the same.
22. Landlord reserves the right to exclude or expel from the Building and
Land any person who, in Landlord's judgment, is intoxicated, under the influence
of liquor or drugs or in violation of any of these Rules and Regulations.
23. Tenant shall store all of its trash and garbage within the Premises.
Tenant shall not place in any trash box or receptacle any material which cannot
be disposed of in the ordinary and customary manner of trash and garbage
disposal. All garbage and refuse disposal shall be made in accordance with
directions issued from time to time by Landlord.
24. - The Premises shall not be used for lodging or any improper or
immoral or objectionable purpose. No cooking shall be done or permitted by
Tenant, except that use by Tenant of Underwriters' Laboratory approved equipment
for brewing coffee, tea, hot chocolate and similar beverages shall be permitted;
provided that, such equipment and its use is in accordance with all Governmental
- -------------
Requirements.
25. Tenant shall not use in the Premises or in the public halls of the
Building any hand truck except those equipped with rubber tires and side guards
or such other material-handling equipment as Landlord may approve. Tenant shall
not bring any other vehicles of any kind into the Building.
26. Without the prior written consent of Landlord, Tenant shall not use
the name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
-3-
<PAGE>
27. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
28. Tenant assumes any and all responsibility for protecting the Premises
from theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
29. The requirements of Tenant will be attended to only upon appropriate
application to the Manager of the Building by an authorized individual.
Employees of Landlord are not required to perform any work or do anything
outside of their regular duties unless under special instructions from Landlord,
and no employee of Landlord is required to admit Tenant to any space other than
the Premises without specific instructions from Landlord.
30. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by visitors to the Building or Land. Tenant shall
not use more that its prorata share of parking spaces. Tenant shall not leave
vehicles in the parking areas overnight nor park any vehicles in the Building
parking areas other than automobiles, motorcycles, motor driven or non-motor
driven bicycles or four-wheeled trucks. Landlord shall have no obligation
whatsoever to monitor or police the use of the parking or other common areas.
31. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant or any other tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of any other
person, nor prevent Landlord from thereafter revoking such waiver and enforcing
any such Rules and Regulations against any or all of the tenants of the
Building.
32. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the covenants and
conditions of any lease of premises in the Building. If any provision of these
Rules and Regulations conflicts with any provision of the Lease, the terms of
the Lease shall prevail.
33. No furniture, equipment, supplies or merchandise of Tenant shall be
received in the Building, or carried up or down the elevators or stairways,
except during such hours as shall be designated by Landlord.
34. No smoking shall be permitted in or around the Building except for
rooms constructed with ventilation systems approved by Landlord which are vented
directly to the exterior of the Building.
35. Landlord reserves the right to make such other and reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for safety and
security, the care and cleanliness of the Building and Land and the preservation
of good order in the Building. Tenant agrees to abide by all the Rules and
Regulations stated in this exhibit and any additional rules and regulations
which are so made by Landlord.
36. Tenant shall be responsible for the observance of all of the
foregoing rules by Tenant and Tenant's Agents.
-4-
<PAGE>
EXHIBIT F TO LEASE
SCHEDULE OF CLEANING SERVICES
-----------------------------
Daily Cleaning Services
- -----------------------
1. Empty waste baskets and remove refuse to designated area. Reline and wipe
clean receptacles as needed.
2. Break down all boxes or any items marked trash and remove to designated
areas.
3. Thorough vacuuming of all carpeted area.
4. Sweep all hard floors (tile, wood, etc.).
5. Sweep and damp mop all vinyl, marble and quarry tile floors. Spot buff as
needed.
6. Spot clean minor carpet stains.
7. Dust and/or wipe clean the following surfaces:
desks chairs file cabinets tables telephones pictures and frames doors
lamps ledges and shelves desk/furniture partitions any other
horizontal surface of a fixture or furniture subject to collecting
dust
8. Wipe clean the following surfaces: window sills and ledges counter tops and
kitchen cabinets private entrance doors glass, mirrored and wood doors,
panels, windows and walls, walls in kitchen and disposal area conference
tables
9. Wash, clean and disinfect water fountains and/or coolers. Give special
attention to adjacent floor areas.
<PAGE>
10. Establish regular cleaning maintenance program for floor in public lobby
area in conjunction with Property Manager; standard necessary to maintain
is high quality shine with no water marks, stains, scuffing or other signs
of wear.
11. Wipe and polish all glass, chrome and metal surfaces such as windows
(interior and up to standard ceiling height), partitions, banisters, door
knobs, light switch plates, kick plates, directional signs and door
saddles.
12. Dust and wipe clean sand urns.
13. Polish directory.
14. Vacuum and spot shampoo all carpet entrance mats.
15. Spot clean all wall surfaces.
16. Clean all entrance doors.
Daily Elevators
- ---------------
1. Wash and polish wood and stainless walls, doors and hall plate. Keep tracks
clean of dust, dirt and debris. Vacuum carpet. Spot clean carpet as needed.
Daily Vending Areas
- -------------------
1. Thoroughly vacuum carpeting and damp mop tile flooring daily. Special
attention to cleaning crevices, between and under vending machines.
2. Thoroughly wipe all tops and sides of vending machines and express mail box
cabinets with damp cloth. Spot clean all wall surfaces.
3. Empty trash and reline can daily.
4. Spot-clean exteriors of waste containers.
Daily Lavatories
- ----------------
1. Sweep and wet mop all tile floors using disinfectant. Deck brush under
urinals and behind toilets as required.
2. Thoroughly clean all mirrors, top to bottom.
3. Scour, wash and disinfect all sink basins, counter tops, bowls, urinals,
including undersides.
-2-
<PAGE>
3. Wipe clean and remove all fingerprints from full height doors.
4. Vacuum all upholstered furniture.
5. Thoroughly clean all venetian blinds, pipes, ventilating and air
conditioning louvers, ducts and high molding: monthly to quarterly, as
needed.
6. Wipe clean as needed all vinyl base. Vacuum as needed all carpet cove base:
monthly to quarterly, as needed.
7. Spot clean all vertical surfaces.
8. Spray buff all vinyl floors (both tenant and common areas) monthly.
Semi-Annual Cleaning Services
- -----------------------------
1. Wash all common area walls including wallcovering, paint, marble and vinyl
base.
-4-
<PAGE>
Exhibit G to Lease
LETTER OF CREDIT
----------------
<PAGE>
**** DRAFT COPY - NOT AN ORIGINAL****
NORTH AMERICA TRADE FINANCE
3800 CITIBANK CENTER
BUILDING F, 1/ST/ FLOOR, TAMPA, FL 33610
DATE
RIGGS & COMPANY, A DIVISION OF RIGGS BANK, N.A.
AS TRUSTEE OF THE MULTI-EMPLOYER PROPERTY TRUST,
A TRUST ORGANIZED UNDER 12 C.F.R. SECTION 9.18
ATTN:. MANAGER
REF: IRREVOCABLE LETTER OF CREDIT NO. NY
GENTLEMEN:
BY ORDER OF OUR CLIENT, SBC COMMUNICATIONS INC. ON BEHALF OF ONE POINT
COMMUNICATIONS CORP., WE HEREBY OPEN OUR IRREVOCABLE AND TRANSFERABLE
STANDBY LETTER OF CREDIT ("STANDBY") NO. NY-_______________ IN YOUR FAVOR
FOR AN AMOUNT NOT TO EXCEED IN THE AGGREGATE US DOLLARS 750,00.00 (SEVEN
HUNDRED FIFTY THOUSAND AND 00/100 US DOLLARS), EFFECTIVE IMMEDIATELY AND
EXPIRING AT OUR OFFICE AT 3800 CITIBANK CENTER, BUILDING F, 1ST FLOOR, ATTN:
NATF STANDBY LC DEPT., TAMPA, FLORIDA 33610, OR SUCH OTHER OFFICE AS WE MAY
ADVISE FROM TIME TO TIME, WITH OUR CLOSE OF BUSINESS ON FEBRUARY 1, 2005.
FUNDS HEREUNDER ARE AVAILABLE TO YOU AGAINST PRESENTATION OF YOUR SIGHT
DRAFT(S) DRAWN ON US MENTIONING THEREON OUR STANDBY NUMBER NY-
______________' ACCOMPANIED BY A WRITTEN STATEMENT PURPORTEDLY SIGNED BY AND
AUTHORIZED REPRESENTATIVE OF THE BENEFICIARY, CERTIFYING THAT THE APPLICANT
OF THIS LETTER OF CREDIT HAS FAILED TO COMPLY WITH THE TERMS AND CONDITIONS
OF A CONTRACT DESCRIBED AS "AGREEMENT OF LEASE BETWEEN THE BENEFICIARY, AS
LANDLORD AND APPLICANT, AS TENANT AT PHYSICAL ADDRESS OF LEASED PROPERTY".
THIS LETTER OF CREDIT IS TRANSFERABLE IN WHOLE BUT NOT IN PART BY THE
BENEFICIARY UPON NOTICE TO THE UNDERSIGNED AT ANY TIME, INCLUDING BUT NOT
LIMITED TO, THE TIME THE ABOVE-REFERENCED DRAFT IS PRESENTED. REQUESTS FOR
TRANSFER WILL BE IN THE FORM OF ANNEX A ATTACHED HERETO, DULY COMPLETED BY
AN OFFICER OF YOUR COMPANY AND ACCOMPANIED BY THE ORIGINAL OF THIS LETTER OF
CREDIT. DEMAND FOR PAYMENT BY THE TRANSFEREE WILL BE HONORED BY US ONLY
AFTER WE HAVE RECEIVED SUCH DULY COMPLETED REQUEST FOR TRANSFER ACCOMPANIED
BY THIS LETTER OF CREDIT.
IT IS A CONDITION OF THIS LETTER OF CREDIT THAT THE AVAILABLE BALANCE UNDER
THIS LETTER OF CREDIT WILL BE AUTOMATICALLY ADJUSTED WITHOUT AMENDMENT OVER
TIME BASED ON THE FOLLOWING SCHEDULE, MAKING SPECIAL NOTE THAT ANY
DRAWINGS(S) UNDER THIS LETTER OF CREDIT WILL PERMANENTLY REDUCE THE
AVAILABLE AMOUNT OF THIS LETTER OF CREDIT. IN THE EVENT OF ANY DRAWING(S)
UNDER THIS LETTER OF CREDIT THE schedule WILL BE ADJUSTED UNDER ADVICE TO
YOU.
<PAGE>
**** THE SCHEDULE ****
<TABLE>
<CAPTION>
DATE AVAILABLE BALANCE ON CREDIT
---- ---------------------------
<S> <C>
February 1, 2001 USD $600,000.00
February 1, 2002 USD $450,000.00
February 1, 2003 USD $300,000.00
February 1, 2004 USD $150,000.00
February 1, 2005 USD $0.00 (Expiration Date)
</TABLE>
THIS LETTER OF CREDIT WILL BE REDUCED TO NIL AND WILL EXPIRE AT THE LATEST
BUT WITHOUT PREJUDICE TO ANY DRAWING(S) MADE UNDER THIS CREDIT ON OR BEFORE
THE EXPIRATION DATE OF FEBRUARY 1, 2005.
WE HEREBY ENGAGE WITH YOU TO HONOR YOUR DOCUMENT(S) AS SPECIFIED ABOVE,
DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF THIS STANDBY,
IF PRESENTED AS SPECIFIED HEREIN ON OR BEFORE THE STATED EXPIRATION DATE.
SHOULD YOU HAVE OCCASION TO COMMUNICATE WITH US REGARDING THIS STANDBY,
PLEASE DIRECT YOUR CORRESPONDENCE TO US AT 3 800 CITIBANK CENTER, BUILDING
F. 1ST FLOOR. TAMPA, FLORIDA 33610. ATTN: NATF STANDBY LC DEPT, OR SUCH
OTHER OFFICE AS WE MAY ADVISE FROM TIME TO TIME, MAKING SPECIFIC REFERENCE
TO THE STANDBY NUMBER INDICATED ABOVE.
EXCEPT AS FAR AS OTHERWISE EXPRESSLY STATED HEREIN, THIS STANDBY IS SUBJECT
TO THE INTERNATIONAL STANDBY PRACTICES ("ISP98"), INTERNATIONAL CHAMBER OF
COMMERCE PUBLICATION NO. 590, AND AS MATTERS NOT GOVERNED BY THE ISP98,
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK AND APPLICABLE U.S. FEDERAL LAW.
CITIBANK N.A.
AUTHORIZED SIGNATURE
<PAGE>
Exhibit H to Lease
LOCATION OF PARKING SPACES
-------------------------
<PAGE>
[DIAGRAM APPEARS HERE]
<PAGE>
DISTRICT OF COLUMBIA Ss.
On this 29th day of November 1999, before me, a Notary Public in and for
the District of Columbia, personally appeared Samuel Kubiak, to me known to be
the Managing Director of Riggs & Company, a division of Riggs Bank N.A., Trustee
of the Multi-Employer Property Trust, sole member of Two Conway Park, personally
known to me to be the person whose name is subscribed to the within instrument
and acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal hereto affixed the day and year first as
above written.
Name: Denise Hart-Gamble
Notary Public in and for the District of
[SEAL APPEARS HERE] Columbia, Residing at: Riggs Bank N.A.
My commission expires: March 31, 2003
<PAGE>
Citibank, N.A.
CITICORP NORTH AMERICA
3800 CITIBANK CENTER
BUILDING F, 1ST FLOOR TAMPA, FL 33610
NOVEMBER 23, 1999
RIGGS & COMPANY, A DIVISION OF RIGGS BANK, N.A.
AS TRUSTEE OF THE MULTI-EMPLOYER PROPERTY TRUST,
A TRUST ORGANIZED UNDER 12 C.F.R. SECTION 9.18
ATTN:. MANAGER
REF: IRREVOCABLE LETTER OF CREDIT NO. NY-09381-30026575
GENTLEMEN:
BY ORDER OF OUR CLIENT, SBC COMMUNICATIONS INC. ON BEHALF OF ONE POINT
COMMUNICATIONS CORP., WE HEREBY OPEN OUR IRREVOCABLE AND TRANSFERABLE
STANDBY LETTER OF CREDIT ("STANDBY") NO. NY-09381-30026575 IN YOUR FAVOR
FOR.AN AMOUNT NOT TO EXCEED IN THE AGGREGATE US DOLLARS 750,00.00 (SEVEN
HUNDRED FIFTY THOUSAND AND 00/100 US DOLLARS), EFFECTIVE IMMEDIATELY AND
EXPIRING AT OUR OFFICE AT 3800 CITIBANK CENTER, BUILDING F, 1ST FLOOR, ATTN:
NATF STANDBY LC DEPT., TAMPA, FLORIDA 33610, OR SUCH OTHER OFFICE AS WE MAY
ADVISE FROM TIME TO TIME, WITH OUR CLOSE OF BUSINESS ON FEBRUARY 1, 2005.
FUNDS HEREUNDER ARE AVAILABLE TO YOU AGAINST PRESENTATION OF YOUR SIGHT
DRAFT(S) DRAWN ON US MENTIONING THEREON OUR STANDBY NUMBER NY-09381-
30026575, ACCOMPANIED BY A WRITTEN STATEMENT PURPORTEDLY SIGNED BY AN
AUTHORIZED REPRESENTATIVE OF THE BENEFICIARY, CERTIFYING THAT THE APPLICANT
OF THIS LETTER OF CREDIT HAS FAILED TO COMPLY WITH THE TERMS AND CONDITIONS
OF A CONTRACT DESCRIBED AS "AGREEMENT OF LEASE BETWEEN THE BENEFICIARY, AS
LANDLORD AND APPLICANT, AS TENANT AT PHYSICAL ADDRESS OF LEASED PROPERTY".
THIS LETTER OF CREDIT IS TRANSFERABLE IN WHOLE BUT NOT IN PART BY THE
BENEFICIARY UPON NOTICE TO THE UNDERSIGNED AT ANY TIME, INCLUDING BUT NOT
LIMITED TO, THE TIME THE ABOVE-REFERENCED DRAFT IS PRESENTED. REQUESTS FOR
TRANSFER WILL BE IN THE FORM OF ANNEX A ATTACHED HERETO, DULY COMPLETED BY
AN OFFICER OF YOUR COMPANY AND ACCOMPANIED BY THE ORIGINAL OF THIS LETTER OF
CREDIT. DEMAND FOR PAYMENT BY THE TRANSFEREE WILL BE HONORED BY US ONLY
AFTER WE HAVE RECEIVED SUCH DULY COMPLETED REQUEST FOR TRANSFER ACCOMPANIED
BY THIS LETTER OF CREDIT.
IT IS A CONDITION OF THIS LETTER OF CREDIT THAT THE AVAILABLE BALANCE UNDER
THIS LETTER OF CREDIT WILL BE AUTOMATICALLY ADJUSTED WITHOUT AMENDMENT OVER
TIME BASED ON THE FOLLOWING SCHEDULE, MAKING SPECIAL NOTE THAT ANY
DRAWINGS(S) UNDER THIS LETTER OF CREDIT WILL PERMANENTLY REDUCE THE
AVAILABLE AMOUNT OF THIS LETTER OF CREDIT. IN THE EVENT OF ANY DRAWING(S)
UNDER THIS LETTER OF CREDIT THE SCHEDULE WILL BE ADJUSTED UNDER ADVICE TO
YOU.
<PAGE>
Citibank, N.A.
<TABLE>
<CAPTION>
***** THE SCHEDULE *****
<S> <C>
DATE AVAILABLE BALANCE ON CREDIT
February 1, 2001 USD $600,000.00
February 1, 2002 USD $450,000.00
February 1, 2003 USD $300,000.00
February 1, 2004 USD $150,000.00
February 1, 2005 USD $0.00 (Expiration Date)
</TABLE>
THIS LETTER OF CREDIT WILL BE REDUCED TO NIL AND WILL EXPIRE AT THE LATEST
BUT WITHOUT PREJUDICE TO ANY DRAWING(S) MADE UNDER THIS CREDIT ON OR BEFORE
THE EXPIRATION DATE OF FEBRUARY 1, 2005.
WE HEREBY ENGAGE WITH YOU TO HONOR YOUR DOCUMENT(S) AS SPECIFIED ABOVE,
DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF THIS STANDBY,
IF PRESENTED AS SPECIFIED HEREIN ON OR BEFORE THE STATED EXPIRATION DATE.
SHOULD YOU HAVE OCCASION TO COMMUNICATE WITH US REGARDING THIS STANDBY,
PLEASE DIRECT YOUR CORRESPONDENCE TO US AT 3 800 CITIBANK CENTER, BUILDING
F. 1ST FLOOR. TAMPA, FLORIDA 33610. ATTN: NATF STANDBY LC DEPT, OR SUCH
OTHER OFFICE AS WE MAY ADVISE FROM TIME TO TIME, MAKING SPECIFIC REFERENCE
TO THE STANDBY NUMBER INDICATED ABOVE.
EXCEPT AS FAR AS OTHERWISE EXPRESSLY STATED HEREIN, THIS STANDBY IS SUBJECT
TO THE INTERNATIONAL STANDBY PRACTICES ("ISP98"), INTERNATIONAL CHAMBER OF
COMMERCE PUBLICATION NO. 590, AND AS MATTERS NOT GOVERNED BY THE ISP98, SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK AND APPLICABLE U.S. FEDERAL LAW.
<PAGE>
Exhibit 2
OFFICE LEASE
between
WGP ASSOCIATES, LLC,
a Virginia limited liability
company
(as Landlord)
and
ONEPOINT COMMIUNICATIONS CORP., a Delaware corporation
(as Tenant)
Section
Page
1. PRINCIPAL TERMS .....................................1
2. GENERAL COVENANTS ...................................2
3. TERM ................................................3
4. RENT ................................................3
5. COMPLETION OR REMODELING OF THE PREMISES ............3
6. OPERATING EXPENSES ..................................3
7. SERVICES ............................................3
8. QUIET ENJOYMENT .....................................5
9. DEPOSIT .............................................5
10. CHARACTER OF OCCUPANCY ..............................6
11. MAINTENANCE, ALTERATIONS AND REENTRY BY LANDLORD ....6
12. ALTERATIONS AND REPAIRS BY TENANT ...................7
13. CONSTRUCTION LIENS ..................................8
14. SUBLETTING AND ASSIGNMENT ...........................8
15. DAMAGE TO PROPERTY ..................................9
16. INDEMNITY TO LANDLORD ..............................10
17. SURRENDER AND NOTICE ...............................10
18. INSURANCE, CASUALTY, AND RESTORATION OF PREMISES ...10
19. CONDEMNATION .......................................11
20. DEFAULT BY TENANT ..................................11
21. DEFAULT BY LANDLORD ................................14
22. SU-BORDINATION AND ATTORNMENT ......................14
23. REMOVAL OF TENANT'S PROPERTY .......................15
24. HOLDING OVER: TENANCY MONTH-TO-MONTH ...............15
25. PAYMENTS AFTER TERMINATION . .......................15
26. STATEMENT OF PERFORMANCE ...........................15
27. MISCELLANEOUS ......................................15
28. AUTHORITIES FOR ACTION AND NOTICE .................17
29. PARKING............................................18
30. SUBSTITUTE PREMISES ...............................18
31. BROKERAGE .........................................18
32. COUNTERPARTS ......................................18
33. ADDENDUM/EXHIBITS .................................18
<PAGE>
LEASE AGREEMENT
THIS LEASE, dated as of July 15, 1999, is by and between WGP ASSOCIATES,
LLC, a Virginia limited liability company ("Landlord") and ONEPOINT
COMMUNICATIONS CORP., a Delaware corporation ("Tenant").
WITNESSETH:
1. PRINCIPAL TERMS. Capitalized terms, first appearing in quotations
in this Section, elsewhere in the Lease or any Exhibits, are definitions of
such terms as used in the Lease and Exhibits and shall have the defined
meaning whenever used.
1.1 "BUILDING": Worldgate Plaza 1, 12901 Worldgate Drive, Herndon,
Virginia
1.2 "PREMISES": approximately 80,582 rentable square feet comprising
the 5th, 6th, 7th and 8th floor of the Building
1.3 "INITIAL TERM": 10 years, 0 months "Commencement Date": November
1, 1999 "Expiration Date": October 31, 2009
1.4 "BASE RENT": Period Annual Per Rentable Monthly Square Foot Rate
1.5 OPERATING EXPENSES: Base
Year: 2000
Pro Rata
Share: 100%
1.6 "DEPOSIT":
1.7 "PERMITTED USE": Primarily as general offices with ancillary use
for computer room and related uses in accordance with Section 10 1.8
"GUARANTOR": [Not applicable]
1.9 PARKING: 322 spaces (10 of which shall be reserved spaces in a
mutually agreed upon location and the balance unreserved, unassigned
spaces) in the Parking Garage or surface parking for the Building in
accordance with Section 29
<PAGE>
1.10 LANDLORD'S NOTICE ADDRESS:
WGP ASSOCIATES, LLC, c/o Miller Global Properties, LLC, 4643
S. Ulster Street, Suite 1500, Denver, CO 80237, Attn: Donald
E. Spiegleman, Esq. or Mr. Paul Hogan
with a copy to:
1.11RENT PAYMENT ADDRESS:
1. 12 LANDLORD'S TAX 1. D.:
1. 13 TENANT'S NOTICE ADDRESS:
Precommencement Address:
Post Commencement Address:
1. 14 TENANT'S TAX I.D.:
1. 15 LANDLORD'S BROKER:
1. 16 COOPERATING BROKER:
1. 17 ATTACHMENTS:
Charles E. Smith Companies, 2121 Crystal Drive, Suite 199 Arlington, VA 22202,
Attn: Steven Ranck WGP ASSOCIATES, LLC, c/o Miller Global Properties, LLC, 4643
S. Ulster Street, Suite 1500, Denver, CO 80237 84-1474051 Attn: Joanne DiGuido
2201 Waukegan Road, Suite E-200 Bannockburn, IL 60015 (same) Charles E. Smith
Real Estate Services, L.P. Julien J. Studley, Inc. [check if applicable]
Addendum Work Letter Exhibit A - The Premises Exhibit B - Real Property Exhibit
C - Operating Expenses Exhibit D - Commencement Certificate Exhibit E - Rules
and Regulations Exhibit F - Janitorial and Security Specifications Exhibit G -
Statement of Performance (Estoppel) Exhibit H - HVAC Rates Exhibit I - Letter
of Credit Exhibit J - Parking Area
2. GENERAL COVENANTS. Tenant covenants and agrees to pay Rent and perform
the obligations hereafter set forth and in consideration therefor Landlord
leases to Tenant the Premises as depicted on the plat attached as Exhibit A,
together with a non-exclusive right, subject to the provisions hereof, to use
plazas, common areas, or other areas on the real property legally described on
Exhibit B (the "Real Property") designated by Landlord for the exclusive or
nonexclusive use of the tenants of the Building and Plaza II (as hereinafter
defined), including the Parking Garage ("Common Areas"). The "Building"
includes the building depicted and labeled as Worldgate Plaza Tower I on the
attached Exhibit A-1, inclusive of the 5th, 6th, 7th and 8th floors, the
elevators and stairs serving such floors, and the elevator lobby on the first
floor, exclusive of the parking garage portion lying within the footprint of
the Building depicted on Exhibit A-1. The Building and the adjacent building to
be constructed as depicted and labeled on Exhibit A-1 as Worldgate Plaza Tower
11 (" Plaza 11"), Real Property, Common Areas, and appurtenances are
hereinafter collectively sometimes called the "Building Complex."
2
<PAGE>
3. TERM. The Initial Term of the Lease commences at 12:01 a.m. on the
Commencement Date and terminates at 12:00 midnight on the Expiration Date (the
Initial Term together with any extensions thereof is herein referred to as the
"Term. ") -
4. RENT. Subject to the provisions below and the provisions of the Work
Letter, commencing on the Commencement Date and on the first day of each month
thereafter, Tenant shall pay Base Rent in the amount stated in Section 1.4, in
advance without notice (all amounts, including Base Rent, to be paid by Tenant
pursuant to this Lease as the context requires are sometimes referred to
collectively as "Rent(s)"). Rents shall be paid without set off, abatement, or
diminution, at the address set forth in Section 1.11 above, or at such other
place as Landlord from time to time designates in writing.
5. COMPLETION OR REMODELING OF THE PREMISES.
-----------------------------------------
5.1 Provisions regarding remodeling or tenant finish work in the
Premises, if any, are set forth in a work letter attached to this Lease (the
"Work Letter"). "Initial Tenant Finish" means the Premises in its as-is
condition as modified by all work, if any, performed by Landlord at its expense
prior to the Commencement Date in accordance with the Work Letter or paid for
by Landlord from the Allowance in accordance with the Work Letter, as
applicable. Except as provided in the Work Letter, Landlord has no obligation
for the completion or remodeling of the Premises, and Tenant accepts the
Premises in its "as is" condition on the Commencement Date, subject to the
provisions of the Work Letter. If Landlord is delayed in delivering the
Premises or a portion thereof to Tenant in accordance with the Work Letter, the
provisions of the Work Letter shall control delivery of such space, the
commencement of Rent and the determination of the Commencement Date. The
postponement of Tenant's obligation to pay Rent is in full settlement of all
claims which Tenant may otherwise have by reason of such delay. If the
Commencement Date is delayed in accordance with the Work Letter, the Expiration
Date shall be extended so that the Term will continue for the full period set
forth in Section 1.3. As soon as the Term commences, Landlord and Tenant agree
to execute a commencement agreement in the form attached as Exhibit D, setting
forth the exact Commencement Date and Expiration Date.
5.2 Except as provided in the Work Letter, *including the provisions
regarding Punchlist Items, taking possession of the Premises by Tenant is
conclusive evidence that the Premises are in the condition agreed between
Landlord and Tenant and acknowledgment by Tenant of satisfactory completion of
any work which Landlord has agreed to perform.
6. OPERATING EXPENSES. Tenant shall pay additional Rent in accordance with
Exhibit C attached hereto.
7. SERVICES.
--------
7.1 Subject to the provisions below, Landlord agrees, without charge,
in accordance with standards determined by Landlord from time to time for the
Building: (1) to furnish running water at those points of supply for general
use of tenants of the Building (consistent with the standards observed by
operators of first class office buildings in the northern Virginia market); (2)
during Ordinary Business Hours to furnish to interior Common Areas heated or
cooled air (as applicable), electrical current, janitorial services, and
maintenance; (3) during Ordinary Business Hours to furnish heated or cooled air
to the Premises for standard office use provided the reasonable recommendations
of Landlord's engineer regarding occupancy and use of the Premises are complied
with by Tenant; (4) to furnish, subject to availability and capacity of
building systems, unfiltered treated chilled water for use in Tenant's packaged
HVAC systems provided that such systems are approved by Landlord, including
strainers, pumping systems and controls; (5) to provide, during Ordinary
Business Hours, the general use of passenger elevators for ingress and egress
to and from the Premises (at least one such elevator shall be available at all
times except in the case of emergencies or repair); (6) to provide janitorial
services for the Premises in accordance with the attached Exhibit F (including
window washing of the outside of exterior windows); and (7) to cause electric
current to be supplied to the Premises for Tenant's Standard Electrical Usage
(items (1) through (7) are collectively called "Services"). "Tenant's Standard
Electrical Usage" means electricity for normal office purposes including
fluorescent and incandescent lighting (including task and task ambient lighting
systems) and for normal
3
<PAGE>
office equipment, including duplicating (reproduction) machines and personal
computers (provided they do not require any additional voltage, special
electrical or HVAC requirements beyond the systems existing in the Premises),
and internal communications systems. "Ordinary Business Hours" means 8:00 a.m.
to 6:00 p.m. Monday through Friday and 8:00 a.m. to 1:00 p.m. on Saturdays,
Legal Holidays excepted. "Legal Holidays" mean New Year's Day, Martin Luther
King Day, Inauguration Day, Presidents' Day, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day, and
such other national holidays hereafter established by the United States
Government. The security system shall be operative at all times except as
required for repair or maintenance and shall restrict access (in accordance
with the security system specifications) to the main Building lobby and access
to individual floors from the elevator on such days and at such hours as Tenant
may request by notice to Landlord. Any security system or other security
measures (collectively "security") that Landlord may undertake are for
protection of the physical structures only and shall not be relied upon by
Tenant, its agents, employees or invitees to protect their person, or property,
including Tenant's Property. Tenant shall not do anything to circumvent or
allow others to circumvent security. Landlord shall not be liable for any
failure of any security to operate or for any breach or circumvention of the
security by others, and Landlord makes no representations or warranties
concerning the installation, performance and monitoring of the security or that
it will detector avert occurrences which any such security is intended or
expected to detector avert. Landlord shall maintain the security which it
elects to install in good repair.
Electricity for the Building, including the entirety of the
Premises shall be separately metered and paid by Tenant upon billing by the
service provider or as billed by Landlord (if for any reason direct billing to
Tenant cannot be established or until such billing is arranged, based on the
actual costs incurred to the provider, without markup or profit to Landlord)
and electricity shall not be included in amounts required to be paid by Tenant
as Operating Expenses under Exhibit C. In addition, Tenant shall be responsible
for and shall pay promptly, directly to the appropriate supplier, all charges
for telephone, interior landscape maintenance, and other materials and services
furnished directly to Tenant or the Premises, or used by Tenant in or about the
Premises during the Term, together with any taxes thereon. Prior to
installation or use of Special Equipment or operation of the Premises for
extended hours on an ongoing basis, Tenant shall notify Landlord of such
intended installation or use. Tenant shall reimburse Landlord for all
additional costs, if any, incurred by Landlord as a result of Tenant's
installation or use of Special Equipment, other than electrical costs (which
shall be included in the metered electricity), as reasonably determined by
Landlord's engineer, including all costs of supplementing the Building HVAC
System and/or extending or supplementing any electrical service, as Landlord
determines is necessary, as a result of such Special Equipment. "Special
Equipment" means (a) any equipment requiring modification or supplementation of
the Building HVAC or electrical systems, (b) any equipment requiring a voltage
other than 120 volts, single phase, or (c) equipment that requires the use ' of
self-contained 1HVAC units. If Tenant desires use of Building services after
Ordinary Business Hours, Tenant shall give Landlord such prior notice as is
reasonably required to arrange for such after-hours services. Charges for
Building HVAC use after Ordinary Business Hours, to be used in determining the
charges referred to above, are set forth on the attached Exhibit H.
7.3 If Tenant requires janitorial services other than those included
as standard Services or if Tenant desires to separately contract for janitorial
services for the Premises for security reasons, Tenant may separately contract
for such janitorial services at Tenant's sole cost and expense, upon not less
than 60 days prior notice to Landlord (provided, that, if Tenant elects to
separately contract for janitorial services in accordance with the foregoing,
such janitorial services shall include at a minimum those services described on
Exhibit F and the Operating Expenses and the Base Rent shall be subject to
adjustment in accordance with Section 6.1 of Exhibit Q.
7.4 Landlord may discontinue, reduce, or curtail Services (either
temporarily or permanently) when necessary due to accident, repairs,
alterations, strikes, lockouts, Applicable Laws, or any other happening beyond
Landlord's reasonable control. Landlord is not liable for damages to Tenant or
any other party as a result of any interruption, reduction, or discontinuance
of Services (either temporary or permanent) nor shall the occurrence of any
such event be construed as an eviction of Tenant, cause or permit an abatement,
reduction or setoff of Rent, or operate to release Tenant from Tenant's
obligations; provided, however, that notwithstanding the foregoing, if the
Premises should become unsuitable for Tenant's use as a consequence of a
cessation of Services which is due to events within Landlord's reasonable
4
<PAGE>
control (other than an interruption resulting from a fire or other casualty,
which shall be governed by the provisions of Section 18) (excluding, however,
acts or omissions of Tenant or Tenant's Agents, as defined below) and persists
for more than five (5) consecutive business days (an "Interfering Event"), then
Tenant shall be entitled to an equitable abatement of Rent to the extent of the
interference with Tenant's use of the Premises occasioned thereby from the date
of the Interfering Event until the date the Services are restored to the
Premises. If Tenant continues to use any part of the Premises to conduct its
business, the Rent will only abate for the untenantable part not used..
7.5 Tenant shall promptly notify Landlord of any accidents or defects
in the Building of which Tenant becomes aware, including defects in pipes,
electric wiring, and HVAC equipment, and of any condition which may cause
injury or damage to the Building or any person or property therein.
8. OUIET ENJOYMENT. So long as an Event of Default has not occurred,
Tenant is entitled to the quiet enjoyment and peaceful possession of the
Premises subject to the provisions of this Lease. Landlord shall under no
circumstances be held responsible for restriction or disruption of access to
the Building from public streets caused by construction work or other actions
taken by or on behalf of governmental authorities, or for actions taken by
other tenants (their employees, agents, visitors, contractors or invitees), or
any other cause not entirely within Landlord's direct control, and same shall
not constitute a constructive eviction of Tenant nor give rise to any right or
remedy of Tenant against Landlord of any nature or kind. This covenant of quiet
enjoyment is in lieu of any covenant of quiet enjoyment provided or implied by
law, and Tenant expressly waives any such other covenant of quiet enjoyment to
the ' extent broader than the covenant contained in this Section. Tenant shall
have access to the Building and Premises 365 days a year, seven days a week, 24
hours a day, subject to Landlord's obligation and right to make repairs and
alterations as provided in this Lease.
9. DEPOSIT. Tenant shall provide to Landlord, at the time of execution
hereof by Tenant, a clean, unconditional,
5
<PAGE>
10. CHARACTER OF OCCUPANCY. Tenant shall occupy the Premises for the
Permitted Use and for no other purpose, and use it in a careful, safe, and
proper manner and pay on demand for any damage to the Premises caused by
misuse or abuse by Tenant, Tenant's agents or employees, or any other person
entering upon the Premises under express or implied invitation of Tenant
(collectively, "Tenant's Agents"). The term "Permitted Use" shall mean:
general office use for administrative, clerical, and professional office
purposes, including customer support (the "Primary Use") and for activities
ancillary thereto, such as (i) computer room, (ii) employee cafeteria and
(iii) small equipment storage and testing (ancillary uses including the uses
specified under clauses (i)-(iii), are referred to collectively as the
"Ancillary Uses"), provided that Ancillary Uses shall not be the primary use
of the Leased Premises; in addition, Tenant shall have the right to use the
Leased Premises for such other uses as are permitted by Applicable Laws (as
hereinafter defined) that are expressly approved by Landlord, which approval
shall not be unreasonably withheld if such uses are consistent with first
class suburban general office building uses and so long as in keeping with
Building's first-class quality and allowed under PDC zoning applicable to the
Building ("Specially Approved Uses"). Tenant shall be responsible for
obtaining any approvals or permits required for the Ancillary Uses or
Specially Approved Uses under Applicable Laws and the Declaration. Tenant, at
Tenant's expense, shall comply with all applicable federal, state, city,
quasi-governmental and utility provider laws, codes, rules, and regulations
now or hereafter in effect ("Applicable Laws") which impose any duty upon
Landlord or Tenant with respect to the occupation or alteration of the
Premises. Tenant shall not commit or permit waste or any nuisance on or in the
Premises. Tenant agrees not to store, keep, use, sell, dispose of or offer for
sale in, upon or from the Premises any article or substance prohibited by any
insurance policy covering the Building Complex nor shall Tenant keep, store,
produce or dispose of on, in or from the Premises or the Building Complex any
substance which may be deemed an infectious waste or hazardous substance under
any Applicable Laws, except customary office and cleaning supplies.
11. MAINTENANCE, ALTERATIONS AND REENTRY BY LANDLORD.
-------------------------------------------------
11.1 Landlord will (i) make repairs and replacements to HVAC,
mechanical, life safety and electrical systems in the Premises (to the extent
such systems are Building standard) deemed necessary by Landlord for normal
operations of the Building Complex; and (ii) provide upkeep, maintenance,
replacements, and repairs to all Common Areas of the Building Complex,
including without limitation the Parking Facilities, and all structural
elements of the Building, including without I imitation the roof, exterior
walls (including windows and glass), interior bearing walls, foundations,
footings, and al I exterior surfaces of the Building. Landlord shall perform
its obligations under this Section 11. 1 in a manner consistent with other
first class office buildings in the northern Virginia area and in accordance
with Applicable Laws. Except as provided in this Section or otherwise expressly
required in this Lease, Landlord is not required to make improvements or
repairs to the Premises during the Term.
11.2 Landlord or Landlord's agents may at any time enter the
Premises, without notice in case of emergency and for performance of janitorial
services and in all other instances after reasonable prior oral or written
notice to Tenant and subject to compliance with Tenant's reasonable security
measures (which may include an escort) for examination and inspection, or to
perform, if Landlord elects, any obligations of Tenant which Tenant fails to
perform or such cleaning, maintenance, janitorial services, repairs,
replacements, additions, or alterations as Landlord deems necessary for the
safety,
6
<PAGE>
improvement, or preservation of the Premises or other portions of the Building
Complex or as required by Applicable Laws. Landlord or Landlord's agents may
also show the Premises to prospective purchasers and Mortgagees and, during the
last 12 months of the Term, to prospective tenants, upon not less than 48 hours
prior notice. Any such reentry does not constitute an eviction or entitle
Tenant to abatement of Rent. Landlord may make such alterations or changes in
other portions of the Building Complex as Landlord desires so long as such
alterations and changes do not unreasonably interfere with Tenant's occupancy
of the Premises. Landlord may use the Common Areas and one or more street
entrances to the Building Complex as may be necessary in Landlord's judgment to
complete such work.
12. ALTERATIONS AND REPAIRS BY TENANT.
----------------------------------
12.1 Tenant shall not make any alterations to the Premises during
the Term, including installation of equipment or machinery which requires
modifications to existing electrical outlets or increases Tenant's usage of
electricity beyond Tenant's Standard Electrical Usage (collectively
"Alterations") without in each instance first obtaining the written consent of
Landlord, which consent shall not be unreasonably withheld, conditioned or
delayed. Landlord's consent or approval of the plans, specifications and
working drawings for any Alterations shall not constitute any warranty or
representation by Landlord (and shall not impose any liability on Landlord) as
to their completeness, design sufficiency, or compliance with Applicable Laws;
provided, however, Tenant may, without Landlord's consent, perform interior
non-structural Alterations not involving modifications to the Base Building
plumbing, electrical, mechanical or life safety systems provided the cost of
any particular Alterations (taking into account together all Alterations being
made as part of a common or phased plan) does not exceed Ten Thousand Dollars
($10,000). Tenant shall at its cost: pay all engineering and design costs
incurred by Landlord as to all Alterations, obtain all governmental permits and
approvals required, and cause all Alterations to be completed in compliance
with Applicable Laws and requirements of Landlord's insurance. All such work
relating to Alterations shall be performed in a good and workmanlike manner,
using new materials and equipment at least equal in quality to the work
performed under the Work Letter. All Alterations, repair and maintenance work
performed by Tenant shall be done at Tenant's expense by Landlord's employees
or, with Landlord's prior consent and subject to any conditions imposed by
Landlord, by other persons requested by Tenant; however, if such work is not
performed by Landlord's employees, Tenant shall pay Landlord a supervisory fee
(not to exceed 5% of the cost of the respective Alteration) upon receipt of an
invoice. If Landlord authorizes such persons to perform work, Tenant shall
deliver to Landlord prior to commencement certificates issued by insurance
companies qualified to do business in the state in which the Premises are
located, evidencing that worker's compensation, public liability insurance, and
property damage insurance (in amounts, with companies and on forms satisfactory
to Landlord) are in force and maintained by all contractors and subcontractors
engaged to perform such work. All liability policies shall name Landlord,
Building, Manager, and Mortgagee as additional insureds. Each certificate shall
provide that the insurance may not be canceled or modified without 10 days'
prior written notice to Landlord and Mortgagee. Landlord also has the right to
post notices in the Premises in locations designated by Landlord stating that
Landlord is not responsible for payment for such work and containing such other
information as Landlord deems necessary. All such work shall be performed in a
manner which does not unreasonably interfere with Landlord or other tenants of
the Building, or impose additional expense upon Landlord in the operation of
the Building Complex.
12.2 Tenant shall keep the Premises in as good order, condition, and
repair and in an orderly state, as on the Commencement Date, loss by fire or
other casualty or ordinary wear excepted.
12.3 All Alterations, including permanent drywall partitions,
paneling, carpeting, drapes or other window coverings, and light fixtures (but
not including movable office furniture not attached to the Building), are
deemed a part of the real estate and the property of Landlord and remain upon
and be surrendered with the Premises at the end of the Term, whether by lapse
of time or otherwise, unless Landlord notifies Tenant no later than 15 days
prior to the end of the Term that it elects to have Tenant remove all or part
of such Alterations, and in such event, Tenant shall at Tenant's expense
promptly remove the Alterations specified and restore the Premises to its prior
condition, reasonable wear and tear excepted. If expressly requested by Tenant
at the time consent is requested for any Alterations or prior to construction
of such Alterations, Landlord shall promptly inform Tenant whether Landlord
will require the removal of particular Alterations pursuant to this Section
12.3.
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<PAGE>
13. CONSTRUCTION LIENS. Other than provided in the Work Letter, Tenant
shall pay for all work done on the Premises by Tenant or at its request (other
than the Initial Tenant Finish) of a character which may result in liens on
Landlord's or Tenant's interest and Tenant will keep the Premises free of all
construction liens, and other liens on account of such work. Tenant
indemnifies, defends, and saves Landlord and all Mortgagees harmless from all
liability, loss, damage, or expenses, including attorneys' fees, on account of
any claims of laborers, materialmen or others for work performed or for
materials or supplies furnished to Tenant or persons claiming under Tenant. If
any lien is recorded against the Premises or Building or any suit affecting
title thereto is commenced as a result of such work, or supplying of materials,
Tenant shall cause such lien to be removed of record within 5 days after notice
from Landlord. If Tenant desires to contest any claim, Tenant must either
arrange for release of such lien and substitution of a bond or other collateral
(in accordance with Applicable Laws) or furnish Landlord adequate security of
at least 150% of the amount of the claim, plus estimated costs and interest
and, if a final judgment establishing the validity of any lien is entered,
Tenant shall immediately pay and satisfy the same. If Tenant fails to proceed
as aforesaid, Landlord may pay such amount and any costs, and the amount paid,
together with reasonable attorneys' fees incurred, shall be immediately due
Landlord upon notice.
14. SUBLETTING AND ASSIGNMENT.
--------------------------
14.1 Tenant shall not sublet any part of the Premises nor assign or
otherwise transfer this Lease or any interest herein. (sometimes referred to as
"Transfer," and the subtenant or assignee may be referred to as "Transferee")
without the consent of Landlord first being obtained, which consent will not be
unreasonably withheld, conditioned or delayed provided that: (1) Tenant
complies with the provisions of Section 14.4; (2) Landlord declines to exercise
its rights under Section 14.3; (3) the Transferee is engaged in a business and
the portion of the Premises will be used for the Permitted Use in a manner
which is in keeping with the then standards of the Building and does not
conflict with any exclusive use rights granted to any other tenant of the
Building Complex; (4) the Transferee has reasonable financial worth in light of
the responsibilities involved; (5) Tenant is not in default at the time it
makes its request; (6) the Transferee is not a governmental or quasi
-governmental agency; (7) the Transferee is not a tenant or currently
negotiating a lease with Landlord in any Building of the Building Complex; and
(8) the rent to be paid by the Transferee is not less than 85% of the rental
rate then being offered by Landlord for similar space in the Building Complex.
Transfer includes a sale by Tenant of substantially all of its assets or stock
if Tenant is a publicly traded corporation, a merger of Tenant with another
corporation, the transfer of 49% or more of the stock in a corporate tenant
whose stock is not publicly traded, or transfer of 49 % or more of the
beneficial ownership interests in a partnership or limited liability company
tenant. If any Alterations to the Premises or the Common Areas are required by
Applicable Laws in connection with such Transfer or the particular business of
such Transferee, such Alterations shall be subject to the prior approval of
Landlord (which approval shall not be unreasonably withheld) and Tenant shall
bear the cost of such Alterations.
14.2 Following any Transfer in accordance with this Section 14,
Landlord may, after an Event of Default by Tenant, collect rent from the
Transferee or occupant and apply the net amount collected to the Rent, but no
Transfer or collection will be deemed an acceptance of the Transferee or
occupant as Tenant or release Tenant from its obligations.
Consent to a Transfer shall not relieve Tenant from obtaining Landlord's
consent to any other Transfer. Notwithstanding Landlord's consent to a
Transfer, Tenant shall continue to be primarily liable for its obligations. If
Tenant collects any rent or other amounts from a Transferee in excess of the
Rent for any monthly period, Tenant shall pay Landlord 50% of the excess
monthly, as and when received.
14.3 Notwithstanding the above (and except for a Transfer permitted
under Section 14.7), if Tenant requests Landlord's consent to sublet 49 % or
more of the Premises, Landlord may refuse to grant such consent in its sole
discretion and terminate this Lease as to the portion of the Premises with
respect to which such consent was requested; provided, however, if Landlord
does not consent and elects to terminate the Lease as to such portion, Tenant
may within 15 days after notice from Landlord to this effect withdraw Tenant's
request for consent. If such termination occurs, it shall be effective on the
date designated in a notice from Landlord and shall not be more than 30 days
following such notice.
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14.4 For Transfers to be effective following the initial 12 months
following the Commencement Date, Tenant must notify Landlord at least 60 days
prior to the desired date of the Transfer ("Tenant's Notice"), excluding a
Transfer permitted under Section 14.7. Tenant's Notice shall describe the
portion of the Premises to be transferred and the terms and conditions.
Landlord has, without obligation, 30 days following receipt of Tenant's Notice
to propose a subtenant for such space (which subtenant shall be subject to the
reasonable approval of Tenant) or to exercise its rights pursuant to Section
14.3 if Tenant's Notice discloses that 49% or more of the Premises is involved.
If the space covered by Tenant's Notice is subleased to a sublessee proposed by
Landlord, rent and other sums due from the subtenant will be paid to Tenant
directly and Landlord has no responsibility for the performance by such
subtenant of its obligations under its sublease with Tenant. If Landlord is
unwilling or unable to locate a subtenant (and, if applicable, declines to
exercise its rights under Section 14.3), Landlord will notify Tenant not later
than 30 days after receipt of Tenant's Notice and Tenant shall be free to
sublet the specified portion of the Premises to any third party on terms
substantially identical to those described in Tenant's Notice, subject to
Landlord's consent as set forth above. If Tenant does not sublet such portion
of the Premises within 180 days following Landlord's notice to Tenant, Tenant
must reoffer the Premises to Landlord in accordance with the provisions hereof
prior to subleasing to a third party.
14.5 All documents utilized by Tenant to evidence a Transfer are
subject to approval by Landlord. Tenant shall pay Landlord's reasonable
expenses, including reasonable attorneys' fees, of determining whether to
consent and in reviewing and approving the documents. Tenant shall provide
Landlord with such information as Landlord reasonably requests regarding a
proposed Transferee, including financial information.
14.6 If a trustee or debtor in possession in bankruptcy is entitled
to assume control over Tenant's rights under this Lease and assigns such rights
to any third party notwithstanding the provisions hereof, the rent to be paid
by such party shall be increased to the current Base Rent (if greater than that
being paid for the Premises) which Landlord charges for comparable space in the
Building as of the date of such third party's occupancy. If Landlord is
entitled under the Bankruptcy Code to "Adequate Assurance" of future
performance of this Lease, the parties agree that such term includes the
following:
(1) Any assignee must demonstrate to Landlord's reasonable
satisfaction a net worth (as defined in accordance with generally accepted
accounting principles consistently applied) at least as large as the net worth
of Tenant on the Commencement Date increased by 7%, compounded annually, for
each year thereafter through the date of the proposed assignment. Tenant's
financial condition was a material inducement to Landlord in executing this
Lease.
(2) The assignee must assume and agree to be bound by the
provisions of this Lease.
14.7 Notwithstanding anything to the contrary contained hereinabove
but subject to Section 14.2 and provided that the conditions of clauses (3) and
(5) of Section 14.1 are met, Tenant may, without obtaining Landlord's prior
written consent, assign or sublease all or any portion of the Premises to the
following parties on the following conditions: (i) any subsidiary or affiliate
in which Tenant has, directly or indirectly, an ownership interest of more than
50%; (ii) any direct or ultimate parent of Tenant; (iii) any subsidiary or
affiliate in which Tenant's parent owns, directly or indirectly, by means of an
ownership interest of more than 50%; or (iv) any corporation into which Tenant
may be merged or consolidated or which purchases all or substantially all of
the assets or stock of Tenant provided that the resulting corporation has a net
worth at least equal to Tenant's net worth as of the date hereof. A sale or
transfer of stock in Tenant pursuant to a public offering, including publicly
traded stock of Tenant, shall be permitted without obtaining Landlord's prior
written consent. As soon as practicable prior to the effective date of a
transaction permitted under this Section 14.7, Tenant will provide Landlord
with documentation evidencing such transaction and such other evidence as
Landlord may reasonably require to establish that such transaction falls within
the terms and provisions of this Section.
15. DAMAGE TO PROPERTY. Tenant agrees Landlord is not liable for any injury
or damage, either proximate or remote, occurring through or caused by fire,
water, steam, or any repairs, alterations, injury, accident, or any other cause
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to the Premises, to any furniture, fixtures, Tenant improvements, or other
personal property of Tenant kept or stored in the Premises, or in other parts
of the Building Complex, whether by reason of the negligence or default of
Landlord, other occupants, any other person, or otherwise; and the keeping or
storing of all property of Tenant in the Premises and Building Complex is at
the sole risk of Tenant. Landlord agrees that Tenant is not liable for injury
or damage to property of Landlord in the Building, whether by reason of the
negligence or default of Tenant.
16. INDEMNITY TO
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LANDLORD.
16.1 Tenant agrees to indemnify, defend, and hold Landlord and
Building Manager harmless from all liability, costs, or expenses, including
attorneys' fees, on account of damage to the person or property of any third
party, including any other tenant in the Building Complex, to the extent caused
by the negligence or breach of this Lease by the Tenant or Tenant's Agents,
subject to the provisions of Section 18.6.
16.2 Tenant shall maintain throughout the Term a commercial general
liability policy, including protection against death, personal injury and
property damage, issued by an insurance company qualified to do business in the
state in which the Premises are located, with a single limit of not less than
$1,000,000.00. Such policy shall name Landlord, Building Manager, and Mortgagee
as additional insureds, be primary to any other similar insurance of such
additional insureds, and provide that it may not be canceled or modified
without at least 20 days' prior notice to Landlord and Mortgagee. The minimum
limits of such insurance do not limit the liability of Tenant hereunder. Prior
to occupancy of the Premises, and prior to expiration of the then-current
policy, Tenant shall deliver certificates evidencing that insurance required
under this Lease is in effect.
16.3 Landlord agrees to indemnify, defend, and hold Tenant harmless
from all liability, costs, or expenses, including attorneys' fees, on account
of damage to the person or property of any third party (excluding Tenant's
Agents) including any other tenant in the Building Complex, to the extent
caused by the negligence or breach of this Lease by Landlord, subject to the
provisions of Section 18.6.
17. SURRENDER AND NOTICE. Upon the expiration or other termination of
this Lease, Tenant shall immediately quit and surrender to Landlord the
Premises broom clean, in good order and condition, ordinary wear and tear and
loss by fire or other casualty excepted, and Tenant shall remove all of its
movable furniture and other effects, all telephone cable and data cable in the
Building core utility chases (as distinguished from wiring in ceilings and
walls within the Premises) installed for Tenant, and such Alterations, as
Landlord requires in accordance with Section 12.3. If Tenant fails to timely
vacate the Premises as required, Tenant is responsible to Landlord for all
resulting costs and damages of Landlord, including any amounts paid to third
parties who are delayed in occupying the Premises.
18. INSURANCE, CASUALTY, AND RESTORATION OF PREMISES.
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18.1 Landlord shall maintain property insurance for the Building
Complex, the shell and core of the Building and the Premises in such amounts,
from such companies, and on such terms and conditions, including insurance for
loss of Rent as Landlord deems appropriate, from time to time.
18.2 Tenant shall maintain throughout the Term insurance coverage at
least as broad as ISO Special Form Coverage against risks of direct physical
loss or damage (commonly known as "all risk") for the full replacement cost of
Tenant's property and betterments in the Premises, including tenant finish in
excess of the Initial Tenant Finish.
18.3 If the Building is damaged by fire or other casualty which
renders the Premises wholly untenantable and the damage is so extensive that
an architect selected by Landlord certifies in writing to Landlord and Tenant
within 60 days of said casualty that the Premises cannot, with the exercise of
reasonable diligence, be made fit for occupancy within 180 working days from
the happening thereof, then, at the option of Landlord or Tenant exercised in
writing to the other within 30 days of such determination, this Lease shall
terminate as of the occurrence of such damage. In the event of termination,
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Tenant shall pay Rent duly apportioned up to the time of such casualty and
forthwith surrender the Premises and all interest. If Tenant fails to do so,
Landlord may reenter and take possession of the Premises and remove Tenant. If,
however, the damage is such that the architect certifies that the Premises can
be made tenantable within such 180-day period or neither Landlord or Tenant
elects to terminate the Lease despite the extent of damage, then the provisions
below apply.
18.4 If the Premises are damaged by fire or other casualty that does
not render it wholly untenantable or require a repair period in excess of 180
days, Landlord shall with reasonable promptness except as hereafter provided
repair the Premises to the extent of the Initial Tenant Finish.
18.5 If the Building is damaged (though the Premises may not be
affected, or if affected, can be repaired within 180 days) and within 60 days
after the damage Landlord decides not to reconstruct or rebuild the Building,
then, notwithstanding anything contained herein, upon notice to that effect
from Landlord within said 60 days, Tenant shall pay the Rent apportioned to the
later of the date of such casualty or the date that Tenant ceases to use the
Premises, this Lease shall terminate from the date of such notice, and both
parties discharged from further obligations except as otherwise expressly
provided.
18.6 Landlord and Tenant waive all rights of recovery against the
other and its respective officers, partners, members, agents, representatives,
and employees for loss or damage to its real and personal property kept in the
Building Complex, including any loss or damage which is capable of being
insured against under ISO Special Form Coverage, or for loss of business
revenue or extra expense arising out of or related to the use and occupancy of
the Premises. Tenant also waives all such rights of recovery against Building
Manager. Each party shall, upon obtaining the property damage insurance
required by this Lease, notify the insurance carrier that the foregoing waiver
is contained in this Lease and use reasonable efforts to obtain an appropriate
waiver of subrogation provision in the policies.
18.7 Rent shall abate from the later of the date of such casualty or
the date that Tenant ceases to use the Premises and continuing until
substantial completion of repair and restoration to the extent of the Initial
Tenant Finish permitting occupancy by Tenant, in the same proportion that the
part of the Premises rendered untenantable bears to the whole; provided,
however, if the casualty is the fault of Tenant or Tenant's Agents, then the
Rent will abate during any such period of repair and restoration but only to
the extent of any recovery by Landlord under its rental insurance related to
the Premises.
19. CONDEMNATION. If the Premises or substantially all of it or any
portion of the Building Complex which renders the Premises untenantable is
taken by right of eminent domain, or by condemnation (which includes a
conveyance in lieu of a taking), this Lease, at the option of either Landlord
or Tenant exercised by notice to the other within 30 days after the taking,
shall terminate and Rent shall be apportioned as of the date of the taking.
Tenant shall forthwith surrender the Premises and all interest in this Lease,
and, if Tenant fails to do so, Landlord may reenter and take possession of the
Premises. If less than all the Premises is taken, Landlord shall promptly
repair the Premises as nearly as possible to its condition immediately prior to
the taking, unless Landlord elects not to rebuild under Section 18.5. Landlord
shall receive the entire award or consideration for the taking.
20. DEFAULT BY TENANT.
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20.1 Each of the following events is an "Event
of Default":
(1) Any failure by Tenant to pay Rent on the due date unless
such failure is cured within 5 business days after notice by Landlord;
(2) Tenant vacates (other than temporary vacation during which period
Tenant is engaged in. trying to relet the Premises) or abandons the Premises;
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(3) This Lease or Tenant's interest is transferred whether voluntarily
or by operation of law except as permitted in Section 14;
(4) This Lease or any part of the Premises is taken by process of law
and is not released within 15 days after a levy;
(5) Commencement by Tenant of a proceeding under any
provision of federal or state law relating to insolvency, bankruptcy, or
reorganization ("Bankruptcy Proceeding");
(6) Commencement of a Bankruptcy Proceeding against Tenant, unless
dismissed within 90 days after commencement;
(7) The insolvency of Tenant or execution by Tenant of an
assignment for the benefit of creditors; the convening by Tenant of a meeting
of its creditors or any significant class thereof for purposes of effecting a
moratorium upon or extension or composition of its debts; or the failure of
Tenant generally to pay its debts as they mature, or the occurrence of any of
the foregoing with respect to any Guarantor, if any, of Tenant's obligations;
(8) The admission in writing by Tenant (or any general
partner of Tenant if Tenant is a partnership), that it is unable to pay its
debts as they mature or it is generally not paying its debts as they mature;
(9) Tenant fails to take possession of the Premises by the
90th day following the Commencement Date (which deadline may be extended by
delays beyond the reasonable control of Tenant, provided that Tenant is
proceeding with due diligence to complete the Finish Work and move into the
Premises);
(10) Tenant fails to perform any of its other obligations
and non-performance continues for 30 days after notice by Landlord or, if such
performance cannot be reasonably had within such 30 day period, Tenant does not
in good faith commence performance within such 30 day period and diligently
proceed to completion; provided, however, Tenant's right to cure shall not
exceed the period provided by Applicable Law;
(11) Any event which is expressly defined as or deemed an
Event of Default under this Lease.
20.2 Remedies of Landlord. If an Event of Default occurs, Landlord may
then or at any time thereafter, either:
(1) (a) Without further notice except as required by
Applicable Laws, reenter and repossess the Premises or any part and expel
Tenant and those claiming through or under Tenant and remove the effects of
both without being deemed guilty of any manner of trespass and without
prejudice to any remedies for arrears of Rent or preceding breach of this
Lease. Should Landlord reenter or take possession pursuant to legal proceedings
or any notice provided for by Applicable Law, Landlord may, from time to time,
without terminating this Lease, relet the Premises or any part, either alone or
in conjunction with other portions of the Building Complex, in Landlord's or
Tenant's name but for the account of Tenant, for such periods (which may be
greater or less than the period which would otherwise have constituted the
balance of the Term) and on such conditions and upon such other terms (which
may include concessions of free rent and alteration and repair of the Premises)
as Landlord, in its reasonable discretion, determines and Landlord may collect
the rents therefor, Landlord is not in any way responsible or liable for
failure to relet the Premises, or any part thereof, or for any failure to
collect any rent due upon such reletting, but Landlord shall use commercially
reasonable efforts to mitigate its damages to the extent required under
applicable law. If there is other unleased space in the 4-building Worldgate
complex, Landlord may lease such other space without prejudice to its remedies
against Tenant. No such reentry or repossession or notice from Landlord shall
be construed as an election by Landlord to terminate this Lease unless specific
notice of such intention is given Tenant. Landlord reserves the right following
any reentry and/or reletting to exercise its right to terminate this Lease by
giving Tenant notice, in which event this Lease will terminate as specified in
the notice.
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(b) If Landlord takes possession of the Premises without terminating
this Lease, Tenant shall pay Landlord (i) the Rent which would be payable
if repossession had not occurred, less (ii) the net proceeds, if any, of
any reletting of the Premises after deducting all of Landlord's expenses
reasonably incurred in connection with such reletting, including all
repossession costs, brokerage commissions, reasonable attorneys' fees,
expenses of employees, alteration, and repair costs (collectively
"Reletting Expenses"). If, in connection with any reletting, the new lease
term extends beyond the Term or the premises covered thereby include other
premises not part of the Premises, a fair apportionment of the rent
received from such reletting and the Reletting Expenses, will be made in
determining the net proceeds received from the reletting. In determining
such net proceeds, rent concessions will also be apportioned over the term
of the new lease. Tenant shall pay such amounts to Landlord monthly on the
days on which the Rent would have been payable if possession had not been
retaken, and Landlord is entitled to receive the same from Tenant on each
such day; or
(2) Give Tenant notice of termination of this Lease on the
date specified and, on such date, Tenant's right to possession of the Premises
shall cease and the Lease will terminate except as to Tenant's liability as
hereafter provided as if the expiration of the term fixed in such notice were
the end of the Term. If this Lease terminates pursuant to this Section, Tenant
remains liable to Landlord for damages in an amount equal to the Rent which
would have been owing by Tenant for the balance of the Term had this Lease not
terminated, less the net proceeds, if any, of reletting of the Premises by
Landlord subsequent to termination after deducting Reletting Expenses. Landlord
may collect such damages from Tenant monthly on the days on which the Rent
would have been payable if this Lease had not terminated and Landlord shall be
entitled to receive the same from Tenant on each such day. Alternatively, if
this Lease is terminated, Landlord at its option may recover forthwith against
Tenant as damages for loss of the bargain and not as a penalty an amount equal
to the worth at the time of termination of the excess, if any, of the Rent
reserved in this Lease for the balance of the Term over the then Reasonable
Rental Value of the Premises for the same period plus all Reletting Expenses.
"Reasonable Rental Value" is the amount of rent Landlord can obtain for the
remaining balance of the Term.
20.3 Cumulative Remedies. Suits to recover Rent and damages may be
brought by Landlord, from time to time, and nothing herein requires Landlord to
await the date the Term would expire had there been no Event of Default or
termination, as the case may be. Each right and remedy provided for in this
Lease is cumulative and non-exclusive and in addition to every other right or
remedy now or hereafter existing at law or equity, including suits for
injunctive relief and specific performance, but in no event is Tenant
responsible for consequential damages or lost profit incurred by Landlord as a
result of any default by Tenant except as arise in connection with Tenant's
failure to surrender the Premises upon the expiration or earlier termination of
the Lease. The exercise or beginning of the exercise by Landlord of one or more
rights or remedies shall not preclude the simultaneous or later exercise by
Landlord of other rights or remedies. All costs incurred by Landlord to collect
any Rent and damages or to enforce this Lease are also recoverable from Tenant.
If any suit is brought because of an alleged breach of this Lease, the
prevailing party is also entitled to recover from the other party all
reasonable attorneys' fees and costs incurred in connection therewith.
20.4 No-Waiver. No failure by Landlord to insist upon strict
performance of any provision or to exercise any right or remedy upon a breach
thereof, and no acceptance of full or partial Rent during the continuance of
any breach constitutes a waiver of any such breach or such provision, except by
written instrument executed by Landlord. No waiver shall affect or alter this
Lease but each provision hereof continues in effect with respect to any other
then existing or subsequent breach thereof.
20.5 Bankruptcy. Nothing contained in this Lease limits Landlord's
right to obtain as liquidated damages in any bankruptcy or similar proceeding
the maximum amount allowed by law at the time such damages are to be proven,
whether such amount is greater, equal to, or less than the amounts recoverable,
either as damages or Rent, referred to in any of the preceding provisions of
this Section. Notwithstanding anything in this Section to the contrary, any
proceeding described in Section 20.1(5),(6),(7) and (8) is an Event of Default
only when such proceeding is brought by or against the then holder of the
leasehold estate under this Lease.
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20.6 Late Payment Charge. Any Rent not paid within 5 days after the
due date shall thereafter bear interest at 5 percentage points above the
Prime Rate or the highest rate permitted by law, whichever is lower, until
paid. Any amounts paid by Landlord to cure a default of Tenant which
Landlord has the right but not the obligation to do, shall, if not repaid
by Tenant within 5 days of demand by Landlord, thereafter bear interest at
5 percentage points above the Prime Rate until paid. "Prime Rate" means
that rate announced by Wells Fargo Bank, N.A. as its prime rate on the date
closest to the date interest commences. 20.7 Waiver of Jury Trial. Tenant
and Landlord waive any right to a trial by jury in suits arising out of or
concerning the provisions of this Lease.
2 1. DEFAULT BY LANDLORD. An event of default by Landlord shall exist if
Landlord fails to perform any of its obligations and non-performance continues
for 30 days after notice by Tenant or, if such performance cannot be reasonably
had within such 30 day period, Landlord does not in good faith commence
performance within such 30 day period and diligently proceed to completion.
Such notice shall be ineffective unless a copy is simultaneously also delivered
in the manner required in this Lease to any holder of a mortgage and/or deed of
trust affecting all or any portion of the Building Complex (collectively,
"Mortgagee"), provided that prior to such notice Tenant has been notified (by
way of notice of Assignment of Rents and Leases, or otherwise), of the address
of a Mortgagee. If Landlord fails to cure such default within the time
provided, then Mortgagee shall have an additional 30 days following a second
notice from Tenant or, if such default cannot be cured within that time, such
additional time as may be necessary provided within such 30 days, Mortgagee
commences and diligently pursues a cure (including commencement of foreclosure
proceedings if necessary to effect such cure). Tenant's sole remedy will be
equitable relief or actual damages but in no event is Landlord or any Mortgagee
responsible for consequential damages or lost profit incurred by Tenant as a
result of any default by Landlord. If a Mortgagee, or transferee under such
Mortgage (hereafter defined), succeeds to Landlord's interest as a result of
foreclosure or otherwise, such party shall not be: (i) liable for any default,
nor subject to any setoff or defenses that Tenant may have against Landlord;
(ii) bound by any amendment (including an agreement for early termination)
without its consent made at any time after notice to Tenant that such Mortgage
requires such consent; and (iii) bound by payment of Rent in advance for more
than 30 days. Tenant agrees to pay Rent (and will receive credit under this
Lease) as directed in any Mortgagee's notice of Landlord's default under the
Mortgage reciting that Mortgagee is entitled to collect Rent.
22. SUBORDINATION AND ATTORNMENT.
-----------------------------
22.1 This Lease at Landlord's option will be subordinate to any
mortgage, deed of trust and related documents now or hereafter placed upon the
Building Complex (including all-advances made thereunder), and to all
amendments, renewals, replacements, or restatements thereof (collectively,
"Mortgage"). Tenant agrees that no documentation other than this Lease is
required to evidence such subordination.
22.2 If any Mortgagee elects to have this Lease superior to the lien
of its Mortgage and gives notice to Tenant, this Lease will be deemed prior to
such Mortgage whether this Lease is dated prior or subsequent to the date of
such Mortgage or the date of recording thereof.
22.3 In confirmation of subordination or superior position, as the
case may be, Tenant will execute such documents as may be reasonably required
by Mortgagee and if it fails to do so within 10 business days after demand,
Tenant hereby irrevocably appoints Landlord as Tenant's attorney-in-fact and in
Tenant's name, place, and stead, to do so.
22.4 Tenant hereby attorns to all successor owners of the Building,
whether such ownership is acquired by sale, foreclosure of a Mortgage, or
otherwise.
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23. REMOVAL OF TENANT'S PROPERTY. All movable personal property of Tenant
not removed from the Premises upon abandonment, expiration or earlier
termination of this Lease shall be conclusively deemed abandoned and may be
sold, or otherwise disposed of by Landlord without notice to Tenant and without
obligation to account; Tenant shall pay Landlord's expenses in connection with
such disposition.
24. HOLDING OVER: TENANCY MONTH-TO-MONTH. If, after the expiration or
termination of this Lease, Tenant remains in possession of the Premises without
a written agreement as to such holding over and continues to pay rent and
Landlord accepts such rent, such possession is a tenancy from month-to-month,
subject to all provisions hereof but at a monthly rent equivalent to 150 % of
the monthly Rent paid by Tenant immediately prior to such expiration or
termination. Rent shall continue to be payable in advance on the first day of
each calendar month. Such tenancy may be terminated by either party upon 10
days' notice prior to the end of any monthly period. Nothing contained herein
obligates Landlord to accept rent tendered after the expiration of the Term or
relieves Tenant of its liability under Section 17.
25. PAYMENTS AFTER TERMINATION. No payments by Tenant after expiration or
termination of this Lease or after any notice (other than a demand for payment
of money) by Landlord to Tenant reinstates, continues, extends the Term, or
affects any notice given to Tenant prior to such payments. After notice,
commencement of a suit, or final judgment granting Landlord possession of the
Premises, Landlord may collect any amounts due or otherwise exercise Landlord's
remedies without waiving any notice or affecting any suit or judgment.
26. STATEMENT OF PERFORMANCE. Tenant agrees at any time upon not less
than 10 days' notice to execute and deliver to Landlord a written statement
certifying that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified stating the modifications); that there have been no defaults by
Landlord or Tenant and no event which with the giving of notice or passage of
time, or both, would constitute such a default (or, if there have been
defaults, setting forth the nature thereof); the date to which Rent has been
paid in advance and such other information as Landlord requests. Such statement
may be relied upon by a prospective purchaser of Landlord's interest or
Mortgagee. Tenant's failure to timely deliver such statement is conclusive upon
Tenant that: (i) this Lease is in full force and effect without modification
except as may be represented by Landlord; (ii) there are no uncured defaults in
Landlord's performance; and (iii) not more than 1 month's Rent has been paid in
advance. Upon request, Tenant will furnish Landlord an appropriate resolution
confirming that the party signing the statement is authorized to do so. Any
such statement shall be substantially in the form attached hereto as Exhibit G
with such additional provisions or changes as may be reasonably required by the
party intending to rely on such statement.
27. MISCELLANEOUS.
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27.1 Transfer by Landlord. The term "Landlord" means so far as
obligations of Landlord are concerned, only the owner of the Building at the
time in question and, if any transfer of the title occurs, Landlord herein
named (and in the case of any subsequent transfers, the then grantor) is
automatically released from and after the date of such transfer of all
liability as respects performance of any obligations of Landlord thereafter to
be performed. Any funds in Landlord's possession at the time of transfer in
which Tenant has an interest will be turned over to the grantee and any amount
then due Tenant under this Lease will be paid to Tenant.
27.2 No Merger. The termination or mutual cancellation of this Lease
will not work a merger, and such termination or cancellation will at the
option of Landlord either terminate all subleases or operate as an automatic
assignment to Landlord of such subleases.
27.3 Common Area Use. Landlord may use any of the Common Areas for the
purposes of completing or making repairs or alterations in any portion of
the Building Complex; subject to the provisions of Section 11.
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27.4 Independent Covenants. This Lease is to be construed as though
the covenants between Landlord and Tenant are independent and not dependent and
Tenant is not entitled to any setoff of the Rent against Landlord if Landlord
fails to perform its obligations; provided, however, the foregoing does not
impair Tenant's right to commence a separate suit against Landlord for any
default by Landlord so long as Tenant complies with Section 21.
27.5 Validity of Provisions. If any provision is invalid under
present or future laws, then it is agreed that the remainder of this Lease is
not affected and that in lieu of each provision that is invalid, there will be
added as part of this Lease a provision as similar to such invalid provision as
may be possible and is valid and enforceable.
27.6 Captions. The caption of each Section is added for convenience
only and has no effect in the construction of any provision of this Lease.
27.7 Construction. The parties waive any rule of construction that
ambiguities are to be resolved against the drafting party. Any words following
the words "include," "including," "such as," "for example," or similar words or
phrases shall be illustrative only and are not intended to be exclusive,
whether or not language of non-limitation is used.
27.8 Applicabili1y. Except as otherwise provided, the provisions of
this Lease are applicable to and binding upon Landlord's and Tenant's
respective heirs, successors and assigns. Such provisions are also considered
to be covenants running with the land to the fullest extent permitted by law.
27.9 Authority. Tenant and the party executing this Lease on behalf
of Tenant represent to Landlord that such party is authorized to do so by
requisite action of Tenant and agree, upon request, to deliver Landlord a
resolution, similar document, or opinion of counsel to that effect.
27.10 Severability. If there is more than one party which is the
Tenant, the obligations imposed upon Tenant are joint and several.
27.11 Acceptance of Keys, Rent or Surrender. No act of Landlord or
its representatives during the Term, including any agreement to accept a
surrender of the Premises or amend this Lease, is binding on Landlord unless
such act is by a partner, member or officer of Landlord, as the case may be, or
other party designated in writing by Landlord as authorized to act. The
delivery of keys to Landlord or its representatives will not operate as a
termination of this Lease or a surrender of the Premises. No payment by Tenant
of a lesser amount than the entire Rent owing is other than on account of such
Rent nor is any endorsement or statement on any check or letter accompanying
payment an accord and satisfaction. Landlord may accept payment without
prejudice to Landlord's right to recover the balance or pursue any other remedy
available to Landlord.
27.12 Building Name and Size. Landlord may as it relates to the
Building and Building Complex: change the name, increase the size by adding
additional real property (to the extent such additional real property is
included in the planned 4 building complex consistent with the Final
Development Plan Amendment ("FDPA") that received approval prior to the
execution hereof), construct other buildings or improvements (consistent with
the FDPA), change the location and/or character, or make alterations or
additions; provided, however, that (i) Landlord shall not revise the Site Plan
for Worldgate Plaza I and 11 that has already been approved by governmental
authorities, (ii) Landlord shall not materially alter the exterior of Worldgate
Plaza I and 11 as provided in Landlord's Drawings, and (iii) Landlord shall not
rename the Building unless such new name is either the address of the Building
or a substitute name approved by Tenant. If additional buildings are
constructed or the size is increased, Landlord and Tenant shall execute an
amendment which incorporates any necessary modifications to Tenant's Pro Rata
Share (provided that such modifications shall not increase Tenant's Pro Rata
Share percentage as determined in accordance with the Addendum). Tenant may not
use the Building's name for any purpose other than as part of its business
address without Landlord's consent, which shall not be unreasonably withheld,
conditioned or delayed. Tenant shall have the right to use photographs of the
Building and the Building address in its marketing and
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advertising provided that such Landlord shall have a right to require Tenant to
discontinue such use if Landlord determines that such use is not, in Landlord's
reasonable opinion, consistent with the first class image of the Building.
27.13 Diminution of View. Tenant agrees that no diminution of light,
air, or view from the Building entitles Tenant to any reduction of Rent under
this Lease, results in any liability of Landlord, or in any way affects
Tenant's obligations.
27.14 Limitation of Liability. Notwithstanding anything to the
contrary contained in this Lease, Landlord's liability is limited to Landlord's
interest in the Building and the Security Deposit; by execution in the
provision provided below, Landlord agrees that it shall be liable for, the
application of the Deposit in accordance with the terms of this Lease until
such Deposit is applied strictly in accordance with the terms of this Lease,
returned or released to Tenant (or at Tenant's request), or the Deposit is
delivered to a purchaser or successor-in-interest to Landlord as owner of the
Building or Landlord's Mortgagee that assumes the obligations of Landlord with
respect to such Deposit.
27.15 Non-Reliance. Tenant confirms it has not relied on any
statements, representations, or warranties by Landlord or its
representatives except as set forth herein.
27.16 Written Modification. No amendment or modification of this Lease
is valid or binding unless in writing and executed by the parties.
27.17 Lender's Requirements. Tenant will make such modifications to
this Lease as may hereafter be required to conform to any lender's
requirements, so long as such modifications do not increase Tenant's
obligations or materially alter its rights.
27.18 Effectiveness. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or option to lease
and it is not effective unless and until execution and delivery by both
Landlord and Tenant.
27.19 Survival. This Lease, notwithstanding expiration or
termination, continues in effect as to any provisions requiring observance or
performance subsequent to termination or expiration.
27.20 Time of Essence. Time is of the essence herein.
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27.21 Rules and Regulations. If rules and regulations are attached
hereto, they are a part of this Lease and Tenant agrees that Tenant and
Tenant's Agents shall at all times abide by such rules and regulations.
27.22 Recording. Tenant will not record this Lease. Recording of the
Lease by or on behalf of Tenant is an Event of Default. Upon approval of a
form of memorandum of lease by Landlord and Tenant, either party may record
such form and shall cooperate in evidencing the expiration or earlier
termination, if applicable, under the applicable recording statutes.
28. AUTHORITIES FOR ACTION AND NOTICE.
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28.1 Unless otherwise provided, Landlord may act through Landlord's
Building Manager or other designated representatives from time to time.
28.2 All notices or other communications required or desired to be
given to Landlord must be in writing and shall be deemed received when
delivered personally to any officer, partner, or member of Landlord (depending
upon the nature of Landlord) or the manager of the Building (the "Building
Manager") whose office is in the Building, or when deposited in the United
States mail, postage prepaid, certified, return receipt requested, addressed
as set forth in Section
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1.10 . All notices or communications required or desired to be given to Tenant
shall be in writing and deemed duly served when delivered personally to any
office, partner, or member of Tenant (depending upon the nature of Tenant),
individually if a sole proprietorship, or when deposited in the United States
mail, postage prepaid, certified, return receipt requested, addressed to the
appropriate address set forth in Section 1. 13. Either party may designate in
writing served as above provided a different address to which notice is to be
mailed. The foregoing does not prohibit notice from being given as provided in
the rules of civil procedure, as amended from time to time, for the state in
which the Real Property is located.
29. PARKING. Landlord shall control parking in the Parking Garage by
Tenant's employees and employees of tenants in Plaza 11 by issuance of parking
passes; Landlord will make available the number of parking spaces set forth in
Section 1.9 without charge for parking by Tenant's employees by issuing passes
to employees designated by Tenant for the applicable number of spaces. Landlord
shall have the right to control or limit parking by visitors to the Building in
a manner consistent with policies at similar first-class buildings in the
suburban northern Virginia area; the visitor spaces for Tenant shall be in the
surface spaces adjacent to the entry to the Building, as shown on the site plan
attached as Exhibit J (which spaces shall be a portion of the 322 spaces
allocated to Tenant in accordance with Section 1.9) designated by signage as
visitor parking spaces for Tenant's visitors only (but Landlord shall have no
obligation to police the use of such spaces); the remaining parking spaces
shall be in the parking garage located in the lower level and the 1st through
4th floors of the Building and of the Plaza II Building (the "Parking Garage")
and in surface parking spaces in the Building Complex. All Tenant's parking
spaces shall be in and out, non-assigned (except for the reserved spaces as
provided in Section 1.9). Landlord shall designate Tenant's reserved parking
spaces within the portion of the Parking Garage located within the footprint of
the Building. Notwithstanding the above, Landlord's inability to make such
spaces available at any time for reasons beyond Landlord's reasonable control
is not a material breach by Landlord of its obligations hereunder and Tenant
has no rights to use the parking garage except as provided in this Section. If
Landlord is unable to make all such spaces available for reasons beyond
Landlord's reasonable control, Landlord shall take reasonable steps to make all
such spaces available as provided herein. All vehicles parked in the parking
facilities and the personal property therein shall be at the sole risk of
Tenant, Tenant's Agents and the users of such spaces and Landlord shall have no
liability for loss or damage thereto for whatever cause.
30. SUBSTITUTE PREMISES. [Intentionally deleted]
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3 1. BROKERAGE. Tenant represents it has not employed any broker with
respect to this Lease and has no knowledge or any broker's involvement in this
transaction except those listed in Sections 1. 14 and 1. 15 (collectively, the
"Brokers") which Brokers' commissions are being paid by Landlord under separate
written agreement and Landlord shall indemnify Tenant against any expense
incurred by Tenant as a result of any claim for commissions or fees by the
Brokers for which Landlord is responsible under such agreement. Tenant shall
indemnify Landlord against any expense incurred by Landlord as a result of any
claim for commissions or fees by any other broker, finder, or agent, whether or
not meritorious, employed by Tenant or claiming by, through, or under Tenant,
other than the Brokers. Tenant acknowledges Landlord is not liable for any
representations by the Brokers regarding the Premises, Building, Building
Complex, or this Lease.
32. COUNTERPARTS. This Lease may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Any one or more counterpart signature
pages may be removed from one counterpart of the Lease and annexed to another
counterpart of the Lease to form a completely executed original instrument
without impairing the legal effect of the signature thereon.
33. ADDENDUM/EXHIBITS. Any Addenda and/or Exhibits referred to herein
and attached hereto are incorporated herein by reference.
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IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first above written and it is effective upon delivery of a fully-executed
copy to Tenant.
ONEPOINT COMMUNICATIONS CORP., a WGP ASSOCIATES, LLC, a Virginia limited
liability
Delaware corporation company
By: ____________________________
Print Name: _____________________ By:
Print Title: ______________________
Authorized Signatory
"Landlord"
ATTEST:
Print Name: _____________________
Print Title: _______________________
"Tenant"
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ADDENDUM
THIS ADDENDUM is to that certain lease agreement (the "Lease") by and
between WGP ASSOCIATES, LLC, a Virginia limited liability company ("Landlord"),
and ONEPOINT COMMUNICATIONS CORP., a Delaware corporation ("Tenant"), with
respect to approximately 80,582 rentable square feet of space (the "Premises")
in the Building. In the event of any conflict between the terms and provisions
of the Lease and the terms and provisions of this Addendum, the terms and
provisions of this Addendum shall control.
1. Landlord and Tenant agree that, upon completion of the Final Working
Drawings (as defined in the Work Letter) for the Premises, Landlord shall have
Landlord's Architect remeasure the Premises to determine and certify to
Landlord and Tenant the rentable square footage of the Premises to be
determined by measuring the usable area in accordance with the modified
Washington, D.C. Association of Realtors, Inc. Standard Method of Measure and
applying a rentable/usable factor of 11. 86 % as to full floor tenancies. If
such measurement differs from the square footage set forth herein, the Base
Rent (based on annual per rentable square foot rates set forth in Section 1.4),
the Allowance, if applicable, and the number of parking spaces to which Tenant
is entitled shall be revised to reflect such calculation and such revised
numbers.
2. Landlord is the owner of an adjacent parcel of land known generally as
Worldgate Parcel 12 on which Landlord may build an additional office building
("Plaza 111"). If Landlord (or any successor which is owner of both the Real
Property and owner of Worldgate Parcel 12 at such time) as such owner of
Worldgate Parcel 12, elects to proceed with construction of an office building
on the Plaza III site, Landlord agrees to offer to lease space to Tenant in
Plaza III in accordance with the following provisions:
A. Prior to initial leasing of the 5th and 6th floors in Plaza III,
Landlord shall give notice to Tenant (the "Offer Notice") of Landlord's desire
to lease such floors to Tenant (the "RFO Space"), provided that, if Landlord
desires at such time to offer a portion or all of the 5th and 6th floors to
another proposed tenant in conjunction with leasing other space in Plaza 111,
Landlord shall have a right to identify all of the space being proposed to be
leased as well (such space, including the applicable portions of the 5th and
6th floors and the space outside those floors is referred to collectively as
the "Additional Space"). Tenant has 10 calendar days after receipt of
Landlord's Offer Notice within which to notify Landlord if it elects to
exercise its Right of Offer as to (i) the RFO Space (if there is no Additional
Space identified in the Offer Notice) or (ii) the Additional Space (if the
Additional Space is identified). Tenant must take all of the Additional Space
if identified in the Offer Notice or must take all of the RFO Space (if no
Additional Space is identified), but Tenant may not elect to take only a
portion thereof. If there is Additional Space set forth in the Offer Notice and
Tenant elects to lease the Additional Space, Tenant shall have a right to also
take the balance of the 5th and 6th floors not included in the Additional
Space. The space Tenant elects to lease, in accordance with the foregoing
provisions, as set forth in Tenant's responsive notice ("Tenant's Election
Notice") shall be deemed the "Offer Space." :
B. If Tenant does not timely notify Landlord, it will be
conclusively presumed that Tenant has waived its Right of Offer as to the RFO
Space, Landlord shall be free to lease the RFO Space to anyone whom it desires
and Tenant will have no further rights to the RFO Space, provided, however,
that if after Tenant waives its right as to any such Offer Space Landlord
desires to lease the Offer Space to a prospective tenant on materially more
beneficial terms than provided in Landlord's Offer Notice, Landlord shall
re-offer the Offer Space on such changed terms to Tenant before leasing to a
third party. For purposes of this Addendum: "more beneficial terms" means an
effective rental rate (taking into account amortization of allowances and rent
credits on a straight line basis over the applicable term) which is less than
the rate set forth in Landlord's Offer Notice; "materially more beneficial
terms" means an effective rental rate (taking into account amortization of
allowances and rent credits on a straight line basis over the applicable term)
which is 90% or less than the rate set forth in Landlord's Offer Notice.
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C. The Offer Notice shall include lease term, rental rate, finish allowance,
terms and conditions that Landlord desires offer to lease the respective space
to third parties (including finish allowance and lease p revisions), but in no
event shall the rental rate be less than the per square foot rental rate that
Tenant is paying for the Premises. Except as set forth in Landlord's Offer
Notice, the provisions of this Lease shall be applicable to such space and, at
Landlord's option, evidenced either in a separate lease or, if mutually agreed
by Landlord and Tenant, amendment to this Lease; however, the provisions of
this Addendum shall not be applicable to such space and provisions regarding
services, calculation of Operating Expenses and other provisions applicable to
such separate building shall be subject to separate determination and
calculation consistent with other leases of space in Plaza III. Except any
finish allowance and work letter provisions referred to in the Offer Notice,
all costs of preparing the space for Tenant's occupancy, including costs of
compliance with Applicable Laws (except for compliance that is the obligation
of Landlord under such work letter), will be paid by Tenant. I
D. Tenant's rights under this Paragraph 2 are conditioned on: (i)
Tenant not being in default under the Lease at the time it delivers Tenant's
Election Notice or on the date that Tenant's occupancy of the Offered Space is
scheduled to commence; (ii) Tenant not having vacated or subleased more than
25% of the Premises or assigned its interest in the Lease (except as permitted
under Section 14.7) at the time it exercises the Right of Offer or on the date
that Tenant's occupancy of the Offered Space is scheduled to commence; and
(iii) there being at least 2 years remaining in the Term. Notwithstanding the
foregoing, if there are less than two years remaining in the Term but Tenant's
rights under this paragraph would otherwise be available to Tenant and an
option to extend the Term is available to Tenant hereunder, Tenant may exercise
its rights under this Paragraph provided that Tenant simultaneously exercises
its option to extend the term of the Lease. Tenant's rights under this
paragraph are personal to Tenant and may not be assigned (except as permitted
under Section 14.7) and upon an assignment of the Lease (except as permitted
under Section 14.7), this Paragraph is null and void.
3. Landlord grants Tenant an option (the "Option") to extend the term of
the Lease for not more than 2 additional terms of 5 years each (the "Option
Term(s)"). The Option applies to the entirety of the Premises at such time and
is on the following conditions:
A. Notice of Tenant's interest in exercising the Option for the
respective Option Term must be given to Landlord no earlier than 15 months and
no later than 9 months prior to the expiration of the Initial Term or
then-current Option Term, as applicable ("Tenant's Notice"). Not later than 30
days after receiving Tenant's Notice, Landlord will notify Tenant of the Base
Rent applicable during the respective Option Term and any allowances or
concessions to be granted by Landlord ("Landlord's Notice").
B. Tenant shall have 15 days following Tenant's receipt of
Landlord's Notice within which to exercise the Option for the respective Option
Term by delivering written notice of such exercise to Landlord at the Base
Rent, allowances and concessions, if any, set forth in Landlord's Notice or
delivering notice of such exercise but reserving the right to final
determination of the Base Rent to be paid in accordance with subparagraphs E
below ("Tenant's Dispute Notice"). If Tenant timely exercises the Option for
the respective Option Term, the Lease shall be deemed extended and thereafter
the parties shall execute an amendment to the Lease setting forth the extension
for the Option Term and the rental rate applicable upon determination of the
Base Rent applicable in accordance with subparagraph E below.
C. Unless Landlord is timely notified by Tenant in accordance with
subparagraphs A and B above, it will be conclusively deemed that Tenant has not
exercised the Option and the Lease will expire in accordance with its terms on
the expiration of the Initial Term or then-current Option Term, as applicable.
D. Tenant's rights pursuant to this Paragraph are personal to Tenant
and may not be assigned except an assignment permitted under Section 14.7.
Tenant's right to exercise the Option is conditioned on: (i) there not being
an Event of Default by Tenant at the time of exercise or at the time of
commencement of the Option Term; (ii) Tenant not having subleased or vacated
more than 25 % of the Premises or assigned its interest under the Lease as of
the commencement of the Option Term (except as permitted under Section 14.7);
and (iii) Tenant having the financial ability to perform its
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obligations under the Option Term. Upon an assignment of the Lease (except an
assignment permitted under Section 14.7), this Paragraph is null and void.
E. Following delivery of Tenant's Dispute Notice, Landlord and
Tenant shall promptly initiate negotiations to determine a mutually acceptable
Base Rent. If the parties mutually agree upon a Base Rent rate, such agreed
rate shall be the Base Rent rate applicable during the Option Term. If the
parties have not agreed upon the terms as of the 20th day after the date of
Tenant's Dispute Notice, then Landlord and Tenant shall, within thirty (30)
days after Tenant's delivery of Tenant's Dispute Notice agree upon a qualified
commercial real estate broker of good reputation, having at least five (5)
years' experience in the northern Virginia real estate market; if Landlord and
Tenant cannot agree upon the broker, then they shall each select, within the
foregoing twenty-day period, a real estate broker who meets the above
qualifications and together such brokers will then select as the arbitrator a
real estate broker who meets the above qualifications (the broker selected
shall be deemed the "Arbitrator" hereunder). Within ten (10)) days of selection
of the Arbitrator, Landlord and Tenant each shall state, in writing, their
determination of the Prevailing Market Rental Rate supported by the reasons
therefor and shall make counterpart copies for each other and the Arbitrator,
under an arrangement for simultaneous exchange of the determinations. The
Arbitrator will review each party's declaration of the Prevailing Market Rental
Rate and select the one which he determines most accurately reflects such
Arbitrator's determination of the Prevailing Market Rental Rate. The Arbitrator
shall have no right to propose a middle ground or any modifications of either
of the two proposed resolutions. The Base Rent to paid during the Option Term
shall be the Prevailing Market Rental Rate so determined and Tenant shall have
the right to receive the allowance and concessions, if any, set forth in
Landlord's Notice. The costs incurred in connection with engaging the
Arbitrator shall be shared equally by Landlord and Tenant, and shall be
determined at the time the Arbitrator is selected. For purposes of this
Paragraph, Prevailing Market Rental Rate shall mean the annual amount per
square foot (including the then-current Operating Expenses) that a willing
tenant would pay and a willing landlord would accept following arms-length
negotiations with respect to an "Assumed Lease" (as defined below) under the
circumstances then obtaining. "Assumed Lease" means (i) a lease or renewal
having a commencement date within 6 months of Tenant's Notice for space of
approximately the same ' size as the Premises of the Building or a "Comparable
Building," as hereinafter defined, located in a portion of the Building or such
Comparable Building, and with a view and floor height similar to the portion of
the Premises for which Prevailing Market Rental Rate is being determined, for a
term equal in length to the Option Term; (ii) assuming that a real estate
commission is payable with respect to such lease to the extent a third-party
commission with respect to extension is agreed or obligated to be paid by
Landlord; and (I ii) taking into consideration and making adjustment to reflect
allowances and concessions provided in Landlord's Notice, if any, and the use
of the Base Operating Expenses provided in Section 1.5 during the Option Term.
"Comparable Building" shall mean any existing building or building hereafter
constructed in the Dulles corridor of northern Virginia which is of a size,
location, quality and prestige comparable to, and with a size and efficiency of
floor plate, amenities, and with tenants of a stature reasonably comparable
with the Building, provided that appropriate adjustments shall be made to
adjust for differences in the size, location, age, efficiency of floorplate,
and quality between such other buildings and the Building.
F. After exercise as to the respective Option Terms or failure to
exercise the Option, Tenant shall have no further rights to extend the
Term.
4. In accordance with the Work Letter, as part of the Finish Work, Tenant
shall have the right to have signage installed on a monument to be constructed
by Landlord, which monument shall be constructed at Landlord's cost; such
signage shall be subject to approval by Landlord of the exact location and
details, which approval shall not be unreasonably withheld, conditioned or
delayed, all of which approvals shall be diligently pursued by Landlord.
Further, the monument and Tenant's signage on the monument is subject to
approval under Applicable Law and under the declaration of protective
covenants applicable to the Real Property (the "Declaration"). The monument,
which shall be designed and constructed by Landlord at Landlord's cost, is
intended for a building name/address identifier for the entire 4 tower
Worldgate Plaza 1, 11, 111, and IV complex and for tenants of the complex, and
notwithstanding the above, is not exclusively for Tenant's signage; however,
Tenant shall have the right to use 25 % of such monument signage area; the
monument shall not be used for Tenant's signage if only the Building
name/address identifier is permitted on such monument under the Declaration
and Applicable Law. The costs for the design, fabrication and installation of
such Tenant's signage shall be borne by Tenant
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(subject to the allowance provisions of the Work Letter). Tenant will bear the
costs of removal of any signage at the termination or expiration of the Lease,
including restoring or repairing damages to the monument caused by such removal
to the condition at the time of installation. In addition, if Landlord is
required at any time to remove any signage, including any approved signage, due
to any Applicable Law or if Tenant elects to remove or change the signage at
any time, Tenant shall bear the costs of such change or removal. Tenant will be
responsible at its cost to maintain its signage in reasonably good condition
acceptable to Landlord at Landlord's reasonable discretion; Landlord shall
maintain the monument as part of the Common Areas and shall require other
tenants to maintain their respective signage. In addition to the monument
signage, Tenant shall have the right to install a corporate identification sign
on the exterior of the Building facing the Dulles Toll/Access Roads out of the
Allowance or, if there is no balance of the Allowance available, at Tenant's
expense; Landlord shall not install or permit to be installed by any tenant of
another building any other such identification signage on the Building except
signage identifying the name or address number of the Building. Such Building
signage shall be subject to approval (including with respect to location,
style, size, material, and method of application) by Landlord which approval
shall not be unreasonably withheld, conditioned or delayed, under Applicable
Laws and under the Declaration (which approvals shall be diligently pursued by
Landlord. Tenant shall not otherwise affix signage to the outside of the
Building and no signage shall be affixed to the inside of the Building that is
visible outside the Building without the approval of Landlord, which approval
shall not be unreasonably withheld or delayed. Landlord shall erect signage at
the Real Property, in connection with construction of the Building, announcing
Tenant's occupancy of the Building. The rights granted to Tenant pursuant to
this Paragraph are personal to Tenant and any assignees (except an assignee
permitted under Section 14.7) or subtenants of Tenant have no rights under this
Section.
5. During the Term, Tenant shall have a right to use the roof of the
Building for the purpose of installing, maintaining and operating on a portion
of the roof of the Building ("Roof'), the actual location to be designated by
Landlord, in Landlord's reasonable discretion ("Roof Space"), non-penetrating
(or alternative attachment methods approved by Landlord) microwave/satellite
dishes and antennae, not to exceed one meter in diameter or height (the
"Dishes"), and (2) screening, equipment, conduits, cables and materials to be
located on the Roof Space or in other parts of the Building serving the Dishes
(collectively, the "Related Equipment") in accordance with the terms of this
Section. All costs and expenses related to installation (including costs of
acquiring any required permits therefor or approvals under the Declaration),
maintenance, operation and removal of the Dishes and Related Equipment shall be
borne by Tenant but Tenant shall not pay any additional fee or Rent for use of
the Dishes and the Related Equipment under this Lease. Landlord shall not
license to others the right to use the roof for dishes or other communications
devices without the prior consent of Tenant, which consent shall not be
unreasonably withheld with respect to Landlord's licensing of roof space for
purposes of accommodating other tenants in the Worldgate Plaza 1, 11, 111 and
IV complex, provided that such use cannot reasonably be accommodated elsewhere
in the complex, the dishes or devices do not include visible signage, and such
tenants' use does not interfere with Tenant's existing or planned usage of the
roof.
A. Tenant will not use the Roof for any purpose other than operation
of the Dishes and Related Equipment for Tenant's business operations, but shall
not have any right to license or otherwise provide use of the Dishes and
Related Equipment to others. Tenant's Agents agree to be accompanied at all
times by Landlord's designated representative when access to the Roof Space or
Related Equipment areas is necessary for installation, repair and maintenance;
Landlord will make such representative available upon reasonable prior notice.
Tenant will make every reasonable effort to minimize the number of service
calls made to the Roof Space or Related Equipment areas and will enter such
only for required maintenance or in case of an emergency. Tenant must secure
and maintain at all times all required approvals and permits of the Federal
Communications Commission and all other governmental bodies having jurisdiction
over its business, including its communications, operations and facilities.
Landlord may terminate Tenant's right to use the Roof under this Section upon
notice to Tenant, if: (a) Landlord reasonably determines that such installation
or use materially interferes with the operation of machinery and apparatus of
the Building, such as the elevators, and Tenant fails to remedy such condition
within 8 hours after notice; or (b) it is found by public authority having
jurisdiction over the Building that the installation and use constitute a
nuisance or hazard to the public or to the occupants of the Building; or (c)
Landlord reasonably determines that the use of such Dish interferes with the
use of any tenant's equipment or data processing machines in the
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in Plaza II or surrounding areas and Tenant fails to remedy such situation
within 8 hours after notice to Tenant; or (d) this Lease expires or is
terminated.
B. Upon expiration or earlier termination, Tenant will, at its sole
cost and expense, remove the Dishes and the Related Equipment and return the
Roof Space to the condition existing prior to such installation. Tenant will
keep and maintain the Dishes and the Related Equipment in good condition and
repair, at its sole expense, in a manner that does not conflict or interfere
with the use of other facilities installed in the Building or on the Roof.
Further, Tenant will not damage or permit damage to the Roof or the Building in
conjunction with the Dishes and the Related Equipment. The Dishes and Related
Equipment will be of types and frequencies that do not cause interference with
other equipment or operations in the Building, Plaza 11, or surrounding areas.
C. All transmitters must be equipped with any transmitter isolator
device necessary to minimize spurious radiation. If the Dishes or the Related
Equipment causes interference, Tenant will take all steps necessary to
eliminate the interference. Notwithstanding anything to the contrary set forth
in the default section of the Lease, if the interference is not eliminated, as
reasonably determined by Landlord, within 8 hours after Tenant receives
Landlords notice thereof, Tenant will be liable for all of Landlord's actual
damages (excluding consequential damages) resulting therefrom and will
temporarily disconnect and shut down the Dishes (except for intermittent
operation for the purpose of correcting the interference) until the
interference is eliminated and Tenant shall indemnify Landlord for all claims
of third parties with respect to such interference. If Tenant fails to cease
operations at the request of Landlord, Landlord will be entitled to injunctive
relief and the cost of obtaining such relief will be paid by the prevailing
party. Landlord makes no warranty that the Roof Space is suitable for the
Dishes or that it will perform according to Tenant's requirements.
D. Landlord and its agents, employees, contractors or anyone else
permitted by Landlord to be on the Roof may from time to time repair, replace,
maintain, or install additional improvements or fixtures on the Roof. If
Landlord permits other licensees to install other rooftop equipment, Landlord
shall use reasonable efforts to coordinate such installation with Tenant so as
to minimize the likelihood of such other equipment interfering with Tenant's
operations and Landlord shall not permit third parties to install equipment
(other than equipment necessary for operation of the Building) that interferes
with Tenant's operations. Tenant will cooperate in any repair, replacement,
maintenance and installation as reasonably required by Landlord from time to
time.
E. Tenant will, at Tenant's sole cost and expense, comply with all
Applicable Laws, or the requirements of Landlord's insurance underwriters
relating to the installation, maintenance, height, location, use, operation,
and removal of said Dishes and Related Equipment and indemnify Landlord against
any loss, cost, or expense incurred resulting from the installation,
maintenance, operation, or removal of said Dishes and Related Equipment.
Landlord makes no representation that Applicable Laws permit the installation
or operation of the Dishes or Related Equipment.
F. The insurance required to be carried by Tenant under Section 16.2
shall provide coverage with respect to the ownership, operation and use of the
Dishes and the Related Equipment. Landlord has no responsibility or liability
for damage to the Dishes or the Related Equipment.
6. Tenant shall have the right to install a supplemental generator (the
"Generator") to provide emergency additional electrical capacity to the
Premises in accordance with the following provisions:
A. The Generator shall be a diesel-powered generator with an above
ground fuel tank integrated into the generator equipment (not a free-standing
tank) (the "Tank") to provide fuel to such Generator. The Generator is
anticipated to be placed at a location at the Property in the parking garage or
at an exterior location specified by Landlord; Landlord shall specify the final
location following Landlord's final approval of the Generator specifications and
all necessary governmental and regulatory approval. Notwithstanding the
foregoing, Tenant's right to install the Generator shall be subject to
Landlord's reasonable approval of the manner in which the Generator, including
Tank, are installed, the manner in which any cables are run to and from the
Generator to the Premises and the measures that will be taken to eliminate any
5
<PAGE>
vibrations or sound disturbances from the operation of the Generator. Landlord
shall have the right to require an acceptable enclosure to hide or disguise the
existence of the Generator and to minimize any adverse effect that the
installation of the Generator may have on the appearance of the Building and
Property. Tenant shall be solely responsible for obtaining all necessary
governmental and regulatory approvals and for the cost of installing,
operating, maintaining and removing the Generator and Tank. Tenant shall also
be responsible for the cost of all utilities consumed in the operation of the
Generator.
B. Tenant shall be responsible for assuring that the installation,
maintenance, operation and removal of the Generator, including Tank, will in no
way damage the Building or Property. Tenant agrees to be responsible for any
damage caused to the Building or Property in connection with the installation,
maintenance, operation or removal of the Generator and, in accordance with the
terms of Section 16 of the Lease, to indemnify, defend and hold Landlord
harmless from all liabilities, obligations, damages, penalties, claims, costs,
charges and expenses, including, without limitation, reasonable architects' and
attorneys' fees (if and to the extent permitted by law), which may be imposed
upon, incurred by, or asserted against Landlord, the Building Manager, or
Mortgagee in connection with the installation, maintenance, operation or
removal of the Generator and Tank, including, without limitation, any
environmental and hazardous materials claims.
C. Tenant shall be responsible for the installation, operation,
cleanliness, maintenance and removal of the Generator, Tank and appurtenances,
all of which shall remain the personal property of Tenant, and shall be removed
by Tenant at its own expense at the termination of the Lease; provided,
however, that Tenant shall have the right to leave such equipment on the
Property if approved by Landlord prior to expiration or earlier termination of
the Lease. Tenant shall repair any damage caused by such removal, including the
patching of any holes to match, as closely as possible, the color surrounding
the area where the Generator and appurtenance were attached. Such maintenance
and operation shall be performed in a manner to avoid any unreasonable
interference with any other tenants or Landlord. Tenant agrees to maintain the
Generator, including without limitation, any enclosure installed around the
Generator in good condition and repair. Tenant shall be responsible for
performing any maintenance and improvements to any enclosure surrounding the
Generator so as to keep such enclosure in good condition.
D. Subject to the reasonable rules and regulations adopted by
Landlord, Tenant shall have access to the Generator and its surrounding area
for the purpose of installing, repairing, maintaining and removing said
Generator.
E. Tenant shall only test the Generator before or after normal
business hours and upon prior notice to Landlord.
7. In accordance with Landlord's Drawings (as referred to in the Work
Letter), three 4 inch conduits shall be available to provide
telecommunications connections from the public right-of-way adjacent to the
Building , one of which has been made available to Bell Atlantic for
connections, and four 4 inch vertical risers shall be available within the
Building for such services. In addition to the conduits reflected in
Landlord's Drawings, Landlord shall install a 4 inch conduit connecting
telephone closets on the 5' floors of Plaza II and Plaza I (the Building).
Subject to Applicable Laws and necessary governmental approvals, Tenant, at
Tenant's sole cost and expense, shall have the right to contract for the
provision of telecommunications through such conduits and risers during the
Term and to install additional conduit for telecommunications fiber to the
Building (in locations subject to Landlord's reasonable approval) and to
install additional risers within the Building (in locations subject to
Landlord's reasonable approval). Landlord shall cooperate with Tenant to the
extent reasonably required to obtain such services, but Landlord shall not be
obligated to incur additional obligations or incur costs (unless such actual
costs are borne by Tenant).
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto execute this Addendum.
ONEPOINT COMMUNICATIONS CORP., a WGP ASSOCIATES, LLC, a Virginia limited
liability
Delaware corporation company
By: _____________________________ By: _____________________________
Print Name: ______________________
Authorized Signatory
Print Title: _______________________
"Landlord"
ATTEST:
By: _____________________________
Print Name: ______________________
Print Title: _______________________
"Tenant"
By:
Print Name: Print Title:
"Tenant"
7
<PAGE>
WORLDGATE
PLAZA
I
DAVIS -CARTER -SCOTT TYPICAL OFFICE FLOOR 5,6,7,8
07/06/99
<PAGE>
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E-4
~-q
1 0 a I f 0
L L
WORLDGATE PLAZA I ENTRY
A
I I I I,
WORLDGATE PLAZA I & 11 D A V I S C A R T E R S C 0 T T PARKING LEVEL TWO & FACE
ONE SITE PLAN "WORLDGATE PLAZA I[ --WORLDGATE PLAZA 11 ENMY
N
06/28/99
<PAGE>
EXMBIT B
TO LEASE
REAL
PROPERTY
Parcel 28-A as shown on the plat entitled "Plat of Subdivision and Dedication
of Various Easements through the property of Worldgate Associates Limited
Partnership" attached to that certain Deed of Subdivision and Easement, by and
between Worldgate Associates Limited Partnership and The Town of Herndon, dated
August 27, 1998 and recorded September 29, 1998 in Deed Book 10587, page 129,
among the Land Records of Fairfax County, Virginia
<PAGE>
EXMBIT C
TO LEASE
OPERATING
EXPENSES
6.1 Definitions. The additional terms below have the following
meanings in this Lease:
(1) "Base Operating Expenses" means an amount equal to the
Operating Expenses for the calendar year identified as the Base Year in Section
1.5, as determined by Landlord in accordance with this Exhibit C. Tenant
acknowledges Landlord has not made any representations or warranties that the
Base Operating Expenses will equal any specified amounts (any estimates
provided by Landlord are non-binding estimates only).
(2) " Landlord's Accountants" means that individual or firm
employed by Landlord from time to time to keep the books and records for the
Building Complex, and/or to prepare the federal and state income tax returns
for Landlord with respect to the Building Complex, which books and records
shall be certified to by a representative of Landlord. All determinations made
hereunder shall be made by Landlord's Accountants unless otherwise stated.
(3) "Rentable Area" means 80,582 rentable square feet of
space. If the total rentable area changes as a result of remeasurement in
accordance with the Addendum, Landlord's Accountants shall make such
adjustments in the computations as are necessary to provide for such change.
(4) "Tenant's Pro Rata Share" means the percentage set forth
in Section 1.5. If Tenant, at any time during the Term, leases additional space
in the Building or if the Rentable Area is adjusted in accordance with the
Addendum, Tenant's Pro Rata Share shall be recomputed by dividing the total
rentable square footage of space then leased by Tenant (including any
additional space) by the Rentable Area and the resulting figure shall also
become Tenant's Pro Rata Share. If Tenant leases additional space in another
building in the Building Complex in accordance with the Addendum or (3) above,
the operating expenses to be borne by Tenant with respect to such space shall
be determined in accordance with the Lease document adding or otherwise leasing
such space.
(5) "Operating Expense Year" means each calendar year during
the Term, except that the first Operating Expense Year shall be calendar year
2000 and the last Operating Expense Year begins on January I of the calendar
year in which this Lease expires or is terminated and ends on the date of such
expiration or termination. If an Operating Expense Year is less than twelve
(12) months, Operating Expenses for such year-shall be prorated.
(6) "Operating Expenses" means all operating expenses of any
kind or nature which are in Landlord's reasonable judgment necessary,
appropriate, or customarily incurred in connection with the operation and
maintenance of the Building Complex. Operating Expenses include:
(a) All real property taxes and assessments levied against the
Building and a proportionate share of amounts levied against the rest of
the Building Complex by any governmental or quasi-governmental authority or
under any covenants, declarations, easements or restrictions, including
taxes, assessments, surcharges, or service or other fees of a nature not
presently in effect which are hereafter levied on the Building Complex as a
result of the use, ownership or operation of the Building Complex or for
any other reason, whether in lieu of or in addition to, any current real
estate taxes and assessments. However, any taxes which are levied on the
rent of the Building Complex will be determined as if the Building Complex
were Landlord's only real property. In no event do taxes and assessments
include any federal or state income taxes levied or assessed on Landlord.
Expenses for tax consultants to contest taxes or assessments are also
included as Operating Expenses (all of the foregoing are collectively
referred to herein as "Taxes"). Taxes also include special assessments,
license taxes, business license fees, business license taxes, commercial
rental taxes, levies, charges, penalties or taxes, imposed by any authority
against the Premises, Building Complex or any legal or equitable interest
of Landlord. Special assessments are deemed payable in such number of
installments permitted by law, whether or not actually so paid,
<PAGE>
and include any applicable interest on such installments. Taxes (other than
special assessments) are computed on an accrual basis based on the year in
which they are levied, even though not paid until the following Operating
Expense Year;
(b) Costs of supplies, including costs of relamping and replacing
ballasts in all Building standard tenant lighting;
(c) Costs of energy for the Building Complex, including costs of
propane, butane, natural gas, steam, electricity, solar energy and fuel
oils, coal or any other energy sources;
(d) Costs of water and sanitary and storm drainage services;
(e) Costs of janitorial and security services provided by Landlord in
accordance with the Lease;
(f) Costs of general maintenance, repairs, and replacements including
costs under HVAC and other mechanical maintenance contracts; and repairs
and replacements of equipment used in maintenance and repair work;
(g) Costs of maintenance, repair and replacement of landscaping;
(h) Insurance premiums for the Building Complex, including all-risk or
multi-peril coverage, together with loss of rent endorsement; the part of
any claim paid under the deductible portion of any insurance policy carried
by Landlord; public liability insurance; and any other insurance carried by
Landlord on any component parts of the Building Complex;
(i) All labor costs (other than those excluded under clause (xxxvi)
below), including wages, costs of worker's compensation insurance, payroll
taxes, fringe benefits, including pension, profit-sharing and health, and
legal fees and other costs incurred in resolving any labor dispute;
0) Professional building management fees (not to exceed 3 % of gross
Rent for the respective Operating Expense Year), costs and expenses,
including costs of office space and storage space required by management
for performance of its services;
(k) Legal, accounting, inspection, and other consulting fees
(including fees for consultants for services designed to produce a
reduction in Operating Expenses or improve the operation, maintenance or
state of repair of the Building Complex);
(1) Costs of capital improvements and structural repairs and
replacements to the Building Complex to conform to changes subsequent to
the date of issuance of the shell and core certificate of occupancy for the
Building in any Applicable Laws (herein "Required Capital Improvements");
and the costs of any capital improvements and structural repairs and
replacements designed primarily to reduce Operating Expenses (herein "Cost
Savings Improvements"). Expenditures for Required Capital Improvements and
Cost Savings Improvements will be amortized at a market rate of interest
over the useful life of such capital improvement (as determined by
Landlord's Accountants); however, the amortized amount of any Cost Savings
Improvement in any year will be equal to the estimated resulting reduction
in Operating Expenses; and
(m) Costs incurred for Landlord's Accountants including costs of any
experts and consultants engaged to assist in making the computations;
"Operating Expenses"
do not include:
----
2
<PAGE>
(i) Costs of work, including painting and decorating, which Landlord
performs for any tenant other than work of a kind and scope which Landlord
is obligated to furnish to all tenants whose leases contain a rental
adjustment provision similar to this one;
(ii) Costs of repairs or other work occasioned by fire, windstorm or
other insured casualty to the extent of insurance proceeds received;
(iii) Leasing commissions, advertising expenses, and other costs
incurred in leasing space in the Building;
(iv) Costs of repairs or rebuilding necessitated by condemnation; (v)
Interest on borrowed money or debt amortization, except as specifically set
forth above; (v i) Depreciation on the Building Complex;
(vii) payment of principal or interest due under any mortgage or deed
of trust;
(viii) depreciation or amortization of costs required to be
capitalized in accordance with generally accepted accounting principles
("Capital Improvements") (other than Permitted Capital Improvements);
(ix) the cost of roof replacement (as distinguished from repairs);
(x) compensation paid to officers of Landlord or officers of the
management agent or anyone else above the level of building manager;
(xi) the cost of tools, equipment and material used in, and all other
costs associated with, the initial construction of the Building and the
Project;
(xii) costs directly resulting from the gross negligence or willful
misconduct of Landlord or its employees or agents;
(xiii) costs for which Landlord is reimbursed by any insurance
required to be carried hereunder or actually carried by Landlord (excluding
a reasonable deductible);
(xiv) costs for any structural maintenance constituting Capital
Improvements or replacement or redesign of the structure (except for
Permitted Capital Improvements);
(xv) leasing commissions, legal fees and other expenses incurred by
Landlord or agents in connection with negotiations or disputes with tenant
or prospective tenant (other than with Tenant's sublessees or assignees)
for the Building or Complex;
(xvi) costs or expenses associated with the enforcement of any leases
(other than with Tenant, Tenant's sublessees or assignees) by Landlord,
other than customary property management issues;
(xvii) costs or fees relating to the defense of Landlord's title or
interest in the real estate containing the Building or Project, or any part
thereof, (xviii) costs incurred by Landlord in connection with the initial
construction of the Building, Project and related facilities; (xix)
expenses for the correction of defects in Landlord's initial construction
of the Building or Project; (xx) any costs or expenses relating to
Landlord's obligations under any work letter to construct
tenant improvements; (xxi) allowances, concessions, permits, licenses,
inspections, and other costs and expenses incurred in completing,
fixturing, renovating or otherwise improving, decorating or redecorating
space for tenant (including Tenant), prospective tenants or other occupants
or prospective occupants of the building, or vacant leasable space in the
Building, or constructing or finishing demising walls and public corridors
with respect to any such space whether such work or alteration is performed
for the initial occupancy by such tenant or occupant or thereafter (except
for Permitted Capital Improvements);
(xxii) any cash or other consideration paid by Landlord on account of,
with respect to or in lieu of the tenant work or alterations;
(xxiii) Landlord's costs of any services sold or provided to tenants
for which Landlord is entitled to be reimbursed by such tenants under the
lease with such tenants (including the separately metered electricity for
the Building which is being for by Tenant in accordance with Section 7.2),
other than under an operating expense provision similar to this one;
3
<PAGE>
(xxiv) expenses in connection with services or other benefits of a
type which are not made available to Tenant but which are provided to
another tenant or occupant;
(xxv) costs incurred due to violation by Landlord or any tenant of the
terms and conditions of any lease;
(xxvi) any expense for Landlord's advertising and promotional program
for the Building or the Complex;
(xxvii) renovation of the Building made necessary by the exercise of
eminent domain;
(xxviii) any cost incurred to Landlord or an affiliate of Landlord for
the provision of any goods or services, to the extent such cost exceeds the
cost then prevailing in similar transactions between unrelated parties;
(xxix) ground rent;
(xxx) legal fees (except for contesting tax assessments and/or for
personnel matters relating to employees of the Building), or other
professional or consulting fees (except such other professional and
consulting fees that are directly related to the maintenance, operation or
management of the Building);
(xxxi) any compensation paid to clerks, attendants or other persons in
commercial concessions operated for profit by Landlord or in the parking
garage of the Building if operated for profit;
(xxxii) increased insurance premiums caused by Landlord's or any
tenant's unusual hazardous activities;
(xxxiii) moving expense costs of tenants of the Building;
(xxxiv) costs arising from the presence of hazardous materials or
substances in or about or below the Building, the Land, or the Project,
including without limitation, hazardous substances in the groundwater or
soil (other than ordinary maintenance costs, including changing of filters,
etc.);
(xxxv) costs incurred for any items to the extent of Landlord's
recovery under a manufacturer's, materialmen's, vendor's or contractor's
warranty;
(xxxvi) wages, salaries or other compensation or benefits for offsite
employees applicable to the time spent working at other buildings, other
than the Building manager (provided that with respect to each employee that
services the Building and other buildings, a pro rata share of such
employee's salary shall be included in Base Year Operating Expenses, as
applicable);
(xxxvii) costs of acquisition of sculptures, paintings, or other
objects of art;
(xxxviii) the rent or expenses in lieu of rent for any onsite leasing
office of Landlord in the Building, or of any other space (except the
management office and storage space serving the Building) in the Building
set aside for storage or other facilities for the benefit of Landlord;
(xxxix) any other expenses for which Landlord actually receives direct
reimbursement from insurance, condemnation awards, warranties, other
tenants or any other source; (xl) reserves for repairs, maintenance and
replacements; (Eli) Landlord's general overhead expenses;
(xlii) accounting fees other than those attributable to reviewing and
preparing operating statements for the Building and paying operating
expenses;
(xliii) capital costs incurred to achieve compliance with any
governmental laws, ordinances, rules, regulations or orders (other than
Permitted Capital Improvements), or (xliv) any costs due to correction of
any "Year 2000" problems associated with any system servicing the Building.
To the extent that employees, utilities or other services or costs are
attributable to the Building and other buildings on a common basis or are
provided for Common Areas, such Operating Expenses shall be reasonably prorated
by Landlord to reflect costs to be allocated hereunder to the Building; it is
assumed that the electricity for the Common Areas, including the parking garage
shared with Plaza 11, are reasonably prorated already by being covered by
separate meters for the buildings (which metered electricity for the Building
is paid for by Tenant under Section 7.2 of the Lease), but there shall be a
reasonable adjustment to such expenses if separate metering does not result in
such reasonable proration.. If any lease entered into by Landlord with any
tenant in the Building is on a so-called "net" basis, or provides for a
separate basis of computation for any Operating Expenses with respect to its
leased premises, Landlord's Accountants may modify the
4
<PAGE>
computation of Base Operating Expenses, Rentable Area, and Operating Expenses
for a particular Operating Expense Year to eliminate or modify any expenses
which are paid for in whole or in part by such tenant. If the Rentable Area is
not fully occupied during the Base Year, Landlord's Accountants may adjust
those Operating Expenses which are affected by occupancy for the particular
Operating Expense Year to reflect 100% occupancy. Furthermore, in making any
computations contemplated hereby, Landlord's Accountants may make such other
modifications to the computations as are required in their judgment to achieve
the intention of the parties hereto.
6.2 Additional Payment . If any increase occurs in Operating
Expenses for any Operating Expense Year during the Term (beginning with
calendar year 2001) in excess of the Base Operating Expenses, Tenant shall pay
Landlord Tenant's Pro Rata Share of the amount of such increase less Estimated
Payments, if any, previously made by Tenant for Such year).
6.3 Estimated Payments. During each Operating Expense Year beginning
with the first month of calendar year 2001 and continuing each month thereafter
throughout the Term, Tenant shall pay Landlord, at the same time as Base Rent
is paid, an amount equal to 1/12 of Landlord's estimate of Tenant's Pro Rata
Share of any projected increases in Operating Expenses for the particular
Operating Expense Year in excess of Base Operating Expenses ("Estimated
Payment").
6.4 Annual Adjustments.
(1) Following the end of each Operating Expense Year,
including the first Operating Expense Year, Landlord shall submit to Tenant a
statement setting forth the exact amount of Tenant's Pro Rata Share of the
increase, if any, of the Operating Expenses for the Operating Expense Year just
completed over the Base Operating Expenses. Beginning with the statement for
calendar year 2001 Operating Expense Year, each statement shall set forth the
difference, if any, between Tenant's actual Pro Rata Share of the increase in
Operating Expenses for the Operating Expense Year just completed and the
estimated amount for such Operating Expense Year. Each statement shall also set
forth the projected increase, if any, in Operating Expenses for the new
Operating Expense Year over Base Operating Expenses and the corresponding
increase or decrease in Tenant's monthly Rent for such new Operating Expense
Year above or below the Rent paid by Tenant for the immediately preceding
Operating Expense Year.
(2) To the extent that Tenant's Pro Rata Share of the
increase in Operating Expenses for the period covered by a statement is
different from the Estimated Payment during the Operating Expense Year just
completed, Tenant shall pay Landlord the difference within 30 days following
receipt by Tenant of the statement or receive a credit against the next due
Rent, as the case may be. Until Tenant receives a statement, Tenant's Estimated
Payment for the new Operating Expense Year shall continue to be paid at the
prior Estimated Payment, but Tenant shall commence payment of Rent based on the
new Estimated Payment beginning on the first day of the month following the
month in which Tenant receives the statement. Tenant shall also pay Landlord or
deduct from the Rent, as the case may be, on the date required for the first
payment, as adjusted, the difference, if any, between the Estimated Payment for
the new Operating Expense Year set forth in the statement and the Estimated
Payment actually paid during the new Operating Expense Year. If, during any
Operating Expense Year, there is a change in the information on which Tenant is
then making its Estimated Payments so that the prior estimate is no longer
accurate, Landlord may revise the estimate and there shall be such adjustments
made in the monthly Rent on the first day of the month following notice to
Tenant as shall be necessary by either increasing or decreasing, as the case
may be, the amount of monthly Rent then being paid by Tenant for the balance of
the Operating Expense Year.
(4) If Tenant assumes the responsibility for providing
janitorial services to the Premises in accordance with Section 7.3, the costs
of such services borne by Tenant shall not be included in Operating Expenses
and the Base Operating Expenses shall be adjusted (for calculations applicable
to periods when Tenant bears such costs) to deduct the cost of such services
that are otherwise included in Base Operating Expenses. In addition, Tenant
shall receive a Rent credit for periods during which Tenant bears such costs
equal to the cost to Landlord of such services that would otherwise be
included in Base Operating Expenses (prorated on a daily basis for periods
less than a calendar year).
5
<PAGE>
6.5 Miscellaneous. In no event will any decrease in Rent pursuant to
any provision hereof result in a reduction of Rent below the Base Rent. Delay
by Landlord in submitting any statement for any Operating Expense Year does not
affect the provisions of this Section or constitute a waiver of Landlord's
rights for such Operating Expense Year or any subsequent Operating Expense
Years.
6.6 Dispute. If Tenant disputes an adjustment submitted by Landlord
or a proposed increase or decrease in the Estimated Payment, Tenant shall give
Landlord notice of such dispute within 30 days after Tenant's receipt of the
adjustment. If Tenant does not give Landlord timely notice, Tenant waives its
right to dispute the particular adjustment. If Tenant timely objects, Tenant
may engage its own certified public accountants ("Tenant's Accountants") to
verify the accuracy of the statement complained of or the reasonableness of the
estimated increase or decrease. The person conducting the examination on behalf
of Tenant shall enter into a confidentiality agreement satisfactory to
Landlord, which agreement shall not preclude or bar Tenant's Accountants from
disclosing information to Tenant. If Tenant's Accountants determine that an
error has been made, Landlord's Accountants and Tenant's Accountants shall
endeavor to agree upon the matter, failing which such matter shall be submitted
to an independent certified public accountant selected by Landlord, with
Tenant's reasonable approval, for a determination which will be conclusive and
binding upon Landlord and Tenant. All costs incurred by Tenant for Tenant's
Accountants shall be paid for by Tenant unless Tenant's Accountants disclose an
error, acknowledged by Landlord's Accountants (or found to have occurred
through the above independent determination), of more than 10% in the
computation of the total amount of Operating Expenses, in which event Landlord
shall pay the reasonable costs incurred by Tenant to obtain such audit.
Notwithstanding the pendency of any dispute, Tenant shall continue to pay
Landlord the amount of the Estimated Payment or adjustment determined by
Landlord's Accountants until the adjustment has been determined to be
incorrect. If it is determined that any portion of the Operating Expenses were
not properly chargeable to Tenant, then Landlord shall promptly credit or
refund the appropriate sum to Tenant.
6
<PAGE>
EXIHBIT D
TO LEASE
COMMENCEMENT CERTIFICATE
19
ONEPOINT COMMUNICATIONS
CORP. Attn: Joanne DiGuido
2201 Waukegan Road, Suite
E-200 Bannockburn, IL 60015
RE: Lease dated as of the July 15, 1999 (the "Lease"), by and between
WGP ASSOCIATES, LLC, a Virginia limited liability company, as Landlord, and
ONEPOINT COMMUNICATIONS CORP., a Delaware corporation, as Tenant
Dear Tenant:
With regard to the referenced Lease, Landlord and Tenant acknowledge the
following (initially capitalized words not otherwise defined have the same
meaning set forth in the Lease):
1. In accordance with Section 5 of the Lease, the Commencement Date is
12:01 a.m., and the Expiration Date is 12:00 midnight,
Please acknowledge the foregoing by having an authorized officer sign in
the space provided below and return to our office. This document may be
executed in counterparts, each of which shall constitute the original.
Facsimile signatures shall be binding as original signatures.
WGP ASSOCIATES, LLC, a Virginia
limited liability company
By:
-------------------------------------
Authorized
Signatory
"Landlord"
ACKNOWLEDGED AND AGREED this _ day of
--------------------------:
ONEPOINT COMMUNICATIONS
CORP., a Delaware corporation
By: ____________________________________
Print Name: _____________________________
Print Title: ______________________________
ATTEST:
By: ____________________________________
Print Name: _____________________________
Print Title: ______________________________
"Tenant"
<PAGE>
EXHIBIT E
TO LEASE
RULES AND
REGULATIONS
I No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Building
without the prior written consent of the Landlord. Landlord shall have the
right to remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule. All approved signs or lettering on doors
and walls shall be printed, painted, affixed or inscribed at the expense of
Tenant by a person or vendor approved by Landlord. In addition, Landlord
reserves the right to change from time to time the format of the signs or
lettering and to require previously approved signs or lettering to be
appropriately altered at Landlord's expense.
2. The coverings for all windows in each tenant's premises shall be
lowered and closed as reasonably required because of the position of the sun,
during the operation of the Building's air-conditioning system to heat, cool or
ventilate such Premises. All tenants with premises visible from one of the
lobbies, or any other public portion of the Building, shall furnish and
maintain its premises in a first-class manner, utilizing furnishings and other
decorations commensurate in quality and style with the furnishings and decor in
the public portions of the Building. If Landlord objects in writing to any
curtains, blinds, shades or screens attached to or hung in or used in
connection with any window or door of the Premises, Tenant shall immediately
discontinue such use. No awning shall be permitted on any part of the Premises.
Tenant shall not place anything or allow anything to be placed against or near
any glass partitions or doors or windows which may appear unsightly, in the
opinion of Landlord, from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators or stairways of the Building. The halls,
passages, exits, entrances, shopping malls, elevators, escalators and stairways
are not for the general public.
4. The directory of the Building will be provided exclusively for the
display or the name and location of tenants only and Landlord reserves the
right to exclude any other names therefrom.
5. Unless otherwise approved by Landlord, all cleaning and janitorial
services for the Building and the Premises shall be provided exclusively
through Landlord. Tenant shall not cause any unnecessary labor by carelessness
or indifference to the good order and cleanliness of the Premises. Landlord
shall not in any way be responsible to any Tenant for any loss to property on
the Premises, however occurring, or for any damage to any Tenant's property by
the janitor or any other employee or any other person.
6. Landlord will furnish Tenant free of charge 322 keys or security pass
cards, if applicable, for access to the Premises. Landlord may make a
reasonable charge for any access devices, and Tenant shall not make or have
made additional access devices, and Tenant shall not alter any lock or install
a new or additional lock or bolt on any door of its Premises without Landlord's
consent, which consent shall not be unreasonably withheld, conditioned or
delayed. Tenant, upon the termination of its tenancy, shall deliver to Landlord
the access devices of all doors which have been furnished to Tenant, and in the
event of loss of any access devices so furnished, shall pay Landlord therefor.
7. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services (other than as approved by Landlord in accordance with the Work
Letter), it shall first obtain, and comply with, Landlord's instructions in
their installation. Landlord, or its agents, will direct the electricians as to
where and how the wires may be introduced, and without such direction, no
boring or cutting for wires will be permitted. Any such installation and
connection shall be made at Tenant's expense.
8. No equipment, materials, furniture, packages, supplies, merchandise or
other property will be received in the Building or carried in the elevators
except during Ordinary Business Hours (except to the extent scheduled by prior
<PAGE>
arrangement with Landlord) and in such elevators as may be reasonably
designated by Landlord. Landlord shall reasonably and equitably schedule the
use of the loading dock shared with Plaza II Building. The persons employed to
move furnishings, fixtures and equipment in and out of the Building shall be
subject to Landlord's approval (which approval shall not be unreasonably
withheld, conditioned or delayed) and, if required by law, properly licensed.
Landlord shall have the right to condition approval upon payment of an
additional security deposit as a condition of approving a particular moving
company. Tenant must make arrangements in advance with Landlord for moving
large quantities of furniture and equipment into or out of the Building.
9. Tenant shall not place a load upon any floor which exceeds the load per
square foot which such floor was designed to carry and which is allowed by law.
Landlord shall have the right to prescribe the weight, size and position to all
equipment, materials, furniture or other property brought into the Building.
Heavy objects shall stand on such platforms as determined by Landlord to be
necessary to properly distribute such weight. Business machines and mechanical
equipment belonging to Tenant which cause noise or vibration which may be
transmitted to the structure of the Building or to any space in the Building to
such a degree as to be objectionable to Landlord or to any tenants shall be
placed and maintained by Tenant, at Tenant's expense, on vibration eliminators
or other devices sufficient to eliminate noise or vibration. The persons
employed- to remove such equipment in or about the Building must be acceptable
to Landlord. Landlord will not be responsible for loss of or damage to, any
such equipment or other property from any cause, and all damage done to the
Building by maintaining or moving such equipment or other property shall be
repaired at the expense of Tenant.
10. No Tenant shall tamper with or attempt to adjust temperature control
thermostats in its Premises; Landlord will make Building maintenance/engineers
available during Ordinary Business Hours to make adjustments as needed. Tenant
shall not use any method of heating or air conditioning other than that
supplied by Landlord. Tenant shall use reasonable efforts to minimize the waste
of electricity, water and air conditioning, consistent with normal practices
for office tenants in northern Virginia in similar buildings. Tenant shall keep
corridor doors closed.
11. Landlord reserves the right to exclude from the Building outside
Ordinary Business Hours any person unless that person is known to the person
or employee in charge of the Building and has an access device such as a key,
entry card, combination code, pass or is properly identified. Tenant shall be
responsible for all persons for whom it requests passes and shall be liable to
Landlord for all acts of such persons. Any person whose presence in the
Building at any time shall, in the judgment of the Landlord, be prejudicial to
the safety, character, reputation and interests of the Building or its Tenants
may be denied access to the Building or may be ejected therefrom, including
any person who in the judgment of Landlord is intoxicated or under the
influence of liquor or drugs or w1io shall in any manner do any act in
violation of these Rules and Regulations. In case of public excitement or
other commotion, the Landlord may prevent all access to the Building during
the continuance of the same, by closing the doors or otherwise, for the safety
and protection of tenants, the Building, and property in the Building. The
Landlord may require any person leaving the Building with a package or other
object to exhibit authorization from the Tenant of the premises from which the
package or object is removed, but the establishment and enforcement of such
requirement shall not impose any responsibility on the Landlord to protect any
Tenant against the removal of property from its premises. The Landlord shall
in no way be liable to any Tenant for damages or loss arising from the
admission, exclusion or ejection of any person to or from Tenant's Premises or
the Building under the provisions of this rule.
12. Tenant shall close and lock the doors or its Premises and entirely
shut off all water faucets or other water apparatus before Tenant and its
employees leave the Premises. Tenant shall be responsible for any damage or
injuries sustained by other tenants or occupants of the Building or by Landlord
for noncompliance with this rule.
13. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed, no foreign substance or any kind whatsoever shall be thrown into
any of them, and the expense of any breakage, stoppage or damage resulting
from the violation of this rule shall be borne by the Tenant who, or whose
employees or invitees, shall have caused it.
2
<PAGE>
14. Tenant shall not install any radio or television antenna, satellite
dish, loudspeaker or other device on the roof or exterior walls of the
Building, except as expressly permitted in accordance with the Addendum. Tenant
shall not interfere with radio or television broadcasting or reception from or
in the Building or elsewhere.
15. Except for the installation of artwork by customary installation
methods and as otherwise approved by Landlord, such as customarily as approved
by Landlord, Tenant shall not mark, drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface the Premises. Tenant shall
not cut or bore holes for wires except as normally required for installation of
the telecommunications equipment permitted under this Lease. Tenant shall not
affix any floor covering to the floor of the Premises in any manner except as
approved by Landlord. Tenant shall repair any damage resulting from
non-compliance with this rule.
16. Tenant shall store all its trash and garbage within its Premises.
Tenant shall not place in any trash box or receptacle any material which cannot
be disposed of in the ordinary and customary manner of trash and garbage
disposal. All garbage and refuse disposal shall be made in accordance with
directions issued from time to time by Landlord, consistent with the janitorial
services provided by Landlord and refuse removal consistent with customary
practices for similar office buildings in northern Virginia.
18. Smoking is prohibited at all times in all areas of the Building,
including offices, restrooms, corridors, stairwells, lobbies, elevators, and
Common Areas of the Building Complex, except for a specific location to be
designated by Landlord as a smoking area to the extent permitted by Applicable
Laws. Tenant shall not cause or permit any noise (including playing of musical
instruments, radio or television) or unusual or objectionable odors to emanate
from the Premises which would annoy other tenants or create a public or private
nuisance and no cooking shall be done or permitted by any Tenant on the
Premises, except by the Tenant of Underwriters' Laboratory approved microwave
oven or equipment for brewing coffee, tea, hot chocolate and similar beverages
shall be permitted provided that such equipment and use is in accordance with
all applicable federal, state and city laws, codes, ordinances, rules and
regulations. Tenants shall not conduct directly or indirectly any auction upon
their premises, or permit any other person to conduct an auction upon the
premises. Canvassing, soliciting and peddling in the Building are prohibited
and tenants shall cooperate to prevent the same.
19. No animals, birds, or pets of any kind, excluding seeing eye dogs,
shall be allowed in a tenant's premises or the Building.
20. Tenant shall not use in any space or in the public halls of the
Building any hand trucks except those equipped with the rubber tires and side
guards or such other material handling equipment as Landlord may approve.
Tenant shall not bring any other vehicles of any kind into the Building and
bicycles shall be used or stored only in areas designated by Landlord.
21. The requirements of Tenant will be attended to only upon appropriate
application to the office of the Building by an authorized individual.
Employees of Landlord shall not perform any work or do anything outside of
their regular duties unless under special instruction from Landlord, and no
employee of Landlord will admit any person (Tenant or otherwise) to any office
without specific instructions from Landlord. All contractors hired by Tenant
to complete alterations to the Premises shall adhere to the provisions of the
Lease and these Rules and Regulations, as well as such separate rules and
regulations as Landlord may adopt as requirements for contractors.
23. Tenant shall cooperate fully with the life safety plans of the
Building established and administered by Landlord. This includes participation
by Tenant and its employees in exit drills, fire inspections, life safety
orientations and other programs relating to fire safety that may be
promulgated by the Landlord.
24. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations in favor
of any other
3
<PAGE>
tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules and Regulations against any or all of the tenants of the Building.
25. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Building.
26. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for safety and
security, for care and cleanliness of the Building and for the preservation of
good order in and about the Building. Tenant agrees to abide by all such rules
and regulations in this Exhibit E stated and any additional rules and
regulations which are adopted.
27. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and guests.
[Worldgate I Form: 193277 3/5/991 4018943 7/15/99 [3258651
4
<PAGE>
EXHIBIT F TO LEASE
JANITORIAL SPECIFICATIONS
A. DAILY - Monday through Friday, except legal holidays.
I . Empty waste baskets, clean ashtrays.
2. Dust accessible areas of desk tops.
3. Vacuum carpet in elevator lobbies, reception areas and other
high-traffic areas.
B. WEEKLY
1. Dust accessible areas of furniture, convectors and other furnishings.
2. Vacuum office area carpeting.
C. MONTHLY
1. Mop and buff tile floors.
2. Dust Venetian blinds, window frames and exterior of lighting fixtures.
3. Spot clean walls.
4. Clean telephones.
D. QUARTERLY
1. Clean and refinish tile floors where necessary.
2. Clean baseboards.
E. SEMI-ANNUALLY
1. Wash windows.
F. ANNUALLY
1. Wash light fixtures and lenses.
2. Clean Venetian blinds.
<PAGE>
EXHIBIT G TO LEASE
STATEMENT OF PERFORMANCE (ESTOPPEL)
TENANT ESTOPPEL CERTIFICATE
From:
("Tenant")
To:
Purchaser")
("Landlord")
Lease: Lease dated 19 _, between
a
and a
covering the Premises (as defined below), as modified, altered
or amended (as further described in Paragraph I below) (the
"Lease").
Premises: Suite -, consisting of a total of rentable square feet (as
set forth in the Lease), (the "Premises") located in the building known as
having an address of
Tenant hereby certifies to Landlord and Purchaser as follows:
I . Tenant is the current Tenant under the Lease. The Lease is in full
force and effect and is the only lease, agreement or understanding between
Landlord and Tenant affecting the Premises and any rights to parking. The Lease
has not been modified, altered or amended, except as follows: [Seller described
modifications, assignments or amendments to the Lease or, in none, state
"None".]
2. The term of the Lease commenced on 19_, and will expire on 19 -.
The Tenant has an option to renew the Lease for additional following the
expiration date of the Lease. Tenant has no option or right of first
refusal to purchase the Premises. Tenant has accepted and is presently
occupying the Premises.
3. The base rent under the Lease for the current lease year is $ _ per
month. Tenant is responsible to pay, as additional rent, for its pro rata
share operating expenses for the Building in excess of base operating
<PAGE>
expenses of ["$____ or Base Year Expense, which are the operating expenses for
the calendar year 19--] Tenant has fully paid all rent and other sums payable
under the Lease on or before the date of this Certificate and Tenant has not
paid any rent more than one month in advance. Tenant is not in default under
any of the provisions of the Lease pertaining to Tenant, and no event has
occurred and no circumstance exists which, with the passage of time or the
giving of notice by Landlord, or both, would constitute such a default.
4. As of the date of this Certificate, Landlord is not in default under
any of the provisions of the Lease pertaining to Landlord, and no event has
occurred and no circumstance exists which, with the passage of time or the
giving of notice by Tenant, or both, would constitute such a default.
5. All construction to be performed and the improvements to be installed
by Landlord on the Premises, if any, have been completed and fully accepted by
Tenant; nor is Landlord engaged in making any repairs for Tenant.
6. As of the date of this Certificate, Tenant has no defenses, offsets or
credits against the payment or rent and other sums due or to become due under
the Lease or against the performance of any other of Tenant's obligations under
the Lease.
7. Tenant has paid to landlord a security deposit in the
amount of $
8. Tenant agrees that, from and after the date hereof: (i) Tenant will not
pay any rent under the Lease more than thirty (30) days in advance of its due
date; and (ii) so long as there shall be any assignment of Landlord's interest
in the Lease to a holder of a first mortgage whose name and address have been
provided to Tenant, Tenant understands that any surrender, modification of any
of the terms of the Lease, or early termination thereof by Landlord other than
on account of a default, will be not effective without the written consent of
such holder.
9. Tenant understands that this Certificate is required in connection with
Purchaser's acquisition of the Property, and Tenant agrees that Purchaser and
its assigns (including any parties providing financing for the Property) will,
and shall be entitled to, rely on the truth of this Certificate.
10. The party executing this document on behalf of Tenant represents that
he/she has been authorized to do so on behalf of Tenant.
EXECUTED on this day of
19
"TENANT"
2
<PAGE>
EXMBIT H TO
LEASE
HVAC
RATES
The following charges shall be the only charges applicable to use of the
Building heating, ventilation, air-conditioning system (HVAQ after Ordinary
Business Hours (other than electricity which is included in electricity charges
that are separately metered to Tenant):
After-hours operation of fans only (excluding chiller/air-conditioning
use): $23.50 per hour After-hours operation of chiller/air-conditioning:
$37.50 per hour
The foregoing charges are for use of all or any portion of the Building,
calculated on an hourly basis (without proration for partial hours).
[Worldgate I Form: 193277 3/5/991
40189437/15/99 [3258651
<PAGE>
EXHIBIT I
TO LEASE
LETTER OF
CREDIT
1999
WGP ASSOCIATES, LLC c/o Miller Global
Properties, LLC 4643 S. Ulster Street,
Suite 1500 Denver, CO 80237 Attn: Donald
E. Spiegleman, Esq. or Mr. Paul Hogan
RE: Letter
of Credit
No.
Gentlemen:
We hereby issue in your favor, at the request and for the account of
ONEPOINT COMMUNICATIONS CORP., a Delaware corporation, our irrevocable Letter
of Credit in the amount of $$1,029,435.00 which is available against
presentation of your sight draft. The amount of the credit shall automatically
reduce without amendment by $171,572.50 to $857,862.50 on December 1, 2001, by
$171,572.50 to $686,290.00 on December 1, 2002, by $171,572.50 to $514,717.50
on December 1, 2003, by $171,572.50 to $343,145.00 on December 1, 2004. The
draft must be accompanied by:
I. This Letter of Credit No.
and
2. A notarized certification signed as Authorized Signatory
on behalf of WGP ASSOCIATES, LLC, a Virginia limited
liability company, or an officer (or partner, if such entity
is a partnership or member if a limited liability company) of
its transferee or assignee, stating essentially as follows:
"The undersigned Beneficiary is the owner of the
property described in the Office Lease dated
by and between WGP ASSOCIATES, LLC, a Virginia
limited liability company, as Landlord, and
ONEPOINT COMMUNICATIONS CORP., a Delaware
corporation, as Tenant (the "Lease"). The
amount requested by the draft accompanying
this statement is the amount to which
Beneficiary is entitled under the terms of the
Lease as a result of an Event of Default under
the Lease and Beneficiary requests payment of
the enclosed draft under the enclosed Letter
of Credit."
This Letter of Credit shall be subject to the Special Conditions set
forth on Exhibit 1, such exhibit being considered a part hereof and
incorporated herein by reference.
<PAGE>
We hereby agree that all drafts drawn under and in compliance with the
terms of this credit shall meet with honor upon presentation and delivery of
documents on or before 5:00 p.m., Eastern time, as specified to the drawee,
which date shall be the expiration date of this Letter of Credit. By: Title:
2
<PAGE>
EXHIBIT I TO LEASE
To
Letter
of
Credit
No.
The Letter of Credit shall be governed by the following Special
Conditions:
I. This Letter of Credit shall be governed by and construed in
accordance with the provisions of Uniform Customs and Practice for
Documentary Credits, I.C.C. Publication No. 500, 1983 Revision, 290,
effective October 1, 1975.
2. Issuer agrees that it may not defer honor beyond the close of the first
banking day after presentment of a sight draft drawn hereunder and accompanying
documents.
3. This Letter of Credit shall be transferable and assignable, without
charge, to any person or entity who is the successor or assignee of
Beneficiary's interest under the Lease entered into on or about , between WGP
ASSOCIATES, LLC, a Virginia limited liability company, as Landlord, and
ONEPOINT COMMUNICATIONS CORP., a Delaware corporation. Such transfer shall be
accomplished by providing the issuer of this Letter of Credit with the
appropriate transfer form and the original letter of credit for endorsement;
provided, however, that such transfer shall not be subject to the approval of
the issuer.
<PAGE>
EXIHBIT J TO LEASE
PARKING AREA
The location of the visitor parking spaces for the Building is indicated (by
labeling and shading) on the attached Site Plan.
[Worldgate I Form: 193277 3/5/991
40189437/15/99 [3258651
<PAGE>
WORLDGATE PLAZA I ENTRY x
WORLDGATE PLAZA I & 11
PLAZA 11 ENTRY
14
DA VIS -CARTER -SCOTT PARKING LEVEL TWO& FACE ONE SITE PLAN
06/28/99
<PAGE>
WORK LETTER
Tenant Performs Work
July
15, 1999
ONEPOINT COMMUNICATIONS CORP.
Attn: Joanne DiGuido
2201 Waukegan Road, Suite E-200
Bannockburn, IL 60015
Re: Tenant: ONEPOINT COMMUNICATIONS CORP., a Delaware corporation
Premises: Approximately 80,582 rentable square feet of space on the 5th,
6th, 7th and 8th floors (the "Premises")
Address: 12901 Worldgate Drive, Herndon, Virginia
Gentlemen:
Concurrently herewith, you ("Tenant") and the undersigned
("Landlord") have executed a Lease (the "Lease") covering the Premises
(the provisions of the Lease are hereby incorporated by reference as if
fully set forth herein and initially capitalized words not defined have
the same meaning set forth in the Lease). In consideration of the
execution of the Lease, Landlord and Tenant mutually agree as follows:
1. Space Planning and
Engineering
1.1 Landlord has provided to Tenant the architectural and engineering
drawings for the base building improvements for the Building Complex to
be completed by Landlord ("Landlord's Drawings")(as further described
on Exhibit 4 to this Work Letter), as prepared by Davis, Carter & Scott
Architects (such architectural firm or its replacement, if replaced by
Landlord prior to completion of construction, is referred to as the
"Landlord's Architect"). Landlord shall have the right to make changes
and modifications in the base building improvements during construction
and Landlord shall provide copies to Tenant -of modifications to
Landlord's Drawings promptly as and when available to reflect such
modifications for portions of the drawings applicable to the Premises;
Tenant shall have the right to approve (which approval shall not be
unreasonably withheld, conditioned or delayed) substantial changes to
the Building Complex (exclusive of Plaza II) which materially adversely
affect Tenant's use of the Premises or the cost or scope of the Finish
Work, other than changes required by Applicable Laws or as required
during construction to adjust to field conditions. The work to be
completed by Landlord in accordance with the Landlord's Drawings as
modified is hereinafter referred to as the "Base Building Work."
Landlord shall complete the Base Building Work in a good and
workmanlike manner in accordance with Applicable Laws and the
Declaration.
1.2 Tenant shall retain either Burns and Associates or another
architect reasonably approved by Landlord as Tenant's architect
("Tenant's Architect") and either Shapiro/O'Brien and Associates or
KTA Associates as Tenant's engineer, or a substitute reasonably
approved by Landlord which approval shall not be unreasonably
withheld, conditioned or delayed ( "Tenant's Engineers"); Landlord
reserves the right
<PAGE>
to elect to retain separate engineers ("Landlord's Engineers" to
provide a separate review on behalf of Landlord of plans prepared by
Tenant's Architect and Tenant's Engineers. Tenant shall provide to
Landlord the Tenant-approved space plans for the Premises (collectively
referred to herein as "Space Plans") prepared by Tenant's Architect by
August 15, 1999; Tenant shall also have Tenant's Engineers review the
Space Plans on Tenant's behalf for conformity to the design
specifications for the base building structure and systems. The Space
Plans shall contain information specified in Exhibit 1 and shall be
sufficiently complete to permit Landlord and Landlord's Engineers to
review such drawings for the purpose of conforming the Space Plans with
the base building specifications for the Building and for the purposes
described in Section 1.3 below. The Space Plans shall be prepared by
Tenant's Architect at Tenant's sole cost and expense, subject to
Landlord's payment of the Allowance as hereinafter provided.
1.3 Within 5 business days after receipt by Landlord of the Space
Plans, Landlord shall review the Space Plans and confer with Tenant
concerning such review. Tenant's Engineers, and Landlord's Engineers,
if applicable, shall advise Landlord and Tenant whether the base
building structure and systems will have to be supplemented or modified
in order to allow installation of work shown on the Space Plans. If
Landlord or the such engineers reasonably determine that the Space
Plans (i) are inconsistent with the base building specifications for
the Building; (ii) do not contain all of the information specified in
Exhibit 1 or are not sufficiently complete to permit Landlord to review
them for the purposes set forth therein; or (iii) indicate space usages
inconsistent with the Lease, Landlord shall notify Tenant in writing of
Landlord's determination setting forth the specific reasons therefor.
Thereafter, Tenant shall revise the Space Plans accordingly within 5
business days of being informed of such determination and resubmit them
to Landlord and the review procedure and time frames set forth above
shall be repeated. Any delay by Landlord in responding within the
applicable periods or delays arising from errors by Landlord or its
engineers in such review process shall be deemed "Landlord Delay" to
the extent that such delay results in delaying approval of the Approved
Space Plans beyond the 15th day following receipt by Landlord of the
initial Space Plans; except for such delay, approval of Approved Space
Plans shall not delay the Commencement Date under Section 2.5 below.
Tenant shall pay all reasonable costs and expenses incurred by Landlord
in connection with review and approval of the Space Plans by Landlord's
Engineers, which amounts shall be paid from the Allowance. When
approved by Landlord and Tenant, the Space Plans shall be acknowledged
as such by Landlord and Tenant signing each sheet therefor and such
approved drawings shall be deemed the "Approved Space Plans."
1.4 On or before September 15, 1999, Tenant shall provide Landlord with
architectural working drawings prepared by Tenant's Architect (the
"Architectural Working Drawings") and structural, plumbing, fire
protection, mechanical controls, electrical and life safety engineering
drawings prepared by Tenant's Engineers ("Engineering Working
Drawings") for the Premises approved by Tenant for review by Landlord
substantially in the form provided in Exhibit 1. The Architectural
Working Drawings shall be coordinated by Tenant's Architect with the
Engineering Working Drawings prepared by Tenant's Engineers pursuant to
Paragraph 1.3 above. The Architectural Working Drawings and the
Engineering Working Drawings shall be a logical extension of the
Approved Space Plans. Tenant's Architect shall be responsible for any
conflicts between the Architectural Working Drawings and field
conditions (unless such field conditions materially vary from
Landlord's Drawings, as modified). Tenant shall be responsible for the
consistency between the Architectural Working Drawings and the
Engineering Working Drawings, conflicts with the base building drawings
and field conditions and for the Architectural Working Drawings and the
Engineering Working Drawings complying with building code provisions.
Landlord shall notify Tenant's Architect of changes in Landlord's
Drawings affecting the Finish Work as soon as reasonably practicable.
Any problems caused by any inconsistency of the drawings shall be
Tenant's sole responsibility (subject to Tenant or Tenant's Architect
receiving Landlord's Drawings and changes in Landlord's Drawings).
Landlord, Landlord's Architect and Landlord's Engineers, as applicable,
shall review the Architectural Working Drawings and the Engineering
Working Drawings within 10 business days after
2
<PAGE>
Landlord's receipt and give notice if they discover any conflicts with
the base building drawings or field conditions or noncompliance with
building codes within such period. If Landlord does not reply within
such period, it shall be presumed that Landlord has no objection
thereto, however, such approval shall not limit Landlord's right to
request changes in the future in the event design errors are discovered
later (which request shall be made as soon as practicable following
such discovery). If Landlord notifies Tenant of such design errors,
Tenant shall revise the Architectural Working Drawings and the
Engineering Working Drawings accordingly and resubmit them to Landlord
and the review procedure set forth above shall be repeated. Delay
caused by such revisions shall be deemed Tenant Delay. When approved
(or deemed approved) by Landlord and Tenant, such drawings shall be
deemed the "Final Working Drawings."
1.5 Changes to the Final Working Drawings, except for minor changes not
affecting the Building mechanical, electrical or life safety systems or
the structure of the Building, may be made only upon prior written
approval of Landlord. Landlord shall respond (in writing or by oral
communication thereafter confirmed in writing) to all written requests
for changes within 7 business days of Landlord's receipt of the same.
If Landlord does not respond within such period, Landlord shall be
deemed to have consented to the requested changes. Any delay in
completion of the Finish Work or the Base Building Work which results
from any such changes or the process of approval or disapproval (other
than caused by Landlord Delay) shall be deemed Tenant Delay. Landlord's
review of the Space Plans, Architectural Working Drawings, Engineering
Working Drawings or Final Working Drawings shall not imply approval by
Landlord for their completeness, design sufficiency, or as to
compliance with the requirements of applicable codes, rules, or
regulations of any governmental agencies having jurisdiction thereof
now in effect or which may hereafter be in effect.
11. Finish Work and Finish Allowance
2.1 Tenant agrees to execute contracts for design and construction
services to complete the Finish Work (the "Contract") with contractors
and subcontractors reasonably satisfactory to Landlord (collectively,
"Tenant's Contractors"). Tenant and Tenant's Contractors will be
required to adhere to the requirements set forth on Exhibit 2 and such
other requirements as Landlord reasonably imposes (consistent with
practices in other first class buildings in the northern Virginia area)
for construction by all tenants in the Building and Plaza 11
(collectively, "Requirements"). The Contract will incorporate the
provisions of the Requirements. Prior to execution of the Contract,
Tenant will provide a copy to Landlord. Landlord will review the
Contract for compliance with the Requirements and advise Tenant of
Landlord's approval or required changes within 10 business days of
receipt; if Landlord fails to respond within such period, Landlord
shall be deemed to approved such contract(s). Following such approval
and the Delivery Date, Tenant will promptly commence and proceed
diligently to complete the Finish Work.
-1
2.2 Tenant's Contractors and contractors employed by Landlord who are
completing work in the Building ("Landlord's Contractors") shall be
obligated to mutually cooperate and such Contractors will each conduct
its respective work in an orderly fashion and manner so as not to
unreasonably interfere with the other. Tenant's subcontractors with
respect to all mechanical, electrical, and fire protection work in the
Premises will be the subcontractors used by Landlord for such work in
the Building, provided, however, if Tenant bids such subcontracts and
the bids of Landlord's subcontractors are in excess of 5 % higher than
the next highest bid, Landlord shall either not unreasonably withhold
approval of such other subcontractor(s) or require Tenant to use
Landlord's subcontractor(s) but pay to Tenant (as additional
Allowance) the difference between such bids.
2.3 Tenant assumes full responsibility for Tenant's Contractor's
performance of all work including compliance with Applicable Laws, and
for all Tenant's Contractors' property, equipment, materials, tools
3
<PAGE>
or machinery placed or stored in the Premises during the completion
thereof (subject to the provisions regarding Builder's Risk insurance).
All such work is to be performed in a good and workmanlike manner
consistent with first class standards.
2.4 Landlord shall notify Tenant in writing when Landlord's Contractor
estimates that the Base Building Work is approximately 30 days from
completion, which notification shall be made on a floor by floor basis.
Landlord shall notify Tenant when Landlord has determined that all or
any portion of the Base Building Work has been sufficiently completed
that Tenant's Contractors may commence completion of the Finish Work in
the Premises. Following receipt of such notice and prior to Tenant's
Contractors commencing the Finish Work, the representatives of Landlord
and Tenant shall jointly inspect the Premises with Landlord's Architect
and develop a punchlist of items of Base Building Work for the Building
Complex that have not been completed, distinguishing between those
items which must be completed prior to Tenant having Tenant's
Contractors commence work on the respective floor and those items that
can be completed by Landlord's Contractor while Tenant's Contractors
are completing Finish Work in the Premises; in the event of a dispute,
Landlord's Architect and Tenant's Architect shall mutually resolve such
dispute and if the Architects cannot agree upon a resolution, the
Architects shall jointly appoint an independent architect whose
determination shall be binding on the parties. The date on which a
portion of the Premises is made available by Landlord to Tenant for
completion of the Finish Work subject only to punchlist items that can
be completed by Landlord's Contractor while Tenant's Contractors are
completing Finish Work in the Premises, is referred to as the "Delivery
Date" for such portion of the Premises; following the Delivery Date,
Landlord shall complete the punchlist items with reasonable diligence.
Following preparation of the punchlist, Tenant is responsible for
repair of damage caused by Tenant's Contractors in the Building or
Premises. Following the Delivery Date, Tenant is responsible for the
diligent completion of all finish work substantially in accordance with
the Final Drawings (the "Finish Work"), at its sole cost and expense,
subject to Landlord's payment of the Allowance. Tenant's use and
occupancy of the portion of the Premises following the Delivery Date
for such portion is subject to all of the terms and provisions of the
Lease (except for Tenant's obligation to pay Base Rent and utilities,
which shall be governed by the provisions of Paragraph 2.5); any entry
into the Building by Tenant or Tenant's contractors prior to Landlord's
Contractors completing the Base Building Work shall be coordinated by
Landlord's Contractor to minimize interference with completion of the
Base Building Work. Tenant will cause Tenant's Contractors to: (i)
conduct work so as not to unreasonably interfere with any other
construction occurring in the Building or occurring with respect to the
adjacent building known as Worldgate Plaza 11 (including punchlist
items in the Premises); (ii) comply with the Requirements and all other
rules and regulations relating to construction activities in the
Building promulgated from time to time by Landlord for the Building;
(iii) reach reasonable agreement with Landlord's Contractors as to the
terms and conditions for hoisting, systems interfacing, and use of
temporary utilities; and (iv) deliver to Landlord such evidence of
compliance with the provisions of this paragraph as Landlord may
reasonably request.
2.5 The Commencement Date (for purposes of determining the
commencement and expiration of the I 0-year Initial Term) shall occur
on the earlier of (a) 90 days following the Delivery Date for the last
floor of the Premises (or such later date on which Landlord has
substantially completed the Base Building Work permitting a temporary
certificate of occupancy or its equivalent to be issued to the extent
necessary for Tenant to occupy the Premises under Applicable Laws,
assuming that Tenant shall have completed such Finish Work as is
required for the permit), or (b) the date upon which Tenant begins to
occupy any portion of a total of 3 floors of the Premises for
conducting its ordinary business therein (as distinguished from use
for purposes of completing the Finish Work). Tenant's obligation to
pay Base Rent and Operating Expenses and utilities shall commence on a
floor by floor basis on the earlier of 90 days following the Delivery
Date for such floor or the date that Tenant occupies any portion of
such floor for the purposes of conducting its ordinary business
therein; however, Tenant shall have the right to elect, by notice to
Landlord prior to occupancy of such floor, to not occupy the entirety
of any I floor of the Premises for
4
<PAGE>
up to 12 months following the Commencement Date (although Tenant shall complete
with due diligence construction of the Finish Work in such space following the
commencement of construction of the Finish Work for the Premises) and in that
case Tenant's obligation to pay Base Rent and Operating Expenses shall not
commence until 12 months following the Commencement Date; if Tenant commences
using any portion of such space prior to the end of such 12 month period (other
than for (i) storage of materials, (ii) installation of furniture, fixtures and
equipment and (iii) limited use for ordinary business purposes by I or 2 people
of a small portion of such space), Tenant's Base Rent and Operating Expense
obligation shall commence for the entirety of such floor at such time. If the
Commencement Date occurs on other than the first day of the month in accordance
with the provisions of this Section of the Work Letter, then the commencement
of the Initial Term will be delayed to the first day of the month following the
Commencement Date but all provisions hereof, including Tenant's obligation to
pay Rent at the monthly rate set forth in Section 1.4 for Month I (prorated for
a partial month), will be in effect as of the Commencement Date; the 12-month
period referred to above shall commence to run on the Commencement Date
(without delaying the start of such period to the first of the following
month). 2.6 Landlord will pay the cost of the Finish Work as substantially
completed in accordance with the Final Drawings (including the cost of
preparation of the Space Plan and Final Drawings and Landlord's review thereof)
in the amount of $2,417,460.00 (the "Allowance"). Landlord shall make progress
payments on a monthly basis as portions of the Finish Work is completed
following request of Tenant in accordance with Section 2.7. Finish Work Costs
in excess of the Finish Allowance ("Excess Costs") will be at Tenant's sole
cost and expense and will be paid promptly by Tenant. If the total cost of the
Finish Work exceeds $2,417,460.00, Landlord, at Tenant's written request,
agrees to fund Excess Costs up to a maximum of $402,910.00 by amortizing such
amount over the Initial Term with interest thereon at 10% per annum to be paid
monthly as additional Rent in the same manner and place as monthly Base Rent
(the "Additional Allowance").
The Allowance is to be expended solely for the benefit of Landlord;
that is, the Allowance will be expended only to pay for design, engineering,
installation, and construction of the Finish Work which under the Lease becomes
the property of Landlord upon installation and not for movable furniture,
equipment, and trade fixtures not physically attached to the Premises;
provided, however, Tenant shall have the right to use up to $402,910.00 of the
Allowance for cabling and wiring costs, move related expenses and as a credit
against next due Rent commencing with the Rent for the 13th full calendar month
of the Initial Term. Not more than $ 221,601.00 of the Allowance shall be paid
to Tenant's Architect and Tenant's Engineer for planning, architectural and
engineering costs; Landlord agrees to disburse, prior to Tenant commencing
construction of the Finish Work, up to $8,058.00 for preparation of the Space
Plans and up to $40,291.00 for preparation of the Final Working Drawings (if
Tenant's Architect or the Engineers require payment in excess of the such
amounts, Tenant shall pay such excess when required to be paid and later
receive reimbursement from the Allowance to the extent that the Allowance is
not expended for other purposes as of the Commencement Date). Any of Landlord's
costs and expenses payable to Landlord, required to be paid by Tenant under
this Work Letter will also be paid out of the Allowance. Prior to Tenant
commencing construction of the Finish Work, Tenant shall provide Landlord with
notice of the total estimated cost of all Finish Work. Other than Landlord's
prior reimbursement to Tenant for the actual cost for Space Plans and for
preparation of the Final Working Drawings (as provided above), Landlord shall
not be obligated to disburse any of the Allowance until Tenant shall have paid
for, and provided evidence of completion and payment for, such portion of the
Finish Work as reflects in total the amount of the estimated costs of the
Finish Work in excess of the Allowance (plus the Additional Allowance if Tenant
elects to have the Additional Allowance funded in accordance with Section 2.6
above). As design, engineering, and construction work is completed and Tenant
receives invoices therefor, Tenant will submit requests for payment to Landlord
not more frequently than monthly, along with appropriate lien waivers
(substantially in the forms attached hereto as Exhibit 3) and such other
related [Worldgate I Form: 193277 3/5/991 401894_3 7/15/99 13258651 5
<PAGE>
documentation as Landlord reasonably requires. On a monthly basis
following receipt of such documentation (with such payment being made
by the 30th of the month if all required documentation is received by
Landlord by the 5th of such month), Landlord will pay the amounts
requested by delivery to Tenant of Landlord's check(s) payable to
Tenant or, at Landlord's option, payable to Tenant and Tenant's
Contractors jointly. Unless otherwise agreed by Landlord and Tenant in
writing and subject to delays beyond Tenant's reasonable control, if
any portion of the costs to be reimbursed by the Allowance has not been
requested by Tenant or will be requested for Finish Work that is
ongoing as of November 1, 2000 such amounts shall be forfeited by
Tenant.
2.8 Landlord will, during completion of the Finish Work and immediately
thereafter, reasonably cooperate in the balancing of the Building HVAC
system serving the Premises. Landlord shall pay for costs of balancing
the Base Building Work portions of the HVAC system and Tenant shall pay
(from the Allowance) for balancing the portions of the system within
the Premises.
2.9 Subject to the mutual waiver in Section 18.6 of the Lease, Tenant
will indemnify, defend and hold harmless Landlord, Building Manager,
and Landlord's Contractors from and against liability, costs or
expenses, including attorney's fees on account of damage to the person
or property of any third party arising out of, or resulting from the
performance of the Finish Work, including, but not limited to,
mechanics' or other liens or claims (and all costs associated
therewith), subject to Landlord's obligation to disburse the Allowance
in accordance with the foregoing provisions. Tenant will also repair or
cause to be repaired at its expense all damage caused to the Premises
or the Building by Tenant's Contractors or its subcontractor, subject
to the mutual waiver in Section 18.6 of the Lease and the provisions
for Builder's Risk insurance provided in this Work Letter and Exhibits.
Further, Landlord will have the right as described in Section 12.1 of
the Lease to post and maintain notices of non-liability.
2.10 Tenant agrees to submit to Landlord upon completion of all work
one reverse mylar sepia and two blueprint copies of the as built
drawings (the Final Drawings showing all changes thereon).
2.11 Notwithstanding any provision herein or in the Lease to the
contrary, the Commencement Date and Tenant's Rent obligations and other
obligations will not be delayed or extended by any delay in completion
of the Finish Work unless such delay is caused by "Net Landlord Delay"
or unless caused by a casualty occurring after the Delivery Date that
is covered by the Builder's Risk insurance carried by Landlord. The
term "Landlord Delay" means any delay in the preparation, finalization
or approval of the Approved Space Plans (to the extent provided in
Section 1.3), Final Working Drawings or completion of the Finish Work
caused by Landlord's failure to perform its obligations under this Work
Letter within the time limits set forth herein or as a result of
interference caused by Landlord or Landlord's Contractor (to the extent
not permitted herein); Tenant shall provide notice to Landlord as soon
as Tenant determines that Landlord Delay has occurred. All delays other
than Landlord Delay are deemed "Tenant Delay." "Net Landlord Delay"
means the number of days, if any, by which Landlord Delay exceeds
Tenant Delay and the Commencement Date will be delayed by a number of
days equal to the number of days of Net Landlord Delay, if any.
2.12 Tenant designates and authorizes Joanne DiGuido to act for Tenant
in this Work Letter. Tenant has the right by written notice to
Landlord to change its designated representative.
2.13 Landlord designates and authorizes George Chelwick to act for
Landlord in this Work Letter. Landlord has the right by written notice
to Tenant to change its designated representative.
6
<PAGE>
2.14 All notices required hereunder will be in writing in accordance with
Section 28 of the Lease. Whenever Tenant's or Landlord's approval or consent is
required under the express terms of this Work Letter, such approval or consent
shall not be unreasonably withheld, conditioned or delayed.
2.15 Landlord shall obtain Builder's Risk insurance on the Base Building Work
and, if available in a form reasonably acceptable to Landlord, on the Finish
Work on a Builder's Risk Completed Value Form or other comparable coverage; if
such coverage on the Finish Work is obtained by Landlord, Tenant shall pay (by
deduction from the Allowance) the costs attributable to coverage for the Finish
Work. Upon request of Tenant, Landlord shall confirm whether such coverage of
the Finish Work is applicable prior to Tenant commencing construction of any
portion of the Finish Work. Builder's Risk insurance if applicable to the
Finish Work shall include naming the interest of Landlord, Landlord's
Contractor and subcontractors, Tenant, Tenant's contractor and subcontractors,
and Landlord's mortgage, as their respective interest may appear. Such
Builder's Risk coverage shall be in addition to, and not substitution for, the
insurance (other than Builder's Risk) required under Exhibit 2 to be carried by
Tenant, Tenant's Architect, Engineers and contractors with respect to the
Finish Work.
Very truly yours,
WGP ASSOCIATES, LLC, a Virginia limited liability company
By:- -PW-a
Authorized Signatory
"Landlord"
99 [3258651
7
<PAGE>
ACCEPTED AND APP
APPROVED this/A.,
of It A, 197~.
V
ONEPOINT LMMUNICATIONS CORP., a Delaware
corporation
By:
7~
Print Name: -7~
Print Title:
ATTEST:
By:-
Print Name: /x/ Print Title:
"Tenant"
Exhibit I
Exhibit 2
Exhibit 3
Exhibit 4
[Worldgate I Form: 193277 3/5/991
401894_37/15/99 13258651
LIST OF EXHIBITS
Space Plan and Drawings Requirements Landlord's Requirements of
'tenant the Contractors Form of Lien Waivers Landlord's Drawings 8
<PAGE>
EXHIBIT 1 TO WORK LETTER
SPACE PLANS AND ARCHITECTURAL DRAWINGS REQUIREMENTS
1.
Space Plans
Tenant's Space Plans will comply with the following
requirements which are intended to assist Tenant and Tenant's
Architect in defining all information required for Landlord's
review of the space usages and evaluation of the improvements
contemplated thereby.
I. All Space Plans will be drawn to 1/8" scale and may be produced on
CAD equipment.
2. Tenant will submit one reverse mylar sepia and two blue prints of
all Space Plans with notes describing the general intent of the usage and
the improvement requirements.
3. The Space Plans and notes will include: (a) partition layout and
door locations; (b) depiction of electrical and communication equipment
requirements other than for normal office equipment, including
modifications required to floor or main telephone or electric closets; (c)
reflected ceiling plan showing non-standard lighting and ceiling
construction or constraints which will affect mechanical, electrical, fire
protection or life safety systems; (d) Tenant's special mechanical and
plumbing requirements; (e) Tenant's special floor loading requirements; (f)
Tenant's requirements for floor penetrations, including but not limited to
special stairs, dumbwaiters, conveyors, pneumatic systems, elevators or
architectural features; and (g) approximate information regarding
anticipated structural and mechanical, electrical, fire protection,
controls and life safety system design requirements.
11. Architectural
Drawings
Tenant's submission of Architectural Drawings (construction
documents inclusive of one reverse mylar and two blueprints of
Architectural Drawings and Specifications) to Landlord will
comply with the following requirements which are intended to
assist Tenant and Tenant's Architect in defining all
information required by Landlord to complete Landlord's review
of space usages and the quality and extent of the proposed
construction and its effect upon the building and building
systems.
Tenant, upon receipt of the Approved Space Plan from Landlord,
will coordinate them with the Architectural Drawings prepared
by Tenant's Architect, it being understood that the
Architectural Drawings will be consistent with and a logical
extension of the Approved Space Plans. Tenant is responsible
for consistency between the Architectural Drawings and the
Approved Space Plans.
The Architectural Drawings will depict the quality of the work
to be performed (the "Finish Work") and must provide for a
quality level equal to (as reasonably determined by Landlord)
or exceeding the requirements of the base building core and
shell construction contract documentation.
The Architectural Drawings will include but not be limited to:
(a) partition layout and door locations; (b) electrical
outlets, including the location and usage; (c) telephone
outlets, including description of system, size of conduit
servicing each outlet, power and mechanical requirements for
system and any requirements affecting base building
construction, including modifications required to floor or
main telephone rooms; (d) reflected ceiling plan showing
standard and non-
<PAGE>
standard lighting, switching requirements and ceiling construction or
constraints which will affect mechanical, electrical, fire protection or life
safety systems, and will include all necessary specifications and details of
items or construction; (e) Tenant's occupancy capacity, usage equipment loads
for all spaces, particularly special usage rooms, including but not limited to
conference rooms, lounges, coffee rooms, copy rooms, computer terminal or
keypunch rooms, audio-visual rooms and reproduction or print rooms which
require special heating, ventilating, air conditioning or fire protection (all
specifications on usage or equipment therein, including BTU per hour output of
all equipment and parameters as to extent of special work required); (f)
Tenant's floor loading for all spaces (all specifications, weight, vibration
and vibration isolation for each item sufficiently complete for structural
engineering design), particularly special usage rooms, including, but not
limited to file rooms, storage rooms, computer rooms and reproduction or print
rooms; (g) floor penetrations, including but not limited to special stairs,
dumbwaiters, conveyors, pneumatic systems, elevators or architectural features;
and (h) all structural, mechanical, electrical, fire protection, controls and
life safety systems requirements.
The Architectural Drawings will include the following as well: (1) all millwork
and equipment which will be part of the Finish Work and become part of the
Premises; (2) a complete finish schedule for all floors, walls, ceilings,
including millwork, door frames, etc.; (3) keying schedules; (4) special
blocking requirements as may be required to support wall or ceiling hung
furniture or equipment; and (5) all other information necessary to complete
construction of the Premises, including the architect's stamp if required by
the Building Department.
2
<PAGE>
EXHIBIT 2 TO WORK LETTER
LANDLORD REQUIREMENTS OF THE CONTRACT
The Contract will be subject to review and approval of Landlord in
accordance with the Work Letter and will fully incorporate the
following provisions. In the event of any conflict between any
provisions of the Contract and the provisions below, the provisions
below will control.
I The Contract will be in writing and will cover all aspects of the
Finish Work. No Finish Work will be performed except pursuant to the
Contract. Fully executed copies of the Contract will be delivered to
Landlord. If Landlord determines that the Contract does not comply with the
provisions hereof, it will immediately be corrected and no work will be
commenced in the Premises until the deficiencies have been corrected. Any
delays in completion resulting from modifications (except as required by
Landlord Delay) will be Tenant Delays. Following delivery of a copy of the
Contract to Landlord and its approval (or deemed approval), no material
modification will be effective unless and until a copy thereof has been
delivered to Landlord for its review.
2. Changes in the Final Drawings will be made only upon prior
written approval (or deemed approval) of Landlord (to the
extent required under and in accordance with Section 1.5 of the
Work Letter).
3. Scheduling of Finish Work: The Contract will obligate Tenant's
Contractor to perform Finish Work in accordance with time
schedules acceptable to Tenant, Tenant's Contractor and
Landlord (which approval shall be based on consistency with
Landlord's schedule for completion of the Base Building Work).
Any schedule proposed by Tenant's Contractor will be based upon
Tenant's Contractor applying its best efforts to the Finish
Work.
4. Tenant's Contractor will not knowingly perform Finish Work
inconsistent with the Final Working Drawings which will result
in a lesser quality installation or provide inferior
performance than that established by the base shell and core
drawings and specifications covering similar work items.
Landlord will have the right at any time during the performance
of Finish Work or thereafter to require replacement and
reconstruction at Tenant's Expense of Finish Work not
conforming to the standards and specifications in the Final
Drawings.
5. Tenant and Tenant's Contractor will give all notices and comply
with all laws, ordinances, rules, regulations and orders of any public
authority relating to the performance of the Finish Work. If either party
observes that any Finish Work is at variance with any applicable codes,
ordinances, laws, rules and regulations (collectively, "Applicable Laws"),
it will promptly notify the other party and Landlord in writing, and
necessary changes will be made by Tenant. If Tenant's Contractor performs
any Finish Work that it knows is contrary to Applicable Laws, and fails to
deliver prior notice to Tenant and Landlord, Tenant's Contractor will
assume full responsibility therefor and will bear all costs attributable to
repair, replacement or correction. Tenant, Tenant's Contractor and its
subcontractors will comply with Federal, State and local tax laws, social
security acts, unemployment compensation acts and such other acts and laws
as are applicable to the performance of Finish Work.
6. All risk of loss to all property of Tenant, Tenant's Contractor and
its subcontractors will be the sole responsibility of Tenant, Tenant's
Contractor and its subcontractors, and Landlord will have no responsibility
therefor, subject to Builder's Risk insurance on the Finish Work to the
extent carried by Landlord in accordance with Section 2.16 of the Work
Letter.
<PAGE>
7. The following insurance requirements will be complied with:
a. Minimum Coverage - Prior to any Finish Work being commenced by
Tenant's Contractor, it will obtain and maintain insurance with minimum
coverage and limits to protect Tenant and Landlord from the claims
hereafter set forth which may arise or result from Tenant's Contractor's
performance of any Finish Work, whether such work is performed by Tenant's
Contractor, its subcontractors, or by anyone for whose acts such parties
may be liable as follows (subject to the provisions below, such limits may
be provided by an appropriate "umbrella" policy):
(1) Workmen's Compensation and occupational disease insurance at the
statutory limits provided for by the State of Virginia;
(2) Employer's liability insurance in an amount not less than $
100,000 for all damages arising from each accident or occupational disease;
3) Commercial general liability insurance covering:
(i) Operations premises liability;
(ii) Owner's and Contractor's protective liability;
(iii) Completed operations;
(iv) Product liability;
M Contractual liability;
(vi) Broad form property damage endorsement and property damage caused
by conditions otherwise subject to exclusion for explosion, collapse or
underground damage;
(vii) Architect's and engineer's professional liability insurance (for
Tenant's Architect and Tenant's Engineer)
(4) Insurance
limits:
Bodily Injury:
$ 1,000,000 each occurrence; $ 1,000,000 aggregate completed
operations products
Property
Damage
$500,000 each occurrence; $500,000 aggregate
operations; $500,000 aggregate protective;
$500,000 aggregate completed operations
products
(5) Comprehensive automobile liability insurance
covering all owned, hired or nonowned vehicles
including the loading and unloading thereof
with limits of no less than:
2
<PAGE>
Automobile
Bodily Injury
$500,000 each person; $1,000,000 each
occurrence;
Automobile Property
Damage:
$500,000 each
person
b. Unless Landlord retains Builder's Risk insurance on the
Finish Work in accordance with Section 2.16 of the Work
Letter, Tenant or Tenant's general contractor shall
carry Builder's Risk insurance covering the completed
value of the Finish Work which will afford coverage
against "all risks" for physical loss or damage.
C. Cancellation - All such insurance will be carried with a company
reasonably satisfactory to Landlord and Tenant and the liability policy
will name Landlord and Tenant and their employees and agents as additional
insured parties. Each policy will provide that it will not be canceled or
altered except after 15 days prior written notice to Tenant and Landlord,
and the certificate of insurance will so state.
d. Policy Termination - Tenant's Contractor and each
subcontractor will maintain all insurance required
hereunder during the term of the Contract and for a
period ending one year after the date of completion of
all Finish Work done pursuant to the Contract to the
extent such insurance is written in a "claims made
basis."
e. Policies - Prior to commencement of work by Tenant's Contractor, it will
deliver one copy of the policies or certificates evidencing such insurance
to Tenant and Landlord. Such policies must be approved by Tenant and
Landlord prior to commencement of work. Notwithstanding the above, Landlord
may require greater coverage or larger limits by serving notice upon
Tenant. Without the written consent of Landlord, Tenant's Contractor agrees
that it will not allow any subcontractor to commence work within the
building until such subcontractor has obtained the required insurance.
f. Umbrella Liability ~ Insurance - Umbrella liability insurance with limits
of liability for claims of bodily injury, personal injury and property
damage liability not less than $10,000,000 each occurrence and $10,000,000
aggregate.
g. Waiver of Subrogation - Landlord, Tenant and Tenant's
Contractor will waive all rights against each other,
and their respective contractors, subcontractors and
sub-subcontractors, agents and employees, for damages
caused by fire or other perils covered under the
Builder's Risk insurance policy on the Finish Work.
9. Tenant's Contractor will indemnify, defend, and hold harmless Tenant and
Landlord and their respective representatives, agents and employees from
and against all claims, damages, losses and expenses, including, but not
limited to reasonable attorney's fees, arising out of or resulting from the
performance of Finish Work or Tenant's Contractor's failure to perform in
accordance with the Contract (but specifically excluding the Finish Work
itself and the Building) which are: a) caused in whole or in part by any
negligent act or omission of Tenant's Contractor, any subcontractor, anyone
directly or indirectly employed by any of them or anyone for whose acts any
of them may be liable, regardless of whether or not such claim, loss,
damage or expense is caused in part by a
3
<PAGE>
party indemnified hereunder, and b) attributable to bodily injury, sickness,
disease or death, or destruction of or damage to tangible property
including loss of use resulting from any of the foregoing acts.
Tenant's indemnification obligation under this Paragraph 9 will not be limited
by any limitation on the amount or type of damages, compensation or
benefits payable by or for the Contractor or any subcontractor under
workmen's compensation acts, disability benefit acts or other employee
benefit acts.
10. Tenant's Contractor and Tenant will agree that while Landlord may make
available to Tenant's Contractor for incorporation into the Finish Work
materials previously purchased by Landlord, Landlord is not the
manufacturer of such materials nor is it the commercial supplier of such
materials. Accordingly, Tenant and Tenant's Contractor will agree that if
either one or both of them have any claim with respect to any of such
materials supplied by Landlord for incorporation into the Finish Work,
whether such claims relate to any alleged breach of an express warranty or
an implied warranty or otherwise, any claims against Landlord whether
directly or by way of defense, counterclaim, cross claim or offset are
waived and released and such claims will be brought exclusively against the
person or entity from whom Landlord purchased such materials or against the
manufacturer. Landlord will execute such documents as may be reasonably
necessary to assign any rights Landlord would otherwise have against a
supplier or manufacturer.
11. Landlord or Tenant may require Tenant's Contractor to provide
payment and performance bonds for any or all Finish Work, such
bonds to be provided at Tenant's expense (subject to
reimbursement under the Allowance). Any bond will be requested
and provided prior to commencement of Finish Work.
12. If Tenant's Contractor is adjudicated a bankrupt, or makes a general
assignment for the benefit of its creditors, or if a receiver is appointed
on account of Tenant's Contractor's insolvency, or if Tenant's Contractor
persistently or repeatedly refuses or fails, except in cases where delay is
justified, to supply enough properly skilled workmen or proper materials or
if Tenant's Contractor persistently disregards Applicable Laws, or
otherwise is guilty of a substantial violation of a provision of the
Contract, Tenant may, without prejudice to any right or remedy and after
giving Tenant's Contractor and its surety, if any, 7 business days' written
notice, terminate the Contract and take possession of all materials,
equipment, tools, construction equipment and machinery owned by Tenant's
Contractor and will thereafter complete the Finish Work by whatever method
it may deem expedient. In such case, Tenant's Contractor will not be
entitled to receive any further payments until completion of all Finish
Work; provided, however, that Tenant's actions will not release Tenant's
Contractor from any obligations to Tenant arising from its performance or
nonperformance prior to the date of such termination. Following completion,
Tenant will pay Tenant's Contractor an amount equal to the aggregate of the
amounts actually due under the Contract at the time of the termination,
less the cost to Tenant of completing the Finish Work.
13. Prior to commencement of any Finish Work in the Premises, Tenant's
Contractor will give written notice to Landlord and Tenant of the date work
will commence. If a subcontractor or materialman files a mechanics' lien as
a result of performing Finish Work pursuant to the Contract, then, provided
Tenant's Contractor has been paid for such work, Tenant's Contractor will
indemnify and defend Tenant and Landlord from said lien and will, when
requested by Tenant or Landlord, furnish (as Landlord or Tenant may
specify) either a bond sufficient to discharge the lien, deposit in an
escrow approved by Landlord and Tenant a sum equal to 150% of the amount of
such lien or obtain for Landlord an endorsement through Landlord's title
policy insuring against loss or damage
4
<PAGE>
resulting from such lien. Subject to any restrictions of
Landlord's Mortgagee on the Building, Tenant's Contractor may,
in cooperation with Landlord and Tenant, contest the validity of
a mechanics' lien, including the right to prosecute any appeals
so long as during the pendency of any contest, Tenant's
Contractor will effectively stay any official or judicial sale
of the Building, upon execution or otherwise, and so long as
Tenant's Contractor immediately pays any final judgment entered
and procures record satisfaction thereof. If Tenant or Landlord
is a party to any such contest, or any other action resulting
from or arising out of the performance of the Finish Work,
Tenant's Contractor will pay all legal fees and other costs and
expenses incurred by Landlord and Tenant in such action. If
Tenant's Contractor fails to provide a bond, cash escrow or
title endorsement, or otherwise fails to fully satisfy and
obtain the release of a lien in accordance with the provisions
hereof, Tenant's Contractor will be obligated to refund Tenant
or Landlord, as the case may be, all monies that the latter may
pay in discharging any such lien including costs and reasonable
attorneys' fees incurred in settling, defending against,
appealing or in any other manner dealing with any such lien.
14. Tenant's Contractor will warrant and agree at its expense to correct or
cause to be corrected any defects in the Finish Work (including, but not
limited to, defects due to defective workmanship or materials whether
supplied, installed or performed by Tenant's Contractor or any
subcontractor or supplier) which occur within one year after Tenant's
Contractor has substantially completed the Finish Work, including
completion of all punchlist items, or for such longer period as may be set
forth in the Final Drawings. Tenant's Contractor will require a similar
warranty in all subcontracts, and will deliver to Landlord and Tenant,
together with appropriate assignments, if required, all warranties of
subcontractors and suppliers. All warranties will extend to both Landlord
and Tenant, as their respective interests in such Finish Work exist
pursuant to the Lease.
15. Tenant's Contractor will: (a) comply with all reasonable rules
relating to construction activities in the Building promulgated
by Landlord or Landlord's Contractor; (b) be responsible for
reaching agreement with Landlord as to the reasonable
conditions for use of the elevators, systems interfacing, use
of temporary utilities, access to the Premises and use of truck
docks and storage areas (without charge).
16. Landlord shall make available hoisting, systems interfacing,
and use of temporary utilities as is customary in construction
of similar buildings in the suburban Washington, D.C. area,
subject to Landlord's schedule for completion of the Base
Building Work.
17. Landlord and Landlord's Contractor may, from time to time,
inspect or perform work within the Premises. Such inspections
or work will not unreasonably conflict with Tenant's
Contractor's work. Landlord may suspend Tenant's Contractor's
work in the Premises if such work, in the reasonable opinion of
Landlord or of Landlord's Contractor, presents a danger to
life, safety, or property, or in an emergency situation.
18. Tenant will give Landlord reasonable prior notice of all inspections,
punchouts and other reviews during the course of construction so that
Landlord may observe such events. Landlord will be likewise informed of all
Building Department inspections and requirements for issuance of the
Certificate of Occupancy for the Premises. Landlord's observation of any
such events will, in no event be construed or interpreted as a review or
approval by Landlord of any such work nor will it prevent Landlord, if it
thereafter discovers any deficiency in such Work, from requiring
correction. Tenant's Contractor will be solely responsible for obtaining a
certificate of occupancy (or its equivalent) for the Premises (as
distinguished from a similar certificate to the extent required
5
<PAGE>
for the Base Building Work) and will submit to Landlord the original
prior to Tenant's occupancy of the Premises for the purpose of
conducting business.
19. Landlord's Engineer or other agent will have the option of reviewing all
equipment and materials to be used in the construction of the Finish
Work for consistency with Final Working Drawings and all work prior to
Tenant move-in. Such review will in no event constitute approval by
Landlord and Landlord shall use reasonable efforts to minimize any delay
arising from such reviews.
20. Tenant will promptly furnish Landlord a copy of the building permit
issued to Tenant's Contractor after issuance.
21. Tenant's Contractor will not store materials or supplies in or outside
the Building (other than within the Premises) without the prior
approval of Landlord or Landlord's Contractor.
22. All deliveries except hand-held items must be taken to the floors via
elevator(s) designated by Landlord for such purpose.
23. Tenant's Contractor will provide at all times direct supervision of all
work being performed for Tenant.
24. Tenant's Contractor will cooperate with Landlord in disposing refuse
resulting from the Finish Work. This may include the use of Landlord's
dumpster and a proration of charges associated with such use or at
Landlord's option at Tenant's expense the placement of Tenant
Contractor's dumpster at a location reasonably specified by Landlord.
25. Tenant's Contractor will acknowledge that the work to be performed by
it for Tenant is also for the direct benefit of Landlord. Landlord will
have the right to pursue in its own name directly against Tenant's
Contractor any rights or remedies including, without limitation, claims
for damages granted to Tenant.
If any legal action or arbitration proceeding is commenced to enforce
the provisions of the Contract or to recover damages as a result of the
alleged breach of the provisions thereof, the prevailing party will be
entitled to recover all reasonable costs incurred in connection
therewith, including attorneys' fees.
The Contract will be construed in accordance with the laws of the State
of Virginia Subject to Paragraph 26, any litigation or other proceeding
will be decided by the applicable court in the State of Virginia.
26. All claims, disputes and other matters in question between Tenant and
Tenant's Contractor arising out of, or relating to, the Contract, will
be decided by arbitration in accordance with the Construction Industry
Arbitration Rules of the American Arbitration Association then
obtaining unless the parties mutually agree otherwise. No such
arbitration will include Landlord, its employees or consultants, except
by written consent of Landlord and any other party sought to be joined.
6
<PAGE>
EXHIBIT 3 TO WORK LETTER
FORM OF LIEN WAIVERS
Appropriate lien waivers substantially in the forms attached hereto (with
blanks completed and notary revised as appropriate) as Exhibits 3-1, 3-2,
3-3, and 3-4, as the case may be, will accompany all requests for payment by
Tenant.
[Worldgate I Form: 193277 3/5/991
40189437/15/99 [3258651
<PAGE>
EXHIBIT 3-1 TO WORK LETTER
STATE OF VIRGINIA) INTERIM CONTRACTOR'S AFFIDAVIT
ss. RELEASE AND LIEN WAIVER
COUNTY OF
TO WHOM IT MAY CONCERN:
The undersigned, being first duly sworn, deposes and says that:
1. He is of the who is the general Contractor for the project
hereinafter identified (the "Contractor"), and that the undersigned is
authorized to execute and deliver this document on behalf of the
Contractor.
2. The Contractor is the contractor for the performance of certain
work and/or the furnishing of certain materials or supplies (the "Work")
pursuant to a Contract between Contractor and as Owner, for the
improvements and project commonly known as (the "Project") upon property
legally described as: I County of State of hereinafter referred to as the
"Property."
3. This instrument is executed and delivered in consideration
of and for the purpose of inducing("Construction Lender") and the
Owner to make an interim payment of $ under the Contract, subject to
collection of any check given as payment. The total amount of the
Contract including change orders is $ and the undersigned acknowledges
that upon receipt of this interim payment, the Contractor has received
interim payments totaling $ under the Contract.
4. The undersigned for the Contractor, subject to the receipt
and collection of the interim payment herein requested, warrants and
represents that: (i) all materials delivered to said project by or for
the Contractor are for use therein only; (ii) title to all work,
materials and equipment covered by said payment, whether or not
incorporated in the improvement on the Property, has passed to the
Owner, free and clear of all liens, claims, security or encumbrances
(hereinafter all referred to as "liens"); (iii) all taxes applicable
to the materials furnished for use in or on the Property and all taxes
for the Work performed under the Contract have been fully paid; and
(iv) all laborers, mechanics, subcontractors, materialmen and
suppliers for all work done and for all materials, machinery,
equipment, fixtures, tools, scaffolding and appliances- furnished for
the performance of the Contract and for any other indebtedness
connected therewith for which the Owner of the Property might be
responsible have been paid in full to the date hereof. Contractor, to
the extent of the total of interim payments received, for itself, its
successors, and on behalf of all persons able to claim through or
under the Contractor: (a) waives, relinquishes and releases all liens
and rights of claims to liens for labor or materials furnished in the
construction, improvement, alteration or repair involved in
performance under the Contract; (b) agrees (1) to save Owner and
Construction Lender harmless from all liability, costs and expenses,
including reasonable attorneys' fees, resulting from mechanic's and/or
materialmen's liens for the performance of work or the furnishing of
materials or supplies pursuant to the Contract, (2) to discharge (by
bond or otherwise) or to defend suit to enforce any mechanic's or
materialmen's lien, claim to or right of action for any such lien
which may be filed, and (3) to satisfy any claims or demands which
arise out of, which are due to or which may be made for, any work
performed or supplies furnished under the Contract or in furtherance
of the construction or completion of the Contract, whether directly or
indirectly attributable to the Contract; and (c) hereby releases the
present and any future Owner of the Property, the Property, the
Construction
<PAGE>
Lender and any tender who may now or hereafter have a security interest in the
Property, from all claims, rights of action, liabilities and liens which may be
filed or asserted in connection with the Contract.
Dated this day of , 19-.
Authorized representative of Contractor
SUBSCRIBED AND SWORN TO before me this
day of 19-.
My commission expires
Notary Public
2
<PAGE>
EXHIBIT 3-2 TO WORK LETTER
STATE OF VIRGINIA)
FINAL CONTRACTOR'S AFFIDAVIT,
COUNTY OF RELEASE AND LIEN WAIVER
TO WHOM IT MAY CONCERN:
The undersigned, being first duly sworn, deposes and says that:
I . He is of the who is the general Contractor for the project
hereinafter identified (the "Contractor"), and that the undersigned is
authorized to execute and deliver this document on behalf of the
Contractor.
2. The Contractor is the contractor for the performance of certain
work and/or the furnishing of certain materials or supplies (the "Work")
pursuant to a Contract between Contractor and as Owner, for the
improvements and project commonly known as (the "Project") upon property
legally described as: County of State of hereinafter referred to as the
"Property."
3. This instrument is executed and delivered in consideration of and
for the purpose of inducing ("Construction Lender") and the Owner to make
final payment of $ under the Contract, subject to collection of any check
given as payment. The total amount of the Contract including change orders
is $ . and the undersigned acknowledges that upon receipt of this final
payment, the Contractor has been paid in full the total contract price
under the Contract.
4. The undersigned for the Contractor, subject to the receipt
and collection of the final payment herein requested, warrants and
represents that: (i) all materials delivered to said project by or for
the Contractor are for use therein only; (ii) title to all work,
materials and equipment covered by said payment, whether or not
incorporated in the improvement on the Property, has passed to the
Owner, free and clear of all liens, claims, security or encumbrances
(hereinafter all referred to as "liens"); (iii) all taxes applicable
to the materials furnished for use in or on the Property and all taxes
for the Work performed under the Contract have been fully paid; and
(iv) all laborers, mechanics, subcontractors, materialmen and
suppliers for all work done and for all materials, machinery,
equipment, fixtures, tools, scaffolding and appliances- furnished for
the performance of the Contract and for any other indebtedness
connected therewith for which the Owner of the Property might be
responsible have been paid in full. Contractor for itself, its
successors, and on behalf of all persons able to claim through or
under the Contractor: (a) waives, relinquishes and releases all liens
and rights of claims to liens for labor or materials furnished in the
construction, improvement, alteration or repair involved in
performance under the Contract; (b) agrees (1) to save Owner and
Construction Lender harmless from all liability, costs and expenses,
including reasonable attorneys' fees, resulting from mechanic's and/or
materialmen's liens for the performance of work or the furnishing of
materials or supplies pursuant to the Contract, (2) to discharge (by
bond or otherwise) or to defend suit to enforce any mechanic's or
materialmen's lien, claim to or right of action for any such lien
which may be filed, and (3) to satisfy any claims or demands which
arise out of, which are due to or which may be made for, any work
performed or supplies furnished under the Contract or in furtherance
of the construction or completion of the Contract, whether directly or
indirectly attributable to the Contract; and (c) hereby releases the
present and any future Owner of the Property, the Property, the
Construction Lender and any lender who may now or hereafter have a
security interest in the Property,
<PAGE>
from all claims, rights of action, liabilities and liens which may be filed or
asserted in connection with the Contract.
Dated thisday of lg-.
Authorized representative of Contractor
SUBSCRIBED AND SWORN TO before me this
day of 19-.
My commission expires
Notary Public
2
<PAGE>
EXHIBIT 3-3 TO WORK LETTER
Project Job Address Job Number STATE OF COUNTY OF ) ss.
INTERIM SUBCONTRACTOR'S OR
MATERIAL SUPPLIER'S AFFIDAVIT,
RELEASE AND LIEN WAIVER
The undersigned subcontractor or material supplier (herein referred to
as "Subcontractor"), being first duly sworn, deposes and says that: He is over
the age of 21 years and resides at:
(IF SUBCONTRACTOR IS AN INDIVEDUAL:)
I . He is the Subcontractor referred to herein. (IF SUBCONTRACTOR IS A
PARTNERSEIIP:)
1. He is a general partner in a co-partnership composed of the
undersigned and carrying on business at City of . Said co-partnership is
the Subcontractor referred to herein. (IF SUBCONTRACTOR IS A CORPORATION:)
I . He holds the title of . in a corporation organized under the laws
of the State of carrying on business at ' City of State of which
corporation is the Subcontractor referred to herein. The undersigned is
authorized to execute this instrument on its behalf.
2. Subcontractor is a subcontractor or material supplier for the
performance of certain work and/or the furnishing of certain materials or
supplies pursuant to an agreement or purchase order, as the case may be
(hereinafter called the "Subcontract," which term will refer to the agreement
or purchase order, as the case may be), under a general contract between
(hereinafter called "Contractor"), and Owner"), for the improvements or project
known as (hereinafter called the
-, at
~ City of , County of .. State of
(hereinafter called the "Property").
3. This instrument is delivered in consideration of and for the
purpose of inducing Contractor to make interim payment of $ under the
Subcontract, subject to collection of any check given as payment.
Subcontractor acknowledges that upon receipt of this interim payment,
Subcontractor has received from Contractor interim payments totaling $_
under the Subcontract.
4. Subcontractor warrants and represents that: (i) all materials
delivered to said project by or for Subcontractor are for use therein only;
(ii) title to all work, material and equipment covered by said
<PAGE>
payment, whether or not incorporated in the Property, has passed to the Owner,
free and clear of all liens, claims, security interests or encumbrances
(hereinafter all referred to as "liens"); (iii) all taxes applicable to the
materials furnished and the work performed under the Subcontract have been
fully paid; and (iv) all laborers, mechanics, sub-subcontractors, materialmen
and suppliers for all work done and for all materials, machinery, equipment,
fixtures, tools, scaffolding and appliances furnished for the performance of
the Subcontract and for any other indebtedness connected therewith for which
the Owner of the Property might be responsible have been paid in full to the
date hereof. Subcontractor, to the extent of the total of interim payments
received, for itself, its successors, and on behalf of all persons able to
claim through or under Subcontractor: (a) waives, relinquishes and releases all
liens and right or claim to a lien for labor or materials furnished in the
construction improvement, alteration or repair involved in performance under
the Subcontract; (b) agrees to save Contractor harmless from all liability,
costs and expenses, including reasonable attorneys' fees, to: (1) discharge (by
bond or otherwise) or to defend suit to enforce, any mechanics' or
materialmen's lien, claim to or right of action for such lien, which may be
filed and (2) satisfy any claims or demands arising out of, due or which may be
made, directly or indirectly attributable to the Subcontract, any work
performed or supplies furnished thereunder, or in furtherance of the
construction or completion of the subcontract work; and (c) hereby releases
Contractor, any money earned by Contractor, Contractor's sureties, the present
and any future Owner, the Property and any lender who may now or hereafter have
a security interest therein, from all claim, right of action, liability and
lien which may be filed or asserted in connection with the Subcontract.
Dated this day of 19-.
As Subcontractor, General Partner of
Subcontractor, or Authorized Officer of
Subcontractor, above described
STATE OF
ss.
COUNTY OF
Subscribed and sworn to before me this day of 19_, by known to me to
be the above-named signatory, who personally appeared before me and
acknowledged that the foregoing instrument was freely and voluntarily
executed for the uses and purposes and on behalf of the Subcontractor
therein mentioned.
My commission expires
Notary Public in and
for said County and
State
[Worldgate I Form: 193277 3/5/991 401894_3 7/15/99 [3258651
2
<PAGE>
EXHIBIT 3-4 TO WORK LETTER
Project FINAL SUBCONTRACTOR'S OR
Job Address MATERIAL SUPPLIER'S AFFIDAVIT,
Job Number RELEASE AND LIEN WAIVER
STATE OF
ss.
COUNTY OF
The undersigned subcontractor or material supplier (herein
referred to as "Subcontractor"), being first duly sworn, deposes and
says that: He is over the age of 21 years and resides at:
(IF SUBCONTRACTOR IS AN INDIVEDUAL:)
1. He is the Subcontractor referred to
herein.
(IF SUBCONTRACTOR IS A PARTNERSIHP:)
I . He is a general partner in a co-partnership composed of
the undersigned and carrying on business at city of . Said
co-partnership is the Subcontractor referred to herein.
(IF SUBCONTRACTOR IS A CORPORATION:) I . He holds the title of in , a
corporation organized under the laws of the State of carrying on business
at , City of . State of which corporation is the Subcontractor referred to
herein. The undersigned is authorized to execute this instrument on its
behalf.
2. Subcontractor is a subcontractor or material supplier for the
performance of certain work and/or the furnishing of certain materials or
supplies pursuant to an agreement or purchase order, as the case may be
(hereinafter called the "Subcontract," which term will refer to the
agreement or purchase order, as the case may be), under a general contract
between (hereinafter called "Contractor"), and (hereinafter called the
"Owner"), for the improvements or project known as at City of County of
State of (hereinafter called ~e "Property").
3. This instrument is delivered in consideration of and for the
purpose of inducing Contractor to make final payment of $ , subject to
collection of any check given as payment. Subcontractor acknowledges that
upon receipt of this final payment, Subcontractor has been paid in full the
total subcontract price of $ for all of the work performed under the
Subcontract, including retainage, if any.
<PAGE>
4. Subcontractor warrants and represents that: (i) all materials
delivered to said project by or for Subcontractor are for use therein only;
(ii) title to all work, material and equipment covered by said payment, whether
or not incorporated in the Property, has passed to the Owner, free and clear of
all liens, claims, security interests or encumbrances (hereinafter all referred
to as "liens"); (iii) all taxes applicable to the materials furnished and the
work performed under the Subcontract have been fully paid; and (iv) all
laborers, mechanics, sub-subcontractors, materialmen and suppliers for all work
done and for all materials, machinery, equipment, fixtures, tools, scaffolding
and appliances furnished for the performance of the Subcontract and for any
other indebtedness connected therewith for which the Owner of the Property
might be responsible have been paid in full. Subcontractor for itself, its
successors, and on behalf of all persons able to claim through or under
Subcontractor: (a) waives, relinquishes and releases all liens and right or
claim to a lien for labor or materials furnished in the construction
improvement, alteration or repair involved in performance under the
Subcontract; (b) agrees to save Contractor harmless from all liability, costs
and expenses, including reasonable attorneys' fees, to: (1) discharge (by bond
or otherwise) or to defend suit to enforce, any mechanics' or materialmen's
lien, claim to or right of action for such lien, which may be filed and (2)
satisfy any claims or demands arising out of, due or which may be made,
directly or indirectly attributable to the Subcontract, any work performed or
supplies furnished thereunder, or in furtherance of the construction or
completion of the subcontract work; and (c) hereby releases Contractor, any
money earned by Contractor, Contractor's sureties, the present and any future
Owner, the Property and any lender who may now or hereafter have a security
interest therein, from all claim, right of action, liability and lien which may
be filed or asserted in connection with the Subcontract.
Dated this day of ~ 19-.
As Subcontractor, General Partner of
Subcontractor, or Authorized Officer of
Subcontractor, above described
STATE OF
ss.
COUNTY OF
Subscribed and sworn to before me this day of 19_, by known to me to
be the above-named signatory, who personally appeared before me and
acknowledged that the foregoing instrument was freely and voluntarily
executed for the uses and purposes and on behalf of the Subcontractor
therein mentioned.
My commission expires
Notary Public in and for said
County and State
I-Worldgate I Form: 193277 3/5/991 4018943 7/15/99 (3258651
2
<PAGE>
EXHIBIT 4 TO WORK LETTER
LANDLORD'S DRAWINGS
<PAGE>
<TABLE>
<CAPTION>
EXMIT 4 TO WORK LETTER
LANDLORD'S DRAWINGS
Revisions Dated 2/2/99
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CPAL DRAWINGS
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Dwg- No. Title Date
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
I Cover Sheet 12/1/98
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
2 Existing Conditions and Demolition Plan 12/1/98
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
3 Site Plan 12/1/98
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
4 Sediment and Erosion Control Plan - Phase 1 12/1/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
5 Sediment and Erosion Control Plan - Phase, 2 12JI/98
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
6 Sediment and Erosion Control Notes and Details 12/1/98
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
7 Sanitary Plan and Profile 12/1/98
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
8 Profiles 12/1/98
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
8A Profiles 12/1/98
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9 Storm Drain Computations 12/1/98
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- -----------------------------------------------------------------------------------------------------------------------
10 Landscape Plan 12/l/98
- -----------------------------------------------------------------------------------------------------------------------
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11 Landscape Details and Notes 12/1/98
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
12 Fire Lane Marking Plan 12/1/98
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
13 Site Notes and Details 12/l/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
14 Site Notes and Details 12/1/98
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
15 - Garage Parking Plan 12/1/98
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
16 Geotechnical Requirements CIQ
1116198
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
ARCEMCTURAL DRAWINGS
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Cover Sheet 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
A-00 I Project Data and Drawing Index 2/2,/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
A-002 Door and Partition Types and Door Details 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
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A-003 Door Schedule 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
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A-004 Hardware Schedule 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
406M 1MM
<PAGE>
<TABLE>
<CAPTION>
10VCR ON XH/YLl VV:91 alll 66/ZZ/Lo
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
A-005 Finish Schedule 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
A-101 Architectural Site Plan 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
A-201 Parking Level One Plan 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
A-202 parking Level Two Plan 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
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A-203 Parking Level Three Plan 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
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A-204 Par-king Level Four Plan 2/2/99
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A-205 Typical Floor Plan. First through Fourth West - Fast 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
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A-206 P-4 Garage Level Reflected Ceiling Plan 2/2/99
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A-207 Penthouse and Roof Plan 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
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A-208 Lobby Plans 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
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A-209 Interior Elevations 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
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A-210 Interior Details 2J2199
- -----------------------------------------------------------------------------------------------------------------------
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A-211 Typical Core and Stair Plans 2/2-/99
- -----------------------------------------------------------------------------------------------------------------------
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A-212 Toilet Plans, Elevations and Details 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
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A-213 P-4 Garage Level Reflected Ceiling Plan 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
A-301 Exterior Elevations 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
A-302 Exterior Elevations 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
A-303 Exterior Elevations 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
A-304 Exterior Elevations 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
A-305 Exterior Elevations 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
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A-306 Building Section 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
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A-401 Wall Sections 2/2/99
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A-402 Wall Sections (Roof/Penthouse) 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
A-403 Exterior Details 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
A-404 Plan Details 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
A-405 Plan Details 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
A-501 Partial Building Sections and Miscellaneous Details 2/2/99
- -----------------------------------------------------------------------------------------------------------------------
406773 7/22M
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
[GRAPHIC OMITTED][GRAPHIC OMITTED]
10VC9 ON YH/XJl CV:9T f1HJ, 66/ZZ/LO
- ------------------ ----------------------------------------------------------------------------- ----------------------
A-502 Stair Section and Details 12/2/99
- ------------------ ----------------------------------------------------------------------------- ----------------------
- -----------------------------------------------------------------------------------------------------------------------
STRUCTURAL DRAWINGS
- -----------------------------------------------------------------------------------------------------------------------
- ------------------ ----------------------------------------------------------------------------- ----------------------
<S> <C> <C>
S-1 P I Garage Level Foundation Plan West 2/2/99
- ------------------ ----------------------------------------------------------------------------- ----------------------
- ------------------ ----------------------------------------------------------------------------- ----------------------
S-2 P I Garage Level Foundation Plan East 2/2/99
- ------------------ ----------------------------------------------------------------------------- ----------------------
- ------------------ ----------------------------------------------------------------------------- ----------------------
S-3 Garage Level P2 Framing Plan West 2/2/99
- ------------------ ----------------------------------------------------------------------------- ----------------------
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S-4 Garage Level P2 Framing Plan Fast 2/2/99
- ------------------ ----------------------------------------------------------------------------- ----------------------
- ------------------ ----------------------------------------------------------------------------- ----------------------
S-5 Garage level P3 Framing Plan West 2/2/99
- ------------------ ----------------------------------------------------------------------------- ----------------------
- ------------------ ----------------------------------------------------------------------------- ----------------------
S-6 Garage Level P3 Framing Plan East 2/2/99
- ------------------ ----------------------------------------------------------------------------- ----------------------
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S-7 Garage Level P4 Framing Plan West 2/2/99
- ------------------ ----------------------------------------------------------------------------- ----------------------
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S-8 Garage Level P4 Framing Plan East 2/71/99
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S-9 Typical Floor Framing Plan West 2/2,199
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S-10 Typical Floor Framing Plan Fast 2/2/99
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S-11 Main Roof & Penthouse Floor Framing Plan West 7-/2/99
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S-12 Main Roof & Penthouse Floor Framing Plan East 2/2/99
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S-13 Penthouse Roof Framing Plan 2/Z/0-9-
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S-14 Column Schedule West 2/2/99
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S-15 Column Schedule Fast 2/Z/00
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S-16 Beam Schedule 2/2/99
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S-17 Structural Notes 2/2/99
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S-18 Typical Details 2/2/99
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S-19 Typical Details 2/2/99
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S-20 Sections 2/2/99
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S-21 Sections 2/2/99
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MECHANICAL DRAWINGS
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M-1 Cover Sheet, Symbols, Abbreviations & Equipment Schedules 2/2/99
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M-2 Garage Level 1 2/2/99
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M-3 Part Plan Garage Level 2 and 3 2/2/99
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406773 IMM
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------- ------------------------------------------------------------------------------ ----------------------
<S> <C> <C> <C>
- -4 Garage Level 4 2/2/99
- ----------------- ------------------------------------------------------------------------------ ----------------------
- ----------------- ------------------------------------------------------------------------------ ----------------------
M-5 Typical Floor Plan I st-3rd (West) 2/2/99
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M-6 Typical Floor Plan 1 st-3rd (Fast) 2/2/99
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M-7 Fourth Floor Plan West 2/2/99
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M-8 Fourth Floor Plan East 2/2/99
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M-9 Penthouse Ductwork and Piping Plan 2/2/99
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M-10 Typical Core Plan 2/2/99
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M-1 I Fourth Floor Core Plan 2/2/99
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M-12 Riser and Flow Diagrams Mechanical 2/2/99
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M- 13 Details 2/2/99
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M-14 Details 2/2/99
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- -----------------------------------------------------------------------------------------------------------------------
PLUMBING DRAWINGS
- -----------------------------------------------------------------------------------------------------------------------
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P-1 Schedules, Symbols and Notes - Plumbing 2/2/99
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- ----------------- ------------------------------------------------------------------------------ ----------------------
P-2 Parking Lv1 I West - Under Ground - Plumbing 2/2/99
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P-3 Parking LA I Fast - Under Ground - Plumbing 2/2/99
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P-4 Parking LA 1 West - Above Ground - Plumbing 2/2/99
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P-5 Parking Lv1 I East - Above Ground - Plumbing 2/2/99
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P-6 Parking . Lvl 2 Plan West - Plumbing 2/2/99
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P-7 Parking LA 2 Plan East- Plumbing 2/2/99
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P-8 Parking Lvl 3 Plan West - Plumbing 2/2/99
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P-9 Parking Lvl 3 Plan East - Plumbing 2/2/99
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P-10 Parking Lvl 4 Plan West - Plumbing 2/2/99
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P-1 I Parking Lvl 4 Plan East - Plumbing 2/2/99
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P-12 Typical Floor (1 -3) Plan West - Plumbing 2/2/99
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P- 13 Typical Floor (1-3) Plan East - Plumbing 2/2/99
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P- 14 Fourth Floor Plan West - Plumbing 2/2/99
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P-15 Fourth- Floor Plan East - Plumbing 2/2/99
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
_10VV9 ON YN/Y11 CV:91 flHJL 66/ZZ/LO
- ------------------ ----------------------------------------------------------------------------- -----------------------
<S> <C> <C>
P- 16 Penthouse and Roof Plan West - Plumbing 2/2/99
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P-17 Penthouse and Roof Plan East - Plumbing 2/2/99
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P-18 Typical Core (1-3) Plan West - Plumbing 2/2/99
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P-19 Typical Core (1-3) Plan East - Plumbing 2/2/99
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P-20 Water Riser Diagram - Plumbing 2/2/99
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P-21 Sanitary Riser Diagram - Plumbing 2/2/99
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P-22 Storm Riser Diagram - Plumbing 2/2/99
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P-23 Fire Protection Riser Diagram 2/2/99
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P-24 Details - Plumbing 2/2/99
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ELECTRICAL DRAWINGS
- ------------------------------------------------------------------------------------------------------------------------
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E- I Symbols, Notes, Schedules, Details - Electrical 2/2/99
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E-2 Site Plan - Electrical 2/2/99
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E-3 P-2 Level West - Electrical 2/2/99
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E-4 P- I Level East -Electrical 2/2/99
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E-5 P-2 Level West - Electrical 2/2/99
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E-6 P-2 Level East - Electrical 2/2/99
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E-7 P-3 Level West - Electrical 2/2/99
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E-8 P-3 Level Fast - Electrical 2/2/99
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E-9 P-4 Level West - Electrical 2/2/99
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E-10 P-4 Level East - Electrical 2/2/99
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E-1 1 Typical Floor (1', 2d, 3) West - Electrical 2/2/99
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E- 12 Typical Floor (1', 2d5 3') Fast - Electrical 2/2/99
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E-13 Fourth Floor Plan West - Electrical 2/2/99
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E- 14 Fourth Floor Plan East - Electrical 2/2/99
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E-15 Penthouse - Plan West/East - Electrical 2/2/99
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E- 16 Typical Core Plan West/East - Electrical 2 2, 99
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'E-17 Main Lobby Lighting - West/East - Electrical V2J99
----------------------------------------------------------------------------- -----------------------
406M V22M
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IOVCR ON YH/YLJ VV:ST IIHJ, 66/ZZ/LO
- ----------------- ------------------------------------------------------------------------------ ---------------------
<S> <C> <C>
E-18 Power Riser Diagram - Electrical 2/2/99
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E-19 Switchboard Schedules - Electrical 2/2/99
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E-20 Fire Alarm Riser Diagram - Electrical 2/2/99
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E-21 Fire Alarm Riser Diagram - Electrical 2/2/99
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E-22 Panel l3oard Schedules - Electrical 2/2/99
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E-23 Panel Board Schedules - Electrical 2/2/99
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406773 7n2M
</TABLE>
<PAGE>
DEMAND NOTE
This Note has been executed by COMPLUS, L.P., a Delaware Limited Partnership
with its principal office located at 100 Newport Avenue Extension, Quincy, MA
02171 ("Borrower").
ON DEMAND, for value received, Borrower promises to pay to the order of ONEPOINT
COMMUNICATIONS CORP., a Delaware corporation ("Lender"), at its office at 2201
Waukegan Drive, Bannockburn, Illinois 60015, or at such other place as Lender
may direct, the principal sum of NINE HUNDRED THOUSAND AND NO/100 United States
Dollars ($900,000). Interest shall accrue on the outstanding principal amount of
this Note at a rate equal to 15% per annum and shall be payable at such time as
the principal of this Note becomes due and payable.
This Note shall bind Borrower, its successors and assigns, and shall inure to
the benefit of Lender, its successors and assigns, except that Borrower may not
transfer or assign any of its rights or interest hereunder without the prior
written consent of Lender.
Borrower agrees to pay upon demand all expenses (including without limitation
attorneys' fees, legal costs and expenses, in each case whether in or out of
court, in original or appellate proceedings or in bankruptcy) incurred or paid
by Lender in connection with the enforcement or preservation of its rights
hereunder.
The amounts due under this Note are secured by the Security Agreement of even
date herewith encumbering the accounts receivable of Borrower.
Except as otherwise expressly provided herein, Borrower expressly and
irrevocably waives notice of dishonor or default as well as presentment,
protest, demand and notice of any kind in connection herewith. In addition,
Borrower expressly agrees that this Note, or any payment hereunder, may be
extended from time to time and the holder hereof may accept security for this
Note, all without in any way affecting the liability of the Borrower hereunder.
This Note shall be governed by and construed in accordance with the internal law
of the State of Illinois, and shall be deemed to have been executed in the State
of Illinois.
COMPLUS, L.P.
By: AMI-VCOM2, Inc., its General Partner
By: ____________________________
Name Printed: __________________
Title: _________________________
Date: __________________________
<PAGE>
EXECUTION COPY
--------------
================================================================================
STOCK PURCHASE AGREEMENT
BY AND AMONG
RCP COMMUNICATIONS, INC.,
THE STOCKHOLDERS NAMED HEREIN,
AND
ONEPOINT SERVICES, L.L.C.
DATED AS OF NOVEMBER 30, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I PURCHASE AND SALE OF STOCK................................................. 1
1.1 Stock Purchase............................................................. 1
1.2 Purchase Price for Company Stock........................................... 1
1.3 Closing Transactions....................................................... 1
1.4 Hold-back Payment.......................................................... 2
1.5 Earn-out................................................................... 3
1.6 Indebtedness Adjustment.................................................... 5
ARTICLE II CONDITIONS TO CLOSING...................................................... 6
2.1 Conditions to Buyer's Obligations.......................................... 6
2.2 Conditions to Each Sellers' Obligations.................................... 9
ARTICLE III COVENANTS PRIOR TO CLOSING................................................ 11
3.1 Affirmative Covenants of the Company and Each Seller....................... 11
3.2 Negative Covenants of Company and Each Seller.............................. 12
3.3 Covenants of Buyer......................................................... 14
ARTICLE IV REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND EACH SELLER...... 14
4.1 Organization and Corporate Power........................................... 14
4.2 Authorization of Transactions.............................................. 14
4.3 Capitalization............................................................. 15
4.4 Subsidiaries; Investments.................................................. 15
4.5 Absence of Conflicts....................................................... 16
4.6 Financial Statements....................................................... 16
4.7 Absence of Undisclosed Liabilities......................................... 16
4.8 Absence of Certain Developments............................................ 16
4.9 Title to Properties........................................................ 18
4.10 Accounts Receivable........................................................ 20
4.11 Inventory.................................................................. 20
4.12 Taxes...................................................................... 20
4.13 Contracts and Commitments.................................................. 21
4.14 Proprietary Rights......................................................... 23
4.15 Litigation; Proceedings.................................................... 24
4.16 Brokerage.................................................................. 25
4.17 Governmental Licenses and Permits.......................................... 25
4.18 Employees.................................................................. 25
4.19 Employee Benefit Plans..................................................... 25
4.20 Insurance.................................................................. 27
4.21 Officers and Directors; Bank Accounts...................................... 27
4.22 Affiliate Transactions..................................................... 27
4.23 Compliance with Laws....................................................... 27
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4.24 Environmental Matters..................................................... 28
4.25 Projections............................................................... 29
4.26 Powers of Attorney; Guarantees............................................ 29
4.27 Product Warranties........................................................ 29
4.28 Indebtedness.............................................................. 30
4.29 Disclosure................................................................ 30
4.30 Closing Date.............................................................. 30
4.31 Knowledge................................................................. 30
ARTICLE V REPRESENTATIONS AND WARRANTIES WITH RESPECT TO SELLERS..................... 30
5.1 Authorization of Transactions............................................. 30
5.2 Absence of Conflicts...................................................... 31
5.3 Brokerage................................................................. 31
5.4 Shares.................................................................... 31
5.5 No Guarantee of Debt...................................................... 31
5.6 Legal and Tax Advice...................................................... 31
5.7 Closing Date.............................................................. 31
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER................................... 32
6.1 Organization and Corporate Power.......................................... 32
6.2 Authorization............................................................. 32
6.3 No Violation.............................................................. 32
6.4 Governmental Authorities and Consents..................................... 32
6.5 Litigation................................................................ 32
6.6 Brokerage................................................................. 33
6.7 Closing Date.............................................................. 33
ARTICLE VII TERMINATION.............................................................. 33
7.1 Termination............................................................... 33
7.2 Effect of Termination..................................................... 33
ARTICLE VIII INDEMNIFICATION AND RELATED MATTERS..................................... 34
8.1 Survival.................................................................. 34
8.2 Indemnification........................................................... 34
ARTICLE IX ADDITIONAL AGREEMENTS..................................................... 38
9.1 Continuing Assistance..................................................... 38
9.2 Tax Matters............................................................... 38
9.3 Press Releases and Announcements.......................................... 38
9.4 Further Transfers......................................................... 39
9.5 Specific Performance...................................................... 39
9.6 Transition Assistance..................................................... 39
9.7 Investigation............................................................. 39
9.8 Expenses.................................................................. 39
9.9 Exclusivity............................................................... 40
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
9.10 Books and Records......................................................... 40
9.11 Non-Competition, Non-Solicitation and Confidentiality..................... 40
ARTICLE X MISCELLANEOUS............................................................... 42
10.1 Amendment and Waiver...................................................... 42
10.2 Notices................................................................... 42
10.3 Binding Agreement; Assignment............................................. 43
10.4 Severability.............................................................. 43
10.5 No Strict Construction.................................................... 44
10.6 Captions.................................................................. 44
10.7 Entire Agreement.......................................................... 44
10.8 Counterparts.............................................................. 44
10.9 Governing Law............................................................. 44
10.10 Parties in Interest...................................................... 44
10.11 WAIVER OF JURY TRIAL..................................................... 44
10.12 CONSENT TO JURISDICTION.................................................. 44
</TABLE>
-iii-
<PAGE>
INDEX OF EXHIBITS
-----------------
Exhibit A Sellers' Certificate
Exhibit B Buyer's Certificate
Exhibit C Form of Opinion -- Buyer's Counsel
Exhibit D Form of Opinion -- Seller's Counsel
Exhibit E Operating Agreement of OnePoint Services, L.L.C.
INDEX OF SCHEDULES
------------------
Schedule 1.1 Stock Ownership
Schedule 4.1 Organization and Corporate Power
Schedule 4.5 Absence of Conflicts
Schedule 4.7 Absence of Undisclosed Liabilities
Schedule 4.8 Absence of Certain Developments
Schedule 4.8(o) Tax Liabilities
Schedule 4.9(b) Real Property Leases and Subleases
Schedule 4.9(d) Personal Property
Schedule 4.10 Accounts Receivable
Schedule 4.12 Taxes
Schedule 4.13 Contracts and Commitments
Schedule 4.14 Proprietary Rights
Schedule 4.15 Litigation; Proceedings
Schedule 4.16 Brokerage (Company)
Schedule 4.17 Governmental Licenses and Permits
Schedule 4.18 Employees
-vi-
<PAGE>
Schedule 4.19 Employee Benefit Plans
Schedule 4.20 Insurance
Schedule 4.21 Officers and Directors; Bank Accounts
Schedule 4.22 Affiliate Transactions
Schedule 4.23 Compliance with Laws
Schedule 4.24 Environmental Matters
Schedule 4.25 Projections
Schedule 4.26 Powers of Attorney; Guarantees
Schedule 4.27 Product Warranties
Schedule 4.28 Closing Indebtedness
Schedule 5.3 Brokerage (Seller)
-vii-
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Accounting Firm........................................................ 6
Acquired Stock......................................................... 1
Affiliate.............................................................. 27
Affiliated Group....................................................... 21
Anniversary Date....................................................... 3
Applicable Limitation Date............................................. 34
Basket................................................................. 35
Buyer.................................................................. 1
Buyer Common Units..................................................... 1
Buyer Parties.......................................................... 34
Cash Earn-out.......................................................... 3
Cash Earn-out Payments................................................. 3
CERCLA................................................................. 28
Closing................................................................ 1
Closing Date........................................................... 2
Closing Indebtedness................................................... 30
Closing Transactions................................................... 2
COBRA.................................................................. 26
Code................................................................... 21
Company................................................................ 1
Confidential Information............................................... 41
Controlled Group....................................................... 26
Dispute Notice......................................................... 5
Earn-out Unit Grants................................................... 4
Environmental and Safety Requirements.................................. 29
Environmental Lien..................................................... 29
ERISA.................................................................. 25
Estimated Excess Indebtedness.......................................... 2
Excess FET Indebtedness................................................ 5
Excess Indebtedness.................................................... 5
Excess MCI/WorldCom Indebtedness....................................... 5
FET Indebtedness....................................................... 8
Financial Statements................................................... 16
Founder Employment Agreements.......................................... 8
Hold-back.............................................................. 2
Indebtedness........................................................... 13
Indebtedness Statement................................................. 5
Indemnified Party...................................................... 36
Indemnifying Party..................................................... 36
Indirectly............................................................. 41
Initial Holdback Amount................................................ 2
Insiders............................................................... 27
Item of Dispute........................................................ 5
Knowledge.............................................................. 30
Latest Balance Sheets.................................................. 16
Leased Properties...................................................... 18
Licenses............................................................... 25
Lien................................................................... 19
Loss................................................................... 34
Losses................................................................. 34
Material Adverse Change................................................ 7
Material Adverse Effect................................................ 14
MCI/WorldCom Indebtedness.............................................. 7
MCI/WorldCom Release................................................... 8
Non-Compete Period..................................................... 40
Ordinary Course of Business............................................ 11
Parties................................................................ 1
Party.................................................................. 1
Person................................................................. 15
Proprietary Rights..................................................... 23
Purchase Price......................................................... 1
Quarterly Statement.................................................... 4
Release................................................................ 29
Reserved Claims........................................................ 3
Revenue................................................................ 3
Seller................................................................. 1
Seller Employment Agreements........................................... 8
Sellers................................................................ 1
Sellers Threshold...................................................... 36
Sellers' Basket........................................................ 36
Slow-moving............................................................ 20
Stock.................................................................. 1
Subsidiary............................................................. 15
Tax.................................................................... 21
Tax Returns............................................................ 21
Taxes.................................................................. 21
Threshold.............................................................. 35
Transaction Documents.................................................. 14
Wholly-owned Subsidiaries.............................................. 43
</TABLE>
-viii-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of November 23, 1999, by and among RCP
Communications, Inc., an Arizona corporation (the "Company"), the stockholders
-------
listed on the signature page hereto (the "Sellers" and individually, a
-------
"Seller"), and OnePoint Services, L.L.C., a Delaware limited liability company
------
("Buyer"). The Company, Sellers and Buyer are collectively referred to herein
-----
as the "Parties" and individually as a "Party."
------- -----
The authorized capital stock of the Company consists of 2,000 shares
of Common Stock, par value $1.00 per share (the "Stock"), of which 2,000 shares
-----
are issued and outstanding. Sellers own beneficially and of record 100% of the
outstanding Stock.
Buyer desires to acquire from each Seller, and each Seller desires to
sell to Buyer, all of the shares of the Stock owned by such Seller.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
--------------------------
I.1 Stock Purchase. On and subject to the terms and conditions set
--------------
forth in this Agreement, on the Closing Date (as defined in Section 1.3(a)),
--------------
Buyer shall purchase from each Seller, and each Seller shall sell and transfer
to Buyer, all of the shares of the Stock owned by such Seller as such ownership
is set forth on Schedule 1.1 (the "Acquired Stock"), free and clear of any
------------ --------------
restrictions on transfer (other than any restrictions under the Securities Act
of 1933, as amended, and the state securities laws), claims, taxes, Liens,
pledges, options, warrants, rights, contract, calls, commitments, equities,
proxies or demands.
I.2 Purchase Price for Company Stock. The aggregate purchase price
--------------------------------
to be paid to Sellers for the Acquired Stock (the "Purchase Price") shall be
--------------
equal to$984,694, subject to the Initial Hold-back Amount minus any adjustments
-----
thereto as contemplated under Section 1.6 or Article VIII, plus $7,125 in
----------- ------------ ----
capital contributions credited by the Buyer to capital accounts of the Sellers
as consideration for 1,425,000 common units of interest of Buyer ("Buyer Common
------------
Units"), such units to be Restricted Common Units as defined by and subject to
- -----
the provisions of the Limited Liability Company Agreement of the Buyer (the
"Operating Agreement") dated as of November 23, 1999 and as may be amended from
time to time. The Purchase Price shall be allocated among Sellers in
proportion to their respective holdings of the Acquired Stock as set forth on
Schedule 1.1.
- ------------
I.3 Closing Transactions.
--------------------
(a) Closing. The closing of the transactions contemplated by this
-------
Agreement (the "Closing") shall take place at the offices of Kirkland & Ellis,
-------
200 E. Randolph Drive, Chicago,
<PAGE>
Illinois, commencing at 10:00 a.m. on November 23, 1999, or at such other place
or on such other date as may be mutually agreeable to Buyer and Sellers, but in
no event later than November 30, 1999. The date and time of the Closing are
herein referred to as the "Closing Date."
------------
(b) Closing Transactions. Subject to the conditions set forth in
--------------------
this Agreement, the Parties shall consummate the following "Closing
-------
Transactions" on the Closing Date:
- ------------
(i) Each Seller shall deliver to Buyer certificates representing the
Acquired Stock owned by such Seller, duly endorsed for transfer or
accompanied by duly executed stock powers with all requisite state and
federal transfer stamps affixed thereto;
(ii) Buyer shall deliver to Sellers the Purchase Price equal to (A)
(1) $984,694, minus (2) $891,819 (the "Initial Holdback"), specified in
----- ----------------
clause (iii) below, minus (3) the amount of any Indebtedness, as defined in
-----
Section 3.2(f) below (other than the Indebtedness described in Sections
-------------- --------
2.1(h) and 4.28(a) below), as of the Closing, as estimated by the Sellers
------------------
and the Company, and agreed to by the Buyer at Closing (the "Estimated
Excess Indebtedness"), and (B) the Buyer Common Units specified in clause
(iv) below;
(iii) Buyer shall retain $891,819 of the Purchase Price (the "Initial
-------
Holdback Amount") pursuant to the terms and provisions set forth in Section
--------------- -------
1.4 below;
---
(iv) Buyer shall credit Sellers' capital accounts pursuant to the
provisions of the Operating Agreement in the amount of a $3,562.50 Capital
Contribution (as defined in the Operating Agreement) for each Seller, and
deliver to Sellers an aggregate of 1,425,000 Buyer Common Units (375,000
Buyer Common Units shall be subject to divestiture and repurchase as set
forth in the Unitholders Agreement and 1,050,000 Buyer Common Units shall
be subject to performance vesting, divestiture and repurchase as set forth
in the Unitholder Agreement and Section 1.5 below) such Buyer Common Units
-----------
to be subject to the restrictions set forth in the Operating Agreement and
a Unitholders Agreement by and between each Seller and the Buyer;
(v) Subject to receipt of a full and complete release from
MCI/WorldCom (the "MCI/WorldCom Release"), Buyer shall deliver to
--------------------
MCI/WorldCom $884,375 as full and complete satisfaction of the MCI/WorldCom
Indebtedness;
(vi) Company, Sellers and Buyer, as applicable, shall deliver the
opinions, certificates and other documents and instruments required to be
delivered by or on behalf of such Party under Article II; and
----------
(vii) Each Seller shall deliver to Buyer all corporate books and
records of the Company in such Seller's possession.
I.4 Hold-back Payment. The Initial Hold-back Amount plus simple
----------------- ----
interest accrued at the prime interest rate reported in the Wall Street Journal
on the day before the Closing Date less any offsets pursuant to Article VIII of
---- ------------
this Agreement is referred to herein as the "Hold-back." On the first
---------
anniversary of the Closing Date (the "Anniversary Date"), the amount of the
----------------
-iii-
<PAGE>
Hold-back less any existing reserves against the Hold-back for pending claims
----
(the "Reserved Claims"), shall be promptly paid to the Sellers by Buyer if, and
--------------- -------
only if, for the twelve (12) month period after the Closing Date and prior to
- -------
the Anniversary Date, the net monthly Revenue of the Business Unit (as defined
below) averages $1,000,000 per month and the EBITDA of the Business Unit during
---
such period is an average of at least five percent (5%) per month over the
twelve (12) month period. Upon the final resolution of the Reserved Claims, any
remaining amount of the Hold-back in excess of such amounts offset as payment
with respect to the Reserved Claims will be paid promptly by the Buyer to the
Sellers.
(a) For the purposes of this Agreement, the definitions of Revenue,
EBITDA, and Business Unit are:
(i) "Revenue" for the Business Unit in respect of any period means
-------
its consolidated gross income from the sale of goods or services less
returns and sales allowances, determined in accordance with GAAP.
(ii) "EBITDA" for the Business Unit in respect of any period means
------
its consolidated net income for such period plus the amount of the
provision for federal, state and local income taxes for such period, plus
the amount of interest expense during such period for indebtedness for
borrowed money, plus the amount of the provision for amortization and
depreciation for such period, determined on a consolidated basis in
accordance with GAAP.
(iii) "Business Unit" means RCP Services, a division of Buyer.
-------------
(b) For purposes of this Agreement, and the determination of Revenue
and EBITDA, the Cash Earn-out Payments, Holdback Amount and any Reserved Claims
shall not be considered expenses of the Business Unit.
(c) For purposes of this Agreement and the determination of Revenue
and EBITDA, any allocations of fees or expenses from Company or Manager to the
Business Unit shall be limited to the type contemplated in the projections
attached as Schedule 4.25 hereto, unless otherwise agreed.
-------------
I.5 Earn-out. Additional compensation in an aggregate amount up to
--------
$800,000 in cash (the "Cash Earn-out") may be paid to the Sellers, and Sellers
-------------
may earn performance vesting ("Vesting") in an aggregate of 1,050,000 Buyer
Common Units (the "Earn-out Units") subject to the Business Unit's achievement
of future EBITDA and Revenue targets.
(a) Cash Earn-out Payments. So long as Sellers are employed by
----------------------
Company, Cash Earn-out payments not to exceed $800,000 in the aggregate may be
earned by Sellers on a quarterly basis over the eight (8) fiscal quarters
starting with the first quarter of fiscal 2000 (i.e., January 1- March 31, 2000)
(the "Cash Earn-out Payments"). Cash Earn-out Payments (i) shall be calculated
----------------------
as of the end of each quarter as the current period end trailing twelve (12)
month Revenue minus the previous period end trailing twelve (12) month Revenue,
-----
then dividing the result by one (1) million and then multiplying that result by
-------- -----------
$30,000, and (ii) shall be paid only if EBITDA for
----
-iv-
<PAGE>
such quarter equals at least five percent (5%) of such quarter's Revenue;
provided, however, that if Seller's employment is terminated without cause, or
as a result of death or disability, then Sellers shall be entitled to Cash Earn-
out Payments as if they were still employed by the Company in the fiscal quarter
in which such termination occurs and the fiscal quarter immediately following.
---
Cash Earn-out Payments in all subsequent fiscal quarters shall be forfeited.
(b) Earn-out Units. At Closing, 1,050,000 Restricted Buyer Common
--------------
Units will be issued to Sellers, subject to vesting as set forth in this Section
-------
1.5, and subject to divestiture and repurchase and other restrictions set forth
- ---
in the Operating Agreement and Unitholders Agreement. Vesting of Earn-out Units
not to exceed 1,050,000 Restricted Buyer Common Units in the aggregate may be
earned by Sellers on a quarterly basis over the twelve (12) fiscal quarters
starting with the first quarter of fiscal 2000 (i.e., January 1-March 31, 2000)
(the "Earn-out Unit Vesting") commencing January 1, 2000. Earn-out Unit Vesting
---------------------
shall be calculated as of the end of each fiscal quarter as the sum of (i) the
---
current period end trailing twelve (12) month Revenue minus the previous period
-----
end trailing twelve (12) month Revenue, then dividing the result by one (1)
--------
million, and then multiplying that result by 7,000 Buyer Common Units and (ii)
----------- ---
current period end trailing twelve (12) month EBITDA minus the previous period
-----
end trailing twelve (12) month EBITDA, then dividing the result by 100,000, and
--------
then multiplying that result by 7,000 Buyer Common Units. The resultant number
-----------
of Earn-out Units shall be vested. At the end of the twelve (12) fiscal quarter
period, any and all Earn-out Units not vested shall be forfeited to the Company
without cost to or compensation by the Company.
(c) Determination and Delivery of Cash Earn-out Payments and Earn-
--------------------------------------------------------------
out Unit Vesting.
- ----------------
(i) Within forty-five (45) days after the end of each fiscal
quarter, except the final quarter of each fiscal year, and within ninety
(90) days after the end of the final quarter of each fiscal year, Buyer
will prepare and deliver to Sellers a statement setting forth its
calculation of cumulative Revenue and EBITDA as of the close of business
such day (the "Quarterly Statement"). The Quarterly Statement shall reflect
-------------------
the results of operations of Business Unit at the close of business on the
last day of each of the relevant fiscal quarters (and on a cumulative
basis) and shall be prepared in accordance with GAAP.
(ii) Within fifteen (15) days after the delivery of the relevant
quarterly statement, Buyer shall deliver to Sellers, subject to Sections
--------
1.5(b) and 1.5(c) above, the Cash Earn-out Payment and Earn-out Unit
------ ------
Vesting, if any, owed to Seller for such fiscal quarter; provided that
Buyer, at Buyer's sole discretion, may pay such Cash Earn-out Payment or
vest such Earn-out Units early based on an estimated Cash Earn-out, subject
to a reconciliation at the next Cash Earn-out Payment. Such early payment
by the Buyer or acceptance by the Sellers shall not affect the rights of
the parties as set forth in Section 1.5(c)(iii) and (iv) below.
----------------------------
(iii) Sellers and their accountants shall have access to all
pertinent books and records of Buyer, and Buyer will make available all
necessary information in order to enable Sellers to verify the calculation
of amounts listed on the Quarterly Statement. If Sellers disagree with any
items on the Quarterly Statement, Sellers shall within ten (10) days of
receiving the Quarterly Statement notify Buyer in writing of (i) such
disagreement; and (ii)
-v-
<PAGE>
request any information which Sellers may reasonably require to understand
the calculation, provided, however, that Sellers may further request
-------- -------
additional information within five (5) days of the receipt of information
requested pursuant to this section, and such five day extensions may
continue until the date which is thirty (30) days after the notice setting
forth the basis for such disagreement in reasonable detail. Both Sellers
must disagree for the purposes of this Section.
(iv) Buyer and Sellers shall thereafter negotiate in good faith to
resolve any such disagreements. If Buyer and Sellers are unable to resolve
any such disagreement within thirty (30) days after Sellers' receipt of the
information requested pursuant to the preceding subsection, Buyer and
Sellers shall submit the disagreement to Ernst & Young to resolve the
disagreements. The fees and expenses of the auditor shall be shared
equally by Buyer and Sellers. Upon resolution of the disagreements by the
auditor, Buyer shall pay to Sellers the amount determined by the auditor to
be owed to Sellers.
I.6 Indebtedness Adjustment.
-----------------------
(a) The Indebtedness Statement. Promptly, but in any event within
--------------------------
thirty (30) days after (i) learning of any MCI/World Com Indebtedness incurred
prior to Closing and in excess of that paid pursuant to Section 1.3(v) above
(the "Excess MCI/WorldCom Indebtedness") or any FET indebtedness, interest,
--------------------------------
penalty, or other liability related thereto incurred prior to Closing and not
included in the amounts specified in Section 2.1(h) or 4.28(i) and (ii) below
----------------------------------
(the "Excess FET Indebtedness" and collectively with the "Excess MCI/WorldCom
Indebtedness" the "Excess Indebtedness"), (ii) learning that the amount of the
MCI/WorldCom Indebtedness incurred prior to closing to be paid pursuant to
Section 1.3(v) above is less than the amount stated therein or any FET
- --------------
Indebtedness, interest, penalty or other liability related thereto incurred
prior to Closing is less than the amounts specified therefor in Sections 2.1(h)
---------------
or 4.28(i) and (ii) below, or (iii) that the amount of payments actually made in
- -------------------
full settlement of any indebtedness included in the Estimated Excess
Indebtedness is more or less than the amount included in the Estimated Excess
Indebtedness, the Buyer shall prepare a statement showing any and all such
differences in the amounts actually paid or due and the amounts specified in
Sections 2.1(h) or 4.28(i) and (ii) below, or the Estimated Excess Indebtedness,
- -----------------------------------
as the case may be, (the "Indebtedness Statement"), and deliver such
----------------------
Indebtedness Statement to the Sellers. Unless within the 30-day period following
the Sellers' receipt of the Indebtedness Statement, the Sellers' deliver written
notice to Buyer (the "Dispute Notice") setting forth in reasonable detail any
--------------
and all items of disagreement related to the Indebtedness Statement (each, an
"Item of Dispute"), the Indebtedness Statement shall be conclusive and binding
---------------
upon the Sellers and Buyer. Buyer and the Sellers shall cooperate fully, as and
to the extent reasonably requested by the other Party, in connection with the
preparation of the Indebtedness Statement and the Dispute Notice (if any).
(b) Dispute Resolution. If the Sellers deliver the Dispute Notice to
------------------
Buyer within such 30-day period, Buyer and the Sellers shall use reasonable
efforts to resolve their differences concerning the Items of Dispute, and if any
Item of Dispute is so resolved the Indebtedness Statement shall be modified as
necessary to reflect such resolution. If all Items of Dispute are so resolved,
the Indebtedness Statement (as so modified) shall be conclusive and binding on
the Sellers and Buyer. If any Item of Dispute remains unresolved for a period
of 20 days after Buyer's receipt
-vi-
<PAGE>
of the Dispute Notice, Buyer and the Sellers shall submit the dispute to Ernst &
Young (the "Accounting Firm") within 10 business days after the end of such 20-
---------------
day period. Buyer and the Sellers shall request that the Accounting Firm render
a determination as to each unresolved Item of Dispute within 45 days after its
retention, and Buyer and the Sellers shall cooperate fully with the Accounting
Firm so as to enable it to make such determination as quickly and as accurately
as practicable. The Accounting Firm's determination as to each Item of Dispute
submitted to it shall be in writing and shall be conclusive and binding upon
Buyer and the Sellers, and the Closing Statement shall be modified to the extent
necessary to reflect such determination. The fees and expenses of the Accounting
Firm shall be allocated to be paid by Buyer and/or the Sellers based upon the
percentage which the portion of the contested amount not awarded to each party
bears to the amount actually contested by such party, as determined by the
Accounting Firm.
(c) Indebtedness Adjustment. If the aggregate amount of differences
-----------------------
reflected on the aggregate of all Indebtedness Statements which have become
conclusive (i) is in the Buyer's favor, then Sellers shall reimburse Buyers for
such difference as set forth below, or (ii) is in the Seller's favor, then
Buyers shall pay Sellers for such aggregate differences as set forth below.
(d) Adjustment Amount. The amount owed by Buyer or the Sellers
-----------------
pursuant to Section 1.6(c) above (the "Adjustment Amount") shall be calculated
-------------- -----------------
as an adjustment to the Purchase Price on the first business day on which the
Indebtedness Statement becomes conclusive and binding. The Adjustment Amount
shall bear simple interest at a rate of 8% per annum measured from the Closing
Date to the date of such payment. Amounts owing by the Sellers, if any,
pursuant to this Section 1.6 shall be paid by the Sellers (on a joint and
-----------
several basis) (i) first by off-set against the Hold-back amount, or (ii) if the
Hold-back amount is insufficient to cover the full or part amount of such
payment, then such remaining amount shall be next off-set against the Cash Earn-
out earned and payable to the Sellers, or (iii) if the Hold-back amount and the
Cash Earn-out amount earned and payable to the Sellers is insufficient to cover
the full or part amount of such payment, then by immediately available funds
within ten (10) business days after the quarterly determination pursuant to
Section 1.5(c)(ii) above date of final determination. Amounts owing by Buyer,
- ------------------
if any, pursuant to this Section 1.6 shall be paid by Buyer by delivery of
-----------
immediately available funds to an account or accounts designated by the Sellers
within ten (10) business days after the date of final determination of such
amount pursuant to Section 1.6(c) above.
--------------
ARTICLE II
CONDITIONS TO CLOSING
---------------------
II.1 Conditions to Buyer's Obligations. The obligation of Buyer to
---------------------------------
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions as of the Closing Date:
(a) The representations and warranties set forth in Article IV and
Article V hereof shall be true and correct in all material respects at and as of
the Closing Date as though then made and as though the Closing Date were
substituted for the date of this Agreement throughout such representations and
warranties (without taking into account any disclosures made by the Company or
Sellers to Buyer pursuant to Sections 3.1(i), 4.30 and 5.7 hereof);
--------------------- ---
-vii-
<PAGE>
(b) The Company and each Seller shall have performed and complied in
all material respects with all of the covenants and agreements required to be
performed by each of them under this Agreement on or prior to the Closing
including, without limitation, the simultaneous transfer of all the capital
stock of the Company;
(c) All consents by third parties that are required for the transfer
of the Acquired Stock to Buyer, that are required for the consummation of the
transactions contemplated hereby or that are required in order to prevent a
breach of or a default under or a termination or modification of or any
acceleration of any obligations under any material contract, agreement,
instrument or lease to which the Company is a party or to which any material
portion of the property of the Company is subject, shall have been obtained, and
payoff letters with respect to all Indebtedness for borrowed money outstanding
as of the Closing and releases of any and all Liens held by third parties shall
have been obtained, all on terms reasonably satisfactory to Buyer;
(d) All governmental filings, authorizations and approvals that are
required for the transfer of the Acquired Stock to Buyer and the consummation of
the transactions contemplated hereby shall have been duly made and obtained on
terms reasonably satisfactory to Buyer;
(e) No action, suit, or proceeding shall be pending or, to the
Knowledge of Company, threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator wherein an unfavorable judgment, decree, injunction,
order or ruling would prevent the performance of this Agreement or any of the
transactions contemplated hereby, declare unlawful the transactions contemplated
by this Agreement, cause such transactions to be rescinded or materially and
adversely affect the right of Buyer to own, operate or control the Company, and
no judgment, decree, injunction, order or ruling shall have been entered which
has any of the foregoing effects;
(f) Except as otherwise specified in writing by Buyer to the
Representative, all of the Company's officers and directors shall have resigned
as such effective as of the Closing Date;
(g) There shall have been no material adverse change in the business,
assets, operations, condition (financial or otherwise), operating results,
earnings, customer and supplier relations, employee and sales representative
relations or business prospects of the Company (a "Material Adverse Change")
-----------------------
since April 1, 1999;
(h) The Company shall not have any outstanding Indebtedness other
than: (i) Indebtedness under a credit line with MCI/WorldCom (the "MCI/WorldCom
------------
Indebtedness"); provided that such MCI/WorldCom Indebtedness shall not exceed
- ------------
$884,375 in the aggregate, net of the application of any deposits held by
MCI/WorldCom on behalf of the Company;(ii) Indebtedness for unpaid federal
excise tax (the "FET Indebtedness") incurred prior to Closing; provided that
----------------
such FET Indebtedness shall not exceed $1,169,980; and (iii) the Estimated
Excess Indebtedness subject to Section 1.6 above.
-----------
(i) At or prior to Closing, the Company shall have received a full and
complete release from MCI/WorldCom subject only to the repayment of the
MCI/WorldCom Indebtedness
-viii-
<PAGE>
in an amount not to exceed $884,375, net of the application of any deposits held
by MCI/WorldCom on behalf of the Company (the "MCI/WorldCom Release").
--------------------
(j) At or prior to Closing, the MCI/WorldCom shall have entered into a
technical services contract with Buyer, and extended credit to Buyer on terms
satisfactory to Buyer.
(k) At or prior to Closing, the Buyer shall have received from Sellers
and Company the Closing Indebtedness set forth as Schedule 4.28.
-------------
(l) At or prior to Closing, Buyer and Company shall have become
Subsidiary Guarantors to that certain Indenture dated as of May 21, 1998 among
OnePoint Communications Corp., the Subsidiary Guarantors (as defined therein)
and Harris Trust and Savings Bank, as trustee.
(m) Each of Oscar Aguiar, Jr. ("Aguiar") and James A. Silva ("Silva")
shall have entered into agreements relating to their employment with Buyer and
their covenant as employees not to compete with Buyer (collectively, the "Seller
------
Employment Agreements"), each in form and on terms satisfactory to Buyer, and
- ---------------------
such agreements shall be in full force and effect;
(n) Buyer shall have received an opinion, dated the Closing Date, of
Garrison, Morris and Haight, PLLC, counsel to the Company and Sellers, in form
of Exhibit D attached hereto;
---------
(o) Buyer shall have received a certificate in respect of all expenses
related to this Agreement and all transactions contemplated by this Agreement
that Sellers' legal counsel, investment bankers and other agents and
representatives have been paid in full, or will be paid in full within thirty
days of Closing and that the Company has no liability to any of Sellers' legal
counsel, investment bankers, accountants, agents or representatives, and such
evidence shall be in form and substance satisfactory to Buyer;
(p) Each of Al Moschner and Tim Ostrowski shall have entered into
agreements relating to their employment with Buyer and their covenant as
employees not to compete with Buyer (collectively, the "Founder Employment
------------------
Agreements"), each in form and on terms satisfactory to Buyer, and such
- ----------
agreements shall be in full force and effect.
(q) On or prior to the Closing Date, Sellers shall have delivered to
Buyer all of the following:
(i) a certificate from the Company and Sellers in the form set forth
in Exhibit A attached hereto, dated the Closing Date, stating that the
---------
preconditions specified in Sections 2.1(a) through (i) have been satisfied;
---------------------------
(ii) copies of all third party and governmental consents, approvals,
filings, releases and terminations required in connection with the
consummation of the transactions contemplated herein;
(iii) certified copies of the resolutions of the Company's board of
directors approving the transactions contemplated by this Agreement;
-ix-
<PAGE>
(iv) certificates of the secretary of state of the state in which
the Company is incorporated and each state where it is qualified to do
business (including, without limitation, the states listed on Schedule 4.1)
------------
stating that the Company is in good standing;
(v) copies of the resignations described in Section 2.1(f);
--------------
(vi) copies of all documents and records relating to the business of
the Company that are in any Seller's possession;
(vii) a certificate in compliance with Treas. Reg. (S)(S)1.897-2(h)
and 1.1445-2(c)(3) that the Company is not a "United States real property
holding corporation" as defined under Section 897 of the Code;
(viii) such landlord consents and estoppel certificates with respect
to each Leased Properties as Buyer may request, in form and substance
satisfactory to Buyer;
(ix) such other documents or instruments as Buyer may reasonably
request to effect the transactions contemplated hereby; and
(r) All proceedings to be taken by the Company and each Seller in
connection with the consummation of the Closing Transactions and the other
transactions contemplated hereby and all certificates, opinions, instruments and
other documents required to be delivered by each Seller to effect the
transactions contemplated hereby reasonably requested by Buyer shall be
reasonably satisfactory in form and substance to Buyer.
Any condition specified in this Section 2.1 may be waived by
-----------
Buyer; provided that no such waiver shall be effective unless it is set forth in
a writing executed by Buyer or unless Buyer agrees in writing to consummate the
transactions contemplated by this Agreement without satisfaction of such
condition.
II.2 Conditions to Each Sellers' Obligations. The obligation of each
---------------------------------------
Seller to consummate the transactions contemplated by this Agreement is subject
to the satisfaction of the following conditions as of the Closing Date:
(a) The representations and warranties set forth in Article VI shall
be true and correct in all material respects at and as of the Closing Date as
though then made and as though the Closing Date were substituted for the date of
this Agreement throughout such representations and warranties (without taking
into account any disclosures made by Buyer to Sellers pursuant to Sections
3.3(a) and 6.7 hereof);
(b) Buyer shall have performed and complied in all material respects
with all of the covenants and agreements required to be performed by it under
this Agreement on or prior to the Closing;
(c) All governmental filings, authorizations and approvals that are
required for the consummation of the transactions contemplated hereby shall have
been duly made and obtained;
-x-
<PAGE>
(d) No action, suit or proceeding shall be pending before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable judgment, decree,
injunction, order or ruling would prevent the performance of this Agreement or
any of the transactions contemplated hereby, declare unlawful the transactions
contemplated by this Agreement or cause such transactions to be rescinded, and
no judgment, decree, injunction, order or ruling shall have been entered which
has any of the foregoing effects;
(e) Buyer shall have entered into the Seller Employment Agreements
with Aguiar and Silva.
(f) On or prior to the Closing Date, Buyer shall have delivered to
Sellers all of the following:
(i) a certificate from Buyer in the form set forth in Exhibit B
---------
attached hereto, dated the Closing Date, stating that the preconditions
specified in Sections 2.2(a) through (d), inclusive, have been satisfied;
---------------------------
(ii) an opinion dated the Closing Date, of Kirkland & Ellis,
Buyer's counsel, in the form set forth in Exhibit C attached hereto;
(iii) certified copies of the resolutions of Buyer's board of
directors approving the transactions contemplated by this Agreement;
(iv) a certificate of good standing and a certified copy of the
Articles of Formation for Buyer.
(v) such other documents or instruments as Sellers may reasonably
request to effect the transactions contemplated hereby; and
(vi) Operating Agreement of OnePoint Services, L.L.C. in the form
attached hereto as Exhibit E, duly executed by all members of the limited
---------
liability company other than Sellers.
(g) All proceedings to be taken by Buyer in connection with the
consummation of the Closing Transactions and the other transactions contemplated
hereby and all certificates, opinions, instruments and other documents required
to be delivered by Buyer to effect the transactions contemplated hereby
reasonably requested by Sellers shall be reasonably satisfactory in form and
substance to Sellers.
(h) Company shall assign to Sellers all rights to collect that certain
debt owed by In Touch in the amount of approximately $156,089.75 for equipment
and services, including all liens on such equipment and rights to hold, return
or possess such equipment.
-xi-
<PAGE>
Any condition specified in this Section 2.2 may be waived by Sellers;
-----------
provided that no such waiver shall be effective unless it is set forth in a
writing executed by Sellers or unless Sellers agree in writing to consummate the
transactions contemplated by this Agreement without the satisfaction of such
condition.
ARTICLE III
COVENANTS PRIOR TO CLOSING
III.1 Affirmative Covenants of the Company and Each Seller. Prior to
----------------------------------------------------
the Closing, unless Buyer otherwise agrees in writing, each Seller shall cause
the Company to, and the Company shall (and in the case of paragraphs 3.1 (i) and
(l) each Seller also shall):
(a) conduct its business and operations only in the ordinary course
of business consistent with past custom and practice (including with respect to
quantity and frequency) ("Ordinary Course of Business") (including, without
---------------------------
limitation, with respect to maintenance of working capital balances, collection
of accounts receivable, payment of employee compensation, payment of accounts
payable and cash management practices generally);
(b) use its reasonable efforts to cause its current insurance (or
reinsurance) policies not to be canceled or terminated or any of the coverage
thereunder to lapse, unless simultaneously with such termination, cancellation
or lapse, replacement policies providing coverage equal to or greater than the
coverage under the canceled, terminated or lapsed policies for substantially
similar premiums are in full force and effect;
(c) keep in full force and effect its corporate existence and all
rights, franchises and intellectual property relating or pertaining to its
business;
(d) use its reasonable efforts to carry on the business of the
Company in the same manner as presently conducted and to keep the Company's
business organization and properties intact, including its present business
operations, physical facilities, working conditions and employees and its
present relationships with lessors, licensors, suppliers and customers and
others having business relations with it;
(e) maintain the material assets of the Company in good repair, order
and condition consistent with current needs, replace in accordance with prudent
practices its inoperable, worn out or obsolete assets with assets of good
quality consistent with prudent practices and current needs and, in the event of
a casualty, loss or damage to any of such assets or properties prior to the
Closing Date, whether or not the Company is insured, either repair or replace
such damaged property or use the proceeds of such insurance in such other manner
as mutually agreed upon by Sellers and Buyer;
(f) maintain the books, accounts and records of the Company in
accordance with past custom and practice as used in the preparation of the
Financial Statements;
-xii-
<PAGE>
(g) encourage employees to continue their employment with the
Company, as applicable, after the Closing;
(h) use its reasonable efforts to obtain releases of the Company on
any guarantees, suretyship obligations or other promises of payment or
performance given by the Company as requested in writing by Buyer;
(i) promptly (once the Company or Seller obtains Knowledge thereof)
inform Buyer in writing of any variances from the representations and warranties
contained in Article IV or Article V hereof or any breach of any covenant
hereunder by the Company or any Seller;
(j) maintain in full force and effect the existence of all
Proprietary Rights owned by, issued to, or licensed to the Company;
(k) comply with all material legal requirements and contractual
obligations applicable to the operations and business of the Company and pay all
applicable Taxes, except FET Indebtedness, when due and payable;
(l) cooperate with Buyer and use reasonable efforts to cause the
conditions to Buyer's obligation to close to be satisfied (including, without
limitation, the execution and delivery of all agreements contemplated hereunder
to be so executed and delivered and the making and obtaining of all third party
and governmental notices, filings, authorizations, approvals, consents, releases
and terminations);
(m) confer on a regular and reasonable basis with representatives of
Buyer to report on operational matters and the general status of ongoing
operations; and
(n) obtain the MCI/WorldCom Release.
III.2 Negative Covenants of Company and Each Seller. Prior to the
---------------------------------------------
Closing, without Buyer's prior written consent, Sellers shall cause the Company
not to, and the Company shall not:
(a) take any action that would require disclosure under Section 4.8;
-----------
(b) make any loans, enter into any transaction with any Insider or
make or grant any increase in any employee's or officer's compensation or make
or grant any increase in any employee benefit plan, incentive arrangement or
other benefit covering any of the employees of the Company;
(c) establish or, except in accordance with past practice, contribute
to any pension, retirement, profit sharing or stock bonus plan or multiemployer
plan covering the employees of the Company;
(d) except as specifically contemplated by this Agreement, enter into
any contract, agreement or transaction, other than in the Ordinary Course of
Business and at arm's length
-xiii-
<PAGE>
with unaffiliated Persons, except for the assignment of the In Touch debt, liens
and equipment to the Sellers as set forth in Section 2.2(h) above;
--------------
(e) declare, pay, make or otherwise effectuate any dividends,
distributions, redemptions, equity repurchases or other transactions involving
the Company's capital stock or equity securities other than distributions made
to Sellers in the Ordinary Course of Business for the purpose of paying
estimates of federal, state and local income taxes attributable to the taxable
income of the Company for periods ending on or prior to the Closing (provided
that such distribution is not disruptive or detrimental to the Company);
(f) incur any Indebtedness other than (x) the MCI/WorldCom
Indebtedness, provided that such MCI/World Indebtedness shall not exceed
$884,375 in the aggregate, net of the application of any deposits held by
MCI/WorldCom on behalf of the Company or (y) FET Indebtedness incurred prior to
Closing, provided that such FET Indebtedness shall not exceed an aggregate of
$1,169,980 or (z) the Estimated Excess Indebtedness. For purposes of this
Agreement, "Indebtedness" means (i) any indebtedness for borrowed money or
------------
issued in substitution for or exchange of indebtedness for borrowed money, (ii)
any indebtedness evidenced by any note, bond, debenture or other debt security,
(iii) any indebtedness for the deferred purchase price of property or services
with respect to which a Person is liable, contingently or otherwise, as obligor
or otherwise (other than trade payables and other current liabilities incurred
in the Ordinary Course of Business which are not more than six months past due),
(iv) any commitment by which a Person assures a creditor against loss
(including, without limitation, contingent reimbursement obligations with
respect to letters of credit), (v) any indebtedness guaranteed in any manner by
a Person (including, without limitation, guarantees in the form of an agreement
to repurchase or reimburse), (vi) any obligations under capitalized leases with
respect to which a Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or with respect to which obligations a Person assures a
creditor against loss, (vii) any indebtedness secured by a Lien on a Person's
assets and (viii) any unsatisfied obligation for "withdrawal liability" to a
"multiemployer plan" as such terms are defined under ERISA;
(g) sell, transfer, contribute, distribute, or otherwise dispose of
any securities or assets of the Company, or agree to do any of the foregoing,
to any Person, or negotiate or have any discussions with any Person with respect
to any of the foregoing, other than sales of inventory in the Ordinary Course
of Business, except for the assignment of the In Touch debt, liens and equipment
to the Sellers as set forth in Section 2.2(h) above; and
--------------
(h) fail to take any action which failure could reasonably be
anticipated to have a material adverse effect upon the business, assets,
operations, financial condition, operating results, earnings, customer and
supplier relations, employee and sales representative relations or business
prospects of the Company (a "Material Adverse Effect").
-----------------------
III.3 Covenants of Buyer. Prior to the Closing, Buyer shall:
------------------
(a) promptly (once it obtains Knowledge thereof) inform Sellers in
writing of any variances from the representations and warranties contained in
Article VI or any breach of any covenant hereunder by Buyer;
-xiv-
<PAGE>
(b) cooperate with Sellers and use its reasonable efforts to cause the
conditions to each Seller's obligation to close to be satisfied (including,
without limitation, the execution and delivery of all agreements contemplated
hereunder to be so executed and delivered and the making and obtaining of all
third party and governmental filings, authorizations, approvals, consents,
releases and terminations).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY AND EACH SELLER
--------------------------------------
As a material inducement to Buyer to enter into this Agreement, the
Company and each Seller jointly and severally hereby represents and warrants
that:
IV.1 Organization and Corporate Power. The Company is a corporation
--------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Arizona and is qualified to do business in every jurisdiction in which
the failure to so qualify has had or would reasonably be expected to have a
Material Adverse Effect. All such jurisdictions in which the Company is
qualified are set forth on Schedule 4.1. The Company has full corporate power
------------
and authority and all material licenses, permits and authorizations necessary to
own and operate its properties, to carry on its business as now conducted and
presently proposed to be conducted. The copies of the Company's articles of
incorporation and by-laws which have been furnished to Buyer reflect all
amendments made thereto at any time prior to the date of this Agreement and are
correct and complete. The minute books containing the records of meetings of the
stockholders and board of directors, the stock certificate books and the stock
record books of the Company which have been furnished to Buyer are correct and
complete. The Company is not in default under or in violation of any provision
of its articles of incorporation or by-laws.
IV.2 Authorization of Transactions. The Company has full corporate
-----------------------------
power and authority to execute and deliver this Agreement, and all other
agreements contemplated hereby to which the Company is a party (collectively,
the "Transaction Documents") and to consummate the transactions contemplated
---------------------
hereby and thereby. The board of directors of the Company has duly approved this
Agreement and all other Transaction Documents contemplated hereby to which the
Company is a party and has duly authorized the execution and delivery of this
Agreement and all other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby. No other corporate proceedings on
the part of the Company are necessary to approve and authorize the execution and
delivery of this Agreement or the other Transaction Documents and the
consummation of the transactions contemplated hereby and thereby. This Agreement
and all other Transaction Documents have been duly executed and delivered by the
Company and constitute the valid and binding agreements of the Company,
enforceable against the Company in accordance with their terms.
IV.3 Capitalization. The authorized, issued and outstanding stock of
--------------
the Company is as set forth in the second paragraph of the recitals of this
Agreement. All of the issued and outstanding shares of the Acquired Stock have
been duly authorized, are validly issued, fully paid
-xv-
<PAGE>
and nonassessable, are not subject to, nor were they issued in violation of, any
preemptive rights or rights of first refusal, and are owned of record and
beneficially by the respective Sellers as set forth on Schedule 1.1 free and
------------
clear of all Liens. The respective Sellers have owned all issued and outstanding
shares of the Acquired Stock since the date(s) set forth on Schedule 1.1. There
------------
are no outstanding or authorized options, warrants, rights, contracts, calls,
puts, rights to subscribe, conversion rights or other agreements or commitments
to which the Company is a party or which are binding upon the Company providing
for the issuance, disposition or acquisition of any of its capital stock (other
than this Agreement). There are no outstanding or authorized stock appreciation,
phantom stock or similar rights with respect to the Company. There are no voting
trusts, proxies or any other agreements or understandings with respect to the
voting of the capital stock of the Company. The Company is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock.
IV.4 Subsidiaries; Investments. The Company does not own or hold any
-------------------------
shares of stock or any other security or interest in any other Person or any
rights to acquire any such stock or other security or interest, and the Company
has never owned any Subsidiary. For purposes of this Agreement, "Person" means
------
an individual, a partnership, a limited liability company a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof, and "Subsidiary" means, with respect to any Person, any
----------
corporation, partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of 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 that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, limited
liability company, association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more Subsidiaries of
that Person or a combination thereof. For purposes hereof, a Person or Persons
shall be deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons shall be allocated a majority of partnership, association or other
business entity gains or losses or shall be or control the managing director or
general partner of such partnership, association or other business entity.
IV.5 Absence of Conflicts. Except as set forth in Schedule 4.5, the
-------------------- ------------
execution, delivery and performance of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby by the Company and/or each Seller do not and shall not (a) conflict with
or result in any breach of any of the terms, conditions or provisions of, (b)
constitute a default under, (c) result in a violation of, (d) give any third
party the right to modify, terminate or accelerate any obligation under, (e)
result in the creation of any Lien upon the Acquired Stock or the assets of
either Company, or (f) require any authorization, consent, approval, exemption
or other action by or notice or declaration to, or filing with, any court or
administrative or other governmental body or agency, under the provisions of the
articles of incorporation or by-laws of any Company or any indenture, mortgage,
lease, loan agreement or other agreement or instrument to which any Company is
bound or affected, or any law, statute, rule or regulation to which the Company
is subject or any judgment, order or decree to which the Company is subject.
-xvi-
<PAGE>
IV.6 Financial Statements. The Company has furnished Buyer with
--------------------
copies of its (i) unaudited balance sheet as of September 30, 1999 (the "Latest
------
Balance Sheet") and the related statement of operations for the six-month period
- -------------
then ended and (ii) unaudited balance sheets and statements of operations,
shareholders' equity and cash flows for the fiscal years ended June 30, 1999,
and December 31, 1997 and 1996, and January 1, 1998 to June 30, 1998. Each of
the foregoing financial statements (including in all cases the notes thereto, if
any) (the "Financial Statements") is accurate and complete in all material
--------------------
respects, is consistent with the Company's books and records (which, in turn,
are accurate and complete in all material respects), present fairly in all
material respects the Company's financial condition and results of operations as
of the times and for the periods referred to therein and have been prepared on a
consistent basis for the periods covered.
IV.7 Absence of Undisclosed Liabilities. The Company does not have
----------------------------------
any obligations or liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known, whether due or to become due
and regardless of when asserted) arising out of transactions entered into at or
prior to the Closing, or any action or inaction at or prior to the Closing, or
any state of facts existing at or prior to the Closing, including Taxes with
respect to or based upon transactions or events occurring on or before the
Closing, except (i) obligations under contracts or commitments described in
Schedule 4.13 or under contracts and commitments which are not required to be
- -------------
disclosed thereon (but not liabilities for breaches thereof), (ii) liabilities
reflected on the liabilities side of the Latest Balance Sheet, (iii) liabilities
which have arisen after the date of the Latest Balance Sheet in the Ordinary
Course of Business or otherwise in accordance with the terms and conditions of
this Agreement (none of which is a liability for breach of contract, breach of
warranty, tort or infringement or a claim or lawsuit or an environmental
liability) and (iv) liabilities disclosed on Schedule 4.7.
------------
IV.8 Absence of Certain Developments. Except as set forth in
-------------------------------
Schedule 4.8 and except as expressly contemplated by this Agreement, since June
- ------------
30, 1999 the Company has not:
(a) suffered a Material Adverse Change or suffered any theft, damage,
destruction or casualty loss in excess of $5,000, to its assets, whether or not
covered by insurance or suffered any substantial destruction of the Company's
books and records;
(b) redeemed or repurchased, directly or indirectly, any shares of
capital stock or other equity security or declared, set aside or paid any
dividends or made any other distributions (whether in cash or in kind) with
respect to any shares of its capital stock or other equity security other than
distributions made to Sellers in the Ordinary Course of Business for the purpose
of paying estimates of federal, state and local income taxes attributable to the
taxable income of the Company for periods ending on or prior to the Closing
(provided that such distribution is not disruptive or detrimental to the
Company);
(c) issued, sold or transferred any notes, bonds or other debt
securities, any equity securities, any securities convertible, exchangeable or
exercisable into shares of its capital stock or other equity securities, or
warrants, options or other rights to acquire shares of its capital stock or
other equity securities of the Company;
-xvii-
<PAGE>
(d) borrowed any amount or incurred or become subject to any
liabilities, except liabilities incurred in the Ordinary Course of Business;
(e) discharged or satisfied any Lien or paid any obligation or
liability, other than liabilities paid in the Ordinary Course of Business, or
prepaid any amount of Indebtedness for borrowed money other than the
MCI/WorldCom Indebtedness and the FET Indebtedness;
(f) subjected any portion of its properties or assets to any Lien;
(g) sold, leased, assigned or transferred (including, without
limitation, transfers to Sellers or any Insider) a portion of its tangible
assets, except for sales of inventory in the Ordinary Course of Business, or
cancelled without fair consideration any material debts or claims owing to or
held by it;
(h) sold, assigned, licensed or transferred (including, without
limitation, transfers to Sellers or any Insider) any Proprietary Rights owned
by, issued to or licensed to the Company or disclosed any confidential
information (other than pursuant to agreements requiring the disclosure to
maintain the confidentiality of and preserving all rights of the Company in such
confidential information) or received any confidential information of any third
party in violation of any obligation of confidentiality;
(i) suffered any extraordinary losses or waived any rights of
material value, whether or not in the Ordinary Course of Business;
(j) entered into, amended or terminated any material lease, contract,
agreement or commitment, or taken any other action or entered into any other
transaction other than in the Ordinary Course of Business;
(k) entered into any other material transaction, whether or not in
the Ordinary Course of Business, or materially changed any business practice;
(l) made or granted any bonus or any wage, salary or compensation
increase in excess of $4,000 per year to any single director, officer, employee
or sales representative or consultant or made or granted any increase in any
employee benefit plan or arrangement, or amended or terminated any existing
employee benefit plan or arrangement or adopted any new employee benefit plan or
arrangement;
(m) made any other change in employment terms for any of its
directors, officers, and employees outside the Ordinary Course of Business;
(n) incurred intercompany charges or conducted its cash management
customs and practices other than in the Ordinary Course of Business (including,
without limitation, with respect to maintenance of working capital balances,
collection of accounts receivable and payment of accounts payable);
<PAGE>
(o) incurred any Tax Liability, except those for which reserves have
been established and disclosed on the Latest Balance Sheet or such as are
disclosed on Schedule 4.8(o);
---------------
(p) made any capital expenditures or commitments for capital
expenditures that aggregate in excess of $10,000;
(q) made any loans or advances to, or guarantees for the benefit of,
any Persons;
(r) made any charitable contributions, pledges, association fees or
dues in excess of $1,000;
(s) entered into any lease of capital equipment or real property
involving rental in excess of $5,000 per annum; or
(t) changed or authorized any change in its articles of incorporation
or by-laws.
IV.9 Title to Properties.
-------------------
(a) The Company does not own real property.
(b) The real property leases and subleases described on Schedule
--------
4.9(b) are valid, binding, enforceable and in full force and effect and have not
- ------
been modified (except to the extent disclosed in the documents delivered to
Buyer), and the Company holds a valid and existing leasehold interest under such
leases or subleases for the term set forth in Schedule 4.9(b). The leases and
---------------
subleases described in Schedule 4.9(b) (the "Leased Properties") constitute all
--------------- -----------------
of the leases and subleases under which each Company holds leasehold or
subleasehold interests in real property. The Company has delivered to Buyer
complete and accurate originals of each of the leases or subleases described in
Schedule 4.9(b) (or certified copies thereof if the originals are not
- ---------------
available). With respect to each lease and sublease listed on Schedule 4.9(b):
---------------
(i) the lease or sublease shall continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms
following the Closing;
(ii) neither Company nor any other party to the lease or sublease
is in breach or default, and no event has occurred which, with notice or
lapse of time, would constitute such a breach or default or permit
termination, modification or acceleration under the lease or sublease;
(iii) no party to the lease or sublease has repudiated any
provision thereof and there are no disputes, oral agreements or forbearance
programs in effect as to the lease or sublease;
(iv) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold;
-xix-
<PAGE>
(v) all buildings, improvements or other property leased or
subleased thereunder have received all approvals of governmental
authorities required in connection with the operation thereof and have been
operated and maintained in accordance with applicable laws, rules and
regulations; and
(vi) as of the Closing, (A) Sellers shall have obtained the
consent of each landlord to the transactions contemplated hereunder and
under the other Transaction Documents or (B) the lease or sublease does not
prohibit the transactions contemplated hereunder and under the other
Transaction Documents.
(c) The real property described in Schedule 4.9(b) constitutes
--------------
all of the real property used or occupied by the Company.
(d) Except as set forth on Schedule 4.9(d), the Company owns
---------------
good and marketable title to, or a valid leasehold interest in, free and
clear of all Liens, all of the personal property and assets which are shown
on the applicable Latest Balance Sheet or acquired thereafter or located on
the Leased Properties or used by such Company. For purposes of this
Agreement, "Lien" means any mortgage, pledge, security interest,
----
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof), any sale of receivables with recourse against Companies or any
Affiliate, any filing or agreement to file a financing statement as debtor
under the Uniform Commercial Code or any similar statute other than to
reflect ownership by a third party of property leased to Companies under a
lease which is not in the nature of a conditional sale or title retention
agreement, or any subordination arrangement in favor of another Person
(other than any subordination arising in the Ordinary Course of Business).
(e) The buildings, machinery, equipment, personal properties,
vehicles and other tangible assets of the Company located upon or used in
connection with the Leased Properties (other than assets that are not necessary
for the operation of the business of the Company) are operated in conformity
with all applicable laws and regulations, are in good condition and repair,
reasonable wear and tear excepted, and are usable in the Ordinary Course of
Business. The Company owns or leases under valid leases all buildings,
machinery, equipment and other tangible assets necessary for the conduct of its
business.
IV.10 Accounts Receivable. Except as set forth on Schedule 4.10, all
------------------- -------------
of the notes and accounts receivable of the Company reflected on its Latest
Balance Sheet are good and valid receivables (subject to no counterclaims or
offset) and shall be collected (net of the allowance for doubtful accounts
recorded on the applicable Latest Balance Sheet) within 90 days after the
Closing Date at the aggregate amount recorded therefor on the applicable Latest
Balance Sheet. There are no individual accounts receivable which are over
$5,000 and 90 days past due, except as set forth on Schedule 4.10. As of the
-------------
Closing Date, no Person shall have any Lien on such receivables or any part
thereof, and no agreement for deduction, free goods, discount or other deferred
price or quantity adjustment shall have been made with respect to any such
receivables.
IV.11 Inventory. The inventories of the Company reflected on its
---------
Latest Balance Sheet are of a quantity and quality usable and saleable in the
Ordinary Course of Business without
-xx-
<PAGE>
discount, are not damaged, defective, slow-moving or obsolete, and are
merchantable and fit for their particular purpose. For the purpose of this
Agreement, "slow-moving" means any item which it has taken or it is likely to
-----------
take over 12 months to sell.
IV.12 Taxes.
-----
(a) Except as set forth on Schedule 4.12, (i) the Company has timely
-------------
filed all Tax Returns which are required to be filed on or before the Closing
Date, and all such Tax Returns are true, complete and accurate in all respects
and have been prepared in compliance with all applicable laws and regulations,
(ii) all Taxes due and payable by the Company, whether or not shown on a Tax
Return, have been paid by the Company or Sellers and all Taxes accrued but not
yet due are accrued on the Latest Balance Sheet and no Taxes are delinquent,
(iii) no deficiency or proposed adjustment for any amount of Tax has been
asserted or assessed by a taxing authority against the Company and neither the
Company nor any Seller reasonably expects that any such assertion or assessment
of Tax liability will be made, (iv) the Company has not consented to extend the
time in which any Tax may be assessed or collected by any taxing authority to a
date later than the date hereof, (v) the Company has not been a member of an
Affiliated Group, (vi) no claim has ever been made by any taxing authority in a
jurisdiction where the Company does not file Tax Returns that the Company is or
may be subject to Taxes assessed by such jurisdiction, (vii) the Company has no
liability for Taxes of any other Person under Treasury Regulations Section
1.1502-6 (or any similar provision or state, local or foreign Tax law), as a
transferee, by contract, or otherwise, (viii) the Company has withheld and paid
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder or
other third party and (ix) the Company has neither made any payments, nor is or
shall become obligated (under any contract entered into on or before the Closing
Date) to make any payments, that shall be non-deductible under Section 280G of
the Code (or any corresponding provision of state, local or foreign income Tax
law). The Company is not a party to any tax sharing, allocation or similar
agreement. Schedule 4.12 contains a list of states, territories and
-------------
jurisdictions (whether foreign or domestic) in which the Company is required to
file Tax Returns. The Company made a valid election under Section 1362 of the
Code and all corresponding state or local tax provisions to be an S corporation
for its taxable year beginning July 1, 1997 and ending December 31, 1997, and
for its taxable year beginning January 1, 1998 and ending June 30, 1998. Such
elections were valid when taken. For all taxable periods beginning on or after
July 1, 1998, the Company has no valid election to be taxed as an S corporation
under the Code (or under any corresponding provision of state, local or foreign
income Tax law).
(b) As used in this Agreement, the following terms shall have the
following respective meanings:
(i) "Affiliated Group" means an affiliated group as defined in
----------------
Section 1504 of the Code (or any similar combined, consolidated or unitary
group defined under state, local or foreign income Tax law).
(ii) "Code" means the Internal Revenue Code of 1986, as amended.
----
-xxi-
<PAGE>
(iii) "Tax" or "Taxes" means any federal, state, local or foreign
--- -----
income, gross receipts, franchise, alternative or add-on minimum,
estimated, sales, use, transfer, registration, value added, excise, stamp,
environmental, customs, duties, real property, personal property, capital
stock, license, social security, unemployment, disability, payroll,
employee or other withholding, or other tax, of any kind whatsoever,
including any interest, penalties or additions to tax or additional amounts
in respect of the foregoing.
(iv) "Tax Returns" means returns, declarations, reports, claims for
-----------
refund, information returns or other documents (including any related or
supporting schedules, statements or information) filed or required to be
filed in connection with the determination, assessment or collection of
Taxes of any party or the administration of any laws, regulations or
administrative requirements relating to any Taxes.
IV.13 Contracts and Commitments.
-------------------------
(a) Except as specifically contemplated by this Agreement and except
as set forth in Schedule 4.13, the Company is neither a party to nor bound by,
-------------
whether written or oral, any:
(i) collective bargaining agreement or contract with any labor
union or any bonus, pension, profit sharing, retirement or any other form
of deferred compensation plan or any stock purchase, stock option,
hospitalization insurance or similar plan or practice, whether formal or
informal;
(ii) contract for the employment of any officer, individual
employee or other person on a full-time or consulting basis or any
severance agreements;
(iii) agreement or indenture relating to the borrowing of money or
to mortgaging, pledging or otherwise placing a Lien on any of its assets;
(iv) agreements with respect to the lending or investing of
funds;
(v) license or royalty agreements;
(vi) guaranty of any obligation, other than endorsements made for
collection;
(vii) lease or agreement under which it is lessee of, or holds or
operates, any personal property owned by any other party calling for
payments in excess of $2,000 annually;
(viii) lease or agreement under which it is lessor of or permits
any third party to hold or operate any property, real or personal, owned or
controlled by it;
(ix) contract or group of related contracts with the same party
for the purchase or sale of supplies, products or other personal property
or for the furnishing or receipt of services which either calls for
performance over a period of more than one year (except if such contracts
do not involve a sum in excess of $2,000 annually) or involves a sum in
excess of $2,000;
-xxii-
<PAGE>
(x) contract or group of related contracts with the same party
continuing over a period of more than six months from the date or dates
thereof, not terminable by it on 30 days or less notice without penalties
or involving more than $2,000;
(xi) contract which prohibits it from freely engaging in business
anywhere in the world;
(xii) contract relating to the distribution, marketing or sales of
its products;
(xiii) agreements, contracts or understandings pursuant to which
the Company subcontracts work to third parties; or
(xiv) other agreement material to it whether or not entered into
in the Ordinary Course of Business.
(b) Except as disclosed in Schedule 4.13, (i) to the Knowledge
-------------
of the Company, no contract or commitment required to be disclosed on Schedule
--------
4.13 has been breached or cancelled by the other party since December 31, 1998,
- ----
and the Company has no Knowledge of any anticipated breach by any other party to
any contract set forth on Schedule 4.13, (ii) since December 31, 1998, no
-------------
customer or supplier has indicated in writing or orally to the Company or any
Seller that it shall stop or decrease the rate of business done with either
Company or that it desires to renegotiate its contract with the Company, (iii)
the Company has performed all the obligations required to be performed by it in
connection with the contracts or commitments required to be disclosed on
Schedule 4.13 and is not in default under or in breach of any contract or
- -------------
commitment required to be disclosed on the Schedule 4.13, and no event has
-------------
occurred which with the passage of time or the giving of notice or both would
result in a default or breach thereunder, (iv) the Company does not have a
present expectation or intention of not fully performing any obligation pursuant
to any contract set forth on Schedule 4.13, (vi) each agreement is legal, valid,
-------------
binding, enforceable and in full force and effect and will continue as such
following the consummation of the transactions contemplated hereby, and (vii) no
unfilled customer order or commitment obligating the Company to process or
deliver products or perform services shall result in a loss to the Company upon
completion of performance.
(c) Schedule 4.13 lists the ten largest customers and the ten
-------------
largest suppliers of the Company during the 12-month period ended September 30,
1999.
(d) Sellers have provided Buyer with a true and correct copy of
all written contracts which are required to be disclosed on Schedule 4.13, in
-------------
each case together with all amendments, waivers or other changes thereto (all of
which are disclosed on Schedule 4.13). Schedule 4.13 contains an accurate and
------------- -------------
complete description of all material terms of all oral contracts referred to
therein.
IV.14 Proprietary Rights.
------------------
-xxiii-
<PAGE>
(a) "Proprietary Rights" shall mean all of the following items along
------------------
with all income, royalties, damages and payments due or payable at the Closing
or thereafter, including, without limitation, damages and payments for past,
present or future infringements or misappropriations thereof, the right to sue
and recover for past infringements or misappropriations thereof and any and all
corresponding rights that, now or hereafter, may be secured throughout the
world: (i) patents, patent applications, patent disclosures and inventions
(whether or not patentable and whether or not reduced to practice) and any
reissue, continuation, continuation-in-part, division, revision, extension or
reexamination thereof; (ii) trademarks, service marks, trade dress, logos, trade
names and corporate names, together with all goodwill associated therewith;
registered and unregistered copyrights, copyrightable works and mask works;
(iii) all registrations, applications and renewals for any of the foregoing;
(iv) trade secrets and confidential information (including, without limitation,
ideas, formulae, compositions, know-how, manufacturing and production processes
and techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, financial, business and marketing
plans, and customer and supplier lists and related information); (v) computer
software and software systems (including, without limitation, data, databases
and related documentation); (vi) other proprietary rights; (vii) licenses or
other agreements to or from third parties regarding the foregoing; and (viii)
all copies and tangible embodiments of the foregoing (in whatever form or
medium), in each case including, without limitation, the items set forth on
Schedule 4.14.
- -------------
(b) Schedule 4.14 sets forth a complete and correct list of: (i) all
-------------
patented or registered Proprietary Rights and all pending patent applications or
other applications for registration of Proprietary Rights owned, filed or used
by the Company; (ii) all trade names and unregistered trademarks used by the
Company; (iii) all material unregistered copyrights, mask works and computer
software owned or used by the Company; and (iv) all licenses or similar
agreements or arrangements to which the Company is a party, either as licensee
or licensor, for the Proprietary Rights, in each case identifying the subject
Proprietary Rights.
(c) Except as set forth in Schedule 4.14, (i) the Company owns and
-------------
possesses all right, title and interest in and to, or has a valid and
enforceable right to use, each of the Proprietary Rights listed on Schedule
--------
4.14, free and clear of all Liens, and no claim by any third party contesting
- ----
the validity, enforceability, use or ownership of any of the Proprietary Rights
has been made, is currently outstanding or, to the Knowledge of either Company,
is threatened, and there are no grounds for same, (ii) the Proprietary Rights
listed on Schedule 4.14 comprise all proprietary rights necessary for the
-------------
operation of the Company's businesses as currently conducted, and as currently
proposed to be conducted, (iii) the loss or expiration of any Proprietary Right
owned by, issued to or licensed to the Company or related group of Proprietary
Rights has not and would not have a Material Adverse Effect, and no such loss or
expiration is pending or, to the Knowledge of Companies, threatened or
reasonably foreseeable, (iv) the Company has neither received any notices of,
nor is the Company aware of any facts which indicate a likelihood of, any
infringement or misappropriation by, or conflict with, any third party with
respect to any Proprietary Right owned by, issued to or licensed to the Company
(including, without limitation, any demand or request that the Company license
rights from a third party), (v) the Company has not infringed, misappropriated
or otherwise conflicted with any rights of any third parties and the Company is
not aware of any infringement, misappropriation or conflict which shall occur as
a result of the continued operation of the Company's businesses as currently
conducted or as currently proposed to be conducted, and
-xxiv-
<PAGE>
(vi) to the Company's Knowledge, the Proprietary Rights owned or licensed to the
Company have not been infringed, misappropriated or conflicted by any third
party.
(d) The transactions contemplated by this Agreement shall have no
adverse effect on the Company's right, title and interest in and to any of the
Proprietary Rights. The Company has disclosed any of its trade secrets or
confidential information to any third party other than pursuant to a written
confidentiality agreement. The Company has entered into written confidentiality
agreements and written proprietary rights agreements with all of its employees
and independent contractors acknowledging the Company's ownership of all
inventions created or developed by its employees and independent contractors
within the scope of their employment. The Company has taken all other necessary
and desirable actions to maintain and protect its Proprietary Rights and shall
continue to maintain and protect those rights prior to the Closing so as to not
adversely affect the validity or enforcement of such Proprietary Rights. To the
Company's Knowledge, the owners of any Proprietary Rights licensed to the
Company have taken all necessary and desirable actions to maintain and protect
the Proprietary Rights which are subject to such licenses.
IV.15 Litigation; Proceedings. Except as set forth in Schedule 4.15,
----------------------- -------------
there are no actions, suits, proceedings, orders, judgments, decrees or
investigations pending or, to the Company's Knowledge, threatened against or
affecting the Company at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, and to the Knowledge of either Company
there is no basis known for any of the foregoing. Except as set forth on
Schedule 4.15, the Company has not received any opinion or legal advice in
- -------------
writing to the effect that the Company is exposed from a legal standpoint to any
liability or disadvantage which may be material to the Company's business as
previously or presently conducted or business prospects. The Company is not
subject to any outstanding order, judgment or decree issued by any court or
quasi-judicial or administrative agency of any federal, state, local or foreign
jurisdiction or any arbitrator.
IV.16 Brokerage. Except as set forth in Schedule 4.16, there are no
--------- -------------
claims for brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of the Company.
IV.17 Governmental Licenses and Permits. Schedule 4.17 contains a
--------------------------------- -------------
complete listing and summary description of all permits, licenses, franchises,
certificates, approvals and other authorizations of foreign, federal, state and
local governments or other similar rights (collectively, the "Licenses") owned
--------
or possessed by the Company or used by the Company in the conduct of its
business. Except as indicated on Schedule 4.17, the Company owns or possesses
-------------
all right, title and interest in and to all Licenses which are necessary to
conduct its business as presently conducted and as proposed to be conducted and
shall use its reasonable efforts to maintain all such Licenses. No loss or
expiration of any License is pending or, to the Company's Knowledge, threatened
or reasonably foreseeable (including, without limitation, as a result of the
transactions contemplated hereby) other than expiration in accordance with the
terms thereof.
IV.18 Employees. Except as set forth on Schedule 4.18, to the
--------- -------------
Knowledge of the Company, no key executive employee and no group of employees
or independent contractors of the
-xxv-
<PAGE>
Company has any plans to terminate his, her or its employment or relationship as
an independent contractor with the Company. The Company has complied with all
applicable laws relating to the employment of personnel and labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes, the Worker
Adjustment and Retraining Act, and the Immigration Reform and Control Act of
1986. The Company is not a party to or bound by any collective bargaining
agreement, nor has it experienced any strikes, grievances, unfair labor
practices claims or other material employee or labor disputes. The Company has
not engaged in any unfair labor practice. The Company does not have any
Knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of the Company.
Schedule 4.18 sets forth the names, present annual or, as the case may be,
- -------------
hourly rate of compensation (including salary, bonuses and commissions) of all
persons employed by the Company (including independent contractors) and their
job descriptions.
IV.19 Employee Benefit Plans.
----------------------
(a) Except as set forth on Schedule 4.19, with respect to current or
-------------
former employees of the Company, the Company does not maintain or contribute to
or have any actual or potential liability with respect to any (i) deferred
compensation or bonus or retirement plans or arrangements, (ii) qualified or
nonqualified defined contribution or defined benefit plans or arrangements which
are employee pension benefit plans (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974 ("ERISA")), or (iii) employee welfare
-----
benefit plans, (as defined in Section 3(1) of ERISA), stock option or stock
purchase plans, or material fringe benefit plans or programs whether in writing
or oral and whether or not terminated. The Company has never contributed to any
multiemployer pension plan (as defined in Section 3(37) of ERISA), and the
Company has never maintained or contributed to any defined benefit plan (as
defined in Section 3(35) of ERISA). The Company neither maintains nor
contributes to any employee welfare benefit plan which provides health, accident
or life insurance benefits to former employees, their spouses or dependents,
other than in accordance with Section 4980B of the Internal Revenue Code of 1986
(the "Code") ("COBRA").
---- -----
(b) The employee pension benefit plans and employee welfare benefit
plans (and related trusts and insurance contracts) comply in form and in
operation in all respects with the requirements of applicable laws and
regulations, including ERISA and the Code and the nondiscrimination rules
thereof; and the employee pension benefit plans which are intended to be
"qualified plans" qualify under Section 401(a) of the Code, and each such
employee pension benefit plan, and each trust (if any) forming a part thereof,
has received a favorable determination letter from the Internal Revenue Service
as to the qualification under the Code of such plan and the tax-exempt status of
such related trust and nothing has occurred since the date of such determination
letter that could adversely affect the qualification of such plan or the tax
exempt status of such related trust.
(c) All required reports and descriptions (including Form 5500 Annual
Reports, Summary Annual Reports and Summary Plan Descriptions) with respect to
the employee pension benefit plans and employee welfare benefit plans have been
properly and timely filed with the appropriate government agency and distributed
to participants as required. The Company has complied with the requirements of
COBRA.
-xxvi-
<PAGE>
(d) With respect to each employee pension benefit plan, all
contributions which are due (including all employer contributions and employee
salary reduction contributions) have been paid to such employee pension benefit
plan, all contributions for prior plan years which are not yet due and with
respect to the current plan year for the period ending on the Closing Date have
been made or accrued in accordance with GAAP, and, with respect to the employee
welfare benefit plans, all premiums or other payments which are due have been
paid.
(e) The Company has not incurred any liability to the Pension
Benefit Guarantee Corporation, the Internal Revenue Service, any multiemployer
plan or otherwise with respect to any employee pension benefit plan currently or
previously maintained by members of the controlled group of companies (as
defined in Sections 414(b) and (c) of the Code) that includes or included either
Company (the "Controlled Group") that has not been satisfied in full, and no
----------------
condition exists that presents a material risk to any Company or any member of
the Controlled Group of incurring such a liability.
(f) With respect to each employee pension benefit plan and each
employee welfare benefit plan, (i) there have been no prohibited transactions as
defined in Section 406 of ERISA or Section 4975 of the Code, (ii) no fiduciary
(as defined in Section 3(21) of ERISA) has any liability for breach of fiduciary
duty or any other failure to act or comply in connection with the administration
or investment of the assets of such plans, and (iii) no actions, investigations,
suits or claims with respect to the assets thereof (other than routine claims
for benefits) are pending or threatened, and the Company does not have any
Knowledge of any facts which would give rise to or could reasonably be expected
to give rise to any such actions, suits or claims.
(g) With respect to each of the plans listed on Schedule 4.19,
-------------
Sellers have furnished to Buyer true and complete copies of (i) the plan
documents, summary plan descriptions and summaries of material modifications and
other material employee communications, (ii) the most recent determination
letter received from the Internal Revenue Service, (iii) the Form 5500 Annual
Report (including all schedules and other attachments for the most recent three
years), (iv) all related trust agreements, insurance contracts or other funding
agreements which implement such plans and (v) all contracts relating to each
such plan, including, without limitation, service provider agreements, insurance
contracts, investment management agreements and recordkeeping agreements.
IV.20 Insurance. Schedule 4.20 lists and briefly describes each
--------- -------------
insurance policy maintained by the Company with respect to its properties,
assets and business, together with a claims history for the past five years.
All of such insurance policies are in full force and effect, and the Company is
not in default with respect to its obligations under any such insurance policies
and the Company has not been denied insurance coverage. The insurance coverage
of Companies is customary for corporations of similar size engaged in similar
lines of business. Except as set forth on Schedule 4.20, the Company does not
-------------
have any self-insurance or co-insurance programs, and the reserves set forth on
the Latest Balance Sheets are adequate to cover all anticipated liabilities with
respect to self-insurance or coinsurance programs.
-xxvii-
<PAGE>
IV.21 Officers and Directors; Bank Accounts. Schedule 4.21 lists all
------------------------------------- -------------
officers and directors of the Company, and all bank accounts, safety deposit
boxes and lock boxes (designating each authorized signatory with respect
thereto) for the Company.
IV.22 Affiliate Transactions. Except as disclosed on Schedule 4.22,
---------------------- -------------
no officer, director, employee, stockholder, or Affiliate of the Company or any
individual related by marriage or adoption to any such individual or any entity
in which any such Person owns any beneficial interest (collectively, the
"Insiders"), is a party to any agreement, contract, commitment or transaction
- ---------
with either Company or which is pertaining to the business of the Company or has
any interest in any property, real or personal or mixed, tangible or intangible,
used in or pertaining to the business of the Company. For purposes of this
Agreement, "Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities or otherwise.
IV.23 Compliance with Laws. Except as set forth on Schedule 4.23,
-------------------- -------------
the Company and its officers, directors, agents and employees have complied with
all applicable laws, regulations and ordinances of foreign, federal, state and
local governments and all agencies thereof which are applicable to the business,
business practices (including, but not limited to, the Company's production,
marketing, sales and distribution of its products and services) or any owned or
leased properties of the Company and to which the Company may be subject, and no
claims have been filed against such Company alleging a violation of any such
laws or regulations, and the Company has not received notice of any such
violations.
IV.24 Environmental Matters.
----------------------
(a) The Company has complied with and is currently in compliance
with all Environmental and Safety Requirements, and the Company has not received
any oral or written notice, report or information regarding any liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise) or any
corrective, investigatory or remedial obligations arising under Environmental
and Safety Requirements which relate to the Company or any of its properties or
facilities.
(b) Without limiting the generality of the foregoing, the Company
has obtained and complied with, and is currently in compliance with, all
permits, licenses and other authorizations that may be required pursuant to any
Environmental and Safety Requirements for the occupancy of its properties or
facilities or the operation of its businesses. A list of all such permits,
licenses and other authorizations which are material to the Company is set forth
on Schedule 4.24.
-------------
(c) Neither this Agreement or the other Transaction Documents nor
the consummation of the transactions contemplated hereby and thereby shall
impose any obligations on the Company or otherwise for site investigation or
cleanup, or notification to or consent of any government agencies or third
parties under any Environmental and Safety Requirements (including, without
limitation, any so called "transaction-triggered" or "responsible property
transfer" laws and regulations).
-xxviii-
<PAGE>
(d) None of the following exists at any property or facility owned,
occupied or operated by the Company: (i) underground storage tanks or surface
impoundments; (ii) asbestos-containing material in any form or condition; or
(iii) materials or equipment containing polychlorinated biphenyls.
(e) The Company has not treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled or Released any substance
(including, without limitation, any hazardous substance) or owned, occupied or
operated any facility or property, so as to give rise to liabilities of the
Company for response costs, natural resource damages or attorneys fees pursuant
to the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), or any other Environmental and Safety Requirements.
------
(f) Without limiting the generality of the foregoing, no facts,
events or conditions relating to the past or present properties, facilities or
operations of the Company shall prevent, hinder or limit continued compliance
with Environmental and Safety Requirements, give rise to any corrective,
investigatory or remedial obligations pursuant to Environmental and Safety
Requirements or give rise to any other liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise) pursuant to Environmental and Safety
Requirements, including, without limitation, those liabilities relating to
onsite or offsite Releases or threatened Releases of hazardous materials,
substances or wastes, personal injury, property damage or natural resources
damage.
(g) The Company has, neither expressly or by operation of law,
assumed nor undertaken any liability or corrective investigatory or remedial
obligation of any other Person relating to any Environmental and Safety
Requirements.
(h) No Environmental Lien has attached to any property owned, leased
or operated by the Company.
(i) For purposes of this Agreement, the following terms shall have
the following respective meanings:
(i) "Environmental and Safety Requirements" shall mean all federal,
-------------------------------------
state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and
all common law, in each case concerning public health and safety, worker
health and safety and pollution or protection of the environment,
(including, without limitation, all those relating to the presence, use,
production, generation, handling, transport, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, Release, threatened
Release, control or cleanup of any hazardous or otherwise regulated
materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products
or byproducts, asbestos, polychlorinated biphenyls, noise or radiation.
(ii) "Release" shall have the meaning set forth in CERCLA.
-------
-xxiv-
<PAGE>
(iii) "Environmental Lien" shall mean any Lien, whether recorded or
------------------
unrecorded, in favor of any governmental entity, relating to any liability
of the Company arising under any Environmental and Safety Requirements.
IV.25 Projections. Attached as Schedule 4.25 is a true and complete
------------ -------------
copy of the latest projections of the income and cash flows of the Company for
the fiscal years ending December 31, 1999, December 31, 2000, and December 31,
2001. Such projections are based on underlying assumptions of the Company which
provide a reasonable basis for the projections contained therein. Such
projections have been prepared on the basis of the assumptions set forth
therein, which the Company reasonably believes are fair and reasonable in light
of the historical financial performance of the Company and of current and
reasonably foreseeable business conditions, including the access to capital and
cost reductions as set forth in such assumptions.
IV.26 Powers of Attorney; Guarantees. Except as set forth on
------------------------------
Schedule 4.26, there are no outstanding powers of attorney executed on behalf of
- -------------
the Company. The Company is not a guarantor or otherwise liable for any
Indebtedness of any other person, firm or corporation other than endorsements
for collection in the Ordinary Course of Business.
IV.27 Product Warranties. The Company has not made any warranties
------------------
with respect to the products [manufactured and/or] sold by it other than those
warranties expressly made in the literature accompanying such products, copies
of which are attached hereto as Schedule 4.27.
-------------
IV.28 Indebtedness. The Company does not have any Indebtedness other
------------
than as set forth on Schedule 4.28 (the "Closing Indebtedness"). The Closing
-------------
Indebtedness set forth on Schedule 4.28 shall clearly identify: (i) the
-------------
MCI/WorldCom Indebtedness, and such MCI/WorldCom Indebtedness shall not exceed
in the aggregate $884,375 net of the application of any deposits held by
MCI/WorldCom on the Company's behalf; (ii) FET Indebtedness accrued prior to
Closing, and such FET Indebtedness shall not exceed $1,169,980, and (iii) the
Estimated Excess Indebtedness and each element thereto.
IV.29 Disclosure. Neither this Agreement, the other Transaction
----------
Documents, nor any of the schedules, attachments or Exhibits hereto, contain any
untrue statement of a material fact or omit a material fact necessary to make
each statement contained herein or therein, not misleading. There is no fact
which has not been disclosed to Buyer of which the Company has Knowledge which
has had a Material Adverse Effect or could reasonably be anticipated to have a
Material Adverse Effect.
IV.30 Closing Date. All of the representations and warranties
------------
contained in this Article IV and elsewhere in this Agreement and all information
delivered in any schedule, attachment or Exhibit hereto or in any writing
delivered to Buyer are true and correct in all material respects on the date of
this Agreement and shall be true and correct in all material respects on the
Closing Date, except to the extent that any Seller has advised Buyer otherwise
in writing prior to the Closing.
IV.31 Knowledge. As used in this Article IV and elsewhere in this
--------- ----------
Agreement, the term "Knowledge" as used in the phrases "to the Knowledge of
Company," "to the Knowledge
-xxx-
<PAGE>
of the Buyer," "to Company's Knowledge" or phrases of similar import shall mean
and include the actual knowledge or awareness of the Company or Buyer (which
shall include actual knowledge and awareness of the officers, directors and key
employees of the entity and the stockholders of the entity) after making
reasonable inquiry and using reasonable diligence with respect to the particular
matter in question. In particular, the knowledge or awareness of each Seller
shall be imputed to the Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO SELLERS
------------------------------------------------------
As a material inducement to Buyer to enter into this Agreement, each
Seller severally represents and warrants to Buyer that:
V.1 Authorization of Transactions. Such Seller has full power,
-----------------------------
authority and legal capacity to enter into this Agreement and the other
documents contemplated hereby to which such Seller is a party and to perform his
obligations hereunder and thereunder. This Agreement and the other documents
contemplated hereby to which such Seller is a party have been duly executed and
delivered by such Seller and constitute the valid and binding agreements of such
Seller, enforceable in accordance with their respective terms.
V.2 Absence of Conflicts. Neither the execution and the delivery of
--------------------
this Agreement and the other documents contemplated hereby to which such Seller
is a party, nor the consummation of the transactions contemplated hereby and
thereby, shall (a) conflict with, result in a breach of any of the provisions
of, (b) constitute a default under, (c) result in the violation of, (d) give any
third party the right to terminate or to accelerate any obligation under, (e)
result in the creation of any Lien upon the Acquired Stock owned by such Seller,
or (f) require any authorization, consent, approval, execution or other action
by or notice to any court or other governmental body, under the provisions of
any indenture, mortgage, lease, loan agreement or other agreement or instrument
to which such Seller is bound or affected, or any statute, regulation, rule,
judgment, order, decree or other restriction of any government, governmental
agency or court to which such Seller is subject. No notice to, filing with or
authorization, consent or approval of any government or governmental agency by
such Seller is necessary for the consummation of the transactions contemplated
by this Agreement and the other documents contemplated hereby to which such
Seller is a party.
V.3 Brokerage. Except as set forth on Schedule 5.3, there are no
--------- ------------
claims for brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of such Seller.
V.4 Shares. Such Seller holds of record and owns beneficially the
------
shares of Acquired Stock as indicated on Schedule 1.1, free and clear of any
------------
restrictions on transfer (other than any restrictions under the Securities Act
of 1933, as amended, and the state securities laws), claims, taxes, Liens,
options, warrants, rights, contracts, calls, commitments, equities, proxies and
demands. Such Seller is not a party to any option, warrant, right, contract,
call, put or other agreement or
-XXXI-
<PAGE>
commitment providing for the disposition or acquisition of any capital stock of
the Company (other than this Agreement). Such Seller is not a party to any
voting trust, proxy or other agreement or understanding with respect to the
voting of any capital stock of the Company.
V.5 No Guarantee of Debt. Neither Seller has guaranteed the
--------------------
MCI/WorldCom Indebtedness.
V.6 Legal and Tax Advice. Sellers have retained independent legal
--------------------
and tax advisors and have not relied on the legal or tax advice of the Buyer or
Buyer's attorneys.
V.7 Closing Date. All of the representations and warranties
------------
concerning such Seller contained in this Article V and elsewhere in this
---------
Agreement and all information delivered in any schedule, attachment or Exhibit
hereto or in any writing delivered to Buyer are true and correct in all material
respects on the date of this Agreement and shall be true and correct in all
material respects on the Closing Date except to the extent that Sellers have
advised Buyer otherwise in writing prior to the Closing.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
As a material inducement to Sellers to enter into this Agreement,
Buyer hereby represents and warrants to Sellers that:
VI.1 Organization and Corporate Power. Buyer is a limited liability
--------------------------------
company duly organized, validly existing and in good standing under the laws of
the State of Delaware, with full corporate power and authority to enter into
this Agreement and the other agreements contemplated hereby to which Buyer is a
party and perform its obligations hereunder and thereunder. The copies of the
Buyer's Articles of Formation and Operating Agreement which have been furnished
to Buyer reflect all amendments made thereto at any time prior to the date of
this Agreement and are correct and complete. The Buyer is not in default under
or in violation of this Agreement or any provision of its Articles of Formation
or Operating Agreement.
VI.2 Authorization of Transaction. The execution, delivery and
----------------------------
performance of this Agreement and the other agreements contemplated hereby to
which Buyer is a party have been duly and validly authorized by all requisite
corporate action on the part of Buyer, and no other company proceedings on its
part are necessary to authorize the execution, delivery or performance of this
Agreement. This Agreement constitutes, and each of the other agreements
contemplated hereby to which Buyer is a party shall when executed constitute, a
valid and binding obligation of Buyer, enforceable in accordance with their
terms.
VI.3 No Violation. Buyer is not subject to or obligated under its
------------
certificate of formation, its operating agreement, any applicable law, or rule
or regulation of any governmental authority, or any agreement or instrument, or
any license, franchise or permit, or subject to any order, writ, injunction or
decree, which would be breached or violated by its execution, delivery or
-xxxii-
<PAGE>
performance of this Agreement and the other agreements contemplated hereby to
which Buyer is a party.
VI.4 Governmental Authorities and Consents. Buyer is not required to
-------------------------------------
submit any notice, report or other filing with any governmental authority in
connection with the execution or delivery by it of this Agreement and the other
agreements contemplated hereby to which Buyer is a party or the consummation of
the transactions contemplated hereby or thereby. No consent, approval or
authorization of any governmental or regulatory authority or any other party or
person is required to be obtained by Buyer in connection with its execution,
delivery and performance of this Agreement and the other agreements contemplated
hereby to which Buyer is a party or the transactions contemplated hereby or
thereby.
VI.5 Litigation. There are no actions, suits, proceedings or orders
----------
pending or, to Buyer's Knowledge, threatened against or affecting Buyer at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which would adversely affect Buyer's performance under this
Agreement and the other agreements contemplated hereby to which Buyer is a party
or the consummation of the transactions contemplated hereby or thereby.
VI.6 Brokerage. There are no claims for brokerage commissions,
---------
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Buyer.
VI.7 Closing Date. All of the representations and warranties
------------
contained in this Article VI and elsewhere in this Agreement and all information
delivered in any schedule, attachment or Exhibit hereto or in any writing
delivered to Sellers are true and correct in all material respects on the date
of this Agreement and shall be true and correct in all material respects on the
Closing Date, except to the extent that Buyer has advised Sellers otherwise in
writing prior to the Closing.
ARTICLE VII
TERMINATION
-----------
VII.1 Termination. This Agreement may be terminated at any time
-----------
prior to the Closing:
(a) by mutual written consent of Sellers and Buyer;
(b) by Sellers or Buyer if there has been a material
misrepresentation or breach on the part of the other Party of the
representations, warranties or covenants set forth in this Agreement or if
events have occurred which have made it impossible to satisfy a condition
precedent to the terminating Party's obligations to consummate the transactions
contemplated hereby unless such terminating Party's willful or knowing breach of
this Agreement has caused the condition to be unsatisfied; or
-xxxiii-
<PAGE>
(c) by Sellers or Buyer if the Closing has not occurred on or prior
to November 30, 1999; provided, however, that neither Buyer nor Sellers shall
be entitled to terminate this Agreement pursuant to this Section 7.1(c) if such
--------------
Party's or Parties' willful or knowing breach of this Agreement has prevented
the consummation of the transactions contemplated hereby at or prior to such
time.
VII.2 Effect of Termination. In the event of termination of this
---------------------
Agreement by either Sellers or Buyer as provided in Section 7.1, this Agreement
-----------
shall forthwith become void and there shall be no liability on the part of any
Party to any other Party or its stockholders or directors or officers under this
Agreement, except for the provisions of Sections 9.3 and 9.8 and Article X shall
-------------------- ---------
continue in full force and effect and except that nothing herein shall relieve
any Party from liability for any breach of this Agreement prior to such
termination.
ARTICLE VIII
INDEMNIFICATION AND RELATED MATTERS
-----------------------------------
VIII.1 Survival. All representations, warranties set forth in this
--------
Agreement or in any writing or certificate delivered in connection with this
Agreement shall survive the Closing Date and the consummation of the
transactions contemplated hereby and shall not be affected by any examination
made for or on behalf of Buyer, the Knowledge of any of its officers, directors,
stockholders, employees or agents, or the acceptance of any certificate or
opinion. Notwithstanding the foregoing, no Party shall be entitled to recover
for any Loss (as defined in Section 8.2) pursuant to Section 8.2(a)(i) or
----------- -----------------
Section 8.2(c) unless written notice of a claim thereof is delivered to the
- --------------
other Party prior to the Applicable Limitation Date. For purposes of this
Agreement, the term "Applicable Limitation Date" shall mean November 23, 2002;
--------------------------
provided that the Applicable Limitation Date with respect to the following
Losses shall be as follows: (i) with respect to any Loss arising from or
related to a breach of the representations and warranties of the Company or the
Sellers set forth in Section 4.12 (Taxes), the Applicable Limitation Date shall
------------
be the 30th day after expiration of the statute of limitations (including any
extensions thereto to the extent that such statute of limitations may be tolled)
applicable to the Tax which gave rise to such Loss and (ii) with respect to any
Loss arising from or related to a breach of the representations and warranties
of the Company or the Sellers set forth in Section 4.1 (Organization and
-----------
Corporate Power), Section 4.2 (Authorization of Transactions), Section 4.3
----------- -----------
(Capitalization), Section 4.5 (Absence of Conflicts), Section 4.16 (Brokerage)
----------- ------------
or Article V (Representations and Warranties with Respect to Sellers), or of the
---------
Buyer's set forth in Article VI (Representations and Warranties with respect to
----------
Buyers), there shall be no Applicable Limitation Date (i.e., such
representations and warranties shall survive forever).
-xxxiv-
<PAGE>
VIII.2 Indemnification.
---------------
(a) Each Seller shall jointly and severally indemnify Buyer and
the Company and each of their respective officers, directors, stockholders
(other than Sellers), employees, agents, representatives, affiliates, successors
and permitted assigns (collectively, the "Buyer Parties") and hold each of them
-------------
harmless from and against and pay on behalf of or reimburse such Buyer Parties
in respect of any loss (including diminution in value), liability, demand,
claim, action, cause of action, cost, damage, deficiency, tax, penalty, fine or
expense, whether or not arising out of third party claims (including, without
limitation, interest, penalties, reasonably attorneys' fees and expenses, court
costs and all amounts paid in investigation, defense or settlement of any of the
foregoing) (collectively, "Losses" and individually, a "Loss") which any such
------ ----
Buyer Party may suffer, sustain or become subject to, as a result of, in
connection with, relating or incidental to or by virtue of:
(i) the breach of any representation or warranty made by the
Company or any Seller contained in Article IV of this Agreement or any
----------
certificate delivered by the Company or any Seller to Buyer with respect
thereto in connection with the Closing;
(ii) the breach of any representation or warranty made by such
Seller contained in Article V of this Agreement or any certificate
---------
delivered by such Seller to Buyer with respect thereto in connection with
the Closing;
(iii) the breach of any representation, warranty (other than
representations or warranties set forth in Articles IV and V), covenant or
-----------------
agreement made by the Company or any Seller contained in this Agreement,
the other Transaction Documents, any Exhibit hereto or any certificate
delivered by the Company or any Seller to Buyer with respect thereto in
connection with the Closing; or
(iv) any Taxes, excluding FET Indebtedness not to exceed $1,169,980
or those set forth on Schedule 4.28 for which an adequate reserve has been
-------------
established in the Company's Latest Balance Sheet, incurred by the Company
in any period (or any portion thereof) ending on or before the Closing Date
or otherwise attributable to the conduct of the Company's business on or
prior to the Closing Date, including any Tax under Code (S) 197(f)(9)(B) or
Code (S) 1374.
(v) any fees due and payable to Sellers' legal counsel, investment
bankers, accountants, agents or representatives relating to the sale of the
stock in the Company or the associated transactions pursuant to this
Agreement.
(vi) any and all liabilities, claims, counterclaims, or obligations
arising from or as a result of the litigation currently styled RCP
---
Communications Inc. v. Vern Hauser et al, which litigation has been
------------------------------------------
assigned to Sellers, or from the assignment of the In Touch debt liens or
equipment to Sellers as set forth in Section 2.2(h) above.
--------------
The remedy of the Buyer Parties for any indemnification of Losses hereunder
shall be offset (i) first from the Hold-back to the extent of the Hold-back,
(ii) then if the Hold-back is depleted, against the
-xxxv-
<PAGE>
Cash Earn-out, if any, that has been earned and is payable to the Sellers, and
(iii) then if the Hold-back and the Cash Earn-out payable to the Sellers is
depleted, the Buyer Parties may proceed against each Seller individually.
(b) The indemnification provided for in Section 8.2(a) above is
subject to the following limitations:
(i) Sellers will be liable to the Buyer Parties with respect to
claims referred to in subsection (a) above only if any Buyer Party gives
Sellers written notice thereof within the Applicable Limitation Date; and
(ii) Sellers shall not be liable to Buyer Parties for any Loss
arising under subsection (a)(i) above (A) in respect of any individual Loss
of less than $1,000 (the "Threshold") and (B) unless the aggregate amount
---------
of all such Losses exceeds $25,000 in the aggregate (the "Basket"), in
------
which case Sellers shall be liable only for the amount of such Losses in
excess of the Basket; provided that the foregoing limitations (i.e., the
Basket and the Threshold) shall not apply with respect to any Loss arising
from or related to a breach of the representations and warranties of the
Company or Seller set forth in Section 4.1 (Organization and Corporate
Power), Section 4.2 (Authorization of Transaction), Section 4.3
(Capitalization), Section 4.5 (Absence of Conflicts), Section 4.10
(Accounts Receivable), Section 4.12 (Taxes), Section 4.16 (Brokerage),
Section 4.28 (Indebtedness) or any Loss with respect to Taxes as set forth
in Section 8.2(a)(iv) or any Loss arising from or related to a breach of
any such Seller's covenants or agreements in such Seller's Employment
Agreements. Notwithstanding any implication to the contrary contained in
this Agreement, so long as any Buyer Party delivers written notice of a
claim to Sellers no later than the Applicable Limitation Date, Sellers
shall be required to indemnify Buyer Parties for all Losses which Buyer
Parties may incur (subject to the Basket and, if applicable, the Threshold)
in respect of the matters which are the subject of such claim, regardless
of when incurred.
(c) Buyer shall indemnify Sellers and hold each Seller harmless from
and against and pay on behalf of or reimburse such Sellers in respect of any
Loss which Sellers may suffer, sustain or become subject to, as the result of,
in connection with, relating to or incidental to or by virtue of the breach by
Buyer of any representation, warranty, covenant, or agreement made by Buyer
contained in this Agreement, any other Transaction Document or any certificate
delivered by Buyer to Sellers with respect thereto in connection with the
Closing. Notwithstanding the foregoing, in no event shall Buyer be liable to
Sellers by reason of application of this Section 8.2(c) for any Loss (A) in
respect of any individual Loss of less than $1,000 (the "Sellers' Threshold")
------------------
and (B) unless and until the aggregate amount of such Losses thereunder exceeds
$25,000 in the aggregate (the "Sellers' Basket"), in which case Buyer shall be
---------------
liable only for the amount of such Losses in excess of the Sellers' Basket;
provided that the foregoing limitations (i.e., the Sellers' Basket and the
Sellers' Threshold) shall not apply with respect to any Loss arising from or
related to a breach of the representations and warranties of Buyer set forth in
Section 6.6 (Brokerage), or any Loss arising from or related to a breach of the
Buyer's covenant or agreements made by Buyer in Section 1.4 or 1.5 of this
Agreement, or in the Sellers' Employment Agreements.
-xxxvi-
<PAGE>
(d) If a party hereto seeks indemnification under this Article VIII,
------------
such party (the "Indemnified Party") shall give written notice to the other
-----------------
party (the "Indemnifying Party") after receiving written notice of any action,
------------------
lawsuit, proceeding, investigation or other claim against it (if by a third
party) or discovering the liability, obligation or facts giving rise to such
claim for indemnification, describing the claim, the amount thereof (if known
and quantifiable), and the basis thereof; provided that the failure to so notify
the Indemnifying Party shall not relieve the Indemnifying Party of its or his
obligations hereunder except to the extent such failure shall have harmed the
Indemnifying Party. In that regard, if any action, lawsuit, proceeding,
investigation or other claim shall be brought or asserted by any third party
which, if adversely determined, would entitle the Indemnified Party to indemnity
pursuant to Article VIII, the Indemnified Party shall promptly notify the
Indemnifying Party of the same in writing, specifying in detail the basis of
such claim and the facts pertaining thereto and the Indemnifying Party shall be
entitled to participate in the defense of such action, lawsuit, proceeding,
investigation or other claim giving rise to the Indemnified Party's claim for
indemnification at its expense, and at its option (subject to the limitations
set forth below) shall be entitled to appoint lead counsel of such defense with
a nationally recognized reputable counsel acceptable to the Indemnified Party;
provided that, as a condition precedent to the Indemnifying Party's right to
assume control of such defense, it must first:
(i) enter into an agreement with the Indemnified Party (in form and
substance reasonably satisfactory to the Indemnified Party) pursuant to
which the Indemnifying Party agrees to be fully responsible (with no
reservation of right) for all Losses relating to such claims and that it
will provide full indemnification (whether or not otherwise required
hereunder) to the Indemnified Party for all Losses relating to such claim),
and
(ii) unconditionally guarantees the payment and performance of any
liability or obligation which may arise with respect to such claim or the
facts giving rise to such claim for indemnification (without regard to the
Threshold, the Basket, Sellers' Basket or the Sellers' Threshold), and
(iii) furnish the Indemnified Party with reasonable evidence that the
Indemnifying Party is and will be able to satisfy any such liability;
and provided further that the Indemnifying Party shall not have the right to
assume control of such defense and shall pay the fees and expenses of counsel
retained by the Indemnified Party, if the claim which the Indemnifying Party
seeks to assume control (i) seeks non-monetary relief, (ii) involves criminal
or quasi-criminal allegations, (iii) involves a claim to which the Indemnified
Party reasonably believes an adverse determination would be detrimental to or
injure the Indemnified Party's reputation or future business prospects, or (iv)
involves a claim which, upon petition by the Indemnified Party, the appropriate
court rules that the Indemnifying Party failed or is failing to vigorously
prosecute or defend.
If the Indemnifying Party is permitted to assume and control the defense
and elects to do so, the Indemnified Party shall have the right to employ
counsel separate from counsel employed by the Indemnifying Party in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel employed by the Indemnified Party shall be at the expense of the
Indemnified Party unless (i) the employment thereof has been specifically
authorized by the
-xxxvii-
<PAGE>
Indemnifying Party in writing, or (ii) the Indemnifying Party has been advised
by counsel that a reasonable likelihood exists of a conflict of interest between
the Indemnifying Party and the Indemnified Party.
If the Indemnifying Party shall control the defense of any such claim, the
Indemnifying Party shall obtain the prior written consent of the Indemnified
Party (which shall not be unreasonably withheld) before entering into any
settlement of a claim or ceasing to defend such claim, if pursuant to or as a
result of such settlement or cessation, injunction or other equitable relief
will be imposed against the Indemnified Party or if such settlement does not
expressly unconditionally release the Indemnified Party from all liabilities and
obligations with respect to such claim, without prejudice.
(e) The Indemnifying Party shall pay the Indemnified Party in
immediately available funds promptly after the Indemnified Party provides the
Indemnifying Party with written notice of a claim hereunder and the Parties
reasonably agree that there is a reasonable basis for such claim. Without
limiting the foregoing, any payments to be made by the Sellers pursuant to this
Article VIII shall be offset first against the Hold-back and, to the extent such
amount has been completely offset, from the Sellers directly.
(f) Amounts paid to or on behalf of Sellers or Buyer as
indemnification shall be treated as adjustments to the Purchase Price.
(g) Effective upon the Closing, each Seller hereby irrevocably
waives, releases and discharges the Company from any and all liabilities and
obligations to such Seller of any kind or nature whatsoever, whether in his
capacity as Seller hereunder, as a stockholder, officer or director of the
Company or otherwise (including, without limitation, in respect of rights of
contribution or indemnification), in each case whether absolute or contingent,
liquidated or unliquidated, and whether arising hereunder or under any other
agreement or understanding or otherwise at law or equity, and each Seller shall
not seek to recover any amounts in connection therewith or thereunder from the
Company.
ARTICLE IX
ADDITIONAL AGREEMENTS
---------------------
IX.1 Continuing Assistance. Subsequent to the Closing, each Seller
---------------------
and Buyer (at their own cost) shall assist each other (including making records
available) in the preparation of their respective Tax Returns and the filing and
execution of tax elections, if required, as well as any audits or litigation
that ensue as a result of the filing thereof, to the extent that such assistance
is reasonably requested.
-xxxviii-
<PAGE>
IX.2 Tax Matters.
-----------
(a) All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest thereon)
incurred in connection with this Agreement shall be paid by Sellers when due,
and each Seller shall, at his own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration and other Taxes and fees, and if required by applicable law,
Buyer shall, and shall cause its affiliates to, join in the execution of any
such Tax Returns and other documentation.
(b) Subsequent to the Closing, each Seller shall make, or refrain
from making, an election under Section 197 of the Code in accordance with the
written request of Buyer.
IX.3 Press Releases and Announcements. Prior to the Closing Date, no
--------------------------------
press releases related to this Agreement and the transactions contemplated
herein, or other announcements to the employees, customers or suppliers of the
Company shall be issued without the mutual approval of all Parties, except for
any public disclosure which any Party in good faith believes is required by law
or regulation (in which case the disclosure shall be prepared jointly by the
Company and Buyer). After the Closing Date, no press releases related to this
Agreement and the transactions contemplated herein, or other announcements to
the employees, customers or suppliers of the Company shall be issued without
Buyer's consent (which shall not be unreasonably withheld).
IX.4 Further Transfers. Each Seller shall execute and deliver such
-----------------
further instruments of conveyance and transfer and take such additional action
as Buyer may reasonably request to effect, consummate, confirm or evidence the
transfer to Buyer of the Acquired Stock and any other transactions contemplated
hereby.
IX.5 Specific Performance. Buyer and Seller acknowledges that the
--------------------
Company's business is unique and recognizes and affirms that in the event of a
breach of this Agreement, money damages may be inadequate and the non-breaching
party may have no adequate remedy at law. Accordingly, Sellers and Buyer agree
that the non-breaching party shall have the right, in addition to any other
rights and remedies existing in its favor, to enforce its rights and such
breaching party's obligations hereunder not only by an action or actions for
damages but also by an action or actions for specific performance, injunctive
and/or other equitable relief.
IX.6 Transition Assistance. Each Seller shall not in any manner take
---------------------
any action which is designed, intended, or might be reasonably anticipated to
have the effect of discouraging customers, suppliers, lessors, licensors and
other business associates from maintaining the same business relationships with
the Company after the date of this Agreement as were maintained with such
Company prior to the date of this Agreement.
-xxxix-
<PAGE>
IX.7 Investigation.
-------------
(a) Prior to the Closing Date, Buyer may make or cause to be made
such investigation of the business and properties of the Company as it deems
necessary or advisable to familiarize itself therewith. Each Seller shall, and
shall cause the Company and its officers, directors, employees and agents to,
permit Buyer and its employees, agents, accounting, legal and other authorized
representatives to (i) have full access to the premises, books and records of
the Company at reasonable hours, (ii) visit and inspect any of the properties of
the Company, and (iii) discuss the affairs, finances and accounts of the Company
with the directors, officers, key employees, key customers, key sales
representatives, key suppliers and independent accountants of the Company.
(b) Prior to the Closing Date, Sellers and Buyer shall mutually
agree upon all communications with customers and suppliers of the Company
relating to this Agreement and the transactions contemplated hereunder (it being
understood that Buyer shall have the right to contact such customers and
suppliers in connection with its investigation of the business of the Company).
(c) Prior to the Closing Date, Buyer shall provide to each Seller
such information as such Seller may reasonably request regarding Buyer's
business and financial condition.
IX.8 Expenses. Except as otherwise provided herein, each Seller and
--------
Buyer shall pay all of their own fees, costs and expenses (including, without
limitation, fees, costs and expenses of legal counsel, investment bankers,
brokers or other representatives and consultants and appraisal fees, costs and
expenses) incurred in connection with the negotiation of the Letter of Intent
dated August 10, 1999, by and among the Parties, this Agreement, the performance
of its obligations hereunder, and the consummation of the transactions
contemplated hereby; it being understood that Sellers shall pay the fees, costs
and expenses of the Company and that the Company shall not pay any of Sellers'
fees, costs and expenses (including, without limitation, legal and accounting
fees, costs and expenses) arising in connection with the transactions
contemplated hereby if the transactions are consummated.
IX.9 Exclusivity. Until this Agreement is terminated by its terms,
-----------
neither the Company nor Sellers (and none of Company or Sellers shall cause or
permit any Insider or agent or any other Person acting on behalf of any Seller,
the Company or its Affiliates to), (a) solicit, initiate or encourage the
submission of any proposal or offer from any Person (including any of them)
relating to any (i) liquidation, dissolution or recapitalization of, (ii) merger
or consolidation with or into, (iii) acquisition or purchase of assets of or any
equity interest in or (iv) similar transaction or business combination involving
the Company or (b) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or facilitate
in any other manner any effort or attempt by any other Person to do or seek any
of the foregoing. The Company and each Seller agrees that it will discontinue
immediately any negotiations or discussion with respect to any of the foregoing.
Until this Agreement is terminated by its terms, Sellers and Company shall
notify Buyer immediately if any Person makes any proposal, offer, inquiry or
contact with respect to any of the foregoing.
-xi-
<PAGE>
IX.10 Books and Records. Unless otherwise consented to in writing by
-----------------
Sellers or Buyer (as the case may be), Buyer and Sellers will not, for a period
of seven years following the date hereof, destroy, alter or otherwise dispose
of any of the books and records of the Company acquired by Buyer hereunder or
retained by Seller without first offering to surrender to Sellers or Buyer such
books and records or any portion thereof of which Sellers or Buyer may intend to
destroy, alter or dispose. Buyer and Sellers will allow the other party's
representatives, attorneys and accountants access to such books and records,
upon reasonable request for during such party's normal business hours, for the
purpose of examining and copying the same in connection with any matter whether
or not related to or arising out of this Agreement or the transactions
contemplated hereby.
IX.11 Non-Competition, Non-Solicitation and Confidentiality.
-----------------------------------------------------
(a) Non-Competition. In consideration of the mutual covenants
---------------
provided for herein to Sellers at the Closing, during the period beginning on
the Closing Date and ending on the fourth anniversary of the Closing Date (the
"Non-Compete Period"), none of Sellers shall engage (whether as an owner,
------------------
operator, manager, employee, officer, director, consultant, advisor,
representative or otherwise) directly or indirectly in any business that the
Company conducts or proposes to conduct as of the Closing Date in any geographic
area in which the Company conducts its business as of the Closing Date; provided
that ownership of less than 1% of the outstanding stock of any publicly-traded
corporation shall not be deemed to be engaging solely by reason thereof in any
of its businesses. Seller acknowledges that the business that Company currently
conducts or proposes to conduct includes, without limitation, the development,
marketing, distribution and sale of pre-paid telecommunications services,
including, but not limited to, pre-paid local and long distance calling cards,
pre-paid cellular telephone service and pre-paid residential telephone service.
If the final judgment of a court of competent jurisdiction declares that any
term or provision of this Section 9.11(a) is invalid or unenforceable, the
---------------
Parties agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration, or area of
the term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
(b) Non-Solicitation. Each Seller agrees that, during the Non-
----------------
Compete Period, such Seller (i) shall not, and shall use his best efforts not to
permit such Seller's affiliates to, directly or indirectly contact, approach or
solicit for the purpose of offering employment to or hiring (whether as an
employee, consultant, agent, independent contractor or otherwise) or actually
hire any person employed by the Company at any time prior to the Closing Date or
during the Non-Compete Period, without the prior written consent of the Company;
provided, however, that nothing herein shall prevent Sellers from working
together if neither Seller is employed by the Company at the time such
association is initiated, and (ii) shall not induce or attempt to induce any
customer or other business relation of the Company into any business
relationship which might materially harm the Company. The term "indirectly" as
----------
used in this Section 9.11 is intended to mean any acts authorized or directed by
------------
or on behalf of any Seller or any person controlled by such Seller.
-xii-
<PAGE>
(c) Confidentiality. Each Seller shall treat and hold as
---------------
confidential any information concerning the business and affairs of the Company
that is not already generally available to the public (the "Confidential
------------
Information"), refrain from using any of the Confidential Information except in
- -----------
connection with this Agreement, and deliver promptly to Buyer or destroy, at the
request and option of Buyer, all tangible embodiments (and all copies) of the
Confidential Information which are in his possession or under his control. In
the event that any Seller is requested or required (by oral question or request
for information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand, or similar process) to disclose any Confidential
Information, such Seller shall notify Buyer promptly of the request or
requirement so that Buyer may seek an appropriate protective order or waive
compliance with the provisions of this Section 9.11(c). If, in the absence of a
protective order or the receipt of a waiver hereunder, any Seller is, on the
advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, such Seller may disclose the
Confidential Information to the tribunal; provided that such disclosing Seller
shall use his best efforts to obtain, at the request of Buyer, an order or other
assurance that confidential treatment shall be accorded to such portion of the
Confidential Information required to be disclosed as Buyer shall designate.
(d) Trade Name. No Seller shall use or permit any of his affiliates
----------
to use the name "RCP Communications, Inc." or any name confusingly similar
thereto in any manner anywhere in the world after Closing.
(e) Remedy for Breach. Each Seller acknowledges and agrees that in
-----------------
the event of a breach by any Seller of any of the provisions of this Section
-------
9.11, monetary damages shall not constitute a sufficient remedy. Consequently,
- ----
in the event of any such breach, the Company, Buyer and/or their respective
successors or assigns may, in addition to other rights and remedies existing in
their favor, apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive or other relief in order to enforce or
prevent any violations of the provisions hereof, in each case without the
requirement of posting a bond or proving actual damages.
ARTICLE X
MISCELLANEOUS
-------------
X.1 Amendment and Waiver. This Agreement may be amended and any
--------------------
provision of this Agreement may be waived, provided that any such amendment or
waiver shall be binding upon a Party only if such amendment or waiver is set
forth in a writing executed by Buyer and each Seller. No course of dealing
between or among any persons having any interest in this Agreement shall be
deemed effective to modify, amend or discharge any part of this Agreement or any
rights or obligations of any Party under or by reason of this Agreement.
X.2 Notices. All notices, demands and other communications given or
-------
delivered under this Agreement shall be in writing and shall be deemed to have
been given on the date of receipt when personally delivered, mailed by first
class mail, return receipt requested, or delivered by express courier service or
telecopied with confirmation of delivery (with hard copy to follow). Notices,
demands and communications to each Seller shall, unless another address is
specified in
-xiii-
<PAGE>
writing, or unless receipt of notice has been specifically delegated to the
Representatives under this Agreement, be sent to the address or telecopy number
indicated on the signature page attached hereto, and notices, demands and
communications to the Representative, the Company and Buyer shall, unless
another address is specified in writing, be sent to the address or telecopy
number indicated below:
<TABLE>
<CAPTION>
Notices to Representative: with a copy which shall not constitute notice to:
- ------------------------- ------------------------------------------------
<S> <C>
Mr. James A. Silva Garrison, Morris & Haight, PLLC
17449 North 8/th/ Avenue 5100 Poplar Avenue, Suite 2100
Phoenix, AZ 85023 Memphis, TN 38137
Attention: G. Robert Morris
Telecopy: (901) 255-9300
Notices to Seller: with a copy which shall not constitute notice to:
- ----------------- ------------------------------------------------
Mr. James A. Silva Garrison, Morris & Haight, PLLC
17449 North 8/th/ Avenue 5100 Poplar Avenue, Suite 2100
Phoenix, AZ 85023 Memphis, TN 38137
Attention: G. Robert Morris
Mr. Oscar Aguiar, Jr. Telecopy: (901) 255-9300
3333 East Acoma Drive
Phoenix, AZ 85032
Notices to Buyer: with a copy which shall not constitute notice to:
- ---------------- ------------------------------------------------
OnePoint Services, L.L.C. Kirkland & Ellis
2201 Waukegan Road, Suite E-200 200 East Randolph Drive
Bannockburn, IL 60015 Chicago, IL 60601
Attention: Al Moschner Attention: Willard G. Fraumann, P.C.
Telecopy: (847) 374-1070 Telecopy: (312) 861-2200
</TABLE>
X.3 Binding Agreement; Assignment.
-----------------------------
(a) This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the Parties and their respective successors and
permitted assigns; provided that neither this Agreement nor any of the rights,
interests or obligations hereunder may be assigned by any Seller without the
prior written consent of Buyer or by Buyer (except as otherwise provided in this
Agreement) without the prior written consent of each Seller. Without limiting
the generality of the foregoing:
(i) Buyer may (at any time prior to the Closing), at its sole
discretion, assign, in whole or in part, its rights and obligations
pursuant to this Agreement to one or more of its
-xiiii-
<PAGE>
wholly-owned Subsidiaries. (Buyer's "wholly-owned Subsidiaries" include
Subsidiaries which may be organized subsequent to the date hereof);
(ii) Buyer may assign its rights under this Agreement for collateral
security purposes to any lender providing financing to Buyer, Company or
any of their Affiliates and any such lender may exercise all of the rights
and remedies of the Buyer hereunder; and
(iii) Buyer may assign its rights under this Agreement, in whole or
in part, to any subsequent purchaser of any Company or any of its divisions
or any material portion of its assets (whether such sale is structured as a
sale of stock, a sale of assets, a merger or otherwise).
X.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provisions or the remaining provisions of this Agreement.
X.5 No Strict Construction. The language used in this Agreement
----------------------
shall be deemed to be the language chosen by the Parties to express their mutual
intent, and no rule of strict construction shall be applied against any person.
X.6 Captions. The captions used in this Agreement are for
--------
convenience of reference only and do not constitute a part of this Agreement and
shall not be deemed to limit, characterize or in any way affect any provision of
this Agreement, and all provisions of this Agreement shall be enforced and
construed as if no caption had been used in this Agreement.
X.7 Entire Agreement. This Agreement and the Transaction Documents,
----------------
and the other documents referred to herein contain the entire agreement between
the Parties and supersede any prior understandings, agreements or
representations by or between the Parties, written or oral, which may have
related to the subject matter hereof in any way.
X.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same instrument.
X.9 Governing Law. All questions concerning the construction,
-------------
validity and interpretation of this Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Illinois, without giving
effect to any choice of law or conflict of law provision (whether of the State
of Illinois or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Illinois.
X.10 Parties in Interest. Nothing in this Agreement, express or
-------------------
implied, is intended to confer on any person other than the Parties and their
respective successors and assigns any rights or remedies under or by virtue of
this Agreement.
-xiiv-
<PAGE>
X.11 WAIVER OF JURY TRIAL. AS A SPECIFICALLY BARGAINED INDUCEMENT
--------------------
FOR EACH OF THE PARTIES TO ENTER INTO THIS AGREEMENT (EACH PARTY HAVING HAD
OPPORTUNITY TO CONSULT COUNSEL), EACH PARTY EXPRESSLY WAIVES THE RIGHT TO TRIAL
BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO OR ARISING IN ANY WAY FROM THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN.
X.12 CONSENT TO JURISDICTION. THE PARTIES AGREE THAT JURISDICTION
-----------------------
AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY PURSUANT TO THIS AGREEMENT SHALL
PROPERLY (BUT NOT EXCLUSIVELY) LIE IN ANY FEDERAL OR STATE COURT LOCATED IN LAKE
COUNTY, ILLINOIS. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS FOR HIMSELF AND IN
RESPECT OF HIS PROPERTY WITH RESPECT TO SUCH ACTION. THE PARTIES IRREVOCABLY
AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION
THAT SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH
ACTION. THE PARTIES FURTHER AGREE THAT THE MAILING BY CERTIFIED OR REGISTERED
MAIL, RETURN RECEIPT REQUESTED, OF ANY PROCESS REQUIRED BY ANY SUCH COURT SHALL
CONSTITUTE VALID AND LAWFUL SERVICE OF PROCESS AGAINST THEM, WITHOUT NECESSITY
FOR SERVICE BY ANY OTHER MEANS PROVIDED BY STATUTE OR RULE OF COURT.
* * * *
-xiv-
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first written above.
___________________________________
Oscar A. Aguiar, Jr.
___________________________________
James A. Silva
ONEPOINT SERVICES, L.L.C.
By: RCP COMMUNICATIONS, INC.
Its: Manager
By: _______________________________
Its: ______________________________
-xivi-
<PAGE>
PURCHASE AGREEMENT
------------------
This Purchase Agreement is made as of December 16, 1999, by
and between OnePoint Communications Holdings, L.L.C., a Delaware limited
liability company ("OnePoint") and SBC Coinventures, Inc., a Delaware
corporation ("SBC"), regarding the purchase by SBC of a portion of OnePoint's
membership units (the "Units") in VIC-RMTS-DC, L.L.C., a Delaware limited
liability company (the "Company").
WHEREAS, of the total of 28.710202 membership units in the
Company (the "Units"), OnePoint owns 27.710202 of the Units representing 96.52%
of the total ownership percentage in the Company pursuant to the Operating
Agreement of the Company dated February 6, 1997 (the "Operating Agreement");
WHEREAS, SBC desires to purchase a portion of the Units
held by OnePoint;
NOW THEREFORE the parties agree as follows:
1. On or before December 16, 1999 (the "Closing Date"), SBC
agrees to pay OnePoint $10,000,000 and OnePoint agrees to sell, transfer and
assign to SBC all of OnePoint's right. title and interest in and to 6.89 Units
(the "Purchased Units").
2. In connection with such purchase, OnePoint
hereby represents and warrants to SBC:
(a) That neither this Purchase Agreement nor any of the
transactions contemplated hereby will violate or constitute a default under
any agreements to which OnePoint is a party or is aware, including without
limitation that certain Indenture dated May 21, 1998 (the "Indenture"), the
Operating Agreement and the Unit Purchase Agreement with respect to the sale
of
<PAGE>
Units to VIC-1 RMTS, L.L.C. on December 14, 1999, or violate any applicable
law, rule, or order, or result in the creation or imposition of any lien on any
asset purchased or assigned hereunder;
(b) That neither this Agreement nor any of the transactions contemplated
hereby require any regulatory approval or other third-party consent (other than
the consent of VIC-1 RMTS, L.L.C. which has been obtained);
(c) The execution, delivery and performance by OnePoint of this Purchase
Agreement and the consummation of the transactions contemplated hereby are
within its power and have been duly authorized by all necessary action on the
part of OnePoint; and
(d) This Purchase Agreement constitutes a valid and binding agreement of
OnePoint.
3. The obligations of SBC to acquire the Purchased Units are subject to the
satisfaction of the following conditions on the applicable closing date:
(a) The delivery of an opinion of Kirkland & Ellis in form and substance
satisfactory to SBC in SBC's sole discretion;
(b) The execution and delivery of an Assignment in form and substance
satisfactory to SBC;
(c) The execution and delivery to SBC by OnePoint of a Notice of Purchase
in form and substance satisfactory to SBC, directing the Company to pay all
member distributions on account of the Purchased Units to SBC.
4. OnePoint shall also have the right to require SBC to purchase for an
additional $5,000,000 an additional 3.445 Units on February 2, 2000; and the
right to require SBC to purchase for an additional $5,000,000 an additional
3.445 Units on March 2, 2000, (each right a "Put Right";
<PAGE>
each purchase, an "Additional Tranche" and each Unit purchased, a "Purchased
Unit"). OnePoint may exercise each Put Right by delivering notice thereof to
SBC no later than two (2) business days (the "Notice Date") prior to the
applicable closing date, after which Notice Date the Put Right shall expire.
SBC's obligation to make each Additional Tranche shall be subject to the
conditions set forth in Section 3 hereof and the reiteration of OnePoint's
representations and warranties set forth in Sections 2(a), (b) and (c) hereof.
5. OnePoint shall have the right to purchase (the "Call
Right") all of the Purchased Units theretofore purchased by SBC at a purchase
price equal to the price paid for the Purchased Units plus 15% per annum, if
any, accrued from the date of purchase of each such Unit by SBC to the date of
such purchase by OnePoint. The Call Right may be exercised by OnePoint at any
time on two days written notice and such notice shall be accompanied by cash
in the amount of the purchase price, or such other form of consideration,
including other assets of equivalent value, that are acceptable to SBC in
SBC's sole discretion. SBC may terminate the Call Right at any time after
February 28, 2001 by sending notice thereof to OnePoint, at which time the
Call Right shall immediately terminate.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
OnePoint Communications Holdings, L.L.C. ("OnePoint)
By:
Its:
SBC Comventures, Inc. ("SBC")
By:
Its:
<PAGE>
PURCHASE AGREEMENT
This Purchase Agreement is made as of March 17, 2000, by and between
OnePoint Communications Corp., a Delaware corporation ("OnePoint") and ComPlus,
LP a Delaware limited partnership ("ComPlus") by its general partner AMI-VCOM2,
Inc., a Delaware corporation, regarding the purchase by OnePoint of a certain
number of ComPlus' limited partnership units (the "Units").
RECITALS
WHEREAS, the business and affairs of ComPlus are governed by the
Partnership Agreement of ComPlus amended and restated effective as of April 2,
1999, as amended from time to time in accordance with the terms thereof (the
"Partnership Agreement");
WHEREAS, ComPlus has requested a loan from OnePoint for the purpose of
meeting certain of its operating expenses (the "Loan") and the Loan is necessary
for ComPlus to continue to provide engineering services to OnePoint;
WHEREAS, OnePoint desires to the continue to receive such engineering
services and has agreed to make the Loan on terms and conditions contained in
the demand note and security agreement and in addition desires to purchase
certain limited partnership units in ComPlus;
WHEREAS, the total number of outstanding partnership units in ComPlus is
1,000, AMI-VCOM2, Inc. owns 10 of the general partnership units and Ventures in
Communications, L.L.C. owns 990 of the Class A limited partnership units;
WHEREAS, ComPlus desires to sell a 10 Class A limited partnership units to
OnePoint and OnePoint desires to purchase said 10 Class A limited partnership
units of ComPlus; and
WHEREAS, pursuant to Section 7.6 of the Partnership Agreement the general
partner, AMI-VCOM2, Inc., may at any time admit additional limited partners.
NOW THEREFORE the parties agree as follows:
1. All of the terms and conditions as set forth in the recitals above are
hereby incorporated and adopted in this paragraph 1 as though fully set out
herein.
2. On or before March 20, 2000 (the "Closing Date"), OnePoint agrees to pay
ComPlus $100,000 and ComPlus agrees to sell, transfer and assign to
OnePoint 10 Class A limited partnership units (the "Purchased Units").
Subsequent to said purchase, the total number of outstanding partnership
units in ComPlus will be 1,010, AMI-VCOM2, Inc. will own 10 of the general
partnership units and Ventures in Communications, L.L.C. will own 990 of
the Class A limited partnership units and OnePoint will own 10 of the Class
A limited partnership units.
<PAGE>
3. In connection with such purchase, ComPlus hereby represents and warrants to
OnePoint:
a. That neither this Purchase Agreement nor any of the transactions
contemplated hereby will violate or constitute a default under any
agreements to which ComPlus is a party, including without limitation
that certain Amended and Restated Partnership Agreement effective as
of April 2, 1999;
b. That neither this Agreement nor any of the transactions contemplated
hereby require any regulatory approval or other third-party consent;
c. The execution, delivery and performance by ComPlus of this Purchase
Agreement and the consummation of the transactions contemplated hereby
are within its power and have been duly authorized by all necessary
action on the part of ComPlus; and
d. This Purchase Agreement constitutes a valid and binding agreement of
ComPlus.
4. The obligations of OnePoint to acquire the Purchased Units are subject to
the satisfaction of the following conditions on the applicable closing
date:
a. The execution and delivery of ComPlus, L.P. Admission Agreement; and
b. This Purchase Agreement constitutes a valid and binding agreement of
OnePoint.
5. OnePoint shall have the right at anytime to require Complus to purchase all
of the Purchased Units purchased by OnePoint pursuant to this agreement at
a Purchase Price equal to the price paid for the Purchased Units plus 15%
per annum, accrued from the date of purchase of such Units by OnePoint.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
ComPlus, LP OnePoint Communications Corp.
By: AMI-VCOM2, Inc.
Its General Partner
By:_________________________________ By:__________________________________
Its:_________________________________ Its:_________________________________
<PAGE>
SECURITY AGREEMENT
This Security Agreement ("Agreement") is entered into as of March ___,
2000, by and between COMPLUS, L.P. ("Borrower"), a Delaware limited partnership,
and ONEPOINT COMMUNICATIONS CORP. ("Lender"), a Delaware corporation.
W I T N E S S E T H
WHEREAS, Lender has agreed to make a loan to Borrower, on terms and
conditions more particularly described in the demand note of even dated herewith
("Demand Note");
NOW, THEREFORE, as an inducement to cause Lender to make the loan to
Borrower, and for other valuable consideration, the receipt and sufficiency of
which are acknowledged, it is agreed as follows:
1. Definition of Secured Indebtedness. As used herein, "Secured
----------------------------------
Indebtedness" shall mean the obligations of Borrower under this Agreement and
the indebtedness and obligations evidenced by the Demand Note.
2. Grant of Security Interest. To secure the payment of the Secured
--------------------------
Indebtedness, Borrower hereby grants to Lender a security interest in all of
Borrower's presently owned and hereafter acquired accounts, instruments,
documents, and chattel paper and proceeds thereof (collectively the
"Collateral").
3. Warranties. Borrower warrants to Lender the following:
----------
(a) Title. Borrower is the sole legal and equitable owner of
-----
the Collateral. This warranty expressly covers all assets listed on Borrower's
balance sheet(s) delivered or to be delivered to Lender.
(b) Valid Security Interest. This Agreement grants to Lender a
-----------------------
valid security interest in the Collateral.
4. Subordinate Rights. Lender explicitly acknowledges that its
------------------
rights hereunder are subordinate, and subject to the rights of NationsBank of
Tennessee, N.A. ("NationsBank") pursuant to the Security Agreement dated June
27, 1997, as amended, between Borrower and NationsBank.
5. Limitation on Assignment of Accounts. The security interest
------------------------------------
granted herein covering accounts shall be effective only to the extent that
rights thereunder may be assigned under applicable laws without causing default
under or termination of any agreements giving rise thereto.
<PAGE>
6. Compliance with Law; Taxes. Borrower shall comply with all laws,
--------------------------
regulations and other requirements of governmental bodies or agencies having
jurisdiction pertaining to the ownership or operation of the Collateral, and
Borrower shall pay all taxes and fees assessed on account of the Collateral as
they become due.
7. Availability Upon Default. Borrower covenants that if Lender
-------------------------
declares a default hereunder and so requests, Borrower shall make all Collateral
and records pertaining thereto available to Lender at a reasonable time and
place.
8. Rental Proceeds. Borrower acknowledges that the security
---------------
interest granted herein extends to all of Borrower's rights as lessor under any
future lease of any of the Collateral. Borrower acknowledges and agrees that
all rental proceeds of the Collateral constitute "cash collateral" under the
Bankruptcy Code. Notwithstanding Lender's consent to any proposed lease, such
lease shall be subordinate to Lender's security interest in the leased
Collateral unless Lender specifically agrees to the contrary in writing.
9. Warranties and Other Rights. Borrower acknowledges that the
---------------------------
security interest granted herein extends to all of Borrower's rights under
warranties pertaining to the Collateral and also includes all rights of Borrower
against any third party arising from damage to any Collateral.
10. Notice of Subsequent Leases. Borrower agrees to give Lender
---------------------------
prompt written notice if Borrower hereafter leases from others property of a
type included in the Collateral or if Borrower accepts such property on
consignment or as bailee.
11. Perfection. Borrower agrees to take such actions may be
----------
necessary at any time to perfect Lender's security interest in the Collateral.
Without limiting the foregoing, Borrower agrees to immediately deliver to
Lender, upon receipt by Borrower, any instrument, chattel paper, document or
other Collateral (other than goods) in which a security interest may be
perfected or Lender's rights against purchasers protected by possession, with
any appropriate endorsement affixed. A copy of this Agreement may be filed as a
financing statement.
12. Accounts.
--------
(a) Records of Accounts. Borrower shall maintain detailed
-------------------
records of its accounts, including an itemized list of each charge giving rise
to the accounts, the name and address of each account debtor, all relevant
charge and billing dates, and all other information that Lender may deem
necessary or which is ordinarily maintained with respect to such accounts. All
records of the accounts shall be maintained at Borrower's chief executive
office. If Lender so requires, Borrower shall store its account records in an
appropriately fire-rated vault or Borrower shall store a duplicate set of
records of accounts at an off-premises location. Lender may inspect such
records at any reasonable time.
-2-
<PAGE>
(b) Information Regarding Accounts. Upon demand, Borrower shall
------------------------------
furnish Lender any information that Lender may reasonably request pertaining to
Borrower's accounts, including, but not limited to, a detailed listing of all
account balances, arranged according to age of the accounts, together with the
invoices evidencing the transactions that gave rise to the accounts, addresses,
and phone numbers of all account debtors. Lender may cause Borrower or an
independent auditor (at Borrower's expense) to obtain audit confirmations from
Borrower's account debtors at any time.
(c) Specific Assignments. Upon Lender's request, Borrower
--------------------
shall immediately execute and deliver to Lender additional specific assignments
of any or all of its accounts.
13. No Burdensome Agreements. Borrower warrants that Borrower is
------------------------
not a party to any contract or agreement and is not subject to any contingent
liability that does or may impair Borrower's ability to perform under the terms
of this Agreement. Borrower further warrants that the execution and performance
of this Agreement will not cause a default, acceleration or other event under
any other contract or agreement to which Borrower or any property of Borrower is
subject, and will not result in the imposition of any charge, penalty, lien or
other encumbrance against any of Borrower's property except in favor of Lender.
14. Legal and Binding Agreement. Borrower warrants that the
---------------------------
execution and performance of this Agreement will not violate nay judicial or
administrative order or governmental law or regulation, and that this Agreement
is valid, binding and enforceable in every respect to its terms.
15. No Consent Required. Borrower warrants that Borrower's
-------------------
execution, delivery and performance of this Agreement do not require the consent
of or the giving of notice to any third party including, but not limited to, any
other lender, governmental body or regulatory authority, or that, to the extent
such consent or notice is required, Borrower has obtained such consent or
properly given such notice.
16. No Default. Borrower warrants that, as of the execution of this
----------
Agreement, no default exists hereunder and no condition exists which, with the
giving of notice, the passing of time, or both, would constitute such a default.
17. Default Defined. The occurrence of any one or more of the
---------------
following events shall constitute a default under this Agreement:
(a) Monetary Default. The failure of Borrower to timely repay
----------------
any amount due Lender under the Secured Indebtedness.
(b) Breach of Covenant. The failure of Borrower or any other
------------------
party to perform or observe any obligation or covenant made with respect to the
Secured Indebtedness.
(c) Breach of Warranty. Lender's discovery that any
------------------
representation or warranty in connection with this Agreement or the Secured
Indebtedness is materially false.
-3-
<PAGE>
(d) Default Under Other Document. The occurrence of a default
----------------------------
under the terms of any document evidencing, securing, or otherwise pertaining to
the Secured Indebtedness.
18. Remedies Upon Default. Upon default, Lender may pursue any or
---------------------
all of the following remedies, without any notice to Borrower except as required
below:
(a) Notice of Default. Lender may give written notice of default
-----------------
to Borrower, following which Borrower shall not dispose of, conceal, transfer,
sell or encumber any of the Collateral (including, but not limited to, cash
proceeds) without Lender's prior written consent. Any such disposition,
concealment, transfer or sale after the giving of such notice shall constitute a
wrongful conversion of the Collateral. Lender may obtain a temporary restraining
order or other equitable relief to enforce Borrower's obligation to refrain from
so impairing Lender's Collateral.
(b) Setoff. Lender may exercise its lien upon and right of
------
setoff against any monies, items, credits, deposits or instruments that Lender
may have in its possession and which belong to Borrower or to any other person
or entity liable for the payment of any or all of the Secured Indebtedness.
(c) Other Remedies. Lender may exercise any right that it may
--------------
have under any other document evidencing or securing the Secured Indebtedness or
otherwise available to Lender at law or equity.
(d) Attorney-in-Fact. Borrower hereby irrevocable appoints
----------------
Lender as Borrower's attorney-in-fact to take any action to facilitate Lender's
exercise of its remedies hereunder.
19. Indulgence Not Waiver. Lender's indulgence in the existence of a
---------------------
default hereunder or any other departure from the terms of this Agreement shall
not prejudice Lender's rights to declare a default or otherwise demand strict
compliance with this Agreement.
20. Cumulative Remedies. The remedies provided Lender in this
-------------------
Agreement are not exclusive of any other remedies that may be available to
Lender under any other document or at law or equity.
21. Amendment and Waiver in Writing. No provision of this Agreement
-------------------------------
can be amended or waived, except by a statement in writing signed by the party
against which enforcement of the amendment or waiver is sought.
22. Assignment. This Agreement shall be binding upon and inure to
----------
the benefit of the respective heirs, successors and assigns of Borrower and
Lender, except that Borrower shall not assign any rights or delegate any
obligations arising hereunder without the prior written consent of Lender. Any
attempted assignment or delegation by Borrower without the required prior
consent shall be void.
-4-
<PAGE>
23. Entire Agreement. This Agreement and the other written
----------------
agreements between Borrower and Lender represent the entire agreement between
the parties concerning the subject matter hereof, and all oral discussions and
prior agreements are merged herein.
24. Severability. Should any provision of this Agreement be invalid
------------
or unenforceable for any reason, the remaining provisions hereof shall remain in
full effect.
25. Applicable Law. The validity, construction and enforcement of
--------------
this Agreement and all other documents executed with respect to the Secured
Indebtedness shall be determined according to the laws of Illinois applicable to
contracts executed and performed entirely within that state, in which state this
Agreement has been executed and delivered.
Executed the date first written above.
COMPLUS, L.P.
By: AMI-VCOM2, Inc. its General Partner
By: ______________________________
Its: _____________________________
ONEPOINT COMMUNICATIONS CORP.
By: ___________________________________
Its: __________________________________
-5-
<PAGE>
COMPLUS, L.P. ADMISSION AGREEMENT
THIS ADMISSION AGREEMENT is made and entered into this ___ day of March,
2000, by ComPlus, L.P. ("ComPlus"), and OnePoint Communications Corp.
("OnePoint").
RECITALS
A. The business and affairs of ComPlus are governed by the Partnership
Agreement of ComPlus amended and restated effective as of April 2, 1999, as
amended from time to time in accordance with the terms thereof (the
"Partnership Agreement").
B. The admission of OnePoint to ComPlus as a Class A Unit Holder has been
approved or otherwise effected as provided in the Partnership Agreement.
AGREEMENT
1. Admission of New Partner. OnePoint is hereby admitted to ComPlus pursuant
------------------------
to the Partnership Agreement. OnePoint shall be admitted to ComPlus as a
Class A Unit Holder upon satisfaction of any conditions to the admission
set forth in the Partnership Agreement and shall thereupon have all the
rights and obligations of an Class A Unit Holder under the Partnership
Agreement. OnePoint hereby acknowledges that its right to participate in
ComPlus is limited and that the Company may issue additional partnership
interest, including, but not limited to, Class A or B Units, in the Company
to individuals or entities and that such issuance is in the sole and
absolute discretion of the General Partner of the Company.
2. Bound by Agreement. OnePoint agrees to be bound by all of the terms,
------------------
conditions, restrictions and other provisions of the Partnership Agreement
and acknowledges receipt of a copy thereof.
3. Capital Contribution. OnePoint shall immediately make any capital
--------------------
contribution to ComPlus required to be made in connection with OnePoint's
admission pursuant to the Purchase Agreement between ComPlus and OnePoint
dated March 17, 2000. OnePoint's interest in ComPlus, subsequent to
purchase of his Class A Units, shall be as reflected on Exhibit A, a copy
of which is attached hereto and made a part hereof.
4. Counterparts. This Admission Agreement may be executed in one or more
------------
counterparts, all of which together shall constitute the Admission
Agreement.
IN WITNESS WHEREOF, this Admission Agreement has been executed as of the
date first above.
ComPlus, L.P. OnePoint Communications Corp.
By: AMI-VCom, Inc. it
General Partner
By:_____________________________________ By:____________________________
James A. Otterbeck
Its: President Its:___________________________
<PAGE>
CONFORMED COPY
ASSET PURCHASE AGREEMENT
dated as of
October 21, 1999
between
COMCAST CORPORATION
and
SOUTH CENTRAL DEVELOPMENT COMPANY, LP
MID-ATLANTIC TELCOM PLUS, LLC
MID-ATLANTIC CONNECTICUT 1 LIMITED PARTNERSHIP
MID-ATLANTIC CABLE OPERATING LIMITED PARTNERSHIP
NO. 1 OF PRINCE WILLIAM COUNTY
MID-ATLANTIC CABLE OPERATING LIMITED PARTNERSHIP
NO. 2 OF PRINCE WILLIAM COUNTY
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions .................................................I
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale ..........................................16
SECTION 2.02. Excluded Assets ............................................18
SECTION 2.03. Assumed Liabilities ........................................19
SECTION 2.04. Excluded Liabilities .......................................19
SECTION 2.05. Assignment of Contracts and Rights .........................21
SECTION 2.06. Purchase Price .............................................23
SECTION 2.07. Post-closing Adjustment ....................................25
SECTION 2.08. Maryland LL C ..............................................27
SECTION 2.09. Closing ....................................................28
SECTION 2.10. Release of Amounts from Escrow .............................29
SECTION 2.11. Allocation of Purchase Price ...............................36
SECTION 2.12. Sellers' Agent .............................................36
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 3.01. Existence and Power .........................................37
SECTION 3.02. Authorization ...............................................37
SECTION 3.03. Noncontravention ............................................37
SECTION 3.04. Required Consents ...........................................38
SECTION 3.05. Financial Statements; No Adverse Change .....................38
SECTION 3.06. Absence of Certain Changes ..................................38
SECTION 3.07. No Undisclosed Material Liabilities .........................39
SECTION 3.08. Systems Franchises, Systems Licenses, Systems
Contracts, Owned Property and Real Property Interests ......39
SECTION 3.09. Litigation ..................................................41
SECTION 3.10. Compliance with Legal Requirements ..........................41
SECTION 3.11. [Intentionally Blank] .......................................44
SECTION 3.12. Systems Information .........................................44
SECTION 3.13. Purchased Assets ............................................46
SECTION 3.14. Sufficiency of and Title to the Purchased Assets ............47
<PAGE>
PAGE
SECTION 3.15. Intellectual Property .......................................48
SECTION 3.16. Insurance Coverage ..........................................49
SECTION 3.17. Inventories .................................................49
SECTION 3.18. Receivables .................................................49
SECTION 3.19. Finders' Fees ...............................................49
SECTION 3.20. Employees ...................................................49
SECTION 3.21. Environmental Compliance ....................................50
SECTION 3.22. Year 2000 Compliance ........................................51
SECTION 3.23. Systems Options .............................................52
SECTION 3.24. Transactions with Affiliates ................................52
SECTION 3.25. Capitalization of Maryland LLC ..............................52
SECTION 3.26. Ownership of the Maryland LL C Shares .......................52
SECTION 3.27. Maryland LLC Assets and Liabilities .........................52
SECTION 3.28. Bonds .......................................................52
SECTION 3.29. Cut-off Dates ...............................................53
SECTION 3.30. Representations .............................................53
SECTION 3.31. Affiliates ..................................................53
SECTION 3.32. Direc7VAgreement ............................................53
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
SECTION 4.01. Corporate Existence and Power ...............................53
SECTION 4.02. Corporate Authorization .....................................53
SECTION 4.03. Noncontravention 53
SECTION 4.04. Financing 54
SECTION 4.05. Litigation 54
SECTION 4.06. Finders' Fees 54
ARTICLE 5
COVENANTS OF SELLER
SECTION 5.01. Conduct of the Business 54
SECTION 5.02. Affirmative Covenants 57
SECTION 5.03. Certain Notices 60
SECTION 5.04. Subscriber Billing Services 60
SECTION 5.05. Cooperation as to Rates 60
SECTION 5.06. Franchise Expirations 60
SECTION 5.07. Distant Broadcast Signals 61
SECTION 5.08. Confidentiality 61
SECTION 5.09. Notices of Certain Events 61
ii
<PAGE>
PAGE
SECTION 5. 10. RMTS
SECTION 5.11. Non-competition Agreement 62
SECTION 5.12, Risk of Loss; Condemnation 62
SECTION 5.13. Delivery of Financial Information 62
SECTION 5.14. Use of Sellers' Names and Logos 63
SECTION 5.15. Capital Leases 63
SECTION 5.16. Access 64
SECTION 5.17. Proceeds Sharing Arrangements, One-off Fees Etc 64
SECTION 5.18. FCC Applications 64
ARTICLE 6
COVENANTS OF BUYER
SECTION 6.01. Confidentiality 65
SECTION 6.02. Non-Solicitation of Employees 65
SECTION 6.03. Access 65
ARTICLE 7
COVENANTS OF BUYER AND SELLER
SECTION 7. 0 1. Commercially Reasonable Efforts; Further Assurances 66
SECTION 7.02. Certain Filings 67
SECTION 7.03. Public Announcements 67
SECTION 7.04. Warn Act 68
ARTICLE 8 ~ TAX MATTERS
SEcTioN8.01. Tax Definitions 68
SECTION 8.02. Tax Matters 68
SECTION 8.03. Tax Cooperation; Allocation of Taxes 69
ARTICLE 9
EMPLOYEE BENEFITS
SECTION 9.01. Employee Benefits Definitions 70
SECTION 9.02. ERISA Representations 70
SECTION 9.03. Employees and Offers of Employment 72
SECTION 9.04. Sellers' Employee Benefit Plans 72
SECTION 9.05. Buyer Benefit Plans 74
SECTION 9.06. No Third Party Beneficiaries 74
iii
<PAGE>
ARTICLE 10
CONDITIONS TO CLOSING
SECTION 10. 0 1. Conditions to Obligations of the Buyer and the Sellers 74
SECTION 10.02. Conditions to Obligation of the Buyer 75
SECTION 10.03. Conditions to Obligation of the Sellers 78
ARTICLE 11
SURVIVAL; INDEMNIFICATION
SECTION 11. 0 1. Survival 79
SECTION 11.02. Indemnification 80
SECTION 11.03. Procedures 81
ARTICLE 12
TERMINATION
SECTION 12.01. Grounds for Termination 82
SECTION 12.02. Effect of Termination 83
ARTICLE 13
MISCELLANEOUS
SECTION 13.01. Notices 84
SECTION 13.02. Amendments and Waivers 85
SECTION 13.03. Expenses 85
SECTION 13.04. Successors and Assigns 85
SECTION 13.05. Governing Law 86
SECTION 13.06. Jurisdiction 86
SECTION 13.07. WAIVER OF JURY TRIAL 86
SECTION 13.08. Counterparts; Third Party Beneficiaries 86
SECTION 13.09. Entire Agreement 86
SECTION 13. 10. Bulk Sales Laws 86
SECTION 13.11. Captions 87
iv
<PAGE>
ASSET PURCHASE AGREEMIENT
This ASSET PURCHASE AGREEMENT (the "Agreement") dated as of October
21, 1999 is among Comcast Corporation, a Pennsylvania corporation ("Buyer"),
those entities set forth on Exhibit A (each entity set forth on Exhibit A, a
"Seller" and collectively the "Sellers"), and South Central Development
Company, LP, a Maryland limited partnership ("Sellers' Agent"), solely in its
capacity as agent for the Sellers.
WITNESSETH:
WHEREAS, the Sellers own and operate each of the cable communications
systems (each, a "System") identified in Schedule 3.12 hereto;
WHEREAS, the Buyer desires to purchase substantially all of the assets
used in the operation of the Systems from the Sellers, and the Sellers desire
to sell substantially all of the assets used in the operation of the Systems to
the Buyer, upon the terms and subject to the conditions hereinafter set forth;
The parties hereto agree as follows:
ARTICLE I
DEFUITIONS
SECTION 1.01. Definitions.
(a) The following terms, as used herein, have the following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such other Person. For such purpose "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities or
voting interests, by contract or otherwise.
"Anticipated COBRA Damages Claim" means a claim by the Buyer in
respect of the maximum amount that it may reasonably be required to pay or
Damages that it may suffer or incur in respect of COBRA Obligations at any time
after the Initial Release Date.
<PAGE>
"Basic Service Tier" means the service tier which includes the
retransmission of local television broadcast signals, as defined in 47 USC ss.
522(3).
"Basic Subscriber" means any Subscriber which is receiving Basic
Service Tier services from any Seller whether as a bulk only customer, a Basic
Service Tier only customer or an Expanded Basic Services customer without any
double counting of customers, as customarily shown on the Sellers' billing
system as active subscribers.
"Bolling Contract"means (i) Contract Number F49642-92-HOOOI dated
November 7, 1991 between the United States of America and Telcom Plus, as
successor-in-interest to American Cablecom, L.P., (ii) Purchase Order Number
L198-991-4 dated July 16, 1996 between the United States of America and Telcom
Plus, as successor-in-interest to Mid-Atlantic Cable, (iii) Contract Number
F49642-83-HOO02 between the United States of America and Telcom Plus, as
success or-in-interest to Mercure Telecommunication, Inc. and (iv) Private
Cable System Contract dated November 25, 1996 between Telcom Plus, as
successor-in-interest to Mid-Atlantic Cable Development Company LP, and Naval
District Washington.
"Business Day" means any day other than a Saturday or Sunday or a day
on which banks in New York, New York are authorized or required to be closed.
"Cable Act" means Title VI of the Communications Act, 47 USC ss. 521,
et seq.
" CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and any rules or
regulations promulgated thereunder.
"Chain of Title Damages" means any Damages suffered or incurred by
the Buyer as a result of the Sellers not at Closing having good and marketable,
indefeasible, fee simple title to, or in the case of leased property having
valid leasehold interests in, any of the assets (including any bonds) used or
held for use in the Systems free and clear of any Liens other than Permitted
Liens, including any Damages resulting from any previous purported transfer of
any such assets to any Seller (a) being ineffective or (b) requiring any
consent or other action that has not been obtained or carried out.
"Closing Adjustment Amount" means the amount by which the Total
Liabilities, as of the Closing Date, are in excess of or are less than, as the
case may be, the Current Assets as of the Closing Date.
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"Closing Basic Subscriber Number" means, with respect to any System or
any Private Cable Service Agreement the aggregate number of Relevant
Subscribers and Relevant New Subscribers of such System or served pursuant to
such Private Cable Services Agreement as of the Cut-off Time immediately
preceding the Closing Date.
"Closing Date" means the date of the Closing.
"Current Assets" means (without duplication) the sum of the following
calculated in accordance with GAAP except as otherwise provided below:
(i) ninety-five percent (95%) of the face amount of all
accounts receivable included in the Purchased Assets that relate to
services provided prior to the Closing and that as of the Closing Date
are 30 days or less past due measured from the first day of the period
to which the applicable billing relates;
(ii) eighty-five percent (85%) of the face amount of all
accounts receivable included in the Purchased Assets that relate to
services provided prior to the Closing and that as of the Closing Date
are between 31 and 60 days past due measured from the first day of the
period to which the applicable billing relates; and
(iii) the amount of all prepaid expenses as of the Closing
Date that are included in the Purchased Assets and that directly
relate to the Systems, but only to the extent the benefit of such
prepaid expenses can be realized by the Buyer within twelve months
after the Closing Date.
For the purposes of (i) and (ii) above: (A) in the event that any
account receivable consists of more than one portion (not including any portion
which amounts to $5.00 or less) that is past due, the entire account receivable
shall be deemed past due for the same number of days as that portion (not
including any portion which amounts to $5.00 or less) which has been past due
for the longest period, (B) accounts receivable shall be excluded if they did
not arise in the ordinary course of business or relate to Subscribers who are
inactive or whose service is pending disconnection on the Closing Date, and (C)
any account receivable in respect of the Bolling Contract shall be treated as
if all portions of such account receivable were 30 days or less past due
measured from the first day of the period to which the applicable billing
relates.
For the avoidance of doubt Current Assets shall not include: (A)
prepaid taxes based in whole or in part on the income of the Sellers or their
Affiliates or the transactions contemplated by this Agreement; (B) supplies or
inventory or
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prepaid expenses relating to supplies or inventory; (C) prepaid insurance
expenses; and (D) prepaid wages, salaries, payroll taxes and expenses,
benefits, perquisites and other compensation related expenses.
"Cut-off Date" means in any given month, the date upon which,
consistent with past practice, subscribers are determined for purposes of
preparing bills in respect of the following month.
"Cut-off Time" means the close of business on the Cut-off Date
immediately preceding the Closing Date or such other time as the Buyer and the
Sellers may agree in writing.
"Delaire Access Agreement" means the Cable T.V. Access Agreement dated
as of October 16, 1985, by and between Delaire Landing Complex Association,
Inc. and Delaware River Cablevision relating to the provision of satellite
master antenna and/or cable television services by Delaware River Cablevision
to the Delaire Landing Complex, State Road, Pennsylvania.
"Delaire Apartment Purchase and Sale Contract" means the Purchase and
Sale Agreement dated as of October 30, 1998 between Delaware River Cablevision
and Telcom Plus, specifying in Section 1.2 thereto a purchase price of
$265,000.00.
"Delaire Apartment Subscribers" means those Subscribers which may be
acquired by the Systems pursuant to the Delaire Apartment Purchase and Sale
Contract.
"Delaire Condominium Purchase and Sale Contract" means the Purchase
and Sale Agreement dated as of October 30, 1998 between Delaware River
Cablevision and Telcom Plus, specifying in Section 1.2 thereto a purchase Price
of $385,000.00.
"Delaire Condominium Subscribers" means those Subscribers acquired by
the Systems pursuant to the Delaire Condominium Purchase and Sale Contract.
"Delaire Landing Contract" means any contract arrangement or
understanding of any kind relating to the provision of cable or other services
to any building or Person at or in respect of the Delaire Landing Complex,
State Road, Philadelphia.
"Delaire Landing Litigation" means the litigation captioned Delaire
Landing Associates, L.P. v. Delaware River Cablevision, Inc., et. al. in the
Court of Common Pleas, Philadelphia County, the litigation captioned Delaware
River
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Cablevision v. Michael Carp in the Philadelphia Court of Common Pleas, other
claim, action or litigation arising from substantially the same facts or
circumstances as either of the foregoing.
"Delaire Litigation Satisfaction Event" means the consummation of the
Delaire Apartment Purchase and Sale Contract in accordance with its terms
following (i) a binding settlement between the parties to the Delaire Landing
Litigation or (ii) a nonappealable, final order of a court of competent
jurisdiction, in each case that (x) terminates each claim of each party to the
Delaire Landing Litigation against each other such party, (y) contains nothing
that would or might prevent the transfer of the SM.ATV cable television system
which is the subject of the Delaire Apartment Purchase and Sale Contract from
Delaware River Cablevision, Inc. to Telcom Plus free and clear of any claims,
Liens, rights or interests of any third party with respect to such system, and
(z) is otherwise on terms reasonably satisfactory to the Buyer.
"Delaire Management Agreement, means the Management Agreement dated as
of October 30, 1998 between Telcom Plus and Delaware River Cablevision
providing for Telcom Plus to manage and operate the cable television system
servicing the Delaire Apartment Subscribers.
"Delaware River Cablevision" means Delaware River Cablevision, Inc., a
Pennsylvania corporation.
"Delivery Damages" means any Damages suffered or incurred as a result
of any Person challenging the right of any Seller, or the Buyer or the Systems
to use any means or facility for the delivery of signal to any Distant
Subscriber which means or facility is used by the Systems on the date of this
Agreement to deliver signal to any Distant Subscriber.
"DirecTV Agreement, means each of the agreements listed in item 4 of
Schedule 3.08(a)(viii).
"Distant Subscriber" means any Subscriber who is served by the Systems
from a head-end located in a building other than the building in which such
Subscriber is located.
"Environmental Laws" means any federal, state, local or foreign law
(including, without limitation, common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit or governmental
restriction or any agreement with any governmental authority or other third
party, whether now or hereafter in effect, relating to the environment human
health and safety or to
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pollutants, contaminants, wastes or chemicals or any toxic, radioactive,
ignitable, corrosive, reactive or otherwise hazardous substances, wastes or
materials.
"Environmental Liabilities" means any and all liabilities arising in
connection with or in any way relating to any of the Sellers (or any
predecessor of any of them or any prior owner of all or part of its business
and assets), any property now or previously owned, leased or operated by any of
the Sellers, the Systems (as currently or previously operated), the Purchased
Assets or any activities or operations occurring or conducted at or in
connection with the Owned Property or the Leased Property (including, without
limitation, offsite disposal), whether accrued, contingent, absolute,
determined, determinable or otherwise, which (i) arise under or relate to any
Environmental Law and (ii) relate to actions occurring or conditions existing
on or prior to the Closing Date (including, without limitation, any matter
disclosed or required to be disclosed in Schedule 3.21).
"Environmental Permits" means all permits, licenses, franchises,
certificates, approvals and other similar authorizations of governmental
authorities relating to or required by Environmental Laws and affecting, or
relating in any way to, the Systems, the Owned Property or the Real Property
Interests.
"Escrow Agreement" means the agreement to be dated the date of the
Closing between the Buyer, the Sellers, the Seller's Agent and a mutually
agreed independent escrowee in form and substance reasonably satisfactory to
the Buyer and the Sellers.
"Excluded Names" means the following: "Mid-Atlantic Communications,"
"Mid-Atlantic Telcom Plus," "OnePoint Communications," "South Central
Development" and "Matrix Equities."
"Expanded Basic Service" means any and all of the following services
as listed on Schedule 3.12(e): Expanded, Expanded Service, Basic Expanded
Service, Expanded Basic Channel Line-Up, Expanded Basic Line-Up and Expanded
Basic Service.
"FAA" means the Federal Aviation Administration.
"FCC" means the Federal Communications Commission.
"Franchise Area" means an area in which a Seller is authorized to
provide cable television service pursuant to a Systems Franchise.
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"Franchise Subscriber Equivalent" means a unit of measurement to
calculate Subscriber equivalents in Franchise Areas, the number of Franchise
Subscriber Equivalents served as of a given date being equal to the quotient of
(a) 'the aggregate monthly billings received from the provision of Basic
Service Tier and Expanded Basic Service from all commercial, bulk-billed and
other accounts not billed by individual unit in the relevant Franchise Area for
the month preceding such date, divided by (b) the sum of the published regular
monthly Subscriber rates for the Basic Service Tier and Expanded Basic Service
as of such date for the relevant Franchise Area in which the account is
located. For the purposes of (a) above, there will be excluded (A) all billings
representing fees for installation for non-recurring charges (including late
charges), charges for equipment or for any outlet or connection other than the
first outlet or first connection in any residential unit charges for any Pay
TV, or pass-through charges for sales taxes, franchise fees and charges and the
like and (B) all billings to any account (i) that has not been receiving the
Basic Service Tier for at least 60 consecutive days prior to such date, (ii)
that has not paid for at least two consecutive months of Basic Service Tier
services at the applicable regular contract rate, (iii) that is pending
disconnection from the service provided by such System for any reason or (iv)
that is more than 60 days in arrears as measured from the first day of the
period to which the applicable billing relates on any amount (ignoring, for
such purpose, amounts of $5.00 or less in aggregate) due to such System.
Franchise Subscriber Equivalents shall be calculated on a
Franchise-by-Franchise basis.
"GAAP" means generally accepted accounting principles in the United
States, consistently applied, including the statements and interpretations of
the U.S. Financial Accounting Standards Board.
"Governmental Authority" means (i) the United States of America, (ii)
any state, commonwealth, territory or possession of the United States of
America and any political subdivision thereof (including counties,
municipalities, provinces, parishes and the like), (iii) any foreign (as to the
United States of America) sovereign entity and any political subdivision
thereof and (iv) any court, quasi-governmental authority, tribunal, department,
commission, board, bureau, agency, authority or instrumentality of any of the
foregoing.
"Hazardous Substances" means any pollutant, contaminant, waste or
chemical or any toxic, radioactive, ignitable corrosive, reactive or otherwise
hazardous substance, waste or material or any substance, waste or material
having any constituent elements displaying any of the foregoing characteristics
including, without limitation, petroleum, its derivatives, by-products and
other hydrocarbons, and any substance, waste or material regulated under any
Environmental Law.
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"Homes Passed" means:
(i) residential dwelling units, multiple dwelling buildings
or complexes, planned unit developments, residential hotels and other
commercial locations within a Franchise Area (A) to which cable
television service may be provided at a distance no greater than
approximately 1,000 feet from the System's existing distribution
cable, or (B) which are at a distance greater than approximately 1,000
feet from the System's existing distribution cable but which are
premises of existing or former Subscribers; provided, however, that in
the case of (A) and (B) unoccupied residential lots shall not be
included in Homes Passed; and
(ii) multiple dwelling buildings or complexes, planned unit
developments, residential hotels and other commercial locations
outside a Franchise Area in respect of which the Systems currently
provide services under a bulk service or access agreement;
provided that, in the case of (i) and (ii), each dwelling unit in a multiple
dwelling building, complex, planned unit development or Relevant Hotel will be
counted as one Home Passed and each commercial location, including hotels,
motels, restaurants and bars (other than any Relevant Hotel) will be counted as
one Home Passed.
,, HSR Act' 'means the Hart-Scott-Radian Antitrust Improvements Act of
1976, as amended.
"Judgment" means any judgment, judicial decision, writ order,
injunction, award or decree of or by any Governmental Authority.
"Largo Operations Center" means the facility at 1200 Mercantile Lane,
Largo, MD.
"Leased Property" means any property demised to a Seller under any
Real Property Interest.
"Legal Requirement" means applicable common law and any statute,
ordinance, code, law, rule, regulation, order, technical or other written
standard, requirement or procedure enacted, adopted, promulgated, applied or
followed by or any agreement entered into by any Governmental Authority,
including any Judgment.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest encumbrance or other adverse claim of
any kind
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in respect of such property or asset. For the purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset which it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"Maryland LLC" means MAC-Com, LLC, a Maryland limited liability
company.
"Material Adverse Effect" means a material adverse effect on the
Purchased Assets or the condition (financial or otherwise), business, prospects
or results of operations of the Systems (other than the Excluded Assets) taken
as a whole, but without giving effect to changes that are applicable to the
cable television industry in general.
"Material Contracts" means (i) all Systems Franchises and (ii) any
Systems Licenses and Systems Contracts of the kind described in any of Sections
3.08(a)(i) to (xvi) inclusive.
"Metro Cable Contract" means the letter dated April 8, 1996 from
Robert P. McCabe at Metro Cable Systems Inc. to John H. Long at Mid-Atlantic
Cable.
,, Metro Cable Damages" means any Damages suffered or incurred by the
Buyer as a result of any claim by Metro Cable Systems, Inc. or any of its
assigns or successors or any other Person arising out of or relating to the
Metro Cable Contract, including the potential litigation disclosed on Schedule
3.09.
"Non-Competition Agreement" means the agreement attached hereto as
Exhibit C.
"Pay TV" means a la carte tiers or premium programming services
selected by and sold on a per channel or per program basis.
"Penalty Subscriber" means any Subscriber or Franchise Subscriber
Equivalent that satisfies item (a) of the definition of Relevant New Subscriber
but does not satisfy item (b) of the definition of Relevant New Subscriber.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof
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"Potential Penalty Subscriber" means any Subscriber or Franchise
Subscriber Equivalent that at Closing satisfies item (a) of the definition of
Relevant New Subscriber.
"Prime Rate" means the prime rate of interest, as amended from time to
time, of the Bank of New York in New York City.
"Private Cable Service Agreement" means any bulk service or access
agreement under which services are provided to any multiple dwelling building,
planned unit development or complex by any System whether in a Franchise Area
or not, but, for the avoidance of doubt excluding such agreements relating to
hotels or motels.
"Relevant Hotel" means each of the Four Seasons, Washington, DC, the
Crowne Plaza, Washington, DC, the Sheraton Stamford, Stamford, CT, the Windsor
Hotel, Philadelphia, PA and the Bridgeport Holiday Inn, Bridgeport, CT.
"Relevant-New Subscriber" means any Subscriber or Franchise Subscriber
Equivalent (a) that is not at Closing a Relevant Subscriber but that would as
of Closing have been included in the definition of Relevant Subscriber but for
item (A)(ii) or (iii) or (B) (ii) or (iii) of the definition of Relevant
Subscriber or item (B)(i) or (ii) of the definition of Franchise Subscriber
Equivalent, and (b) who would satisfy the definition of Relevant Subscriber in
all respects as of the date which falls 60 days after the Closing Date.
"Relevant Subscriber" means, as of any date, (A) any Subscriber (i)
which is a private residential customer account that has been billed by
individual unit (regardless of whether such account is in a single family home
or in an individually billed unit in an apartment house or other multiple
dwelling building, planned unit development or complex, but exclusive of
"secondary connects" or "additional outlets" as such terms are commonly
understood in the cable television industry) for the Basic Service Tier for the
month during which such date occurs at the published regular monthly Subscriber
rate of the applicable System for the Basic Service Tier, (ii) that has been
receiving the Basic Service Tier for at least 60 consecutive days prior to such
date, (iii) that has paid for at least two consecutive months of Basic Service
Tier services at the published regular monthly Subscriber rate of the
applicable System for the Basic Service Tier, (1v) that is not pending
disconnection from the service provided by the System for any reason and (v)
that is not more than 60 days in arrears as measured from the first day of the
period to which the applicable billing relates on any amount (ignoring, for
such purpose, amounts of $5.00 or less in aggregate) due to such System; (B)
any Subscriber (other than a Subscriber whose account is included in Item (a)
of the definition of Franchise Subscriber Equivalent) (i) that
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is served pursuant to a bulk service agreement at any multiple dwelling
building, planned unit development or complex and any Subscriber that is a
commercial location (including hotels, motels, restaurants and bars), counting
each unit served within a multiple dwelling building, planned unit development,
complex or Relevant Hotel as one Relevant Subscriber and each commercial
location (other than a Relevant Hotel) served as one Relevant Subscriber, (ii)
that has been receiving the Basic Service Tier for at least 60 consecutive days
prior to such date, (iii) that has paid for at least two consecutive months of
Basic Service Tier services at the full contract rate for the Basic Service
Tier, (iv) that is not pending disconnection from the service provided by the
System for any reason and (v) that, except for amounts due under the Bolling
Contract is not more than 90 days in arrears as measured from the first day of
the period to which the applicable billing relates on any amount (ignoring, for
such purpose, amounts of $5.00 or less in aggregate) due to such System; and
(C) any Franchise Subscriber Equivalent as of such date. For purposes of
determining whether items (Ii), (iii), (iv) and (v) of (B) above have been
satisfied, the multiple dwelling building, planned unit development or complex
or commercial location, as the case may be, will be treated as the Subscriber.
For the purposes of this definition (v) a Subscriber at West Chester University
shall not be excluded from this definition as a result of not paying for
services during the Winter semester break if such Subscriber would otherwise
satisfy this definition in all respects, (w) Subscribers and Franchise
Subscriber Equivalents served pursuant to any Risk Contract shall not be
counted as Relevant Subscribers, (x) for the avoidance of doubt unless the
Delaware Litigation Satisfaction Event shall have occurred, a Subscriber served
under any Delaire Landing Contract shall not be a Relevant Subscriber unless
such Subscriber is a Delaire Condominium Subscriber (and then only to the
extent such Subscriber would otherwise satisfy this definition), (y) any
Subscriber or Franchise Subscriber Equivalent served pursuant to any contract
which is or is deemed to be an Excluded Asset (including the Delaire Apartment
Purchase and Sale Contract if the Delaire Litigation Satisfaction Event shall
not have occurred) shall not be a Relevant Subscriber, and (z) for the
avoidance of doubt, a subscriber shall not be counted in more than one of (A),
(B) or (C) above.
"Revenue" means all revenue of the Systems from Relevant Subscribers
excluding, for the avoidance of doubt (a) interest income, (b) franchise fees,
late fees and other similar fees, in each case in item (b), that are separately
identified on a Subscriber's bill, (c) revenue from Subscribers under Risk
Contracts and (d) revenue under any contracts which are Excluded Assets.
"Risk Contract" means each of the contracts marked with an asterisk on
Schedule 3.08(c).
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"Roof Rights Buildings" means each of Chestnut Hall, Asbury Methodist
Village, Coldspring New Town Condos and 1500 Locust as identified in Schedule
3.12.
"Southern Managemenf' means Southern Management Corporation.
"Southern Management Agreement" means the Access Agreement dated as of
July 11, 1997 between Southern Management and OnePoint Communications, Inc.
(currently doing business as Telcom Plus) relating to the provision by Telcom
Plus of video and telecommunication services to various dwelling units under
the management of Southern Management, including any and all schedules and
exhibits thereto.
"Southern Management Buildings" means the following apartment
communities named in Schedule A to the Southern Management Agreement: Carriage
Hill, Nob Hill, Oxon Hill Village, Southview and Middletowne.
"Southern Management Litigation" means the litigation captioned
Southern Management Corporation v. OnePoint Communications, Inc. in the Circuit
Court of Maryland for Prince George's County, C.A.L. No. 98-17584, and any
other claim, action or litigation arising from substantially the same facts or
circumstances.
"Subscriber" means, as of any given time, a current subscriber of a
System.
"Sub Value" in respect of a Private Cable Service Agreement means (a)
$2,793, multiplied by (b) the Closing Basic Subscriber Number for Subscribers
under such agreement.
"Telcom Plus" means Mid-Atlantic Telcom Plus, L.L.C.
"Three Month Average Per Subscriber Revenue" as of a given date means
the quotient of (a) the Three Month Average Revenue as of such date, divided by
(b) the Three Month Average Subscribers as of such date.
"Three Month Average Subscribers" means as of a given date the
quotient of (a) the sum of the Relevant Subscribers of the Systems on each of
the four Cut-off Dates immediately prior to such date, divided by (b) four.
"Three Month Average Revenue" means as of a given date the quotient of
(a) the aggregate Revenue of the Systems for the calendar month which includes
the Cut-off Date immediately preceding such date and for the two
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calendar months immediately preceding such calendar month, divided by (b)
three.
,, Total Liabilities" means (without duplication) the sum of the
following calculated in accordance with GAAP except as otherwise provided
below:
(i) all Subscriber deposits and advance payments existing
on the Closing Date and related primarily to the Systems (including
any accrued interest thereon),-
(ii) all accounts payable related primarily to the Systems,
incurred in the ordinary course of business and existing on the
Closing Date;
(iii) all payments received by the Sellers on or prior to the
Closing Date for services to be rendered to Subscribers after the
Closing Date or for other services to be rendered by the Buyer to
other third parties after the Closing Date for cable television
commercials or other services or rentals; and
(iv) all other current liabilities existing on the Closing
Date, arising in the ordinary course of business and related primarily
to the Systems (including without limitation, accruals for property
taxes, pole rental payments, copyright fees, rent and utilities).
"Transferred Closing Subscriber Number" means the Closing Basic
Subscriber Number for all the Systems, less the Closing Basic Subscriber Number
for the Subscribers under Required Private Agreements other than the Bolling
Contract. For the avoidance of doubt, Subscribers under Risk Contracts will not
be included in the calculation of the Transferred Closing Subscriber Number.
"Upgrade Commitments" means those commitments or upgrades which are
described in Schedule 3.13(e) or Schedule 5.01 as to be completed and paid for
by the Sellers.
"Upgrade Commitments Damages" means any Damages suffered or incurred
by the Buyer as a result of the Sellers not carrying out the Upgrade
Commitments, including without limitation any costs incurred by the Buyer in
itself performing any such Upgrade Commitment.
"Vehicle Leasing Contract" means the Master Open-End Vehicle Lease
Agreement between Allstate Leasing, Inc. and Mid-Atlantic Telecom Plus LLC
dated as of June 1, 1997.
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"Y2K Controller Liability" means any liability suffered or incurred
by any Person as a result of any of the controllers used in the Systems not
being Year 2000 Compliant.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
Adjusted Purchase Price 2.06
Apportioned Obligations 8.03
Arbitrator 2.07
Assumed Liabilities 2.03
Bolling Escrow Amount 2.06
Bolling Extension 2.10
Books and Records 2.01
Buyer's Adjustment Certificate 2.07
Buyer Compensation Amount 2.10
Claim 11.03
Closing 2.09
COBRA Obligations 9.04
Code 8.01
Consent Escrow Amount 2.06
Consent Portion 2.10
Consent Satisfied Amount 2.10
Contested Contract 2.10
Damages 11.02
Deemed Consented Contracts 2.10
EEO 3.10
Employee Plans 9.01
ERISA 9.01
ERI SA Affiliate 9.01
Escrow Agent 2.06
Estimated Purchase Price 2.06
Excluded Assets 2.02
Excluded Liabilities 2.04
Final Amounts 2.07
Final Penalty Subscribers 2.07
Financial Statements 3.05
Identified Representations 2.10
Indemnified Party 11.03
Indemnifying Party 11.03
Indemnity Escrow Account 2.10
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Term Section
Indemnity Escrow Amount 2.06
Initial Adjustment Certificate 2.06
Initial Compensated Amount 2.10
Initial Release Date 2.06
Initial Sellers' Portion 2.10
Intellectual Property Rights 2.01
Lost Subscriber 2.10
Maryland Assets 2.08
Maryland Liabilities 2.08
Maryland LLC Shares 2.08
Month 18 Date 2.10
Month 24 Date 2.10
Multi-Employer Plan 9.01
Non Subscriber Loss Claim 2.10
Non Subscriber Loss Damages 2.10
Objection Notice 2.07
Owned Property 2.01
Penalty Sub Amount 2.07
Pending Licenses 5.18
Permitted Liens 3.13
Post-Closing Tax Period 8.03
Potential Payment Event 12.01
Pre-Closing Tax Period 8.01
Purchased Assets 2.01
Purchase Price 2.06
Rate Regulatory Matter 5.05
Real Property Interests 2.01
Reduction Subscriber Number 2.06
Release Date Subscriber Shortfall 2.10
Relevant Amount 2.10
Relevant Date 2.10
Required Consents 3.04
Required Private Agreement 2.05
RMTS 3.14
Short Term Escrow Amount 2.06
Short Term Private Agreement 2.06
Shortfall Sensitive Agreement 2.10
Stay Bonus 9.02
Subsequent Transfer 2.05
Systems Contracts 2.01
Systems Employee 9.02
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Term Section
Systems Franchises 2.01
Systems Intellectual Property Rights 2.01
Systems Licenses 2.01
Systems Options 3. 2 3
Taking 5.12
Tax 8.01
Taxing Authority 8.01
Third Party Claim 11.03
Transfer Date 2.05
Transfer Taxes 8.03
Transferred Employees 9.03
Transitional Billing Services 5.04
WARN Act 7.04
Year 2000 Compliant 3.22
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale. Except as otherwise provided below,
upon the terms and subject to the conditions of this Agreement, the Buyer
agrees to purchase from the Sellers and the Sellers jointly and severally agree
to sell, convey, transfer, assign and deliver, or cause to be sold, conveyed,
transferred, assigned and delivered, to the Buyer at the Closing, free and
clear of all Liens, other than Permitted Liens, all of the Sellers' right,
title and interest in, to and under the assets, properties and business, of
every kind and description, wherever located, real, personal or mixed, tangible
or intangible, owned, held or used in the operation of the Systems by the
Sellers as the same shall exist on the Closing Date that are not Excluded
Assets (the "Purchased Assets"), and including, without limitation, all right,
title and interest of the Sellers in, to and under:
(a) all owned real property (the "Owned Property") and all
other leases, easements, owned rights of access and other interests in
real property (the "Real Property Interests"), in each case used or
held for use in the operation of the Systems, and in each case
together with all buildings, fixtures, and improvements erected
thereon, including without limitation the items listed on Schedule
3.13(a),-
(b) all tangible personal property, including towers, tower
equipment, aboveground and underground cable, distribution systems and
equipment, head-end equipment, line amplifiers, microwave equipment,
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converters, testing equipment, motor vehicles, machinery, off-ice
equipment, furniture, fixtures, supplies, inventory, cable system
plant and other physical assets owned, held or used in the operation
of the Systems, including without limitation the items listed on
Schedule 33.13(b);
(c) all pole line and joint line agreements, underground
conduit agreements, crossing agreements, Private Cable Service
Agreements, commercial service agreements, commercial leased access
agreements, must-carry elections and retransmission consents, and
other contracts, agreements, arrangements, leases, licenses,
commitments, sales and purchase orders, bonds and other instruments in
each case relating to the operation of the Systems (collectively, and
together with all agreements in respect of Real Property Interests,
the "Systems Contracts"), including without limitation the items
listed on Schedule 3.08;
(d) all Subscriber, trade and other accounts, notes and
other receivables (including advertising accounts receivable);
(e) all prepaid expenses, including but not limited to ad
valorem taxes, leases and rentals in each case relating to the
operation of the Systems;
(f) all of the Sellers' rights, claims, credits, causes of
action or rights of set-off against third parties relating to the
Purchased Assets or the Systems, including, without limitation,
unliquidated rights under manufacturers' and vendors' warranties;
(g) all patents, copyrights, trademarks, trade names, mask
works, servicemarks, service names, technology, know-how, processes,
trade secrets, inventions, proprietary data, formulae, research and
development data, computer software programs and other intangible
property and any registrations or applications for the same
("Intellectual Property Rights"), in each case owned by or licensed to
any of the Sellers and used or held or held for use in the operation
of the Systems (the "Systems Intellectual Property Rights");
(h) all franchises and similar authorizations or similar
permits issued by any Governmental Authority, in each case relating to
the operation of the Systems (the "Systems Franchises"), including
without limitation the items listed on Schedule 3.08(a)(ii);
(i) all business radio licenses, copyright notices and other
licenses, authorizations, consents or permits issued by the FCC or,
any
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other Governmental Authority, excluding the Systems Franchises (the
"Systems Licenses"), but including without limitation the items listed
on Schedule 3.08(a)(iii);
(j) (i) all books, records, files and papers, whether in
hard copy or computer format, used in the operation of the Systems,
including, without limitation, sales and promotional literature,
engineering records, files, drawings, blueprints, schematics, reports,
lists, plans and processes and all files of correspondence, lists,
records and reports concerning Subscribers and former and prospective
Subscribers of the Systems, signal and program carriage or dealings
with Governmental Authorities, including all reports filed with the
FCC and statements of account filed with the U.S. Copyright Office in
each case by any Seller and (ii) copies of all account books of
original entry, general ledgers and financial records, all personnel
and employment records, and any information relating to any Tax ((i)
and (ii) together, the "Books and Records");
(k) all goodwill associated with the Systems or the
Purchased Assets, together with the right to represent to third
parties that the Buyer is the successor to the Systems; and
(1) all rights to insurance proceeds receivable after the
Closing in respect of any Assumed Liabilities insured on a "claims
made" basis and all insurance proceeds (to the extent not already
expended by the Sellers to restore or replace the lost or damaged
asset, which replacement asset shall be a Purchased Asset) received
before or after Closing in respect of any asset that is or would have
been a Purchased Asset.
SECTION 2.02. Excluded Assets. The Buyer expressly understands and
agrees that the following assets and properties of the Sellers (the "Excluded
Assets") shall be excluded from the Purchased Assets:
(a) all of the Sellers' cash and cash equivalents except as
set forth in Section 2.01 (1);
(b) the Excluded Names;
(c) the Vehicle Leasing Contract, but not the vehicles which
are the subject thereof, which shall be Purchased Assets;
(d) (i) the Delaire Apartment Purchase and Sale Contract,
(ii) the Delaire Management Agreement and (iii) any subscribers or
assets acquired or serviced under such Contract or such Agreement;
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(e) insurance policies except asset forth in Section
2.01(l); and
(f) those assets described in Schedule 2.02(f);
provided that if the Delaire Litigation Satisfaction Event shall have
occurred prior to the Closing Date, the Delaire Apartment Purchase and
Sale Contract and the subscribers and assets acquired by the Systems
pursuant to the terms thereof shall not be Excluded Assets and shall
be Purchased Assets.
SECTION 2.03. Assumed Liabilities. Upon the terms and subject to the
conditions of this Agreement, the Buyer agrees, effective at the time of the
Closing, to assume the following liabilities (the "Assumed Liabilities"):
(a) to the extent attributable to actions occurring or
conditions first occurring after the time of the Closing, all
liabilities and obligations of any Seller arising under the Systems
Contracts, the Systems Franchises or the Systems Licenses (other than
liabilities or obligations attributable to any failure by any Seller
to comply with the terms thereof); and
(b) the liabilities of the Sellers as of the Closing for all
Subscriber deposits and advance payments related primarily to the
Systems, all accounts payable related primarily to the Systems
incurred in the ordinary course of business, all payments received by
the Sellers on or prior to the Closing Date for services to be
rendered by the Systems after the Closing Date, and all other
customary current liabilities arising in the ordinary course of
business and related primarily to the Systems but in each case only to
extent that the foregoing are included in the calculation of Total
Liabilities for the purposes of Section 2.06(b).
SECTION 2.04. Excluded Liabilities. Notwithstanding any provision in
this Agreement or any other writing to the contrary, the Buyer is assuming only
the Assumed Liabilities and is not assuming any other liability or obligation
of any Seller (or any predecessor of any Seller or any prior owner of all or
part of any of the businesses or assets of any of them or, for the avoidance of
doubt, the Sellers' Agent) of whatever nature, whether presently in existence
or arising hereafter. All such other liabilities and obligations shall be
retained by and remain obligations and liabilities of the Sellers (all such
liabilities and obligations not being assumed being herein referred to as the
"Excluded Liabilities"), Notwithstanding anything to the contrary in this
Agreement, the Excluded Liabilities include, without limitation, the following:
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(a) except to the extent (and only up to such amount)
included in the calculation of Total Liabilities, any obligation or
liability with respect to periods prior to and including the time of
Closing, including liabilities
0 11.1
for the refund of monies to Subscribers;
(b) any liability or obligation for Taxes attributable to the
Systems or the Purchased Assets, which are incurred in or attributable
to any Pre-Closing Tax Period, except to the extent (and only up to
such amount) included in the calculation of Total Liabilities;
provided, however, that Apportioned Obligations shall be apportioned
and paid in the manner set forth in Section 8.03(b) hereof,
(c) except to the extent (and only up to such amount)
included in the calculation of Total Liabilities, any liability or
obligation relating to employee benefits or compensation arrangements
existing on or prior to the Closing Date, including, without
limitation, any liability or obligation under any employee benefit
agreements, plans or other arrangements of any of the Sellers listed
on Schedule 9.02(a);
(d) any Non Subscriber Loss Damages;
(e) any Y2K Controller Liability;
(f) any Environmental Liability;
(g) any Chain of Title Damages;
(h) any Upgrade Commitments Damages;
(i) any Delivery Damages;
any Metro Cable Damages;
(k) any liability or obligation relating to any Excluded
Asset including, without limitation, any liability or obligation
arising out of a claim by any party to any agreement which is an
Excluded Asset arising out of the failure to transfer such Excluded
Asset;
(1) any liability arising from or relating to the Southern
Management Litigation; and
(m) any liability arising from or relating to (i) the Delaire
Landing Litigation, (ii) the Delaire Apartment Purchase and Sale
Contract,
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(iii) the Delaware Management Agreement, or (iv) any Delaire Landing
Contract other than the obligation under any such Delaire Landing
Contract to provide service after the Closing to any Delaire
Condominium Subscriber; provided that if the Delaire Litigation
Satisfaction Event shall have occurred prior to the Closing Date, the
obligation to provide service to Delaire Apartment Subscribers
pursuant to the Delaire Access Agreement or the subscriber agreements
transferred pursuant to the terms of the Delaire Apartment Purchase
and Sale Contract after the Closing shall not be an Excluded
Liability.
For the avoidance of doubt, the fact that any of the foregoing Excluded
Liabilities are set forth or described on a Schedule to this Agreement will not
change their status as Excluded Liabilities.
SECTION 2.05. Assignment of Contracts and Rights. (a) Anything in this
Agreement to the contrary notwithstanding, this Agreement shall not constitute
an agreement to assign at the Closing any Purchased Asset or any claim or right
or any benefit arising thereunder or resulting therefrom without, where
required, a Required Consent, if such assignment, without such consent, would
constitute a breach or other contravention of such Purchased Asset or in any
way adversely affect the rights of the Buyer or any Seller thereunder.
(b) In the event the Closing occurs and fewer than all of the consents
under Private Cable Service Agreements which require consent to assignment have
been received, then: (1) each Private Cable Service Agreement as to which
consent to assignment is required and has not been received by the Closing
(each, a "Required Private Agreement") (and any Purchased Assets and Assumed
Liabilities primarily related thereto which, pursuant to the terms of such
agreement, cannot be assigned at the Closing) will not be assigned at the
Closing, (11) the Buyer and the Sellers will use commercially reasonable
efforts to obtain the required consents following the Closing, (iii) promptly
following receipt of each required consent in form and substance reasonably
satisfactory to the Buyer the Sellers will transfer to the Buyer the relevant
Required Private Agreement (each such transfer, a "Subsequent Transfer") (and,
in accordance with Section 2,05(c), certain assets and liabilities), (iv) for
each Required Private Agreement, the Buyer and the Sellers will, until the
Subsequent Transfer in respect of such Required Private Agreement, cooperate in
a mutually agreeable arrangement under which the Buyer would obtain the
benefits of and be responsible for the obligations under each such Required
Private Agreement and the related Purchased Assets and Assumed Liabilities that
cannot be assigned at Closing, which arrangement shall, in respect of each
Required Private Agreement and in the absence of an agreement between the
parties to the contrary, take the form of the Buyer managing the related
systems in accordance with the terms set out in
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Schedule 2.05(b) for so long as the Systems provide service to such location;
(v) the Sellers shall not take any prejudicial action with respect to a
Required Private Agreement (or any of the Subscribers, assets or liabilities
relating thereto); and (vi) at any time after the Month 18 Date, the Buyer may
without liability terminate any arrangement described in (iv) above with
respect to any or all of the Required Private Agreements that are Contested
Contracts at the relevant time, including without limitation any management
agreement in the terms of Schedule 2.05(b), and may refuse to accept a
Subsequent Transfer of any such Private Cable Service Agreement (and any assets
or liabilities related thereto). For avoidance of doubt, the fact that any
Required Private Agreements or any Subscribers, assets or liabilities related
to a Required Private Agreement have not been transferred to the Buyer on the
Closing Date shall be disregarded for purposes of (A) the representations and
warranties contained in Article 3 other than Section 3.14(b), and (B) the
calculation of Current Assets and Total Liabilities.
(c) The following shall apply with respect to each Required Private
Agreement in respect of which a Subsequent Transfer occurs. On the date on
which the Subsequent Transfer occurs (the "Transfer Date") (i) the applicable
Seller will convey to the Buyer all assets related to the Required Private
Agreement that, as of the Transfer Date, are Purchased Assets and (11) the
Buyer will assume the liabilities related to the Required Private Agreement
that, as of the Transfer Date, are Assumed Liabilities. For the purposes of
this Section 2.05(c), the definitions of Purchased Assets and Assumed
Liabilities shall be construed as if any reference to "Closing" or the "Closing
Date" in the definitions of those terms were a reference to the "Transfer
Date". If the Systems cease to provide service under a given Required Private
Agreement without a Subsequent Transfer with respect thereto occurring, then
the date on which such service ceases will be treated as a Transfer Date for
purposes of transferring related assets and liabilities in accordance with this
Section 2.05(c).
(d) If any other consent under any Purchased Asset is not obtained by
the Closing, if an attempted assignment of such Purchased Asset without the
consent would be ineffective or would adversely affect the rights or
obligations thereunder so that the Buyer would not in fact receive all such
rights or would have greater obligations, the Sellers and the Buyer will
cooperate in a mutually agreeable arrangement under which the Buyer would
obtain the benefits and assume the obligations thereunder in accordance with
this Agreement, including sub-contracting, sub-licensing or sub-leasing to the
Buyer, or under which the Sellers would enforce for the benefit of the Buyer,
with the Buyer assuming the Sellers' obligations, any and all rights of the
Sellers against a third party thereto.
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(e) The Sellers will promptly pay to the Buyer when received all
monies received by the Sellers under any Purchased Asset or any claim or right
or any benefit arising thereunder.
SECTION 2.06. Purchase Price. (a) In consideration of the sale and
transfer by the Sellers to the Buyer of the Purchased Assets, the amount
payable by the Buyer shall equal $150,000,000 in cash (the "Purchase Price"),
subject to adjustment as provided in Section 2.06(b) (the "Adjusted Purchase
Price").
(b) The Purchase Price shall be adjusted as follows:
(i) If the Current Assets as of the Closing Date are in
excess of the Total Liabilities as of the Closing Date, the Purchase
Price shall be increased by an amount equal to the Closing Adjustment
Amount.
(ii) If the Current Assets as of the Closing Date are less
than the Total Liabilities as of the Closing Date, the Purchase Price
shall be decreased by an amount equal to the Closing Adjustment
Amount.
(iii) If the Closing Basic Subscriber Number for all the
Systems is less than 53,700, then the Purchase Price shall be reduced
by an amount equal to $2,793 multiplied by the difference between
53,700 and the Closing Basic Subscriber Number for all of the Systems
(such difference being the "Reduction Subscriber Number").
(c) The amount of the net adjustment to the Purchase Price pursuant to
Section 2,06(b), hereunder shall, for the purposes of the payment to be made by
the Buyer at the Closing, (i) be estimated in good faith by the Sellers (after
consultation with the Buyer) and (ii) assume that the number of Relevant New
Subscribers is zero. The Sellers shall deliver to the Buyer a certificate
executed by a duly authorized representative of each of the Sellers (the
"Initial Adjustment Certificate") setting out such estimate (including an
estimate of the Current Assets, the Total Liabilities, the Reduction Subscriber
Number, the Closing Basic Subscriber Number and with respect to each Required
Private Agreement and each Private Cable Services Agreement, the Closing Basic
Subscriber Number for the Subscribers thereunder) and containing a list of the
Potential Penalty Subscribers at least 5 (five) days prior to the Closing Date,
indicating in detail the basis for its estimate. Such certificate shall be
accompanied by appropriate documentation supporting the estimates and the
calculation of Potential Penalty Subscribers contained therein. Such
certificate shall be reasonably satisfactory to the Buyer. Subject to the
foregoing, the good faith estimate of the net adjustment to the Purchase Price
pursuant to Section 2.06(b) in the Initial Adjustment Certificate shall be
conclusive for the purposes
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of the payment to be made by the Buyer at the Closing, but shall be subject to
adjustment after the Closing in accordance with the provisions of Section 2.07.
(d) The Purchase Price, as adjusted pursuant to Section 2.06(b) in
accordance with the Initial Adjustment Certificate is referred to herein as the
"Estimated Purchase Price". The Estimated Purchase Price will be payable by the
Buyer at Closing as follows:
(i) $10,000,000 will be deposited into an interest-bearing
escrow account with a mutually agreed independent escrowee (the
"Escrow Agent") to secure the Sellers' indemnity obligations to the
Buyer under Sections 11.02(a)(i), (ii), and (iii) (such amount the
"Indemnity Escrow Amount"). The release of the Indemnity Escrow Amount
shall be determined in accordance with Section 2. 10 (a), and the
terms of the Escrow Agreement.
(ii) An amount (the "Short Term Escrow Amount"), determined
as set forth below, will be deposited in a second interest-bearing
escrow account with the Escrow Agent to be released beginning on the
date which is the one-year anniversary of the Closing Date (the
"Initial Release Date"). The Short Term Escrow Amount will equal the
amount (if any) arrived at by the result of multiplying: (A) 50%,
times (B) the aggregate Sub Value for all Private Cable Service
Agreements (other than (i) any Risk Contract and (ii) the Bolling
Contract), which (as of the Closing Date) have an expiration date on
or prior to the Initial Release Date (each, a "Short Term Private
Agreement"). For purposes hereof, if a multiple dwelling unit, planned
unit development or complex is being served by a System pursuant to an
expired Private Cable Service Agreement or pursuant to no Private
Cable Service Agreement, such multiple dwelling unit or complex will
be treated as if it is being serviced pursuant to a Short Term Private
Agreement. The release of the Short Term Escrow Amount shall be
determined in accordance with Section 2. 10 (d) and the terms of the
Escrow Agreement.
(iii) The Consent Escrow Amount, determined as set forth
below, if any, will be deposited in a third interest-bearing escrow
account with the Escrow Agent. The "Consent Escrow Amount" will equal
the aggregate Sub Value for all Required Private Agreements (other
than the Bolling Contract). The release of the Consent Escrow Amount
shall be determined in accordance with Section 2. 10(c) and the terms
of the Escrow Agreement.
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(iv) An amount (the "Boiling Escrow Amount"), determined as
set forth below, will be deposited into a fourth interest-bearing
escrow account with the Escrow Agent. The Bolling Escrow Amount will
equal the Sub Value for the Bolling Contract. The release of the
Bolling Escrow Amount shall be determined in accordance with Section
2. 10(d) and the terms of the Escrow Agreement.
0
(v) The balance of the Estimated Purchase Price will be paid
to Sellers' Agent, as agent for the Sellers in immediately available
funds by wire transfer to an account of the Sellers' Agent with a
bank in New York City designated by the Sellers' Agent, by notice to
the Buyer, not later than two business days prior to the Closing Date
(or if not so designated, then by certified or official bank check
payable in immediately available funds to the order of the Sellers'
Agent in such amount). Such payment by the Buyer to the Sellers'
Agent shall discharge the Buyer of any further obligations with
respect to the delivery of the Estimated Purchase Price.
SECTION 2.07. Post-closing Adjustment. (a) Within 90 days after the
Closing, the Buyer will deliver to the Sellers a certificate (the "Buyer's
Adjustment Certificate") showing in such detail as shall be reasonably
satisfactory to the Sellers the Buyer's final determination of the number of
.Penalty Subscribers, the Current Assets, the Total Liabilities, the Closing
Adjustment Amount, the Reduction Subscriber Number, the Closing Basic
Subscriber Number, and with respect to each Required Private Agreement and each
Private Cable Services Agreement, the Closing Basic Subscriber Number for the
Subscribers thereunder, which certificate will be accompanied by appropriate
documentation supporting the amounts and numbers proposed in such certificate.
Each party will provide the other reasonable ' access to all records in its
possession which were used in the preparation of the Initial and Buyer's
Adjustment Certificates or which may otherwise be necessary for the preparation
thereof The Sellers will review the Buyer's Adjustment Certificate and will
give written notice (an "Objection Notice") to the Buyer of any objections it
has to the calculations shown in such Certificate within 30 days after receipt.
Such notice will set forth Sellers' proposal as to each item to which it
objects together with appropriate support for such objections. If the Sellers
do not deliver an Objection Notice within such 30-day period, then the Buyer's
Adjustment Certificate shall be deemed to be conclusive, final and binding on
the parties. The Buyer and the Sellers will endeavor in good faith to resolve
any objections within 30 days after the receipt by the Buyer of the Sellers'
timely objections. If such objections or disputes have not been resolved at the
end of such 30-day period, the disputed portion only of the items contained in
the Buyer's Adjustment Certificate will be determined within the following 30
days by Arthur Andersen LLP or, if Arthur Andersen LLP is unwilling or unable
to serve on commercially reasonable terms,
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by a national accounting firm that is mutually acceptable to the Buyer and the
Sellers (in either case, the "Arbitrator"). The determination of the Arbitrator
will, with respect to each item in dispute, be within the range for such item
as proposed by the Buyer in the Buyer's Adjustment Certificate and the Sellers
in the Objection Notice. The determination of the Arbitrator will be final and
will be binding upon both parties. The Buyer and the Sellers will bear equally
the expenses of such auditor incurred in connection with such determination.
(b) Within two Business Days after the date on which the items
contained in the Buyer's Adjustment Certificate have been finally determined in
accordance with Section 2.07(a) (such amounts as so finally determined (other
than the number of Penalty Subscribers), the "Final Amounts"), the Buyer and
the Sellers shall take such action as is necessary (including the payment of a
cash amount to the other or to the Escrow Agent or the execution of a joint
instruction to the Escrow Agent to release funds or transfer funds to a
different escrow account) to ensure that, ignoring any entitlement or
obligation of any Person to receive or pay interest on any amounts, (A) the
Buyer has paid to the Sellers' Agent and the Escrow Agent the amounts (and no
more) it would have paid under Section 2.06(d) to each of them, (B) the Buyer
and the Sellers' Agent have received the amounts each of them would have
received from escrow (and no more) under Section 2. 10, and (C) there has been
deposited into each escrow account the amount (and no more) that would have
been deposited into each account under Section 2.06(d), if in each case such
amounts had been based on the Final Amounts rather than the amounts set forth
in the Initial Adjustment Certificate. For the avoidance of doubt, clause (ii)
of the first sentence of Section 2.06(c) shall be disregarded for purposes of
this Section 2.07.
(c) If pursuant to Section 2.07(b), the ' Buyer makes a payment to
the Sellers' Agent or the Escrow Agent, or the Sellers' Agent makes a payment
to the Buyer or the Escrow Agent, (i) such payment shall bear interest at the
Prime Rate from and including the Closing Date to but excluding the date of
payment and shall be paid by wire or accounts transfer of immediately available
funds to the account designated by the recipient by two days advanced written
notice to the party owing such payment and (ii) any interest so received by the
Escrow Agent will be treated as interest earned on the account into which the
payment is deposited. If pursuant to 2.07(b) the Escrow Agent makes a payment
to the Buyer or the Sellers' Agent, such payment will include interest earned
on such amount while deposited in the escrow account. If pursuant to Section
2.07(b) the Escrow Agent transfers funds between escrow accounts, the amount
transferred shall include interest earned on such amount while in the escrow
account from which it is transferred and such interest will be treated as
interest earned on the account into which it is transferred.
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(d) Within two Business Days after the date on which the number of
Penalty Subscribers has been finally determined in accordance with Section
2.07(a) (the number of Penalty Subscribers as so finally determined being the
"Final Penalty Subscribers") the Sellers jointly and severally agree to pay to
the Buyer in immediately available funds by wire transfer to an account
specified in advance by the Buyer an amount equal to (a) $5,586, multiplied by
(b) the number of Final Penalty Subscribers (the "Penalty Sub Amount").
Notwithstanding anything to the contrary in this Agreement, without prejudice
to the ability of the Buyer to make a claim against the Sellers to pay the
Penalty Sub Amount, to the extent the Sellers shall not have paid the Buyer the
Penalty Sub Amount in accordance with the terms of this Section 2.07(d), the
Buyer shall be entitled, without prejudice to any other remedy that it may have
under this Agreement or otherwise, to receive the Penalty Sub Amount from one
or more (at the Buyer's election) of the escrow amounts described in Section
2.06(d), in which event such amount shall be released to the Buyer together
with any interest earned on such amount and such amount shall not be treated as
an amount released to the Buyer for the purposes of Section 2. 10.
SECTION 2.08. Maryland LLC. (a) The parties agree that in lieu of
Sellers selling, assigning, transferring and delivering to Buyer at Closing the
Purchased Assets located in the State of Maryland (the "Maryland Assets") and
in lieu of Buyer assuming the Assumed Liabilities primarily related to the
Maryland Assets (the "Maryland Liabilities"), the following will apply:
Immediately prior to the Closing, Sellers will sell, convey, transfer, assign
and deliver to Maryland LLC all of the Maryland Assets and Maryland LLC will
assume all of the Maryland Liabilities, all on terms and conditions
satisfactory to Buyer. At the Closing, Sellers will sell to Buyer and Buyer
will purchase from Sellers 100 limited liability company shares in Maryland LLC
(the "Maryland LLC Shares"), which shall constitute 100% of the limited
liability company interests in Maryland LLC, free and clear of any Liens.
(b) At the request of the Buyer, in lieu of the arrangements in
Section 2.08(a), the Sellers (1) shall form one or more limited liability
companies in the State of Maryland in addition to Maryland LLC, (ii) shall
sell, convey, transfer, assign and deliver to Maryland LLC and any such
additional limited liability company or companies all of the Maryland Assets as
directed by and on terms and conditions satisfactory to the Buyer, and (iii)
shall procure that Maryland LLC and any such additional limited liability
company or companies shall assume all of the Maryland Liabilities as directed
by and on terms and conditions satisfactory to the Buyer. In such event, (A) at
the Closing, the Sellers shall sell to the Buyer and the Buyer will purchase
from the Sellers all of the outstanding limited liability company interests in
Maryland LLC and each such limited liability company, free and clear of any
Liens, (B) "Maryland LLC Shares" shall mean
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100 limited liability company shares in Maryland LLC and 100 limited liability
company shares in each such limited liability company which in each case shall
constitute 100% of the limited liability company interests in Maryland LLC or
such other limited liability company or companies, free and clear of any Liens
and (C) the references to Maryland LLC in Sections 2.09 and 7.01 and in Article
3 shall be construed as including Maryland LLC and each such limited liability
company.
(c) Except as the context may otherwise require, the terms "Seller" as
used in Article 3 shall include Maryland LLC and any other limited liability
company formed under the terms of Section 2.08(b). Prior to Closing, the
Sellers will cause Maryland LLC and any such other limited liability company to
comply with the covenants in Articles 5, 7, 8 and 9 as if it were a Seller.
Except as contemplated herein, Sellers will not take, or permit to be taken,
any actions with respect to Maryland LLC, or any such other limited liability
company without the consent of the Buyer. The Sellers will comply with any
reasonable request of the Buyer to amend the certificate of formation or
operating agreement of Maryland LLC or any such other limited liability
company.
SECTION 2.09. Closing. The closing (the "Closing") of the purchase and
sale of the Purchased Assets and the Maryland LLC Shares and the assumption of
the Assumed Liabilities hereunder shall take place at the offices of Davis Polk
& Wardwell, 450 Lexington Avenue, New York, New York 10017, on the last day of
the month which includes the tenth day after the date on which all the
conditions set forth in Article 10 have been satisfied, or where applicable,
waived by the party for whose benefit they are established, or if such month
shall be October or November of 1999, the last day of December 1999, or at such
other time or place as the Buyer and the Sellers may agree. At the Closing:
(a) The Buyer shall deliver the Estimated Purchase Price.
(b) (i) The Sellers and the Buyer shall enter into an Assignment and
Assumption Agreement substantially in the form attached hereto as Exhibit B,
(ii) the Sellers shall deliver to the Buyer certificates for the Maryland LLC
Shares duly endorsed, or accompanied by an assignment duly endorsed, in blank,
with any required transfer stamps affixed thereto, and (iii) the Sellers shall
deliver to the Buyer special warranty deeds reasonably satisfactory to the
Buyer and the Sellers conveying to the Buyer each parcel of Owned Property and
such other bills of sale, endorsements, consents, assignments and other good
and sufficient instruments of conveyance and assignment as the parties and
their respective counsel shall deem reasonably necessary or appropriate to vest
in the Buyer all right, title and interest in, to and under the other Purchased
Assets that, pursuant to the terms of this Agreement, are to be transferred at
the Closing.
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(c) The Buyer, the Sellers, the Sellers' Agent and the Escrow Agent
will deliver the Escrow Agreement duly executed by the parties thereto.
(d) The Sellers and Buyer will deliver the Non-Competition Agreement
substantially in the form of Exhibit C hereto, duly executed by the parties
thereto.
SECTION 2. 10. Release of Amounts from Escrow. Amounts shall be
released from the escrow accounts described in Section 2.06(d) in accordance
with Section 2.07(d) and as follows:
(a) (i) Amounts in the account into which the Indemnity Escrow Amount
is deposited (the "Indemnity Escrow Account") shall be released to the Buyer to
satisfy (A) claims made by the Buyer pursuant to Section 11.02(a) and (B) any
Anticipated COBRA Damages Claim made by the Buyer in the 15 days prior to the
Initial Release Date, in accordance with the terms of the Escrow Agreement.
(11) Subject to Section 2.07(d), the Buyer and the Sellers
agree that:
(A) except in respect of any Damages arising out of
any misrepresentation or breach of warranty under Sections
3.01, 3.02, 3.03, 3.04, 3.08(e), 3.14(c), 3.21, 3.24, 3.25,
3.26, 3.27 or 3.31 or contained in Articles 8 or 9 (the
"Identified Representations"), the Indemnity Escrow Account
will be the exclusive source of payment for claims arising
under Section 11.02(a)(i),
(B) The Indemnity Escrow Account will not be the
exclusive source of payment for claims arising under Sections
I 1.02(a)(ii) and I 1.02(a)(iii) or, to the extent relating
to the Identified Representations, Section 11.02(a)(i);
(C) Subject to (D) and (E) below, the Buyer may
elect to obtain recovery in respect of any claims arising
under Sections I 1.02(a)(ii) and I 1.02(a)(iii) or, to the
extent relating to the Identified Representations, Section
11.02(a)(i) from the Indemnity Escrow Account, from one or
more of the Sellers, or from any combination of the
foregoing;
(D) the Consent Escrow Amount will be the exclusive
source of payment for any Non Subscriber Loss Claim in
respect of any Required Private Agreement other than the
Bolling Contract.
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For the avoidance of doubt, no Non Subscriber Loss Claim may
be made in respect of the Bolling Contract against the
Consent Escrow Amount;
(E) The Bolling Escrow Amount shall be the exclusive
source of payment with respect to Damages suffered or
incurred by the Buyer resulting from the Bolling Contract not
being transferred to the Buyer at Closing or from the
expiration or termination of the Bolling Contract; and
(F) The Buyer Compensation Amount in respect of any
given Required Private Agreement (other than the Bolling
Contract) shall not exceed the Sub Value for such Required
Private Agreement. This means, for the avoidance of doubt,
that the maximum amount recoverable with respect to Damages
suffered or incurred by the Buyer resulting from any given
Required Private Agreement not being transferred to the Buyer
at Closing or from the expiration or termination of such
Required Private Agreement is the Sub Value for such Required
Private Agreement.
"Buyer Compensation Amount" means in respect of any Required
Private Agreement (other than the Bolling Contract), the aggregate of
(a) the amount released to the Buyer in respect of such Required
Private Agreement from the Short Term Escrow Amount pursuant to
Section 2. 1 0(b)(ii) (excluding any amount representing interest paid
to the Buyer pursuant to Section 2. 1 O(b)(iv)), and (b) the aggregate
amount that the Buyer has received from the Consent Escrow Amount in
respect of such Required Private Agreement (excluding any amount
representing interest paid to the Buyer pursuant to Section 2. 1
0(c)(vi)).
"Non Subscriber Loss Claim" means a claim made by the Buyer
in respect of any Non Subscriber Loss Damages. A Non Subscriber Loss
Claim may be made by the Buyer in respect of Non Subscriber Loss
Damages that the Buyer reasonably anticipates it or any of its
Affiliates will suffer.
"Non Subscriber Loss Damages" means any Damages suffered or
incurred by the Buyer or any of its Affiliates and arising from or
relating to a Required Private Agreement (or assets or liabilities
relating thereto) not being transferred to the Buyer at the Closing
(other than any Damages suffered or incurred by the Buyer in respect
of lost revenue or profits attributable to a Lost Subscriber) or from
the arrangements made pursuant to Section 2.05(b) with respect
thereto. For purposes hereof, a "Lost
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Subscriber" is a Person that ceases to be a Subscriber as a result of
a Required Private Agreement (or assets or liabilities relating
thereto) not being transferred to the Buyer pursuant to this
Agreement.
I
(111) On the Initial Release Date, the amount (if any)
remaining in the Indemnity Escrow Account and not subject to any
pending claim by the Buyer, will be released to the Sellers' Agent.
(b) (i) The Short Term Escrow Amount shall be released to the
Sellers' Agent as follows:
(A) A portion of the Short Term Escrow Amount (the
"Initial Sellers' Portion"), determined as set forth in this
Section 2. 10(b)(1)(A), will be released to the Sellers'
Agent on the Initial Release Date. The Initial Sellers'
Portion will equal the amount (if any) arrived at by the
result of multiplying: (1) 50%, times (2) the Sub Value for
each Short Term Private Agreement which on the Initial
Release Date has an expiration date at any time following the
Initial Release Date (having been extended or renewed prior
to the Initial Release Date on terms and conditions
satisfactory to the Buyer).
(B) In respect of each Short Term Private Agreement
which both expires and is not extended or renewed on terms
and conditions satisfactory to the Buyer between the Closing
Date and the Initial Release Date and in respect of each
Short Term Private Agreement that is treated as such pursuant
to the penultimate sentence of Section 2.06(d)(ii), the
Relevant Amount in respect of such Short Term Private
Agreement shall be released to the Sellers' Agent on the
Relevant Date in respect of such Short Term Private Agreement
provided that: (1) following such expiration until the
Relevant Date in respect of such Short Term Private
Agreement, the Buyer has continued to provide service
pursuant to the terms and conditions thereof (as if it had
not expired); (2) there is not at the Relevant Date pending a
formal legal action of the other party thereto challenging
the Buyer's right to continue to provide service (which
action is then being actively pursued by the other party);
and (3) the other party thereto has not at the Relevant Date
(x) itself commenced competition with the Buyer, (y) entered
into a private cable service or access agreement with another
cable service provider or (z) taken active steps to itself
commence cable service or enter into a private cable service
or access agreement with another cable service provider.
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The "Relevant Date" for a Short Term Private
Agreement is the first to occur of (1) the date on which such
Short Term Private Agreement is extended or renewed on terms
and conditions satisfactory to the Bayer and (2) the date
which is the one year anniversary of the later of (A) the
expiration of such Short Term Private Agreement and (B) the
Closing Date.
The "Relevant Amount" in respect of a Short Term
Private Agreement is (1) 50%; times (2) the Sub Value for
that Short Term Private Agreement.
(ii) Subject to Section 2.10(a)(ii)(F), any portion of the
Short Term Escrow Amount not released to the Sellers' Agent pursuant
to Section 2. 1 0(b)(i) on or before the two-year anniversary of the
Closing Date (the "Month 24 Date") will be released to the Buyer on
the Month 24 Date.
(iii) Any portion of the Short Term Escrow Amount that would
have been released to the Buyer pursuant to Section 2. 1 0(b)(ii) but
for the effect of Section 2. 1 0(a)(ii)(F) shall be released to the
Sellers' Agent on the Month 24 Date.
(iv) When any given portion of the Short Term Escrow Amount
is released to the Sellers' Agent or the Buyer the interest earned on
such portion will be released to such party at such time.
(c) The Consent Escrow Amount shall be released as follows:
(i) At any time prior to the 18-month anniversary of the
Closing Date (the "Month 18 Date"):
(A) Subject to Section 2.10(a)(ii)(D), one or more
portions of the Consent Escrow Amount shall, in accordance
with the terms of the Escrow Agreement, be released to the
Buyer to satisfy Non Subscriber Loss Claims;
(B) One or more portions of the Consent Escrow
Amount (each, a "Consent Portion") determined as set forth in
this Section 2. 1 0(c)(i)(B), will be released to the
Sellers' Agent on each date on which a required consent to
the assignment of a Required Private Agreement (other than
the Bolling Contract) is obtained in form and substance
reasonably satisfactory to the Buyer and a
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Subsequent Transfer occurs. Each Consent Portion will equal
(1) the Sub Value for the Required Private Agreement as to
which the Subsequent Transfer occurs, less (2) the aggregate
amount of (i) any amount which has been released to the Buyer
pursuant to Section 2. 1 0(c)(1)(A) (for such Required
Private Agreement the "Initial Compensated Amount"), and (ii)
the amount of any pending Non Subscriber Loss Claims in
respect of such Required Private Agreement.
(ii) On the Month 18 Date:
(A) In respect of each Required Private Agreement
(other than the Bolling Contract) that at the Month 18 Date
is not a Contested Contract and has not terminated or expired
(in circumstances where Buyer either is no longer providing
service to the buildings the subject of such Required Private
Agreement or has received notice that it will be required to
cease such service) (a "Deemed Consented Contract"), an
amount will be released to Sellers' Agent equal to (1) the
Sub Value for such Required Private Agreement, less (2) the
Initial Compensated Amount if any, in respect of such
Required Private Agreement, less (3) the product of (i) $
1,000, multiplied by (ii) the Closing Basic Subscriber Number
for Subscribers served under such Deemed Consented Contract.
(B) If there shall be a Release Date Subscriber
Shortfall, then in respect of each Required Private Agreement
(other than the Bolling Contract) that either (1) at the
Month 18 Date is a Contested Contract or (2) was terminated
or expired (in circumstances where Buyer either is no longer
providing service to the buildings the subject of such
Required Private Agreement or has received notice that it
will be required to cease such service) on or prior to the
Month 18 Date (each such agreement, a "Shortfall Sensitive
Agreement"), an amount shall be released to the Buyer equal
to (x) the Sub Value for such Shortfall Sensitive Agreement
less (y) the Initial Compensated Amount in respect of such
Required Private Agreement.
(C) If there shall not be a Release Date Subscriber
Shortfall, then in respect of each Shortfall Sensitive
Agreement an amount shall be released to the Sellers' Agent
equal to (1) the Sub Value for such Shortfall Sensitive
Agreement less (2) the Initial Compensated Amount in respect
of such Required Private Agreement, less (3) the greater of
(i) the amount of any pending
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Non Subscriber Loss Claims in respect of such Shortfall
Sensitive Agreement and (ii) the product of $1,000 multiplied
by the Closing Basic Subscriber Number for Subscribers under
such Shortfall Sensitive Agreement.
"Contested Contract" means any Required Private Agreement (1)
with a Person who (a) has sought to challenge the arrangements made
pursuant to Section 2.05(b) of this Agreement with respect to such
Required Private Agreement (b) is a party to any formal legal action
challenging the Buyer's right to continue to provide service (and is
actively pursuing such action), (c) has itself commenced competition
with the Buyer, (d) has entered into a private cable service or access
agreement with another cable service provider, or (e) has taken active
steps to itself commence cable service or enter into a private cable
service or access agreement with another cable service provider, or
(2) in respect of which there is outstanding a Non Subscriber Loss
Claim.
"Release Date Subscriber Shortfall"shall occur if 53,700
exceeds the aggregate of (a) the Transferred Closing Subscriber
Number, (b) the Closing Basic Subscriber Number for Subscribers served
under Required Private Agreements (other than the Bolling Contract) as
to which a Subsequent Transfer has occurred prior to the Month 18
Date, and (c) the Closing Basic Subscriber Number for each Deemed
Consented Contract.
(iii) After the Month 18 Date but prior to the Month 24 Date,
subject to Section 2. 1 0(a)(ii)(D), one or more portions of the
Consent Escrow Amount shall, in accordance with the terms of the
Escrow Agreement, be released to the Buyer to satisfy any Non
Subscriber Loss Claims.
(iv) On the Month 24 Date an amount will be released to the
Sellers' Agent equal to (A) the remaining portion of the Consent
Escrow Amount at that date, less (B) the aggregate amount of all Non
Subscriber Loss Claims pending at that date.
(v) After the Month 24 Date:
(A) Subject to Section 2.10(a)(ii)(D), one or more
portions of the Consent Escrow Amount shall, in accordance
with the terms of the Escrow Agreement, be released to the
Buyer to satisfy any Non Subscriber Loss Claims which were
pending on the Month 24 Date.
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(B) On the date that the last Non Subscriber Loss
Claim pending against the Consent Escrow Amount is finally
determined in accordance with the terms of the Escrow
Agreement, and the amounts to be paid in respect thereof have
been paid, the remaining portion of the Consent Escrow Amount
shall be released to the Seller's Agent.
(C) If on the date upon which any given Non
Subscriber Loss Claim pending against the Consent Escrow
Amount is finally determined in accordance with the terms of
the Escrow Agreement and all amounts to be paid in respect
thereof have been paid, the remaining portion of the Consent
Escrow Amount exceeds the aggregate amount of all Non
Subscriber Loss Claims pending against the Consent Escrow
Amount, such excess shall be released to the Seller's Agent.
(vi) When any given portion of the Consent Escrow Amount is
released to the Sellers' Agent or the Buyer the interest earned on
such portion will be released to such party at such time.
(d) (i) At any time prior to the Bolling Extension, if the
Bolling Contract shall be a Required Private Agreement, one or more
portions of the Bolling Escrow Amount shall be released to the Buyer
to satisfy Non Subscriber Loss Claims in respect of the Bolling
Contract.
(ii) The amount, if any, remaining of the Bolling Escrow
Amount which is not the subject of a pending Non Subscriber Loss Claim
pursuant to Section 2. 10(d)(i), will be released to the Sellers'
Agent as soon as practicable after the date on which the Bolling
Contract is extended or renewed on terms and conditions reasonably
satisfactory to the Buyer (the "Bolling Extension"). If the Bolling
Extension is received, then on any date thereafter that any Non
Subscriber Loss Claim is finally determined in accordance with the
terms of the Escrow Agreement, amounts shall be released from the
Bolling Escrow Amount to the Buyer or the Sellers' Agent in accordance
with such determination; provided that amounts shall be released to
the Sellers' Agent only to the extent the remaining portion of the
Bolling Escrow Amount is sufficient to satisfy any then-pending Non
Subscriber Loss Claims in respect of the Bolling Contract.
(iii) The amount, if any, remaining of the Bolling Escrow
Amount will be released to the Buyer as soon as practicable after the
earlier of the dates on which (A) the Systems cease to provide service
to any of the buildings that are the subject of the Bolling Contract
(B) there is a formal
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legal action by the counterparty to the Bolling Contract challenging
the Buyer's right to continue to provide service, or (C) the
counterparty to the Bolling Contract commences competition with the
Buyer or enters into a private cable service or access agreement with
another cable service provider or takes any steps to do so.
(1v) When any given portion of the Bolling Escrow Amount is
released to the Sellers' Agent or the Buyer the interest earned on
such portion will be released to such party at such time.
(e) Any amount released from escrow to the Buyer pursuant to this
Section 2. 10 shall be treated for tax purposes as a reduction to the Adjusted
Purchase Price.
SECTION 2.11. Allocation q Purchase Price. (a) The Adjusted Purchase
Price and Assumed Liabilities shall be allocated among the Purchased Assets
acquired by each of the Buyer and its assignees, if any, as agreed upon by the
Buyer and the Sellers after the Closing. The Buyer, its assignees, if any and
the Sellers agree to be bound by such allocation and to file, according to
Section 1060 of the Code, all returns and reports with respect to the
transactions contemplated by this Agreement, including, but not limited to, all
federal, state and local tax returns on the basis of such allocation.
(b) If an adjustment is made with respect to the Adjusted Purchase
Price pursuant to Section 2.07 or, if an amount is released from escrow to the
Buyer pursuant to Section 2. 10, the allocation determined in accordance with
Section 2. 11 (a) shall be adjusted in accordance with Section 1060 of the Code
and as mutually agreed by the Sellers and the Buyer., The Sellers, the Buyer
and its assignees, if any, agree to file, or cause to be filed, any additional
information return required to be filed pursuant to the Treasury regulations
promulgated under Section 1060 of the Code. Not later than 30 days prior to the
filing of their respective Forms 8594 relating to this transaction, each party
shall deliver to the other party a copy of its Form 8594.
SECTION 2.12. Sellers' Agent. Each Seller hereby irrevocably appoints
the Sellers' Agent as its respective attorney in fact to act on behalf of such
Seller, and in such Seller's name, place and stead, in any and all capacities
to do and perform every act and thing required or permitted to be done in
connection with the transactions contemplated by this Agreement whether before,
at or after the Closing. This power shall be deemed to be a power coupled with
an interest which cannot be revoked. Each Seller hereby ratifies all actions
taken by the Sellers' Agent as it may lawfully do or cause to be done under
this Agreement and hereby declares that any such action shall be binding upon
such Seller, its heirs,
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successors and assigns. Buyer shall be entitled to rely on the actions of
Sellers' Agent notwithstanding contrary instructions from any Seller. Sellers'
Agent shall also act as agent for the Sellers in connection with the
preparation, payment or receipt of any monies, certificates or other documents
in connection with this Agreement. Buyer shall be entitled to rely on any
action, consent or agreement of the Sellers' Agent as being the action consent
or agreement of all of the Sellers for purposes of this Agreement. Sellers
shall be deemed to have knowledge of any matter of which any Affiliate of any
Seller is aware.
ARTICLE 3
REPRESENTATIONS AND WARRANTEES OF SELLER
The Sellers (but not Maryland LLC) jointly and severally represent
and warrant to the Buyer as of the date hereof and as of the Closing Date that:
SECTION 101. Existence and Power. The Sellers and the Sellers' Agent
are limited partnerships or, in the case of Mid-Atlantic Telecom Plus, LLC, a
limited liability company, and Maryland LLC is a limited liability company, in
each case validly existing and in good standing under the laws of their
respective jurisdictions of organization and have all limited partnership or
limited liability company powers and all material governmental licenses,
authorizations, permits, consents and approvals required to carry on their
business as now conducted. The Sellers and the Sellers' Agent are duly
qualified to do business as foreign entities and are in good standing in each
jurisdiction where such qualification is necessary, subject to such exceptions
as would not individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.02. Authorization. Except as set forth on Schedule 3.02,
the execution, delivery and performance by the Sellers and the Sellers' Agent
of this Agreement and the consummation of the transactions contemplated hereby
are within their respective powers and have been duly authorized by all
necessary action on the part of the Sellers and the Sellers' Agent. This
Agreement constitutes a valid and binding agreement of the Sellers and the
Sellers' Agent.
SECTION 3.03. Noncontravention. The execution, delivery and
performance by the Sellers and the Sellers' Agent of this Agreement and the
consummation of the transactions contemplated hereby do not and will not (i)
violate the organizational documents of any Seller or the Sellers' Agent, (ii)
assuming compliance with any applicable requirements of the HSR Act and
assuming the receipt of all Required Consents, violate any applicable law,
rule,
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regulation, judgment, injunction, order or decree, or require any action by or
filing with any Governmental Authority, (iii) assuming the receipt of all
Required Consents, (and without regard to any notice, lapse of time or election
requirements) constitute a default under or give rise to any right of
termination, cancellation or acceleration of any right or obligation of the
Buyer or to a loss of any benefit relating to the Systems to which any Seller
or the Sellers' Agent is entitled under any provision of any agreement or other
instrument binding upon any Seller or the Sellers' Agent or by which any of the
Purchased Assets is or may be bound or (iv) assuming the receipt of all
Required Consents, result in the creation or imposition of any Lien on any
Purchased Asset.
SECTION 3.04. Required Consents. Schedule 3.04 sets forth each
Material Contract binding upon any Seller in each case requiring a consent or
other action by any Person as a result of the execution, delivery and
performance of this Agreement (the "Required Consents").
SECTION 3.05. Financial Statements; No Adverse Change. (a) The Sellers
have provided to the Buyer (a) combined financial statements for the Systems
consisting of an unaudited balance sheet and statement of operations as of and
for the 12 months ended December 31, 1998 and an unaudited balance sheet and
statement of operations as of and for the six months ended June 30, 1999, and
(b) financial statements for Mid-Atlantic Telecom Plus, LLC consisting of an
audited balance sheet and statement of operations as of and for the 12 months
ended December 31, 1998 and an unaudited balance sheet and statement of
operations as of and for the six months ended June 30, 1999 ((a) and (b)
together, the "Financial Statements"). The Financial Statements fairly present
in accordance with GAAP the financial condition and the results of operations
of the Systems or Mid-Atlantic Telecom Plus, LLC, as the case ' may be, as of
the dates and for the periods indicated therein. Mid-Atlantic Telecom Plus, LLC
is engaged in no material business or activities other than the ownership and
operation of the Systems.
SECTION 3.06. Absence of Certain Changes. Except as disclosed in
Schedule 3.06, since June 30, 1999, the Systems have been conducted in the
ordinary course consistent with past practice and there has not been:
(a) any event, occurrence, development or state of
circumstances or facts which, individually or in the aggregate, has
had or could reasonably be expected to have a Material Adverse Effect;
or
(b) any action, event occurrence or omission that would have
been prohibited under Section 5.01 or 5.02 if those covenants had been
in effect at the time.
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SECTION 3.07. No Undisclosed Material Liabilities. There are no
liabilities relating to the Systems, and the Sellers have no liabilities, of
any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, and, to the knowledge of the Sellers, there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such a liability, other than:
(a) liabilities provided for in the Financial Statements or
disclosed in the notes thereto;
(b) liabilities disclosed on Schedule 3.07; and
(c) other undisclosed liabilities which, individually or in
the aggregate, are not material to the Systems or to the Sellers.
SECTION 3.08. Systems Franchises, Systems Licenses, Systems Contracts,
Owned Property and Real Property Interests. (a) Except as described in Schedule
3.08(a) or 2.02(f), none of the Sellers is bound or affected by or hold any of
the following that relate in whole or in part to the Purchased Assets or the
Systems: (i) leases of all real property or material personal property
including all capital leases; (ii) franchises, and similar authorizations or
permits for the construction or operation of cable television systems, or
Systems Contracts of substantially equivalent effect; (iii) licenses,
authorizations, consents or permits of the FCC, (iv) material licenses,
authorizations, consents or permits of any other Governmental Authority
(including each Environmental Permit); (v) material crossing agreements,
easements and rights of way; (vi) pole line or joint line agreements or
underground conduit agreements; (vii) Private Cable Service Agreements or other
bulk service or access agreements under which service is provided to commercial
locations; (viii) any System specific programming agreements or signal supply
agreements; (ix) any agreement with the FCC or any other Governmental Authority
relating to the operation or construction of the Systems that are not fully
reflected in the Systems Franchises, or any agreements with community groups or
similar third parties restricting or limiting the types of programming that may
be shown on any of the Systems; (x) any partnership, joint venture or other
similar agreement or arrangement; (xi) any agreement that limits, other than by
virtue of the express terms of the Private Cable Service Agreements listed on
Schedule 3.12 which limit service in any building served pursuant to such
agreement, the freedom of the Systems to compete in any line of business or
with any Person or in any area or which would so limit the freedom of the Buyer
after the Closing Date; (xii) any Systems Contract relating to the use of the
Purchased Assets to provide, or the provision by the Systems of, telephone or
high speed data services; (xiii) any must-carry elections or retransmission
consents
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relating to the Systems or the Purchased Assets; (xiv) any advertising
interconnect agreements; (xv) any agreement with any employee of the Systems,
or (xvi) any Systems Contract other than those described in any other clause of
this Section 3.08(a) which either (A) will remain effective for more than one
year after the Closing Date or (B) individually provides for payments by or to
any Seller exceeding $25,000 over the term of the Systems Contract or (C) which
is otherwise material to the Systems.
(b) The Sellers have provided to the Buyer true and complete copies of
each of the Material Contracts (other than those which are Excluded Assets and
subscription agreements with individual residential Subscribers) (together with
any notices alleging non-compliance with the requirements thereof). Except as
described in Schedule 3.08(b): (i) the Sellers are in compliance in all
material respects with each of the Material Contracts; (ii) the Sellers have
fulfilled when due, or have taken all action necessary to enable them to
fulfill when due, all of their material obligations under each of the Material
Contracts-, (iii) there has not occurred any material default by any Seller
and, to the knowledge of any of the Sellers, there has not occurred any
material default (without regard to lapse of time or the giving of notice, or
both) by any other Person, under any of the Material Contracts; (iv) the
Material Contracts are valid and binding agreements and are in full force and
effect and have not been revoked, canceled, encumbered or adversely affected in
any manner; and (v) no buildings are served by any System other than pursuant
to a written contract.
(c) Schedule 3.08(c) lists the date on which each Systems Franchise
and each Private Cable Service Agreement will expire. There is no application
relating to any Systems Franchise or Systems License pending before any
Governmental Authority that is material to any of such Systems. None of the
Sellers has received, nor has any of them received notice that any of them will
receive, from any Governmental Authority a preliminary assessment that a
Systems Franchise should not be renewed as provided in Section 626(c)(1) of the
Communications Act. Neither any Seller nor any Governmental Authority has
commenced or requested the commencement of an administrative proceeding
concerning the renewal of a Systems Franchise as provided in Section 626(c)(1)
of the Communications Act. The Sellers have timely filed notices of renewal in
accordance with the Communications Act with all Governmental Authorities with
respect to each Systems Franchise expiring within 36 months of the date of this
Agreement. Such notices of renewal have been filed pursuant to the formal
renewal procedures established by Section 626(a) of the Communications Act.
Except as disclosed in Schedule 3.08(c), to the knowledge of any of the
Sellers, there exist no facts or circumstances that make it likely that any
Systems ' Franchise or Private Cable Service Agreement will not be renewed or
extended on commercially reasonable terms. As of the date hereof, no
Governmental
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Authority has commenced, or given notice that it intends to commence, a
proceeding to revoke or suspend a Systems Franchise.
(d) Schedule 3.12 hereto sets out each System of each Seller, each
Systems Franchise of each such System and a description of each Private Cable
Service Agreement of each such System distinguishing whether such agreement is
inside or outside a Franchise Area.
(e) Except as set forth on Schedule 3.08(e), there are no agreements,
arrangements or understandings pursuant to which any of the Systems or any of
the property or assets used or held for use in the operation of the Systems are
managed by any Person and no agreements, arrangements or understandings
pursuant to which any Seller manages any of the property or assets of any other
Person. All of the agreements, arrangements or understandings listed on
Schedule 3.08(e) shall have terminated prior to the Closing.
SECTION 3.09. Litigation. Except as set forth in Schedule 3.09, there
is no action, suit, investigation or proceeding (or any basis therefor) pending
against, or to the knowledge of any Seller, threatened against or affecting,
the Sellers, Maryland LLC, the Systems or any other Purchased Asset or
otherwise challenging the transactions contemplated by this Agreement before
any court or arbitrator or any governmental body, agency or official.
SECTION 3.10. Compliance with Legal Requirements. (a)Except as set
forth in Schedule 3. 1 0(a), the operation of the Systems do not and have not
violated or infringed in any material respect any Legal Requirement. The
Sellers and the Systems are maintaining and operating the Systems in compliance
in all material respects with all applicable federal, state, and local laws,
ordinances, codes and regulations. None of the Sellers have received notice of
any violation by any of them or the Systems of any material Legal Requirement
applicable to the operation of the Systems, as currently conducted.
(b) Except asset forth in Schedule 3.10(b) and subject to such
exceptions as would not individually or in the aggregate have a Material
Adverse Effect, with respect to the Systems, the Sellers are and have been in
compliance with the Communications Act and the Cable Act, including
requirements of those Acts specifically referred to herein; there have been
submitted to the FCC all required filings, including cable television
registration statements, annual reports and aeronautical frequency usage
notices, to utilize all frequencies currently used in the frequency bands
108-137 and 225-400 MEHZ in the manner currently used that are required under
the rules and regulations of the FCC; the operation of the Systems has been and
is in compliance with the rules and regulations of the FCC, and none of the
Sellers have received notice from the FCC of any violation of its
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rules and regulations with respect to the Systems; the Sellers are and since
1991 have been with respect to the Systems certified as in compliance with the
FCC's equal employment opportunity ("EEO") rules and have received no written
notices with respect to non-compliance with EEO rules; the Systems are in
compliance with all signal leakage, proof-of-performance and technical criteria
prescribed by the FCC; the Sellers have filed all FCC Forms 320 for the Systems
for the last two reporting periods; the Systems are in compliance with all
applicable grounding requirements applicable to the Sellers; and all such Forms
320 show "passing" or "satisfactory" signal leakage scores; for each
semi-annual reporting period since 1996-1, the Sellers have filed with the
United States Copyright Office all required Statements of Account in proper
form, and have paid when due all required copyright royalty fee payments,
relating to the Systems' carriage of television and radio broadcast signals;
and the Sellers are otherwise in compliance with the requirements of the
compulsory copyright license described in Section 111 of the Copyright Act and
with all applicable rules and regulations of the Copyright Office. The Sellers
have provided to the Buyer true and complete copies of all reports and filings
for the past year and with regard to cable copyright filings for the past three
years, made or filed pursuant to FCC and Copyright Office rules and regulations
by the Sellers with respect to the Systems and will provide to the Buyer, upon
the Buyer's request, all other past reports and filings made or filed pursuant
to FCC rules and regulations by the Sellers with respect to the Systems within
the past five (5) years. The Sellers hold all material licenses, registrations
or permits from the FCC for business radio, satellite earth receiving
facilities and CARS or private operational fixed service microwave facilities,
that are necessary or appropriate to carry on the business of the Systems as
currently conducted.
(c) Subject to such exceptions as would not individually or in the
aggregate have a Material Adverse Effect: (i) The Systems have provided all
required Subscriber privacy notices to new Subscribers at the time of
installation and to all Subscribers on an annual basis, and the Systems have
taken -commercially reasonable steps to prevent unauthorized access to
personally identifiable information, (ii) the Systems have provided all
customer notices required by the Cable Act, including customer service, notices
of availability of basic service, and equipment compatibility and (iii) all
notifications to the FAA have been made with respect to the antenna structures
which are being used in connection with the operation of the Systems, each
System holds all necessary FAA authorizations to operate such structures and
all such structures that require registration with the FCC have been so
registered by the Sellers. None of the Sellers have received any request for
commercial leased access with respect to the Systems within the past 120 days,
except for those requests set forth in Schedule 3. 1 0(c). There are no
complaints or other proceedings instituted before the FCC
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concerning commercial leased access, program access, or any other aspect of the
Systems' operations.
(d) Except set forth in Schedule 3.10(d) and subject to such
exceptions as would not individually or in the aggregate have a Material
Adverse Effect, with respect to the Systems, the Sellers are in compliance with
the must carry and retransmission consent provisions of the Cable Act,
including, (i) duly and timely notifying "local commercial television stations"
of inadequate signal strength or increased copyright liability, if applicable,
(ii) to the extent now required, duly and timely notifying non-commercial
educational stations of the location of the cable system's principal head-end,
(iii) duly and timely notifying Subscribers of the channel alignment on the
Systems, (iv) duly and timely notifying "local commercial and noncommercial
television stations" of the broadcast signals carried on the Systems and their
channel positions, if applicable, (v) maintaining the requisite public file
identifying broadcast signal carriage, (vi) carrying the broadcast signals
after December 31, 1996, on the Systems for all "local commercial television
stations" which elected must carry status and, if required, up to two
"qualified low power stations," (vii) complying with applicable channel
placement obligations, and (viii) obtaining retransmission consent for all
commercial broadcast signals carried on the Systems after December 31, 1996,
except for the signals carried pursuant to a must carry election. No oral or
written notices have been received from the FCC, the United States Copyright
Office, any local or other television station or system or from any other
person or entity, station or Governmental Authority claiming to have a right of
objection challenging or questioning the right of the Sellers or the Systems to
carry or furnish, or not to carry or furnish, any of the signals or any other
station or service to any Subscriber. None of the Sellers have received with
respect to any of the Systems any notification of any petition or submission
that is currently pending before the FCC to modify any television market or for
a waiver of any rules or regulations of the FCC as they apply to such System.
The Sellers have complied with all written requests any of them have received
for network nonduplication, syndicated exclusivity, and sports blackout
protection which are applicable to the Systems.
(e) Except as provided in Schedule 3.10(e), the Sellers have
established and charged rates that are allowable under the Cable Act. The
Sellers have provided to the Buyer true and complete copies of all rate Forms
(and any associated Forms 1200, any successive Forms 1210, and Forms 1205 for
1997, 1998 and 1999) that have been prepared with respect to the Systems,
copies of all correspondence with any Governmental Authority relating to rate
regulation generally or specific rates charged to Subscribers of the Systems,
and any other documentation supporting an exemption from the rate regulation
provisions of the Cable Act claimed by any of the Sellers with respect to the
Systems. Schedule
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3. 1 O(e) sets forth a list of (i) all pending complaints with respect to any
rates which have been filed with the FCC for the Systems, (ii) those
franchising authorities that have been certified upon filing FCC Form 328 or
have filed FCC Form 328 with the FCC for certification to regulate any of the
Systems' rates and (111) any pending appeals of rate orders issued by any
Governmental Authority. Except as set forth in Schedule 3. 1 O(e), each System
is operating pursuant to a valid franchise or similar authorization or permit
issued by the appropriate Governmental Authority in every market in which such
System is supplying cable television service.
(f) Except as provided in Schedule 3.10(f), the Sellers have complied
in all material respects with any customer service standards applicable to it
with respect to the Systems. None of the Sellers has received written notice
with respect to the Systems from any Governmental Authority with respect to an
intention to enforce customer service standards pursuant to the Cable Act and
none of the Sellers has agreed with any Governmental Authority to establish
customer service standards in respect of the Systems that exceed the FCC
standards promulgated pursuant to the Cable Act.
SECTION 3.11. [Intentionally Blank].
SECTION 3.12. Systems Information. Schedule 3.12 sets forth a true
and complete description in all material respects of the following information:
(a) as of July 31, 1999, for each of the Systems, the approximate
number of miles (underground and aerial) of plant of Systems in Franchise
Areas, and the technical capacity of the plant of each System expressed in
N1HZ, included in each case in the Purchased Assets;
(b) as of July 31, 1999, for each of the Systems, the number of Basic
Subscribers served;
(c) as of July 31, 1999, the approximate number of Homes Passed by
each of the Systems as reflected in the Sellers' records for such date;
(d) as of July 31, 1999, a description of basic and optional or tier
services available from each of the Systems, the rates charged by the Sellers
for each and the number of Subscribers receiving each optional or tier service,
each as reflected in the Sellers' billing system records for such date,
(e) the stations and signals carried by each of the Systems and the
channel position of each such signal and station;
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(f) the community identification numbers of the municipalities
served by each of the Systems;
(g) as of July 31, 1999, for each System, the name of each utility
company or other entity which has agreed to pole attachments with respect to
such System and the number of pole attachments of such System relating to each
such utility or other entity;
(h) as of the date hereof, for each Private Cable Service Agreement
(i) the contract type (whether bulk service or access only), (ii) the name of
the counterparty to such agreement, (iii) the address of such counterparty,
(iv) the name of the building, planned unit development or complex which is the
subject of the agreement, (v) the address of such building, planned unit
development or complex, (vi) the expiration date of the agreement, (vii) the
number of individual units in such building, planned unit development or
complex, (viii) the rates charged to units in such building, planned unit
development or complex whether specified in the agreement or otherwise, (ix)
the municipality in which that building, planned unit development or complex is
located, (x) the location of the head-end providing signal delivery to such
building, planned unit development or complex (if other than in such building,
planned unit development or complex) and (xi) the method of signal provision to
such building, planned unit development or complex;
(i) as of the date hereof, each System that is provided signals by
Direct TV, or any other third party source, specifying the nature of such
source and which buildings, planned unit developments or complexes in each
System are provided service by such source;
the channel capacity of each of the Systems;
(k) with respect to each commercial establishment (e.g., hotel or
motel) served by the Systems that pays a bulk rate for cable television
service, (i) the name and address of, and the number of units in, such
commercial establishment (ii) a description of the services provided to such
establishment; (iii) the rates charged for each such service; (iv) the location
of the head-end providing signal delivery to such establishment (if other than
in such establishment) and (v) the method of signal provision to such
establishment; and
(1) The Sellers have provided to the Buyer a description of basic and
optional tier services available from each of the Systems, the rates charged by
the Sellers for each of the stations and signals carried by each of the Systems
and the channel position of each such station and signal.
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SECTION 3.13. Purchased Assets. (a) Schedule 3. 13 )(a) correctly
describes (including address, type of improvements and use) all Owned Property,
all Leased Property and all material other Real Property Interests, any title
insurance policies and surveys with respect thereto, and any Liens thereon,
specifying in the case of leases or subleases, the name of the lessor or
sublessor and the lease term.
(b) Schedule 3.13(b) correctly describes all material personal
property included in the Purchased Assets, and any Liens thereon, specifying in
the case of leases or subleases, the name of the lessor or sublessor and the
lease term.
Schedule 3.13(b) separately identifies each capital lease included in the
Purchased Assets.
(c) The Sellers have good and marketable, indefeasible, fee simple
title to, or in the case of leased real property or personal property has valid
leasehold interests in, all Purchased Assets (whether real, personal, tangible
or intangible). No Purchased Asset is, or when delivered to Buyer (either
directly or indirectly through the delivery of the Maryland LLC Shares) will
be, subject to any Lien, except:
(i) Liens disclosed in the Financial Statements;
(ii) Liens for taxes not yet due or being contested in good
faith (and for which adequate accruals or reserves have been
established in the Financial Statements); or
(iii) Liens which do not materially detract from the value of
such Purchased Asset, or materially interfere with any present or
intended use of such Purchased Asset (clauses (i) -,(iii) of this
Section 3.13(c) are, collectively, the "Permitted Liens").
(d) Subject to such exceptions as would not individually or in the
aggregate have a Material Adverse Effect and other than such developments or
facts which are disclosed to Buyer within the terms of this Agreement or
Schedules thereto, there are no developments affecting any of the material
Purchased Assets pending or, to the knowledge or the Sellers threatened, which
might materially detract from the value, materially interfere with any present
or intended use or materially adversely affect the marketability of such
Purchased Assets.
(e) Subject to such exceptions as would not individually or in the
aggregate have a Material Adverse Effect and except as reflected on Schedule
3.13(e), the plants, buildings, structures and equipment included in the
Purchased Assets have no defects, are in good operating condition and repair
and have been
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reasonably maintained consistent with standards generally followed in the
franchise and private cable industry as applicable (giving due account to the
age and length of use of same, ordinary wear and tear excepted), are adequate
and suitable for their present uses and, in the case of plants, buildings and
other structures, are structurally sound.
(f) The plants, buildings and structures included in the Purchased
Assets currently have access to (i) public roads or valid easements over
private streets or private property for such ingress to and egress from all
such plants, buildings and structures and (ii) water supply, storm and sanitary
sewer facilities, telephone, gas and electrical connections, fire protection,
drainage and other public utilities, in each case as is necessary for the
conduct of the Systems in all material respects as they have heretofore been
conducted. None of the structures on the Owned Property or the Real Property
Interests encroaches upon real property of another Person, and no structure of
any other Person substantially encroaches upon any other real property in each
case to the extent such encroachment is or may be material.
(g) To the knowledge of the Sellers, the Owned Property and the Real
Property Interests, and their continued use, occupancy and operation as
currently used, occupied and operated, does not in any material respect
constitute a nonconforming use under all applicable building, zoning,
subdivision and other land use and similar laws, regulations and ordinances.
SECTION 3.14. Sufficiency of and Title to the Purchased Assets. (a)
Except for the Excluded Assets, the Purchased Assets constitute all of the
property and assets of the Sellers and their Affiliates used or held for use in
the operation of the Systems and the right, title and interest in the Purchased
Assets that will be conveyed to Buyer (or held by Maryland LLC) at Closing will
be adequate and suitable to conduct the operation of the Systems as currently
conducted. The Sellers own all of the property and assets used or held for use
in the operation of the Systems directly and not through any partnership,
limited partnership, limited liability company, corporation or other entity.
None of the Excluded Assets at the Largo Operations Center are required to
operate the Systems or any of the Purchased Assets.
(b) Except as shown on Schedule 3.14(b), none of the assets that may
be retained by a Seller pursuant to Section 2.05(b) as a result of the
non-transfer of a Required Private Agreement are used or held for use in
connection with any other portion of the Systems.
(c) Except as disclosed in Schedule 3.14(c), none of the Purchased
Assets are used by any Affiliate of any Seller other than the Sellers and after
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Closing none of the Purchased Assets will be the subject of any obligations or
restrictions of any kind with respect to the wireline telephony business of
OnePoint Communications, LLC (f/k/a VIC-RMTS Holdco, LLQ or any of its
Affiliates (collectively, "RMTS") or the business of any other person or
entity. RMTS has no interest of any kind in or other rights over or title to
any of the property or assets used or held for use in the operation of the
Systems that are not Excluded Assets.
(d) The Delaire Condominium Purchase and Sale Contract has been
consummated in accordance with its terms and all right, title and interest in,
to and under the subscribers and assets transferred to any Sellers thereunder,
including, without limitation, the Delaire Access Agreement, will be conveyed
to the Buyer at the Closing. The assets so conveyed are adequate and suitable
to enable the Buyer to provide service to each Delaire Condominium Subscriber
as currently provided.
SECTION 3.15. Intellectual Property. (a) Schedule 3.15 contains a list
of all Systems Intellectual Property Rights, specifying as to each, as
applicable: (i) the nature of such Systems Intellectual Property Right, (ii)
the owner of such Systems Intellectual Property Right, (iii) the jurisdictions
by or in which such Systems Intellectual Property Right (A) is recognized
(without regard to registration) or (B) has been issued or registered or in
which an application for such issuance or registration has been filed, (iv) the
registration or application numbers and (v) the termination or expiration
dates.
(b) Schedule 3.15 sets forth a list of all licenses, sublicenses and
other agreements as to which any Seller or any Affiliate of any Seller is a
party and pursuant to which any Person is authorized to use any Systems
Intellectual Property Right, including (i) the identity of all parties thereto,
(ii) a description of the nature and subject matter thereof, (iii) the
applicable royalty and (iv) the term thereof
(c) (i) Since June 30, 1996, none of the Sellers have been a
defendant in any action, suit, investigation or proceeding relating to, or
otherwise have been notified of, any alleged claim of infringement of an
Intellectual Property Right, and none of the Sellers have knowledge of any
other such infringement by any of them, and (ii) none of the Sellers have
outstanding any claim or suit for, nor any knowledge of, any continuing
infringement by any other Person of any Systems Intellectual Property Rights.
(d) Since May 30, 1999, none of the Systems has operated under or used
the name "OnePoint" or any derivation thereof. Before such date, Telcom Plus
also operated under or used the name "OnePoint Communications". Since May
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30, 1999, Telcom Plus has also operated under or used the name "Mid-Atlantic
Communications".
SECTION 3.16. Insurance Coverage. The Sellers have furnished to the
Buyer a list of, and true and complete copies of, all insurance policies and
fidelity bonds relating to the Purchased Assets, the business and operation of
the Systems and its officers and employees. There is no claim by any Seller
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds or
in respect of which such underwriters have reserved their rights. All premiums
payable under all such policies and bonds have been timely paid and the Sellers
have otherwise complied fully with the terms and conditions of all such
policies and bonds. Such policies of insurance and bonds (or other policies and
bonds providing substantially similar insurance coverage) are in full force and
effect. Such policies and bonds are of the type and in amounts customarily
carried by Persons conducting businesses similar to the operation of the
Systems. None of the Sellers know of any threatened termination of, premium
increase with respect to, or material alteration of coverage under, any of such
policies or bonds. Except as disclosed in Schedule 3.16, after the Closing the
Sellers shall continue to have coverage under such policies and bonds with
respect to events occurring prior to the Closing.
SECTION 3.17. Inventories. On the Closing Date the Purchased Assets
will include inventory that (i) will consist of items of a quality usable or
saleable in the normal course of business consistent with past practices and
(ii) will be in quantities sufficient for the normal operation of the Systems
in accordance with past practice.
SECTION 3.18. Receivables. All of the accounts receivable that are
included in the Purchased Assets will have arisen from bona fide transactions
in the ordinary course of business of the Systems consistent with past
practice.
SECTION 3.19. Finders' Fees. Except for Communications Equity
Associates, whose fees and expenses will be paid by the Sellers, there is no
investment banker, broker, finder or other intermediary which has been retained
by or is authorized to act on behalf of the Sellers who might be entitled to
any fee or commission in connection with the transactions contemplated by this
Agreement.
SECTION 3.20. Employees. As of September 30, 1999, Schedule 3.20 sets
forth a true and complete list of (a) the names, titles, wage rates or annual
salaries, and other compensation of all persons employed in the operation of
the Systems and (b) the geographical area in which such employees are employed.
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SECTION 3.21. Environmental Compliance. (a) Except as disclosed on
Schedule 3.21:
(i) in connection with or relating to the Purchased Assets,
the Systems, the Owned Property or the Real Property Interests, no
notice, notification, demand, request for information, citation,
summons or order has been received, no complaint has been filed, no
penalty has been assessed and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of any Seller,
threatened by any governmental entity or other Person with respect to
any matters relating to the Purchased Assets, the Systems, the Owned
Property or the Real Property Interests and relating to or arising out
of any Environmental Law;
(ii) there are no liabilities that have arisen in connection
with or in any way relating to the Purchased Assets, the Systems, the
Owned Property or the Real Property Interests of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or
otherwise, arising under or relating to any Environmental Law, and to
the knowledge of any Seller, there are no facts, events, conditions,
situations or set of circumstances which could reasonably be expected
to result in or be the basis for any such liability'.
(iii) to the knowledge of any Seller, no polychlorinated
biphenyls, radioactive material, lead, asbestos-containing material,
incinerator, sump, surface impoundment, lagoon, landfill, septic,
wastewater treatment or other disposal system or underground storage
tank (active or inactive) is or has been present at, on or under any
Owned Property or Real Property Interest or any other Purchased Asset
or -any other property now or previously owned, leased or operated by
the Sellers;
(iv) to the knowledge of any Seller, no Hazardous Substance
has been discharged, disposed of, dumped, injected, pumped, deposited,
spilled, leaked, emitted or released at, on or under any Owned
Property or Real Property Interest or any other property now or
previously owned, leased or operated by the Sellers;
(v) to the knowledge of any Seller, no Owned Property or
Real Property Interest no property now or previously owned, leased or
operated by any Seller nor any property to which Hazardous Substances
located on or resulting from the use of any Purchased Asset or the
Owned Property or any Real Property Interest or in any way relating to
the Systems have been transported nor any property to which the
Sellers have, directly or indirectly, been transported or arranged for
the transportation of any
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Hazardous Substances is listed or, to the knowledge of any Seller,
proposed for listing on the National Priorities List promulgated
pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or on any
similar federal, state, local or foreign list of sites requiring
investigation or cleanup; and
(vi) to the knowledge of any Seller, in connection with the
Purchased Assets, the Systems, the Owned Property and the Real
Property Interests, the Sellers are in compliance with all
Environmental Laws and are in compliance with all Environmental
Permits; such Environmental Permits are valid and in full force and
effect and assuming the related Required Consents have been obtained
prior to the Closing Date, are transferable and will not be terminated
or impaired or become terminable as a result of the transactions
contemplated hereby.
(b) There has been no environmental investigation, study, audit, test,
review or other analysis conducted of which any Seller has knowledge in
relation to any Purchased Asset or the Owned Property or the Real Property
Interests or any other property or facility now or previously owned or leased
by the Sellers which has not been delivered to the Buyer at least ten days
prior to the date hereof The consummation of the transactions contemplated by
this Agreement will not trigger any obligations of any Seller or the Buyer
pursuant to any state environmental transfer act statutes, including those
promulgated under the laws of New Jersey and Connecticut.
(c) For purposes of this Section, the terms "Seller" or "Sellers"
shall include any entity which is, in whole or in part, a predecessor of any
Seller.
SECTION 3.22. Year 2000 Compliance. (a) Except as disclosed on
Schedule 3.22, each item of hardware, software or firmware that is used in
connection with the Systems is, or by the earlier of the Closing Date and
December 31, 1999 will be, Year 2000 Compliant, with such exceptions (and
disregarding insurance or similar coverage) as would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect. "Year
2000 Compliant" means that such hardware, software and firmware shall be able
accurately to process (including, without limitation, calculate, compare and
sequence) date and time data from, into and between the years 1999 and 2000 and
any other years in the 20th and 21st centuries.
(b) Based on a reasonable inquiry of all material suppliers, customers
and service providers of the Systems, except as disclosed on Schedule 3.22, to
the knowledge of the Sellers, there is no inability on the part of any such
supplier, customer or service provider to timely ensure that its items of
hardware, software
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and firmware are Year 2000 Compliant which inability, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
SECTION 3.23. Systems Options. Except as disclosed on Schedule 3.23,
none of the Systems or any material Purchased Assets are subject to any
purchase option, right of first refusal or similar arrangement ("Systems
Options").
SECTION 3.24. Transactions with Affiliates. Except as set forth on
Schedule 3.24, with respect to the Systems, none of the Sellers is a party to
any contract, agreement or any other arrangement of any kind whatsoever with
any Affiliate.
SECTION 3.25. Capitalization of Maryland LLC. TheMaryland LLC Shares
constitute 100% of the equity interests in Maryland LLC. The Maryland LLC
Shares have been duly authorized, validly issued and fully paid. Except as set
forth in this Section, there are outstanding (a) no securities of Maryland LLC
convertible into or exchangeable for equity interests of Maryland LLC, and (b)
no options or other rights to acquire and no obligation of Maryland LLC to
issue any equity interests.
SECTION 3.26. Ownership of the Maryland LLC Shares. Telcom Plus is the
holder of record and the beneficial owner of the Maryland LLC Shares, free and
clear of any Lien and any other limitation or restriction (including any
restriction on the right to sell, vote or otherwise dispose of the Maryland LLC
Shares) and at the Closing the Sellers will transfer and deliver to the Buyer
valid title to the Maryland LLC Shares free and clear of any Lien and any such
limitation or restriction.
SECTION 3.27. Maryland LLC Assets and Liabilities. To the knowledge of
the Sellers, Maryland LLC has no assets, no employees and no liabilities of any
kind whatsoever, whether accrued, contingent absolute, determined,
determinable, or otherwise, and there is no existing condition, situation or
set of circumstances which could reasonably be expected to result in such a
liability, in each case, other than the Maryland Assets and the Maryland
Liabilities transferred to Maryland LLC immediately prior to the Closing.
Maryland LLC has engaged in no activities or business other than (1) customary
activities in connection with its organization and (ii) the transactions
contemplated hereby.
SECTION 3.28. Bonds. Schedule 3.28 contains a list of all franchise,
construction, fidelity, performance or other bonds and copies of all letters of
credit posted by the Sellers or their Affiliates in connection with the Systems
or the Purchased Assets.
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SECTION 3.29. Cut-off Dates. In each month there is only one Cut-off
Date that applies to all of the Systems.
SECTION 33.30. Representations. To the knowledge of the Sellers, the
representations and warranties of the Sellers contained in this Agreement,
disregarding all qualifications and exceptions contained therein relating to
materiality or Material Adverse Effect, are true and correct with only such
exceptions as would not in the aggregate reasonably be expected to have a
Material Adverse Effect.
SECTION 3.31. Affiliates. None of the Affiliates of any Seller (apart
from its own management) participates in the management of any Seller.
SECTION 3.32. DirecTV Agreement. Schedule 3.32 lists (i) each building
which is the subject of any marketing, signal provision or other obligation of
any Seller or any System under the DirecTV Agreement and (ii) each building
which pursuant to the DirecTV Agreement is being provided with DirecTV signal
at the date of this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers as of the date hereof
and as of the Closing Date that:
SECTION 4.01. Corporate Existence and Power. The Buyer is a
corporation duly incorporated, validly existing and in good standing under the
laws of Pennsylvania and has all corporate powers and all material governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted.
SECTION 4.02. Corporate Authorization. The execution, delivery and
performance by the Buyer of this Agreement and the consummation of the
transactions contemplated hereby are within the corporate powers of the Buyer
and have been duly authorized by all necessary corporate action on the part of
Buyer. This Agreement constitutes a valid and binding agreement of the Buyer.
SECTION 4.03. Noncontravention. The execution, delivery and
performance by the Buyer of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (i) violate the
certificate of
(NY) 05726/097/AGT!rnid.aL&ps.agLcoaonn.wpd
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incorporation or bylaws of the Buyer, (ii) assuming receipt of all consents and
the taking of all other actions under the Systems Licenses and the Systems
Franchises, violate any applicable material law, rule, regulation, judgment,
injunction, order or decree or require any action by or filing with any
Governmental Authority other than compliance with any applicable requirements
of the HSR Act or (iii) constitute a default under any agreement or contract
binding on the Buyer or any of its Affiliates.
SECTION 4.04. Financing. The Buyer has, or will have prior to the
Closing, sufficient cash, available lines of credit or other sources of
immediately available funds to enable it to make payment of the Estimated
Purchase Price and any other amounts to be paid by it hereunder.
SECTION 4.05. Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of the Buyer threatened against
or affecting, the Buyer before any court or arbitrator or any governmental
body, agency or official which in any manner challenges or seeks to prevent,
enjoin, alter or materially- delay the transactions contemplated by this
Agreement.
SECTION 4.06. Finders' Fees. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of the Buyer who might be entitled to any fee or commission from the
Sellers or any of their Affiliates upon consummation of the transactions
contemplated by this Agreement.
ARTICLE 5
COVENANTS OF SELLER
The Sellers jointly and severally agree that:
SEC'noN5.01. Conduct of the Business. From the date hereof until the
Closing Date, the Sellers shall (i) operate the Systems in the ordinary course
consistent with past practice (including completing line extensions, placing
conduit or cable in new developments, fulfilling installation requests and
continuing work on existing construction projects and including subscriber
acquisition and retention); (ii) use their reasonable best efforts to preserve
intact their business organizations and relationships with third parties and to
keep available the services of the employees presently employed in the
operation of the Systems; (iii) continue normal marketing, advertising and
promotional expenditures with respect to the Systems; and (1v) make capital
expenditures
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consistent with past practice. Without limiting the generality of the
foregoing, from the date hereof until the Closing Date, except as set forth on
Schedule 5.01, none of the Sellers will, without the consent of the Buyer, not
to be unreasonably withheld:
(a) modify, terminate, renew, suspend or abrogate any
contract which, if entered into prior to Closing, would be a Material
Contract (except as contemplated in Section 5.06) or enter into any
such contract;
(b) enter into any transaction or take any action that would
result in any of its representations and warranties in this Agreement
or in any of the documents required to be delivered by this Agreement
(without any qualification as to materiality or Material Adverse
Effect) not being true and correct in all material respects when made
or at Closing (unless and to the extent that any such representation
or warranty speaks specifically as of an earlier date, in which case,
at such earlier date),-
(c) - engage in any marketing, Subscriber installation or
collection practices other than in the ordinary course of business and
consistent with past practice;
(d) change the rate charged for any level of cable
television service including, without limitation, any level of basic,
tiered or pay cable television service, or retire its channels-,
(e) add or delete any channels from any System, or change
the channel lineup in any System or commit to do so in the future;
(f) enter into or amend any contact or commitment of any
kind (including any renewal of any existing contract) relating to the
Systems which would be binding on the Buyer after Closing and which
relates to the use of the Purchased Assets to provide, or the
provision by the Systems of, telephone or high speed data services;
(g) add a television broadcast signal which would qualify as
a distant signal under Section III of the Copyright Act and the rules,
regulations, and policies of the United States Copyright Office if
carried on (i) a System; or (ii) any cable television system operated
by the Buyer which is contiguous to a System;
(h) other than sticking or stay bonuses paid by Sellers
prior to or at the Closing, grant or agree to grant to any employee of
the Systems any increase in (i) wages or bonuses except in the
ordinary course of business,
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or (ii) any severance, profit sharing, retirement, deferred
compensation, insurance or other compensation or benefits;
(i) enter into any contract with any current or prospective
employee of the Systems;
(j) enter into any contract or commitment which would
require capital expenditure to be made in respect of the Systems at
any time after the Closing;
(k) sell, assign, license, transfer or otherwise dispose of
any personal property that would be included in the Purchased Assets
if owned at Closing except for (i) the disposition of obsolete or
worn-out equipment, or (ii) dispositions of equipment replaced with
equipment of at least equal value;
(1) mortgage, pledge or subject to any material Lien that
would survive the Closing any of its Purchased Assets or the Systems
other than Permitted Liens;
(m) except as disclosed in writing to the Buyer prior to the
date hereof, make any cost-of-service or hardship election under the
Rules and Regulations adopted under the Cable Television Consumer
Protection and Competition Act of 1992; or
(n) agree or commit to do any of the foregoing;
provided that in the case of (a), (b), (d) and (e) above, such action
will be permitted to the extent it is (i) in the ordinary course of business,
(ii) consistent with the past practice of the Systems, (iii) would not
reasonably be expected to adversely affect the Systems or any of the Purchased
Assets and (iv) in the case of (d) and (e), related only to Private Cable
Agreements in areas where there is no Systems Franchise. Immediately prior to
Closing, Sellers shall be permitted to update the Schedules hereto to reflect
any actions permitted under the proviso to the preceding sentence.
Without prejudice to any other remedy that the Buyer may have in
respect of any breach of this Agreement in the event that any Seller takes any
action specified in Section 5.010) without the consent of the Buyer, the
parties agree that the Buyer shall in its absolute discretion be entitled to
treat the relevant contract or commitment made in contravention of Section
5.010) and any contracts or other assets related thereto as Excluded Assets,
and any liability or obligation in respect of any such contract, commitment or
asset as an Excluded Liability in
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which event, any Subscriber or revenue under any such contract shall not be
counted in determining Relevant Subscribers or Revenue for any purpose.
SECTION 5.02. Affirmative Covenants. Between the date of this
Agreement and the Closing, each of the Sellers will, with respect to each of
the Systems and each of the Purchased Assets:
(a) perform all of its obligations under all of the Systems
Franchises, Systems Licenses and Systems Contracts without material
breach or default and in compliance with all material Legal
Requirements;
(b) maintain or cause to be maintained (i) the Purchased
Assets in good condition and repair, ordinary wear and tear excepted,
and (ii) in full force and effect all existing policies of insurance
with respect to the Purchased Assets and the operation of the Systems,
in such amounts and with respect to such risks as are customarily
maintained by operators of cable television systems of the size and in
the geographic location of the Systems; -
(c) maintain or cause to be maintained its books, records and
accounts with respect to the Purchased Assets and the operation of the
Systems in the usual, regular and ordinary manner on a basis
consistent with past practices;
(d) (i) give or cause to be given to the Buyer, and its
counsel, accountants and other representatives, reasonable access
during normal business hours to the Systems, the Owned Property, the
Leased Property, the Purchased Assets, its Books and Records (to the
extent relating to the Purchased Assets or the Systems) and the
Systems' personnel; (ii) furnish or cause to be furnished to the Buyer
and such representatives all such additional documents, financial
information and other information as the other from time to time
reasonably may request; and (iii) instruct its employees and agents to
cooperate with the Buyer in its investigation; provided that no
investigation will affect or limit the scope of any of the
representations and warranties;
(e) within 10 Business Days after provision by the Buyer of
all necessary documentation required from it to allow the Sellers to
file FCC Forms 394 with respect to the Systems Franchises, file all
such FCC Forms 394 and in any event, use its commercially reasonable
efforts to obtain in writing as promptly as possible the Required
Consents and any other consents, required for the transfer of any
Purchased Asset and any other authorization or approval required to be
obtained by the Sellers in
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connection with the transactions contemplated hereunder (and will
deliver to the Buyer copies of any such Required Consents,
authorizations or approvals as it obtains, in each case in form and
substance reasonably satisfactory to the Buyer; provided, however,
that the Sellers will afford the Buyer the opportunity to review and
approve the form of any Required Consent prior to delivery to the
party whose consent is sought and the Sellers will not accept or agree
or accede to any modifications or amendments to, or any conditions to
the transfer of, any of the Systems Franchises, Systems Licenses,
Systems Contracts or Real Property Interests of the Systems that are
not approved in writing by the Buyer. The Sellers agree, upon
reasonable prior notice, to allow representatives of the Buyer to
attend meetings and hearings before applicable Governmental
Authorities in connection with the transfer of any Systems License or
Systems Franchise;
(f) give or cause to be given to the Buyer, and its counsel,
accountants and other representatives, as soon as reasonably possible
but in any event prior to the date of submission to the appropriate
Governmental Authority, copies of all FCC Forms 1200, 1205, 1210,
1215, 1220 and 1240 or any other FCC Forms required under the
regulations of the FCC promulgated under the Cable Act that are
prepared with respect to the Systems; and before such Forms are filed,
the parties will consult in good faith concerning the contents of such
forms;
(g) give, or cause to be given to the Buyer, and its
counsel, (i) a copy of all copyright returns to be filed by any Seller
in connection with the Systems at least 10 days prior to filing such
copyright returns (and consult with the Buyer in relation thereto) and
(ii) a copy of all notifications received with respect to Subscriber
complaints;
(h) give, or cause to be given to the Buyer, and its counsel
all correspondence from television broadcast stations with respect to
must carry and retransmission consents or obligations and consult in
advance with the Buyer or cause the Buyer to be consulted in advance
in respect of all correspondence to television broadcast stations with
respect to such consents or obligations;
(i) maintain inventory sufficient for the operation of the
Systems in the ordinary course of business for a period of at least 30
days;
(j) promptly notify the Buyer of any circumstance, event or
action (i) which, if known at the date of this Agreement would have
been required to be disclosed in or pursuant to this Agreement, or
(ii) the
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existence, occurrence or taking of which would result in any of its
representations or warranties in this Agreement (without any
qualification as to materiality or Material Adverse Effect) not being
true and correct in all material respects when made or at Closing
(unless and to the extent that any such representation or warranty
speaks specifically as of an earlier date, in which case, at such
earlier date), and, with respect to clause (ii), use its commercially
reasonable efforts to remedy the same;
(k) renew or extend the Program Affiliation Agreement with
Home Team Sports Limited Partnership dated April 1, 1997 on such terms
that (i) the Systems shall continue to be entitled to provide the Home
Team Sports Channel to their Subscribers for the period between
December 31, 1999 (the current expiration of such agreement) and the
Closing Date, (ii) the agreement will, effective as of the Closing
Date, cease and terminate without any further liability or obligation
on the part of any party thereto and (iii) are otherwise reasonably
acceptable to Buyer;
(1) (i) use commercially reasonable efforts to ensure that
on or prior to the Closing Date, the Southern Management Litigation
will have been resolved by a binding settlement between the parties
thereto (on terms reasonably satisfactory to the Buyer) or a
nonappealable, final order of a court of competent jurisdiction which
(A) terminates any and all claims of both parties thereto against each
other, (B) allows for the provision of services by Telcom Plus, its
assigns and successors to the Southern Management Buildings pursuant
to the terms and conditions of the Southern Management Agreement, and
(C) enjoins Southern Management from removing Telcom Plus' rooftop
facilities from the Middletowne apartments serviced pursuant to the
Southern Management Agreement, (ii) take such actions as are necessary
so that on the Closing Date, Sellers will not be in breach of any
agreements existing between Southern Management and Telcom Plus as of
such date and (iii) use commercially reasonable efforts to obtain
consent of RMTS and Southern Management to assign all rights and
liabilities under the Southern Management Agreement with respect to
the provision of cable service, to Buyer, and with respect to the
provision of telephony service, to RMTS and to enter into such
arrangements conditional upon the Closing and otherwise on terms and
conditions reasonably satisfactory to the Buyer, and
(m) use commercially reasonable efforts to obtain consents for
(i) the existing installation by the Systems of antennas,
transmitters, pole mounts, microwave facilities, satellites and any
other similar equipment on the rooftops of the Roof Rights Buildings
and (ii) the operation of such
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equipment for the purpose of providing cable television service,
telecommunication service or any services related thereto to
Subscribers of the Systems, such consents to be on terms and
conditions reasonably satisfactory to Buyer.
SECTION 5.03. Certain Notices. The Sellers will cause to be timely
filed a request for renewal under Section 626 of the Cable Act with the proper
Governmental Authority with respect to cable franchises that will expire within
36 months after any date between the date of this Agreement and the Closing
Date.
SECTION 5.04. Subscriber Billing Services. The Sellers will provide to
the Buyer, upon written request received by the Sellers no later than the date
the Buyer reasonably believes is 30 days prior to Closing, Subscriber billing
services in connection with the Systems for a period of up to 180 days
following Closing to allow for conversion of existing or replacement billing
arrangements ("Transitional Billing Services"). All Transitional Billing
Services will be provided at the Buyer's expense on terms and conditions
reasonably satisfactory to both parties and at the actual out-of-pocket cost to
the Sellers.
SECTION 5.05. Cooperation as to Rates. (a) If at any time prior to
Closing, any Governmental Authority commences a Rate Regulatory Matter (as
defined below) with respect to the Systems, the Sellers will (i) promptly
notify the Buyer, and (ii) keep the Buyer informed as to the progress of any
such proceeding. Without the prior consent of the Buyer, which consent shall
not be unreasonably withheld, the Sellers will not settle any such Rate
Regulatory Matter, either before or after Closing, if (a) the Buyer would have
any obligation under such settlement, or (b) such settlement would reduce the
rates permitted to be charged by the Buyer after Closing below the rates set
forth on Schedule 3.12, as applicable. Notwithstanding anything to the contrary
herein, after Closing the Buyer will have the right at its own expense, to
assume control of the defense of any pending Rate Regulatory Matter.
(b) For purposes hereof, "Rate Regulatory Matter" means any proceeding
or investigation with respect to the Systems arising out of or related to the
Cable Act dealing with, limiting or affecting the rates which can be charged by
the Systems for programming, equipment, installation, service or otherwise.
SECTION 5.06. Franchise Expirations. Prior to Closing, the Sellers
will use commercially reasonable efforts to obtain renewals or valid extensions
of Systems Franchises in the ordinary course of business, such renewals or
extensions to be on terms reasonably satisfactory to the Buyer. The Sellers
will not agree or accede to any modifications or amendments to, or the
imposition of any condition to the transfer of, any of the System Franchises
that are not
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acceptable to the Buyer. The Sellers agree, upon reasonable prior notice, to
allow representatives of the Buyer to attend meetings and hearings before
applicable Governmental Authorities in connection with the renewal or extension
of any Systems License or Systems Franchise.
SECTION 5.07. Distant Broadcast Signals. If Closing shall occur on or
after December 31, 1999, unless otherwise restricted or prohibited by any
Governmental Authority or applicable Legal Requirement, each Seller will delete
prior to midnight on December 31, 1999 or if Closing is on December 31, 1999,
prior to Closing, any distant broadcast signals set out in Schedule 5.07 and,
if requested by the Buyer, any other distant broadcast signals which Buyer
determines will result in unacceptable liability on the part of the Buyer for
copyright payments with respect to continued carriage of such signals after
such date.
SECTION 5.08. Confidentiality. After the Closing, the Sellers and
their Affiliates will hold, and will use their best efforts to cause their
respective officers, directors,- employees, accountants, counsel, consultants,
advisors and agents to hold, in confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of law, all
confidential documents and information concerning the Systems, except to the
extent that such information can be shown to have been (i) in the public domain
through no fault of any Seller or any of their Affiliates or (ii) later
lawfully acquired by the Sellers from sources other than those related to their
prior ownership of the Systems. The obligation of the Sellers to hold any such
information in confidence shall be satisfied if they exercise the same care
with respect to such information as they would take to preserve the
confidentiality of their own similar information.
SECTION 5.09. Notices of Certain Events. The Sellers shall promptly
notify the Buyer of
(a) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental
or regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(c) the damage or destruction by fire or other casualty of
any Purchased Asset or part thereof or in the event that any Purchased
Asset or part thereof becomes the subject of any proceeding or, to the
knowledge of it or any Seller, threatened proceeding for the taking
thereof or any pan
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thereof or of any right relating thereto by condemnation, eminent
domain or other similar governmental action.
SECTION 5.10. RMTS. If the Buyer terminates this Agreement pursuant to
Section 12.01 (c), then without prejudice to any other right of the Buyer under
this Agreement or any other remedy available to the Buyer, the Sellers shall
within 2 Business Days of such termination pay to the Buyer in immediately
available funds by wire transfer the amount of $1,500,000 to an account
designated by the Buyer. In addition, if Closing does not occur as a result of
any action taken by or omission of RMTS (including the failure to give any
consent or authorization or to sign any necessary documentation necessary for
the consummation of the transaction contemplated hereby), then: (a) the Sellers
jointly and severally agree to reimburse the Buyer for the Buyer's
out-of-pocket expenses incurred in connection with the transactions
contemplated hereby including the preparation and negotiation of the letter of
intent between the parties dated August 5, 1999 and this Agreement and in
conducting its due diligence exercise; and (b) in the event RMTS or any other
person or entity directly or indirectly acquires any or all of the Systems
within 18 months of the date hereof (in any form of transaction), then the
Sellers jointly and severally agree to pay the Buyer an amount in cash with
respect to each System acquired equal to: (i) (A) the purchase price paid in
such acquisition (including any consideration received by any of the Sellers
(or any of their affiliates, partners, officers or employees) in any other
transactions which relate to or are on account of the acquisition and including
any debt assumed in such acquisition), less (B) the portion of the Purchase
Price that the Buyer would have paid for such System under this Agreement if
this Agreement had been consummated in accordance with its terms (assuming for
these purposes that the proportion of the Purchase Price attributable to such
System was equal to the proportion of the Closing Basic Subscriber Number for
all of the Systems that would have been attributable to such acquired System)
multiplied by (ii) I minus the percentage ownership of all other owners in the
entity selling the System as of the date of such acquisition.
SECTION 5.11. Non-competition Agreement. Sellers will cause each of
the parties to the Non-Competition Agreement other than the Buyer to execute
and deliver to the Buyer at the Closing the Non-Competition Agreement.
SECTION 5.12. Risk of Loss; Condemnation. (a) The Sellers will bear
the risk of any loss or damage to the Purchased Assets at all times prior to
the Closing. If the Buyer elects to consummate the transactions contemplated by
this Agreement notwithstanding any such loss or damage that has not been
repaired prior to the Closing, and does so, all insurance proceeds payable as a
result of the occurrence of the event resulting in such loss or damage will be
delivered by the
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Sellers to the Buyer, or the rights to such proceeds will be assigned by the
Sellers to the Buyer if not yet paid over to the Sellers.
(b) If, prior to the Closing, all or any part of or interest in the
Purchased Assets is taken or condemned as a result of the exercise of the power
of eminent domain, or if a Governmental Authority having such power informs a
Seller or the Buyer that it intends to condemn all or any part of or interest
in the Purchased Assets and such taking is so substantial as to prevent normal
operation of any material portion of any of the Systems (such event being
called, in either case, a "Taking"), then the Buyer may terminate this
Agreement. If the Buyer does not elect to terminate this Agreement, then (i)
the Buyer will have the sole right, in the name of the Sellers, if the Buyer so
elects, to negotiate for, claim, contest and receive all damages with respect
to the Taking, (ii) the Sellers will be relieved of their obligation to convey
to the Buyer the Purchased Assets or interests that are the subject of the
Taking, (iii) at the Closing, the Sellers will assign to the Buyer all of their
rights to all damages payable with respect to such Taking and will pay to the
Buyer all damages previously paid to the Sellers with respect to the Taking and
(iv) following the Closing, the Sellers will give the Buyer such further
assurances of such rights and assignment with respect to the Taking as the
Buyer may from time to time reasonably request.
SECTION 5.13. Delivery of Financial Information. The Sellers shall
deliver to the Buyer within 45 days after the end of each month ending between
the date of this Agreement and the Closing Date a statement of revenue relating
to the Systems for the month previously ended and such other financial
information relating to the Systems as the Buyer may reasonably request. The
revenue statements delivered by the Sellers to the Buyer pursuant to this
Section shall be in accordance with the books and records of the Systems and
shall present fairly in all material respects the revenue of the Systems for
the year-to-date periods then ended. Promptly after the preparation thereof,
the Sellers shall deliver to the Buyer copies of any other financial
statements, Subscriber counts, management reports and other operational data
regularly prepared by any Seller for internal use.
SECTION 5.14. Use of Sellers' Names and Logos. For a period of six
months after the Closing, the Buyer shall be entitled to use the trademarks,
trade names, service marks, service names, logos and similar proprietary rights
of the Sellers that are not to be acquired by the Buyer pursuant to this
Agreement (including the Excluded Names) to the extent incorporated in or on
the Purchased Assets transferred to the Buyer at the Closing, provided that the
Buyer shall exercise reasonable efforts to remove all such names, marks, logos
and similar proprietary rights from such Purchased Assets as soon as reasonably
practicable following Closing. Notwithstanding the foregoing, the Buyer will
not be required
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to remove or discontinue using any such name or mark that is affixed to
converters or other items in or to be used in customer homes or properties, or
as are used in similar fashion, to the extent that such removal or
discontinuation is impracticable for the Buyers.
SECTION 5.15. Capital Leases. On or prior to Closing, the Sellers
shall pay the remaining balance of any capital lease, if any, for any Purchased
Asset and deliver the title to such Purchased Asset free and clear of all Liens
under any such lease to the Buyer at the Closing.
SECTION 5.16. Access. Buyer shall, for a period of seven years from
the Closing Date, have access to, and the right to copy, at its expense, for
bonafide business purposes and during usual business hours upon reasonable
prior notice to the Sellers, all books and records of the Sellers and their
Affiliates relating to the Sellers, the Purchased Assets or the operation of
the Systems prior to the Closing. The Sellers and their Affiliates shall retain
and preserve, and cause to be retained and preserved, all such books and
records for such seven year period; provided that they may destroy any such
books and records if they notify the Buyer of their intention to do so and
offer the Buyer an opportunity to take any such books and records that they
intend to destroy.
SECTION 5.17. Proceeds Sharing Arrangements, One-off Fees Etc. To the
extent the execution of this Agreement or the transfer of any of the Purchased
Assets gives rise to an obligation on the part of the Systems or any Seller to
make a payment to any Person, then such obligation, including, without
limitation, any such obligation in any of the contracts listed on Schedule
3.08(a)(x), shall be the responsibility of the Sellers and shall be discharged
by the Sellers prior to the Closing. Any commitment entered into by any Seller
at any time prior to Closing to make any one-time marketing fee, door fee,
access fee or other similar payment shall be for the account of and paid by the
Sellers.
SECTION 5.18. FCC Applications. The Sellers shall fully cooperate in
filing applications for the consent to assignment of the FCC licenses and the
pending licenses disclosed in Schedule 3,08(a)(iii) to the Buyer or its
designee. At the Buyer's request the Sellers shall cooperate with the Buyer in
the preparation of applications by the Buyer to obtain the FCC licenses
necessary to operate the facilities for which applications have been filed by
the Sellers (the "Pending Licenses") and which are designated in Schedule
3.08(a)(iii). Such cooperation shall include, but shall not be limited to,
prior to Closing (i) withdrawal of Sellers' applications for the Pending
Licenses and (ii) notification to Sellers' frequency coordinator that Sellers
intend to withdraw the applications for the Pending Licenses and that such
coordinator shall substitute the Buyer in the coordination study as the
designated applicant for the Pending Licenses. The
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timing of any such withdrawal of Sellers' pending applications shall be at the
Buyer's election.
ARTICLE 6
COVENANTS OF BUYER
The Buyer agrees that:
SECTION 6.01. Confidentiality. Prior to the Closing Date and after any
termination of this Agreement, the Buyer and its Affiliates will hold, and will
use their best efforts to cause their respective officers, directors,
employees, accountants, counsel, consultants, advisors and agents to hold, in
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law, all confidential documents and information
concerning the Systems furnished to the Buyer or its Affiliates in connection
with the transactions contemplated by this Agreement, except to the extent that
such information can be shown to have been (i) previously known on a
nonconfidential basis by the Buyer, (ii) in the public domain through no fault
of the Buyer or (iii) later lawfully acquired by the Buyer from sources other
than any Seller; provided that the Buyer may disclose such information to its
officers, directors, employees, accountants, counsel, consultants, advisors and
agents in connection with the transactions contemplated by this Agreement and
to its lenders or other Persons in connection with obtaining financing so long
as such Persons are informed by the Buyer of the confidential nature of such
information and are directed by the Buyer to treat such information
confidentially. The obligation of the Buyer and its Affiliates to hold any such
information in confidence shall be satisfied if they exercise the same care
with respect to such information as they would take to preserve the
confidentiality of their own similar information. If this Agreement is
terminated, the Buyer and its Affiliates will, and will use their best efforts
to cause their respective officers, directors, employees, accountants, counsel,
consultants, advisors and agents to, destroy or deliver to the Sellers, upon
request, all documents and other materials, and all copies thereof, obtained by
the Buyer or its Affiliates or on their behalf from the Sellers in connection
with this Agreement that are subject to such confidence.
SECTION 6.02. Non-Solicitation of Employees. From the date hereof
until one year from the date hereof or, if later, the date upon which this
Agreement is terminated in accordance with its terms, the Buyer will not employ
or actively solicit for employment (including as an independent contractor) any
person who is on the date of this Agreement an employee of any Seller and who
is not within 30
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days after Closing a Transferred Employee; provided that the Buyer may employ
or actively solicit any such employee (i) whose employment is terminated by
such Seller or (ii) whose employment otherwise ceases with such Seller,
provided that in the case of clause (ii), the Buyer may not employ or actively
solicit any such employee until after the six-month anniversary of the date of
such employee's separation from such Seller.
SECTION 6.03. Access. For a period of seven years after the Closing
Date, the Buyer will afford promptly to any Seller and its agents reasonable
access to its properties, books, records, employees and auditors to the extent
necessary to permit such Seller to determine any matter relating to its rights
and obligations hereunder or to any period ending on or before the Closing
Date; provided that any such access by Sellers shall not unreasonably interfere
with the conduct of the business of the Buyer. The Sellers will hold, and will
use their best efforts to cause their officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning the
Buyer or the Systems provided to any of them pursuant to this Section.
ARTICLE 7
COVENANTS OF BUYER AND SELLER
The Buyer and the Sellers agree that:
SECTION 7.01. Commercially Reasonable Efforts; Further Assurances.
(a) Subject to the terms and conditions of this Agreement, they will each use
commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary or desirable under applicable
laws and regulations to consummate the transactions contemplated by this
Agreement. The Sellers and the Buyer agree to execute and deliver such other
documents, certificates, agreements and other writings and to take such other
actions as may be necessary or desirable in order to consummate or implement
expeditiously the transactions contemplated by this Agreement and to vest in
the Buyer (or, in the case of the Maryland Assets, Maryland LLC) good and
marketable title to the Purchased Assets and the Maryland Shares. The Buyer
and Seller will cooperate in good faith and use commercially reasonable
efforts to obtain the consents, effectuate the transfers and consummate the
contract renewals contemplated in this Agreement before and after the Closing
provided that such consents, transfers or renewals shall be free from any
materially adverse conditions (in the reasonable
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judgment of the Buyer) and provided that the Buyer shall not be obliged to take
any action and none of the Sellers shall take any action that may adversely
affect the Buyer, the Systems or any Purchased Asset.
(b) The Sellers each hereby constitute and appoint, effective as of
the Closing Date, the Buyer and its successors and assigns as their true and
lawful attorney with full power of substitution in the name of the Buyer, or in
their name but for the benefit of the Buyer, (i) to collect for the account of
the Buyer any items of Purchased Assets and (ii) to institute and prosecute all
proceedings which the Buyer may in its sole discretion deem proper in order to
assert or enforce any right, title or interest in, to or under the Purchased
Assets, and to defend or compromise any and all actions, suits or proceedings
in respect of the Purchased Assets. The Buyer shall be entitled to retain for
its own account any amounts collected pursuant to the foregoing powers,
including any amounts payable as interest in respect thereof.
SECTION 7.02. Certain Filings. (a) The Sellers and the Buyer shall
cooperate with one another (i) in determining whether any action by or in
respect of, or filing with, any governmental body, agency, official or
authority is required, or any actions, consents, approvals or waivers are
required to be obtained from parties to any material contracts, in connection
with the consummation of the transactions contemplated by this Agreement and
(ii) in taking such actions or making any such filings, furnishing information
required in connection therewith and seeking timely to obtain any such
actions, consents, approvals or waivers.
(b) The Buyer agrees to make an appropriate filing of a Notification
and Report Form pursuant to the HSR Act with respect to the transactions
contemplated hereby within 15 days after the date of execution of this
Agreement. Notwithstanding any other provision of this Agreement the Buyer
shall not be required to enter into any consent decree or to dispose or hold
separate any assets or otherwise agree to any action which may adversely affect
the Buyer, the Systems or any Purchased Asset in order to satisfy the
objections of any Governmental Authority in connection with the HSR Act. All
filing fees under the HSR Act shall be paid by the Buyer.
SECTION 7.03. Public Announcements. The parties agree to consult with
each other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except
as may be required by applicable law or any listing agreement with any national
securities exchange or quotation system, will not issue any such press release
or make any such public statement prior to such consultation.
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SECTION 7.04. Warn Act. The parties agree to cooperate in good faith
to determine whether any notification may be required under the Worker
Adjustment and Retraining Notification Act (the "WARN Act") as a result of the
transactions contemplated by this Agreement. The Buyer will be responsible for
providing any notification that may be required under the WARN Act with respect
to any Transferred Employees. The Sellers will be responsible for providing any
notification that may be required under the WARN Act with respect to any
employees of the Systems that are not Transferred Employees.
ARTICLE 8
TAX MATTERS
SECTION 8.01. Tax Definitions. The following terms, as used herein, have
the following meanings:
"Code" means the Internal Revenue Code of 1986, as amended.
"Pre-Closing Tax Period" means (i) any Tax Period ending on or before
the Closing Date and (ii) with respect to a Tax Period that commences before
but ends after the Closing Date, the portion of such period up to and including
the Closing Date.
"Tax" means (i) any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, registration, recording, documentary,
conveyancing, gains, withholding on amounts paid to or by any Seller, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom duty, any payment required to be
made to any state abandoned property administrator or other public official
pursuant to an abandoned property, escheat or similar law or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalty, addition to tax or additional amount
imposed by any governmental authority (a "Taxing Authority") responsible for
the imposition of any such tax (domestic or foreign), or (ii) liability for the
payment of any amounts of the type described in (i) as a result of being party
to any agreement or any express or implied obligation to indemnify any other
Person.
SECTION 8.02. Tax Matters. The Sellers hereby jointly and severally
represent and warrant to the Buyer that:
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(a) each of the Sellers has timely paid all Taxes, and all
interest and penalties due thereon and payable by it for the
Pre-Closing Tax Period which will have been required to be paid on or
prior to the Closing Date, the non-payment of which would result in a
Lien on any Purchased Asset, would otherwise adversely affect the
Systems or would result in the Buyer becoming liable or responsible
therefor.
(b) each of the Sellers has established, in accordance with
generally accepted accounting principles applied on a basis consistent
with that of preceding periods, adequate reserves for the payment of,
and will timely pay all Tax liabilities, assessments, 'interest and
penalties which arise from or with respect to the Purchased Assets or
the operation of the Systems and are incurred in or attributable to
the Pre-Closing Tax Period, the non-payment of which would result in a
Lien on any Purchased Asset, would otherwise adversely affect the
Systems or would result in the Buyer becoming liable therefor.
SECTION 8.03. Tax Cooperation; Allocation of Taxes. (a) The Buyer and
the Sellers agree to furnish or cause to be furnished to each other, upon
request, as promptly as practicable, such information and assistance relating
to the Systems and the Purchased Assets (including, without limitation, access
to books and records) as is reasonably necessary for the filing of all Tax
returns, the making of any election relating to Taxes, the preparation for any
audit by any taxing authority, and the prosecution or defense of any claim,
suit or proceeding relating to any Tax. The Buyer and the Sellers shall retain
all books and records with respect to Taxes pertaining to the Purchased Assets
for a period of at least six years following the Closing Date. At the end of
such period, each party shall provide the other with at least ten days prior
written notice before destroying any such books and records, during which
period the party receiving such notice can elect to take possession, at its own
expense, of such books and records. The Sellers, the Sellers' Agent and the
Buyer shall cooperate with each other in the conduct of any audit or other
proceeding relating to Taxes involving the Purchased Assets or the Systems.
(b) All real property taxes, personal property Taxes and similar ad
valorem obligations levied with respect to the Purchased Assets for a taxable
period which includes (but does not end on) the Closing Date (collectively, the
"Apportioned Obligations") shall be apportioned between the Sellers and the
Buyer based on the number of days of such taxable period included 'in the
Pre-Closing Tax Period and the number of days of such taxable period after the
Closing Date (with respect to any such taxable period, the "Post-Closing Tax
Period"). The Sellers shall be liable for the proportionate amount of such
Taxes that is attributable to the Pre-Closing Tax Period, and the Buyer shall
be liable for
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the proportionate amount of such Taxes that is attributable to the Post-Closing
Tax Period. Upon receipt of any bill or payment of any amount with respect to
any Apportioned Obligations for which it is entitled to reimbursement under
this Section 8.03(b), each of the Sellers' Agent and the Buyer shall present a
statement to the other setting forth the amount of reimbursement to which each
is entitled under this Section 8.03(b) together with such supporting evidence
as is reasonably necessary to calculate the proration amount. The proration
amount shall be paid by the party owing it to the other within 10 days after
delivery of such statement.
I
(c) Subject to Section 13. 10, all excise, sales, use, value added,
registration stamp, recording, documentary, conveyancing, franchise, property,
transfer, gains and similar Taxes, levies, charges and fees (collectively,
"Transfer Taxes") incurred in connection with the transactions contemplated by
this Agreement shall be borne by the Sellers. The Buyer and Seller shall
cooperate in providing each other with any appropriate resale exemption
certifications and other similar documentation. The party that is required by
applicable law to make the filings, reports, or returns with respect to any
applicable Transfer Taxes shall do so, and the other party shall cooperate with
respect thereto as necessary.
ARTICLE 9
EMPLOYEE BENEFITS
SECTION 9.01. Employee Benefits Definitions. The following terms, as
used herein, having the following meanings:
"Employee Plans" means the plans referred to in the first sentence of
Section 9.02.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" of any entity means any other entity which,
together with such entity, would be treated as a single employer under Section
414 of the Code.
"Multiemployer Plan" means each Employee Plan that is a multiemployer
plan, as defined in Section 3(37) of ERISA.
SECTION 9.02. ERISA Representations. The Sellers hereby jointly and
severally represent and warrant to the Buyer that:
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(a) Schedule 9.02(a) lists each employee benefit plan, as
such term is defined in Section 3(3) of ERISA, each employment,
severance or similar contract, plan, arrangement or policy and each
other plan or arrangement providing for compensation, bonuses,
profit-sharing, stock option or other stock-related rights or other
forms of incentive or deferred compensation, health or medical
benefits, disability benefits, workers' compensation, supplemental
unemployment benefits, severance benefits or post-employment pension
or welfare benefits, which (i) is maintained, administered or
contributed to by any Seller or any of their ERISA Affiliates and (ii)
covers any individual primarily employed in connection with the
Systems (a "Systems Employee") (hereinafter referred to collectively
as the "Employee Plans"). Notwithstanding the foregoing, the term
"Employee Plans" shall not include, and Schedule 9.02(a) shall not be
required to list, any "stay" or "sticking" bonus or similar
arrangement intended to provide incentives for employees to remain
employed through the Closing Date, and for which Sellers will retain
all liability on and after the Closing Date (a "Stay Bonus"). With
respect to each Employee Plan, the Sellers have provided the Buyer
with a true and complete copy of such plan document.
(b) No Employee Plan is a Multiemployer Plan and no Employee
Plan is subject to Title IV of ERISA. Neither any Seller nor any of
their Affiliates has incurred any liability under Title IV of ERISA
arising in connection with the termination of any plan covered or
previously covered by Title IV of ERISA that could become, after the
Closing Date, an obligation of Buyer or any of its Affiliates.
(c) Each Employee Plan which is intended to be qualified
under Section 401 (a) of the Code is so qualified and has been so
qualified during the period from its adoption to date, and each trust
forming a part thereof is exempt from tax pursuant to Section 501 (a)
of the Code. The Sellers have furnished to the Buyer copies of the
most recent Internal Revenue Service determination letters with
respect to each such Plan.
(d) With respect to Systems Employees, there are no employee
post-retirement medical or health plans in effect, except as required
by Section 601 of ERISA.
(e) The Purchased Assets are not now nor will they after the
passage of time be subject to any Lien imposed under Code Section
412(n) by reason of the failure of any Seller or any of their
Affiliates to make timely installments or other payments required by
Code Section 412.
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(f) Except as disclosed in Schedule 9.02 or pursuant to a
Stay Bonus, no Systems Employee will become entitled to any
retirement, severance or similar benefit or enhanced benefit solely as
a result of the transactions contemplated hereby.
(g) As of the Closing Date, neither any Seller nor any of
their Affiliates will have any liability in respect of accrued
vacation pay for any Systems Employee.
SECTION 9.03. Employees and Offers of Employment. As of the Closing
Date, the Buyer may, in its sole discretion, offer employment to any or all
Systems Employees; provided, that the Buyer may terminate at any time after the
Closing Date the employment of any employee who accepts such offer. The Buyer
shall, no later than 60 days after the date of this Agreement, give notice to
the Sellers of the Systems Employees to whom the Buyer intends to offer
employment. Any such offers shall be at such salary or wage and benefit levels
and on such other terms and conditions as the Buyer shall in its sole
discretion deem appropriate. The Systems Employees who accept and commence
employment with the Buyer are hereinafter collectively referred to as the
"Transferred Employees". Neither the Sellers nor any of their Affiliates will
take any action which would impede, hinder, interfere or otherwise compete with
the Buyer's effort to hire any Systems Employees. The Buyer shall not assume
responsibility for any Systems Employee until such employee commences
employment with the Buyer and, for the avoidance of doubt the Buyer shall not
be obligated to employ any Systems Employee.
SECTION 9.04. Sellers' Employee Benefit Plans. (a) The Sellers shall
retain all obligations and liabilities, including ail obligations in connection
with continuation of group health coverage required pursuant to Section 4980B
of the Code or Section 601, et seq., of ERISA, in respect of each employee or
former employee (including any beneficiary thereof) who is not a Transferred
Employee ("COBRA Obligations"). Except as expressly set forth herein, Seller or
its designated Affiliate shall retain all liabilities and obligations in
respect of benefits accrued as of the Closing Date by Transferred Employees
under its employee benefit and compensatory plans and arrangements (including
without limitation the Employee Plans), and neither the Buyer nor any of its
Affiliates shall have any liability with respect thereto. Except as expressly
set forth herein, no assets of any such plan or arrangement shall be
transferred to the Buyer or any of its Affiliates or to any plan of the Buyer
or any of its Affiliates. Accrued benefits or account balances of Transferred
Employees under any retirement or deferred compensation plan of the Sellers or
any of their Affiliates shall be fully vested as of the Closing Date.
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(b) Without limiting Section 9.04(a), with respect to the Transferred
Employees (including any beneficiary or dependent thereof), the Sellers shall
retain (i) all liabilities and obligations arising under any group life,
accident, medical, dental or disability plan or similar arrangement (whether or
not insured) to the extent that such liability or obligation relates to
contributions or premiums accrued (whether or not payable), or to claims
incurred (whether or not reported), on or prior to the Closing Date, (ii) all
liabilities and obligations arising under any worker's compensation arrangement
to the extent such liability or obligation relates to the period prior to the
Closing Date, including liability for any retroactive worker's compensation
premiums attributable to such period, (iii) all liabilities and obligations
arising under any "sticking" or "stay" bonus or severance or similar plan or
arrangement, and (iv) subject to Section 9.04(c), all other liabilities and
obligations arising under the employee benefit and compensatory plans and
arrangements of the Sellers and any of their Affiliates (including without
limitation the Employee Plans), to the extent any such liability or obligation
relates to the period prior to the Closing Date, including proportional
accruals through the Closing Date and including, without limitation,
liabilities and obligations in respect of accruals through the Closing Date
under any bonus plan or arrangement.
(c) On or prior to the Closing Date, the Sellers shall make any
payments necessary to ensure the accuracy of Section 9.02(g) above.
(d) With respect to any Transferred Employee (including any
beneficiary or dependent thereof) who enters a hospital or is on short-term
disability under any Employee Plan on or prior to the Closing Date and
continues in a hospital or on short-term disability after the Closing Date, the
Sellers shall be responsible (either directly or through the purchase of
insurance) for claims and expenses incurred both before and after the Closing
Date in connection with such Person, to the extent that such claims and
expenses are covered by an Employee Plan, until such time, (if any) that, in
the case of a Transferred Employee, such Person resumes full-time employment
with the Buyer or one of its Affiliates and, in the case of any beneficiary or
dependent of a Transferred Employee, such Person's hospitalization has
terminated. For the avoidance of doubt, the foregoing provisions are not
intended to impose on the Sellers obligations or liabilities except to the
extent required under the terms of any benefit plan or arrangement maintained
by the Sellers or their Affiliates.
(e) With respect to the COBRA Obligations retained by the Sellers
pursuant to the first sentence of Section 9.04(a), the Sellers shall jointly
and severally indemnify the Buyer, against any and all Damages (as defined in
Section 11. 02) arising out of the Sellers' failure to satisfy such COBRA
Obligations.
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SECTION 9.05. Buyer Benefit Plans. (a) The Buyer or one of its
Affiliates y will recognize all service of the Transferred Employees with any
Seller or any of its Affiliates, only for purposes of vesting and eligibility
to participate in those employee benefit plans, within the meaning of Section
3(3) of ERISA, in which the Transferred Employees are enrolled by the Buyer or
one of its Affiliates immediately after the Closing Date.
(b) The Sellers shall cause the Code Section 401(k) plan maintained
for Systems Employees to permit plan distributions, in accordance with
applicable law and regulations, to Transferred Employees as soon as practicable
after the Closing Date. If an employer contribution (other than a deferral or
matching contribution) is made by the Sellers to such plan for 1999, each
Transferred Employee shall be entitled to a pro rata allocation of such
contribution.
SECTION 9.06. No Third Party Beneficiaries. No provision of this
Article shall create any third party beneficiary or other rights in any
employee or former employee (including any beneficiary or dependent thereof) of
any Seller or of any of its subsidiaries in respect of continued employment (or
resumed employment) with either the Buyer or the Systems or any of their
Affiliates and no provision of this Article 9 shall create any such rights in
any such Persons in respect of any benefits that may be provided, directly or
indirectly, under any Employee Plan or any plan or arrangement which may be
established by the Buyer or any of its Affiliates. No provision of this
Agreement shall constitute a limitation on rights to amend, modify or terminate
after the Closing Date any such plans or arrangements of the Buyer or any of
its Affiliates.
ARTICLE 10
CONDITIONS TO CLOSING
SECTION 10.01. Conditions to Obligations of the Buyer and the Sellers.
The obligations of the Buyer and the Sellers to consummate the Closing are
subject to the satisfaction of the following conditions:
(a) Any applicable waiting period under the HSR Act relating
to the transactions contemplated hereby shall have expired or been
terminated.
(b) No provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation
of the Closing.
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SECTION 10.02. Conditions to Obligation of the Buyer. The obligation
of the Buyer to consummate the Closing is subject to the satisfaction, or
waiver by the Buyer at its absolute discretion, of the following further
conditions:
(a) The Sellers having obtained in form and substance
reasonably satisfactory to the Buyer: (i) all required consents to the
transfer to the Buyer of: (A) the Systems Franchises; (B) a number of
Private Cable Service Agreements, such that the Closing Basic
Subscriber Number for Subscribers served under Private Cable Service
Agreements which did not require consent to assignment or where the
required consent to assignment was received by Closing, is not less
than 95% of the Closing Basic Subscriber Number for Subscribers being
served under all Private Cable Service Agreements, (C) the agreements
set forth on Schedule 10.02(a) and (D) all other material Systems
Licenses and material Systems Contracts; (ii) any required consent of
RMTS to the transactions contemplated by this Agreement; and (iii) the
waiver of any purchase right, right of first refusal or similar right
contained in any contract or agreement triggered by such transfer,
including those set forth on Schedule 3.23; in each case (i) and (ii)
free from any materially adverse conditions (in the judgment of the
Buyer).
(b) The Systems having at Closing at least: (i) a
Transferred Closing Subscriber Number of 45,000 assuming the number of
Relevant New Subscribers is zero; (ii) 95,900 Homes Passed as of the
month-end prior to the Closing Date; and (iii) Three Month Average Per
Subscriber Revenue as of the Closing Date of $31.90.
(c) The Buyer having obtained at its expense on or prior to
the Closing Date a Phase I environmental assessment report confirming
that the Owned Property and the Leased Property included in the
Purchased Assets is free of hazardous materials, oil and other
contaminants.
(d) The Sellers having maintained commercially reasonable
inventory levels consistent with past practices, which will include
sufficient quantities of amplifiers, installation materials and
converters to operate the Systems in the ordinary course.
(e) There having been no material adverse change in the
business, financial condition or prospects of the Purchased Assets or
the Systems.
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(f) (i) Each of the Sellers shall have performed in all
material respects all of each of their obligations hereunder required
to be performed by any of them on or prior to the Closing Date, (11)
the representations and warranties of the Sellers contained in this
Agreement and in any certificate or other writing delivered by any of
them pursuant hereto (x) that are qualified by materiality or Material
Adverse Effect shall be true at and as of the Closing Date, as if made
at and as of such date (or if made as of a specific date, as of such
date), and (y) that are not qualified by materiality or Material
Adverse Effect shall be true in all material respects at and as of the
Closing Date, as if made at and as of such date (or if made as of a
specific date, as of such date), and (iii) Buyer shall have received a
certificate signed by an executive officer of each of the Sellers to
the foregoing effect.
(g) There shall not be threatened, instituted or pending any
action or proceeding by any Person before any court or governmental
authority or agency, domestic or foreign, seeking (i) to restrain,
prohibit or otherwise interfere with the transactions provided for
herein or ownership or operation by the Buyer or any of its Affiliates
of all or any material portion of the Purchased Assets or (ii) to
compel the Buyer or any of its Affiliates to dispose of or hold
separate all or any material portion of the Purchased Assets.
(h) There shall not be any action taken, or any statute,
rule, regulation, injunction, order or decree proposed, enacted,
enforced, promulgated, issued or deemed applicable to the purchase of
the Purchased Assets, by any Governmental Authority, other than the
application of the waiting period provisions of the HSR Act to the
purchase of the Purchased Assets, that, in the reasonable judgment of
the Buyer could, directly or indirectly, result in any of the
consequences referred to in clause 10.02(g) above.
(i) The Buyer shall have received an opinion of Stone,
McGuire & Benjamin, counsel to the Sellers, dated the Closing Date to
the effect specified in Sections 3.01, 3.02, 3.03 and 3.04. In
rendering such opinion, such counsel may rely upon certificates of
public officers, as to matters governed by the laws of jurisdictions
other than Illinois or the federal laws of the United States of
America, upon opinions of counsel reasonably satisfactory to the
Buyer, and, as to matters of fact, upon certificates of officers of
the Sellers, copies of which opinions and certificates shall be
contemporaneously delivered to the Buyer.
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(j) The Buyer shall have received an opinion of Arent Fox
Kintner Plotkin & Cahn, PLLC in the form set forth in Exhibit 10.020)
with only such exceptions thereto as are consistent with the
information set forth in any of the Schedules hereto.
(k) The delivery of the Escrow Agreement and the
Non-Competition Agreement dated as of the Closing Date duly executed
by the parties thereto other than the Buyer.
(1) The Buyer shall have received all
documents it may reasonably request relating to the
existence of the Sellers' Agent and the 0 Sellers and
the authority of each of them for this Agreement, all in
form and substance reasonably satisfactory to the Buyer.
(m) [Intentionally Blank]
(n) Except as set forth in Schedule 10.02(n), each of the
buildings being provided with service by a System and receiving signal
by means of a multi-point multichannel distribution system shall have
been converted so that it is receiving signal direct from satellite.
(o) Each of the head-end leases listed on Schedule 10.02(o)
shall have been renewed on terms and conditions reasonably
satisfactory to the Buyer, or Sellers shall have put in place
equivalent arrangements in respect of the location of the Purchased
Asset currently operated on the demised premises under such leases on
terms and conditions reasonably satisfactory to the Buyer.
(p) Each of the Sellers shall have deleted the distant
broadcast signals specified in Schedule 5.07 prior to midnight on
December 31, 1999 or if Closing is on December 31, 1999, prior to
Closing.
(q) [Intentionally Blank]
(r) Sellers shall have filed all outstanding FCC Forms 320
with a "passing" or "satisfactory" leakage score for each of the
Systems.
(s) Sellers shall have complied with their obligations under
Section 5.02(k) of this Agreement.
(t) Sellers shall have received a written waiver (in a form
reasonably satisfactory to the Buyer) from the relevant Governmental
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Authority of the requirement contained in Section 5.5-10 of the
Systems Franchise for Caroline County.
(u) (A) The Southern Management Litigation shall have been
resolved by a binding settlement between the parties thereto (in terms
reasonably satisfactory to the Buyer) or a nonappealable, final order
of a court of competent jurisdiction (ii) terminating any and all
claims of both parties thereto against each other, (iii) allowing for
the provision of services by Telcom Plus, its assigns or successors to
the Southern Management Buildings pursuant to the terms and conditions
of the Southern Management Agreement, and (iv) enjoining Southern
Management from removing Telcom Plus' rooftop facilities from the
Middletowne apartments serviced pursuant to the Southern Management
Agreement, (B) Sellers shall not be in breach of any agreements then
existing between Southern Management and Telcom Plus and (C) consent
of RMTS and Southern Management shall have been received to assign all
rights and liabilities under the Southern Management Agreement with
respect to the provision of cable service, to Buyer, and with respect
to the provision of telephony service, to RMTS and such assignments
shall have been entered into conditional upon the Closing and
otherwise on terms and conditions reasonably satisfactory to the
Buyer.
(v) The Sellers shall have obtained consents for (i) the
existing installation by the Systems of antennas, transmitters, pole
mounts, microwave facilities, satellites and any other similar
equipment on the rooftops of the Roof Rights Buildings and (ii) the
operation of such equipment for the purpose of providing cable
television service, telecommunication service or any services related
thereto to Subscribers of the Systems, such consents to be on terms
and conditions reasonably satisfactory to Buyer.
SECTION 10.03. Conditions to Obligation of the Sellers. The obligation
of the Sellers to consummate the Closing is subject to the satisfaction of the
following further conditions:
(a) (i) The Buyer shall have performed in all material
respects all of its obligations hereunder required to be performed by
it at or prior to the Closing Date, (ii) the representations and
warranties of the Buyer contained in this Agreement and in any
certificate or other writing delivered by the Buyer pursuant hereto
shall be true in all material respects (disregarding any materiality
qualifiers therein) at and as of the Closing Date, as if made at and
as of such date and (iii) the Sellers shall have
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received a certificate signed by an executive officer of the Buyer to
the foregoing effect.
(b) The Sellers shall have received an opinion of Arthur
Block, in-house counsel to the Buyer, dated the Closing Date that the
matters specified in Sections 4.01, 4.02, and 4.03 are accurate in
all material respects. In rendering such opinion, such counsel may
rely upon certificates of public officers, as to matters governed by
the laws of jurisdictions other than Pennsylvania or the federal laws
of the United States of America, upon opinions of counsel reasonably
satisfactory to the Sellers, and, as to matters of fact, upon
certificates of officers of the Buyer, copies of which opinions and
certificates shall be contemporaneously delivered to the Sellers.
(c) The delivery of the Escrow Agreement executed by the
Buyer and the Escrow Agent and the Non-Competition Agreement executed
by the Buyer. -
(d) The Sellers shall have received all documents it may
reasonably request relating to the existence of the Buyer and the
authority of the Buyer for this Agreement, all in form and substance
reasonably satisfactory to the Sellers.
ARTICLE 11
SURVIVAL; INDEMNIFICATION
SECTION 11.01. Survival The representations and warranties of the
parties hereto contained in this Agreement or in any certificate or other
writing delivered pursuant hereto or in connection herewith shall survive the
Closing until the first anniversary of the Closing Date; provided that (i) the
representations and warranties in the Identified Provisions and Sections 4.01,
4.02, 4.03, and 4.06 shall survive indefinitely and (ii) the representations
and warranties contained in Articles 8 or 9 shall survive until expiration of
the statute of limitations applicable to the matters covered thereby (giving
effect to any waiver, mitigation or extension thereof), if later.
Notwithstanding the preceding sentence, any representation or warranty in
respect of which indemnity may be sought under this Agreement shall survive the
time at which it would otherwise terminate pursuant to the preceding sentence,
if notice of the inaccuracy thereof giving rise to such right of indemnity
shall have been given to the party against whom such indemnity may be sought
prior to such time.
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SECTION 11.02. Indemnification. (a) The Sellers hereby jointly and
severally indemnify the Buyer and its Affiliates against and agree to hold each
of them harmless from any and all damage, loss, liability and expense
(including, without limitation, reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any action, suit or
proceeding, including any action, suit or proceeding to enforce an indemnity
obligation hereunder) ("Damages") incurred or suffered by the Buyer or any of
its Affiliates arising out of
(i) any misrepresentation or breach of warranty made by any
Seller pursuant to this Agreement (determined without regard to any
materiality or Material Adverse Effect qualification contained
therein);
(ii) any other breach of covenant or agreement made or to be
performed by any Seller pursuant to this Agreement; or
(iii) - any Excluded Liability;
provided that except in respect of any Damages arising out of any
misrepresentation or breach of warranty under the Identified Representations,
the Sellers shall not be liable under Section 11.02(a)(i) unless the aggregate
amount of Damages with respect to all matters referred to in Section
11.02(a)(i) (determined without regard to any materiality or Material Adverse
Effect qualification contained in any representation or warranty giving rise to
the claim for indemnity hereunder) exceeds $1,000,000, in which case the
Sellers shall be liable for the full amount of such Damages, including the
first $1,000,000. The foregoing is subject to the applicable provisions of
Section 2.10(a)(ii).
(b) The Buyer hereby indemnifies each of the Sellers and their
Affiliates against and agrees to hold each of them harmless from any and all
Damages
Z-
incurred or suffered by any of them arising out of
(i) any misrepresentation or breach of warranty made by the
Buyer pursuant to this Agreement (determined without regard to any
materiality qualification contained therein); and
(ii) any other breach of covenant or agreement made or to be
performbed by the Buyer pursuant to this Agreement;
provided that except in respect of any Damages arising out of any
misrepresentation or breach of warranty under Sections 4.01, 4.02, or 4.03 or
4.06 the Buyer shall not be liable under Section 11. 02(b)(i) unless the
aggregate amount of Damages with respect to all matters referred to in Section
I 1.02(b)(i)
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<PAGE>
(determined without regard to any materiality qualification contained in any
representation or warranty giving rise to the claim for indemnity hereunder)
exceeds $1,000,000, in which case the Buyer shall be liable for the full amount
of such Damages, including the first $1,000,000. The maximum amount recoverable
by the Sellers and their Affiliates for all claims under Section 11.02(b)(i)
shall in the aggregate be equal to $10,000,000.
(c) Amounts payable by a party in respect of any Damages that are
subject to the indemnification obligations of such party under Section 11.02(a)
or 11. 02(b) will be payable by the Indemnifying Party within five days of
receiving written notice of such Damages from the Indemnified Party, and will
bear interest at the Prime Rate plus three percent (3%) beginning on the sixth
day after receipt of such written notice and ending on the date of payment of
indemnification by the Indemnifying Party.
SECTION 11.03. Procedures. (a) The party seeking indemnification under
Section 11.02 (the "-Indemnified Party") agrees to give prompt notice to the
party against whom indemnity is sought (the "Indemnifying Party") of the
assertion of any claim or the commencement of any suit, action or proceeding
("Claim") in respect of which indemnity may be sought under such Section and
will provide the Indemnifying Party such information with respect thereto that
the Indemnifying Party may reasonably request. The failure to so notify the
Indemnifying Party shall not relieve the Indemnifying Party of its obligations
hereunder, except to the extent such failure shall have materially and
adversely prejudiced the Indemnifying Party.
(b) The Indemnifying Party shall be entitled to participate
in the defense of any Claim asserted by any third party ("Third Party
Claim") and, subject to the limitations set forth in this Section,
shall be entitled to control and appoint lead counsel for such
defense, in each case at its expense, provided that prior to assuming
control of such defense, the Indemnifying Party must acknowledge that
it will have an indemnity obligation for all Damages resulting from
such Third Party Claim as provided under this Article 11 without
regard to any limitation, deductible, "basket" or similar provision in
Section 11.02 hereof
(c) The Indemnifying Party shall not be entitled to assume or
maintain control of the defense of any Third Party Claim if (i) the
Third Party Claim relates to or arises in connection with any criminal
proceeding, action, indictment, allegation or investigation, (ii) the
Indemnified Party reasonably believes an adverse determination with
respect to the Third Party Claim would be detrimental to the
Indemnified Party's reputation or future business prospects, (iii) the
Third Party Claim
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<PAGE>
seeks an injunction or equitable relief against the Indemnified Party
or (iv) the Indemnifying Party has failed or is failing to prosecute
or defend vigorously the Third Party Claim.
(d) If the Indemnifying Party shall assume the control of
the defense of any Third Party Claim in accordance with the provisions
of this Section 11. 03, the Indemnifying Party shall obtain the prior
written consent of the Indemnified Party before entering into any
settlement of such Third Party Claim, if the settlement does not
expressly unconditionally release the Indemnified Party from all
liabilities and obligations with respect to such Third Party Claim or
the settlement imposes injunctive or other equitable relief against or
imposes any obligation on the Indemnified Party.
(e) The Indemnified Party shall be entitled to participate
in the defense of any Third Party Claim and to employ separate counsel
of its choice for such purpose. The reasonable fees and expenses of
such separate counsel shall be borne by the Indemnifying Party.
(f) Each party shall cooperate, and cause their respective
Affiliates to cooperate, in the defense or prosecution of any Third
Party Claim and shall furnish or cause to be furnished such records,
information and testimony, and attend such conferences, discovery
proceedings, hearings, trials or appeals, as may be reasonably
requested in connection therewith.
(g) The Sellers shall not be entitled to assume control of
the defense of any Third Party Claim if, in the reasonable judgment of
the Buyer, the Third Party Claim would, if resolved adversely to the
interests of the Buyer, be reasonably likely to result in an indemnity
obligation of the Sellers that would be greater than the amount in the
Indemnity Escrow Account at the relevant time that is not subject to
any pending claim by the Buyer.
ARTICLE 12
TERMINATION
SECTION 12.01. Grounds for Termination. This Agreement may be
terminated at any time prior to the Closing:
82
<PAGE>
(a) by mutual written agreement of the Sellers and the
Buyer-,
(b) by either the Sellers or the Buyer if the conditions to
the consummation of the merger in Article 10 shall not have been
satisfied, or where applicable, waived by March 31, 2000, provided
that no party that is (or whose Affiliate is) 'in material breach of
its or their obligations under this Agreement may terminate this
Agreement and the Sellers may not terminate this Agreement for 15 days
after they have received a notice of a Potential Payment Event;
(c) by the Buyer if (i) the condition in Section
10.02(a)(ii) remains unfulfilled at a time when all other conditions
to this Agreement have been satisfied or waived (such time being the
"Potential Payment Event"), (ii) the Buyer has given notice of the
Potential Payment Event to the Sellers, and (iii) the condition in
Section 10.02(a)(ii) remains unfulfilled on the date falling 10 days
after the date of the notice in (ii) above. -
(d) by either the Sellers or the Buyer if consummation of
the transactions contemplated hereby would violate any nonappealable
final order, decree or judgment of any court or governmental body
having competent jurisdiction; or
(e) by Buyer if it receives a Request for Additional
Information or Documentary Material pursuant to the HSR Act in respect
of the transactions contemplated hereby.
The party desiring to terminate this Agreement pursuant to clauses
12.01 (b), 12.01 (c), 12.01 (d) or 12.01 (e) shall give notice of such
termination to the other party. For purposes of this Section 12.01, a condition
shall be deemed to have been satisfied if by its nature, it is to be satisfied
at Closing and it would in fact be satisfied at Closing.
SECTION 12.02. Effect of Termination, Subject to Sections 5. 10 and
12.02, if this Agreement is terminated as permitted by Section 12.01, such
termination shall be without liability of either party (or any stockholder,
partner, member, director, officer, employee, agent, consultant or
representative of such party) to any other party to this Agreement; provided
that if such termination shall result from the (i) willful failure of a party
to fulfill a condition to the performance of the obligations of another party,
(ii) willful failure to perform a covenant of this Agreement or (iii) willful
breach by any party hereto of any representation or warranty or agreement
contained herein, such party (and its Affiliates, if any, that are parties
hereto) shall be fully liable for any and all Damages incurred or
83
<PAGE>
suffered by any other party as a result of such failure or breach. The
provisions of Sections 2.12, 5.10, 6,01, 6.02, 13.03, 13.05, 13.06 and 13.07
shall survive any termination hereof pursuant to Section 12.01.
ARTICLE 13
MISCELLANEOUS
SECTION 13.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile transmission)
and shall be given,
if to the Buyer, to:
Comcast Corporation
1500 Market Street
Philadelphia, Pennsylvania 19102-2184
Attention: General Counsel
Fax: (215) 981-7794
Phone: (215) 665-1700
Copies to (which shall not constitute notice):
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 100 17
Attention: William L. Taylor
Fax: (212) 450-4800
Phone: (212) 450-4000
if to the Sellers or the Sellers' Agent, to:
Sellers' Agent
South Central Development Company, L.P.
3027 Oregon Knolls Drive
Washington, D.C. 20015
Attention: John Norcutt
Fax: (202) 362-1540
84
<PAGE>
Copies to: Stone McGuire & Benjamin
801 Skokie Boulevard, Suite 100
Northbrook, Illinois 60062
Attention: Marc Benjamin
Fax: (847) 205-9492
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to
have been received until the next succeeding business day in the place of
receipt. If Buyer shall make reasonable efforts to give notice to Sellers'
Agent at the details set out above and such notice is not received by Sellers'
Agent notice to Stone McGuire & Benjamin shall be sufficient notice to the
Sellers.
SECTION 13.02. Amendments and Waivers. (a) Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed, in the case of an amendment, by each party to this
Agreement, or in the case of a waiver, by the party against whom the waiver is
to be effective.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 13.03. Expenses. Except as provided in Section 5. 10, Section
7.02(b), Section 8.03(c) or otherwise herein, all costs and expenses incurred
in connection with this Agreement shall be paid by the party incurring such
cost or expense.
SECTION 13.04. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of each other party hereto, except that the Buyer
may transfer or assign, in whole or from time to time in part, to one or more
of its Affiliates, the right to purchase all or a portion of the Purchased
Assets; provided that no such assignment will relieve the Buyer of its
obligations hereunder.
85
<PAGE>
SECTION 13.05. Governing Law. Agreement shall be governed by and
construed in accordance with the law of the State of New York, without regard
to the conflicts of law rules of such state.
SECTION 13.06. Jurisdiction. Except as otherwise expressly provided in
this Agreement, the parties hereto agree that any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or
in connection with, this Agreement or the transactions contemplated hereby may
be brought in the United States District Court for the Southern District of New
York or any other New York State court sitting in New York City, and each of
the parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 13.01 shall
be deemed effective service of process on such party.
SECTION 13.07. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
SECTION 13.08. Counterparts; Third Party Beneficiaries. This Agreement
may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when each party
hereto shall have received a counterpart hereof signed by the other party
hereto. No provision of this Agreement is intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
SECTION 13.09. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement.
SECTION 13. 10. Bulk Sales Laws. The Buyer and the Sellers each hereby
waive compliance by the Sellers with the provisions of the "bulk sales", "bulk
transfer" or similar laws of any state. The Sellers jointly and severally agree
to
86
<PAGE>
indemnify and hold the Buyer harmless against any and all claims, losses,
damages, liabilities, costs and expenses incurred by the Buyer or any of its I
Affiliates as a result of any failure to comply with any such "bulk sales",
"bulk transfer" or similar laws.
SECTION 13.11. Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof (N-N) 05726,'097,'AGT/niid.aLirpa.agtconform.wpd
87
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
COMCAST CORPORATION
By: /s/ Robert S. Pick
Name: Robert S. Pick
Title: Vice President
SOUTH CENTRAL DEVELOPMENT
COMPANY, LP
By: /s/ John C. Norcutt
Name: John C. Norcutt
Title.- General Partner
MID-ATLANTIC TELCOM PLUS, LLC
By: /s/ John C. Norcutt
Name: John C. Norcutt
Title: Business Manager
MID-ATLANTIC CONNECTICUT I
LIMITED PARTNERSHIP
By: /s/ John C. Norcutt
Name: John C. Norcutt
Title: President,
Mid-Atlantic Connecticut, Inc.,
General Partner
(NY) 05726/097/AGT/rni"Lapa.
88
<PAGE>
MID-ATLANTIC CABLE OPERATING
LIMITED PARTNERSHIP NO. 1 OF
PRINCE WILLIAM COUNTY
By: /s/ John C. Norcutt
Name: John C. Norcutt
Title: President,
Mid-Atlantic Cable Service Co.,
General Partner
MID-ATLANTIC CABLE OPERATING
LIMITED PARTNERSHIP NO. 2
OF PRINCE WILLIAM COUNTY
By: /s/ John C. Norcutt
Name: John C. Norcutt
Title: President,
Mid-Atlantic Cable Service Co.,
General Partner
of the General Partner
(NY) 05726/097/AGT/ntid.&Lapa.agLcmifomLwpd
89
<PAGE>
- --------------------------------------------------------------------------------
Obligor File Name Obligor # Obligation Number Officer # Amount
$16,000,000
- --------------------------------------------------------------------------------
Chicago, Illinois
Dated as of August 30, 1999
Call On Term-Term Note
This Note has been executed by ONEPOINT COMMUNICATIONS CORP., a corporation
formed under the laws of the State of Delaware ("Borrower").
--------
FOR VALUE RECEIVED, on or before January 1, 2004 (the "Maturity Date"), Borrower
-------------
promises to pay to the order of THE NORTHERN TRUST COMPANY, an Illinois banking
corporation (hereafter, together with any subsequent holder hereof, called
"Lender"), at its office at 265 East Deerpath, Lake Forest, Illinois 60045, or
------
at such other place as Lender may direct, the lesser of (i) the principal sum of
SIXTEEN MILLION AND NO/100 United States Dollars ($16,000,000) (the "Facility
--------
Amount") or (ii) the sum of (A) the outstanding principal amount of Loans as
- ------
endorsed on any grid attached to this Note (or recorded in Lender's books and
records, if Lender is the holder hereof) plus (B) the aggregate undrawn face
amount of all issued and unexpired Letters of Credit (hereinafter defined) plus
the aggregate drawn and unreimbursed amount in respect of any Letter of Credit
(whether expired or unexpired) (the amount in clause B only is hereinafter
referred to as the "L/C Amount"). The amount of principal outstanding on the
----------
Loans as of the close of business on December 15, 1999 (the "Final Drawdown
--------------
Date") shall be converted into a term loan which shall be payable in four (4)
- ----
consecutive quarterly payments of $120,000 each, four (4) consecutive quarterly
payments of $240,000 each, four (4) consecutive quarterly payments of $1,080,000
each, four (4) consecutive quarterly payments of $1,580,000 each, and a final
installment of all then remaining unpaid principal of the Loans and the L/C
Amount, payable on the first day of each January, April, July and October of
each year, beginning on January 1, 2000; provided that notwithstanding the
--------
foregoing, the quarterly payments hereunder shall be reduced in an amount equal
to any reduction of the stated amount available for drawing under any Letter of
Credit occurring during such quarter; provided, further that, notwithstanding
-------- -------
the foregoing, any and all remaining outstanding principal on the Loans plus the
L/C Amount shall be due and payable in full on the Maturity Date. Each advance
of principal hereunder and the term loan are hereafter sometimes referred to as
the "Loan(s)"; the period from the date hereof to and including the Final
-------
Drawdown Date is referred to as the "Drawdown Period" and the period thereafter
---------------
is referred to as the "Payback Period". Except as otherwise provided in Section
-------------- -------
1.2, no additional advances of principal or issuances of Letters of Credit shall
- ---
be made after the Final Drawdown Date. The aggregate amount of Loans shall not
exceed the Facility Amount less the L/C Amount at any time; amounts borrowed
which are repaid may not be reborrowed. Lender has no obligation to refinance
this Note.
Lender is hereby authorized by Borrower at any time and from time to time at
Lender's sole option to attach a schedule (grid) to this Note and to endorse
thereon notations with respect to each Loan specifying the date and principal
amount thereof, the applicable interest rate and rate
<PAGE>
option, and the date and amount of each payment of principal and interest made
by Borrower with respect to each such Loan. Absent manifest error, Lender's
endorsements as well as its records relating to Loans shall be rebuttably
presumptive evidence of the outstanding principal and interest on the Loans,
and, in the event of inconsistency, shall prevail over any records of Borrower
and any written confirmations of Loans given by Borrower; provided, however,
-------- -------
that Lender has provided Borrower with Lender's standard transaction
confirmation tickets at or about the time of each Loan and Borrower has not
objected thereto within 10 days of issue thereof.
Each request for a Loan or Letter of Credit shall be deemed to be a
representation and warranty by Borrower to Lender that: (i) no Event of Default
or Unmatured Event of Default (in each case as defined below) has occurred and
is continuing as of the date of such request or would result from the making of
the Loan or issuance of such Letter of Credit; (ii) Borrower's representations
and warranties herein, in any Letter of Credit Application and in the other
documents delivered in connection herewith or therewith are true and correct as
of such date as though made on such date and (iii) the aggregate amount of Loans
outstanding plus the L/C Amount does not exceed the Facility Amount. Upon
receipt of each Loan or Letter of Credit issuance request, Lender in its sole
discretion shall have the right to request that Borrower provide to Lender,
prior to Lender's funding of the Loan or issuance of such Letter of Credit, a
certificate executed by Borrower's President, Treasurer, or Chief Financial
Officer to such effect.
1. LETTERS OF CREDIT
1.1. LETTERS OF CREDIT. The Borrower may from time to time during the
-----------------
Drawdown Period request that the Lender issue its documentary commercial or
standby letters of credit (as the same may be amended, renewed, extended or
modified from time to time, collectively called the "Letters of Credit" and
-----------------
individually called a "Letter of Credit") for the account of the Borrower in
----------------
such face amounts as the Borrower may request up to the Facility Amount less the
L/C Amount. Each Letter of Credit that the Lender issues shall be in form and
substance satisfactory to the Lender and shall have a fixed expiration date
occurring not more than one year after the date of issuance thereof (and in no
event later than the Maturity Date). Subject to the terms and conditions of
this Note, Letters of Credit shall be issued by the Lender only upon its receipt
at least two (2) banking days prior to the requested date of issuance of a
written application and agreement (as the same may be amended, modified or
supplemented from time to time, collectively called the "Letter of Credit
----------------
Applications" and individually called a "Letter of Credit Application") for the
- ------------ ----------------------------
issuance of a Letter of Credit. Each Letter of Credit Application shall be made
on the Lender's form, shall specify (a) the face amount requested, (b) the
tenor, (c) the documents (if any) required to be presented and (d) any other
information which the Lender may require, and shall be duly executed on the
Borrower's behalf by an authorized officer. In addition to the terms and
conditions of this Note, each Letter of Credit shall be issued subject to the
terms and conditions set forth in or applying in connection with the Letter of
Credit Application for such Letter of Credit. Unless otherwise expressly
provided herein, the terms of the Letter of Credit Application shall control.
1.2. LETTER OF CREDIT LOANS. If the Borrower shall ever fail to reimburse
----------------------
the Lender in full in accordance with the terms of the applicable Letter of
Credit Application for all
2
<PAGE>
amounts paid or to be paid by the Lender or its agent or any party on the
Lender's behalf on any item drawn or presented under any Letter of Credit, the
Lender shall make, and the Borrower shall accept, a Loan hereunder in the amount
of the Borrower's reimbursement obligation. The proceeds of such Loan shall be
paid directly to the Lender to reimburse it for all amounts paid or to be paid
under such Letter of Credit. Each such loan shall be treated as a Loan hereunder
for all purposes.
2. INTEREST AND FEES.
2.1. INTEREST RATES. The unpaid principal amount from time to time
--------------
outstanding hereunder shall bear interest as the following rates per year:
(a) before maturity of any Loan, whether by acceleration or
otherwise, at the option of Borrower, subject to the terms hereof at a rate
equal to:
(i) the "Prime-Based Rate," which shall mean the Prime Rate (as
----------------
defined below) less 3/4 of 1%. Changes in the rate of interest
on the Loans resulting from a change in the Prime Rate shall take
effect on the date set forth in each announcement for a change in
the Prime Rate. "Prime Rate" means the rate announced from time
to time by the Lender called its prime rate, which may not at any
time be the lowest rate charged by the Lender;
(ii) "LIBOR," which shall mean that fixed rate of interest per
-----
year for deposits with maturity periods of one, two or three
months (which maturity period Borrower shall select subject to
the terms stated herein) in United States Dollars offered to
Lender in or through the London or another offshore interbank
market, as determined by the Lender in its sole discretion for or
as of the borrowing date requested by the Borrower, divided by
------- --
one minus any applicable reserve requirement (expressed as a
decimal) on Eurodollar deposits of the same amount and maturity
as determined by Lender in its sole discretion, plus 50 basis
----
points; or
(iii) the "Federal Funds Rate," defined as the rate on overnight
------------------
Federal funds transactions as determined by the Lender in its
sole discretion, plus 50 basis points. In the case of a
----
Saturday, Sunday or legal holding, the Federal Funds Rate shall
be the rate applicable on the immediately preceding day for which
such weighted average rate is reported.
(b) after the maturity of any Loan, until paid, at a rate equal to 2%
in addition to the Prime Rate (but not less than the Prime Rate in effect
at maturity).
2.2. RATE SELECTION. Borrower shall select and change its selection of the
--------------
interest rate as between the Prime-Based Rate, Federal Funds Rate and LIBOR to
apply to at least $100,000 and in integral multiples of $100,000 thereafter (or
the remaining amount available hereunder) of any advance (Loan), subject to the
requirements herein stated:
(a) At the time any advance is made;
3
<PAGE>
(b) At the expiration of the particular LIBOR maturity period
selected for the outstanding principal balance of any advance currently
bearing interest at the LIBOR Rate; and
(c) At any time for the outstanding principal balance of any advance
currently bearing interest at the Prime-Based Rate or Federal Funds Rate.
2.3. RATE CHANGES AND NOTIFICATIONS.
------------------------------
(a) LIBOR. If Borrower wishes to borrow funds at LIBOR or if Borrower
-----
wishes to change the rate of interest on any advance, within the limits
described above, from any other rate to LIBOR, it shall, not less than
three banking days of the Lender prior to the banking day of the Lender on
which such rate is to take effect, give Lender written or telephonic notice
thereof, which shall be irrevocable. Such notice shall specify the advance
to which LIBOR is to apply, and, in addition, the desired LIBOR maturity
period (but not to exceed the Maturity Date unless the Lender consents
otherwise).
(b) Failure to Notify. If Borrower does not notify Lender at the
-----------------
expiration of a selected maturity period with respect to any principal
outstanding at LIBOR, then in the absence of such notice Borrower shall be
deemed to have elected to have such principal accrue interest after the
respective LIBOR maturity period at the Prime-Based Rate.
(c) Federal Funds Rate/Prime Based Rate. If Borrower wishes to borrow
-----------------------------------
money at the Federal Funds Rate or the Prime-Based Rate, or to change the
interest rate from the Federal Funds Rate to or from the Prime-Based Rate,
it shall notify Lender on the date of borrowing or conversion; if any such
notification is not received before 10:00 AM Chicago time on a banking day
of the Lender, at Lender's option the borrowing or conversion may not be
effected until the next banking day. If Borrower does not notify Lender as
to its selection of the interest rate option with respect to any new
advance of principal, then in the absence of such notice Borrower shall be
deemed to have elected to have such advance accrue interest at the Prime-
Based Rate.
2.4. INTEREST PAYMENT DATES. Accrued interest shall be paid in respect of:
----------------------
each portion of principal to which:
(a) the Prime-Based Rate or the Federal Funds Rate applies, quarterly
on the first day of each January, April, July and October of each year,
beginning with the first of such dates to occur after the date of the first
advance, at maturity of this Note, and upon payment in full, whichever is
earlier or more frequent; and
(b) LIBOR applies, monthly on the first day of each month, at the end
of each respective maturity period (unless interest is payable monthly as
provided above), at maturity of this Note, and upon payment in full,
whichever is earlier or more frequent.
After maturity, interest shall be payable upon demand.
4
<PAGE>
2.5. ADDITIONAL PROVISIONS WITH RESPECT TO FEDERAL FUNDS RATE AND LIBOR
------------------------------------------------------------------
LOANS.
- -----
The selection by Borrower of the Federal Funds Rate or LIBOR and the
maintenance of advances at such rate shall be subject to the following
additional terms and conditions:
(a) Availability of Deposits at a Determinable Rate. If, after
-----------------------------------------------
Borrower has elected to borrow or maintain any advance at LIBOR or the
Federal Funds Rate, Lender notifies Borrower that:
(i) With respect to LIBOR, United States dollar deposits in the
amount and for the maturity requested are not available to Lender
in the London interbank market, or
(ii) Reasonable means do not exist for Lender to determine the
Federal Funds Rate, or LIBOR for the amount and maturity
requested, all as determined by the Lender in its sole
discretion, then the principal subject or to be subject to LIBOR
or the Federal Funds Rate, as applicable, shall accrue or shall
continue to accrue interest at the Prime-Based Rate.
(b) Prohibition of Making, Maintaining, or Repayment or Principal at
----------------------------------------------------------------
LIBOR or Federal Funds Rate. If any treaty, statute, regulation,
---------------------------
interpretation thereof, or any directive, guideline, or otherwise by a
central bank or fiscal authority (whether or not having the force of law)
shall either prohibit or extend the time at which any principal subject to
LIBOR or the Federal Funds Rate may be purchased, maintained, or repaid,
then on and as of the date the prohibition becomes effective, the principal
subject to that prohibition shall continue at the Prime-Based Rate.
(c) Payments of Principal and Interest to be Net of Any Taxes or
------------------------------------------------------------
Costs. In the event that principal outstanding hereunder is at LIBOR and
-----
Lender incurs taxes and costs from such principal, all payments of
principal and interest shall be made net of all such taxes and costs
incurred by Lender. Without limiting the generality of the preceding
obligation, illustrations of such taxes and costs are:
(i) Taxes (or the withholding of amounts for taxes) of any
nature whatsoever including income, excise, and interest
equalization taxes (other than income taxes imposed by the United
States or any state thereof on the income of Lender), as well as
all levies, imposts, duties, or fees whether now in existence or
resulting from a change in, or promulgation of, any treaty,
statute, regulation, interpretation thereof, or any directive,
guideline, or otherwise, by a central bank or fiscal authority
(whether or not having the force of law) or a change in the basis
of, or time of payment of, such taxes and other amounts resulting
there from;
(ii) Any reserve or special deposit requirements against assets
or liabilities of, or deposits with or for the account of, Lender
with respect to principal outstanding at LIBOR (including those
imposed under
5
<PAGE>
Regulation D of the Federal Reserve Board) or resulting from a
change in, or the promulgation of, such requirements by treaty,
statute, regulation, interpretation thereof, or any directive,
guideline, or otherwise by a central bank or fiscal authority
(whether or not having the force of law);
(iii) Any other costs resulting from compliance with treaties,
statutes, regulations, interpretations, or any directives or
guidelines, or otherwise by a central bank or fiscal authority
(whether or not having the force of law);
(iv) Any loss (including loss of anticipated profits) or expense
incurred by reason of the liquidation or re-employment of
deposits acquired by Lender to make advances or maintain
principal outstanding at LIBOR:
(A) As the result of a voluntary prepayment at a date other
than the maturity date selected for principal outstanding
at LIBOR;
(B) As the result of a mandatory repayment at a date other
than the maturity date selected for principal outstanding
at LIBOR as a result of (i) the occurrence of an Event of
Default and the acceleration of any portion of the
indebtedness hereunder, or (ii) the Maturity Date occurring
prior to the LIBOR maturity date due to Borrower's
selection of a LIBOR maturity period which extends beyond
the Maturity Date; or
(C) As the result of a prohibition on making, maintaining,
or repaying principal outstanding at LIBOR.
If Lender incurs any such taxes or costs, Borrower, upon demand in writing
specifying such taxes and costs, shall promptly pay them; save for manifest
error Lender's specification shall be presumptively deemed correct. All
advances made at LIBOR shall be conclusively deemed to have been funded by or on
behalf of Lender in the London interbank market by the purchase of deposits
corresponding in amount and maturity to the amount and interest periods selected
(or deemed to have been selected) by Borrower under this Note.
2.6. LETTER OF CREDIT FEES. In consideration of the Lender's issuance of
---------------------
any Letter of Credit, the Borrower agrees to pay the Lender:
(a) a fee equal to $200 payable on the issuance of each Letter of
Credit;
(b) a fee equal to $100 payable upon the date of any amendment or
renewal of any Letter of Credit outstanding;
(c) a commission ("Letter of Credit Fee") for the period commencing
--------------------
on the issuance date of each Letter of Credit and ending on the expiration
date of such Letter of Credit equal to .5% per annum of the face amount of
the Letter of Credit. The accrued Letter of Credit Fee in respect of a
Letter of Credit shall be payable in arrears on each
6
<PAGE>
January, April, July and October and on the earliest of the expiration date
of such Letter of Credit, the date the Facility Amount is terminated or the
Maturity Date.
3. PAYMENT.
3.1. PAYMENT AND PREPAYMENT. Borrower may from time to time, upon at least
----------------------
three days' prior written notice to Lender, prepay any principal or
reimbursement obligation under a Letter of Credit Application bearing interest
at the Prime-Based Rate or the Federal Funds Rate in whole or in part at any
time and may prepay any principal bearing interest at LIBOR at the end of the
maturity period chosen or agreed to by Borrower applicable to the advance or
portion of the advance being prepaid, without premium or penalty, provided that
any partial prepayment shall be in an aggregate principal amount of at least
$10,000. Any prepayment of an amount bearing interest at LIBOR at a date other
than the maturity date applicable to the advance or the portion of the advance
being prepaid shall be subject to the provisions of Section 2.5. All
------------
prepayments of principal shall include interest accrued to the date of
prepayment on the principal amount being prepaid.
3.2. MANDATORY PREPAYMENT. In the event that twenty percent (20%) or more
--------------------
of the issued and outstanding shares of Borrower are held, directly or
indirectly, by persons not owning shares of the Borrower, directly or
indirectly, on April 29, 1998 or substantially all the assets of the Borrower
are sold, then on the date such event shall occur, the Borrower immediately
agrees to prepay the entire outstanding principal amount of the Loans, the L/C
Amount and all unpaid and accrued interest on the Loans and the L/C Amount and
acknowledges and agrees that any commitment to lend hereunder or to issue any
Letters of Credit is terminated without further notice or action on the part of
the Lender. In the event that the sum of (a) the aggregate unpaid principal
amount of all Loans, plus (b) the aggregate undrawn face amount of all issued
----
and unexpired Letters of Credit, plus (c) the aggregate unreimbursed amount in
----
respect of any Letters of Credit (whether expired or unexpired) shall at any
time exceed the Facility Amount, the Borrower shall, within three (3) calendar
days of the occurrence of such event, take one or more of the following actions
to eliminate such excess: (i) prepay the unpaid principal of the Loans in an
amount sufficient such that the sum of clauses (a), (b) and (c) do not exceed
----------- --- ---
the Facility Amount, (ii) pay to the Lender the unreimbursed amount in respect
of any amount drawn under any Letter of Credit (whether expired or unexpired) in
an amount sufficient such that the sum of clauses (a), (b) and (c) do not exceed
----------- --- ---
the Facility Amount, or (iii) provide the Lender with cash collateral to secure
the Borrower's reimbursement obligation with respect to the undrawn face amount
under any then issued and unexpired Letter of Credit in an amount sufficient
such that the sum of clauses (a), (b) and (c) do not exceed the Facility Amount.
----------- --- ---
Any prepayment of an amount bearing interest at LIBOR on a date other than the
maturity date applicable to the advance or portion of the advance being prepaid
shall be subject to the provisions of Section 2.5.
-----------
3.3. BASIS OF COMPUTATION. Interest and the Letter of Credit Fee shall be
--------------------
computed for the actual number of days elapsed on the basis of a year consisting
of 360 days, including the date a Loan is made or a Letter of Credit is issued
and excluding the date a Loan or any portion thereof is paid or prepaid or a
Letter of Credit expires.
7
<PAGE>
4. REFERENCES TO FACILITY TYPE, COLLATERAL, GUARANTIES, OTHER AGREEMENTS.
4.1. FACILITY TYPE. Lender intends to make available to Borrower the Loans
-------------
as outlined herein unless an Event of Default has occurred and is continuing.
4.2. GUARANTY. Payment of this Note and the reimbursement obligations
--------
under any Letter of Credit Application have been unconditionally guaranteed by
SBC Communications Inc. (together with its successors and assigns, the
"Guarantor") pursuant to a guaranty (as amended, modified or supplemented, the
---------
"Guaranty") in form and substance satisfactory to Lender.
--------
5. USE OF PROCEEDS. Borrower represents and warrants that the proceeds of
this Note will be used solely for business purposes, and not for personal,
family or household use, within the meaning of Federal Truth in Lending and
similar state laws and regulations.
6. REPRESENTATIONS.
Borrower hereby represents and warrants to Lender that:
(a) Borrower and any "Subsidiary" (as defined below) are duly
organized, validly existing and in good standing under the laws of their
state of formation, are duly qualified, in good standing and authorized to
do business in each jurisdiction where failure to do so might have a
material adverse impact on the consolidated assets, condition or prospects
of Borrower; the execution, delivery and performance of this Note, any
Letter of Credit Application and all related documents and instruments are
within Borrower's corporate powers and have been authorized by all
necessary corporate action;
(b) the execution, delivery and performance of this Note, any Letter
of Credit Application and all related documents and instruments have
received any and all necessary governmental approval, and do not and will
not contravene or conflict with any provision of law or of the articles of
incorporation or by-laws or similar agreement of Borrower or any agreement
affecting Borrower or its property; and
(c) there has been no material adverse change in the business,
condition, properties, assets, operations or prospects of Borrower or the
Guarantor since the date of the latest financial statements provided on
behalf of Borrower and Guarantor to Lender prior to the execution of this
Note.
"Subsidiary" means any corporation, partnership, joint venture, trust, or other
----------
legal entity of which Borrower owns directly or indirectly fifty percent (50%)
or more of the outstanding voting stock or interest, or of which Borrower has
effective control, by contract or otherwise.
8
<PAGE>
7. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute
an "Event of Default":
----------------
(a) failure to pay, when and as due, any principal, interest or other
amounts payable hereunder or any reimbursement obligation under any Letter
of Credit Application; failure to comply with or perform any agreement or
covenant of Borrower contained herein, which failure shall have continued
unremedied for a period of 10 days after written notice thereof from Lender
to Borrower;
(b) any default, event of default, or similar event shall occur or
continue under any other instrument, document, note, agreement, Letter of
Credit Application or guaranty delivered to Lender in connection with this
Note (including without limitation, the Guaranty), which failure shall have
continued unremedied after the expiration of any grace period therein; or
any such instrument, document, note, agreement, Letter of Credit
Application or guaranty shall not be, or shall cease to be, enforceable in
accordance with its terms;
(c) failure of Borrower or any of its Subsidiaries or the Guarantor
to pay when due any principal of or interest on or any other amount payable
in respect of one or more items of indebtedness or reimbursement obligation
in an aggregate amount in excess of $5,000,000 ($100,000,000 in the case of
the Guarantor only), in each case beyond the end of any grace period
provided therefor, or any breach or default by Borrower or any of its
Subsidiaries or the Guarantor with respect to any term of one or more terms
of indebtedness or reimbursement obligation in the aggregate principal
amount in excess of $5,000,000 ($100,000,000 in the case of the Guarantor
only) shall occur if the effect of such breach or default is to cause, or
permit the holders of that indebtedness to cause, that indebtedness to
become due and payable prior to its stated maturity;
(d) any representation, warranty, schedule, certificate, financial
statement, report, notice, or other writing furnished by or on behalf of
Borrower, any Subsidiary or Guarantor to Lender is false or misleading in
any material respect on the date as of which the facts therein set forth
are stated or certified;
(e) the Guaranty or any pledge of collateral security for this Note
shall be repudiated or become unenforceable or incapable of performance;
(f) Borrower, any Subsidiary or Guarantor shall fail to maintain
their existence in good standing in their state of formation or shall fail
to be duly qualified, in good standing and authorized to do business in
each jurisdiction where failure to do so is reasonably likely to have a
material adverse impact on the consolidated assets, condition or prospects
of Borrower and such failure is not cured within ten (10) days of the
Borrower, such Subsidiary or the Guarantor having actual notice that they
are not in good standing or duly qualified;
(g) Borrower, any Subsidiary or Guarantor shall dissolve, liquidate,
merge, consolidate, or cease to be in existence for any reason; provided
that, the Borrower or any Subsidiary may merge or consolidate with
Guarantor or any one or more Subsidiaries of
9
<PAGE>
Borrower or with any other entity if, before and after giving effect
thereto, no Event of Default shall have occurred and be continuing and the
surviving entity assumes all the obligations and duties of the Borrower
under this Note and the obligations of the Borrower continue to be
guaranteed by a creditworthy entity and in form and substance satisfactory
to the Lender; provided further that this clause (g) shall not apply to any
----------
Subsidiary to be liquidated or dissolved if the Board of Directors of such
Subsidiary shall determine that the preservation of the existence of such
Subsidiary is no longer desirable in the conduct of business of the
Borrower and its Subsidiaries, and that the loss thereof is not
disadvantageous in any material respect to Lender, as reasonably determined
by the Lender;
(h) James A. Otterbeck and the Guarantor in the aggregate shall cease
to own, directly or indirectly, at least 51% of the issued and outstanding
common stock of Borrower entitled to vote for the election of directors of
Borrower;
(i) any proceeding (judicial or administrative) shall be commenced
against Borrower, any Subsidiary or the Guarantor, or with respect to any
assets of Borrower, any Subsidiary or the Guarantor which could reasonably
be expected to have a material and adverse effect on the assets, condition
or prospects of Borrower, any Subsidiary or the Guarantor; or final
judgment(s) and/or settlement(s) in an aggregate amount in excess of (i) in
the case of the Guarantor, TWENTY-FIVE MILLION AND NO/100 UNITED STATES
DOLLARS ($25,000,000.00), or (ii) in the case of the Borrower or any
Subsidiary, ONE MILLION AND NO/100 UNITED STATES DOLLARS ($1,000,000), in
each case in excess of insurance for which the insurer has confirmed
coverage in writing, a copy of which writing has been furnished to Lender,
shall be entered or agreed to in any suit or action;
(j) any notice of a federal tax lien against Borrower in excess of
$1,000,000 shall be filed with any public recorder and such lien is not
vacated, discharged, stayed or bonded over for a period of 60 days;
(k) the senior unsecured debt rating of Guarantor shall be less than
BBB by Standard & Poors, a division of McGraw Hill Company, Inc. or Baa by
Moody's Investors Services, Inc.;
(l) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, liquidation, dissolution, or similar proceeding, domestic or
foreign, is instituted by or against Borrower, any Subsidiary or the
Guarantor and in the case of an involuntary proceeding is not dismissed
within 60 days; or Borrower, any Subsidiary or the Guarantor shall take any
steps toward, or to authorize, such a proceeding; or
(m) Borrower, any Subsidiary or any Guarantor shall become insolvent,
generally shall fail or be unable to pay its debts as they mature, shall
admit in writing its inability to pay its debts as they mature, shall make
a general assignment for the benefit of its creditors, shall enter into any
composition or similar agreement, or shall suspend the transaction of all
or a substantial portion of its usual business.
10
<PAGE>
8. DEFAULT REMEDIES.
(a) Upon the occurrence and during the continuance of any Event of
Default specified in Section 7(a)-(k), Lender at its option may declare
-----------------
this Note and the L/C Amount (principal, interest and other amounts)
immediately due and payable without notice or demand of any kind. Upon the
occurrence of any Event of Default specified in Section 7(l)-(m), this Note
----------------
and the L/C Amount (principal, interest and other amounts) shall be
immediately and automatically due and payable without action of any kind on
the part of Lender. Upon the occurrence and during the continuance of any
Event of Default, Lender may exercise any rights and remedies under this
Note, any Letter of Credit Application, any related document or instrument,
and at law or in equity. In addition, the Lender may in the case of an
Event of Default (other than one referred to under Section 7(l) or (m) of
------------ ---
this Note) or shall (in the case of an Event of Default under Section 7(l)
------------
or (m) of this Note) require the Borrower to (i) deliver to the Lender cash
---
collateral to secure the Borrower's reimbursement obligations with respect
to the undrawn face amount under any of the then issued and unexpired
Letters of Credit and (ii) pay to the Lender the unreimbursed amount in
respect of any amount drawn under any Letter of Credit (whether expired or
unexpired).
(b) Lender may, by written notice to Borrower, at any time and from
time to time, waive any Event of Default or "Unmatured Event of Default"
(as defined below), which shall be for such period and subject to such
conditions as shall be specified in any such notice. In the case of any
such waiver, Lender and Borrower shall be restored to their former position
and rights hereunder, and any Event of Default or Unmatured Event of
Default so waived shall be deemed to be cured and not continuing; but no
such waiver shall extend to or impair any subsequent or other Event of
Default or Unmatured Event of Default. No failure to exercise, and no
delay in exercising, on the part of Lender of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
of Lender herein provided are cumulative and not exclusive of any rights or
remedies provided by law. "Unmatured Event of Default" means any event or
--------------------------
condition which would become an Event of Default with notice or the passage
of time or both.
9. NO INTEREST OVER LEGAL RATE.
Borrower does not intend or expect to pay, nor does Lender intend or expect
to charge, accept or collect any interest which, when added to any fee or other
charge which may legally be treated as interest, shall be in excess of the
highest lawful rate. If acceleration, prepayment or any other charges upon the
principal or any portion thereof, or any other circumstance, result in the
computation or earning of interest in excess of the highest lawful rate, then
any and all such excess is hereby waived and shall be applied against the
remaining principal balance. Without limiting the generality of the foregoing,
and notwithstanding anything to the contrary contained herein or otherwise, no
deposit of funds shall be required in connection herewith which will, when
deducted from the principal amount outstanding hereunder, cause the rate of
interest hereunder to exceed the highest lawful rate.
11
<PAGE>
10. PAYMENTS, ETC.
All payments hereunder and in connection with any reimbursement obligation under
any Letter of Credit Application shall be made in immediately available funds,
and shall be applied first to accrued interest and then to principal; however,
if an Event of Default occurs, Lender may, in its sole discretion, and in such
order as it may choose, apply any payment to interest, principal and/or lawful
charges and expenses then accrued. Borrower shall receive immediate credit on
payments received during Lender's normal banking hours if made in cash,
immediately available funds, or by debit to available balances in an account at
Lender; otherwise payments shall be credited after clearance through normal
banking channels. Borrower authorizes Lender to charge any account of Borrower
maintained with Lender for any amounts of principal, interest, taxes, duties, or
other charges or amounts due or payable hereunder, with the amount of such
payment subject to availability of collected balances in Lender's discretion;
unless Borrower instructs otherwise, any Loan shall be credited to an account(s)
of Borrower with Lender. LENDER AT ITS OPTION MAY MAKE LOANS HEREUNDER OR ISSUE
LETTERS OF CREDIT UPON TELEPHONIC INSTRUCTIONS AND IN SO DOING SHALL BE FULLY
ENTITLED TO RELY SOLELY UPON INSTRUCTIONS, INCLUDING WITHOUT LIMITATION
INSTRUCTIONS TO MAKE TRANSFERS TO THIRD PARTIES, REASONABLY BELIEVED BY LENDER
TO HAVE BEEN GIVEN BY AN AUTHORIZED PERSON, WITHOUT INDEPENDENT INQUIRY OF ANY
TYPE. All payments shall be made without deduction for or on account of any
present or future taxes, duties or other charges levied or imposed on this Note,
any Letter of Credit Application, the proceeds of any Loan, Lender (other than
based solely on the income of the Lender) or Borrower by any government or
political subdivision thereof. Borrower shall upon request of Lender pay all
such taxes, duties or other charges in addition to principal and interest,
including without limitation all documentary stamp and intangible taxes, but
excluding income taxes based solely on Lender's income.
11. SETOFF.
At any time and without notice of any kind, any account, deposit or other
indebtedness owing by Lender to Borrower, and any securities or other property
of Borrower delivered to or left in the possession of Lender or its nominee or
bailee, may be set off against and applied in payment of any obligation
hereunder or any reimbursement obligation under any Letter of Credit, whether
due or not.
12. NOTICES.
All notices, requests and demands to or upon the respective parties hereto
shall be deemed to have been given or made when deposited in the mail, postage
prepaid, addressed if to Lender to its main banking office indicated above
(Attention: Division Head, Commercial Division), and if to Borrower to its
address set forth below, or to such other address as may be hereafter designated
in writing by the respective parties hereto or, as to Borrower, may appear in
Lender's records.
12
<PAGE>
13. MISCELLANEOUS.
This Note and any document or instrument executed in connection herewith
shall be governed by and construed in accordance with the internal law of the
State of Illinois, and shall be deemed to have been executed in the State of
Illinois. Unless the context requires otherwise, wherever used herein the
singular shall include the plural and vice versa. Captions herein are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof; references herein to Sections or provisions without reference
to the document in which they are contained are references to this Note. This
Note shall bind Borrower, its successors and assigns, and shall inure to the
benefit of Lender, its successors and assigns, except that Borrower may not
transfer or assign any of its rights or interest hereunder without the prior
written consent of Lender. Borrower agrees to pay upon demand all expenses
(including without limitation attorneys' fees, legal costs and expenses, in each
case whether in or out of court, in original or appellate proceedings or in
bankruptcy) incurred or paid by Lender or any holder hereof in connection with
the enforcement or preservation of its rights hereunder or under any document or
instrument executed in connection herewith. Except as otherwise expressly
provided herein, Borrower expressly and irrevocably waives notice of dishonor or
default as well as presentment, protest, demand and notice of any kind in
connection herewith. Borrower and, by acceptance of this Note, Lender agree not
to amend this Note without the prior written consent of Guarantor if and only if
such amendment relates to (a) subordinating the Lender's right to payment under
this Note to the payment of any other indebtedness or equity interest of the
Borrower, (b) extending the Maturity Date or any installments hereunder, (c)
changing Section 3.2 hereof, (d) increasing the principal amount of this Note
------------
above $16,000,000, (e) impairing the subrogation rights of the Guarantor, or (f)
extending the Final Drawdown Date.
14. WAIVER OF JURY TRAIL, ETC.
BORROWER AND LENDER HEREBY IRREVOCABLY AGREE THAT ALL SUITS, ACTIONS OR
OTHER PROCEEDINGS WITH RESPECT TO, ARISING OUT OF OR IN CONNECTION WITH THIS
NOTE, ANY LETTER OF CREDIT APPLICATION OR ANY DOCUMENT OR INSTRUMENT EXECUTED IN
CONNECTION HEREWITH OR THEREWITH SHALL BE SUBJECT TO LITIGATION IN COURTS HAVING
SITUS WITHIN OR JURISDICTION OVER CHICAGO, ILLINOIS. BORROWER AND LENDER HEREBY
CONSENT AND SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT
LOCATED IN OR HAVING JURISDICTION OVER SUCH CITY, AND HEREBY IRREVOCABLY WAIVE
ANY RIGHT IT MAY HAVE TO REQUEST OR DEMAND TRIAL BY JURY, TO TRANSFER OR CHANGE
THE VENUE OF ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT BY LENDER IN
ACCORDANCE WITH THIS PARAGRAPH, OR TO CLAIM THAT ANY SUCH PROCEEDING HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
13
<PAGE>
ONEPOINT COMMUNICATIONS CORP. Address for Notices:
By: ___________________________ 2201 N. Waukegan Road
Type Name _____________________ Suite E-200
Bannockburn, Illinois 60015
Attention: ___________________________
14
<PAGE>
GUARANTY
Dated as of August 30, 1999
This Guaranty is made by SBC COMMUNICATIONS INC., a corporation organized
or formed under the laws of State of Delaware (the "Guarantor") in favor of The
---------
Northern Trust Company, an Illinois state banking corporation (the "Lender").
------
For valuable consideration the Guarantor agrees as follows:
SECTION 1. BASIC TERMS.
(a) In consideration of any loan, letter of credit issued for its
account or other financial accommodation heretofore, now or hereafter at
any time made or given, to OnePoint Communications Corp., a corporation
organized or formed under the laws of State of Delaware (the "Borrower"),
--------
by the Lender, the Guarantor hereby guarantees absolutely and
unconditionally the prompt payment when due, whether at maturity, by
declaration, by demand or otherwise, at any and all times thereafter, and
as otherwise set forth herein, of all indebtedness, reimbursement
obligation and other liabilities and obligations of the Borrower to the
Lender, direct or indirect, absolute or contingent, due or to become due,
now or hereafter existing under (i) that certain Call On Term - Term Note
dated as of August 30, 1999 (the "Note"), of the Borrower payable to the
----
order of the Lender in the original principal amount of $16,000,000 (as
amended, renewed or replaced in accordance herewith) and (ii) any Letter of
Credit Application (as defined in the Note) in accordance herewith, subject
to Section 1(c) (all such indebtedness and liabilities, reimbursement
------------
obligations and obligations being hereinafter collectively called the
"Indebtedness").
------------
(b) In addition, the Guarantor agrees to pay or reimburse the Lender
for all costs and expenses of enforcing and preserving its rights under
this Guaranty and the Indebtedness (including reasonable legal fees and
reasonable time charges of attorneys, whether in or out of court, in
original or appellate proceedings or in bankruptcy).
(c) The amount of this Guaranty is expressly limited to an aggregate
amount not exceeding $16,000,000, including interest thereon and costs and
expenses as provided herein and Guarantor shall have no liability hereunder
for the Indebtedness or other liability hereunder in excess of the
aggregate amount of $16,000,000.
(d) The Guaranty shall remain in full force and effect until the
earlier of (i) the 366th day following the date the Indebtedness and all
amounts payable hereunder have been fully paid, and that all commitments
and obligations of the Lender with respect to the Indebtedness, and any
obligation of the Lender to extend credit to the Borrower, have terminated
and (ii) January 4, 2005.
<PAGE>
SECTION 2. EVENTS REQUIRING PAYMENT. Each of the following shall be an "Event
-----
Requiring Payment":
- -----------------
(a) Nonpayment. Borrower's failure to pay, when and as due or demanded,
---------
any of the Indebtedness, or Guarantor's failure to comply with or perform
any agreement or covenant contained herein;
(b) Warranties. Any representation, warranty, schedule, certificate,
----------
financial statement, report, notice, or other writing furnished by or on
behalf of the Guarantor to the Lender is false or misleading in any
material respect on the date as of which the facts therein set forth are
stated or certified;
(c) Lack of Enforceability. This Guaranty shall be repudiated or become
----------------------
unenforceable or incapable of performance;
(d) Dissolution. The Guarantor shall dissolve, liquidate, merge,
-----------
consolidate, or cease to be in existence for any reason;
(e) Credit Rating. The Guarantor's senior unsecured debt rating shall
-------------
be less than BBB by Standard & Poor's, a division of McGraw Hill Company,
Inc. or Baa by Moody's Investors Services, Inc.;
(f) Bankruptcy. Any bankruptcy, insolvency, reorganization,
----------
arrangement, readjustment, liquidation, dissolution, or similar proceeding,
domestic or foreign, is instituted by or against the Guarantor or the
Borrower, and any involuntary proceedings is not dismissed within 60 days;
or the Guarantor or Borrower shall take any steps toward, or to authorize
such a proceeding; or
(g) Insolvency. The Guarantor or the Borrower shall become insolvent,
----------
generally shall fail or be unable to pay its debts as they mature, shall
admit in writing its inability to pay its debts as they mature, shall make
a general assignment for the benefit of its creditors, shall enter into any
composition or similar agreement, or shall suspend the transaction of all
or a substantial portion of its usual business.
SECTION 3. PAYMENT REQUIREMENT. Upon the occurrence of any Event Requiring
Payment, the Guarantor agrees to pay the Lender, immediately upon the Lender's
demand therefor, the full amount which would be payable hereunder by the
Guarantor if all Indebtedness were then due and payable. Further, upon the
occurrence of an Event Requiring Payment specified in Section 2(f)-(g), the full
----------------
amount which would be payable hereunder if all Indebtedness were then due and
payable shall be immediately and automatically due and payable without action of
any kind on the part of the Lender.
SECTION 4. REINSTATEMENT. This Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time payment of the Indebtedness, or
any part thereof, is rescinded or must otherwise be returned by the Lender upon
the insolvency, bankruptcy or
2
<PAGE>
reorganization of the Borrower or otherwise, all as though such payment to the
Lender had not been made.
SECTION 5. OBLIGATIONS UNCONDITIONAL; WAIVER OF DEFENSES. No fact or
circumstance whatsoever which might at law or equity constitute a discharge or
release of, or defense to the obligations of, a guarantor or surety shall limit
or affect any obligations of the Guarantor under this Guaranty. Without
limiting the generality of the foregoing:
(a) The Lender may at any time and from time to time, without notice to
the Guarantor, take any or all of the following actions without affecting
or impairing the liability of the Guarantor on this Guaranty:
(i) renew or extend time of payment of the Indebtedness;
(ii) accept, substitute, release or surrender any security for the
Indebtedness;
(iii) accept other guarantors; and
(iv) release any person primarily or secondarily liable on the
Indebtedness (including without limitation the Borrower, any
indorser, and any other guarantor).
(b) No delay in enforcing payment of the Indebtedness, nor any
amendment, waiver, change, or modification of any terms of any instrument
which evidences or is given in connection with the Indebtedness, shall
release the Guarantor from any obligation hereunder. The obligations of
the Guarantor under this Guaranty are and shall be primary, continuing,
unconditional and absolute, irrespective of the value, genuineness,
regularity, validity or enforceability of any documents or instruments
respecting or evidencing the Indebtedness. In order to hold the Guarantor
liable hereunder, there shall be no obligation on the part of the Lender,
at any time, to resort for payment to the Borrower or any other guaranty or
to any security for the Indebtedness or this Guaranty. The Lender shall
have the right to enforce this Guaranty irrespective of whether or not
other proceedings or steps are being taken against any property securing
the Indebtedness or any other party primarily or secondarily liable on any
of the Indebtedness.
(c) The Guarantor waives presentment, protest, demand, notice of
dishonor or default, notice of acceptance of this Guaranty, notice of any
loans made, extensions granted or other action taken in reliance hereon,
and all demands and notices of any kind in connection with this Guaranty or
the Indebtedness.
(d) Notwithstanding anything to the contrary herein, Lender agrees not
to amend the Indebtedness without the prior written consent of Guarantor if
and only if such amendment relates to: (i) subordinating the Lender's
right to payment of the Indebtedness to the payment of any other
indebtedness or equity interest of the Borrower,
3
<PAGE>
(ii) extending the scheduled maturity date of the Note or any installments
thereunder, (iii) changing the mandatory prepayment provision contained in
Section 3.2 of the Note, (iv) increasing the principal amount of the
-----------
Indebtedness above $16,000,000, (v) impairing the subrogation rights of the
Guarantor or (vi) extending the Final Drawdown Date (as defined in the
Note).
SECTION 6. DEBT SUBORDINATION. The Guarantor hereby subordinates to the
Indebtedness any claim or right to receive payment of any or all indebtedness of
the Borrower to the Guarantor whether now existing or hereafter created or
arising, direct or indirect, absolute or contingent, due or to become due, now
or hereafter existing (all such, the "Subordinated Indebtedness"), and agrees
-------------------------
that the Lender's claim and right to receive payment in full of the Indebtedness
shall be prior and superior. The Guarantor agrees not to accept payment of the
Subordinated Indebtedness, including interest thereon, or any part thereof, or
to enforce any security interest or accept proceeds of any security therefor,
from the Borrower as long as any Event Requiring Payment has occurred or is
continuing.
SECTION 7. SUBROGATION. Until the Indebtedness and any other amounts payable
hereunder are paid in full, Guarantor shall not pursue any claim or exercise any
right that Guarantor might now have or hereafter acquire against Borrower or any
other person primarily or contingently liable on the Indebtedness (including
without limitation any maker, indorser or guarantor) or that arises from the
existence or performance of Guarantor's obligations under this Guaranty,
including without limitation any right of subrogation, reimbursement,
exoneration, contribution or indemnification, or any right of participation in
any claim or remedy of the Lender against Borrower or any security for the
Indebtedness which the Lender now has or hereafter acquires, however arising.
SECTION 8. APPLICATION OF FUNDS. Any and all payments upon the Indebtedness
made by the Borrower, by the Guarantor, or by any other person, and the proceeds
of any and all security for any of the Indebtedness may be applied by the Lender
upon such of the items of the Indebtedness as it may determine.
SECTION 9. PARTICIPATIONS. The Lender may, without notice of any kind, sell,
assign, transfer or grant participations in all or any of the Indebtedness. In
such event each and every immediate and successive assignee, transferee or
holder of or participant in all or any of the Indebtedness shall have the right
to enforce this Guaranty, by suit or otherwise, for the benefit of such
assignee, transferee, holder or participant as fully as if such assignee,
transferee, holder or participant were herein by name specifically given such
rights, powers and benefits, but the Lender shall have an unimpaired right,
prior and superior to that of any assignee, transferee or holder to enforce this
Guaranty for the benefit of the Lender or any such participant, as to so much of
the Indebtedness as it has not sold, assigned or transferred.
SECTION 10. REPRESENTATIONS AND WARRANTIES. The Guarantor represents and
warrants to the Lender that:
(a) The Guarantor is a corporation duly existing and in good standing
under the laws of the state indicated in the heading; the Guarantor is duly
qualified, in good
4
<PAGE>
standing and authorized to do business in each jurisdiction where, because
of the nature of its activities or properties, such qualification is
required, except where failure to be so qualified would not have a material
adverse affect on the ability of the Guarantor to perform its obligations
hereunder. The Guarantor has the corporate power and authority to own its
properties and to carry on its businesses as now being conducted.
(b) The execution and delivery by the Guarantor of this Guaranty and any
document or instrument executed in connection herewith, and the performance
of the Guarantor's obligations hereunder and thereunder:
(i) are within the Guarantor's corporate powers;
(ii) have been authorized by all necessary action;
(iii) have received all necessary governmental approval (if any
shall be required);
(iv) do not and will not contravene or conflict with (A) any
provision of law or of the charter, by-laws of the Guarantor or (B)
of any agreement binding upon the Guarantor which contravention or
conflict would not have a material adverse effect on the ability of
the Guarantor to perform its obligations hereunder; and
(v) are within the direct corporate interest and purposes of the
Guarantor.
This Guaranty constitutes an obligation of the Guarantor enforceable
against the Guarantor in accord with the terms hereof.
(c) The Guarantor's audited consolidated financial statements as at
December 31, 1998 have been prepared in conformity with generally accepted
accounting principles applied on a basis consistent with that of the
preceding fiscal year, and accurately present the financial condition of
the Guarantor and any consolidated subsidiary as at such dates and the
results of their operations for the respective periods then ended. Since
the date of those financial statements, no material, adverse changes in the
business, properties, assets, operations, conditions or prospects of the
Guarantor has occurred of which the Lender has not been advised in writing
before this Guaranty was signed.
(d) The Guarantor has filed or caused to be filed all federal, state and
local tax returns (including information returns) which, to the knowledge
of the Guarantor are required to be filed, and has paid or has caused to be
paid all taxes as shown on such returns or on any assessment received by
it, to the extent that such taxes have become due (except for current taxes
not delinquent and taxes being contested in good faith and by appropriate
proceedings for which adequate reserves have been provided on the books of
the Guarantor, and as to which no foreclosure, distraint, sale or similar
proceedings have
5
<PAGE>
been commenced). The Guarantor has set up reserves in accordance with
generally accepted accounting principles for the payment of additional
taxes for years which have not been audited by the respective tax
authorities.
(e) No litigation (including derivative actions), arbitration
proceedings or governmental proceedings are pending or, to its knowledge,
threatened against the Guarantor which would (singly or in the aggregate),
if adversely determined, have a material and adverse effect on the
financial condition, continued operations or prospects of the Guarantor.
SECTION 11. COVENANTS. So long as this Guaranty remains in effect, the
Guarantor agrees that it shall, and shall cause any subsidiary to comply with
the following covenants, unless the Lender consents otherwise in writing:
(a) The Guarantor shall furnish to the Lender:
(i) Within 45 days after the end of each quarter of each fiscal
year of the Guarantor, a copy of an unaudited financial statement
of the Guarantor and any subsidiary prepared on a consolidating
and consolidated basis consistent with the audited consolidated
financial statements of the Guarantor and any subsidiary referred
to in Section 10(c), signed by an authorized officer of the
-------------
Guarantor and consisting of at least: (A) a balance sheet as at
the close of such quarter; and (B) a statement of earnings and
source and application of funds for such quarter and for the
period from the beginning of such fiscal year to the close of
such quarter; provided that, so long as the common stock of the
Guarantor is listed for trading on New York Stock Exchange
("NYSE"), the foregoing requirement as to the quarterly financial
----
statements of the Guarantor may be satisfied by delivery to
Lender of the Guarantor's Quarterly Report on Form 10-Q as filed
with the Securities Exchange Commission ("SEC") within 60 days
---
after the end of each quarter of each fiscal year of the
Guarantor;
(ii) Within 90 days after the end of each fiscal year of the
Guarantor, a copy of an annual audit report of the Guarantor and
any subsidiary prepared on a consolidated basis and in conformity
with generally accepted accounting principles applied on a basis
consistent with the audited consolidated financial statements of
the Guarantor and any subsidiary referred to above, duly
certified by independent certified public accountants of
recognized standing satisfactory to the Lender, accompanied by an
opinion without significant qualification; provided that, so long
as the common stock of the Guarantor is listed for trading on
NYSE, the foregoing requirement as to Guarantor's annual audit
reports may be satisfied by the delivery to Lender within 105
days after the end of each fiscal year of the Guarantor of
Guarantor's Annual Report to
6
<PAGE>
Stockholders and the Annual Report on Form 10-K filed with the
SEC; and
(iii) Immediately upon learning of the occurrence of an Event
Requiring Payment or an Unmatured Event Requiring Payment with
respect to the Guarantor only, written notice describing the same
and the steps being taken by the Guarantor in respect thereof.
SECTION 12. As used herein the term "Unmatured Event Requiring Payment" means
---------------------------------
an event or condition which would become an Event Requiring Payment with notice
or the passage of time or both.
SECTION 13. MISCELLANEOUS.
(a) The Lender may, by written notice to the Guarantor, at any time
and from time to time, waive any Event Requiring Payment or Unmatured Event
Requiring Payment, which shall be for such period and subject to such
conditions as shall be specified in any such notice. In the case of any
such waiver, the Lender and the Guarantor shall be restored to their former
position and rights hereunder, and any Event Requiring Payment or Unmatured
Event Requiring Payment so waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to or impair any right
consequent thereon or to any subsequent or other Event Requiring Payment or
Unmatured Event Requiring Payment.
(b) All notices, requests and demands to or upon the respective
parties hereto shall be deemed to have been given or made three (3)
business days after being deposited in the mail, postage prepaid,
addressed:
(i) if to the Lender to 265 East Deerpath, Lake Forest,
Illinois 60045 (Attention: Division Head Commercial Division)
(ii) if to the Guarantor to SBC Communications, Inc., 7th Floor,
175 E. Houston, San Antonio, Texas 78205 (Attention: Treasurer)
or to such other address as may be hereafter designated in writing by the
respective parties hereto.
(c) No failure to exercise, and no delay in exercising, on the part
of the Lender of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies of the Lender herein provided are
cumulative and not exclusive of any rights or remedies provided by law.
(d) This Guaranty shall, upon execution and delivery by the Guarantor
and acceptance by the Lender in Chicago, Illinois, become effective and
shall be binding upon and inure to the benefit of the Guarantor, the Lender
and their respective successors
7
<PAGE>
and assigns, except that the Guarantor may not transfer or assign any of
its rights or interests hereunder without the prior written consent of the
Lender.
(e) Captions in this Guaranty are for convenience of reference only and
shall not define or limit any of the terms or provisions hereof.
References herein to Sections or provisions without reference to the
document in which they are contained are references to this Guaranty.
(f) Unless the context requires otherwise, wherever used herein the
singular shall include the plural and vice versa, and the use of one gender
shall also denote the other where appropriate.
(g) This Guaranty may be executed on any number of separate
counterparts; each counterpart shall be deemed an original instrument; and
all of the counterparts taken together shall be deemed to constitute one
and the same instrument.
(h) This Guaranty, and any document or instrument executed in connection
herewith shall be governed by, and construed and interpreted in accordance
with, the internal laws of the State of Illinois, and shall be deemed to
have been executed in the State of Illinois.
(i) The Guarantor, and the Lender by its acceptance hereof, irrevocably
agree that all suits, actions or other proceedings in any way, manner or
respect, arising out of or from or related to this Guaranty, shall be
subject to litigation in courts having situs within Chicago, Illinois. The
Guarantor, and the Lender by its acceptance hereof, hereby consent and
submit to the jurisdiction of any local, state or federal court located
within said city and state. The Guarantor, and the Lender by its
acceptance hereof, hereby waive any right it may have to request or demand
trial by jury, to transfer or change the venue of any suit, action or other
proceeding brought against either party in accordance with this Section, or
to claim that any such proceeding has been brought in an inconvenient
forum.
SBC COMMUNICATIONS INC.
By:______________________________
Its:_____________________________
8
<PAGE>
FIRST AMENDMENT DATED
AS OF AUGUST 30, 1999
TO LOAN DOCUMENTS AND GUARANTY
THIS AMENDMENT, dated as of August 30, 1999, is entered into among ONEPOINT
COMMUNICATIONS CORP., a Delaware corporation (the "Borrower"), SBC
--------
COMMUNICATIONS INC., a Delaware corporation (the "Guarantor"), and THE NORTHERN
---------
TRUST COMPANY, an Illinois banking corporation having an office at 265 East
Deerpath Road, Lake Forest, Illinois 60045 (the "Lender").
------
RECITALS:
A. The Borrower has previously delivered to the Lender (i) an Amended and
Restated Call On Term - Term Note dated as of April 29, 1998 in the original
principal amount of $9,000,000 (as amended, modified, restated or replaced, the
"Note") and (ii) an Amended and Restated Security Agreement dated as of April
----
29, 1998 (as amended, modified, restated or replaced, the "Security Agreement";
------------------
together with the Note, collectively the "Loan Documents" and individually, a
--------------
"Loan Document").
- --------------
B. Guarantor has previously delivered to the Lender an Amended and
Restated Guaranty dated as of April 29, 1998 (as amended, modified or replaced,
the "Guaranty"). Terms defined in the Loan Documents or the Guaranty and not
--------
otherwise defined herein shall be used herein as defined in the Loan Documents
and the Guaranty, as applicable.
C. The Borrower, the Guarantor and the Lender wish to amend the Loan
Documents and the Guaranty.
D. Therefore, the parties hereto agree as follows:
1. AMENDMENTS TO THE NOTE.
1.1. Section 2.2 of the Note. Section 2.2 of the Note is hereby
----------------------- -----------
amended as of the date hereof by deleting the first sentence thereof and
substituting the following therefor:
"2.2 MANDATORY PREPAYMENT. In the event that twenty percent (20%) or
--------------------
more of the issued and outstanding shares of the Borrower are held by
persons not owning shares of the Borrower, directly or indirectly, on April
29, 1998 or substantially all the assets of the Borrower are sold, then on
the date such event shall occur, the Borrower immediately agrees to prepay
the entire outstanding principal amount of the Loans and all unpaid and
accrued interest on the Loans and acknowledges and agrees that any
commitment to lend hereunder is terminated without further notice or action
on the part of the Lender."
<PAGE>
1.2. Section 5 of the Note. The definition of "Subsidiary" in
---------------------
Section 5 of the Note is hereby amended as of the date hereof by deleting
---------
the percentage "eighty percent (80%)" appearing therein and substituting
the percentage "fifty percent (50%)" therefor.
1.3. Sections 6(c), (d), (f), (g), (h), (i), (l) and (m) of the Note.
---------------------------------------------------------------
Sections 6(c), (d), (f), (g), (h), (i), (l) and (m) only of the Note are
------------- --- --- --- --- --- --- ---
hereby amended and restated in their entirety as of the date hereof as
follows:
"(c) failure of Borrower or any of its Subsidiaries or the Guarantor
to pay when due any principal of or interest on or any other amount payable
in respect of one or more items of indebtedness or reimbursement obligation
in an aggregate amount in excess of $5,000,000 ($100,000,000 in the case of
the Guarantor only), in each case beyond the end of any grace period
provided therefor, or any breach or default by Borrower or any of its
Subsidiaries or the Guarantor with respect to any term of one or more terms
of indebtedness or reimbursement obligation in the aggregate principal
amount in excess of $5,000,000 ($100,000,000 in the case of the Guarantor
only) shall occur if the effect of such breach or default is to cause, or
permit the holders of that indebtedness to cause, that indebtedness to
become due and payable prior to its stated maturity;
(d) any representation, warranty, schedule, certificate, financial
statement, report, notice, or other writing furnished by or on behalf of
Borrower, any Subsidiary or Guarantor to Lender is false or misleading in
any material respect on the date as of which the facts therein set forth
are stated or certified; . . .
(f) Borrower, any Subsidiary or Guarantor shall fail to maintain
their existence in good standing in their state of formation or shall fail
to be duly qualified, in good standing and authorized to do business in
each jurisdiction where failure to do so is reasonably likely to have a
material adverse impact on the consolidated assets, condition or prospects
of Borrower and such failure is not cured within ten (10) days of the
Borrower, such Subsidiary or the Guarantor having actual notice that they
are not in good standing or duly qualified;
(g) Borrower, any Subsidiary or Guarantor shall dissolve, liquidate,
merge, consolidate, or cease to be in existence for any reason; provided
that, the Borrower or any Subsidiary may merge or consolidate with
Guarantor or any one or more Subsidiaries of Borrower or with any other
entity if, before and after giving effect thereto, no Event of Default
shall have occurred and be continuing and the surviving entity assumes all
the obligations and duties of the Borrower under this Note and the
obligations of the Borrower continue to be guaranteed by a creditworthy
entity and in form and substance satisfactory to the Lender; provided
further that this clause (g) shall not apply to any Subsidiary to be
----------
liquidated or dissolved if the Board of Directors of such Subsidiary shall
determine that the preservation of the existence of such Subsidiary is no
longer
-2-
<PAGE>
desirable in the conduct of business of the Borrower and its Subsidiaries,
and that the loss thereof is not disadvantageous in any material respect to
Lender, as reasonably determined by the Lender;
(h) James A. Otterbeck and the Guarantor in the aggregate shall cease
to own, directly or indirectly, at least 51% of the issued and outstanding
common stock of Borrower entitled to vote for the election of directors of
Borrower;
(i) any proceeding (judicial or administrative) shall be commenced
against Borrower, any Subsidiary or the Guarantor, or with respect to any
assets of Borrower, any Subsidiary or the Guarantor which could reasonably
be expected to have a material and adverse effect on the assets, condition
or prospects of Borrower, any Subsidiary or the Guarantor; or final
judgment(s) and/or settlement(s) in an aggregate amount in excess of (i) in
the case of the Guarantor, TWENTY-FIVE MILLION AND NO/100 UNITED STATES
DOLLARS ($25,000,000.00), or (ii) in the case of the Borrower or any
Subsidiary, ONE MILLION AND NO/100 UNITED STATES DOLLARS ($1,000,000), in
each case in excess of insurance for which the insurer has confirmed
coverage in writing, a copy of which writing has been furnished to Lender,
shall be entered or agreed to in any suit or action; . . .
(l) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, liquidation, dissolution, or similar proceeding, domestic or
foreign, is instituted by or against Borrower, any Subsidiary or the
Guarantor and in the case of an involuntary proceeding is not dismissed
within 60 days; or Borrower, any Subsidiary or the Guarantor shall take any
steps toward, or to authorize, such a proceeding; or
(m) Borrower, any Subsidiary or any Guarantor shall become insolvent,
generally shall fail or be unable to pay its debts as they mature, shall
admit in writing its inability to pay its debts as they mature, shall make
a general assignment for the benefit of its creditors, shall enter into any
composition or similar agreement, or shall suspend the transaction of all
or a substantial portion of its usual business."
1.4. Section 6(e) of the Note. Section 6(e) of the Note is hereby
------------------------ ------------
amended as of the date hereof by adding the following immediately after the
semicolon but before the word "or" appearing therein:
"or the senior unsecured debt rating of Guarantor shall be less
than BBB by Standard & Poor's, a division of McGraw Hill Company,
Inc. or Baa by Moody's Investors Services, Inc.;"
1.5. Section 6(j) of the Note. Section 6(j) of the Note is hereby
------------------------ ------------
amended as of the date hereof by deleting everything after the word "documents;"
appearing therein and substituting the following therefor:
-3-
<PAGE>
"or any notice of a federal tax lien against Borrower in excess
of $1,000,000 shall be filed with any public recorder and such
lien is not vacated, discharged, stayed or bonded over for a
period of 60 days; or"
2. AMENDMENTS TO THE SECURITY AGREEMENT.
2.1. Section 1(d) of the Security Agreement. Section 1(d) of the
-------------------------------------- ------------
Security Agreement is hereby amended as of the date hereof by deleting the
percentage "80%" appearing therein and substituting the percentage "50%"
therefor.
2.2. Sections 9(c), (d), (f), (g), (h), (i), (j) (l) and (m) of the
--------------------------------------------------------------
Security Agreement. Sections 9(c), (d), (f), (g), (h), (i), (j), (l) and (m)
- ------------------ ------------- --- --- --- --- --- --- --- ---
only of the Security Agreement are hereby amended and restated in their entirety
as of the date hereof as follows:
"(c) failure of Debtor or any of its Subsidiaries or the Guarantor to
pay when due any principal of or interest on or any other amount payable in
respect of one or more items of indebtedness or reimbursement obligation in
an aggregate amount in excess of $5,000,000 ($100,000,000 in the case of
the Guarantor only), in each case beyond the end of any grace period
provided therefor, or any breach or default by Debtor or any of its
Subsidiaries or the Guarantor with respect to any term of one or more terms
of indebtedness or reimbursement obligation in the aggregate principal
amount in excess of $5,000,000 ($100,000,000 in the case of the Guarantor
only) shall occur if the effect of such breach or default is to cause, or
permit the holders of that indebtedness to cause, that indebtedness to
become due and payable prior to its stated maturity;
(d) any representation, warranty, schedule, certificate, financial
statement, report, notice, or other writing furnished by or on behalf of
Debtor, any Subsidiary or Guarantor to Secured Party is false or misleading
in any material respect on the date as of which the facts therein set forth
are stated or certified; . . .
(f) Debtor, any Subsidiary or Guarantor shall fail to maintain their
existence in good standing in their state of formation or shall fail to be
duly qualified, in good standing and authorized to do business in each
jurisdiction where failure to do so is reasonably likely to have a material
adverse impact on the consolidated assets, condition or prospects of Debtor
and such failure is not cured within ten (10) days of the Debtor, such
Subsidiary or the Guarantor having actual notice that they are not in good
standing or duly qualified;
(g) Debtor, any Subsidiary or Guarantor shall dissolve, liquidate,
merge, consolidate, or cease to be in existence for any reason; provided
that, the Debtor or any Subsidiary may merge or consolidate with Guarantor
or any one or more Subsidiaries of Debtor or with any other entity if,
before and after giving effect thereto, no Event of Default shall have
occurred and be continuing and the surviving entity assumes all the
obligations and duties of the Debtor under this Note and the obligations of
the Debtor continue to be guaranteed by a
-4-
<PAGE>
creditworthy entity and in form and substance satisfactory to the Secured
Party; provided further that this clause (g) shall not apply to any
----------
Subsidiary to be liquidated or dissolved if the Board of Directors of such
Subsidiary shall determine that the preservation of the existence of such
Subsidiary is no longer desirable in the conduct of business of the Debtor
and its Subsidiaries, and that the loss thereof is not disadvantageous in
any material respect to Secured Party, as reasonably determined by the
Secured Party;
(h) James A. Otterbeck and the Guarantor in the aggregate shall cease
to own, directly or indirectly, at least 51% of the issued and outstanding
common stock of Debtor entitled to vote for the election of directors of
Debtor;
(i) any proceeding (judicial or administrative) shall be commenced
against Debtor, any Subsidiary or the Guarantor, or with respect to any
assets of Debtor, any Subsidiary or the Guarantor which could reasonably be
expected to have a material and adverse effect on the assets, condition or
prospects of Debtor, any Subsidiary or the Guarantor; or final judgment(s)
and/or settlement(s) in an aggregate amount in excess of (i) in the case of
the Guarantor, TWENTY-FIVE MILLION AND NO/100 UNITED STATES DOLLARS
($25,000,000.00), or (ii) in the case of the Debtor or any Subsidiary, ONE
MILLION AND NO/100 UNITED STATES DOLLARS ($1,000,000), in each case in
excess of insurance for which the insurer has confirmed coverage in
writing, a copy of which writing has been furnished to Secured Party, shall
be entered or agreed to in any suit or action; . . .
(l) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, liquidation, dissolution, or similar proceeding, domestic or
foreign, is instituted by or against Debtor, any Subsidiary or the
Guarantor and in the case of an involuntary proceeding is not dismissed
within 60 days; or Debtor, any Subsidiary or the Guarantor shall take any
steps toward, or to authorize, such a proceeding; or
(m) Debtor, any Subsidiary or any Guarantor shall become insolvent,
generally shall fail or be unable to pay its debts as they mature, shall
admit in writing its inability to pay its debts as they mature, shall make
a general assignment for the benefit of its creditors, shall enter into any
composition or similar agreement, or shall suspend the transaction of all
or a substantial portion of its usual business."
2.3. Section 9(e) of the Security Agreement. Section 9(e) of the
-------------------------------------- ------------
Security Agreement is hereby amended as of the date hereof by adding the
following immediately after the semicolon but before the "or" appearing therein:
"or the senior unsecured debt rating of Guarantor shall be less
than BBB by Standard & Poor's, a division of McGraw Hill Company,
Inc. or Baa by Moody's Investors Services, Inc.;"
-5-
<PAGE>
2.4. Section 9(j) of the Security Agreement. Section 9(j) of the
-------------------------------------- ------------
Security Agreement is hereby amended as of the date hereof by deleting
everything after the phrase "with the terms hereof" appearing therein and
substituting the following therefor:
"or any notice of a federal tax lien against Debtor in excess of
$1,000,000 shall be filed with any public recorder and such lien
is not vacated, discharged, stayed or bonded over for a period of
60 days; or"
3. AMENDMENTS TO THE GUARANTY
3.1. Section 2 of the Guaranty. Section 2 of the Guaranty is hereby
------------------------- ---------
amended as of the date hereof by (i) adding a new clause (e) thereto as follows
----------
and (ii) relettering existing clauses (e) and (f) as clauses (f) and (g)
----------- --- ----------- ---
respectively:
"(e) Credit Rating. The Guarantor's senior unsecured debt
-------------
rating shall be less than BBB by Standard & Poor's, a division of
McGraw Hill Company, Inc. or Baa by Moody's Investors Services,
Inc.; or"
3.2. Section 3 of the Guaranty. Section 3 of the Guaranty is hereby
------------------------- ---------
amended as of the date hereof by deleting the reference to "Section 2(e) - (f)"
------------------
appearing therein and substituting "Section 2(f) - (g)" therefor.
------------------
4. WARRANTIES. To induce the Lender to enter into this Amendment, the
Borrower and the Guarantor warrant that:
4.1. Authorization. Such party is duly authorized to execute and
-------------
deliver this Amendment and is and will continue to be duly authorized, in the
case of the Borrower, to borrow monies under the Loan Documents, as amended
hereby, and to perform its obligations under the Loan Documents, as amended
hereby, and in the case of the Guarantor, to perform its obligations under the
Guaranty, as amended hereby.
4.2. No Conflicts. The execution and delivery of this Amendment, and
------------
the performance by such party of its obligations, in the case of the Borrower
under the Loan Documents, and in the case of the Gurantor, the Guaranty, each as
amended hereby, do not and will not conflict with any provision of law or of the
charter or by-laws of such party or of any agreement binding upon such party.
4.3. Validity and Binding Effect. The Loan Documents and, in the
---------------------------
case of the Guarantor, the Guaranty, each as amended hereby, are legal, valid
and binding obligations of such party, as applicable, enforceable against such
party, as applicable, in accordance with their terms, except as enforceability
may be limited by bankruptcy, insolvency or other similar laws of general
application affecting the enforcement of creditors' rights or by general
principles of equity limiting the availability of equitable remedies.
-6-
<PAGE>
5. CONDITIONS PRECEDENT TO AMENDMENTS. The amendments contemplated by
Sections 1, 2 and 3 hereof are subject to the satisfaction of each of the
- ---------- - -
following conditions precedent:
5.1. Documentation. The Borrower shall have delivered to the Lender
-------------
all of the following, each duly executed and dated the closing date hereof, in
form and substance satisfactory to the Lender:
(a) Certificate. A certificate of the president or chief financial
-----------
officer of the Borrower as to the matters set out in Sections 5.2 and 5.3
------------ ---
hereof.
(b) Amendment. The Borrower and the Guarantor shall each have
---------
executed a counterpart of this Amendment and delivered it to the Lender.
(c) Other. Such other documents as the Lender may reasonably request.
-----
5.2. No Default. As of the closing date hereof, no Event of Default
----------
or Unmatured Event of Default under the Loan Documents or Event Requiring
Payment under the Guaranty shall have occurred and be continuing.
5.3. Warranties. As of the closing date hereof, the warranties in
----------
the Loan Documents, the Guaranty and in Section 4 of this Amendment shall be
---------
true and correct as though made on such date, except for such changes as are
specifically permitted under the Loan Documents or the Guaranty.
6. GENERAL.
6.1. Expenses. The Borrower agrees to pay the Lender upon demand for
--------
all reasonable expenses, including reasonable attorneys' and legal assistants'
fees (which attorneys and legal assistants may be employees of the Lender),
incurred by the Lender in connection with the preparation, negotiation and
execution of this Amendment and any document required to be furnished herewith.
6.2. Law. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
---
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
6.3. Successors. This Amendment shall be binding upon the Borrower,
----------
the Guarantor and the Lender and their respective successors and assigns, and
shall inure to the benefit of the Borrower, the Guarantor and the Lender and the
successors and assigns of the Lender.
6.4. Confirmation of the Agreement. The Loan Documents and the
-----------------------------
Guaranty, each as amended hereby, shall remain in full force and effect and are
hereby ratified and confirmed in all respects.
-7-
<PAGE>
6.5. References to the Agreement. Each reference in the Loan
---------------------------
Documents or the Guaranty to "this Agreement," "hereunder," "hereof," or words
of similar import in instruments or documents provided for in the Loan Documents
or the Guaranty or delivered or to be delivered thereunder or in connection
therewith, shall, except where the context otherwise requires, be deemed a
reference to the Loan Documents or the Guaranty, each as amended hereby.
6.6. Counterparts. This Amendment may be executed in any number of
------------
counterparts and any party hereto may execute any one or more counterparts, all
of which shall constitute one and the same instrument.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed at Chicago, Illinois by their respective officers thereunto duly
authorized as of the date first written above.
ONE POINT COMMUNICATIONS CORP.
By:______________________________
Title____________________________
SBC COMMUNICATIONS, INC.
By:______________________________
Title:___________________________
THE NORTHERN TRUST COMPANY
By:______________________________
Title____________________________
-9-
<PAGE>
The Northern Trust Company
265 East Deerpath Road
Lake Forest, Illinois 60045
Re: First Amendment dated as of August 30, 1999 (the "Amendment") to Loan
---------
Documents and the Guaranty, among OnePoint Communications Corp. (the
"Borrower"), SBC Communications Inc. and The Northern Trust Company (the
--------
"Lender")
------
Ladies and Gentlemen:
This certificate is being delivered to the Lender pursuant to Section 5.1(a) of
--------------
the Amendment. Terms used in this certificate which are defined in the Loan
Documents or the Guaranty shall have the same meaning herein as therein.
In connection with the closing today of the Amendment, the undersigned officer
of the Borrower hereby certifies as follows:
1. No Event of Default or Unmatured Event of Default under the Loan
Documents has occurred and is continuing.
2. The warranties in the Loan Documents and in Section 4 of the Amendment
---------
are true and correct as of the date hereof as though made on the date
hereof, except for such changes as are specifically permitted under
the Agreement.
Very truly yours,
Dated August 30, 1999 ONE POINT COMMUNICATIONS CORP.
By: ___________________________
Title: [Insert "President" or
title of chief financial
officer, as applicable]
<PAGE>
VIC-1 RMTS LLC
ASSIGNMENT AND INSTRUMENT OF TRANSFER OF
MEMBERSHIP UNITS IN MID-ATLANTIC RMTS HOLDINGS, LLC
---------------------------------------------------
BE IT KNOWN BY THESE PRESENTS that, in consideration for the sum of
$171,500, receipt of which is hereby acknowledged, VIC-1 RMTS LLC, a Delaware
limited liability company, has sold, assigned and transferred 98% of the
Membership Units it holds in Mid-Atlantic RMTS Holdings, LLC, a Delaware limited
liability company, to OnePoint Communications Holdings, LLC, a Delaware limited
liability company.
OnePoint Communications Holdings, LLC is hereby irrevocably designated as
agent for VIC-1 RMTS LLC to transfer the aforesaid Membership Units on the books
and records of Mid-Atlantic RMTS Holdings, LLC.
Dated: December 31, 1999
By:
------------------------------
James A. Otterbeck
Its:
------------------------------
<PAGE>
Exhibit 14
SECURITIES PURCHASE AGREEMENT
DATED OCTOBER-, 1999
BETWEEN VENTURES IN COMMUNICATIONS H, L.L.C.,
ONEPOP4T COMMUNICATIONS CORP.,
AND
CAIS INTERNET, INC.
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made as of
October ------ ~, 1999 between Ventures in Communications 11, L.L.C., a
Delaware limited liability company (the "Company"), OnePoint Communications
Corp., a Delaware corporation ("OnePoint") and CAIS Internet, Inc., a Delaware
corporation (the "Purchaser"). Except as otherwise indicated herein,
capitalized terms used herein are defined in Section 9 hereof
The parties hereto agree as follows:
Section 1. Authorization and Closing.
--------------------------
I A. Authorization of the Common Units. The Company shall
authorize the issuance and sale to the Purchaser of 10,000 of its common units
(the "Common Units"), each having the rights and obligations set forth in
Ventures in Communications 11, L.L.C. Operating Agreement dated as of April 29,
1998, (as amended from time to time, the "LLC Agreement") a copy of which as
amended through the date hereof, is attached hereto in Exhibit A.
IB. Purchase and Sale of the Common Units. At the Closing,
the Company shall sell to the Purchaser and, subject to the terms and
conditions set forth herein, the Purchaser shall purchase from the Company
10,000 Common Units at a price of $257.40 per unit.
I C. The Closing. The closing of the purchases and sales of
the Common Units (the "Closing") shall take place at the offices of Kirkland &
Ellis, 200 E. Randolph Drive, Chicago, Illinois, at 10:00 a.m. on October 1999
or at such other place or on such other date as may be mutually agreeable to
the Company and Purchaser. At the Closing, the Purchaser shall pay an
aggregate of $2,574,000 by wire transfer of immediately available funds to the
account specified in writing by the Company and the Company and Purchaser
shall execute and deliver to the Company a counterpart to the LLC Agreement
(the "LLC Counterpart") indicating Purchaser's purchase of the Common Units
and agreement to be bound by the terms thereof
Section 2. Conditions to the Closing.
--------------------------
2A. Conditions to Purchaser's Obligations. The
obligation of Purchaser to purchase and pay for the Common Units at the
Closing is subject to the satisfaction as of the Closing of the
following conditions:
(i) The representations and warranties of the
Company contained in Section 5 hereof and OnePoint contained in
Section 6 hereof shall be true and correct in ail material respects
at and as of the Closing as though then made, except to the extent of
changes caused by the transactions expressly contemplated herein, and
the Company shall
1
<PAGE>
have performed in all material respects all of the covenants required
to be performed by it hereunder prior to the Closing.
(ii) OnePoint shall have entered into a joint
marketing agreement in form and substance as set forth in Exhibit B
attached hereto (the "Joint Marketing Agreement"), and the Joint
Marketing Agreement shall be in full force and effect as of the
Closing.
(iii) The Company shall have delivered to
Purchaser all of the following documents:
(x) an Officer's Certificate, dated the date
of the Closing, stating that the conditions specified
in Section I and paragraphs 2A(i) and (ii),
inclusive, have been fully satisfied;
(y) certified copies of the resolutions duly
adopted by the Company's board of directors
authorizing the execution, delivery and performance
of this Agreement, the LLC Counterpart and the
issuance and sale of the Common Units; and
(z) such other documents relating to
the transactions contemplated by this Agreement as
Purchaser or its counsel may reasonably request.
(iv) All limited liability company and other
proceedings taken or required to be taken by the Company in connection
with the transactions contemplated hereby to be consummated at or
prior to the Closing and all documents incident thereto shall be
reasonably satisfactory in form and substance to Purchaser and its
counsel.
(v) The purchase of Common ' Units by Purchaser
hereunder shall not be prohibited by any applicable law or
governmental rule or regulation and shall not subject such Purchaser
to any penalty, liability or, in Purchaser's judgment, other onerous
condition under or pursuant to any applicable law or governmental rule
or regulation, and the purchase of the Common Units by Purchaser
hereunder shall be permitted by laws, rules and regulations of the
jurisdictions and governmental authorities and agencies to which such
Purchaser is subject.
2B. Conditions to the Company's Obligations. The obligation
of the Company to sell the Common Units to Purchaser at the Closing is subject
to the satisfaction as of the Closing of the following conditions:
(i) The representations and warranties of Purchaser
contained in Section 4 hereof shall be true and correct in all
material respects at and as of the Closing as though then made, and
Purchaser shall have performed in all material respects all of the
covenants required to be performed by it hereunder prior to the
Closing.
2
<PAGE>
(ii) Purchaser, or its wholly owned Subsidiary,
shall have entered into the Joint Marketing Agreement, and the Joint
Marketing Agreement shall be in full force and effect as of the
Closing.
(iii) Purchaser shall have delivered to the
Company all of the following documents:
(x) an Officer's Certificate, dated the date
of the Closing, stating that the conditions specified in
Section I and paragraphs 2B(i) and (ii) have been fully
satisfied,
(y) certified copies of the resolutions duly
adopted by Purchaser's board of directors authorizing the
execution, delivery and performance of this Agreement and the
LLC Counterpart; and
(z) such other documents relating to
the transactions contemplated by this Agreement as the
Company or its counsel may reasonably request.
(iv) All corporate and other proceedings taken or
required to be taken by Purchaser in connection with the transactions
contemplated hereby to be consummated at or prior to the Closing and
all documents incident thereto shall be reasonably satisfactory in
form and substance to the Company and its counsel.
(v) The sale of Common Units by the Company
hereunder shall not be prohibited by any applicable law or
governmental rule or regulation and shall not subject the Company to
any penalty, liability or, in the Company's judgment, other onerous
condition under or pursuant to any applicable law or governmental rule
or regulation, and the sale of the Common Units by the Company
hereunder shall be permitted by laws, rules and regulations of the
jurisdictions and governmental authorities and agencies to which such
Company is subject.
2C. Waiver. Any condition specified in this Section 2
may be waived by Purchaser or the Company, as appropriate; provided that no
such waiver shall be effective against a party unless it is set forth in a
writing executed by such party.
Section 3. Covenants.
----------
3A. Financial Statements and Other Information. The Company
shall deliver within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company sends to its members or OnePoint sends to its
stockholders and copies of all registration statements and all regular, special
or periodic reports which the Company or OnePoint files with the Securities and
Exchange Commission or with any securities exchange on which any of their
respective securities are then listed.
3
<PAGE>
3B. Inspection of Property . The Company shall permit any
representatives designated by Purchaser upon reasonable notice and during
normal business hours, to (i) visit and inspect any of the properties of the
Company and its Subsidiaries, (ii) examine the corporate and financial records
of the Company and its Subsidiaries and make copies thereof or extracts
therefrom and (iii) discuss the affairs, finances and accounts of any such
corporations with the directors, officers, key employees and independent
accountants of the Company and its Subsidiaries.
3C. Public Disclosures. None of the parties hereto shall, nor
shall the Company permit OnePoint to, disclose the other parties' names or
identities or describe the transaction contemplated hereby in any press release
or other public announcement or in any document or material filed with any
governmental entity without the prior written consent of the other parties,
unless such disclosure is required by applicable law or governmental
regulations or by order of a court of competent jurisdiction, in which case
prior to making such disclosure the disclosing party shall notify the other
parties describing such disclosure. It is agreed and understood that the
foregoing sentence shall not prohibit either Purchaser or OnePoint from making
disclosures about the transaction contemplated hereby in its filings with the
Securities and Exchange Commission so long as prior to making such disclosure
the disclosing party shall notify the other parties of such disclosure.
3D. Warrants. If at March 31, 2000 (the "First Warrant Date")
neither the Company nor OnePoint has received aggregate proceeds of at least
twenty million dollars ($20,000,000) from one or more of the following
occurring after the date hereof. (i) the issuance of one or more of equity
securities, securities with equity or profit participation features or voting
rights, or other securities issued in connection with such securities or (ii)
a sale of assets (each, a "Funding Event"); then in either case the Company
shall issue to Purchaser a warrant (the "Warrant") for the purchase of a
number of Common Units of the Company equal to 1% of the Company's outstanding
Common Units as of the date of this Agreement.
If at June 30, 2000 (the "Second Warrant Date")
neither the Company nor OnePoint has received aggregate proceeds of at least
twenty million dollars ($20,000,000) from one or more Funding Events occurring
after the date hereof, then the Company shall issue to Purchaser an additional
Warrant for the purchase of a number of the Common Units of the Company equal
to 2% of the Company's outstanding Common Units as of the date of this
Agreement.
The Warrants issuable pursuant to this paragraph
3D shall be substantially in the form of Exhibit C attached hereto and shall
provide for an exercise price of $0.01 per unit.
3E. Transfer of Restricted Securities. Restricted Securities
are transferable only pursuant to (i) public offerings registered under the
Securities Act, (ii) Rule 144, Rule 144A or Regulation S of the Securities and
Exchange Commission (or any similar rule or rules then in force) if such rule
is available and (iii) subject to the conditions specified in paragraph 4D
below, any other legally available means of transfer.
4
<PAGE>
In connection with the transfer of any Restricted
Securities (other than a transfer described in paragraph 3E(i) or (ii) above),
the holder thereof shall deliver written notice to the Company describing in
reasonable detail the transfer or proposed transfer, and if requested by the
Company, an opinion of counsel which (to the Company's reasonable satisfaction)
is knowledgeable in securities law matters to the effect that such transfer of
Restricted Securities may be effected without registration of such Restricted
Securities under the Securities Act.
Section 4. Representations and Warranties of Purchaser. As a
material inducement to the Company to enter into this Agreement and sell the
Common Units hereunder, Purchaser hereby represents and warrants that:
4A. Organization. Purchaser is a corporation organized,
validly existing and in good standing under the laws of the State of Delaware.
4B. Authorization, No Breach. The execution, delivery and
performance of this Agreement, the LLC Counterpart and all other agreements
contemplated hereby to which Purchaser is a party have been duly authorized by
Purchaser. This Agreement, the LLC Counterpart and all other agreements
contemplated hereby to which Purchaser is a party each constitutes a valid and
binding obligation of Purchaser, enforceable in accordance with its terms. The
execution and delivery by Purchaser of this Agreement, the LLC Counterpart and
all other agreements contemplated hereby to which Purchaser is a party, the
purchase of the Common Units, and the fulfillment of and compliance with the
respective terms hereof and thereof by Purchaser, do not and shall not (i)
conflict with or result in a breach of the terms, conditions or provisions of,
(ii) constitute a default under, (iii) give any third party the right to
modify, terminate or accelerate any obligation under, (v) result in a
violation of, or (vi) require any authorization, consent, approval, exemption
or other action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to, the charter or
bylaws of Purchaser or any Subsidiary, or any law, statute, rule or regulation
to which Purchaser or any Subsidiary is subject, or any agreement, instrument,
order, judgment or decree to which Purchaser or any Subsidiary is subject.
4C. Accredited Investor. Purchaser is an "accredited
investor" as that term is defined in Regulation D promulgated under the
Securities Act. Purchaser has been provided with information in order to
evaluate the merits and risks of the investment contemplated hereby and has
been given the opportunity to ask questions and receive satisfactory answers
concerning the Company and its Subsidiaries and the terms and conditions of
the offering and to obtain such additional information as it has requested in
order to evaluate the merits and risks of the investment contemplated hereby.
4D. Securities Not Registered. Purchaser understands
that the Common Units to be purchased hereunder have not been, and will not
be, registered under the Securities Act or any state or other securities
laws, and are being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering. Purchaser
recognizes that reliance upon such exemptions is based in part upon its
representations contained herein. Purchaser
5
<PAGE>
represents and warrants that the Common Units will be acquired by it solely for
its account, for investment purposes only and not with a view to the
distribution thereof Purchaser represents and warrants that it (i) is a
sophisticated investor with such knowledge and experience in business and
financial matters as will enable it to evaluate the merits and risks of
investment in the Common Units and (ii) is able to bear the economic risk and
lack of liquidity of an investment in the Common Units.
4E. Brokerage. Purchaser has no liability or obligation
to pay any brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement binding upon Purchaser or any Subsidiary.
4F. Government Consent, etc. No permit, consent, approval or
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by
Purchaser of this Agreement or the other agreements contemplated hereby, or the
consummation by Purchaser of any other transactions contemplated hereby or
thereby, except as expressly contemplated herein or in the exhibits hereto.
Section 5. Representations and Warranties of the Company .
As a material inducement to Purchaser to enter into this Agreement and
purchase the Common Units hereunder, the Company hereby represents and
warrants that:
5A. Organization, Corporate Power and Licenses. The Company
is a limited liability company organized, validly existing and in good
standing under the laws of the State of Delaware and is qualified to do
business in and is in good standing under the laws of each jurisdiction where
such qualification is required, except where the lack of such qualification
would not have a material adverse effect on the financial condition of the
Company and its Subsidiaries taken as a whole. The Company possesses all
requisite limited liability company power and authority and all material
licenses, permits and authorizations necessary to own and operate its
properties, to carry on the businesses in which it is engaged and to carry out
the transactions contemplated by this Agreement.
5B. OnePoint Ownership. The Company has no material assets
other than shares of the Common Stock of OnePoint. The Company does not
conduct any material business other than its ownership of OnePoint Common
Stock. The Company has no material liabilities.
5C. Capitalization and Related Matters.
(i) Immediately prior to the Closing, the number of
outstanding Common Units of the Company shall be as set forth in the
"Capitalization Schedule. " As of the Closing, except as set forth on
the attached "Capitalization Schedule," neither the Company nor any
Subsidiary shall have outstanding any stock or securities convertible
or exchangeable for any shares of its units or capital stock or
containing any profit participation features, nor shall it have
outstanding any rights or options to subscribe for or to purchase its
units or capital stock or any stock or securities convertible into or
exchangeable for its units or capital stock. As
6
<PAGE>
of the Closing, except as set forth on the attached "Capitalization
Schedule," neither the Company nor any Subsidiary shall be subject to
any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its units or capital stock or any
warrants, options or other fights to acquire its units or capital
stock.
(ii) There are no statutory or contractual
preemptive rights or fights of refusal with respect to the issuance of
the Common Units. To the best of the Company's knowledge, the Company
has not violated any applicable federal or state securities laws in
connection with the offer, sale or issuance of any of its membership
units. The offer, sale and issuance of the Common Units hereunder do
not require registration under the Securities Act or any applicable
material state securities laws. To the best of the Company's
knowledge, there are no agreements between the Company's members with
respect to voting, except for the LLC Agreement.
5D. Subsidiary. The attached "Subsidiary Schedule" sets forth
the name of each Subsidiary of the Company, its jurisdiction of organization
and the ownership of the equity of such Subsidiary. Each such Subsidiary is
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, possesses all requisite power and authority
and all material licenses, permits and authorizations necessary to own its
properties and to carry on the businesses in which it is engaged and is
qualified and is in good standing under the laws of each jurisdiction where
such qualification is required, except where the lack of such qualification
would not have a material adverse effect on the financial condition of the
Company and its Subsidiaries taken as a whole. All of the outstanding shares of
capital stock of One Point are validly issued, fully paid and nonassessable,
and all such shares are owned by the Company free and clear of any Lien and not
subject to any option or fight to purchase any such shares. Neither the Company
nor any Subsidiary owns or holds the right to acquire any shares of stock or
any other security or interest in any other Person, except as set forth in the
attached "Subsidiary Schedule."
5E. Authorization, No Breach. The execution, delivery and
performance of this Agreement, the LLC Counterpart and all other agreements
contemplated hereby to which the Company is a party, have been duly authorized
by the Company. This Agreement, the LLC Counterpart and all other agreements
contemplated hereby to which the Company is a party each constitutes- a valid
and binding obligation of the Company, enforceable in accordance with its
terms. The execution and delivery by the Company of this Agreement, the LLC
Counterpart and all other agreements contemplated hereby to which the Company
is a party, the offering, sale and issuance of the Common Units hereunder, and
the fulfillment of and compliance with the respective terms hereof and thereof
by the Company, do not and shall not (i) conflict with or result in a breach of
the terms, conditions or provisions of, (ii) constitute a default under, (iii)
result in the creation of any lien, security interest, charge or encumbrance
upon the Company's or OnePoint's units or capital stock or assets pursuant to,
(iv) give any third party the right to modify, terminate or accelerate any
obligation under, (v) result in a violation of, or (vi) require any
authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental
body or agency pursuant to, the LLC Agreement of the Company or the charter or
bylaws of
7
<PAGE>
OnePoint, or any law, statute, rule or regulation to which the Company or
OnePoint is subject, or any agreement, instrument, order, judgment or decree to
which the Company or OnePoint is subject.
5F. Financial Statements. Attached hereto as the
"Financial Statements Schedule" are the following financial statements:
(i) the audited consolidated balance sheets of
OnePoint and its Subsidiaries as of December 31, 1997 and December 31,
1998, and the related statements of income and cash flows (or the
equivalent) for the respective twelve-month periods then ended; and
(ii) the unaudited consolidated balance sheet of
OnePoint and its Subsidiaries as of June 30, 1999 (the "Latest Balance
Sheet"), and the related statements of income and cash flows (or the
equivalent) for the six-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of OnePoint (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently
applied, subject in the case of the unaudited financial statements to the
absence of footnote disclosure and changes resulting from normal year-end
adjustments (none of which would, alone or in the aggregate, be materially
adverse to the financial condition, operating results, assets, operations or
business prospects of OnePoint and its Subsidiaries taken as a whole).
5G. Absence of Undisclosed Liabilities. The Company and its
Subsidiaries do not have any material obligation or liability (whether
accrued, absolute, contingent, unliquidated or otherwise, whether or not known
to the Company or any Subsidiary, whether due or to become due and regardless
of when asserted) arising out of transactions entered into at or prior to the
Closing, or any action or inaction at or prior to the Closing, or any state of
facts existing at or prior to the Closing other than: (i) liabilities set
forth on the Latest Balance Sheet (including any notes thereto), (ii)
liabilities and obligations which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business (none of which is a liability
resulting from breach of contract, breach of warranty, tort, infringement,
claim or lawsuit) and (iii) other liabilities and obligations expressly
disclosed in the other Schedules to this Agreement.
5H. No Material Adverse Change. Except as set forth on the
attached "Adverse Change Schedule ' " since the date of the Latest Balance
Sheet, there has been no material adverse change in the financial condition,
operating results, assets, operations, business prospects, employee relations
or customer or supplier relations of the Company and its Subsidiaries taken as
a whole.
8
<PAGE>
51. Absence of Certain Developments.
(i) Except as expressly contemplated by this
Agreement or as set forth on the attached "Developments Schedule,"
since the date of the Latest Balance Sheet, neither the Company nor any
Subsidiary have
(a) issued any notes, bonds or other debt
securities or any capital stock or other equity securities or
any securities convertible, exchangeable or exercisable into
any capital stock or other equity securities;
(b) borrowed any amount or incurred or
become subject to any material liabilities, except current
liabilities incurred in the ordinary course of business and
liabilities under contracts entered into in the ordinary
course of business;
(c) discharged or satisfied any material
Lien or paid any material obligation or liability, other than
current liabilities paid in the ordinary course of business;
(d) declared or made any payment or
distribution of cash or other property to its stockholders
with respect to its capital stock or other equity securities
or purchased or redeemed any shares of its capital stock or
other equity securities (including, without limitation, any
warrants, options or other rights to acquire its capital stock
or other equity securities),
(e) mortgaged or pledged any of its
properties or assets or subjected them to any material Lien,
except Liens for current property taxes not yet due and
payable;
(f) sold, assigned or transferred any
of its material tangible assets, except in the ordinary
course of business, or canceled any material debts or claims;
(g) suffered any material extraordinary
losses or waived any rights of material value, whether or not
in the ordinary course of business or consistent with past
practice;
(h) made capital expenditures or
commitments therefor that aggregate in excess of five million
dollars ($5,000,000);
(i) made any loans or advances to,
guarantees for the benefit of, or any Investments in, any
Persons in excess of one hundred thousand dollars
($100,000) in the aggregate; or
9
<PAGE>
(j) suffered any damage, destruction or
casualty loss exceeding in the aggregate one hundred thousand
dollars ($100,000), whether or not covered by insurance.
5J. Assets. The Company and each Subsidiary have good and
marketable title to, or a valid leasehold interest in, the material properties
and assets used by them, located on their premises or shown on the Latest
Balance Sheet or acquired thereafter, free and clear of all Liens, except for
properties and assets disposed of in the ordinary course of business since the
date of the Latest Balance Sheet and except for Liens disclosed on the Latest
Balance Sheet (including any notes thereto) and Liens for current property
taxes not yet due and payable.
5K. Tax Matters.
------------
(i) The Company and each Subsidiary have filed all
Tax Returns which they are required to file under applicable laws and
regulations and have paid all Taxes shown thereon as owing by them
except where the failure to file Tax Returns or pay Taxes would not
have a material adverse effect on the financial condition of the
Company and its Subsidiaries taken as a whole.
(ii) "Tax" or "Taxes" means federal, state, county,
local, foreign or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise, utility,
environmental, communications, real or personal property, capital
stock, license, payroll, wage or other withholding, employment, social
security, severance, stamp, occupation, alternative or add-on minimum,
estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not. "Tax Return" means any
return, information report or filing with respect to Taxes, including
any schedules attached thereto and including any amendment thereof
5L. Litigation, etc. Except as set forth on the attached
"Litigation Schedule there are no actions, suits, proceedings, orders,
investigations or claims pending or, to the best of the Company's knowledge,
threatened against the Company or any Subsidiary at law or in equity, or
before or by any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, any actions, suits,
proceedings or investigations with respect to the transactions contemplated by
this Agreement); and neither the Company nor any Subsidiary is subject to any
arbitration proceedings. Neither the Company nor any Subsidiary is subject to
any judgment, order or decree of any court or other governmental agency that
is reasonably likely to have a material adverse effect on the financial
condition of the Company and its Subsidiaries taken as a whole.
5M. Brokerage. The Company has no liability or obligation
to pay any brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement binding upon the Company or any Subsidiary.
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5N. Governmental Consent, etc. No permit, consent, approval
or authorization of, or declaration to or filing with, any governmental
authority is required in connection with the execution, delivery and
performance by the Company of this Agreement or the other agreements
contemplated hereby, or the consummation by the Company of any other
transactions contemplated hereby or thereby.
50. Compliance with Laws. To the knowledge of the Company,
neither the Company nor any Subsidiary has violated any law or any governmental
regulation or requirement which violation has had or would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company and
its Subsidiaries taken as a whole.
5P. Knowledge. As used in this Section 5, the terms
"knowledge" or "aware" shall mean and include (i) the actual knowledge or
awareness of the Company and its Subsidiaries (which shall include the actual
knowledge and awareness of the officers, directors and key employees of the
Company and its Subsidiaries and the general managers of each facility of the
Company and its Subsidiaries) and (ii) the knowledge or awareness which a
prudent business person would have obtained in the conduct of his business
after making reasonable inquiry and reasonable diligence with respect to the
particular matter in question.
Section 6. Representations and Warranties of OnePoint. As a
material inducement to Purchaser to enter into this Agreement and purchase the
Common Units hereunder, OnePoint hereby represents and warrants that:
6A. Organization, Corporate Power and Licenses. OnePoint is
a corporation organized, validly existing and in good standing under the laws
of the State of Delaware and is qualified to do business in and is in good
standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such, qualification would not have a
material adverse effect on the financial condition of OnePoint and its
Subsidiaries taken as a whole.
6B. Capitalization and Related Matters.
(i) Immediately prior to the Closing, the number of
outstanding shares of common stock of OnePoint shall be as set forth
in the "Capitalization Schedule." As of the Closing, except as set
forth on the attached "Capitalization Schedule," neither OnePoint nor
any of its Subsidiaries shall have outstanding any stock or
securities convertible or exchangeable for any shares of its capital
stock or containing any profit participation features, nor shall it
have outstanding any fights or options to subscribe for or to
purchase its capital stock or any stock or securities convertible
into or exchangeable for its capital stock. As of the Closing, except
as set forth on the attached "Capitalization Schedule," neither
OnePoint nor any of its Subsidiaries shall be subject to any
obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock or any warrants,
options or other fights to acquire its capital stock.
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(ii) To the best of OnePoint's knowledge, OnePoint
has not violated any applicable federal or state securities laws in
connection with the offer, sale or issuance of any of its Common
Stock.
6C. Subsidiary. The attached "Subsidiary Schedule" sets
forth the name of each Subsidiary of OnePoint, its jurisdiction of organization
and the ownership of the equity of such Subsidiary. Each such Subsidiary is
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, possesses all requisite power and authority
and all material licenses, permits and authorizations necessary to own its
properties and to carry on the businesses in which it is engaged and is
qualified and is in good standing under the laws of each jurisdiction where
such qualification is required, except where the lack of such qualification
would not have a material adverse effect on the financial condition of OnePoint
and its Subsidiaries taken as a whole. All of the outstanding shares of capital
stock of One Point are validly issued, fully paid and nonassessable, and all
such shares are owned by the Company free and clear of any Lien and not subject
to any option or right to purchase any such shares. Neither OnePoint nor any of
its Subsidiaries owns or holds the right to acquire any shares of stock or any
other security or interest in any other Person, except as set forth in the
attached "Subsidiary Schedule."
6D. Authorization, No Breach. The execution, delivery and
performance of this Agreement and all other agreements contemplated hereby to
which OnePoint is a party, have been duly authorized by OnePoint. This
Agreement and all other agreements contemplated hereby to which OnePoint is a
party each constitutes a valid and binding obligation of OnePoint, enforceable
in accordance with its terms. The execution and delivery by OnePoint of this
Agreement and all other agreements contemplated hereby to which OnePoint is a
party, and the fulfillment of and compliance with the respective terms thereof
by OnePoint, do not and shall not (i) conflict with or result in a breach of
the terms, conditions or provisions of, (ii) constitute a default under, (iii)
result in the creation of any lien, security interest, charge or encumbrance
upon OnePoint's capital stock or assets pursuant to, (iv) give any third party
the right to modify, terminate or accelerate any obligation under, (v) result
in a violation of, or (vi) require any authorization, consent, approval,
exemption or other action by or notice or declaration to, or filing with, any
court or administrative or governmental body or agency pursuant to the charter
or bylaws of OnePoint, or any law, statute, rule or regulation to which
OnePoint is subject, or any agreement, instrument, order, judgment or decree to
which OnePoint is- subject.
6E. Financial Statements. Attached hereto as the
"Financial Statements Schedule" are the following financial statements:
(i) the audited consolidated balance sheets of
OnePoint and its Subsidiaries as of December 31, 1997 and December
31, 1998, and the related statements of income and cash flows (or the
equivalent) for the respective twelve-month periods then ended; and
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(ii) the unaudited consolidated balance sheet of
OnePoint and its Subsidiaries as of June 30, 1999 (the "Latest Balance
Sheet"), and the related statements of income and cash flows (or the
equivalent) for the six-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of OnePoint (which, in turn, are accurate
and complete in all material respects) and has been prepared in accordance with
generally accepted accounting principles, consistently applied, subject in the
case of the unaudited financial statements to the absence of footnote
disclosure and changes resulting from normal year-end adjustments (none of
which would, alone or in the aggregate, be materially adverse to the financial
condition, operating results, assets, operations or business prospects of
OnePoint and its Subsidiaries taken as a whole).
6F. Absence of Undisclosed Liabilities. OnePoint and its
Subsidiaries do not have any material obligation or liability (whether accrued,
absolute, contingent, unliquidated or otherwise, whether or not known to
OnePoint or any Subsidiary, whether due or to become due and regardless of when
asserted) arising out of transactions entered into at or prior to the Closing,
or any action or inaction at or prior to the Closing, or any state of facts
existing at or prior to the Closing other than: (i) liabilities set forth on
the Latest Balance Sheet (including any notes thereto), (ii) liabilities and
obligations which have arisen after the date of the Latest Balance Sheet in the
ordinary course of business (none of which is a liability resulting from breach
of contract, breach of warranty, tort, infringement, claim or lawsuit) and
(iii) other liabilities and obligations expressly disclosed in the other
Schedules to this Agreement.
6G. No Material Adverse Change. Except as set forth on the
attached "Adverse Change Schedule," since the date of the Latest Balance
Sheet, there has been no material adverse change in the financial condition,
operating results, assets, operations, business prospects, employee relations
or customer or supplier relations of OnePoint and its Subsidiaries taken as a
whole.
6H. Absence of Certain Developments.
(i) Except as expressly contemplated by this
Agreement or as set forth on the attached "Developments Schedule,"
since the date of the Latest Balance Sheet, neither OnePoint nor any
of its Subsidiaries have
(a) issued any notes, bonds or other debt
securities or any capital stock or other equity securities
or any securities convertible, exchangeable or exercisable
into any capital stock or other equity securities;
(b) borrowed any amount or incurred or
become subject to any material liabilities, except current
liabilities incurred in the ordinary course of business and
liabilities under contracts entered into in the ordinary
course of business;
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(c) discharged or satisfied any material
Lien or paid any material obligation or liability, other than
current liabilities paid in the ordinary course of business;
(d) declared or made any payment or
distribution of cash or other property to its stockholders
with respect to its capital stock or other equity securities
or purchased or redeemed any shares of its capital stock or
other equity securities (including, without limitation, any
warrants, options or other fights to acquire its capital stock
or other equity securities);
(e) mortgaged or pledged any of its
properties or assets or subjected them to any material Lien,
except Liens for current property taxes not yet due and
payable;
(f) sold, assigned or transferred any
of its material tangible assets, except in the ordinary
course of business, or canceled any material debts or claims;
(g) suffered any material extraordinary
losses or waived any fights of material value, whether or not
in the ordinary course of business or consistent with past
practice;
(h) made capital expenditures or
commitments therefor that aggregate in excess of five million
dollars ($5,000,000),-
(i) made any loans or advances to,
guarantees for the benefit of, or any Investments in, any
Persons in excess of one hundred thousand dollars
($100,000) in the aggregate; or
suffered any damage, destruction
or casualty loss exceeding in the aggregate one hundred
thousand dollars ($ 100, 000), whether or not covered by
insurance.
61. Assets. OnePoint and each Subsidiary have good and
marketable title to, or a valid leasehold interest in, the material properties
and assets used by them, located on their premises or shown on the Latest
Balance Sheet or acquired thereafter, free and clear of all Liens, except for
properties and assets disposed of in the ordinary course of business since the
date of the Latest Balance Sheet and except for Liens disclosed on the Latest
Balance Sheet (including any notes thereto) and Liens for current property
taxes not yet due and payable.
6J. Tax Matters.
(i) OnePoint and each Subsidiary have filed all Tax
Returns which they are required to file under applicable laws and
regulations and have paid all Taxes shown
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thereon as owing by them except where the failure to file Tax Returns
or pay Taxes would not have a material adverse effect on the financial
condition of OnePoint and its Subsidiaries taken as a whole.
(ii) "Tax" or "Taxes" means federal, state, county,
local, foreign or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise, utility,
environmental, communications, real or personal property, capital
stock, license, payroll, wage or other withholding, employment, social
security, severance, stamp, occupation, alternative or add-on minimum,
estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not. "Tax Return" means any
return, information report or filing with respect to Taxes, including
any schedules attached thereto and including any amendment thereof
6K. Brokerage. OnePoint has no liability or obligation to
pay any brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement binding upon OnePoint or any of its Subsidiaries.
6L. Governmental Consent, etc. No permit, consent, approval
or authorization of, or declaration to or filing with, any governmental
authority is required in connection with the execution, delivery and
performance by OnePoint of this Agreement or the other agreements contemplated
hereby, or the consummation by OnePoint of any other transactions contemplated
hereby or thereby.
6M. Compliance with Laws. To the knowledge of OnePoint,
neither OnePoint nor any Subsidiary has violated any law or any governmental
regulation or requirement which violation has had or would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of OnePoint and
its Subsidiaries taken as a whole.
6N. Knowledge. As used in this Section 6, the terms
"knowledge" or "aware" shall mean and include (i) the actual knowledge or
awareness of OnePoint and its Subsidiaries (which shall include the actual
knowledge and awareness of the officers, directors and key employees of
OnePoint and its Subsidiaries and the general managers of each facility of
OnePoint and its Subsidiaries) and (Ii) the knowledge or awareness which a
prudent business person would have obtained in the conduct of his business
after making reasonable inquiry and reasonable diligence with respect to the
particular matter in question.
Section 7. Put Option.
-------
7A. Generally. Upon and after the occurrence of a Put
Event, Purchaser may require the Company to repurchase all of the Common Units
(whether held by Purchaser or one or
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more of Purchaser's transferees) pursuant to the terms and conditions in this
Section 7 (the "Put").
7B. Put Notice. Upon the occurrence of a Put Event, Purchaser
may exercise the Put by delivering written notice (the "Put Notice") to the
Company within 30 days following the occurrence of the Put Event. If Purchaser
fails to exercise its fights pursuant to the terms and conditions of this
Section 7 within such 30-day period, then Purchaser shall have no further
fights under this Section 7.
7C. Put Price. Upon the exercise of the Put, the repurchase
price for the Common Units (the "Put Price") will be the price paid for such
Common Units under this Agreement compounded annually at a rate of ten
percent (10%) per annum.
7D. Closing. The closing of the purchase of Common Units
pursuant to the Put (the "Put Closing") will take place on the date designated
by the Company in a written notice to Purchaser, which date will not be more
than 30 days nor less than 5 days after the delivery of the Put Notice. The
Company will pay for the Common Units to be purchased pursuant to the Put by
(i) delivery of a certified check if and to the extent the Company is able to
receive dividends to pay the Put Price in cash under the terms of OnePoint's
loan agreements, indentures, other agreements for borrowed money, charter, and
the provisions of the Delaware General Corporation Law. The Company will pay
the remainder of the Put Price in cash as soon as it is able to receive
dividends to do so under such agreements, documents and laws. In the event that
the Company is unable to pay the entire Put Price in cash, the unpaid portion
thereof will bear interest initially at a rate of twelve percent (12%) per
annum, which rate shall be increased by two percent (2%) for each 90-day period
that the Put Price shall remain unpaid, but in no event shall such interest
exceed sixteen percent (16%).
Section 8. First Refusal Right.
--------------
(i) At least 3 0 days prior to making
any sale, transfer, assignment, pledge or other disposition of (a
"Transfer") any Common Units (other than pursuant to a Sale of the
Company as defined in Section 9 below), Purchaser shall deliver a
written notice (the "Offer Notice") to the Company. The Offer Notice
shall disclose in reasonable detail the identity of the proposed
transferee(s), the proposed number of Common Units to be transferred
and the proposed terms and conditions of the Transfer.
(ii) The Company may elect to purchase
all (but not less than all) of the Common Units specified in the
Offer Notice at the price and on the terms specified therein by
delivering written notice of such election to Purchaser as soon as
practical but in any event within 30 days after the delivery of the
Offer Notice (the "Company Offer Period").
(iii) If the Company elects to purchase
all (but not less than all) of the Common Units offered by Purchaser,
the transfer of such Common Units shall be consummated as soon as
practical after the delivery of the election notices, but in any
event
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within 10 days of such delivery. If the Company elects not to purchase
all of the Common Units being offered, Purchaser may, within 90 days
after expiration of the 30 day election period, transfer all (but not
less than all) of the Common Units referred to in the Offer Notice to
one or more third parties at a price no less than the price specified
in the Offer Notice and on other terms not materially more favorable
to the transferees than offered to the Company in the Offer Notice.
Any Common Units not transferred within such 90-day period shall be
subject to the provisions of this Section 7 with respect to any
subsequent Transfer. The purchase price specified in any Offer Notice
shall be payable solely in U.S. dollars in immediately available funds
at the closing of the transaction.
Section 8. Sale of the Company.
---------------
8A. Approved Sale. If the Board and the holders of a majority
of the Company's Common Units approve a Sale of the Company to an unaffiliated
party (an "Approved Sale"), Purchaser will consent to and raise no objections
against the Approved Sale, and if the Approved Sale is structured as a sale of
units, Purchaser will agree to sell his Common Units on the terms and
conditions approved by the Board and the holders of a majority of the Company's
Common Units. Purchaser will take all necessary or desirable actions in
connection with the consummation of the Approved Sale.
8B. Obligations. Purchaser's obligations with respect to the
Approved Sale are subject to the satisfaction of the following conditions: (i)
upon the consummation of the Approved Sale, all of the holders of Common Units
will receive the same form and amount of consideration per unit, or if any
holders of Common Units are given an option as to the form and amount of
consideration to be received, all holders will be given the same option; and
(ii) all holders of then currently exercisable rights to acquire shares of
Common Units will be given an opportunity to either (A) exercise such rights
prior to the consummation of the Approved Sale and participate in such sale as
holders of Common Units or (B) upon the consummation of the Approved Sale,
receive in exchange for such rights consideration equal to the amount
determined by multiplying (1) the same amount of consideration per unit
received by the holders of Common Units in connection with the Approved Sale
less the exercise price per units of such rights to acquire Common Units by
(2) the number of units represented by such rights.
Section 9. Definitions.
------------
9A. Definitions. For the purposes of this Agreement,
the following terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular
Person, where "control" means the possession, directly
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or indirectly, of the power to direct the management and policies of a Person
whether through the ownership of voting securities, contract or otherwise.
"Investment" as applied to any Person means (i) any direct or
indirect purchase or other acquisition by such Person of any notes,
obligations, instruments, stock, securities or ownership interest (including
partnership interests and joint venture interests) of any other Person and (ii)
any capital contribution by such Person to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended,
and any reference to any particular IRC section shall be interpreted to include
any revision of or successor to that section regardless of how numbered or
classified.
"Liens" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof), any sale of receivables with recourse against the Company, any
Subsidiary or any Affiliate, any filing or agreement to file a financing
statement as debtor under the Uniform Commercial Code or any similar statute
other than to reflect ownership by a third party of property leased to the
Company or any Subsidiaries under a lease which is not in the nature of a
conditional sale or title retention agreement, or any subordination
arrangement in favor of another Person (other than any subordination arising
in the ordinary course of business).
"Person" means an individual, a partnership, a corporation,
a limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof
"Put Event" means the date at which the Company raises at
least $20 million from the issuance of one or more of its equity securities,
securities with equity or profit participation features or voting fights, or
other securities issued in connection with such securities.
"Restricted Securities" means (i) the Common Units issued
hereunder, (ii) any Warrants issued pursuant to paragraph 3C hereof, and (iii)
any securities issued with respect to the securities referred to in clauses
(i) and (ii) above by way of a stock dividend or stock split or in connection
with a combination of units, recapitalization, merger, consolidation or other
reorganization. As to any particular Restricted Securities, such securities
shall cease to be Restricted Securities when they have (a) been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, (b) been distributed to the public
through a broker, dealer or market maker pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act or become eligible for sale
pursuant to Rule 144(k)(or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred.
"Sale of the Company" means the sale to any party or group
of related parties pursuant to which such party or parties acquire (i)
ownership units of the Company possessing the voting power to elect a majority
of the directors (whether by merger, consolidation, sale or transfer of the
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Company's ownership units, reorganization, recapitalization or otherwise) or
(ii) sale of more than 50% of the total assets determined on a consolidated
basis.
"Securities Act" means the Securities Act of 1933, as
amended, or any similar federal law then in force.
"Securities and Exchange Commission" includes any
governmental body or agency succeeding to the functions thereof
"Securities Exchange Act" means the Securities Exchange Act
of 1934, as amended, or any similar federal law then in force.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of members, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority
of limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing member or general partner
of such limited liability company, partnership, association or other business
entity.
Section 10. Miscellaneous.
--------------
I OA. Expenses. The Company and Purchaser shall each
be responsible for all of their respective fees and expenses arising in
connection with the negotiation and execution of this Agreement
including such fees and expenses associated with the consummation of the
transactions contemplated by this Agreement.
I OB. Remedies. Each holder of Common Units shall have all
rights and remedies set forth in this Agreement, the amendment of the Limited
Liability Company Agreement, and all rights and remedies which such holders
have been granted at any time under any other agreement or contract and all of
the rights which such holders have under any law. Any Person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any material breach of any provision of this Agreement and to
exercise all other rights granted by law.
I OC. Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by any
party in connection herewith shall terminate at Closing.
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I OD. Successors and Assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so
expressed or not. In addition, and whether or not any express assignment has
been made, the provisions of this Agreement which are for Purchaser's benefit
as a purchaser or holder of Common Units (including Common Units issuable upon
exercise of Warrant) are also for the benefit of, and enforceable by, any
subsequent holder of such Common Units.
I OE. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
I OF. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not
contain the signatures of more than one party, but all such
counterparts taken together shall constitute one and the same Agreement.
IOG. Descriptive Headings, Interpretation. The
descriptive headings of this Agreement are inserted for convenience only and
do not constitute a substantive part of this Agreement. The use of the word
"including" in this Agreement shall be by way of example rather than by
limitation.
10H. Governing Law. The limited liability company law of the
State of Delaware shall govern all issues and questions concerning the
relative limited liability company rights and obligations of the Company and
its members. All other issues and questions concerning the construction,
validity, enforcement and interpretation of this Agreement and the exhibits
and schedules hereto shall be governed by, and construed in accordance with,
the laws of the State of Illinois, without giving effect to any choice of law
or conflict of law rules or provisions (whether of the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Illinois.
- 101. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable overnight
courier service (charges prepaid) or mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications shall be sent as follows:
If to Purchaser:
CAIS Internet, Inc.
1255 22d Street, N.W.
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Washington, D.C. 20037
Attention: Chief Executive Officer
If to the Company or OnePoint:
2201 Waukegan Road
Suite E-200
Bannockburn, IL 60015
Attention: Chief Financial Officer
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
I OJ. No Strict Construction. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and
no presumption or burden of proof shall arise favoring or disfavoring any party
by virtue of the authorship of any of the provisions of this Agreement.
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IN WITNESS W]HEREOF, the parties hereto have executed this
Agreement on the date first written above.
VENTURES IN COMMUNICATIONS II, L.L.C.
By ______________________
Its ______________________
ONEPOINT COMMUNICATIONS CORP.
By ______________________
Its ______________________
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LIST OF EXHIBITS
Exhibit A - Limited Liability Company Agreement Exhibit B - Joint Marketing
Agreement Exhibit C - Form of Warrant
<PAGE>
Capitalization Schedule
I Immediately prior to the transactions contemplated by the Agreement,
the Company has 1,000,000 Common Units outstanding, and has 199,000
Preferred Units outstanding, and OnePoint has 1,000,000 shares of
Common Stock outstanding.
2. The Company also has issued two warrants to Ventures in Communications
L.L.C. ("VIC")
The first of such warrants is exercisable for a total number
of Common Units equal, as a percentage of the total number of
Common Units outstanding immediately after the exercise of
the final warrant, to the result of 9.9% divided by a
fraction, the numerator of which is the number of outstanding
shares of OnePoint's Common Stock owned by the Company at
such time, and the denominator of which is the total number
of outstanding shares of OnePoint Common Stock at such time.
Such fraction is referred to herein as the "Gross Up
Fraction. "
The second warrant is exercisable for a total number of
Common Units equal, as a percentage of the total number of
Common Units outstanding immediately after the exercise of
the final warrant, to the result of 2.0% divided by the Gross
Up Fraction.
3. OnePoint has outstanding warrants to purchase I 11, 125 shares of its
Common Stock, which were issued in May 1998 in connection with its
issuance of 14 Y2% Senior Notes due 2008.
4. Section 9. 10 of the Operating Agreement contains a put right of VIC.
5. Section 9.7 of the Operating Agreement contains pre-emptive rights
with respect to the sale of the Common Units in favor of VIC. VIC has
waived such rights in connection with the proposed transaction.
<PAGE>
Subsidiary Schedule
The Subsidiaries of the Company and OnePoint are as follows:
<TABLE>
<CAPTION>
Jurisdiction of Ownership of Outstanding
Name of Subsidiary Organization Equity
<S> <C> <C>
OnePoint Communications Corp. Delaware 100% owned by the Company
OnePoint Communications- Delaware 100% owned by OnePoint
Colorado, LLC Communications Corp.
OnePoint Communications-Illinois, Delaware 100% owned by OnePoint
LLC Communications Corp.
OnePoint Communications-Georgia, Delaware 100% owned by OnePoint
LLC Communications Corp.
OnePoint Communications Delaware 100% owned by OnePoint
Holdings, LLC Communications Corp.
OnePoint Services LLC Delaware Majority owned by OnePoint
Communications Corp., with
minority interest TBD for
management (newly established
entity)
OnePoint Prepaid Services LLC Delaware 100% owned by OnePoint
Communications-Colorado,
LLC
Mid-Atlantic RMTS Holdings LLC Delaware 50% owned by OnePoint
Communications Holdings,
LLC; 50 % owned by South
Central Development Company
LP
VIC-RMTS-DC, LLC Delaware 95% owned by OnePoint
Communications Holdings,
LLC, 5% owned by Mid
Atlantic RMTS Holdings, LLC
(see Developments Schedule for
information regarding the
Company's negotiations with the
Mid-Atlantic entities).
</TABLE>
<PAGE>
2. OnePoint Communications Holdings, LLC has certain rights of first refusal to
acquire the units of Mid-Atlantic Telcom Plus Holding, LLC and is negotiating
to acquire the remaining units of VIC-RMTS-DC, LLC that it does not own,
directly or indirectly.
<PAGE>
Material Adverse Change Schedule
I . See the Developments Schedule for information regarding negotiations
with the MidAtlantic entities.
<PAGE>
Developments Schedule
I OnePoint executed a Call On Term-Term Note in the amount of
$16,000,000 in favor of The Northern Trust Company as of August 30,
1999.
2. OnePoint has signed an agreement with Lucent Technologies Inc. to
purchase telecommunications network equipment, and is negotiating with
Comdisco to lease telecommunications network equipment.
3. OnePoint is in negotiations with its joint venture partner to end the
joint venture and resolve pending arbitration between the parties.
Pursuant to these negotiations, OnePoint or a subsidiary would
purchase the membership units of VIC-RMTS-DC, LLC that it does not
own, directly or indirectly, and would consent to the sale of all of
the membership units or all or substantially all of the assets of
Mid-Atlantic Telcom Plus, LLC.
<PAGE>
Litigation Schedule
I . See the Developments Schedule and the Financial Statements Schedule for
information regarding OnePoint's dispute with the Mid-Atlantic entities.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
VENTURES IN COMMUNICATIONS II, L.L.C.
By _________________________
Its ________________________
ONEPOINT COMMUNICATIONS CORP.
By _________________________
Its ________________________
CAIS INTERNET, INC.
By _________________________
Its ________________________
22
<PAGE>
EXECUTION COPY
________________________________________________________________________________
________________________________________________________________________________
________________________________________
ONEPOINT SERVICES, L.L.C.
A Delaware Limited Liability Company
________________________________________
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of November 23, 1999
THE MEMBERSHIP INTERESTS REPRESENTED BY THIS LIMITED LIABILITY COMPANY AGREEMENT
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR UNDER
ANY OTHER APPLICABLE SECURITIES LAWS. SUCH INTERESTS MAY NOT BE SOLD, ASSIGNED,
PLEDGED OR OTHERWISE DISPOSED OF AT ANY TIME WITHOUT EFFECTIVE REGISTRATION
UNDER SUCH ACT AND LAWS OR EXEMPTION THEREFROM, AND COMPLIANCE WITH THE OTHER
RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS............................................................................. 1
Section 1.1 Definitions................................................................... 1
Section 1.2 Other Definitions............................................................. 4
ARTICLE II GENERAL PROVISIONS; CAPITAL CONTRIBUTIONS............................................. 4
Section 2.1 Formation..................................................................... 4
Section 2.2 Name.......................................................................... 5
Section 2.3 Purpose....................................................................... 5
Section 2.4 Registered Office; Registered Agent; Place of Business........................ 5
Section 2.5 Capital Contributions......................................................... 5
Section 2.6 Term.......................................................................... 6
Section 2.7 No State-Law Partnership...................................................... 6
ARTICLE III CAPITAL ACCOUNTS...................................................................... 6
Section 3.1 Capital Accounts.............................................................. 6
Section 3.2 Computation of Amounts........................................................ 6
Section 3.3 Distribution in Kind.......................................................... 7
Section 3.4 Certain Terms of Preferred Units.............................................. 7
Section 3.5 Certain Terms of Common Units................................................. 9
ARTICLE IV DISTRIBUTIONS; AND ALLOCATIONS......................................................... 10
Section 4.1 Distributions................................................................. 10
Section 4.2 Allocations................................................................... 12
Section 4.3 Special Allocations........................................................... 12
Section 4.4 Tax Allocations............................................................... 13
Section 4.5 Indemnification and Reimbursement for Payments on Behalf of a Unitholder...... 13
ARTICLE V MANAGEMENT AND MEMBER RIGHTS............................................................ 14
Section 5.1 Management Authority.......................................................... 14
Section 5.2 Indemnification............................................................... 15
Section 5.3 Transfer of Company Interest.................................................. 15
Section 5.4 Member Rights; Meetings....................................................... 16
Section 5.5 Additional Members............................................................ 17
Section 5.6 Preemptive Rights............................................................. 17
Section 5.7 Outside Businesses............................................................ 17
Section 5.8 Member Representations and Warranties......................................... 18
ARTICLE VI DURATION............................................................................... 18
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 6.1 Duration................................................................. 18
Section 6.2 Winding Up............................................................... 18
Section 6.3 Termination.............................................................. 19
ARTICLE VII VALUATION........................................................................ 19
Section 7.1 Valuation................................................................ 19
ARTICLE VIII CERTIFICATION OF MEMBERSHIP INTERESTS........................................... 19
Section 8.1 Membership Interests..................................................... 19
ARTICLE IX BOOKS OF ACCOUNT; MEETINGS........................................................ 19
Section 9.1 Books.................................................................... 19
Section 9.2 Fiscal Year.............................................................. 19
Section 9.3 Taxes.................................................................... 20
ARTICLE X MISCELLANEOUS...................................................................... 20
Section 10.1 Amendments............................................................... 20
Section 10.2 Successors............................................................... 20
Section 10.3 Governing Law; Severability.............................................. 21
Section 10.4 Notices.................................................................. 21
Section 10.5 Complete Agreement; Headings, Counterparts............................... 21
Section 10.6 Partition................................................................ 21
Section 10.7 No Strict Construction................................................... 21
</TABLE>
-ii-
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT OF
ONEPOINT SERVICES, L.L.C.
-------------------------
THIS LIMITED LIABILITY COMPANY AGREEMENT, of OnePoint Services, L.L.C.
(the "Company") dated and effective as of November 23, 1999 (this "Agreement"),
---------
is adopted by, executed and agreed to, for good and valuable consideration, by
OnePoint Communications Corp. (the "Investor"), Al Moschner and Tim Ostrowski
--------
(together the "Executives" and individually an "Executive"), Oscar Aguiar, Jr.
and James Silva (together the "RCP Executives" and individually an "RCP
Executive"), the other individuals (together the "Additional Members" and
individually an "Additional Member") listed on Schedule A hereto, as such
schedule may be amended from time to time. Certain terms used herein are
defined in Article I.
----------
WHEREAS, the Company has been formed as a limited liability company
pursuant to the Act by the filing of a Certificate of Formation of the Company
(the "Certificate") with the Secretary of the State of Delaware;
-----------
WHEREAS, the Investor, Executives, RCP Executives, and the Additional
Members desire to be admitted as Members;
WHEREAS, the Members desire to designate the Investor as the Managing
Member with the rights and obligations set forth herein; and
WHEREAS, the Members desire to enter into this Agreement to set forth,
inter alia, their respective rights and obligations as Members.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other goods and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto; intending to be legally
bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
Section I.1 Definitions. For purposes of this Agreement:
-----------
"Act" means the Delaware Limited Company Act, 6 Del. C. (S) 18-101,
---
et.seq., as amended from time to time.
"Additional Member" means a Person admitted to the Company as a Member
-----------------
pursuant to the Agreement.
-1-
<PAGE>
"Authorized Units" means the aggregate of all Units (the "Total
---------------- -----
Authorized Units") or any unit thereof (an "Authorized Unit") authorized as part
- ---------------- ---------------
of the capital structure of the Company by this Agreement or amendment thereto,
as shown on Schedule A.
"Book Value" means, with respect to any Company property, Company's
----------
adjusted basis for federal income tax purposes, adjusted from time to time to
reflect the adjustments required or permitted by Treasury Regulations.
"Capital Contributions" means any cash, cash equivalents, promissory
---------------------
obligations, or the fair market value of other property which a Unitholder
contributes or is deemed to have contributed to the Company with respect to any
Unit pursuant to Sections 2.5, 3.4(a) and 3.5.
----------------------------
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time, and the regulations promulgated thereunder.
"Common Unit" means a Unit representing a fractional part of the
-----------
interests in the Company held by the Common Unitholders and Restricted
Unitholders and having the right and obligations specified with respect to
Common Units in this Agreement.
"Common Unitholder" means a holder of Common Units.
-----------------
"Company" means OnePoint Services, L.L.C.
-------
"Executives" means Al Moschner and Tim Ostrowski.
----------
"Fully Diluted Units" means, at any time, the number of Common Units
-------------------
outstanding at such time, plus the number of Common Units issuable upon
conversion of the Preferred Units outstanding at such time.
"Indemnified Party" means any Person who is or has been a Manager,
-----------------
Member or officer of the Company or of the Manager, or who is serving or has
served at the request of the Company or the Manager as a director, officer,
manager, member, partner, employee or agent of another limited liability company
or a corporation, partnership, joint venture, trust or other enterprise, whether
or not such Person continues to be such at the time the loss, liability or
expense in question is paid or incurred.
"Investor" means OnePoint Communications Corp.
--------
"Losses" for any period means all items of Company loss, deduction and
------
expense for such period determined according to Section 3.2.
-----------
"Majority in Interest" means the Member(s) holding Units representing
--------------------
a majority of the Fully Diluted Units that are eligible to vote.
-2-
<PAGE>
"Manager" means the Investor or its successor as provided for in
-------
Section 5.1(d) below. There shall be only one Manager.
- --------------
"Member" means any of the parties identified on Schedule A as a Member
------ -----------
or admitted as a member after the date of this Agreement in accordance with the
terms hereof, in each case for so long as such Person continues to be a member
hereunder.
"Minimum Gain" means the partnership minimum gain determined pursuant
------------
to Treasury Regulation Section 1.704-2(d).
"Percentage Interest" means, in respect of each Unitholder, (i) if no
-------------------
Preferred Units are issued, such Unitholders's interest in the income, gains,
losses, deductions and expenses of the Company as a percentage equal to all
Common Units held by such Unitholders divided by all Common Units issued; or
-------
(ii) if Preferred Units are issued, such Unitholder's interest in the income,
gains, losses, deductions and expenses of the Company computed as a percentage
equal to all Fully Diluted Units held by the Unitholder divided by all Fully
-------
Diluted Units issued.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Unit" means a Unit representing a fractional part of the
--------------
interests of the Preferred Unitholders and having the rights and obligations
specified with respect to Preferred Units in this Agreement.
"Preferred Unitholder" means a holder of a Preferred Unit.
--------------------
"Profits" for any period means all items of Company income and gain
-------
for such period determined according to Section 3.2.
-----------
"RCP Acquisition" means the proposed stock purchase acquisition of RCP
---------------
Communications, Inc. by the Company.
"RCP Employees" means the employees of RCP Communications, Inc. on the
-------------
closing date of the RCP Acquisition.
"RCP Executive" means Oscar Aguiar, Jr. or James A. Silva.
-------------
"Restricted Common Unit" means a Common Unit that is subject to
----------------------
vesting, divestiture, or other restrictions as specified in a Unitholder
Agreement between the Company and the Restricted Unitholder.
"Restricted Unitholder" means any owner of one or more Restricted
---------------------
Common Units as reflected on the Company's books and records.
-3-
<PAGE>
"Treasury Regulations" means the income tax regulations promulgated
--------------------
under the Code and effective as of the date hereof. Such term shall be deemed
to include any future amendments to such regulations and any corresponding
provisions of succeeding regulations to the extent the Manager determines that
any such amendments and succeeding regulations do not adversely affect the
economic interests of the Members hereunder.
"Uncommitted Unit" means any Authorized Unit which is not yet issued
----------------
to any Member or is reserved for issuance upon the conversion in a Preferred
Unit.
"Unit" means an interest in the Company representing a fractional part
----
of the interests of all Members and Assignees and shall include Common Units,
Restricted Common Units and Preferred Units; provided that any class or group of
-------- ----
Units issued shall have relative rights, powers, and duties set forth in this
Agreement and the interest in the Company represented by such class or group of
Units shall be determined in accordance with such relative rights, powers, and
duties set forth in this Agreement.
"Unitholder" means any owner of one of more Units as reflected on the
----------
Company's books and records.
Section I.2 Other Definitions. Each of the following defined terms
-----------------
has the meaning given such term in the Section set forth opposite such defined
term:
Term Section
---- -------
Agreement Preamble
Capital Account Section 3.1
Certificate Section 2.1
Conversion Ratio Section 3.4(c)
Liquidation Value Section 3.4(d)
Transfer Section 5.2
ARTICLE II
GENERAL PROVISIONS; CAPITAL CONTRIBUTIONS
Section II.1 Formation. The formation of the Company pursuant to and
---------
in accordance with the Delaware Limited Liability Company Act, 6 Del. C. (S)18-
101, et seq., as amended from time to time (the "Act"), occurred on August 25,
-- --- ---
1999. An authorized person, within the meaning of the Act, has executed,
delivered and filed the certificate of formation of the Company (the
"Certificate"). Upon the Investor's (a) execution of this Agreement or a
-----------
counterpart hereof and (b) the making of the capital contribution required by
Section 2.5, the Investor shall be admitted to the Company as its initial
- -----------
Member.
-4-
<PAGE>
Section II.2 Name. The name of the Company will be "OnePoint
----
Services," or such other name or names as the Manager may from time to time
designate.
Section II.3 Purpose. The Company's purpose shall be to carry on any
-------
activities which may be lawfully be carried on by a limited liability company
organized pursuant to the Act.
Section II.4 Registered Office; Registered Agent; Place of Business.
------------------------------------------------------
The registered office of the Company required by the Act to be maintained in the
State of Delaware shall be the office of the initial registered agent named in
the Certificate or such other office (which need not be a place of business of
the Company) as the Manager may designate from time to time in the manner
provided by law. The registered agent of the Company in the State of Delaware
shall be the initial registered agent named in the Certificate or such other
Person or Persons as the Manager may designate from time to time in the manner
provided by law. The Company will maintain an office and principal place of
business at such place or places inside or outside the State of Delaware as the
Manager may designate from time to time.
Section II.5 Capital Contributions.
---------------------
(a) The Investor shall, promptly following the execution of this
Agreement, contribute to the capital of the Company the amount set forth on
Schedule B. All future capital contributions made by any Member shall be
- ----------
reflected on the Company's books and records. Persons hereafter admitted as
Members of the Company shall make such contributions of cash (or promissory
obligations), property or services to the Company as shall be determined by the
Manager and the Member making the contribution in their sole discretion at the
time of each such admission.
(b) No Member shall have any responsibility to restore any negative
balance in his, her or its Capital Account or to contribute to or in respect of
liabilities or obligations of the Company, whether arising in tort, contract or
otherwise, or return distributions made by the Company except as required by the
Act or other applicable law. The failure of the Company to observe any
formalities or requirements relating to the exercise of its powers or management
of its business or affairs under this Agreement or the Act shall not be grounds
for imposing personal liability on the Member(s) for liabilities of the Company.
(c) No interest shall be paid by the Company on capital contributions
or on balances in Capital Accounts.
(d) A Member shall not be entitled to withdraw any part of its
Capital Account or to receive any distributions from the Company except as
provided in Articles IV and VI; nor shall a Member be entitled to make any
----------- --
capital contribution to the Company other than as expressly provided herein. Any
Member may, with the approval of the Manager, make loans to the Company, and any
loan by a Member to the Company shall not be considered to be a capital
contribution for any purpose and shall not result in an increase in the amount
of the Capital Account of such Member.
-5-
<PAGE>
Section II.6 Term. The Company shall continue until dissolved and
----
terminated in accordance with Article VI of this Agreement.
----------
Section II.7 No State-Law Partnership. The Member(s) intend that the
------------------------
Company not be a partnership (including, without limitation, a limited
partnership) or joint venture, and that no Member be a partner or joint venturer
of any other Member, for any purposes and neither this Agreement nor any other
document entered into by the Company or any Member shall be construed to suggest
otherwise.
ARTICLE III
CAPITAL ACCOUNTS
Section III.1 Capital Accounts. A capital account (a "Capital
---------------- -------
Account") shall be established for each Member and shall be maintained in
- -------
accordance with Treasury Regulation Section 1.704-1(b)(2)(iv). The Capital
Account of each Member shall consist of his or its initial Capital Contribution
and shall be (a) increased by any additional Capital Contributions made by such
Member pursuant to the terms of this Agreement and such Member's share of items
of income and gain allocated to such Member pursuant to Article IV and (b)
----------
decreased by such Member's share of items of loss, deduction and expense
allocated to such Member pursuant to Article IV and any distributions to such
----------
Member of cash or the fair market value of any other property (net of
liabilities assumed by such Member and liabilities to which such property is
subject) distributed to such Member. Any references in this Agreement to the
Capital Account of a Member shall be deemed to refer to such Capital Account as
the same may be increased or decreased from time to time as set forth above.
Section III.2 Computation of Amounts. For purposes of computing the
----------------------
amount of any item of income, gain, loss, deduction or expense to be reflected
in Capital Accounts, the determination, recognition and classification of each
such item shall be the same as its determination, recognition and classification
for federal income tax purposes, provided that:
-------- ----
(i) The computation of all items of income, gain, loss and
deduction shall include those items described in Code Section 705(a)(l)(B) or
Code Section 705(a)(2)(B) and Treasury Regulation Section 1.704-1(b)(2)(iv)(i),
without regard to the fact that such items are not includable in gross income or
are not deductible for federal income tax purposes.
(ii) If the Book Value of any Company property is adjusted
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(f), the amount of such
adjustment shall be taken into account as gain or loss from the disposition of
such property.
(iii) Items of income, gain, loss or deduction attributable to
the disposition of Company property having a Book Value that differs from its
adjusted basis for tax purposes shall be computed by reference to the Book Value
of such property.
-6-
<PAGE>
(iv) Items of depreciation, amortization and other cost recovery
deductions with respect to Company property having a Book Value that differs
from its adjusted basis for tax purposes shall be computed by reference to the
property's Book Value in accordance with Treasury Regulation Section 1.704-
1(b)(2)(iv)(g).
(v) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Sections 732(d), 734(b) or 743(b) is required,
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into
account in determining Capital Accounts, the amount of such adjustment to the
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases such
basis).
Section III.3 Distribution in Kind. If securities or other property
--------------------
are to be distributed in kind to the Member(s) pursuant to this Agreement, (i)
such securities or other property shall first be written up or down pursuant to
Section 3.2 to their value (as determined pursuant to Article VII as of the date
- ----------- -----------
of such distribution), (ii) the Capital Accounts of the Member(s) shall be
adjusted immediately prior to the distribution as if such securities or other
property were sold at their value (as so determined pursuant to Article VII) and
(iii) the value of such securities or other property (as so determined pursuant
to Article VII) received by each Member shall be debited against his, her or its
-----------
respective Capital Account at the time of distribution.
Section III.4 Certain Terms of Preferred Units.
--------------------------------
(a) Authorization and Issuance of Preferred Units. The Company shall
---------------------------------------------
be authorized to issue up to 1,629,300 Preferred Units. Except as approved by
the Manager, only the Investor shall have the right to acquire Preferred Units.
The Investor shall acquire all 1,629,300 of the Uncommitted Preferred Units for
an aggregate Capital Contribution of $3,400,000, such Capital Contribution to be
paid at Closing in the amount of $2,900,000 and $500,000 to be paid upon
notification of the Manager to make such payment.
(b) Conversion and Conversion Procedure of Preferred Units.
------------------------------------------------------
(i) At any time and from time to time, any holder of Preferred
Units may convert all or any portion of the Preferred Units (including any
fractional Unit) held by such holder into a number of Common Units computed by
multiplying the number of Preferred Units to be converted by the Conversion
Ratio (as defined in Section 3.4(c) below) then in effect.
--------------
(ii) Except as otherwise provided herein, each conversion of a
Preferred Unit shall be deemed to have been effected as of the close of business
on the date that the Company records the conversion in its record books. At the
time any such conversion has been effected, the rights of the former holder of
the Preferred Units so converted, as a holder of such Preferred Units, shall
cease and the Person or Persons whose name or names appear on the Company's
record books as the record owner of Common Units to be issued upon such
conversion shall be deemed to have become the holder or holders of record of the
Common Units represented therein.
-7-
<PAGE>
(iii) Notwithstanding any other provision hereof, if a conversion
of Preferred Units is to be made in connection with a public offering, liquidity
event or other transaction affecting the Company, the conversion of any
Preferred Units may, at the election of the holder thereof, be conditioned upon
the consummation of such transaction, in which case such conversion shall not be
deemed to be effective until such transaction has been consummated.
(iv) As soon as possible after a conversion has been effected
(but in any event within five business days), the Company shall deliver to the
converting holder:
(A) confirmation that the Company has recorded on its record
books a number of Common Units issuable by reason of such conversion in
such name or names and such denomination or denominations as the converting
holder has specified;
(B) written confirmation that any Preferred Units which have
not been converted have been recorded on the Company's record books as
being held by the appropriate Member.
(v) The recordation of a holder's Common Units upon conversion
of Preferred Units, shall be made without charge to the holders of such
Preferred Units for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such conversion and the related issuance of
Common Units. Upon conversion of each Preferred Unit, the Company shall take all
such actions as are necessary in order to insure that the Common Units issuable
with respect to such conversion shall be validly issued, fully paid, and
nonassessable, free and clear of all taxes, liens, charges, and encumbrances
with respect to the issuance thereof.
(vi) The Company shall not close its books against the transfer
of Preferred Units or of Common Units issued or issuable upon conversion of
Preferred Units in any manner which interferes with the timely conversion of
Preferred Units. The Company shall (at its expense) assist and cooperate with
any holder of Units required to make any governmental filings or obtain any
governmental approval before or in connection with any conversion of Units
hereunder (including making any filings required to be made by the Company).
(c) Conversion Ratio of Preferred Units.
-----------------------------------
(i) The initial conversion ratio for Preferred Units shall be a
conversion to Common Units at a one-to-one (1:1) ratio (the "Conversion Ratio").
----------------
The Conversion Ratio shall be subject to adjustment from time to time pursuant
to this Section 3.4(c).
--------------
(ii) Subdivision; Combination. If the Company at any time
------------------------
subdivides (by any unit split, unit dividend, recapitalization, or otherwise)
its Common Units into a greater number of Units, the Conversion Ratio in effect
immediately before such subdivision shall be proportionately increased, and if
the Company at any time combines (by reverse stock split or otherwise) its
Common Units into a smaller number of Units, then the Conversion Ratio in effect
immediately before such combination shall be proportionately decreased.
Appropriate adjustments
-8-
<PAGE>
shall also be made to the number of Common Units reserved for issuance upon
conversion of the Preferred Units.
(iii) Record Notice. The Company shall give written notice to all
-------------
holders of Preferred Units at least 10 days before the date on which the Company
closes its books or takes a record (i) with respect to any dividend or
distribution upon Common Units, (ii) with respect to any pro rata subscription
offer to holders of Common Units, or (iii) for determining rights to vote (if
any) with respect to Common Units.
(d) Liquidation Value of the Preferred. The initial Liquidation Value
----------------------------------
of each Preferred Unit shall be $2.09 (the "Liquidation Value").
-----------------
Section III.5 Certain Terms of Common Units.
-----------------------------
(a) Authorization and Issuance of Common Units. The Company shall be
------------------------------------------
authorized to issue up to an aggregate total of all classes of Common Units of
8,420,000 Fully Diluted Common Units. Common Units may be issued to any Member
or Additional Member in accordance with the terms of this Agreement.
(b) Initial Issuance of Common Units. The initial issuance of Common
--------------------------------
Units shall be as shown on Schedule A and as set forth below:
(i) Investor: Investor shall receive 4,370,700 Common Units
--------
without payment of a Capital Contribution.
(ii) Executives. If and only if the RCP Acquisition is closed,
----------
the Executives and Nancy Sokolowski shall receive upon payment of a Capital
Contribution in the amount of $0.005 per Unit an aggregate of 705,000 Restricted
Common Units.
(iii) RCP Executives. If and only if the RCP Acquisition is
--------------
closed, the RCP Executives shall receive as part of the purchase price for their
stock in the RCP Acquisition an aggregate of 1,425,000 Restricted Common Units.
(c) Restricted Common Units. Restricted Common Units shall be subject
-----------------------
to such restrictions or provisions as are stipulated in a Unitholder's Agreement
signed by the Member and the Manager, and may include without limitation,
vesting, divestiture and transfer provisions. Such restrictions shall be
recorded on the books of the Company, and such Common Units shall be designated
as "Restricted" on Schedule A, attached hereto, as it may be amended from time
to time. Restricted Common Units shall not have voting rights and shall not be
entitled to distributions or allocations. Restricted Common Units may be
converted to Common Units upon (i) expiration of all restrictions set forth in
the Unitholder Agreement, other than transfer restrictions unless specifically
stated otherwise in the Unitholder Agreement, (ii) written notification by the
Unitholder to the Manager, and (iii) amendment of Schedule A attached hereto in
accordance with the written notification and provisions of this Section 3.5(c).
--------------
-9-
<PAGE>
(d) Reserved Common Units. An aggregate of 1,629,300 Common Units
---------------------
shall be reserved for issuance upon conversion of the Preferred Units.
(e) Uncommitted Common Units. The 290,000 Uncommitted Common Units
------------------------
shall be reserved by Company and may be issued to Members or Additional Members
in accordance with this Agreement, or in accordance with an option plan to be
established and maintained at the discretion of the Manager, which option plan
shall include 100,000 Common Units for potential issuance to RCP Employees.
(f) Restrictions on Transfer. The written approval of the Manager
------------------------
shall be required prior to effecting any transfer of the Common Units.
Restricted Common Units may not be transferred, except pursuant to a repurchase
by, or a forfeiture to, the Company, or as otherwise set forth in a Unitholders
Agreement signed by the Member and the Manager. The Common Units shall be
subject to the restrictions on transfer set forth in this Agreement, as amended
from time to time.
(g) Additional Restrictions on Transfer. No holder of Common Units
-----------------------------------
may sell, transfer, or dispose of any such Common Units (except to the Company
or pursuant to an effective registration statement under the 1933 Act) without
first delivering to the Company and the Manager an opinion (reasonably
acceptable in form and substance to the Company and Manager) of counsel
experienced in securities law matters that neither registration nor
qualification under the 1933 Act and applicable state securities laws is
required in connection with such transfer.
ARTICLE IV
DISTRIBUTIONS; AND ALLOCATIONS
Section IV.1 Distributions.
-------------
(a) Non-Liquidating Distributions. Except as otherwise set forth in
-----------------------------
this Section 4.1 or 3.5(c) above, the Manager may in its sole discretion make
----------- ------
Distributions at any time or from time to time, except that the Manager shall
make an annual cash distribution to each Member in an amount equal to thirty-
eight percent (38%) of the income, net of loss, deduction, or expense, allocated
to each Member pursuant to Section 4.2 below. Except as otherwise set forth in
-----------
this Section 4.1 or 3.5(c) above, each Distribution shall be made to the
----------- ------
Unitholders (ratably among such Unitholders based upon the number of outstanding
Units held by each such Unitholder immediately prior to such Distribution,
assuming that each Preferred Unitholder had converted all of his, her or its
Preferred Units into Common Units immediately prior to such Distribution and
Restricted Common Units were not authorized and outstanding; i.e., the Preferred
units shall be included on an as-if-converted basis for the purposes of all
calculations, and Restricted Common Units will not be included in the
calculations of allocations and distributions with respect to Common Units).
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<PAGE>
No Distribution shall be made under this Section 4.1(a) until the allocation of
--------------
the Distributions to each Unitholder in accordance with this Section 4.1(a) is
--------------
determined and agreed to by the holders of a majority of the Preferred Units.
(b) Liquidating Distributions. Upon the occurrence of any
-------------------------
transaction involving the sale or other disposition of all or substantially all
of the assets of the Company and its Subsidiaries in one transaction or series
of related transaction or a merger or consolidation or other transaction which
accomplishes the foregoing (a "Liquidating Transaction"), and after the payment
-----------------------
or set aside by the Manager for the amounts described in Sections 6.2(a) and
-------------------
(b), Distributions shall be made in the following order and priority:
- ---
(i) First, if any of the Preferred Units are then outstanding,
to the Preferred Unitholders in an amount equal to the greater of (x) the
aggregate Liquidation Value with respect to such Preferred Unitholders'
outstanding Preferred Units or (y) the amount that such Preferred Unitholders
would receive if all of their outstanding Preferred Units were converted into
Common Units immediately prior to such Distribution (in each case in the
proportion that each Unitholder's share of aggregate Liquidation Value bears to
the aggregate Liquidation Value with respect to all Preferred Units outstanding
immediately prior to such Distribution) until all such Preferred Unitholders
have received Distributions under this clause (i) in respect of such
Unitholder's Preferred Units in an aggregate amount equal to the greater of the
amount referred to in clauses (x) and (y), and no Distribution or any portion
thereof may be made under any of the other paragraphs below until such entire
amount on the outstanding Preferred Units immediately prior to the time of such
Distribution has been paid in full; and
(ii) Second, with respect to the then outstanding Common Units,
an amount equal to the amount of such Distribution that has not been distributed
pursuant to paragraph (i) of this Section 4.1(b) above (ratably among such
--------------
Unitholders based upon the number of outstanding Common Units held by each such
Unitholder immediately prior to such Distribution).
No Distribution shall be made under this Section 4.1(b) until the allocation of
--------------
the Distributions to each Unitholder in accordance with this Section 4.1(b) is
--------------
determined and agreed to by the holders of a majority of the Preferred Units;
unless no Preferred Units are outstanding, in which case a majority of the
Common Units shall be required.
(c) Persons Receiving Distributions. Each Distribution shall be made
-------------------------------
to the Persons shown on the Company's books and records as Unitholders as of the
date of such Distribution, except as provided in Section 3.5(c).
--------------
Section IV.2 Allocations. Except as otherwise provided in Section
----------- -------
4.3 or 3.5(c), Profits and Losses for any fiscal year or portion thereof shall
- --- ------
be allocated among the Members in such a manner that, as of the end of such
fiscal year, the sum of (i) the Capital Account of each Member, (ii) such
Member's share of Minimum Gain (as determined according to Treasury Regulation
Section 1.704-2(g)) and (iii) such Member's partner nonrecourse debt minimum
gain (as defined in Treasury Regulation Section 1.704-2(i)(3)) shall be equal to
the respective net amounts,
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<PAGE>
positive or negative, which would be distributed to them or for which they would
be liable to the Company under the Delaware Act, determined as if the Company
were to (i) liquidate the assets of the Company for an amount equal to their
Book Value and (ii) distribute the proceeds of liquidation pursuant to Section
-------
6.2 below.
- ---
Section IV.3 Special Allocations.
-------------------
(a) Losses attributable to partner nonrecourse debt (as defined in
Treasury Regulation Section 1.704-2(b)(4)) shall be allocated in the manner
required by Treasury Regulation Section 1.704-2(i). If there is a net decrease
during a Taxable Year in partner nonrecourse debt minimum gain (as defined in
Treasury Regulation Section 1.704-2(i)(3)), Profits for such Taxable Year (and,
if necessary, for subsequent Taxable Years) shall be allocated to the Members in
the amounts and of such character as determined according to Treasury Regulation
Section 1.704-2(i)(4).
(b) Nonrecourse deductions (as determined according to Treasury
Regulation Section 1.704-2(b)(1)) for any Taxable Year shall be allocated to the
Members, ratably based upon the number of outstanding Units held by each such
Member immediately prior to such allocation. Except as otherwise provided in
Section 4.3(a), if there is a net decrease in the Minimum Gain during any
- --------------
Taxable Year, each Member shall be allocated Profits for such Taxable Year (and,
if necessary, for subsequent Taxable Years) in the amounts and of such character
as determined according to Treasury Regulation Section 1.704-2(f). This Section
-------
4.3(b) is intended to be a minimum gain chargeback provision that complies with
- ------
the requirements of Treasury Regulation Section 1.704-2(f), and shall be
interpreted in a manner consistent therewith.
(c) If any Member that unexpectedly receives an adjustment,
allocation or distribution described in Treasury Regulation Section 1.704-
1(b)(2)(ii)(d)(4), (5) and (6) has an adjusted capital account deficit (as
determined according to Treasury Regulation Section 1.704-1(b)(2)(ii)(d)) as of
the end of any Taxable Year, computed after the application of Sections 4.3(a)
---------------
and 4.3(b) but before the application of any other provision of this Article IV,
------ ----------
then Profits for such Taxable Year shall be allocated to such Member in
proportion to, and to the extent of, such Adjusted Capital Account Deficit.
This Section 4.3(c) is intended to be a qualified income offset provision as
--------------
described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted in a manner consistent therewith.
(d) Profits and Losses described in Section 4.1(v) shall be allocated
--------------
in a manner consistent with the manner that the adjustments to the Capital
Accounts are required to be made pursuant to Treasury Regulation Section 1.704-
1(b)(2)(iv)(j), (k) and (m).
(e) If, and to the extent that, any Member is deemed to recognize any
item of income, gain, loss, deduction or credit as a result of any transaction
between such Member and the Company pursuant to Code Sections 1272-1274, 7872,
483, 482 or any similar provision now or hereafter in effect, and the Manager
determines that any corresponding Profit or Loss of the Company should be
allocated to the Member who recognized such item in order to reflect the
Member's economic interests in the Company, then the Manager may so allocate
such Profit or Loss.
-12-
<PAGE>
Section IV.4 Tax Allocations.
---------------
(a) The income, gains, losses, deductions, and credits of the Company
will be allocated, for federal, state, and local income tax purposes, among the
Unitholders in accordance with the allocation of such income, gains, losses,
deductions, and credits among the Unitholders for computing their Capital
Accounts; except that, if any such allocation is not permitted by the Code or
other applicable law, then the Company's subsequent income, gains, losses,
deductions, and credits will be allocated among the Unitholders so as to reflect
as nearly as possible the allocation set forth herein in computing their Capital
Accounts.
(b) Items of Company taxable income, gain, loss and deduction with
respect to any property contributed to the capital of the Company shall be
allocated among the Members in accordance with Code Section 704(c) so as to take
account of any variation between the adjusted basis of such property to the
Company for federal income tax purposes and its Book Value.
(c) If the Book Value of any Company asset is adjusted pursuant to
the requirements of Treasury Regulation Section 1.704-1(b)(2)(iv)(e) or (f),
subsequent allocations of items of taxable income, gain, loss and deduction with
respect to such asset shall take account of any variation between the adjusted
basis of such asset for federal income tax purposes and its Book Value in the
same manner as under Code Section 704 (c).
(d) Allocations of tax credits, tax credit recapture, and any items
related thereto shall be allocated to the Members according to their interests
in such items as determined by the Manager taking into account the principles of
Treasury Regulation Section 1.704-1(b)(4)(ii).
(e) Allocations pursuant to this Section 4.4 are solely for purposes
-----------
of federal, state and local taxes and shall not affect, or in any way be taken
into account in computing, any Member's Capital Account or share of Profits,
Losses, Distributions or other Company items pursuant to any provision of this
Agreement.
Section IV.5 Indemnification and Reimbursement for Payments on Behalf
--------------------------------------------------------
of a Unitholder. If the Company is required by law to make any payment that is
- ---------------
specifically attributable to a Unitholder or a Unitholder's status as such
(including federal withholding taxes, state personal property taxes, and state
unincorporated business taxes), then such Unitholder shall indemnify the Company
in full for the entire amount paid (including interest, penalties and related
expenses). The Company may pursue and enforce all rights and remedies it may
have against each Unitholder under this Section 4.5, including instituting a
-----------
lawsuit to collect such indemnification and contribution with interest
calculated at a rate equal to 8% per annum, compounded as of the last day of
each year (but not in excess of the highest rate per annum permitted by law).
-13-
<PAGE>
ARTICLE V
MANAGEMENT AND MEMBER RIGHTS
Section V.1 Management Authority.
--------------------
(a) The Manager shall have the sole right to manage the business of
the Company and shall have all powers and rights necessary, appropriate or
advisable to effectuate and carry out the purposes and business of the Company,
and, no Member (other than the Manager) shall have any authority to act for or
bind the Company but shall have only the right to vote on or approve the actions
herein specified to be voted on or approved by the Member(s).
(b) The Manager may appoint such officers to such terms and to
perform such functions as the Manager shall determine in its sole discretion.
The Manager may appoint, employ or otherwise contract with such other Persons
for the transaction of the business of the Company or the performance of
services for or on behalf of the Company as it shall determine in its sole
discretion. The Manager may delegate to any such officer or Person such
authority to act on behalf of the Company as the Manager may from time to time
deem appropriate in its sole discretion.
(c) When the taking of such action has been authorized by the
Manager, any officer of the Company or any other Person specifically authorized
by the Manager may execute any contract or other agreement or document on behalf
of the Company and may execute and file on behalf of the Company with the
Secretary of State of the State of Delaware any certificates of amendment to the
Company's certificate of formation, one or more restated certificates of
formation and certificates of merger or consolidation and, upon the dissolution
and completion of winding up of the Company, at any time when there are no
Members, or as otherwise provided in the Act, a certificate of cancellation
canceling the Company's certificate of formation.
(d) The Manager may be removed, with cause, by the affirmative vote
of a Majority in Interest of the Member(s). Upon such removal, a Majority in
Interest of the Member(s) shall appoint a successor Manager. The Manager may
resign at any time upon ten days' prior notice to the Member(s). Upon such
resignation, the Manager may appoint a successor Manager; provided that such
successor Manager must be approved by the affirmative vote of a Majority in
Interest of the Member(s).
(e) All decisions regarding the management and affairs of the Company
shall be made by the Manager.
Section V.2 Indemnification. Except as limited by law and subject to
---------------
the provisions of this Section 5.2, each Indemnified Party shall be entitled to
-----------
be indemnified and held harmless on an as incurred basis by the Company (but
only after first making a claim for indemnification available from any other
source and only to the extent indemnification is not provided by that source) to
the fullest extent permitted under the Act (including indemnification for
negligence and breach of fiduciary duty to the extent so authorized but,
excluding gross negligence
-14-
<PAGE>
or willful misconduct) as amended from time to time (but, in the case of any
such amendment, only to the extent that such amendment permits the Company to
provide broader indemnification rights than such law permitted the Company to
provide prior to such amendment) against all losses, liabilities and expenses,
including attorneys' fees and expenses, arising from claims, actions and
proceedings in which such Person may be involved, as a party or otherwise, by
reason of his being an Indemnified Party (including any action taken or not
taken by such Person in such capacity). The rights of indemnification provided
in this Section 5.2 will be in addition to any rights to which such Indemnified
-----------
Party may otherwise be entitled by contract or as a matter of law and shall
extend to his successors and assigns. In particular, and without limitation of
the foregoing, such Indemnified Party shall be entitled to indemnification by
the Company against expenses (as incurred), including attorneys' fees and
expenses, incurred by such Indemnified Party upon the delivery by such
Indemnified Party to the Company of a written undertaking (reasonably acceptable
to the Manager). The Company may, to the extent authorized from time to time by
the Manager, grant rights to indemnification and to advancement of expenses to
any employee or agent of the Company who is not an Indemnified Party to the
fullest extent of the provisions of this Section 5.2 as if such Person were an
-----------
Indemnified Party for purposes hereof.
Section V.3 Transfer of Company Interest.
----------------------------
(a) No Member shall sell, assign, transfer or otherwise dispose of,
whether voluntarily or involuntarily or by operation of law (a "Transfer"), all
--------
or any portion of his, her or its interest in the Company without the prior
written consent of the Manager, which consent may be given or withheld in its
sole discretion. No Member shall pledge or otherwise encumber all or any
portion of his, her or its interest in the Company, without the prior written
consent of the Manager, which consent may be given or withheld in its sole
discretion.
(b) Notwithstanding any other provision of this Agreement, any
Transfer by the Member(s) in contravention of any of the provisions of this
Section 5.3 shall be void and ineffective, and shall not bind or be recognized
- -----------
by the Company.
(c) If and to the extent any Transfer of an interest in the Company
is permitted hereunder, this Agreement (including the schedules hereto) shall be
amended by the Manager to reflect the Transfer of the Company interest to the
transferee, to admit the transferee as a Member and to reflect the elimination
of the transferring Member (or the reduction of such transferring Member's
interest in the Company) and (if and to the extent then required by the Act) a
certificate of amendment to the Certificate reflecting such admission and
elimination (or reduction) shall be filed in accordance with the Act. The
effectiveness of the Transfer of an interest in the Company permitted hereunder
and the admission of any substitute Member pursuant to this Section 5.3 shall be
-----------
deemed effective immediately prior to the Transfer of an interest in the Company
to such Member or, if later, on the first date that the Manager receives
evidence of such Transfer, including the terms thereof. If the transferring
Member has Transferred all or any of its interest in the Company pursuant to
this Section 5.3, then, immediately following such Transfer or, if later, on the
-----------
first date that the Manager receives evidence of such Transfer, including the
terms thereof, the transferring Member shall cease to be a Member with respect
to such interest.
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<PAGE>
(d) Any Person who acquires in any manner whatsoever any interest in
the Company, irrespective of whether such Person has accepted and adopted in
writing the terms and provisions of this Agreement, shall be deemed by the
acceptance of the benefits of the acquisition thereof to have (i) made all of
the capital contributions made by, (ii) received all of the distributions
received by, and (iii) agreed to be subject to and bound by all the terms and
conditions of this Agreement that, any predecessor in such interest in the
Company made, received and was subject to or bound by.
(e) Member's Obligation to Sell Common Units. Notwithstanding any
----------------------------------------
other provisions of this Agreement, upon the written demand of the Manager,
Member and his or her Permitted Transferees shall sell all or any portion of his
or her Common Units to such purchaser or purchasers and upon such terms
(including purchase price) as may be determined by the Manager in its sole
discretion; provided, however, that the obligation of each Member and his or her
Permitted Transferees to so sell Common Units hereunder shall not arise unless
the holders of a Majority in Interest of the Fully Diluted Units of the Company
have agreed to sell, and shall sell such Common Units for the same purchase
price per Common Units and concurrently with the sale of the other Common Units
subject to such purchase. Upon such sale, the transferred Common Units shall no
longer be subject to the terms hereof.
Section V.4 Member Rights; Meetings.
-----------------------
(a) Member Rights. No Member, unless such Member is also the Manager,
-------------
shall have any right, power or duty, including the right to approve or vote on
any matter, except as expressly required by the Act or other applicable law or
as expressly provided for hereunder.
(b) Required Vote. Unless a greater vote is required by the Act or as
-------------
expressly provided for hereunder, the affirmative vote of a Majority in Interest
of the Member(s) entitled to vote shall be required to approve any proposed
action.
(c) Meetings. Meetings of the Member(s) for the transaction of such
--------
business as may properly come before such Member(s) shall be held at such place,
on such date and at such time as the Manager shall determine. Special meetings
of Member(s) for any proper purpose or purposes may be called at any time by the
Manager or the Member(s) holding a Majority in Interest. The Company shall
deliver oral or written notice (written notice may be delivered by mail) stating
the date, time, place and purposes of any meeting to each Member entitled to
vote at the meeting. Such notice shall be given not less than four (4) and no
more than sixty (60) days before the date of the meeting.
(d) Written Consent. Any action required or permitted to be taken at
---------------
an annual or special meeting of the Member(s) may be taken without a meeting,
without prior notice, and without a vote, provided that written consents,
setting forth all proposed actions to be taken at such meeting, are signed by
the Member(s) holding at least the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all Member(s)
entitled to vote on such action were present and voted. Every written consent
shall bear the date and signature of each
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<PAGE>
Member who signs such consent. Notice of the taking of action without a meeting
by less than unanimous written consent shall be given to each Executive or RCP
Executive who has not consented in writing to such action.
Section V.5 Additional Members. The Manager shall have the sole right
------------------
to admit additional Members upon such terms and conditions and at such time or
times as the Manager shall in its sole discretion determine subject only to the
provisions of Section 5.6 below and any plan duly adopted by the Company and
approved by the Manger pursuant to Section 3.5(c) above. In connection with any
--------------
such admission, this Agreement (including the schedules hereto) shall be amended
by the Manager to reflect the name, address and capital contribution of the
additional Member and the new Percentage Interests of all Members, and (if and
to the extent then required by the Act) a certificate of amendment to the
Certificate reflecting such admission shall be filed in accordance with the Act.
Section V.6 Preemptive Rights. In the event of an increase to the
-----------------
number of Common Units authorized pursuant to Section 3.5(a) each member shall
--------------
have a preemptive right to acquire an aggregate number of the new Common Units
sufficient to maintain such Member's percentage ownership of the Company at the
same level as it existed prior to such authorization of new Common Units.
Section V.7 Outside Businesses. Subject to any restrictions
------------------
contained in any employment agreements with the Company, any Member may engage
in or possess an interest in other business ventures of any nature or
description, independently or with others, similar or dissimilar to the business
of the Company, and the Company and the Member(s) shall have no rights by virtue
of this Agreement in and to such independent ventures or the income or gains
derived therefrom, and the pursuit of any such venture, even if competitive with
the business of the Company, shall not be deemed wrongful or improper. No
Member shall be obligated by virtue of this Agreement or by reason of being a
Member to present any particular investment opportunity to the Company even if
such opportunity is of a character that, if presented to the Company, could be
taken by the Company, and any Member shall have the right to take for his, her
or its own account (individually or as a partner or fiduciary) or to recommend
to others any such particular investment opportunity.
Section V.8 Member Representations and Warranties. Each Member
-------------------------------------
hereby represents and warrants to the Company and acknowledges that: (i) such
Member has such knowledge and experience in financial and business matters and
is capable of evaluating the merits and risks of an investment in the Company
and making an informed investment decision with respect thereto; (ii) such
Member is able to bear the economic and financial risk of an investment in the
Company for an indefinite period of time; (iii) such Member is acquiring
interests in the Company for investment only and not with a view to, or for
resale in connection with, any distribution to the public or public offering
thereof; (iv) the interests in the Company have not been registered under the
securities laws of any jurisdiction and cannot be disposed of unless they are
subsequently registered and/or qualified under applicable securities laws and
the provisions of this Agreement have been complied with; (v) the execution,
delivery and performance of this Agreement have been
-17-
<PAGE>
duly authorized by such Member and do not require such Member to obtain any
consent or approval that has not been obtained and do not contravene or result
in a default under any provision of any law or regulation applicable to such
Member or other governing documents or any agreement or instrument to which such
Member is a party or by which such Member is bound, (vi) the determination of
such Member to purchase interests in the Company has been made by such Member
independent of any other Member and independent of any statements or opinions as
to the advisability of such purchase or as to the properties, business,
prospects or condition (financial or otherwise) of the Company and its
Subsidiaries which may have been made or given by any other Member or by any
agent or employee of any other Member and (vii) this Agreement is valid, binding
and enforceable against such Member in accordance with its terms.
ARTICLE VI
DURATION
Section VI.1 Duration. The Company shall be dissolved and its
--------
affairs wound up and terminated upon the first to occur of the following:
--------------
(a) The vote of the Member(s) holding a Majority in Interest; or
(b) The entry of a decree of judicial dissolution under Section 18-
802 of the Act.
Except as otherwise set forth in this Article VI, the Member(s) intend for the
----------
Company to have perpetual existence.
Section VI.2 Winding Up.
----------
Upon dissolution of the Company, the Company shall be liquidated in an
orderly manner. The Manager shall be the liquidator pursuant to this Agreement
and shall proceed diligently to wind up the affairs of the Company and make
final distributions as provided herein and in the Act. The costs of liquidation
shall be borne as a Company expense. The steps to be accomplished by the
liquidator are as follows:
(a) First, the liquidator shall satisfy all of the Company's debts
and liabilities to creditors other than the Member(s) (whether by payment or the
reasonable provision for payment thereof);
(b) Second, the liquidator shall satisfy all of the Company's debts
and liabilities to the Member(s) (whether by payment or the reasonable provision
for payment thereof); and
(c) Third, all remaining assets shall be distributed to the Member(s)
in accordance with Section 4.1(b).
--------------
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<PAGE>
Section VI.3 Termination. The Company shall terminate when all of
-----------
the assets of the Company, after payment of or due provision for all debts,
liabilities and obligations of the Company, shall have been distributed to the
Member(s) in the manner provided for in this Article VI, and the certificate of
----------
formation of the Company shall have been canceled in the manner required by the
Act.
ARTICLE VII
VALUATION
Section VII.1 Valuation. For purposes of this Agreement, the value
---------
of any property contributed by or distributed to any Member shall be valued as
determined by the Manager.
ARTICLE VIII
CERTIFICATION OF MEMBERSHIP INTERESTS
Section VIII.1 Membership Interests. The Company may in its
--------------------
discretion issue certificates to the Member(s) representing the membership
interests in the Company held by each Member.
ARTICLE IX
BOOKS OF ACCOUNT; MEETINGS
Section IX.1 Books. The Manager will maintain, on behalf of the
-----
Company, complete and accurate books of account of the Company's affairs, which
books will be open to inspection by any Member (or his authorized
representative) at any time during ordinary business hours and shall be
maintained in accordance with the Act.
Section IX.2 Fiscal Year. The fiscal year of the Company shall end
-----------
on December 31 of each year or such other year end as the Manager may determine
in its sole discretion.
Section IX.3 Taxes.
-----
(a) Tax Returns. The Company shall cause to be prepared and filed all
-----------
necessary federal and state income tax returns for the Company and, subject to
Section 9.3(b), shall make any elections the Manager may in its sole discretion
- --------------
deem appropriate and in the best interests of the Member(s). Each Member shall
furnish to the Company all pertinent information in its possession relating to
Company operations that is necessary to enable the Company's income tax returns
to be prepared and filed any information necessary to give proper effect to such
election. The Taxable Year shall be the Fiscal Year set forth in Section 9.2,
-----------
unless the Manager shall determine otherwise in its sole discretion and in
compliance with applicable laws.
-19-
<PAGE>
(b) Tax Controversies. The Manager is hereby designated the Tax
-----------------
Matters Partner (as defined in Section 6231 of the Code) and is authorized and
required to represent the Company (at the Company's expense) in connection with
all examinations of the Company's affairs by tax authorities, including
resulting administrative and judicial proceedings, and to expend Company funds
for professional services and reasonably incurred in connection therewith. Each
Member agrees to cooperate with the Company and to do or refrain from doing any
or all things reasonably requested by the Company with respect to the conduct of
such proceedings. The Tax Matters Partner shall keep all Members reasonably
informed of the progress of any examinations, audits or other proceedings.
(c) Election to be Taxed as a Partnership. The Company shall elect to
-------------------------------------
be taxed as a partnership for federal and state income tax purposes, effective
not later than the date on which the Initial Member makes the capital
contribution required by Section 2.5. At the request of the Manager, each
-----------
Member shall cooperate with the Company in the filing of any election,
certificate, form or other document intended to secure partnership tax status
for the Company (including, without limitation, Form 8832 pursuant to Treasury
Regulation 301.7701-3(c) and any corresponding state form, if required),
including the execution by such Person of any such document.
ARTICLE X
MISCELLANEOUS
Section X.1 Amendments. This Agreement, including the Schedules A
----------
and B hereto, may be amended or modified and any provision hereof may be waived
only by a Majority in Interest of the Members; provided, however, that any
amendment or modification reducing disproportionately a Member's interest in the
Company or other interest in the profits or losses or in distributions or
increasing such Member's capital contribution shall be effective only with that
Member's consent.
Section X.2 Successors. Except as otherwise provided herein, this
----------
Agreement will inure to the benefit of and be binding upon the Member(s) and
their respective legal representatives, heirs, successors and permitted assigns.
Section X.3 Governing Law; Severability. This Agreement will be
---------------------------
construed in accordance with the laws of the State of Delaware and, to the
maximum extent possible, in such manner as to comply with an the terms and
conditions of the Act. If it is determined by a court of competent jurisdiction
that any provision of this Agreement is invalid under applicable law, such
provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of this Agreement.
Section X.4 Notices. All notices, demands and other communications
-------
to be given and delivered under or by reason of provisions under this Agreement
shall be in writing and shall be deemed to have been given when personally
delivered, mailed by first class mail (postage prepaid and return receipt
requested), sent by telecopy or sent by reputable overnight courier service
(charges
-20-
<PAGE>
prepaid) to the addresses or telecopy numbers set forth in Schedule A hereto or
----------
to such other addresses or telecopy numbers as have been supplied in writing to
the Company.
Section X.5 Complete Agreement; Headings, Counterparts. This
------------------------------------------
Agreement terminates and supersedes all other agreements concerning the subject
matter hereof previously entered into among any of the parties. Descriptive
headings are for convenience only and will not control or affect the meaning or
construction of any provision of this Agreement. Wherever from the context it
appears appropriate, each term stated in either the singular or the plural shall
include both the singular and the plural, and pronouns stated in either the
masculine, feminine or the neuter gender shall include the masculine, the
feminine and the neuter. This Agreement may be executed in any number of
counterparts, none of which need contain the signatures of more than one party,
but all such counterparts together will constitute one agreement.
Section X.6 Partition. Each Member waives, until termination of the
---------
Company, any and all rights that it may have to maintain an action for partition
of the Company's property.
Section X.7 No Strict Construction. The parties hereto have
----------------------
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
* * * * * * * * *
-21-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Limited
Liability Company Agreement to be signed as of the date first above written.
ONEPOINT COMMUNICATIONS CORP.
By:____________________________ ___________________________________
Al Moschner
Its:___________________________
___________________________________
Tim Ostrowski
___________________________________
Oscar Aguiar, Jr.
___________________________________
James A. Silva
___________________________________
Nancy Sokolowski
-22-
<PAGE>
SCHEDULE A
Dated November 23, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
FULLY
UNITHOLDER/MEMBER NUMBER OF UNIT CLASS DILUTED
UNITS PERCENTAGE
INTEREST
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OnePoint Communications Corp. 4,370,700 Common 51.9%
2201 Waukegan Road, Suite 2200 1,629,300 Preferred 19.4%
Total ------
Bannockburn, Illinois 60015 71.3%
Telephone: (847) 374-3700
Telecopy: (847) 374-1070
Attention: John Stavig
With Copy which shall not constitute
notice to:
KIRKLAND & ELLIS
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Willard G. Fraumann, P.C.
Telephone: (312) 861-2000
Telecopy: (312) 861-2200
- ----------------------------------------------------------------------------------------------------------
Al Moschner 534,000 Restricted 6.34%
Common
- ----------------------------------------------------------------------------------------------------------
Tim Ostrowski 169,500 Restricted 2.01%
Common
- ----------------------------------------------------------------------------------------------------------
Oscar Aguiar, Jr. 712,500 Restricted 8.46%
Common
- ----------------------------------------------------------------------------------------------------------
James A. Silva 712,500 Restricted 8.46%
Common
- ----------------------------------------------------------------------------------------------------------
Nancy Sokolowski 1,500 Restricted 0.0002%
Common
- ----------------------------------------------------------------------------------------------------------
Uncommitted Units 290,000 Common 3.44%
(Reserved
for Employee
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
FULLY
UNITHOLDER/MEMBER NUMBER OF UNIT CLASS DILUTED
UNITS PERCENTAGE
INTEREST
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Incentive Plan and
Additional Members)
1,629,300 Common
(Reserved 19.4%
for Conversion of
Preferred)
- ----------------------------------------------------------------------------------------------------------
Total Fully Diluted Units 8,420,000 All Classes 100.0%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE>
SCHEDULE B
Dated November 23, 1999
- ----------------------------------------------------------------------
UNITHOLDER/MEMBER CAPITAL
CONTRIBUTION
- ----------------------------------------------------------------------
OnePoint Communications Corp. $3,400,000.00
2201 Waukegan Road, Suite 2200
Bannockburn, Illinois 60015
Telephone: (847) 374-3700
Telecopy: (847) 374-1070
Attention: John Stavig
With Copy which shall not constitute notice to:
KIRKLAND & ELLIS
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Willard G. Fraumann, P.C.
Telephone: (312) 861-2000
Telecopy: (312) 861-2200
- ----------------------------------------------------------------------
Al Moschner $ 2,670.00
- ----------------------------------------------------------------------
Tim Ostrowski $ 847.50
- ----------------------------------------------------------------------
Oscar Aguiar, Jr. $ 3,562.50
- ----------------------------------------------------------------------
James. A. Silva $ 3,562.50
- ----------------------------------------------------------------------
Nancy Sokolowski $ 7.50
- ----------------------------------------------------------------------
Total Capital Contributions $3,410,650.00
- ----------------------------------------------------------------------
-25-
<PAGE>
ADDITIONAL MEMBER ACCEPTANCE
Pursuant to the requirements in Section 5.5 of the Limited Liability
Company Agreement of OnePoint Services, L.L.C., dated as of November ___, 1999
(the "Agreement"), [Additional Member] and [Additional Member] seek to be
admitted as Additional Members and hereby are admitted as Additional Members
having satisfied the terms and conditions specified by, and such admission
having been approved by, the Manager. All capitalized terms used herein shall
have the meaning given in the Agreement.
The First Amended Schedules A and B to the Agreement are deleted in their
entirely and replaced by the attached Second Amended Schedules A and B, dated
November ___, 1999.
IN WITNESS WHEREOF, the parties have caused this Additional Member
Acceptance to be signed as of the date first written above as evidence of their
agreement to become Additional Members and to be bound by the terms of the
Agreement.
__________________________________
[Additional Member]
__________________________________
[Additional Member]
ONEPOINT COMMUNICATIONS, INC.
By:_______________________________
Its:______________________________
-26-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information derived from financial
statements included in OnePoint Communications Corp.'s annual report on Form
10-K for the twelve months ended December 31, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,608
<SECURITIES> 4,230
<RECEIVABLES> 3,321
<ALLOWANCES> 599
<INVENTORY> 0
<CURRENT-ASSETS> 17,318
<PP&E> 24,181
<DEPRECIATION> 3,807
<TOTAL-ASSETS> 81,408
<CURRENT-LIABILITIES> 23,142
<BONDS> 102,437
35,000
0
<COMMON> 10
<OTHER-SE> 6,870
<TOTAL-LIABILITY-AND-EQUITY> 81,408
<SALES> 22,138
<TOTAL-REVENUES> 22,138
<CGS> 22,006
<TOTAL-COSTS> 22,006
<OTHER-EXPENSES> 53,667
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,277
<INCOME-PRETAX> (69,330)
<INCOME-TAX> 0
<INCOME-CONTINUING> (69,330)
<DISCONTINUED> 0
<EXTRAORDINARY> 20,432
<CHANGES> 0
<NET-INCOME> (52,726)
<EPS-BASIC> (52,726)
<EPS-DILUTED> (52,726)
</TABLE>
