<PAGE>
As filed with the Securities and Exchange Commission on July 29, 1999
Registration No. 333-76779
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
PAC-WEST TELECOMM, INC.
(Exact name of Registrant as specified in its charter)
California 4832 68-0383568
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification No.)
ofincorporation or Classification Code
organization) Number)
4210 Coronado Avenue, Stockton, CA 95204
Telephone: (209) 926-3300
(Address, including zip code, and telephone number,
including area code, of Registrant's principal offices)
----------------
Richard E. Bryson
Chief Financial Officer
Pac-West Telecomm, Inc.
4210 Coronado Avenue, Stockton, CA 95204
Telephone: (209) 926-3300
(Address, including zip code, and telephone number,
including area code, of Registrant's principal offices)
Copy to:
Jeffrey S. O'Connor, Esq.
Kirkland & Ellis
200 East Randolph Drive, Chicago, IL 60601
Telephone: (312) 861-2000
----------------
Approximate date of commencement of proposed sale to the public: The
exchange will occur as soon as practicable after the effective date of this
Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------
We hereby amend this Registration Statement on such date or dates as may be
necessary to delay its effective date until we file a further amendment which
specifically states that this Registration Statement will thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or
until this Registration Statement becomes effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this Prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the SEC +
+is effective. This Prospectus is not an offer to sell these securities and is +
+not a solicitation for an offer to buy these securities in any state where +
+the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 29, 1999
PROSPECTUS
Pac-West Telecomm, Inc.
Exchange Offer for
$150,000,000
13 1/2% Senior Notes Due 2009
Expires 5:00 p.m., New York City time, , 1999, unless extended.
No public market exists for the outstanding notes or the new notes. We do not
intend to list the new notes on any securities exchange or seek approval for
quotation through any automated trading system.
For a discussion of risk factors that you should consider before
participating in this exchange offer, see "Risk Factors" beginning on page 11
of this prospectus.
Neither the SEC nor any state securities commission has approved the notes to
be distributed in this exchange offer, nor have any of these organizations
determined that this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 11
The Exchange Offer........................................................ 19
Use of Proceeds........................................................... 28
Capitalization............................................................ 29
Unaudited Pro Forma Financial Data........................................ 30
Selected Financial Data................................................... 32
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 34
Business.................................................................. 46
Management................................................................ 64
Certain Relationships and Related Transactions............................ 71
Principal Shareholders.................................................... 76
Description of Capital Stock.............................................. 78
Description of Indebtedness............................................... 79
Description of Notes...................................................... 80
Certain United States Federal Tax Considerations.......................... 113
Plan of Distribution...................................................... 117
Legal Matters............................................................. 117
Experts................................................................... 118
Where You Can Find More Information....................................... 118
Index to Financial Statements............................................. F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus includes specific terms of the notes we are offering, as well as
information regarding our business and detailed financial data. Except as
otherwise stated, all share data gives effect to the ten for one stock split
which became effective as of March 19, 1999. We encourage you to read this
prospectus in its entirety.
The Exchange Offer
On January 29, 1999, Pac-West Telecomm, Inc. completed the private offering
of its $150,000,000 13 1/2% Series A senior notes due 2009.
In this exchange offer, you are entitled to exchange those notes for
registered new notes with substantially identical terms. The interest rate on
the old notes may be increased if certain conditions are not met. You should
read the discussion under the heading "--Summary of Terms of the New Notes" and
"Description of Notes" for further information regarding the new notes.
We believe that the new notes issued in this exchange offer may be resold by
you without compliance with the registration and prospectus delivery provisions
of the Securities Act of 1933. You should read the discussion under the
headings "--Summary of the Exchange Offer" and "The Exchange Offer" for further
information regarding the exchange offer and resale of notes.
Our Company
Pac-West is a rapidly growing competitive local exchange carrier providing
switched local and long distance telecommunications services and one-stop
integrated telecommunications services to Internet service providers, paging
companies and other companies handling large volumes of incoming calls as well
as medium and small businesses.
We built our network to capitalize on the significant growth in national
Internet usage and in the related demand for local telephone service by
regional and national Internet service providers, as well as the increasing
demand of medium and small businesses for customized and integrated
telecommunications services. We believe the structure of our network and our
presence in each California local calling area provide us with significant
competitive advantages over incumbent local exchange carriers and other
competitive local exchange carriers, particularly for our target customers. Our
network enables these companies to provide their business and residential
customers with access to the Internet, paging and other services from almost
any point in California through a local call.
The fact that we own our switches and lease our fiber transport lines and
our focus on telecommunications intensive customers allows us to quickly enter
new markets and generate high network utilization, substantial revenues, strong
profit margins and positive cash flows. For the year ended December 31, 1998
and for the three month period ended March 31, 1999, we had net revenues of
approximately $42.2 million and $14.4 million, respectively.
Our Strategy
Our objective is to become a leading provider of telecommunications services
to Internet service providers, paging companies and other companies handling
large volumes of incoming calls as well as medium and small businesses in each
of our target markets. We plan to do this by:
. Capitalizing on growing Internet service provider demand for local
services;
. Focusing on the medium and small business market;
. Expanding our direct sales force;
. Targeting California and the western United States;
. Leasing our transmission lines;
. Installing advanced, uniform equipment; and
. Expanding our customer base through potential acquisitions.
3
<PAGE>
For more information relating to our strategy, see "Business--Strategy."
Risk Factors
We have a substantial amount of indebtedness. Further, our success will be
particularly dependent on our ability to expand our business and manage our
growth, provide competitive services, comply with applicable governmental
regulations and negotiate favorable agreements. Before tendering your old notes
in this exchange offer, you should carefully consider the information provided
under the caption "Risk Factors."
How to Contact Us
Our executive offices are located at 4210 Coronado Avenue, Stockton,
California 95204 and our telephone number is (209) 926-3300.
Summary of the Exchange Offer
The Initial Offering of Old Notes
Old Notes................. We sold the old notes on January 29, 1999 to
NationsBanc Montgomery Securities LLC, CIBC
Oppenheimer Corp. and First Union Capital Markets,
a division of Wheat First Securities, Inc. in
accordance with a purchase agreement dated January
27, 1999. These initial purchasers of the notes
subsequently resold the notes to:
(1) qualified institutional buyers in accordance
with Rule 144A under the Securities Act of
1933; and
(2) qualified buyers outside the United States in
reliance upon Regulation S under the Securities
Act of 1933.
Registration Rights
Agreement................ You are entitled to exchange your old notes for new
notes with substantially identical terms. This
exchange offer is intended to satisfy these rights.
The Exchange Offer
The Exchange Offer........
We are offering to exchange $1,000 principal amount
of 13 1/2% Series B senior notes due 2009 of Pac-
West Telecomm, Inc. which have been registered
under the Securities Act of 1933 for each $1,000
principal amount of our outstanding 13 1/2% Series
A senior notes due 2009 which were issued in
January 1999 in a private offering. In order to be
exchanged, an old note must be properly tendered
and accepted prior to the expiration date. All old
notes that are validly tendered and not validly
withdrawn will be exchanged.
As of the date of this prospectus the aggregate
principal amount of old notes outstanding is $150
million.
We will issue new notes on or promptly after the
expiration of this exchange offer.
General................... The form and terms of the new notes are the same as
the form and terms of the old notes which they
replace, except that:
. the new notes bear a Series B designation and
a different CUSIP number from the old notes;
4
<PAGE>
. the new notes have been registered under the
Securities Act of 1933 and, therefore, will
not bear legends restricting their transfer;
and
. the holders of new notes will not be entitled
to certain rights under the registration
rights agreement, including the provisions
providing for an increase in the interest
rate on the old notes in certain
circumstances relating to the timing of this
exchange offer, which rights will terminate
when this exchange offer is consummated. See
"The Exchange Offer--Purpose and Effect of
the Exchange Offer."
The new notes will evidence the same debt as the
old notes and will be entitled to the benefits of
the indentures. See "Description of Notes."
Resales................... We believe that the new notes issued in this
exchange offer may be offered for resale, resold
and otherwise transferred by you without compliance
with the registration and prospectus delivery
provisions of the Securities Act of 1933 provided
that:
. the new notes are being acquired in the
ordinary course of your business;
. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate
in the distribution of the new notes issued
to you in this exchange offer; and
. you are not an affiliate of ours.
If our belief is inaccurate and you transfer any
new notes issued to you in this exchange offer
without delivering a prospectus meeting the
requirements of the Securities Act of 1933 or
without an exemption from registration of your new
notes from such requirements, you may incur
liability under the Securities Act of 1933. We do
not assume or indemnify you against any such
liability.
Each broker-dealer that is issued new notes in this
exchange offer for its own account in exchange for
old notes which were acquired by such broker-dealer
as a result of market-making or other trading
activities, must acknowledge that it will deliver a
prospectus meeting the requirements of the
Securities Act of 1933 in connection with any
resale of the new notes. A broker-dealer may use
this prospectus for an offer to resell, resale or
other retransfer of the new notes issued to it in
this exchange offer.
Record Date............... We mailed this prospectus and the related exchange
offer documents to registered holders of old notes
on , 1999.
Expiration Date........... The exchange offer will expire at 5:00 p.m., New
York City time, , 1999, unless we decide
to extend the expiration date.
5
<PAGE>
Conditions to the This exchange offer is not subject to any condition
Exchange Offer........... other than that this exchange offer not violate
applicable law or any applicable interpretation of
the staff of the SEC.
Untendered Old Notes...... If you are eligible to participate in this exchange
offer and you do not tender your old notes, you
will not have any further registration or exchange
rights and your old notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such
old notes could be adversely affected.
Special Procedures for
Beneficial Owners........
If you are the beneficial owner of book-entry notes
and your name does not appear on a security
position listing of DTC as the holder of such book-
entry notes or if you are a beneficial owner of
notes that are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee and you wish to tender your notes, you
should contact such person in whose name your notes
are registered promptly and instruct that person to
tender on your behalf.
Guaranteed Delivery If you wish to tender your old notes and time will
Procedures............... not permit your required documents to reach the
exchange agent by the expiration date of this
exchange offer, or the procedure for book-entry
transfer cannot be completed on time or
certificates for the old notes cannot be delivered
on time, you may tender your old notes in
accordance with the procedures described in this
prospectus under the heading "The Exchange Offer--
Guaranteed Delivery Procedures."
Withdrawal Rights......... You may withdraw the tender of your old notes at
any time prior to 5:00 p.m., New York City time on
, 1999.
Certain U.S. Federal Tax
Considerations...........
The exchange of old notes for new notes will not be
a taxable event for United States federal income
tax purposes.
Use of Proceeds........... We will not receive any proceeds from the issuance
of new notes in accordance with this exchange
offer. We will pay all of our expenses incident to
this exchange offer.
Exchange Agent............ Norwest Bank Minnesota, N.A., is serving as the
exchange agent in connection with this exchange
offer.
6
<PAGE>
Summary of Terms of the New Notes
The form and terms of the new notes are the same as the form and terms of
the old notes except that the new notes will be registered under the Securities
Act of 1933 and, therefore, will not bear legends restricting their transfer
and will not be entitled to registration under the Securities Act of 1933. The
new notes will evidence the same debt as the old notes, and the same indenture
will govern both the new notes and the old notes.
New Notes.................
Series B 13 1/2% senior notes due 2009 of Pac-West
Telecomm, Inc.
Maturity.................. February 1, 2009
Interest..................
Semi-annually in cash in arrears on February 1 and
August 1, beginning on February 1, 2000.
Interest Reserve Account.. We have purchased and pledged to the trustee, as
security for the benefit of the holders of the
notes, a portfolio of U.S. government securities in
an amount sufficient to provide for payment in full
of the first two scheduled interest payments due
under the notes. We used approximately $19.7
million of the net proceeds of the private offering
of the old notes to acquire the pledged securities.
Optional Redemption....... On or after February 1, 2004, we may redeem some or
all of the notes at any time at the redemption
prices described in the section "Description of
Notes" under the heading "Optional Redemption."
Prior to February 1, 2002, we may redeem up to 35%
of the notes with the proceeds of certain public
offerings of equity in Pac-West at the price listed
in the section "Description of Notes" under the
heading "Optional Redemption."
Ranking................... The notes:
. are our general unsecured obligations;
. rank equal in right of payment with all our
existing and future unsecured senior
indebtedness;
. rank senior in right of payment to all our
future subordinated indebtedness;
. effectively rank junior to all of our secured
indebtedness to the extent of the value of
the assets securing such indebtedness; and
. are effectively subordinated to all
indebtedness, liabilities and other
obligations of our future subsidiaries.
Currently, we have no subsidiaries.
As of March 31, 1999, the notes were subordinated
to approximately $209,000 of our secured
indebtedness.
7
<PAGE>
Certain Covenants......... We will issue the new notes under an indenture with
Norwest Bank Minnesota, N.A., as trustee. The
indenture will, among other things, restrict our
ability to:
. borrow money;
. pay dividends on stock or repurchase stock;
. make investments;
. use assets as security in other transactions;
and
. sell certain assets or merge with or into
other companies.
See "Description of Notes--Certain Covenants."
Mandatory Offer to If we sell certain assets or experience a change of
Repurchase............... control, we must offer to repurchase the notes at
the prices listed in the section "Description of
Notes."
Form of New Notes......... The new notes will be represented by one or more
permanent global securities in bearer form
deposited with Norwest Bank Minnesota, N.A., as
book-entry depositary, for the benefit of DTC. You
will not receive new notes in registered form
unless one of the events set forth under the
heading "Description of Notes--Book-Entry; Delivery
and Form" occurs. Instead, beneficial interests in
the new notes will be shown on, and transfers of
these will be effected only through, records
maintained in book-entry form by DTC with respect
to its participants.
8
<PAGE>
Summary Financial Data
This information was derived from both our audited and unaudited financial
statements and related notes contained elsewhere in this prospectus. The
unaudited financial data at March 31, 1999 and for the three month periods
ended March 31, 1998 and March 31, 1999 include certain adjustments, all of
which are normal recurring adjustments which we consider necessary for a fair
presentation of our results for these periods. The unaudited balance sheet data
as of March 31, 1999 includes the effect of our recapitalization as described
in Note 1 to the audited financial statements included elsewhere in this
prospectus and the private offering of the old notes. The results of our
operations for the three month period ended March 31, 1999 are not necessarily
indicative of the results of operations which we expect for the full 1999
calendar year.
Please read this summary along with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," our audited and unaudited
financial statements with related notes and our unaudited pro forma financial
data with related notes contained elsewhere in this prospectus.
On October 1, 1996, we began operations when our predecessor company
transferred its telephone and answering service divisions to us. As a result,
you have limited comparable historical financial information upon which to base
your evaluation of our past performance and the value of investing in the new
notes.
We recognize reciprocal compensation as revenue only to the extent received
in cash. Pacific Bell and GTE, the two incumbent local exchange carriers with
which we have interconnection agreements, have each refused to pay the portion
of reciprocal compensation which they estimate is the result of inbound calls
terminating to Internet service providers. Pacific Bell and GTE argue that such
calls are not local within the meaning of their interconnection agreements and
therefore assert no reciprocal compensation is due. See note 5 to the audited
financial statements and "Risk Factors--Our right to receive reciprocal
compensation for calls to Internet service providers is currently being
challenged."
Adjusted EBITDA as used in this prospectus represents earnings before
interest, net; income taxes; depreciation and amortization; further adjusted
for the costs of merger and recapitalization; transaction bonuses and
consultant's costs; and extraordinary item. Included in other income (expense),
net, is interest income of $5,000, $90,000, $327,000, $48,000 and $527,000 for
the period from commencement on October 1, 1996 to December 31, 1996, for the
years ended December 31, 1997 and 1998, and for the three month periods ended
March 31, 1998 and 1999, respectively. Although EBITDA is not a measure of
financial performance under generally accepted accounting principles, we
believe it is a common measure used by analysts and investors in evaluating the
capacity of a company to service its obligations, as well as to compare a
company's results with those of similar companies. In addition, EBITDA is a
measure included in the restrictive covenants under our new senior credit
facility.
The terms of the notes do not restrict our discretionary use of funds
depicted by adjusted EBITDA. In addition, we have no intention to pay dividends
to our stockholders. However, we do need to reserve funds to service our
existing and future debt obligations, and, to the extent available, to fund
anticipated capital expenditures of $30 million to $50 million in 1999. Also
see the Statements of Cash Flows in the audited and unaudited financial
statements.
9
<PAGE>
<TABLE>
<CAPTION>
Period from
Commencement on Year Ended Three Month Period Ended
October 1, 1996 December 31, March 31,
to December 31, ---------------- --------------------------
1996 1997 1998 1998 1999
--------------- ------- ------- ----------- --------------
(unaudited) (unaudited)
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues................ $4,232 $29,551 $42,211 $10,252 $ 14,416
Costs and expenses:
Operating costs........ 2,064 12,060 15,344 3,731 4,062
Selling, general and
administrative:
Selling, general and
administrative...... 1,519 7,367 10,779 2,002 4,303
Transaction bonuses
and consultant's
costs (1)........... -- -- 3,798 -- --
Depreciation and
amortization.......... 299 2,204 4,106 845 1,449
------ ------- ------- ------- --------
Income from
operations.......... 350 7,920 8,184 3,674 4,602
Interest expense........ (105) (932) (4,199) (377) (4,050)
Gain on disposal of
answering service
division............... -- 385 -- -- --
Costs of merger and
recapitalization (1)... -- -- (3,004) -- --
Other income (expense),
net.................... (11) 119 330 25 527
------ ------- ------- ------- --------
Income before
provision for income
taxes and
extraordinary item.. 234 7,492 1,311 3,322 1,079
Provision for income
taxes.................. 94 2,997 1,561 1,329 432
------ ------- ------- ------- --------
Income (loss) before
extraordinary item.. 140 4,495 (250) 1,993 647
Extraordinary item--loss
on early extinguishment
of debt, net of income
tax benefit of $278
(1).................... -- -- (417) -- --
------ ------- ------- ------- --------
Net income (loss).... $140 $4,495 $(667) $1,993 $647
====== ======= ======= ======= ========
Other Financial Data:
Reciprocal compensation
withheld............... -- $3,793 $32,591 $5,032 $13,401
Adjusted EBITDA......... 633 10,538 16,091 4,496 6,051
Adjusted EBITDA margin
%...................... 15.0% 35.7% 38.1% 43.9% 42.0%
Capital expenditures.... $3,899 $11,884 $42,466 $1,275 $3,633
Cash provided by (used
in):
Operating activities... 75 5,876 12,033 5,558 4,544
Investing activities... (1,682) (6,619) (42,031) (1,185) (23,329)
Financing activities... 1,549 3,658 41,631 (255) 44,921
Ratio of earnings to
fixed charges (2)...... 2.1x 5.8x 1.2x 6.6x 1.1x
Pro forma ratio of
earnings to fixed
charges (2)............ -- 1.1x
<CAPTION>
March 31, 1999
--------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................................... $ 41,372
Restricted cash (3)................................................. 19,844
Working capital..................................................... 60,053
Property, plant and equipment, net.................................. 59,528
Total assets........................................................ 134,311
Total debt.......................................................... 150,209
Convertible Redeemable Preferred Stock, including accrued cumulative
dividends of $2,466................................................ 47,466
Stockholders' equity (deficit)...................................... (74,608)
</TABLE>
- --------
(1) Transaction bonuses and consultant's costs, costs of merger and
recapitalization and the extraordinary item all relate to our
recapitalization.
(2) For purposes of this computation, earnings are defined as income before
provision for income taxes, extraordinary item and fixed charges, excluding
capitalized interest. Fixed charges are the sum of:
(A) interest costs, including amounts capitalized,
(B) amortization of deferred financing costs, and
(C) the portion of operating lease rental expense that is representative of
the interest factor.
On a proforma basis, earnings were insufficient to cover fixed charges by
$394,000 for the year ended December 31, 1998.
(3) Restricted cash represents cash deposited in an interest reserve trust
account to fund the initial interest payments due under the notes.
10
<PAGE>
RISK FACTORS
Ownership of the old notes or the new notes involves a high degree of risk.
Holders of the old notes should consider carefully the risk factors below, as
well as the other information in this prospectus, before tendering their old
notes in this exchange offer.
Our substantial indebtedness could adversely affect our business and prevent us
from fulfilling our obligations under the notes.
We have a substantial amount of indebtedness and are highly leveraged. On an
unaudited basis, as of March 31, 1999, our borrowings and other long-term
obligations totaled $150,209,000, and we had a stockholders' deficit of
$(74,608,000). We may also incur additional indebtedness in the future to
expand and develop our current business and services and enter new markets. Our
substantial indebtedness could:
. make it more difficult for us to satisfy our obligations with respect to
the notes;
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to fund future working capital, capital expenditures,
marketing costs and other general corporate requirements;
. require us to dedicate a substantial portion of our cash flows from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flows to fund working capital, capital
expenditures, marketing efforts and other general corporate purposes;
. limit our flexibility in planning for or reacting to changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage compared to our less leveraged
competitors; and
. limit our ability to borrow additional funds.
We may not be able to generate sufficient cash to service our indebtedness,
including the notes.
Failure to generate cash in the future either from operations or from
additional financing will adversely affect our ability to make payments on and
to refinance our indebtedness, including the notes, and to fund capital
expenditures and marketing efforts. Our ability to generate cash from
operations will be particularly dependent on our ability to expand our business
and manage our growth, provide competitive services, comply with applicable
governmental regulations and negotiate favorable agreements. In addition, we
may need to refinance all or a portion of our indebtedness, including the
notes, on or before maturity. We may not be able to refinance this indebtedness
on commercially reasonable terms or at all.
We may not have sufficient funds available to expand our business.
We will need to make significant capital expenditures in order to expand and
develop our current business and to enter new markets. We expect to fund these
expenditures through existing resources, through internally generated funds,
and through equity and debt financings. If we are unable to raise sufficient
funds, we may have to delay or abandon some of our expenditures or plans for
future expansion. This would result in underutilization of our established
infrastructure and reduced profitability and may negatively affect our ability
to compete for and satisfy the demands resulting from the growth and expansion
of our customers.
Failure to continue our expansion may adversely affect our financial condition.
Our failure to expand our business in order to satisfy the growing needs of
our customers, to achieve economies of scale and to benefit from the
infrastructure we have established would adversely affect our business
prospects, our financial condition and ability to meet our obligations under
the notes. This could result from our inability to:
.assess potential markets;
.obtain required governmental authorizations, franchises, and permits;
11
<PAGE>
.implement interconnection and collocation arrangements with incumbent local
exchange carriers;
.lease adequate transmission capacity from inter-exchange carriers,
incumbent local exchange carriers and competitive local exchange carriers;
.purchase and install switches in additional markets; and
.develop a sufficient customer base.
We may not be able to manage our growth, which could adversely affect our
business.
Future expansion will place significant additional strains on our personnel,
financial and other resources. The failure to efficiently manage our growth
could adversely affect the quality of our services, our business and our
financial condition. Our ability to manage our growth will be particularly
dependent on our ability to develop and retain an effective sales force and
qualified technical personnel. The competition for qualified managers and
technical personnel in the telecommunications industry is intense, and we may
not be able to hire and retain sufficient qualified personnel. In addition, we
may not be able to maintain the quality of our operations, to control our
costs, to maintain compliance with all applicable regulations, and to expand
our internal management, technical, information and accounting systems in order
to support our desired growth.
We may not be able to comply in a cost-effective manner with current or future
regulations.
Our provision of telecommunications services is heavily regulated at the
federal, state, and local levels. Compliance with these regulations impose
substantial costs on us and restricts our ability to conduct our business. For
example, in each state in which we desire to offer our services, we must obtain
prior authorization from the appropriate state authorities. If we experience
delays in obtaining required approvals or fail to comply with regulatory
requirements, our business and our financial condition could be adversely
affected. In addition, regulatory requirements may change with little notice,
which would adversely affect our business.
A failure to establish interconnection agreements on favorable terms would
adversely affect our business.
We must interconnect with incumbent local exchange carriers in order to
service our customers. The Telecommunications Act of 1996 mandates that
incumbent local exchange carriers interconnect with companies like ours to
provide us with individual network services components, such as origination,
termination and other services. However, it does not assure the time frame in
which those services will be offered to us or assure that we will be able to
purchase those services at rates and on terms and conditions that allow us to
remain competitive and profitable. If we have difficulties obtaining high
quality, reliable and reasonably priced services from the incumbent local
exchange carriers, our services will be less attractive to customers and our
business will be adversely affected. Our primary interconnection agreements are
with Pacific Bell and GTE. Our interconnection agreement with GTE has expired,
but will remain in force until a replacement agreement is finalized. In
addition, we will need new interconnection agreements in each new market we
enter. We cannot be certain that we will be able to enter into replacement or
new interconnection agreements on favorable terms. See "Business--Regulatory
Proceedings--Interconnection Agreements."
We may not be entitled to receive reciprocal compensation for calls to Internet
service providers.
Two incumbent local exchange carriers with which we have interconnection
agreements, Pacific Bell and GTE, have refused to pay that portion of
compensation under the agreement that they estimate is the result of inbound
calls terminating to Internet service providers, and the obligation to pay this
reciprocal compensation is currently under review by both state and federal
regulators. If it is ultimately determined that we are not entitled to receive
reciprocal compensation for calls to Internet service providers, our business
and financial condition could be adversely affected. The total reciprocal
compensation withheld by these incumbent local exchange carriers and not
included in revenues was $3.8 million, $32.6 million and $13.4 million for the
years
12
<PAGE>
ended December 31, 1997 and 1998 and for the three month period ended March 31,
1999, respectively. On June 24, 1999, the California Public Utilities
Commission determined that reciprocal compensation would be payable for
Internet service provider calls under our new interconnection agreement with
Pacific Bell, but did not determine whether Pacific Bell owes reciprocal
compensation withheld under the prior agreement. Pacific Bell has requested a
rehearing of this matter. See "Business--Regulatory Proceedings--Jurisdiction
over and Compensation for Internet Service Provider Traffic."
We may not be able to compete effectively against the incumbent local exchange
carrier, which has a vested interest in making it difficult for us to service
customers.
In each of our target markets, we will be competing principally with the
incumbent local exchange carrier serving that area. The incumbent local
exchange carriers are well-established providers of local telephone services
with most of the telephone subscribers within their respective service areas.
In addition, incumbent local exchange carriers also have long-standing
relationships with regulatory authorities at the federal and state levels.
Incumbent local exchange carriers also have increased pricing flexibility
for their private line and special access and switched access services. The FCC
also has proposed a rule that would give these carriers additional pricing
flexibility and deregulate competitive access services, as opposed to local
exchange services, either automatically or after certain competitive levels are
reached. Such a rule could allow them to offer discounts to large customers
through contract tariffs, engage in aggressive volume and term discount pricing
practices for their customers, and/or charge competitors excessive fees for
interconnection to their networks.
We may not be able to overcome these advantages and compete successfully
with the incumbent local exchange carriers.
We may not be able to compete effectively in providing local exchange service.
We face competition from long distance carriers, such as AT&T, MCI WorldCom
and Sprint, seeking to enter, reenter or expand entry into the local exchange
marketplace. In addition, we face competition from other competitive local
exchange carriers, resellers, cable television companies, electric utilities,
microwave carriers, wireless telephone system operators and private networks
built by large end users. This places downward pressure on prices, which may
make it difficult for us to provide these services profitably, and we may not
be able to compete effectively with these companies.
We may not be able to compete effectively in providing long distance service.
We face intense competition from long distance carriers in the provision of
long distance services, which places downward pressure on prices for long
distance service and may make it difficult for us to provide these services
profitably. Although the long distance market is dominated by three major
competitors, AT&T, MCI WorldCom and Sprint, hundreds of other companies also
compete in the long distance marketplace. We may not be able to effectively
compete with these industry participants.
We may not be able to compete effectively with the Bell operating companies if
they are permitted to enter the long distance service market.
Federal law currently prohibits regional Bell operating companies, including
Pacific Bell and Nevada Bell, from engaging in local calling areas long
distance telephone service. However, this restriction may be removed by the FCC
if the regional Bell operating companies meet certain specified conditions and
the FCC determines that it is in the public interest. If the regional Bell
operating companies obtain permission to provide these services, or if they are
able to enter into teaming agreements with others to circumvent these
restrictions, our business could be adversely affected. It would remove the
major incentive regional Bell operating companies
13
<PAGE>
have to cooperate with companies like ours to foster competition within their
service areas, and it would permit them to offer both long distance and local
exchange services, a competitive advantage which only companies such as Pac-
West currently are able to offer. See "Business--Regulation."
Our competition may have superior resources, placing us at a cost and price
disadvantage.
Many of our current and potential competitors have financial, personnel and
other resources, including brand name recognition, substantially greater than
those of Pac-West. As a result, some of our competitors can raise capital at a
lower cost than we can. Also, our competitors' greater name recognition may
provide them with a competitive advantage in marketing their services. Finally,
our competitors' cost advantages give them the ability to reduce their prices
for an extended period of time if they so choose. We may not be able to compete
effectively with these companies.
We may not be able to obtain or retain our key Internet service provider
customers, which account for a significant portion of our revenues.
For the three months ended March 31, 1999, nine of our fifteen largest
customers in terms of revenues are Internet service providers. As a result, a
significant reduction in usage by one or more of our key Internet service
providers or a general decrease in Internet service provider traffic could
result in a material decrease in our revenues for a given period. We believe
that our success in the foreseeable future will depend in large part on our
ability to develop and maintain a large Internet service provider customer
base. The competition for Internet service provider customers in the
telecommunications industry, however, is intense, and we expect it will
continue to increase. We may not be able to increase or maintain our Internet
service provider customer base.
The technologies that we use may become obsolete, which would limit our ability
to compete effectively.
The telecommunications industry is subject to rapid and significant changes
in technology. If we do not replace or upgrade our technology and equipment
that becomes obsolete, we will not be able to compete effectively because we
will not be able to meet customer expectations.
The development of competing technologies, such as integrated services
digital network lines, cable modems, T-1 circuits and digital subscriber lines,
which provide significantly faster data transfer rates than the fastest current
dial-up modems, may give companies that provide these services a competitive
advantage. Further, if we attempt to incorporate new technologies or products
into our systems, those new technologies and products may not be compatible
with our existing technologies and services. We may not be able to obtain
timely access to new technology on satisfactory terms or incorporate new
technology into our systems in a cost effective manner or at all.
The loss of key executive officers could negatively impact our business
prospects.
We believe that a critical component of our success will be the retention of
our key executive officers. Mr. Wallace W. Griffin, our Chief Executive
Officer, has particular expertise in the telecommunications industry and has
been instrumental in establishing and executing our business plan and strategy.
Mr. John K. La Rue, our Executive Vice President--Technology and Network
Operations, and Mr. Jason R. Mills, our Vice President--Network Operations,
have a unique understanding of our network and have been instrumental in its
development. The loss of the services of one or more of these individuals or
our other executive officers, including Mr. Richard E. Bryson, Mr. Brian K.
Johnson and Mr. Dennis V. Meyer, could adversely affect our ability to manage
our business and our business prospects.
Our inability to predict our need for resold long distance services could
subject us to various charges or penalties.
We offer long distance services to our customers as part of our strategy to
provide one-stop integrated services. We rely on long distance carriers to
provide transmission and termination services for some of our
14
<PAGE>
long distance traffic through resale arrangements. Such arrangements typically
provide for the resale of long distance services on a per-minute basis and may
contain minimum volume commitments. These agreements are based on estimates of
future supply and demand for transmission capacity based on calling patterns
and traffic levels of our future customers. If we do not accurately predict our
long distance service needs, we may have to pay underutilization charges or
seek additional capacity through more expensive alternative means.
Our inability to obtain sufficient leased transport capacity could seriously
limit our operations.
We currently lease transport capacity from various third-party carriers to
connect our switches to the incumbent local exchange carriers. If we cannot
lease sufficient transport capacity, our operations could be limited or we
could be forced to make additional unexpected up-front capital expenditures to
install our own transport capacity. This could adversely affect our business
and our financial condition. See "Business--Network."
A system failure could delay or interrupt our services.
Our operations are dependant upon our ability to support our highly complex
network infrastructure. Many of our customers are particularly dependent on an
uninterrupted supply of services. Any damage or failure that causes
interruptions in our operations could result in the loss of these customers and
could have a material adverse effect on our business and our financial
condition. Because of the nature of the services we supply and the complexity
of our network, it is not feasible to maintain backup systems, and the
occurrence of a natural disaster, operational disruption or other unanticipated
problem could cause interruptions in the services we provide. Additionally, the
failure of a major supplier to provide the communications capacity we require,
or of a major customer to continue buying our goods and services, as a result
of a natural disaster, operational disruption or any other reason, could cause
interruptions in the service we provide.
We may face additional costs or a system failure due to Year 2000 issues.
The Year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. As a
result, many companies' software and computer systems may need to be upgraded
or replaced in order to comply with Year 2000 requirements. We believe that all
of our systems other than our long distance billing system and one of our
accounting systems are Year 2000 compliant. We have not yet completed our
review of our noncomputer systems for Year 2000 issues relating to embedded
microprocessors. To the extent that any Year 2000 issues exist, a system
failure may result and we may incur significant additional costs to replace or
upgrade noncompliant systems. We have not developed a formal disaster recovery
plan to recover data that may be affected by Year 2000 issues.
Many of our customers and suppliers, particularly the incumbent local
exchange carriers and long distance carriers, could be impacted by the Year
2000 issue, which in turn could affect us. We utilize third-party equipment and
software and interact with incumbent local exchange carriers, major suppliers
and major customers that each have equipment and software that may not be Year
2000 compliant. Failure of such third-party or incumbent local exchange carrier
equipment or software to operate properly with regard to the year 2000 and
thereafter could require us to incur unanticipated expenses to remedy any
problems which could have a material adverse effect on our business and our
ability to meet our obligations under the notes.
Furthermore, the purchasing patterns of our major customers may be affected
by Year 2000 issues as companies expend significant resources to correct their
current systems for Year 2000 compliance. These expenditures may result in
reduced funds available for our services, which could have a material adverse
effect on our business and our ability to meet our obligations under the notes.
We are assessing the compliance efforts of our major customers and suppliers.
If the systems of certain of our customers and suppliers, particularly the
incumbent local exchange carriers, long distance carriers and others on whose
services we depend or with
15
<PAGE>
whom our systems interface, are not Year 2000 compliant, it would have a
material adverse effect on us. We have not developed, nor is it feasible to
develop, a contingency plan to address the above scenario. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Issues."
Delays in implementing a new billing and operations support system could
adversely affect our business.
Our existing billing system is not adequate to meet our expected future
needs and is not Year 2000 compliant. Further, to improve our operating
processes and to meet expected growth, we will need to install an operations
support system. We are currently in the process of implementing both of these
systems. The failure to implement these systems on a timely basis could result
in erroneous billings as a result of Year 2000 issues or the inability to
correctly process data, such as changes in taxes. Our expansion into new states
could be delayed or limited as a result of capacity limitations and new product
or service introductions may be delayed. Any of these events could have a
material adverse affect on our business and on our financial condition.
Because the notes are unsecured, you may not be fully repaid if we become
insolvent.
The new notes will not be secured by any of our assets. Therefore, you may
not be fully repaid if we become insolvent. Moreover, the indenture relating to
the notes permits us to incur secured debt. If we were to incur secured debt
and we become insolvent, the holders of the secured debt would receive payments
from the assets used as security before you receive payments.
The covenants in our new senior credit facility could adversely affect the
operation of our business.
Our new senior credit facility contains provisions which limit our
management's discretion by restricting our ability to:
. incur additional debt;
. pay dividends and make other distributions;
. prepay subordinated debt;
. make investments and other restricted payments;
. enter into sale and leaseback transactions;
. create liens;
. sell assets; and
. enter into certain transactions with affiliates.
In addition, the new senior credit facility requires us to meet certain
financial ratios.
If we fail to comply with the restrictions of the new senior credit facility
or any other subsequent financing agreements, a default may occur. This default
may allow the creditors to accelerate the related debt as well as any other
debt to which a cross-acceleration or cross-default provision applies. In
addition, the lenders may be able to terminate any commitments they had made to
supply us with further funds. See "Description of Indebtedness."
We are majority owned by equity investors and their interests may conflict with
your interests.
As of March 31, 1999, Safeguard 98 Capital, L.P., SCP Private Equity
Partners, L.P., TL Ventures III L.P., EnerTech Capital Partners, L.P. and
William Blair Capital Partners, L.L.C. collectively own approximately 63.5% of
our common stock. Some of our directors are affiliated with these investors.
Jerry L. Johnson is an officer of Safeguard Scientific, the parent of Safeguard
Delaware, Inc., the general partner of Safeguard 98 Capital, L.P.; David G.
Chandler is a managing director of William Blair Capital Partners; Mark
16
<PAGE>
J. DeNino is managing director of TL Ventures III; and Samual A. Plum is a
general partner of SCP Private Equity Partners. In addition, Bruce A. Westphal,
one of our directors, is the Chairman of Bay Alarm Company, the owner of
approximately 21.6% of our common stock. These investors may significantly
influence and ultimately make decisions that are adverse to your interests. For
example, these investors may want to pursue acquisitions, divestitures, or
other transactions which they believe could increase the value of their equity
investment in Pac-West, which may increase the financial risk to note holders.
In addition to their Pac-West investment, some of these investors have invested
significantly in other telecommunications companies, Internet service
providers, and related businesses, and they or their affiliates may make
further similar investments in the future. Through these investments, these
investors may develop relationships with businesses which are competitive with
us. These relationships may lead to conflicts involving arrangements between
Pac-West and the investors' other holdings. These investors are under no
obligation to bring any investment or business opportunities of which they are
aware to Pac-West, even if the opportunity is directly within the scope of our
business operations. See "Certain Relationships and Related Transactions" and
"Principal Shareholders."
Our rapid growth and limited comparable historical financial information
regarding our current operations may make it difficult for you to completely
evaluate us.
On September 30, 1996, our predecessor transferred its telephone and
answering service divisions to us. Before that time, we did not conduct any
operations and, since that time, we have disposed of the answering service
division and have focused our business strategy on operating as a competitive
local exchange carrier. Due to significant changes in our operations since
September 30, 1996, we believe that the financial information of the
predecessor telephone and answering service divisions is not directly
comparable to our results of operations. In addition, since September 30, 1996,
we have had rapid growth and our industry has undergone substantial change. As
a result you have limited comparable historical financial information on which
to base your evaluation of us and this information may not be indicative of
future results.
Variability of quarterly operating results could result in fluctuations in the
trading price of the notes.
Our quarterly operating results have fluctuated, and will continue to
fluctuate, significantly from period to period depending upon such factors as
the success of our efforts to expand our customer base, changes in and the
timing of expenditures relating to the continued expansion of our network, the
level of reciprocal compensation received, the development of new services, the
success of our sales and marketing efforts, changes in pricing policies by us
and by our competitors, factors relating to our acquisition strategy and
certain other factors. As a result, it is likely that in some future quarters
our operating results will be below the expectations of investors and
securities analysts. If this happens, the trading price of the notes could
decline. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations--Quarterly Results."
A decrease in a significant stockholder's holdings could result in a loss of
revenue generated by business from that stockholder.
Prior to our recapitalization, Bay Alarm Company held approximately 78.0% of
our common stock. As a result of our recapitalization, Bay Alarm reduced its
interest in Pac-West to 21.7% of our common stock and 22.8% of our outstanding
convertible redeemable preferred stock. Our sales to Bay Alarm Company and its
subsidiary, InReach Internet LLC, collectively accounted for approximately
7.1%, 6.4% and 4.5% of our revenues for the years ended December 31, 1997 and
1998 and for the three month period ended March 31, 1999, respectively. The
reduction in Bay Alarm's holdings in Pac-West may make it and its affiliates
less likely to purchase goods and services from Pac-West in the future, which
could have an adverse affect on our results of operations. See "Certain
Relationships and Related Transactions" and "Principal Shareholders."
17
<PAGE>
If we have a change of control, we may be unable to purchase all of the notes
you hold, even if they are validly tendered.
If a change of control occurs, we must offer to buy back all of the
outstanding notes for a price equal to 101% of the notes' principal amount,
plus any interest which has accrued and remains unpaid as of the repurchase
date. In that event, we may not have sufficient funds available to pay the
purchase price for all of the notes tendered by holders seeking to accept our
offer to purchase. In addition, our new senior credit facility prohibits us
from repurchasing the notes after a change of control until we first repay our
debt under the new senior credit facility in full. If we fail to repurchase the
notes in that circumstance, there will be defaults under both the notes and the
new senior credit facility. See "Description of Notes--Repurchase of the Option
of Holders--Change of Control" and "Description of Indebtedness."
A court may determine that our recapitalization and the issuance of the notes
resulted in a fraudulent conveyance, permitting cancellation or subordination
of the notes or requiring the return of payments on the notes.
If a bankruptcy case or lawsuit is initiated by unpaid creditors of
Pac-West, the debt represented by the notes may be reviewed under the federal
bankruptcy law and comparable provisions of state fraudulent transfer laws. If
a court determines that our recapitalization and the issuance of the notes
resulted in a fraudulent conveyance, the notes could be canceled or made
subordinate to all of our other debt, and any payments made by us on the notes
could be required to be returned. The circumstances under which a court could
determine that a fraudulent conveyance had occurred are limited, and we do not
believe they existed when the notes were issued. See "Description of Notes--
Fraudulent Conveyance Matters" for additional information regarding fraudulent
conveyances.
Forward-looking statements may prove to be inaccurate.
Some of the statements contained in this prospectus are forward-looking. The
words "believe," "expect," "anticipate," "estimate," "plan," "future," and
other similar expressions generally identify forward-looking statements. They
include statements concerning:
. debt levels and ability to obtain financing and service debt;
. liquidity and capital expenditures;
. growth strategy;
. acquisition activities;
. regulatory matters affecting the telecommunications industry;
. reciprocal compensation for Internet access services;
. competitive conditions in the telecommunications industry;
. projected growth of the telecommunications industry;
. general economic conditions; and
. year 2000 issues.
Actual results may differ materially from those suggested by the forward-
looking statements for various reasons, including those discussed in this
section.
18
<PAGE>
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
We originally sold the old notes on January 29, 1999 to the initial
purchasers of the notes in accordance with the purchase agreement. The initial
purchasers of the notes subsequently placed the old notes with:
(1) qualified institutional buyers in reliance on Rule 144A under the
Securities Act of 1933; and
(2) qualified buyers outside the United States in reliance upon
Registration S under the Securities Act of 1933.
As a condition of the purchase agreements, we entered into the registration
rights agreement. The registration rights agreement provides that:
(1) we will file an exchange offer registration statement with the SEC on
or prior to 90 days after the closing date;
(2) we will use our best efforts to have this exchange offer registration
statement declared effective by the SEC on or prior to 180 days after
the closing date;
(3) unless this exchange offer would not be permitted by applicable law or
SEC policy, we will commence this exchange offer and use our best
efforts to issue on or prior to 30 business days after the date on
which this exchange offer registration statement was declared effective
by the SEC, new notes in exchange for all notes tendered prior to the
expiration of this exchange offer; and
(4) if obligated to file a shelf registration statement to register the old
notes, we will use our reasonable best efforts to file the shelf
registration statement with the SEC on or prior to 30 days after such
filing obligation arises and to cause the shelf registration statement
to be declared effective by the SEC on or prior to 120 days after the
obligation arises.
For each old note surrendered to us in accordance with this exchange offer,
the holder of the old note will receive a new note having a principal amount
equal to that of the surrendered note. Interest on each old note will accrue
from the last interest payment date on which interest was paid on the old note
surrendered or, if no interest has been paid on such old note, from the date of
its original issue. Interest on each new note will accrue from the date of its
original issue.
Under existing interpretations of the staff of the SEC contained in several
no-action letters to third parties, the new notes will in general be freely
tradeable after this exchange offer without further registration under the
Securities Act of 1933. However, any purchaser of old notes who is our
affiliate or who intends to participate in this exchange offer for the purpose
of distributing the new notes:
(1) will not be able to rely on the interpretation of the staff of the SEC;
(2) will not be able to tender its old notes in this exchange offer; and
(3) must comply with the registration and prospectus delivery requirements
of the Securities Act of 1933 in connection with any sale or transfer
of the new notes, unless such sale or transfer is made in accordance
with an exemption from those requirements.
As contemplated by these no-action letters and the registration rights
agreement, each holder accepting this exchange offer is required to represent
to us in the letter of transmittal or agent's message that:
(1) the new notes are to be acquired by the holder or the person receiving
the new notes, whether or not that person is the holder, in the
ordinary course of business;
(2) the holder or the other person, other than a broker-dealer, is not
engaging and does not intend to engage, in a distribution of the new
notes;
(3) the holder or the other person has no arrangement or understanding with
any person to participate in the distribution of the new notes;
(4) neither the holder nor the other person is our affiliate within the
meaning of Rule 405 under the Securities Act of 1933; and
19
<PAGE>
(5) the holder or the other person acknowledges that if the holder or the
other person participates in this exchange offer for the purpose of
distributing the new notes it must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933 in
connection with any resale of the new notes and cannot rely on those
no-action letters.
An agent's message is a message, transmitted by a book-entry transfer
facility to, and received by, the exchange agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in the
book-entry transfer facility tendering the old notes that such participant has
received and agrees:
(1) to participate in the automated tender option program;
(2) to be bound by the terms of the letter of transmittal; and
(3) that we may enforce such agreement against such participant.
As indicated above, each participating broker-dealer that receives a new
note for its own account in exchange for old notes must acknowledge that it:
(A) acquired the old notes for its own account as a result of market-making
activities or other trading activities;
(B) has not entered into any arrangement or understanding with us or any of
our affiliates, within the meaning of Rule 405 under the Securities Act
of 1933, to distribute the new notes to be received in this exchange
offer; and
(C) will deliver a prospectus meeting the requirements of the Securities
Act of 1933 in connection with any resale of such new notes. For a
description of the procedures for resales by Participant Broker-
Dealers, see "Plan of Distribution."
In the event that changes in the law or the applicable interpretations of
the staff of the SEC do not permit us to effect an exchange offer, or if for
any other reason we do not meet the time periods set forth in the second
paragraph of this section, we will:
(1) file the shelf registration statement covering resales of the old
notes;
(2) use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act of 1933;
and
(3) use our reasonable best efforts to keep effective the shelf
registration statement until January 29, 2001.
We will, in the event of the filing of the shelf registration statement,
provide to each applicable holder of the old notes copies of the prospectus
which is a part of the shelf registration statement, notify each holder when
the shelf registration statement has become effective and take certain other
actions as are required to permit unrestricted resale of the old notes. A
holder of the old notes that sells old notes in accordance with the shelf
registration statements generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers. The holder will also be subject to certain of the civil liability
provisions under the Securities Act of 1933 in connection with sales and will
be bound by the provisions of the registration rights agreement which are
applicable to a holder, including certain indemnification obligations. In
addition, each holder of the old notes will be required to deliver information
to be used in connection with the shelf registration statement and to provide
comments on the shelf registration statement within the time periods set forth
in the registration rights agreement in order to have its old notes included in
the shelf registration statement and to benefit from the provisions set forth
in the following paragraph.
If there is a registration default because:
(a) we fail to file any of the registration statements required by the
registration rights agreement on or before the date specified for such
filing;
20
<PAGE>
(b) any of such registration statements is not declared effective by the
SEC on or prior to the target date specified for such effectiveness; or
(c) we fail to consummate this exchange offer within 30 business days of
the effectiveness target date with respect to this exchange offer
registration statement; or
(d) the shelf registration statement or this exchange offer registration
statement is declared effective but thereafter ceases to be effective
or usable for its intended purpose during the periods specified in the
registration rights agreement,
then we will pay additional interest, to each holder of notes, with respect to
the first 90-day period immediately following the occurrence of the first
registration default in an amount equal to $.05 per week per $1,000 principal
amount of notes held by such holder. The amount of the additional interest will
increase by an additional $.05 per week per $1,000 principal amount of notes
with respect to each subsequent 90-day period until all registration defaults
have been cured, up to a maximum amount of additional interest, if any, for all
registration defaults of $.50 per week per $1,000 principal amount of notes. We
will pay all accrued additional interest on each interest payment date to the
global note holder by wire transfer of immediately available funds or by
federal funds check and to holders of certificated securities by wire transfer
to the accounts specified by them or by mailing checks to their registered
addresses if no such accounts have been specified. Following the cure of all
registration defaults, the accrual of additional interest will cease.
Following the consummation of this exchange offer, holders of the old notes
who were eligible to participate in this exchange offer but who did not tender
its old notes will not have any further registration rights and such old notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such old notes could be adversely affected.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all old notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
expiration date. We will issue $1,000 principal amount of new notes in exchange
for each $1,000 principal amount of outstanding old notes accepted in this
exchange offer. Holders may tender some or all of their old notes in accordance
with this exchange offer. However, old notes may be tendered only in integral
multiples of $1,000.
The form and terms of the new notes are the same as the form and terms of
the old notes except that:
(1) the new notes bear a Series B designation and a different CUSIP number
from the old notes;
(2) the new notes have been registered under the Securities Act of 1933 and
hence will not bear legends restricting the transfer thereof; and
(3) the holders of the new notes will not be entitled to certain rights
under the registration rights agreement, including the provisions
providing for an increase in the interest rate on the old notes in
certain circumstances relating to the timing of this exchange offer,
all of which rights will terminate when this exchange offer is
terminated.
The new notes will evidence the same debt as the old notes and will be
entitled to the benefits of the indenture.
As of the date of this prospectus, $150,000,000 aggregate principal amount
of the old notes were outstanding. We have fixed the close of business on
, 1999 as the record date for this exchange offer for purposes of
determining the persons to whom this prospectus and the letter of transmittal
will be mailed initially.
Holders of old notes do not have any appraisal or dissenters' rights under
the General Corporation Law of California, or the indenture in connection with
this exchange offer. We intend to conduct this exchange offer in
21
<PAGE>
accordance with the applicable requirements of the Securities Exchange Act of
1934 and the related rules and regulations of the SEC.
We will be deemed to have accepted validly tendered old notes when, as and
if we have given oral or written notice thereof to the exchange agent. The
exchange agent will act as agent for the tendering holders for the purpose of
receiving the new notes from us.
If any tendered old notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth in this
prospectus or otherwise, the certificates for any such unaccepted old notes
will be returned, without expense, to the tendering holder thereof as promptly
as practicable after the expiration date of this exchange offer.
Holders who tender old notes in this exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes in
accordance with this exchange offer. We will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with this
exchange offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The expiration date is 5:00 p.m., New York City time, on , 1999,
unless we extend this exchange offer, in which case the expiration date will be
the latest date and time to which this exchange offer is extended.
In order to extend this exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will mail to the registered holders
an announcement thereof, each prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date.
We reserve the right to:
(1) delay accepting any old notes, to extend this exchange offer or to
terminate this exchange offer if any of the conditions set forth below
under "--Conditions" will not have been satisfied, by giving oral or
written notice of such delay, extension or termination to the exchange
agent, or
(2) amend the terms of this exchange offer in any manner. Any such delay
in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof to the
registered holders.
Interest on the New Notes
The new notes will bear interest from their date of issuance. Holders of old
notes that are accepted for exchange will receive, in cash, accrued interest
thereon to, but not including, the date of issuance of the new notes. Such
interest will be paid with the first interest payment on the new notes on
February 1, 2000. Interest on the old notes accepted for exchange will cease to
accrue upon issuance of the new notes.
Interest on the new notes is payable semi-annually in arrears on each
February 1 and August 1, beginning on February 1, 2000.
Procedures for Tendering
Only a holder of old notes may tender such old notes in this exchange offer.
To tender in this exchange offer, a holder must complete, sign and date the
letter of transmittal, or a facsimile thereof, have the signatures on the
letter of transmittal guaranteed if required by the letter of transmittal or
transmit an agent's message in connection with a book-entry transfer, and mail
or otherwise deliver the letter of transmittal or the facsimile, together with
the old notes and any other required documents, to the exchange agent prior to
5:00 p.m., New York City time, on the expiration date. To be tendered
effectively, the old notes, letter of transmittal or an
22
<PAGE>
agent's message and other required documents must be completed and received by
the exchange agent at the address set forth below under "Exchange Agent" prior
to 5:00 p.m., New York City time, on the expiration date. Delivery of the old
notes may be made by book-entry transfer in accordance with the procedures
described below. Confirmation of the book-entry transfer must be received by
the exchange agent prior to the expiration date.
By executing the letter of transmittal, each holder will make to us the
representations set forth above in the fifth paragraph under the heading "--
Purpose and Effect of the Exchange Offer."
The tender by a holder and our acceptance thereof will constitute agreement
between the holder and us in accordance with the terms and subject to the
conditions set forth in this prospectus and in the letter of transmittal or
agent's message.
The method of delivery of old notes and the letter of transmittal or agent's
message and all other required documents to the exchange agent is at the
election and sole risk of the holder. As an alternative to delivery by mail,
holders may wish to consider overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure delivery to the exchange agent
before the expiration date. No letter of transmittal or old notes should be
sent to us. Holders may request their respective brokers, dealers, commercial
banks, trust companies or nominees to effect the above transactions for such
holders.
Any beneficial owner whose old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the letter of transmittal.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an eligible institution unless the old notes
tendered pursuant thereto are tendered:
(1) by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
(2) for the account of an eligible institution. In the event that
signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be by
an eligible institution.
In order for an institution to be eligible, it must be a member firm of the
Medallion System.
If the letter of transmittal is signed by a person other than the registered
holder of any old notes listed in this prospectus, such old notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such old notes
with the signature thereon guaranteed by an eligible institution.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to us of its
authority to so act must be submitted with the letter of transmittal.
We understand that the exchange agent will make a request promptly after the
date of this prospectus to establish accounts with respect to the old notes at
the book-entry transfer facility, DTC, for the purpose of facilitating this
exchange offer, and subject to the establishment thereof, any financial
institution that is a participant in DTC's system may make book-entry delivery
of old notes by causing DTC to transfer such old notes into the exchange
agent's account with respect to the old notes in accordance with DTC's
procedures for such transfer. Although delivery of the old notes may be
effected through book-entry transfer into the exchange agent's account at DTC,
unless an agent's message is received by the exchange agent in compliance
23
<PAGE>
with the automated tender option program, an appropriate letter of transmittal
properly completed and duly executed with any required signature guarantee and
all other required documents must in each case be transmitted to and received
or confirmed by the exchange agent at its address set forth below on or prior
to the expiration date, or, if the guaranteed delivery procedures described
below are complied with, within the time period provided under the guaranteed
delivery procedures. Delivery of documents to DTC does not constitute delivery
to the exchange agent.
All questions as to the validity, form, eligibility, time of receipt,
acceptance of tendered old notes and withdrawal of tendered old notes will be
determined by us in our reasonable discretion, which determination will be
final and binding. We reserve the absolute right to reject any and all old
notes not properly tendered or any old notes our acceptance of which would, in
the opinion of our counsel, be unlawful. We also reserve the absolute right to
waive any defects, irregularities or conditions of tender as to particular old
notes. Our interpretation of the terms and conditions of this exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old notes must be cured within such time as we
determine. Although we intend to notify holders of defects or irregularities
with respect to tenders of old notes, neither we, the exchange agent nor any
other person will incur any liability for failure to give such notification.
Tenders of old notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any old notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the exchange
agent to the tendering holders, unless otherwise provided in the letter of
transmittal, as soon as practicable following the expiration date of this
exchange offer.
Guaranteed Delivery Procedures
Holders who wish to tender their old notes and:
(1) whose old notes are not immediately available;
(2) who cannot deliver their old notes, the letter of transmittal or any
other required documents to the exchange agent; or
(3) who cannot complete the procedures for book-entry transfer, prior to
the expiration date of this exchange offer,
may effect a tender if:
(A) the tender is made through an eligible institution;
(B) prior to the expiration date, the exchange agent receives from the
eligible institution a properly completed and duly executed notice of
guaranteed delivery, by facsimile transmission, mail or hand delivery.
A form of such notice accompanies this prospectus. The notice must set
forth the name and address of the holder, the certificate number(s) of
the old notes and the principal amount of old notes tendered. The
notice must state that the tender is being made thereby and must
guarantee that, within three New York Stock Exchange trading days after
the expiration date, the letter of transmittal or facsimile thereof
together with the certificate(s) representing the old notes, or a
confirmation of book-entry transfer of such old notes into the exchange
agent's account at DTC, and any other documents required by the letter
of transmittal will be deposited by the eligible institution with the
exchange agent; and
(C) such properly completed and executed letter of transmittal, or
facsimile thereof, as well as the certificate(s) representing all
tendered old notes in proper form for transfer, or a confirmation of
book-entry transfer of the old notes into the exchange agent's account
at DTC, and all other documents required by the letter of transmittal
are received by the exchange agent upon five New York Stock Exchange
trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
24
<PAGE>
Withdrawal of Tenders
Except as otherwise provided in this prospectus, tenders of old notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date.
To withdraw a tender of old notes in this exchange offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
exchange agent at its address set forth in this prospectus prior to 5:00 p.m.,
New York City time, on the expiration date. Any such notice of withdrawal must:
(1) specify the name of the person or entity having deposited the old notes
to be withdrawn;
(2) identify the old notes to be withdrawn, including the certificate
number(s) and principal amount of the old notes, or, in the case of old
notes transferred by book-entry transfer, the name and number of the
account at DTC to be credited;
(3) be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the old notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee with respect to
the old notes register the transfer of the old notes into the name of
the person withdrawing the tender; and
(4) specify the name in which any the old notes are to be registered, if
different from that of the depositor.
We will determine all questions as to the validity, form, eligibility and time
of receipt of withdrawal notices and our determination will be final and
binding on all parties. Any old notes so withdrawn will be deemed not to have
been validly tendered for purposes of this exchange offer and no new notes will
be issued with respect thereto unless the old notes withdrawn are validly
retendered. Any old notes which have been tendered but which are not accepted
for exchange will be returned to the holder thereof without cost to the holder
as soon as practicable after withdrawal, rejection of tender or termination of
this exchange offer. Properly withdrawn old notes may be retendered by
following one of the procedures described above under "--Procedures for
Tendering" at any time prior to the expiration date.
Conditions
Notwithstanding any other term of this exchange offer, we will not be
required to accept for exchange, or issue new notes for, any old notes, and may
terminate or amend this exchange offer as provided in this prospectus prior to
the expiration date of the exchange offer if:
(1) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to this exchange offer
which we believe might materially impair our ability to proceed with
this exchange offer or any material adverse development has occurred in
any existing action or proceeding with respect to us or any of our
subsidiaries; or
(2) any law, statute, rule, regulation or interpretation by the staff of
the SEC is proposed, adopted or enacted, which we believe might
materially impair our ability to proceed with this exchange offer or
materially impair the contemplated benefits of this exchange offer to
us; or
(3) any governmental approval has not been obtained, which approval we
believe is necessary for the consummation of this exchange offer.
If we determine in our reasonable discretion that any of the conditions are
not satisfied prior to the expiration date, we may:
(1) refuse to accept any old notes and return all tendered old notes to the
tendering holders;
(2) extend this exchange offer and retain all old notes tendered prior to
the expiration of this exchange offer, subject, however, to the rights
of holders to withdraw such old notes (see "--Withdrawal of Tenders");
or
(3) waive such unsatisfied conditions with respect to this exchange offer
and accept all properly tendered old notes which have not been
withdrawn.
25
<PAGE>
Exchange Agent
Norwest Bank Minnesota, N.A., has been appointed as exchange agent for this
exchange offer. Questions and requests for assistance, requests for additional
copies of this prospectus or of the letter of transmittal and requests for
notice of guaranteed delivery should be directed to the exchange agent
addressed as follows:
By Mail: By Hand Delivery or Overnight Courier:
Norwest Bank Minnesota Norwest Bank Minnesota,
National Association National Association
Corporate Trust Operations Corporate Trust Operations
P.O. Box 1517 Norwest Center
Minneapolis, MN 55480-1517 Sixth and Marquette
Minneapolis, MN 55479-0113
In Person: Facsimile Transmission: (612) 667-4927
Norwest Bank Minnesota,
National Association For Information Telephone (call
Northstar East Bldg. collect): (612) 667-9764
608 2nd Ave. S.
12th Floor
Corporate Trust Services
Minneapolis, MN 55479-0113
Delivery to an address other than set forth above will not constitute a
valid delivery.
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telecopy, telephone or in person by our and our affiliates' officers
and regular employees.
We have not retained any dealer-manager in connection with this exchange
offer and will not make any payments to brokers, dealers, or others soliciting
acceptances of this exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection with this exchange offer.
We will pay the cash expenses to be incurred in connection with this
exchange offer. Such expenses include fees and expenses of the exchange agent
and trustee, accounting and legal fees and printing costs, among others.
Accounting Treatment
The new notes will be recorded at the same carrying value as the old notes,
which is face value, as reflected in our accounting records on the date of
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes as a result of this exchange offer. The expenses of this exchange
offer will be deferred and charged to expense over the term of the new notes.
Consequences of Failure to Exchange
Upon consummation of the exchange offer, we will have no further obligation
to register your old notes. The old notes that are not exchanged for new notes
in accordance with this exchange offer will remain restricted securities.
Accordingly, such old notes may be resold only:
(1) to us, upon redemption thereof or otherwise;
(2) so long as the old notes are eligible for resale in accordance with
Rule 144A, to a person inside the United States whom the seller
reasonably believes is a qualified institutional buyer within the
meaning of Rule 144A under the Securities Act of 1933 in a transaction
meeting the requirements of
26
<PAGE>
Rule 144A, in accordance with Rule 144 under the Securities Act of 1933,
or in accordance with another exemption from the registration
requirements of the Securities Act of 1933, and based upon an opinion of
counsel reasonably acceptable to us;
(3) outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act of 1933; or
(4) in accordance with an effective registration statement under the
Securities Act of 1933, in each case in accordance with any applicable
securities laws of any state of the United States.
These trading restrictions could adversely affect the trading market and
price for the old notes.
Resale of the New Notes
With respect to resales of new notes, based on interpretations by the staff
of the SEC set forth in no-action letters issued to third parties, we believe
that a holder or other person who receives new notes, other than a person that
is our affiliate within the meaning of Rule 405 under the Securities Act of
1933, in exchange for old notes in the ordinary course of business and who is
not participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the new
notes, will be allowed to resell the new notes to the public without further
registration under the Securities Act of 1933 and without delivering to the
purchasers of the new notes a prospectus that satisfies the requirements of
Section 10 of the Securities Act of 1933. However, if any holder acquires new
notes in this exchange offer for the purpose of distributing or participating
in a distribution of the new notes, such holder cannot rely on the position of
the staff of the SEC expressed in such no-action letters or any similar
interpretive letters, and must comply with the registration and prospectus
delivery requirements of the Securities Act of 1933 in connection with any
resale transaction, unless an exemption from registration is otherwise
available. Further, each participating broker-dealer that receives new notes
for its own account in exchange for old notes, where such old notes were
acquired by such participating broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of the new notes.
Prior to this exchange offer, there has been no existing trading market for
any of the old notes and we expect that a trading market will not develop for
the new notes. We do not intend to apply for listing of the new notes on any
securities exchange or on the Nasdaq National Market. The new notes may trade
at a discount from their initial offering price, depending upon prevailing
interest rates, the market for similar securities, our performance and other
factors. An active market for the new notes may not develop. Consequently, the
new notes may be relatively illiquid, and you may be unable to sell your new
notes.
27
<PAGE>
USE OF PROCEEDS
This exchange offer is intended to satisfy certain of our obligations under
the registration rights agreement executed in connection with the issuance of
the old notes. We will not receive any cash proceeds from the issuance of the
new notes. In consideration for issuing the new notes contemplated in this
prospectus, we will receive old notes in the same principal amount with
substantially the same terms.
We received $145.2 million from the sale of the old notes after deducting
the fees and expenses of the private offering of the old notes and this
exchange offer, but excluding $1.2 million in expenses incurred prior to the
closing of the private offering of the old notes. We used $100.0 million of the
net proceeds to repay an existing senior credit facility which matured on
January 29, 1999 and bore an annual interest rate of approximately 8%. We used
approximately $19.7 million to fund the interest reserve account for the notes.
We have and will continue to use the remaining net proceeds of the private
offering of the old notes, together with cash generated from operations, to
fund the costs of the initial phase of our planned expansion through the end of
1999 and for working capital and other general corporate purposes. Our
principal capital expenditure requirements for such expansion will include the
purchase and installation of switches, transmission equipment collocated in
incumbent local exchange carrier central offices and customer premise
equipment. We made capital expenditures of approximately $22.0 million during
the fourth quarter of 1998 and expect to make additional capital expenditures
of between $30.0 and $50.0 million during 1999, of which $3.6 million of
capital expenditures was incurred in the first quarter of 1999. The actual cost
and timing of our planned expansion will depend on a variety of factors,
including the cost of the development of our network in each of our new
markets, the extent of competition and pricing of the telecommunications
services in such markets and the acceptance of our services. Accordingly, our
actual capital requirements may exceed the amounts described above.
As part of our strategy, we may make strategic acquisitions, and a portion
of the proceeds from the private offering of the old notes may be used for such
purpose. We have no definitive agreement with respect to any acquisition,
although from time to time we have discussions with other companies and assess
opportunities on an ongoing basis.
28
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999,
which includes the effect of our recapitalization and the private offering of
the old notes. The old notes surrendered in exchange for the new notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the new
notes will not result in any increase or decrease in our indebtedness or any
additional net proceeds to us. Therefore, no effect has been given to the
exchange offer in this capitalization table and no pro forma balance sheet data
has been presented. This table should be read in conjunction with the "Selected
Financial Data" and the related notes thereto, and our financial statements,
including related notes thereto, included elsewhere in this prospectus. See
"Use of Proceeds."
<TABLE>
<CAPTION>
March 31, 1999
--------------
(unaudited)
(in thousands)
<S> <C> <C>
Cash and cash equivalents............................. $ 41,372
Restricted cash (1)................................... 19,844
========
Total debt (including current maturities):
13 1/2% senior notes due 2009....................... 150,000
Notes payable....................................... 209
New senior credit facility (2)...................... --
--------
Total debt........................................ 150,209
--------
Convertible redeemable preferred stock, including
accrued cumulative dividends of $2,466 (3)........... 47,466
Stockholders' equity (deficit):
Common stock........................................ 13
Additional paid-in capital.......................... 7,768
Notes receivable from stockholders.................. (233)
Retained earnings (deficit)......................... (82,156)
--------
Total stockholders' equity (deficit).............. (74,608)
--------
Total capitalization.............................. $123,067
========
</TABLE>
- --------
(1) Restricted cash represents cash deposited in an interest reserve trust
account to fund the initial interest payments due under the notes.
(2) Our new senior credit facility provides for initial maximum borrowings of
$20.0 million and future borrowings of up to an additional $20.0 million
for working capital and general corporate purposes. See "Description of
Indebtedness."
(3) See "Description of Capital Stock."
29
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma condensed statements of operations data for the year
ended December 31, 1998 and for the three month period ended March 31, 1999
give pro forma effect to the private offering of the old notes and this
exchange offer as if they had occurred on January 1, 1998. The unaudited pro
forma condensed statements of operations data do not purport to represent what
our results of operations would have been if the private offering of the old
notes and this exchange offer had occurred as of the date indicated or what
such results will be for any future periods. The unaudited pro forma financial
data is based upon assumptions that we believe are reasonable and should be
read in conjunction with the audited and unaudited financial statements and
accompanying notes thereto included in this prospectus.
PAC-WEST TELECOMM, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS DATA
Year Ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
---------- ---------
<S> <C> <C>
Revenues.................................................. $42,211 $42,211
Operating costs........................................... 15,344 15,344
Selling, general and administrative expenses (1).......... 14,577 14,577
Depreciation and amortization expense..................... 4,106 4,106
------- -------
Income from operations.................................... 8,184 8,184
Interest expense (2)...................................... (4,199) (5,601)
Other expense, net (3).................................... (2,674) (2,674)
------- -------
Income (loss) before provision for income taxes and
extraordinary item....................................... 1,311 (91)
Provision for income taxes (4)............................ 1,561 1,000
------- -------
Loss before extraordinary item............................ $ (250) $(1,091)
======= =======
</TABLE>
Three Month Period Ended March 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
---------- ---------
<S> <C> <C>
Revenues................................................... $14,416 $14,416
Operating costs............................................ 4,062 4,062
Selling, general and administrative expenses............... 4,303 4,303
Depreciation and amortization expense...................... 1,449 1,449
------- -------
Income from operations..................................... 4,602 4,602
Interest expense (2)....................................... (4,050) (3,963)
Other income............................................... 527 527
------- -------
Income before provision for income taxes .................. 1,079 1,166
Provision for income taxes (4)............................. 432 466
------- -------
Net income................................................. $ 647 $ 700
======= =======
</TABLE>
30
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA
Year Ended December 31, 1998 and for the Three Month Period Ended March 31,
1999
(in thousands)
(1) Selling, general and administrative expenses for 1998 include transaction
bonuses and consultant's costs of $3,798.
(2) The pro forma interest expense as a result of the private offering of the
old notes is summarized as follows:
<TABLE>
<CAPTION>
Year Ended Three Month Period
December 31, Ended
1998 March 31, 1999
------------ ------------------
(unaudited)
<S> <C> <C>
Historical interest expense.............. $4,199 $4,050
Historical interest and amortization of
deferred financing costs associated with
historical borrowings repaid by the
private offering of the old notes....... (4,181) (4,047)
Interest related to the portion of the
notes assumed to replace Pac-West's
historical borrowings (at 13.5%)........ 4,983 3,810
Amortization of expected debt issuance
costs ($6.0 million over a 10 year
period)................................. 600 150
------ ------
Pro forma interest expense............... $5,601 $3,963
====== ======
</TABLE>
(3) Other expense, net for 1998 includes other costs of the merger and
recapitalization of approximately $3,004.
(4) An income tax benefit has been recorded in the pro forma adjustments for
the incremental increase in interest expense and for the amortization of
deferred financing costs associated with the private offering of the old
notes and this exchange offer using our effective income tax rate of 40%.
Note: The unaudited pro forma condensed statements of operations data is based
on:
(A) The notes replace substantially all historical borrowings outstanding
during the period presented, including the senior secured borrowings
and other long-term obligations being repaid by the proceeds of the
private offering of the old notes; and
(B) Interest expense related to the notes reflects the incremental interest
resulting from the portion of the notes being used to refinance Pac-
West's lower rate historical borrowings, see "Use of Proceeds."
31
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of:
. our predecessor's telephone and answering service divisions for the
years ended December 31, 1994 and 1995 and for the nine month period
ended September 30, 1996, and
. Pac-West for the period from our commencement on October 1, 1996 to
December 31, 1996, the years ended December 31, 1997 and 1998 and for
the three month periods ended March 31, 1998 and 1999.
Our selected financial data as of the dates and for the periods indicated were
derived from audited and unaudited financial statements contained elsewhere in
this prospectus and the unaudited financial statements of our predecessor's
telephone and answering service divisions for the years ended December 31, 1994
and December 31, 1995. The unaudited financial data at March 31, 1998 and 1999
and for the three month periods ended March 31, 1998 and March 31, 1999 include
all adjustments, consisting only of normal recurring adjustments, which
management considers necessary for a fair presentation of results for these
unaudited periods. The unaudited balance sheet data as of March 31, 1999
includes the effect of our recapitalization and the private offering of the old
notes. The results of operations for the three month period ended March 31,
1999 are not necessarily indicative of the results of operations that we expect
for the full 1999 calendar year. The following selected financial information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
the related notes thereto appearing elsewhere in this prospectus.
On October 1, 1996, we began operations when our predecessor company
transferred its telephone and answering service divisions to Pac-West. As a
result, this prospectus includes our audited financial statements for the
period from our commencement on October 1, 1996 to December 31, 1996, and the
1997 and 1998 calendar years only. Due to the significant changes in our
operations since September 30, 1996, we believe that the financial information
of our predecessor's telephone and answering service divisions is not directly
comparable to our current results of operations. Accordingly, you have limited
comparable historical financial information upon which to base your evaluation
of our past performance and the value of investing in the new notes.
We recognize reciprocal compensation as revenue only to the extent received
in cash. Pacific Bell and GTE, the two incumbent local exchange carriers with
which we have interconnection agreements, have each refused to pay the portion
of reciprocal compensation which they estimate is the result of inbound traffic
terminating to Internet service providers. Pacific Bell and GTE argue that such
calls are not local within the meaning of their interconnection agreements and
therefore assert no reciprocal compensation is due. See Note 5 to the audited
financial statements and "Risk Factors--Our right to receive reciprocal
compensation for calls to Internet service providers is currently being
challenged."
Adjusted EBITDA represents earnings before interest, net; income taxes;
depreciation and amortization; further adjusted for the costs of merger and
recapitalization; transaction bonuses and consultant's costs and extraordinary
item. Included in other income (expense), net, is interest income of $11,000,
$20,000, $15,000, $5,000, $90,000, $327,000, $48,000 and $527,000 for the
predecessor telephone and answering service divisions for the years ended
December 31, 1994 and 1995, and for the nine month period ended September 30,
1996, and Pac-West for the period from commencement on October 1, 1996 to
December 31, 1996, for the years ended December 31, 1997 and 1998, and for the
three month periods ended March 31, 1998 and 1999, respectively. Although
EBITDA is not a measure of financial performance under generally accepted
accounting principles, we believe it is a common measure used by analysts and
investors in evaluating the capacity of a company to service its obligations,
as well as to compare a company's results with those of similar companies. In
addition, EBITDA is a measure included in the restrictive covenants under our
new senior credit facility. See the statements of cash flows in the audited and
unaudited financial statements. The terms of the notes do not restrict our
discretionary use of funds depicted by adjusted EBITDA. In addition, we have no
intention to pay dividends to our stockholders. However, we do need to reserve
funds to service our existing and future debt obligations, and, to the extent
available, to fund anticipated capital expenditures of $30 million to $50
million in 1999.
32
<PAGE>
<TABLE>
<CAPTION>
Predecessor Telephone and
Answering Service Divisions Pac-West Telecomm, Inc.
--------------------------------------- -------------------------------------------------------
Period from
Commencement
on
Nine Month October 1, Year Ended Three Month Period
Year Ended Year Ended Period Ended 1996 to December 31, Ended March 31,
December 31, December 31, September 30, December 31, ----------------- -----------------------
1994 1995 1996 1996 1997 1998 1998 1999
------------ ------------ ------------- ------------ ------- -------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of
Operations Data:
Revenues............... $ 6,775 $ 8,900 $ 8,737 $ 4,232 $29,551 $ 42,211 $10,252 $14,416
Costs and expenses:
Operating costs....... 2,959 3,498 4,202 2,064 12,060 15,344 3,731 4,062
Selling, general and
administrative:
Selling, general and
administrative....... 2,687 3,011 3,123 1,519 7,367 10,779 2,002 4,303
Transaction bonuses
and consultant's
costs (1)............ -- -- -- -- -- 3,798 -- --
Depreciation and
amortization......... 495 512 549 299 2,204 4,106 845 1,449
------- ------- ------- ------- ------- -------- ------- -------
Income from
operations........... 634 1,879 863 350 7,920 8,184 3,674 4,602
Interest expense....... (19) (93) (33) (105) (932) (4,199) (377) (4,050)
Gain on disposal of
answering service
division.............. -- -- -- -- 385 -- -- --
Costs of merger and
recapitalization (1).. -- -- -- -- -- (3,004) -- --
Other income (expense),
net................... 11 17 34 (11) 119 330 25 527
------- ------- ------- ------- ------- -------- ------- -------
Income before
provision for income
taxes and
extraordinary item... 626 1,803 864 234 7,492 1,311 3,322 1,079
Provision for income
taxes................. 250 722 345 94 2,997 1,561 1,329 432
------- ------- ------- ------- ------- -------- ------- -------
Income (loss) before
extraordinary item... 376 1,081 519 140 4,495 (250) 1,993 647
Extraordinary item--
loss on early
extinguishment of
debt, net of income
tax benefit of $278
(1)................... -- -- -- -- -- (417) -- --
------- ------- ------- ------- ------- -------- ------- -------
Net income (loss)..... $ 376 $ 1,081 $ 519 $ 140 $ 4,495 $ (667) $ 1,993 $ 647
======= ======= ======= ======= ======= ======== ======= =======
Other Financial Data:
Reciprocal compensation
withheld.............. $ -- $ -- $ -- $ -- $ 3,793 $ 32,591 $ 5,032 $13,401
Adjusted EBITDA........ 1,129 2,388 1,431 633 10,538 16,091 4,496 6,051
Adjusted EBITDA margin
%..................... 16.7% 26.8% 16.4% 15.0% 35.7% 38.1% 43.9% 42.0%
Cash provided by (used
in):
Operating activities.. $ 1,018 $ 1,758 $ 1,092 $ 75 $ 5,876 $ 12,033 $ 5,558 $ 4,544
Investing activities.. (1,155) (1,266) (2,523) (1,682) (6,619) (42,031) (1,185) (23,329)
Financing activities.. 196 (350) 1,778 1,549 3,658 41,631 (255) 44,921
Ratio of earnings to
fixed charges (2)..... -- -- -- 2.1x 5.8x 1.2x 6.6x 1.1x
Pro forma ratio of
earnings of fixed
charges (2)........... -- 1.1x
Balance Sheet Data (as of end of
period):
Cash and cash
equivalents........... $ 257 $ 399 $ 746 $ 688 $ 3,603 $ 15,236 $ 7,721 $41,372
Restricted cash (3).... -- -- -- -- -- -- -- 19,844
Working capital
(deficit)............. (321) (219) 626 398 2,598 15,532 4,046 60,053
Property, plant and
equipment, net........ 2,311 3,065 5,883 9,483 19,079 57,294 19,419 59,528
Total assets........... 3,945 5,141 8,641 12,966 27,528 82,493 31,080 134,311
Total debt............. 1,106 591 3,256 7,022 15,672 100,248 15,417 150,209
Convertible redeemable
preferred stock,
including accrued
cumulative dividends
of $1,324 at December
31, 1998 and $2,466 at
March 31, 1999........ -- -- -- -- -- 46,324 -- 47,466
Stockholders' equity
(deficit)............. 1,445 2,526 4,037 4,177 8,672 (74,113) 10,665 (74,608)
</TABLE>
- -------
(1) Transaction bonuses and consultant's costs, costs of merger and
recapitalization and the extraordinary item all relate to our
recapitalization.
(2) For purposes of this computation, earnings are defined as income before
provision for income taxes, extraordinary item and fixed charges, excluding
capitalized interest. Fixed charges are the sum of:
(A) interest costs, including amounts capitalized,
(B) amortization of deferred financing costs, and
(C)the portion of operating lease rental expense that is representative of the
interest factor. On a proforma basis, earnings were insufficient to cover
fixed charges by $394,000 for the year ended December 31, 1998. Due to the
significant changes in our operations since September 30, 1996, we believe
that the ratios of earnings to fixed charges of our predecessor's telephone
and answering service divisions are not meaningful and therefore are not
included in the table.
(3) Restricted cash represents cash deposited in an interest reserve trust
account to fund the initial interest payments under the notes.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a rapidly growing competitive local exchange carrier that provides
switched local and long distance telecommunications services and one-stop
integrated telecommunications services to Internet service providers, paging
companies and other companies handling large volumes of incoming calls as well
as medium and small businesses. Our predecessor, also known as Pac-West
Telecomm, Inc., began selling office phone systems in 1980 and reselling long
distance service to small and medium size businesses and residential customers
in 1982. Beginning in 1986, our predecessor began offering paging and telephone
answering services to its customers. Effective September 30, 1996, our
predecessor transferred its telephone and answering service divisions to us.
Prior to September 30, 1996, we did not conduct any operations and, since that
time, we have disposed of the answering service division and have focused our
business strategy on operating as a competitive local exchange carrier. For the
year ended December 31, 1998 and for the three month period ended March 31,
1999, recognizing compensation from other telecommunications companies for
completing their customers' calls only to the extent such compensation was
actually received in cash, we had net revenues of approximately $42.2 million
and $14.4 million and adjusted EBITDA of approximately $16.1 million and $6.1
million, respectively.
Factors Affecting Operations
Revenues. We derive our revenues from monthly recurring charges, usage
charges and initial non-recurring charges and telephone equipment sales and
service. Monthly recurring charges include the fees paid by customers for lines
in service and additional features on those lines, as well as equipment
collocation services. Usage charges consist of fees paid by end users for each
call made, fees paid by incumbent local exchange carriers as reciprocal
compensation for completion of their customers' calls through another carrier,
and access charges paid by carriers for long distance traffic originated or
terminated by Pac-West. Initial non-recurring charges are paid by end users, if
applicable, for the initiation of our service.
We derive a substantial portion of our revenues from reciprocal compensation
paid by incumbent local exchange carriers with which we have interconnection
agreements. Reciprocal compensation revenues increased significantly in recent
fiscal quarters as a result of increasing inbound call volume from our Internet
service provider and other customers. For the years ended December 31, 1997 and
1998 and for the three month periods ended March 31, 1998 and 1999, recorded
reciprocal compensation accounted for approximately 37.4%, 37.1%, 41.8% and
42.1%, respectively, of our revenues. Two incumbent local exchange carriers
with which we have interconnection agreements, Pacific Bell and GTE, have
refused to pay that portion of reciprocal compensation that they estimate is
the result of inbound calls terminating to Internet service providers. These
incumbent local exchange carriers contend that such Internet service provider
calls are not local calls within the meaning of their respective
interconnection agreements and claim that no reciprocal compensation is
therefore payable. The total reciprocal compensation withheld by these
incumbent local exchange carriers and not included in revenues was $3.8 million
for the year ended December 31, 1997, $32.6 million for the year ended December
31, 1998 and $13.4 million for the three month period ended March 31, 1999. On
June 24, 1999, the California Public Utilities Commission adopted a decision in
an arbitration proceeding between us and Pacific Bell which held that
reciprocal compensation would be payable for Internet service provider calls
under our new interconnection agreement with Pacific Bell which became
effective on June 29, 1999. Pacific Bell has requested rehearing of this
decision. This decision does not address reciprocal compensation withheld under
the prior agreement. We do not know at this time what action Pacific Bell will
take with respect to this decision. In the event that all or a portion of the
withheld reciprocal compensation is paid, the terms of our recapitalization
require us to pay additional distributions to certain owners of up to $20.0
million. In 1999, the maximum cash distribution under the terms of the
recapitalization could be up to approximately $15 million net of the after tax
proceeds from the withheld reciprocal compensation. See "Certain Relationships
and Related Transactions."
34
<PAGE>
We expect that reciprocal compensation will continue to represent a
significant portion of our revenues in the future. We are currently negotiating
and implementing new interconnection agreements and the terms of the related
reciprocal compensation. The per minute reciprocal compensation rate we receive
from Pacific Bell under our new agreement is significantly lower than it was
under our previous agreement. We also expect that the per minute reciprocal
compensation rate may decline significantly under any new interconnection
agreements. See "Risk Factors--A failure to establish interconnection
agreements on favorable terms would adversely affect our business" and "--Our
right to receive reciprocal compensation for calls to Internet service
providers is currently being challenged."
Operating Costs. Operating costs are comprised primarily of leased transport
charges, usage charges for long distance and intrastate calls and, to a lesser
extent, reciprocal compensation related to calls that originate with a Pac-West
customer and terminate on the network of an incumbent local exchange carrier or
other competitive local exchange carrier. Our leased transport charges are the
lease payments we incurred for the transmission facilities used to connect our
customers to our switch and to connect to the incumbent local exchange carrier
and other competitive local exchange carrier networks. Our strategy of leasing
rather than building our own transport facilities results in our cost of
services being a significant component of total costs.
Selling, General and Administrative Expenses. Our recurring selling, general
and administrative expenses include network development, administration and
maintenance costs, selling and marketing, customer service, information
technology, billing, corporate administration and personnel. We expect to incur
significant selling and marketing costs as we continue to expand our
operations, a significant amount of which will be incurred in a particular
market before the switch becomes operational and begins to generate revenue.
Consequently, selling and marketing expenses are expected to increase until
implementation of our expansion plan is substantially complete. We will incur
other costs and expenses, including the costs associated with the development
and maintenance of our networks, administrative overhead, premises leases and
bad debts. We expect that these costs will grow significantly as we expand our
operations and that sales and marketing and administrative overhead will be a
large portion of these expenses during the start-up phase in each of our new
markets.
Results of Operations
The following table summarizes the results of operations as a percentage of
revenues for:
(1) Our predecessor's telephone and answering service divisions for the
nine month period ended September 30, 1996 and Pac-West for the period
from our commencement on October 1, 1996 to December 31, 1996 on a
combined basis; and
(2) Pac-West for the years ended December 31, 1997 and 1998 and for the
three month periods ended March 31, 1998 and 1999.
The "Combined" column in the following table combines the results of operations
of our predecessor's telephone and answering service divisions for the nine
month period ended September 30, 1996 with those of Pac-West for the period
from our commencement on October 1, 1996 to December 31, 1996. Due to the
significant changes in our operations since September 30, 1996, we believe that
the financial information of our predecessor telephone and answering service
divisions is not directly comparable to our results of operations. As a result,
prospective investors are cautioned not to place undue reliance on such
financial information. The following data should be read in conjunction with
the financial statements and notes thereto included elsewhere in this
prospectus.
Selling, general and administrative expenses and income from operations for
the year ended December 31, 1998 include $3.8 million of one-time transaction
bonuses and consultant's costs. Excluding these transaction bonuses and
consultant's costs, selling, general and administrative expenses were 25.5% of
revenues and income from operations was 28.4% of revenues for that period. The
net loss for 1998 includes the costs of the
35
<PAGE>
recapitalization of $3.0 million, transaction bonuses and consultant's costs of
$3.8 million and the extraordinary loss on early extinguishment of debt of $0.7
million before income tax benefit.
<TABLE>
<CAPTION>
Combined Pac-West Telecomm, Inc.
----------- --------------------------
Three Month
Period
Ended March
Year Ended December 31, 31,
------------------------ ------------
1996 1997 1998 1998 1999
----------- ----- ----- ----- -----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs.................. 48.3 40.8 36.4 36.4 28.2
Selling, general and
administrative expenses......... 35.8 24.9 34.5 19.5 29.8
Depreciation and amortization
expense......................... 6.5 7.5 9.7 8.3 10.1
Income from operations........... 9.4 26.8 19.4 35.8 31.9
Net income (loss)................ 5.1 15.2 (1.6) 19.4 4.5
</TABLE>
Three Month Period Ended March 31, 1999 Compared to Three Month Period Ended
March 31, 1998
Revenues for the three month period ended March 31, 1999 increased $4.1
million to $14.4 million from $10.3 million for the corresponding period in
1998. The increase in revenues was primarily attributed to an increase of $1.9
million in paid local interconnection revenues, an increase of $2.0 million in
recurring charges and installation charges billed directly to Internet service
providers, and an increase of $0.2 million in dedicated transport, i.e. private
line, revenues.
In the third quarter of 1998, we installed new higher capacity switches at
our Stockton and Los Angeles switching sites. During the fourth quarter of
1998, we expanded switch capacity to existing and new customers. Our revenues
for the first quarter of 1999 significantly increased compared to the first
quarter of 1998 as a result of the increased utilization of this newly
installed switch capacity, primarily attributable to Internet service provider
customers. In addition, new service orders from medium and small businesses
have accelerated in the first quarter of 1999 as we have built our sales force.
The number of access lines sold increased 147% to 74,026 as of March 31,
1999 from 29,930 as of March 31, 1998. Billable minutes of use were 3.1 million
in the first quarter of 1999, up 107% from 1.5 million for the first quarter of
1998.
Inbound local calls and minutes subject to reciprocal compensation revenues
in accordance with interconnection agreements increased 69% and 100%,
respectively, for the first quarter of 1999 over the first quarter of 1998.
However, for reasons discussed elsewhere in this prospectus, the incumbent
local exchange carriers paid only 31% of the reciprocal compensation billings
for the first quarter of 1999 as compared to paying 46% in 1998. The net effect
of those significant increases in inbound local calls and minutes, offset by
the lower payment percentage, resulted in the $1.9 million or 46% increase in
paid interconnection revenues.
The $2.0 million increase in the first quarter of 1999 over the first
quarter of 1998 in direct billings to Internet service providers represented a
96% year to year increase. Lines used by our Internet service providers
significantly increased from 1998 to 1999, from 24,519 lines in service by
Internet service providers at March 1, 1998 to 56,320 lines in service at March
1, 1999.
The $0.2 million or 24% increase in dedicated transport revenues primarily
related to increased data networking services for private corporate networks.
Our operating costs for the three month period ended March 31, 1999
increased $0.4 million to $4.1 million from $3.7 million for the corresponding
period in 1998. Our operating costs as a percentage of revenues
36
<PAGE>
decreased to 28.2% for the three month period ended March 31, 1999 from 36.4%
for the corresponding period in 1998. The increase in operating costs was
primarily due to an increase in network operations associated with a higher
level of telecommunications activity. We made significant investments in our
telephone infrastructure during the second half of 1998 to accommodate future
growth of competitive local exchange carrier services. As a result of
increased utilization of our newly installed switching equipment and the use
of higher capacity transmission facilities, our operating costs decreased as a
percentage of revenues.
Our selling, general and administrative expenses for the three month period
ended March 31, 1999 increased $2.3 million to $4.3 million from $2.0 million
for the corresponding period in 1998. As a percentage of revenues, our
selling, general and administrative expenses increased to 29.8% for the three
month period ended March 31, 1999 from 19.5% in the corresponding period in
1998. The increase in selling, general and administrative expenses was
primarily due to the addition of 46 employees in sales and marketing; an
increase in network operational, development and administration costs
including 19 additional network employees; and 18 additional employees in
other administration, customer service and information technology functions.
Total employees doubled from 84 at March 31, 1998 to 167 at March 31, 1999.
Our depreciation and amortization expense for the three month period ended
March 31, 1999 increased $0.6 million to $1.4 million from $0.8 million for
the corresponding period in 1998. Depreciation and amortization as a
percentage of revenues increased to 10.1% for the three month period ended
March 31, 1999 from 8.3% in the corresponding period in 1998. The increase in
depreciation and amortization expense was primarily due to the additional
depreciation on the portion of the $42.5 million of equipment acquired during
1998 which has been placed in service. As the balance of equipment acquired in
1998 and 1999 is placed in service, depreciation expense as a percentage of
revenues is expected to increase in subsequent quarters in 1999.
Our interest expense for the three month period ended March 31, 1999
increased $3.7 million to $4.1 million from $0.4 million in the corresponding
period in 1998. The increase in interest expense was primarily due to the
financing of a significant portion of the $42.5 million of equipment acquired
during 1998 and interest on the $150 million private offering of the old notes
consummated January 29, 1999 including amortization over 10 years of the
related deferred financing costs associated with that offering. In addition,
the interest rate on the old notes since January 29, 1999 is a higher interest
rate than the rates paid on the equipment financings outstanding in the first
quarter 1998.
Our combined effective federal and state tax rate was 40% for the first
quarter of both 1999 and 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Our revenues for the year ended December 31, 1998 increased $12.6 million
to $42.2 million from $29.6 million for 1997. The increase in revenues was
primarily attributed to an increase of $4.6 million in paid interconnection
revenues, an increase of $5.1 million in recurring charges and installation
charges billed directly to Internet service providers, an increase of $1.2
million in local and long distance usage revenues, and an increase of $0.8
million in dedicated transport revenues.
Inbound local calls and minutes subject to reciprocal compensation revenues
in accordance with interconnection agreements increased 128% and 232%,
respectively, 1998 over 1997. However, for reasons discussed elsewhere in this
prospectus, the incumbent local exchange carriers paid only 32% of the
reciprocal compensation billings in 1998 as compared to paying 74% in 1997.
The net effect of these significant increases in inbound local calls and
minutes, partially offset by the significantly lower payment percentage,
resulted in the $4.6 million or 42% increase in paid interconnection revenues.
The $5.1 million increase in 1998 over 1997 in direct billings to Internet
service providers represented a 106% year over year increase. Lines used by
our Internet service providers significantly increased from 1997 to 1998, from
18,430 lines in service by Internet service providers at December 1, 1997 to
34,799 lines in service at December 1, 1998.
37
<PAGE>
The $1.2 million increase in outbound local and long distance revenues,
including 800 number and travel card calls, represented a 23% increase 1998
over 1997. This increase is directly related to our focus on providing services
to high-volume, telecommunication intensive users and to medium and small
businesses.
The $0.8 million or 25% increase in dedicated transport revenues primarily
related to increased data networking services for private corporate networks.
Our operating costs for the year ended December 31, 1998 increased $3.2
million to $15.3 million from $12.1 million for 1997. Our operating costs as a
percentage of revenues decreased to 36.4% for the year ended December 31, 1998
from 40.8% for 1997. The increase in operating costs was primarily due to an
increase in network operations associated with the higher level of revenues. We
made significant investments in our telephone infrastructure beginning in the
second half of 1996 through 1998 to accommodate future growth of competitive
local exchange carrier services. As a result of increased utilization of our
newly installed switching equipment and the use of higher capacity transmission
facilities, our operating costs decreased as a percentage of revenues.
Excluding $3.8 million of bonuses paid to certain key executives in
connection with their assistance with our recapitalization and consulting
payments made to our current President in connection with services provided by
him prior to his joining Pac-West, our selling, general and administrative
expenses for the year ended December 31, 1998 increased $3.4 million to $10.8
million from $7.4 million for 1997. Excluding the $3.8 million of transaction
bonuses and consultant's costs, our selling, general and administrative
expenses as a percentage of revenues increased to 25.5% for the year ended
December 31, 1998 from 24.9% in 1997. Selling, general and administrative
expense in 1998 reflects a 79% increase in the number of employees, a $0.6
million increase in facility costs and a $1.6 million increase in payroll costs
related to the increased hiring of technology, sales, administrative and
support personnel.
Our depreciation and amortization expense for the year ended December 31,
1998 increased $1.9 million to $4.1 million from $2.2 million for 1997.
Depreciation and amortization as a percentage of revenues increased to 9.7% for
the year ended December 31, 1998 from 7.5% in 1997. The increase in
depreciation and amortization expense was primarily due to the additional
depreciation on the $7.7 million of equipment acquired during the second half
of 1997 and the $20.1 million of equipment acquired during the first nine
months of 1998. Depreciation and amortization expense will increase during 1999
as a result of capital expenditures made during 1998 and additional capital
expenditures expected to be made in 1999.
Our interest expense for the year ended December 31, 1998 increased $3.3
million to $4.2 million from $0.9 million in 1997. The increase in interest
expense was primarily due to an increase in long-term debt during 1998.
Interest expense will increase in 1999 as a result of the private offering of
the old notes. The increase in long-term debt in 1998 was primarily due to
$10.5 million of new borrowings during the year to finance the purchase of
network equipment, and due to incremental borrowings of approximately $53.0
million in connection with the merger and recapitalization.
Our tax provision for 1998 reflects the impact of the nondeductibility of a
substantial portion of the costs associated with the recapitalization.
Excluding the impact of these one-time costs, our combined effective federal
and state tax rate for 1998 was 40%, consistent with 1997's effective tax rate.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Our revenues for 1997 increased $16.6 million to $29.6 million from $13.0
million in 1996. The increase in revenues was primarily attributed to an
increase of $10.4 million in local interconnection revenues, an increase of
$3.7 million in recurring charges and installation charges billed directly to
Internet service providers, an increase of $0.7 million in local and long
distance usage revenues and an increase of $1.0 million in dedicated transport
revenues.
38
<PAGE>
Both local interconnection revenues and billings to Internet service
providers were new types of revenues in mid 1996 with less than $1.0 million of
each type of revenue being recorded in 1996. Local and long distance usage
revenues increased 15% in 1997 over 1996, which increase was due to our focus
on business customers. Dedicated transport revenues increased 42% 1997 over
1996 primarily due to increased data networking services for private corporate
networks.
Our operating costs for 1997 increased $5.8 million to $12.1 million from
$6.3 million in 1996. Our operating costs as a percentage of revenues decreased
to 40.8% in 1997 from 48.3% in 1996. The decrease in operating costs as a
percentage of revenues was primarily due to an increase in revenues from
higher-margin, competitive local exchange carrier related services.
Our selling, general and administrative expenses increased $2.8 million to
$7.4 million from $4.6 million in 1996. Our selling, general and administrative
expenses as a percentage of revenues decreased to 24.9% for the year ended
December 31, 1997 from 35.8% for 1996. The increase in selling, general and
administrative expenses was primarily due to an increase in hiring of
additional sales, marketing and administrative personnel and a $0.5 million
increase in facility costs. The decrease in selling, general and administrative
expenses, as a percentage of revenues, was primarily due to the lower selling
and marketing expenses associated with the addition of Internet service
provider customers and a rapid increase in revenues from Internet service
provider customers.
Our depreciation and amortization expense in 1997 increased $1.4 million to
$2.2 million from $0.8 million in 1996. Depreciation and amortization as a
percentage of revenues increased to 7.5% for the year ended December 31, 1997
from 6.5% in 1996. The increase in depreciation and amortization expense was
primarily due to the additional depreciation on the $3.9 million of equipment
acquired during the fourth quarter of 1996 and the $11.9 million of capital
equipment acquired during 1997.
Our interest expense in 1997 increased $0.8 million to $0.9 million from
$0.1 million in 1996. The increase in interest expense was primarily due to the
additional interest expense on the $4.7 million of equipment financings entered
into during the fourth quarter of 1996 and $10.7 million of equipment
financings entered into during 1997. Total debt increased from $7.0 million at
December 31, 1996 to $15.7 million at December 31, 1997.
Our combined effective federal and state tax rate was 40% for both 1997 and
1996.
Quarterly Results
The following tables set forth certain unaudited quarterly financial data
for the nine quarters ended March 31, 1999. In our opinion, the unaudited
financial information set forth below has been prepared on the same basis as
the audited financial information included elsewhere in this prospectus and
includes all normal recurring adjustments necessary to present fairly the
information set forth. The operating results for any quarter are not
necessarily indicative of the results for any future period.
We recognize reciprocal compensation only to the extent it is received in
cash. Pacific Bell and GTE, the two incumbent local exchange carriers with
which we have interconnection agreements, have each refused to pay the portion
of reciprocal compensation which they estimate is the result of inbound calls
terminating to Internet service providers. Pacific Bell and GTE argue that such
calls are not local within the meaning of their interconnection agreements and
therefore assert no reciprocal compensation is due.
Other income (expense), net includes costs of the recapitalization of $2.9
million and $0.1 million, respectively, for the quarters ended September 30,
1998 and December 31, 1998. In addition, other income (expense), net, includes
interest income of $8,000, $6,000, $23,000, $53,000, $48,000, $80,000, $78,000
and $121,000 and $527,000 for the quarters ended March 31, June 30, September
30 and December 31, 1997 and March 31, June 30, September 30 and December 31,
1998 and March 31, 1999, respectively.
39
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------
1997 1998 1999
---------------------------------- ----------------------------------- --------
Mar. 31 June 30 Sep. 30 Dec. 31 Mar. 31 June 30 Sep. 30 Dec. 31 Mar. 31
------- ------- ------- ------- ------- ------- ------- -------- --------
(unaudited, in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues................ $4,992 $6,421 $7,998 $10,140 $10,252 $9,680 $ 9,500 $ 12,779 $ 14,416
Costs and expenses:
Operating costs........ 2,549 3,032 3,160 3,319 3,731 4,060 3,867 3,686 4,062
Selling, general and
administrative:
Selling, general and
administrative...... 1,663 1,609 1,839 2,256 2,002 2,217 2,715 3,845 4,303
Transaction bonuses
and consultant's
costs............... -- -- -- -- -- -- 3,798 -- --
Depreciation and
amortization.......... 480 514 549 661 845 856 1,063 1,342 1,449
------ ------ ------ ------- ------- ------ ------- -------- --------
Income (loss) from
operations.......... 300 1,266 2,450 3,904 3,674 2,547 (1,943) 3,906 4,602
Interest expense........ (203) (200) (213) (316) (377) (409) (882) (2,531) (4,050)
Gain (loss) on disposal
of
answering service
division............... 403 -- -- (18) -- -- -- -- --
Other income (expense),
net.................... 10 10 27 72 25 22 (2,776) 55 527
------ ------ ------ ------- ------- ------ ------- -------- --------
Income (loss) before
provision for income
taxes and
extraordinary item.. 510 1,076 2,264 3,642 3,322 2,160 (5,601) 1,430 1,079
Provision (benefit) for
income taxes........... 204 430 906 1,457 1,329 864 (1,205) 573 432
------ ------ ------ ------- ------- ------ ------- -------- --------
Income (loss) before
extraordinary item.. 306 646 1,358 2,185 1,993 1,296 (4,396) 857 647
Extraordinary item--loss
on early extinguishment
of debt, net of income
tax benefit............ -- -- -- -- -- -- (417) -- --
------ ------ ------ ------- ------- ------ ------- -------- --------
Net income (loss).... $ 306 $ 646 $1,358 2,185 $ 1,993 $1,296 $(4,813) $ 857 $ 647
====== ====== ====== ======= ======= ====== ======= ======== ========
Other Financial Data:
Reciprocal compensation
withheld .............. $ -- $ -- $1,304 $ 2,489 $ 5,032 $7,823 $ 9,531 $ 10,205 $ 13,401
Adjusted EBITDA......... 1,185 1,784 3,003 4,566 4,519 3,403 2,921 5,248 6,051
Capital expenditures.... 1,424 764 1,948 7,748 1,275 6,588 13,031 21,572 3,633
Cash provided by (used
in):
Operating activities... 382 1,358 2,526 1,610 5,558 1,829 (1,172) 5,818 4,544
Investing activities... (590) (410) (557) (5,062) (1,185) (6,248) (12,984) (21,614) (23,329)
Financing activities... 155 (472) (63) 4,038 (255) 3,273 14,004 24,609 44,921
</TABLE>
Our quarterly operating results have fluctuated and will continue to
fluctuate from period to period depending upon such factors as the success of
our efforts to expand our customer base, changes in and the timing of
expenditures relating to the continued expansion of our network, the level of
reciprocal compensation withheld by incumbent local exchange carriers, the
development of new services, the success of sales and marketing efforts,
changes in pricing policies by us or our competitors, and certain factors
relating to our acquisition strategy as further described under "--Liquidity
and Capital Resources."
Our revenues, income from operations, excluding transaction bonuses and
consultant's costs, and adjusted EBITDA declined in each of the second and
third quarters of 1998. The decline in revenues was due primarily to lower
reciprocal compensation received resulting from a reduction in the percentage
of reciprocal compensation paid under interconnection agreements. The
reciprocal compensation paid declined from 64% of total reciprocal compensation
billed in the fourth quarter of 1997 to 46% in the first quarter of 1998, 28%
in the second quarter and 25% in the third quarter. We expect that the per
minute reciprocal compensation rate may decline significantly under the new
interconnection agreements. In addition to lower reciprocal compensation
payments, our revenue growth was constrained throughout the first three
quarters of 1998
40
<PAGE>
because our three switching facilities were operating at close to full capacity
and we could not provision switch capacity for new customers or existing
customers seeking additional capacity. Income from operations and adjusted
EBITDA were negatively impacted by quarterly increases in selling, general and
administrative expenses excluding transaction bonuses and consultant's costs,
resulting from our decision to build our direct sales force, executive
management team and administrative staff to support future growth.
In the third quarter of 1998, we installed new higher capacity switches at
our Stockton and Los Angeles Pac-West switching sites. During the fourth
quarter of 1998, we expanded switch capacity to existing and new customers. Our
revenues, income from operations and adjusted EBITDA for the fourth quarter of
1998 and the first quarter of 1999 significantly increased compared to the
third quarter of 1998 as a result of the increased utilization of the newly
installed switch capacity, primarily attributable to Internet service provider
customers. In addition, new service orders from medium and small businesses
have accelerated in the fourth quarter of 1998 and the first quarter of 1999 as
we have built our sales force.
In view of the significant historical growth of our operations, we believe
that period-to-period comparisons of our financial results should not be relied
upon as an indication of future performance and that we may experience
significant period-to-period fluctuations in operating results in the future.
We expect to focus in the near term on building and increasing our customer
base and increasing our network utilization both through internal growth and
through acquisitions which may require us from time to time to increase our
expenditures for personnel, marketing, network infrastructure and the
development of new services.
Liquidity and Capital Resources
Net cash provided by operating activities was $4.5 million for the three
month period ended March 31, 1999 compared to $5.6 million for the three month
period ended March 31, 1998. This decrease primarily reflects lower net income
as well as a decrease in accounts payable due to a $2.6 million payment in
January 1999 for new switching equipment accrued for at December 31, 1998. Net
cash provided by operating activities was $12.0 million for the year ended
December 31, 1998 compared to $5.9 million for the year ended December 31,
1997. This increase primarily reflects increased accounts payable and accrued
liabilities of $5.9 million. Net cash provided by operating activities for the
period from our commencement on October 1, 1996 to December 31, 1996 and for
our predecessor's telephone and answering service divisions for the nine months
ended September 30, 1996 were $75,000 and $1,092,000, respectively.
Net cash used in investing activities was $23.3 million for the three month
period ended March 31, 1999 compared to $1.2 million for the three month period
ended March 31, 1998. During the three month period ended March 31, 1999, we
invested $3.6 million in new switching and related equipment as compared to
$1.3 million during the comparable 1998 quarter. Further, in the first quarter
of 1999, $19.7 million of the proceeds from the private offering of the old
notes was used to purchase short-term investments to fund the interest reserve
trust account for the notes. Net cash used in investing activities was $42.0
million for the year ended December 31, 1998 compared to $6.6 million for the
year ended December 31, 1997. During 1998, we invested approximately $41.0
million in new switching and related equipment and leasehold improvements to
expand switching capacity in Los Angeles, Oakland and Stockton, California.
During 1997, our investment of approximately $6.7 million in new switching and
related equipment and leasehold improvements was partially offset by $0.5
million of proceeds from the disposition of assets. Net cash used in investing
activities for the period from our commencement on October 1, 1996 to December
31, 1996 and for our predecessor's telephone and answering service divisions
for the nine month period ended September 30, 1996 were $1.7 million and $2.5
million, respectively.
Net cash provided by financing activities was $44.9 million for the three
month period ended March 31, 1999 compared to a net use of $0.3 million for the
three month period ended March 31, 1998. The net cash provided in the three
month period ended March 31, 1999 was primarily attributable to proceeds from
the $150 million private offering of the old notes reduced by the payoff of
$100 million of senior secured borrowings. Net cash provided by financing
activities was $41.6 million for the year ended December 31, 1998 compared to
$3.7 million for 1997. The net cash provided in 1998 was primarily attributable
to $37.8 million of proceeds
41
<PAGE>
from the sale of our common and preferred stock, $75.4 million of proceeds from
senior secured borrowings in connection with the recapitalization, less $74.0
million of payments to existing stockholders. See "Certain Relationships and
Related Transactions--Recapitalization." Net cash provided by financing
activities for the period from our commencement on October 1, 1996 to December
31, 1996 and for our predecessor's telephone and answering service divisions
for the nine months ended September 30, 1996 was $1.5 million and $1.8 million,
respectively.
The local telecommunications services business is capital intensive. Our
operations have required and will continue to require substantial capital
investment for the design, acquisition, construction and implementation of our
network. Capital expenditures, including amounts financed under capital leases,
were $3.6 million for the first quarter of 1999, $42.5 million for the year
ended December 31, 1998, $11.9 million for the year ended December 31, 1997 and
$3.9 million for the period from our commencement on October 1, 1996 to
December 31, 1996. Of the $42.5 million of capital expenditures during 1998,
$25.6 million was included in construction in progress at December 31, 1998 and
therefore are not being depreciated until placed in service in 1999. We expect
to make additional capital expenditures between $30.0 and $50.0 million during
1999. The actual cost of our planned expansion will depend on a variety of
factors, including the cost of the development of our network in each of our
new markets, the extent of competition and pricing of the telecommunications
services in such markets and the acceptance of our services. Accordingly, our
actual capital requirements may not exceed the amounts described above. Planned
capital expenditure projects during 1999 include: completion of an upgraded and
expanded switch at the existing Oakland, California facility; construction of
switching facilities in Las Vegas, Nevada and Seattle, Washington; expansion of
existing switch in Los Angeles, California; and implementation of a new billing
and operation system support system.
We have entered into a new senior credit facility. This facility provides
for initial maximum borrowings of $20.0 million and future borrowings of up to
an additional $20.0 million for working capital and other general corporate
purposes, and bears interest, at our option, at:
(1) the base rate, as defined in the new senior credit facility; or
(2) the Eurodollar rate, as defined in the new senior credit facility, plus
between 2.25 and 3.5%.
As of May 31, 1999, there were no amounts outstanding under this facility and
the borrowing rate would have been 7.69%. Our borrowings under the new senior
credit facility will be secured by all of our assets. The new senior credit
facility has a three year term. See "Description of Indebtedness."
Our principal sources of funds following this exchange offer are anticipated
to be current unrestricted cash balances, cash flows from operating activities
and borrowings under the new senior credit facility. In addition, we have
purchased and pledged to the trustee for the benefit of the holders of the
notes approximately $19.7 million of U.S. government securities to provide for
the payment of the first two scheduled interest payments under the notes. See
"Description of Notes--Interest Reserve Account." These U.S. government
securities are classified as restricted cash. We believe that these funds will
provide us with sufficient liquidity and capital resources for us to meet our
financial obligations for the next year, including the payment of principal and
interest under the notes, as well as to provide funds for our working capital,
capital expenditures and other needs. No assurance can be given, however, that
this will be the case. Depending upon our rate of growth and profitability, we
may require additional equity or debt financing to meet our working capital
requirements or capital equipment needs. There can be no assurance that
additional financing will be available when required or, if available, will be
on terms satisfactory to us.
Instruments governing our indebtedness, including the new senior credit
facility and the indenture, contain financial and other covenants that
restrict, among other things, our ability to incur additional indebtedness,
incur liens, pay dividends or make certain other restricted payments,
consummate certain asset sales, enter into certain transactions with
affiliates, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of substantially all of our
assets. Such limitations, together with our highly
42
<PAGE>
leveraged nature, could limit corporate and operating activities, including our
ability to respond to market conditions to provide for unanticipated capital
investments or to take advantage of business opportunities.
Quantitative and Qualitative Disclosures About Market Risks
The SEC's rule related to market risk disclosure requires that we describe
and quantify our potential losses from market risk sensitive instruments
attributable to reasonably possible market changes. Market risk sensitive
instruments include all financial or commodity instruments and other financial
instruments that are sensitive to future changes in interest rates, currency
exchange rates, commodity prices or other market factors. We are not exposed to
market risks from changes in foreign currency exchange rates or commodity
prices. We do not hold derivative financial instruments nor do we hold
securities for trading or speculative purposes. At December 31, 1998, we had
$100 million of long-term debt and other long-term obligations subject to
variable interest rates. However, all of this $100 million was replaced by the
issuance of $150 million of fixed rate notes in January 1999, and consequently
we currently have no risk exposure associated with changing interest rates on
debt. We are exposed to changes in interest rates on our investments in cash
equivalents. All of our investments in cash equivalents are in money market
funds that hold short-term investment grade commercial paper, treasury bills or
other U.S. government obligations. Therefore this investment policy reduces our
exposure to long-term interest rate changes. Under our current policies, we do
not use interest rate derivative instruments to manage our exposure to interest
rate changes. A hypothetical 100 basis point decline in short-term interest
rates would reduce the annualized earnings on our $15.2 million of cash
equivalent investments at December 31, 1998 by approximately $152,000. We do,
however, have market risk exposure associated with the market price on the $150
million of notes outstanding. These notes are recorded at book value which
could vary from current market prices in the future, especially if interest
rates decline. As of March 31, 1999, the market value of the notes approximated
their book value.
Inflation
We do not believe that inflation has had any material effect on our business
over the past three years.
Year 2000 Issues
Year 2000 Compliance Issues. The information in this section is a "Year 2000
Readiness Disclosure" as defined in the Year 2000 Information and Readiness
Disclosure Act of 1998 and contains forward-looking statements. These
statements include, but are not limited to, anticipated costs and the date by
which we expect to complete actions and are based on management's current
estimates, which are in turn based on assumptions about future events,
including, but not limited to, the availability of resources, representations
received from third parties and other factors. There can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from those anticipated. Specific factors that might cause material differences
include, but are not limited to, our ability to identify and remediate all
relevant systems, results of Year 2000 testing, adequate resolution of Year
2000 issues by business and other third parties that are service providers,
suppliers and customers of ours, unanticipated system costs, the adequacy of
and ability to implement contingency plans and similar uncertainties. The
forward-looking statements made in this Year 2000 discussion speak only as of
the date on which these statements are made.
Impact of the Year 2000 computer problem. The Year 2000 computer problem
refers to the potential for system and processing failures of date-related data
as a result of computer-controlled systems using two digits rather than four to
define the applicable year. For example, computer programs that have time-
sensitive software may recognize a date represented as "00" as the year 1900
rather than the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. To date, we have not experienced any
Year 2000 issues with any of our internal systems or our products, and we do
not expect to experience any of them.
43
<PAGE>
Assessment. The Year 2000 problem affects the computers, software and other
equipment that we use, operate or maintain for our operations. Accordingly, we
have organized a program team responsible for monitoring the assessment and
remediation status of our Year 2000 issues and reporting to our management.
This project team is currently assessing the potential effect and costs of
remediating Year 2000 issues for our internal systems. To date, we have not
obtained independent verification or validation to assure the reliability of
our risk and cost estimates because we do not feel that the scope of our
program warrants this time and expense.
Internal infrastructure. We believe that we have identified all major
computers, software applications and related equipment used in connection with
our internal operations that will need to be evaluated to determine if they
must be modified, upgraded or replaced to minimize the possibility of a
material disruption to our business. We are currently assessing the potential
impact of Year 2000 issues on these computers, equipment and applications. We
expect to complete this evaluation by August 1999 and will then begin
modifying, upgrading and replacing major systems that we believe have Year 2000
issues. Our long distance billing system and our accounting system are not yet
Year 2000 compliant. We are in process of replacing our long distance billing
program to accommodate future anticipated growth with a new Year 2000 compliant
system. The manufacturer of the noncompliant accounting system has provided
software that is represented to be Year 2000 compliant.
Systems other than information technology systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, security systems and other common devices may have Year 2000
issues. We are currently assessing the potential effect on and the costs of
remediating these issues, if any, for our office equipment and our facilities
in Stockton, Los Angeles, and Oakland, California and Las Vegas, Nevada.
Products. We have designed our products to be Year 2000 compliant and
believe that using our products as documented should not cause any Year 2000-
related issues. We have tested and intend to continue to test all of our
products for Year 2000 issues. While we believe our products are Year 2000
compliant, it is impractical for us to test our products in every
telecommunications systems environment or with all available combinations of
our products with components supplied by our customers or other third party
suppliers. As a result, there may be situations where the combination of our
products working with components supplied by other third parties could result
in Year 2000 issues.
Costs of remediation. We currently anticipate that our total cost of
addressing our Year 2000 issues will be $150,000, of which approximately
$102,000 has been incurred and expensed through May 31, 1999. We do not have a
separate information technology or similar budget. The cost of addressing Year
2000 issues will be reported as a general and administrative expense. We have
not deferred any material information technology projects due to our Year 2000
efforts. Since we have been working on a Year 2000 resolution for over one
year, all major decisions regarding replacement of equipment and software was
done with Year 2000 compliance as a major purchase criteria. Costs of software
upgrades and additions, as well as hardware upgrades which were required for
compatibility, enhancement, capability/capacity, or efficiency were not
considered as a Year 2000 cost.
Suppliers. We are contacting with third-party suppliers of components and
our key subcontractors used in the manufacturing of our products to identify,
and to the extent possible, resolve issues relating to the Year 2000 issue.
While we expect that we will be able to resolve any significant Year 2000 issue
identified with these third parties, because we have no control over the
actions of these parties, these third parties may not remediate any or all of
the Year 2000 issues identified. Any failure of any of these third parties to
timely resolve Year 2000 issues with either their products sold to us, or their
systems could have a material adverse effect on our business, operating results
and financial condition. We believe that many incumbent local exchange carriers
and long distance carriers are also impacted by the Year 2000 issue, which in
turn could affect us.
44
<PAGE>
Most reasonably likely worst case consequence of Year 2000 issues. We expect
to identify and resolve all Year 2000 issues that could materially adversely
affect our business operations. However, for the reasons discussed above, we
believe that it is not possible to determine with complete certainty that all
Year 2000 issues affecting us have been identified or corrected. As a result,
we believe that the following consequences are possible:
. operational inconveniences and inefficiencies for us, our contract
manufacturers and our customers that will divert our management's time
and attention and our financial and human resources from ordinary
business activities;
. business disputes and claims for pricing adjustments or penalties by our
customers due to Year 2000 issues, which we believe will be resolved in
the ordinary course of business; and
. business disputes alleging that we failed to comply with the terms and
conditions of contracts or industry standards of performance that result
in litigation on contract termination.
Contingency plans. We are currently developing contingency plans to be
implemented if our efforts to identify and correct Year 2000 issues affecting
our internal systems are not effective. We expect to complete our contingency
plans by the end of October 1999. Depending on the systems affected, these
plans could include:
. accelerated replacement of affected equipment or software;
. short to medium-term use of backup equipment and software;
. increased work hours for our personnel; and
. use of contract personnel to correct on an accelerated schedule any Year
2000 issues that arise or to provide manual workarounds for information
systems.
Our implementation of any of these contingency plans could have a material
adverse effect on our business, operating results and financial conditions.
New Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
Statement No. 133, Accounting for Derivative Instruments and for Hedging
Activities. Statement No. 133 is effective for years beginning after June 15,
1999. Statement No. 133 provides a comprehensive and consistent standard for
the recognition and measurement of derivatives and hedging activities. We do
not anticipate that the adoption of Statement No. 133 will have a material
impact on our financial position or the results of our operations.
45
<PAGE>
BUSINESS
Our Company
We are a rapidly growing competitive local exchange carrier providing
switched local and long distance telecommunications services and one-stop
integrated telecommunications services to Internet service providers, paging
companies and other inbound call service providers as well as medium and small
businesses. We built our network to capitalize on the significant growth in
national Internet usage and in the related demand for local telephone service
by regional and national Internet service providers, as well as the increasing
demand of medium and small businesses for customized and integrated
telecommunications services. We believe the structure of our network and, in
California, our presence in each local calling area provides us with
significant competitive advantages over incumbent local exchange carriers and
other competitive local exchange carriers, particularly for Internet service
providers, paging companies and other inbound call service providers. In
California, our network enables these companies to provide their business and
residential customers with access to Internet service provider, paging and
other services from almost any point in the state through a local call. Our
network development strategy of owning our switches and leasing our fiber
transport lines and our focus on telecommunications intensive customers allow
us to quickly enter new markets and generate high network utilization,
substantial revenues, strong profit margins and positive cash flows.
Markets
According to data published by the FCC, total local exchange service
revenues including business and residential services was approximately $103.0
billion in 1997. We believe that the rapid opening of local markets to
competition, accelerated growth in local traffic related to increases in
Internet access, and the desire for one-stop integrated services by small and
medium businesses present a significant opportunity for new entrants to achieve
significant penetration in this large, established market. Management believes
that the primary determinants of success will be the construction of a network
that meets the needs of target customers, rapid deployment of network assets,
building of a direct local sales force to market to small and medium businesses
and the ability to provide competitively priced services.
Our primary market is California. We own and operate switches in Los
Angeles, Oakland and Stockton, have local points of presence in all 11
California local calling areas, and have over 500 assigned local prefixes and
5.0 million telephone numbers available for use. Pac-West's local prefixes
cover 246 California rate areas and allow virtually all California callers to
access our network through a local call. Industry sources indicate that the
California market generated approximately $26.0 billion in local exchange and
long distance revenues in 1996 and has over 660 Internet service providers,
over 600,000 medium and small businesses and about 7.5 million total business
lines. Over the next two years, we intend to duplicate our proven network and
marketing strategy in other western states, including Nevada, Arizona,
Washington, Colorado, Texas, Utah, Idaho, New Mexico and Oregon. We believe
that the use of telecommunications services is rapidly expanding in each of
these areas and that we will be able to effectively use our experience in
California and our customer relationships to enter these markets.
46
<PAGE>
The following table sets forth certain information regarding the markets in
which Pac-West currently operates and our anticipated geographic network
buildouts. Since Internet service providers are often present in more than one
state, for purposes of presenting the total number of Internet service
providers, each Internet service provider is counted only once. Medium and
small businesses are defined as businesses with fewer than 100 employees.
<TABLE>
<CAPTION>
1997 Target Customer Base 1996 Revenues (in millions)
------------------------------------- --------------------------------------
Number of Number of
Internet Medium & Total Local Local
Launch Service Small Business Exchange Exchange Long Total
Period Providers Business Lines Intrastate Interstate Distance Market
------ --------- --------- ---------- ---------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current Markets:
California............. 1996 664 600,173 7,473,945 $ 8,423 $2,396 $15,142 $25,961
Planned Markets:
Arizona................ 1999 213 78,546 766,290 949 408 2,023 3,380
Colorado............... 2000 239 97,222 837,557 1,203 466 2,014 3,683
Idaho.................. 2000 111 27,562 173,788 254 132 546 932
Nevada................. 1999 166 29,854 398,604 322 154 894 1,370
New Mexico............. 2000 151 32,730 234,439 422 160 737 1,319
Oregon................. 1999 239 77,020 569,452 758 333 1,497 2,588
Texas.................. 2000 431 340,208 3,472,214 5,060 1,589 8,468 15,117
Utah................... 2000 170 36,888 340,687 404 182 739 1,325
Washington............. 1999 302 125,182 915,398 1,424 555 2,700 4,679
----- --------- ---------- ------- ------ ------- -------
Total Planned
Markets............. -- 845,212 7,708,429 10,796 3,979 19,618 34,393
--------- ---------- ------- ------ ------- -------
Total Pac-West
Markets............. 1,388 1,445,385 15,182,374 $19,219 $6,375 $34,760 $60,354
========= ========== ======= ====== ======= =======
</TABLE>
We focus on providing services to high-volume, telecommunications intensive
users and to medium and small businesses. Pac-West's customers include 76
regional and national Internet service providers, all of which have operations
in California. We believe that our greatest opportunity for rapid growth is to
continue to grow with and provide high quality services to our Internet service
provider customers. By building our network to meet demand from existing
Internet service provider customers that are increasing their capacity in
existing markets and expanding into new geographic markets, we believe we can:
(1) quickly achieve predictable, high utilization rates on newly deployed
network assets from high volume users;
(2) generate a high return on invested capital in a short period of time;
and
(3) enter new markets with a stable and growing revenue and cash flows base
upon which we can aggressively market to build a more diversified base
of revenue and customers.
Internet access service is one of the fastest growing segments of the global
telecommunications services market. International Data Corporation, a market
research firm, estimates that the number of Internet users worldwide reached 69
million in 1997 and will grow to over 320 million by the year 2002. The rapid
growth and development of the Internet has resulted in the creation of
approximately 5,000 national and local Internet service providers in the United
States. We believe that we are strategically positioned to become one of the
leading providers of telecommunications services to Internet service providers
in our target markets.
Pac-West believes many medium and small businesses have significant and
increasing needs for advanced telecommunication services that are not
adequately served by incumbent local exchange carriers or other competitive
local exchange carriers. Our target state markets have approximately 1.4
million medium and small businesses and approximately 15.2 million total
business lines in service. Many of our target customers want technologically
advanced telecommunications systems and low cost bundled services but do not
have the expertise to design, purchase and maintain these kinds of systems
themselves. We believe our complete product
47
<PAGE>
offering of system design, equipment selection and installation, and bundled
local and long distance services positions us to become a leading provider of
integrated telecommunications services to medium and small businesses, allowing
us to quickly penetrate our target markets and build customer loyalty.
Network
Our network strategy is to own our switches and lease our fiber transport
lines. We believe that this strategy provides us with significant cost and
time-to-market advantages over competitors that own both their switches and
fiber lines. By owning our switches, we can configure our network to provide
high performance, high reliability and cost-effective solutions for our
customers' needs. By leasing our transport lines, we can reduce up-front
capital expenditures, rapidly enter new markets, and provide low-cost
redundancy. In addition, we seek to maximize our operating profits by carrying
a high percentage of our customer-originated traffic on our network. Our
network development strategy of owning our switches and leasing our fiber
transport lines and our high percentage of on-network customer traffic enable
us to rapidly generate revenues and positive cash flows while avoiding the risk
of stranding our capital in underutilized fiber transport equipment.
To meet demand for telecommunications services in California, we have
established three California switching sites, one in each of Los Angeles,
Oakland, and Stockton, and digital connections in each of California's 11 local
calling areas. We believe the structure of our network and, in California, our
presence in each California local calling area provides us with significant
competitive advantages over incumbent local exchange carriers and other
competitive local exchange carriers, particularly for Internet service
providers, paging companies and other companies handling large volumes of
incoming calls. In California, our network enables our customers to provide
their business and residential customers with access to Internet, paging and
other services from almost any point in the state through a local call. In this
way, our customers can achieve statewide coverage with significantly lower
capital and operating expenses. Our switching sites offer Internet service
providers highly reliable, low cost tandem switching and the ability to build
lower cost networks by collocating equipment at our three switching sites
rather than in all 11 local calling areas. In addition, our interconnection
arrangements and statewide leased transport network allow Internet service
providers to obtain statewide coverage at local calling rates, which reduces
switching and transmission costs.
Our switching sites use Alcatel USA's tandem switches to switch calls
between originating locations and final destinations. Each port on a switch is
a data access point for entry or exit of information to and from the network.
As of March 1, 1999, we had an installed capacity of 187,000 ports and total
expandable capacity of 260,000 ports, all in California. By the end of the
second quarter of 1999, we expect to increase our California switching sites'
total expandable capacity to 345,000 ports. We plan to duplicate our network
strategy of owning our switches, leasing our fiber transport lines and
providing statewide local coverage in each of our target markets. We intend to
install new Pac-West switching sites in Nevada and Washington in 1999 and in
Arizona or Colorado in early 2000.
Leased Transmission Capacity. We lease our transmission facilities from
inter-exchange carriers, incumbent local exchange carriers and other
competitive local exchange carriers. We generally seek to lease fiber optic
transmission facilities from multiple sources in each of our current and target
markets. Management believes that our broad market coverage results in:
(1) an increased number of buildings that can be directly connected to our
switching network, which should maximize the number of customers to
which we can offer our services;
(2) a higher volume of telecommunications traffic both originating and
terminating on our network, which should result in improved operating
margins;
(3) enhanced reliability at competitive prices;
(4) the ability to leverage our investment in high capacity switching
equipment and electronics; and
48
<PAGE>
(5) the opportunity for our network to provide backhaul carriage for other
telecommunications service providers, such as long distance and
wireless carriers.
Interconnection. Our primary interconnection agreements are with Pacific
Bell and GTE. Our interconnection agreement with GTE has expired and is
currently being renegotiated. In accordance with its terms, however, this
agreement will remain in force during renegotiation. We believe that
interconnection arrangements between the incumbent local exchange carriers and
other competitive local exchange carriers will be in place at appropriate times
in other markets that we may enter. Interconnection agreements between us and
incumbent local exchange carriers are subject to approval of the relevant state
commission, and under the terms of the Telecommunications Act of 1996, each
incumbent local exchange carrier which is subject to the Telecommunications Act
of 1996 is required to negotiate an interconnection agreement with us. Where an
interconnection agreement cannot be reached on terms and conditions
satisfactory to us, we may pursue arbitration of any disputes before the state
utility commissions as provided under the Telecommunications Act of 1996. Pac-
West currently is in arbitration with Citizens Telecommunications Company of
California, Inc. in California and Nevada Bell in Nevada. See "--Regulation."
Strategy
Our objective is to become a leading provider of telecommunications services
to Internet service providers, paging companies and other companies handling
significant amounts of incoming calls as well as medium and small businesses in
each of our target markets. We plan to do this by:
Capitalizing on Growing Internet Service Provider Demand for Local Services.
Significant increases in dial-up access to the Internet have resulted in the
creation of approximately 5,000 national and local Internet service providers
in the U.S., which, in turn, has created strong demand for local access lines
nationwide. Pac-West currently has 76 regional and national Internet service
provider customers, all of which have operations in California. Many of these
Internet service providers already operate in several states and are continuing
to expand into additional markets. Also, many Internet service providers based
outside of our target markets are establishing a presence in California and
other western states. We intend to duplicate our proven network strategy in new
markets in order to serve the needs of our existing customers and attract new
customers entering those markets from other regions. The structure of our
network offers Internet service providers three primary benefits:
. switching systems which support high calling volumes and long holding
times for Internet service provider calls;
. statewide local calling capabilities through established physical
locations in each local calling area within a state, which reduces
Internet service providers' transmission costs; and
. the ability to collocate Internet modems and servers in fewer locations,
which enables Internet service providers to achieve broad geographic
coverage while minimizing capital expenditures.
We believe that by entering new markets with our existing customers, we can
reduce our risk, achieve predictable, high usage rates on our network assets,
and generate a high return on invested capital in a short period of time.
Focusing on Medium and Small Business Market. We believe that medium and
small businesses have significant and increasing needs for advanced
telecommunication services. Many of our target customers want technologically
advanced telecommunications systems along with low cost bundled local, long
distance, data and other enhanced services but do not have the expertise to
design, purchase and maintain these kinds of systems and services themselves.
We believe that these target customers are not adequately served by incumbent
local exchange carriers and other competitive local exchange carriers. We
intend to become a leading provider of integrated telecommunications services
by offering a complete product offering of system design, equipment selection
and installation along with bundled local and long distance services. We
believe that this product mix will enable us to quickly penetrate target
markets and build customer loyalty.
49
<PAGE>
Expanding Our Direct Sales Force. To achieve significant revenue growth in
the medium and small business services market, we have and will continue to
expand our direct sales force and use independent sales agents in selected
markets. From September 1998 to December 1998, our direct, internal sales force
increased from 25 to 46 professionals, and to 58 professionals as of March 1,
1999. We believe that employing a direct sales force and independent sales
agents with extensive local market and telecommunications sales experience
enhances the likelihood of success in new markets. Salespeople with experience
in a particular market provide us with extensive knowledge of our target
customer base through existing relationships with target customers. As a
result, our salespeople are able to pre-sell our products and services before
we initiate network operations in a particular market.
Targeting California and Western United States. Our primary market is
currently California. After completing our planned expansion, we expect to
offer coverage throughout the Western United States, one of the fastest growing
regional markets for business telecommunications services in the country. We
select our target markets based on a number of considerations, including the
number of potential customers and other competitors in those markets and the
presence of multiple transmission facility suppliers. Our target markets had
approximately 1,400 Internet service providers, 1.4 million medium and small
businesses and 15.2 million business lines in 1997, and generated approximately
$60.4 billion of local exchange and long distance revenues in 1996. We believe
that our geographically clustered network will enable us to take advantage of
regional calling patterns to transmit a large percentage of customer traffic on
our network. We also believe that by originating and terminating calls on our
network, we can continue to achieve significant cost savings and may develop
some pricing advantages over our competition.
Leasing Our Fiber Transport Lines. Virtually all of our planned capital
expenditures are intended to accommodate our growing customer base and the
increasing needs of our existing customers. We believe this strategy reduces
capital deployment risks and will provide an attractive return on invested
capital. In addition, we believe that our strategy of leasing our fiber
transport lines provides us with significant cost and time-to-market advantages
over competitors who own rather than lease their transport.
Installing Advanced, Uniform Equipment. We have chosen Alcatel USA's digital
tandem switches to switch calls between originating locations and final
destinations. Due to their high call carrying capacity, multiple path call
routing capabilities and ability to switch multiple digital, voice and data
applications of varying bandwidths, tandem switches are ideally suited for
handling the high volumes and long holding times involved in serving Internet
service provider customers. Tandem switches, software and customer collocation
facilities, provide the scale, switching capacity and standardization needed to
efficiently and reliably serve our target customers. Our uniform and advanced
switching platform combined with the structure of our computer network enable
us to:
. deploy features and functions quickly throughout our entire network;
. expand switch and transport capacity in a cost-effective, demand-based
manner;
. lower maintenance costs through reduced training and spare parts
requirements; and
. achieve direct connectivity to wireless and other personal communication
system applications in the future.
Expanding Our Customer Base Through Potential Acquisitions. We may acquire
other competitive local exchange carriers or other telecommunications providers
to grow our business. We believe that strategic acquisitions may enable us to
accelerate our market penetration, cross-sell additional services, diversify
our customer base and improve operating profitability.
Products and Services
Our products and services are designed to appeal to the sophisticated
telecommunications needs of our target customers.
50
<PAGE>
Local Services. We provide local dial-tone services to customers, allowing
them to complete calls in a local calling area and to access long distance
carriers. Local services and long distance services can be bundled together
using the same transport facility. Our network is designed to allow a customer
to easily increase or decrease capacity and alter enhanced services as the
telecommunications requirements of the business change. In addition to our core
local services, we also provide access to third party directory assistance and
operator services.
Long Distance Services. We provide domestic and international long distance
services. Long distance calls which do not terminate on our network are passed
to long distance carriers which route the remaining portion of the call. Our
ability to integrate local and long distance services allows us to aggregate
customers' monthly recurring, local usage and long distance charges on a
single, consolidated invoice.
Specialized Application Services. We tailor products and services for target
industries with special telecommunications needs. These services typically
include rated local calling, expanded local calling area, discounted long
distance rates and tailored trunking configurations.
Internet Service Provider Services. We provide Internet service providers
collocation services at each of our three California switch locations.
Collocation enables an Internet service provider to install its equipment in
any or all of our switch facilities and interconnect directly to our tandem
switches to switch calls from their originating locations to their final
destinations. Collocated equipment is protected by the same cooling, power
back-up and security systems protecting our switches. In California, an
Internet service provider's ability to collocate equipment at only three sites,
rather than in all 11 local calling areas, reduces its capital expenditures and
maintenance requirements. We receive monthly rental revenue from the Internet
service provider for the space used. Pac-West is also in the process of
introducing a managed modem service where we provide modem pools and dedicated
circuits into the worldwide web for our Internet service provider customers.
Enhanced Services. In addition to providing typical enhanced services such
as voicemail, call transfer and conference calling, we offer additional value-
added enhanced services to complement our core local and long distance
services. These enhanced service offerings include:
Internet Access Services--Enables customers to use their available
capacity for access to Internet service providers.
Data Networking Services--We provide high-speed, broadband services to
use for data communications, such as private corporate networks.
Digital Subscriber Line Services--We expect to offer high-speed digital
subscriber line service to our Internet service provider and business
customers through a reseller relationship with a major digital subscriber
line supplier.
Equipment Sales. System design and equipment sales and installation are
essential components of our strategy of marketing to medium and small
businesses. We offer our business customers technologically advanced systems
bundled together with local and long distance services.
Sales and Marketing
Sales. We are building an experienced direct sales force. We recruit
salespeople with strong sales backgrounds in our existing and target markets,
including salespeople from long distance companies, telecommunications
equipment manufacturers, network systems integrators and incumbent local
exchange carriers. We plan to continue to attract and retain highly qualified
salespeople by offering them an opportunity to work with an experienced
management team in an entrepreneurial environment and to participate in the
potential economic rewards made available through a results-oriented
compensation program that emphasizes sales commissions.
During the months prior to initiating service in a new market, our
salespeople will begin pre-selling our services to target customers. This pre-
selling effort is designed to shorten the period between the availability of
service and the receipt of customer orders and to generate customers in each
market who may enter into service agreements before the local Pac-West network
becomes operational.
51
<PAGE>
Marketing. In its existing markets, Pac-West seeks to position itself as a
high quality alternative to incumbent local exchange carriers for local
telecommunication services by offering network reliability and superior
customer support at competitive prices. We intend to build our reputation and
brand identity by working closely with our customers to develop services
tailored to their particular needs and by implementing targeted advertising and
promotional efforts, which will be gradually expanding to mass media.
Customer and Technical Service. Management believes that our ability to
provide superior customer and technical service is a key factor in acquiring
new customers and reducing churn of existing customers. We have developed a
customer service strategy designed to effectively meet the service requirements
of our target customers. The principal salesperson for each customer will
provide the first line of customer service by identifying and resolving any
customer concerns. Customer service representatives will provide real time
problem identification and resolution and superior customer service. All of
these services will be supported by our experienced engineering and technical
staff.
Customers
We focus on providing services to high volume telecommunications users,
including Internet service providers, paging companies, call centers and medium
and small businesses. Nine of our top fifteen customers are Internet service
providers. For the year ended December 31, 1997 and 1998 and for the three
month period ended March 31, 1999, Internet service providers accounted for
approximately 16.2%, 23.3% and 28.4%, respectively, of our revenues, not
including reciprocal compensation related to terminating calls to Internet
service providers.
The following is a list of some of our Internet service provider and paging
customers:
<TABLE>
<CAPTION>
Internet Service Providers Paging Companies
-------------------------- ----------------
<S> <C>
Concentric Network Corp. Metrocall, Inc
EarthLink, Inc. PageMart Wireless, Inc.
Frontier Global Center, Incorporated California Wireless, Inc.
The Grid Inc.
InReach Internet LLC
JPS.Net Corp.
Mindspring Enterprises, Inc.
Slip.Net, Inc.
</TABLE>
Our business customers include regional banks, alarm companies, universities,
healthcare providers, real estate agencies, law firms and others.
Sales to Bay Alarm Company and InReach Internet LLC collectively accounted
for approximately 7.1%, 6.4% and 4.5%, respectively, of our revenues for the
year ended December 31, 1997 and 1998 and for the three month period ended
March 31, 1999. Mr. Bruce A. Westphal, who serves on our board of directors, is
the principal stockholder and serves as Chairman of the Board of both Bay Alarm
Company and InReach Internet LLC.
Competition
The telecommunications industry is highly competitive. We believe that the
principal competitive factors affecting our business will be pricing levels and
pricing policies, customer service, accurate billing and, to a lesser extent,
variety of services. Our ability to compete effectively will depend upon our
continued ability to maintain high quality, market-driven services at prices
generally equal to or below those charged by our competitors. To maintain our
competitive posture, we believe that we must be in a position to reduce our
prices in order to meet reductions in rates, if any, by others. Any such
reductions could adversely affect us. Many of our current and potential
competitors have financial, personnel and other resources, including brand name
recognition, substantially greater than ours as well as other competitive
advantages over us.
52
<PAGE>
Incumbent Local Exchange Carriers. In each of the markets we target, we will
compete principally with the incumbent local exchange carrier serving that
area, such as Pacific Bell and GTE in California. Some incumbent local exchange
carriers, including GTE, are offering long distance services to their local
telephone customers. The regional Bell operating companies, including Pacific
Bell, are actively seeking removal of federal regulatory restrictions that
prevent them from entering the long distance market. Many experts expect the
regional Bell operating companies to be successful in entering the long
distance market in a few states within the next two years and in most states
within a year or two thereafter. We believe the regional Bell operating
companies expect to offset market share losses in their local markets by
capturing a significant percentage of the long distance market between local
calling areas, especially in the residential segment where the regional Bell
operating companies' strong regional brand names and extensive advertising
campaigns may be very successful. See "--Regulation."
As a relatively recent entrant in the integrated telecommunications services
industry, we have not achieved and do not expect to achieve a significant
market share for any of our services. In particular, the regional Bell
operating companies and other local telephone companies have long-standing
relationships with their customers, have financial, technical and marketing
resources substantially greater than ours, have the potential to subsidize
competitive services with revenues from a variety of businesses, have long-
standing relationships with regulatory authorities at the federal and state
levels, and currently benefit from certain existing regulations that favor the
incumbent local exchange carriers over us in certain respects. While recent
regulatory initiatives, which allow competitive local exchange carriers such as
ourselves to interconnect with incumbent local exchange carrier facilities,
provide us with increased business opportunities, such interconnection
opportunities have been, and likely will continue to be, accompanied by
increased pricing flexibility for and relaxation of regulatory oversight of the
incumbent local exchange carriers.
With respect to competitive access services, the FCC recently proposed a
rule that would provide for increased incumbent local exchange carrier pricing
flexibility and deregulation for such access services either automatically or
after certain competitive levels are reached. If the incumbent local exchange
carriers are allowed by regulators to offer discounts to large customers
through contract tariffs, engage in aggressive volume and term discount pricing
practices for their customers, and/or seek to charge competitors excessive fees
for interconnection to their networks, the income of competitors to the
incumbent local exchange carriers, including us, could be materially adversely
affected. If future regulatory decisions afford the incumbent local exchange
carriers increased access service pricing flexibility or other regulatory
relief, such decisions could also have a material adverse effect on competitors
to the incumbent local exchange carrier, including ourselves.
Competitive Access Carriers/Competitive Local Exchange Carriers/Other Market
Entrants. We also face, and expect to continue to face, competition from other
current and potential market entrants, including long distance carriers seeking
to enter, reenter or expand entry into the local exchange market such as AT&T,
MCI Worldcom, and Sprint, and from other competitive local exchange carriers,
out-of-region incumbent local exchange carriers, resellers of local exchange
services, cable television companies, electric utilities, microwave carriers,
wireless telephone system operators and private networks built by large end
users. In addition, a continuing trend toward mergers, acquisitions and
strategic alliances in the telecommunications industry could also increase the
level of competition we face. Consolidation is also occurring in the incumbent
local exchange carrier industry, such as the proposed plans for mergers between
SBC and Ameritech, and between Bell Atlantic and GTE. These types of
consolidations and alliances could put us at a competitive disadvantage.
The Telecommunications Act of 1996 imposes certain regulatory requirements
on all local exchange carriers, including competitors such as ourselves, while
granting the FCC expanded authority to reduce the level of regulation
applicable to any or all telecommunications carriers, including incumbent local
exchange carriers. The manner in which these provisions of the
Telecommunications Act of 1996 are implemented and enforced could have a
material adverse effect on our ability to successfully compete against
incumbent local exchange carriers and other telecommunications service
providers.
53
<PAGE>
The changes in the Telecommunications Act of 1996 radically altered the
market opportunity for traditional competitive local exchange carriers. Because
many existing competitive local exchange carriers initially entered the market
providing dedicated access in the pre-1996 era, they had to build a fiber
infrastructure before offering services. Switches were added by most
competitive local exchange carriers since 1996 to take advantage of the opening
of the local market. With the Telecommunications Act of 1996 requiring
unbundling of the incumbent local exchange carrier networks, competitive local
exchange carriers are now able to enter the market more rapidly by installing
switches and leasing fiber transport capacity until traffic volume justifies
building facilities. New competitive local exchange carriers will not have to
replicate existing facilities and can be more opportunistic in designing and
implementing networks.
Competition for Provision of Long Distance Services. The long distance
telecommunications industry has numerous entities competing for the same
customers and a high average churn rate, as customers frequently change long
distance providers in response to the offering of lower rates or promotional
incentives by competitors. Prices in the long distance market have declined
significantly in recent years and are expected to continue to decline.
Internet Service Providers. The competition for Internet service provider
customers in the telecommunications industry is high and we expect that
competition will intensify. In addition, alternative competing technologies
regarding this service may emerge. Our competitors in this market include other
telecommunications companies, including integrated online services providers
with their own communications networks. Many of these competitors have greater
financial, technological, marketing, personnel and other resources than ours.
Competition from International Telecommunications Providers. Under the
recent World Trade Organization agreement on basic telecommunications services,
the United States and 68 other members of the World Trade Organization
committed themselves to opening their respective telecommunications markets
and/or foreign ownership and/or to adopting regulatory measures to protect
competitors against anticompetitive behavior by dominant telecommunications
companies, effective in some cases as early as January 1998. Although we
believe that the World Trade Organization agreement could provide us with
significant opportunities to compete in markets that were not previously
accessible and to provide more reliable services at lower costs than we could
have provided prior to implementation of the World Trade Organization
agreement, it could also provide similar opportunities to our competitors.
There can be no assurance that the pro-competitive effects of the World Trade
Organization agreement will not have a material adverse effect on our business,
financial condition and results of operations or that members of the World
Trade Organization will implement the terms of the World Trade Organization
agreement.
Regulation
Our telecommunications services business is subject to varying degrees of
federal, state and local regulation.
Federal Regulation
The FCC regulates interstate and international telecommunications services.
We provide service on a common carrier basis. The FCC imposes certain
regulations on common carriers such as the regional Bell operating companies
that have some degree of market power. The FCC imposes less regulation on
common carriers without market power including, to date, competitive local
exchange carriers. Among other obligations, common carriers are generally
subject to nondiscrimination and tariff filing requirements, as well as certain
service reporting requirements. The FCC also 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.
54
<PAGE>
In August 1996, the FCC released an interconnection decision establishing
rules implementing the Telecommunications Act of 1996 requirements that
incumbent local exchange carriers negotiate interconnection agreements and
providing guidelines for review of such agreements by state public utilities
commissions. On July 18, 1997, the Eighth Circuit vacated certain portions of
the interconnection decision, including provisions establishing a pricing
methodology and a procedure permitting new entrants to pick and choose among
various provisions of existing interconnection agreements between incumbent
local exchange carriers and their competitors. On October 14, 1997, the Eighth
Circuit issued a decision vacating additional FCC rules affecting the use of
combinations of an incumbent local exchange carrier's unbundled network
elements. On January 25, 1999, the Supreme Court reversed most aspects of the
Eighth Circuit's holdings with respect to FCC jurisdiction and, among other
things, declared that the FCC has general authority under the
Telecommunications Act of 1996 to promulgate regulations governing local
interconnection pricing, including regulations governing reciprocal
compensation. The Supreme Court also found that the FCC had the authority to
promulgate a pick and choose rule, and upheld most of the FCC's rules governing
access to unbundled network elements. The Court, however, remanded to the FCC
its designation of unbundled network elements based on the FCC's use of an
improper standard to determine whether an unbundled element must be made
available.
The Eighth Circuit decisions and their recent reversal by the Supreme Court
perpetuate continuing uncertainty about the rules governing the pricing, terms
and conditions of interconnection agreements. The Supreme Court's action in
particular may require or trigger the renegotiation of existing agreements.
Although state public utilities commissions have continued to conduct
arbitrations, and to implement and enforce interconnection agreements during
the pendency of the Eighth Circuit proceedings, the Supreme Court's recent
ruling and further proceedings on remand at the Eighth Circuit or the FCC may
affect the scope of state commissions' authority to conduct such proceedings or
to implement or enforce interconnection agreements. They could also result in
new or additional rules being promulgated by the FCC. Given the general
uncertainty surrounding the effect of the Eighth Circuit decisions and the
recent decision of the Supreme Court reversing them, there can be no assurance
that we will be able to continue to obtain or enforce interconnection terms
that are acceptable to us or that are consistent with our business plans.
The Telecommunications Act of 1996 is intended to increase competition. The
act opens the local services market by requiring incumbent local exchange
carriers to permit interconnection to their networks and establishing incumbent
local exchange carrier obligations with respect to:
Reciprocal Compensation. Requires all incumbent local exchange carriers
and competitive local exchange carriers to complete calls originated by
competing carriers under reciprocal arrangements at prices based on a
reasonable approximation of incremental cost or through mutual exchange of
traffic without explicit payment.
Resale. Requires all incumbent local exchange carriers and competitive
local exchange carriers to permit resale of their telecommunications
services without unreasonable restrictions or conditions. In addition,
incumbent local exchange carriers are required to offer wholesale versions
of all retail services to other telecommunications carriers for resale at
discounted rates, based on the costs avoided by the incumbent local
exchange carrier in the wholesale offering.
Interconnection. Requires all incumbent local exchange carriers and
competitive local exchange carriers to permit their competitors to
interconnect with their facilities. Requires all incumbent local exchange
carriers 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 in the
incumbent local exchange carriers' premises must be offered, except where
an incumbent local exchange carrier can demonstrate space limitations or
other technical impediments to collocation.
Unbundled Access. Requires all incumbent local exchange carriers to
provide nondiscriminatory access to unbundled network elements, including
certain network facilities, equipment, features, functions,
55
<PAGE>
and capabilities, at any technically feasible point within their networks.
Such access must be on nondiscriminatory terms, at prices based on cost,
which may include a reasonable profit.
Number Portability. Requires all incumbent local exchange carriers and
competitive local exchange carriers to permit users of telecommunications
services to retain existing telephone numbers without impairment of
quality, reliability or convenience when switching from one
telecommunications carrier to another.
Dialing Parity. Requires all incumbent local exchange carriers and
competitive local exchange carriers to provide "1+" equal access to
competing providers of telephone exchange service and toll service, and to
provide nondiscriminatory access to telephone numbers, operator services,
directory assistance, and directory listing, with no unreasonable dialing
delays.
Access to Rights-of-Way. Requires all incumbent local exchange carriers
and competitive local exchange carriers to permit competing carriers access
to poles, ducts, conduits and rights-of-way at regulated prices.
Incumbent local exchange carriers 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 arbitration of the disputed issues by the state regulatory
commission. Where an agreement has not been reached, incumbent local exchange
carriers remain subject to interconnection obligations established by the FCC
and state telecommunication regulatory commissions.
On May 8, 1997, the FCC released an order establishing a significantly
expanded federal universal service subsidy regime. For example, the FCC
established new subsidies for telecommunications and information services
provided to qualifying schools and libraries with an annual cap of $2.3 billion
and for services provided to rural health care providers with an annual cap of
$400.0 million. The FCC also expanded the federal subsidies for local exchange
telephone service provided to low-income consumers. Providers of interstate
telecommunications service, such as ourselves, as well as certain other
entities, must pay for these programs. Our share of these federal subsidy funds
will be based on our share of certain defined telecommunications end-user
revenues. Currently, the FCC is assessing such payments on the basis of a
provider's revenue for the previous year. We are paying approximately $16,000
per month in subsidy payments during the first half of 1999. To offset this
expense, we currently charge our customers a surcharge on all interstate usage,
subject to periodic adjustment. The FCC is currently in the process of revising
its rules for subsidizing service provided to consumers in high cost areas,
which may result in further substantial increases in the overall cost of the
subsidy program. The FCC postponed the projected effective date of this
revision to January 1, 2000. Several parties have appealed the May 8th order.
Such appeals have been consolidated and transferred to the United States Court
of Appeals for the Fifth Circuit where they are currently pending. The FCC and
a federal-state joint board also are continuing to examine and revise various
aspects of universal service. We cannot predict the effect that further
regulatory or judicial revision of the universal service regime will have on
our business, financial condition or results of operations.
The Telecommunications Act of 1996 codifies the incumbent local exchange
carriers' equal access and nondiscrimination obligations and preempts
inconsistent state regulation. The Telecommunications Act of 1996 also contains
special provisions that eliminate the AT&T Antitrust Consent Decree and similar
antitrust restrictions on the regional Bell operating companies restricting the
regional Bell operating companies from providing long distance services and
engaging in telecommunications equipment manufacturing. The Telecommunications
Act of 1996 permitted the regional Bell operating companies to enter the out-
of-region long distance market immediately upon its enactment. Further,
provisions of the Telecommunications Act of 1996 permit a regional Bell
operating company to enter the long distance market in its traditional service
area if it satisfies several procedural and substantive requirements in those
states in which it seeks long distance relief. These requirements include
obtaining FCC approval upon a showing that the regional Bell operating company
has entered into interconnection agreements or, under some circumstances, has
offered to do so. The interconnection agreements must satisfy a 14-point
checklist of competitive requirements and the FCC must be
56
<PAGE>
satisfied that the regional Bell operating companies' entry into long distance
markets is in the public interest. To date, several petitions by regional Bell
operating companies for such entry have been denied by the FCC and none has
been granted.
Under the Telecommunications Act of 1996, any entity, including cable
television companies and electric and gas utilities, may enter any
telecommunications market, subject to reasonable state regulation of safety,
quality and consumer protection. Because implementation of the
Telecommunications Act of 1996 is subject to numerous federal and state policy
rulemaking proceedings and judicial review there is still uncertainty as to
what impact such legislation will have on us, but it is likely to encourage
additional competitive entry in markets we serve.
In accordance with authority granted by the FCC, we resell the international
telecommunications services of other common carriers between the United States
and international points. In connection with such authority, we have filed
tariffs with the FCC stating the rates, terms and conditions for our
international services.
With respect to our domestic service offerings, we have filed tariffs with
the FCC stating the rates, terms and conditions for our interstate services.
Our tariffs are generally not subject to pre-effective review by the FCC, and
can be amended on one day's notice. Our interstate services are provided in
competition with interexchange carriers and, with respect to access services,
the incumbent local exchange carriers.
In October 1996, the FCC adopted an order eliminating the requirement that
non-dominant interstate carriers such as ourselves maintain tariffs on file
with the FCC for domestic interstate services. This order applies to all non-
dominant interstate carriers, including AT&T. The order does not apply to the
switched and special access services of the regional Bell operating companies
or other local exchange providers. 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 the merits. Currently, that
temporary stay remains in effect. If the stay is lifted and the FCC order
becomes effective, telecommunications carriers such as ourselves will no longer
be able to rely on the filing of tariffs with the FCC as a means of providing
notice to customers of prices, terms and conditions on which they offer their
interstate services. In June 1997, the FCC issued another order which allows
non-dominant carriers, such as ourselves, to offer interstate access services
without the filing of tariffs. The obligation to provide non-discriminatory,
just and reasonable prices remains unchanged under the Communications Act of
1934. While tariffs provided a means of providing notice of prices, terms and
conditions, we intend to rely primarily on our sales force and direct marketing
to provide such information to our customers.
With limited exceptions, the current policy of the FCC for most interstate
access services dictates that incumbent local exchange carriers charge all
customers the same price for the same service. Thus, the incumbent local
exchange carriers generally cannot lower prices to those customers likely to
contract for their services without also lowering charges for the same service
to all customers in the same geographic area, including those whose
telecommunications requirements would not justify the use of such lower prices.
The FCC may, however, alleviate this constraint on the incumbent local exchange
carriers and permit them to offer special rate packages to very large
customers, as it has done in a few cases, or permit other forms of rate
flexibility. The FCC has adopted some proposals that significantly lessen the
regulation of incumbent local exchange carriers that are subject to competition
in their service areas and provide such incumbent local exchange carriers with
additional flexibility in pricing their interstate switched and special access
on a central office specific basis; and, as discussed in the following
paragraph, is considering expanding such flexibility.
To the extent we provide interexchange telecommunications service, we are
required to pay access charges to incumbent local exchange carriers and other
competitive local exchange carriers when we use the facilities of those
companies to originate or terminate interexchange calls. Also, as a competitive
local exchange carrier, we provide access services to other interexchange
service providers. The interstate access charges of incumbent local exchange
carriers are subject to extensive regulation by the FCC, while those of
competitive local exchange carriers are subject to a lesser degree of FCC
regulation but remain subject to the requirement that all
57
<PAGE>
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 to
the interstate access charge structure. In the December 24th order, the FCC
removed restrictions on incumbent local exchange carriers' ability to lower
access prices and relaxed the regulation of new switched access services in
those markets where there are other providers of access services. If this
increased pricing flexibility is not effectively monitored by federal
regulators, it could have a material adverse effect on our ability to compete
in providing interstate access services. The May 16th order substantially
increased the costs that price cap incumbent local exchange carriers subject to
the FCC's price cap rules, recover through monthly, non-traffic-sensitive
access charges and substantially decreased the costs that price cap incumbent
local exchange carriers recover through traffic-sensitive access charges. In
the May 16th order, which was upheld on appeal by the United States Court of
Appeals for the Eighth Circuit, the FCC also announced its plan to bring
interstate access rate levels more in line with costs. The plan will include
rules that may grant price cap incumbent local exchange carriers increased
pricing flexibility upon demonstrations of increased or potential competition
in relevant markets. The manner in which the FCC implements this approach to
lowering access charge levels could have a material effect on our ability to
compete in providing interstate access services.
On February 26, 1999, the FCC issued a declaratory ruling on the issue of
inter-carrier compensation for calls bound to Internet service providers. The
FCC ruled that the calls are jurisdictionally mixed, but largely interstate
calls. The FCC, however, determined that this issue did not resolve the
question of whether inter-carrier reciprocal compensation is owed for such
calls under existing interconnection agreements. The FCC noted a number of
factors that would allow the state public utilities commissions to continue to
require the payment of reciprocal compensation. Since the issuance of the FCC
decision, thirteen states have issued decisions either initially or on
reconsideration of existing decisions. In each case, the commission determined
compensation is owed. In Massachusetts, however, the commission vacated its
earlier decision because, in its view, its decision was based solely on a
ground rejected by the FCC and in Missouri the commission determined that the
parties would be subject to a reconciliation once the FCC determines the issue
of the amount of compensation owed. Until then, compensation should be tracked
but it does not have to be paid. We cannot predict the impact of the FCC's
ruling on existing state decisions, the outcome of pending appeals or future
litigation on this issue.
State Regulation
State regulatory agencies have regulatory jurisdiction when Pac-West
facilities and services are used to provide intrastate services. A significant
portion of our current traffic is classified as intrastate and therefore
subject to state regulation. To provide intrastate services, we generally must
obtain a certificate of public convenience and necessity from the state
regulatory agency and comply with state requirements for telecommunications
utilities, including state tariffing requirements. We have obtained such
certificates to provide local exchange and intrastate toll service in
California, Nevada, Washington and Oregon, an application is pending in
Arizona, and we intend to file applications for such authority in the near
future for Colorado, Idaho, Montana, Utah, New Mexico, Texas and Wyoming. There
can be no assurance that such state authorizations will be granted. Most states
in which we operate or propose to operate also requires us to seek approval for
any transfers of control.
In addition, the implementation of the Telecommunications Act of 1996 is
subject to numerous state rulemaking proceedings on these issues, it is
currently difficult to predict how quickly full competition for local services,
including local dial tone, will be introduced. Furthermore, the
Telecommunications Act of 1996 provides that state public utilities commissions
have significant roles in determining the content of interconnection
agreements, including the responsibility to conduct the mandatory arbitration
proceedings called for by the Telecommunications Act of 1996. The actions of
the state public utilities commissions are subject to the Telecommunications
Act of 1996 and, in several respects, the FCC's interpretations thereof. For
example, the FCC has determined that the state public utilities commissions
will continue to determine whether reciprocal compensation will be included in
arbitrated interconnection agreements.
58
<PAGE>
On October 22, 1998, the California Public Utilities Commission issued a
decision holding that local telephone calls placed to Internet service
providers terminate at the Internet service providers' modem and are thus local
calls entitled to reciprocal compensation. On November 30, 1998, Pacific Bell
and GTE filed applications for rehearing of the October 22, 1998 decision,
which was denied on July 22, 1999. The California Public Utilities Commission
may grant or deny rehearing, or may commence a separate generic proceeding to
develop its prospective policy regarding reciprocal compensation. We cannot
predict the outcome of these California Public Utilities Commission proceedings
or of future appeals, of additional pending cases involving related issues, or
of the applicability of such proceedings to our interconnection agreement with
Pacific Bell or GTE. As a result, no assurance can be given that we will
collect the reciprocal compensation previously withheld by Pacific Bell and GTE
or whether we will be entitled to reciprocal compensation for these types of
calls in the future. Internet service providers currently form a significant
part of our customer base in California and adverse decisions in these
proceedings could limit our ability to serve this group of customers profitably
and have a material adverse effect on us.
We expect that reciprocal compensation will continue to represent a
significant portion of our revenues in the future although we expect that the
per minute reciprocal compensation rate may decline significantly under new
interconnection agreements. We are currently in the process of renegotiating
our interconnection agreement and the terms of our reciprocal compensation
arrangements with GTE, and no assurance can be given concerning the outcome of
these negotiations or any arbitration under Section 252 which may occur in the
absence of successful negotiations.
On November 16, 1998, Pacific Bell filed a Petition for Arbitration of an
interconnection agreement in accordance with Section 252(b) of the
Telecommunications Act of 1996. This agreement would replace the
interconnection agreement which was executed in 1996. This petition proposed
that telephone calls to Internet service providers be excluded from calls
subject to reciprocal compensation. This petition also proposed that calls made
to a number assigned to the calling party's rate center but routed to a second
rate center be deemed interexchange toll-free calls for which Pacific Bell
would be entitled to compensation for providing switched access. Pacific Bell
asserts that, because such calls would allow certain calling parties to
complete calls to Internet service providers or other customers in another rate
center without toll charges, these calls are essentially toll-free in nature. A
previous decision of general application issued by the California Public
Utilities Commission in October of 1998 held that calls to Internet service
providers are subject to the payment of reciprocal compensation. We have
asserted that because calls routed to a second rate center are placed by
dialing a number assigned to the calling party's rate center and not using 8XX
toll-free processing that these calls should not be considered toll-free. See
"Risk Factors--A failure to establish interconnection agreements on favorable
terms would adversely affect our business" and "--We may not be entitled to
receive reciprocal compensation for calls to Internet service providers."
On June 24, 1999, the California Public Utilities Commission adopted a
decision (D.99-06-088) which adopted the terms of the interconnection agreement
between Pac-West and Pacific Bell resulting from the arbitration process
commenced by the petition. The decision provides that until such time as the
October 1998 decision regarding reciprocal compensation is modified, reciprocal
compensation is payable by Pacific Bell for calls to Internet service provider
customers of Pac-West, and that Pacific Bell's position concerning toll free
calls was rejected. The decision also adopts per minute rate levels for
reciprocal compensation based on Pacific Bell's approved costs, and these rate
levels are substantially lower than the rates under the 1996 interconnection
agreement. The parties were ordered to sign an interconnection agreement
incorporating these and other results of the arbitration process, and the new
interconnection agreement became effective on June 29, 1999. Pacific Bell has
requested a rehearing of this matter. This decision does not address reciprocal
compensation withheld under the prior agreement and we do not know at this time
what action Pacific Bell will take with respect to this decision.
On July 22, 1998, the California Public Utilities Commission issued a ruling
soliciting comments on the rating and routing of telephone calls between rate
centers. Specifically, the California Public Utilities
59
<PAGE>
Commission inquired whether a carrier should be allowed to provide customers
with local telephone numbers for rate centers in which the customers are not
located and where a carrier has no physical facilities and, if so, how inter-
carrier compensation should be accomplished for calls to such customers.
Comments were filed in August and September 1998. We often provide service to
our Internet service provider customers using this method. A prohibition on
this service would impair our ability to provide service to our customers. The
new interconnection agreement described above which results from the
arbitration process is subject to the outcome of this proceeding. We presently
claim reciprocal compensation based on these calls. A California Public
Utilities Commission decision holding that such calls are not entitled to
reciprocal compensation could result in a substantial loss of revenue to us. On
July 6, 1999, an administrative law judge release a draft decision in this
proceeding finding that carriers can provide customers with local telephone
numbers for rate centers in which the customer is not located and where a
carrier has no physical facilities. The draft decision defers the resolution of
intercarrier compensation issues in such circumstances to further evidentiary
proceedings. After receiving comments, the California Public Utilities
Commission will vote on the draft decision at a meeting after August 6, 1999.
While the ultimate results of this proceeding are unknown, we expect that we
will not be prohibited from providing service using this method. See "Risk
Factors--A failure to establish interconnection agreements on favorable terms
would adversely affect our business," "--We may not be entitled to receive
reciprocal compensation for calls to Internet service providers" and "--We may
not be able to obtain or retain our key Internet service provider customers,
which account for a significant portion of our revenues."
Local Regulation
Our networks are subject to numerous local regulations such as building
codes and licensing requirements. Such regulations vary on a city by city and
county by county basis. To the extent we decide in the future to install our
own fiber optic transmission facilities, we will need to obtain rights-of-way
over private and publicly owned land and pole attachment authorizations. There
can be no assurance that such rights-of-way or authorizations will be available
to us on economically reasonable or advantageous terms. We could also be
subject to unexpected franchise requirements and could be required to pay
license or franchise fees based on a percentage of gross revenues or some other
formula.
Regulatory Proceedings
Litigation
On October 8, 1997, Pacific Bell filed a complaint against us in the San
Francisco County Superior Court seeking a declaratory ruling that the
interconnection agreement between it and ourselves does not require it to pay
reciprocal compensation for calls that its end users make to our Internet
service provider customers. Pacific Bell argued that such calls to Internet
service providers are not local calls within the meaning of the agreement even
though they are dialed and billed as local calls. In addition to the
declaratory ruling, Pacific Bell sought an accounting and restitution by Pac-
West of all payments Pacific Bell made to us under that agreement for calls
which we completed to Internet service providers. We filed a demurrer to the
complaint, seeking a stay of any further action by the court on the basis that
the California Public Utilities Commission has primary jurisdiction over the
complaint. The court granted our demurrer in part on October 23, 1997, staying
Pacific Bell's action pending California Public Utilities Commission review of
issues in Pacific Bell's complaint.
Jurisdiction over and Compensation for Internet Service Provider Traffic
We derive a substantial portion of our revenue from incumbent local exchange
carriers in the form of reciprocal compensation payments. For the years ended
December 31, 1997 and 1998 and the three months ended March 31, 1999,
reciprocal compensation payments accounted for approximately 37.4%, 37.1% and
42.1%, respectively, of our revenue. We expect that reciprocal compensation
will continue to represent a significant portion of our revenue for the
foreseeable future. The two incumbent local exchange carriers with which we
have interconnection agreements, Pacific Bell and GTE, have refused to pay that
portion of reciprocal compensation that they estimate is the result of
terminating calls to Internet service providers. These incumbent local exchange
carriers contend that such calls are not local calls within the meaning of
their respective interconnection agreements and claim that reciprocal
compensation is therefore not payable. The
60
<PAGE>
total reciprocal compensation withheld by these incumbent local exchange
carriers and not included in revenue was $3.8 million, $32.6 and $13.4 million
for the years ended December 31, 1997 and 1998 and for the three month period
ended March 31, 1999, respectively. See "Risk Factors--A failure to establish
interconnection agreements on favorable terms would adversely affect our
business" and "--We may not be entitled to receive reciprocal compensation for
calls to Internet service providers."
On November 21, 1997, we filed a complaint against Pacific Bell requesting,
among other things, that the California Public Utilities Commission order that
calls to Internet service providers are local calls and, more specifically,
that the agreement with Pacific Bell requires it to compensate us for
completing those calls. In March 1998, Pac-West and Pacific Bell filed cross-
motions by stipulation for summary judgment on all issues pending in this
proceeding. These motions are currently pending. We cannot predict the ultimate
outcome of the California Public Utilities Commission proceeding, future
appeals or additional pending cases. Therefore, we cannot assure you that we
will collect the withheld compensation from GTE or Pacific Bell or that we will
have the right to compensation for these types of calls in the future. If the
California Public Utilities Commission acts contrary to our position, the
ability to serve our customer base could be severely limited since a large part
of that base consists of Internet service providers. If the California Public
Utilities Commission acts contrary to our position, and it is determined that
the compensation associated with past Internet service provider traffic is
greater than the amount already withheld, we could be required to reimburse the
incumbent local exchange carriers the difference between these two amounts.
Thirty-one state commissions have addressed the issue of whether the
obligation to pay reciprocal compensation should apply to local calls to
Internet service providers. Every state commission to address this issue to
date except Massachusetts and Missouri has ruled that compensation is owed for
such calls. Several of these cases are being appealed. So far, U.S. District
courts in the states of Texas, Washington, Oregon and Illinois have upheld
state commission decisions and no court has reversed such a decision. Recently
the 7th Circuit Court of Appeals upheld the decision of the Illinois Commerce
Commission requiring the payment of reciprocal compensation for Internet
service provider-bound calls.
On October 22, 1998, the California Public Utilities Commission issued a
decision holding that calls placed to Internet service providers are local
calls and are subject to reciprocal compensation. On November 30, 1998, Pacific
Bell and GTE filed applications for rehearing, which was denied on July 22,
1999. We cannot predict the outcome of the California Public Utilities
Commission proceeding, future appeals or additional pending cases. Therefore,
we cannot assure you that we will collect the withheld compensation from GTE or
Pacific Bell or that we will have the right to compensation for these types of
calls in the future. If the California Public Utilities Commission does act
contrary to our position, our ability to serve our customer base could be
severely limited since a large part of that base consists of Internet service
providers. If the California Public Utilities Commission acts contrary to our
position and the compensation associated with past Internet service provider
traffic is greater than the amount already withheld, we could be required to
reimburse the incumbent local exchange carriers for the difference between
these two amounts.
On February 26, 1999, the FCC issued a declaratory ruling on the issue of
inter-carrier compensation for calls bound to Internet service providers. The
FCC ruled that the calls are jurisdictionally mostly interstate calls. The FCC,
however, determined that this issue did not resolve the question of whether
inter-carrier reciprocal compensation is owed for such calls under existing
interconnection agreements. The FCC noted a number of factors that would allow
the state public utilities commissions to require the payment of reciprocal
compensation. Since the issuance of the FCC decision, thirteen states have
issued decisions either initially or on reconsideration of existing decisions.
In each case, the relevant state commission determined compensation is owed. In
Massachusetts, however, the state commission vacated its earlier decision
because, in its view, its decision was based solely on a ground rejected by the
FCC and in Missouri the state commission determined that the parties would be
subject to a reconciliation once the FCC determines the issue of the amount of
compensation owed. Until then, compensation should be tracked but it does not
have to be paid. We cannot predict the impact of the FCC's ruling on existing
state decisions, the outcome of pending appeals or future litigation on this
issue. However, our ability to serve our customer base could be severely
limited since a large part of that base consists of Internet service providers.
If the FCC's decision results in action being taken that is
61
<PAGE>
contrary to our position, and it is determined that the compensation associated
with past Internet service provider traffic is greater than the amount already
withheld, we could be required to reimburse the incumbent local exchange
carriers for the difference between these two amounts.
Rating and Routing of Calls
By California Public Utilities Commission Decision No. 97-12-094 in Case No.
96-10-018, which was brought by Pac-West against two small rural incumbent
local exchange carriers, Volcano Telephone Company and Evans Telephone Company,
the California Public Utilities Commission found that Pac-West's method of
providing foreign exchange service did not violate any existing law or policy
and that Volcano and Evans were required to properly deliver calls to Pac-West.
However, the California Public Utilities Commission also determined that it
should examine our method of service from a general policy standpoint in
another proceeding. Although the outcome of the subsequent proceeding could
affect our future provision of foreign exchange service, the California Public
Utilities Commission held that any order adverse to us would be applied only on
a prospective basis and would not affect any contracts for services executed
prior to a final decision. On July 22, 1998, the California Public Utilities
Commission issued a ruling soliciting comments on the continuing propriety of
Pac-West's service methods. Specifically, the California Public Utilities
Commission inquired whether a carrier should be allowed to provide customers
with local telephone numbers for rate centers in which customers are not
located and where a carrier has no physical facilities and, if so, how inter-
carrier compensation should be accomplished for calls to such customers.
Comments were filed in August and September 1998. We often provide service to
our customers using this method. A prohibition on this service would impair our
ability to provide service to our customers. We presently claim reciprocal
compensation based on these calls. A California Public Utilities Commission
holding that such calls are not entitled to reciprocal compensation could
result in a significant loss of revenue to us.
Interconnection Agreements
We are currently in the process of renegotiating our interconnection
agreements which govern the terms of our reciprocal compensation arrangements
with GTE. We cannot give any assurances concerning the outcome of these
negotiations or any arbitration that may follow unsuccessful negotiations. On
November 16, 1998, Pacific Bell filed a petition for Arbitration of an
interconnection agreement in accordance with Section 252(b) of the
Telecommunications Act of 1996. In its petition, Pacific Bell requested
arbitration on three issues:
(1) the jurisdiction of calls placed to Internet service providers;
(2) reciprocal compensation rates; and
(3) term of the agreement.
On November 18, 1998, Pacific Bell filed a complaint against us at the
California Public Utilities Commission seeking unspecified compensation under
the interconnection agreement with us. This complaint, which was amended on
March 12, 1999, argues that many of the calls to our Internet service provider
customers are toll-free interexchange calls for which Pacific Bell is entitled
to compensation for providing switched access. Pacific Bell believes that a
call placed from a dialing party in one rate center to a number assigned to the
same rate center is potentially a toll call if such a call is routed for
completion in a second rate center. Because the dialing party is sometimes not
charged for this call, Pacific Bell believes these calls to be toll-free calls
for which Pacific Bell is entitled to compensation under the agreement. We
presently claim reciprocal compensation based on these calls. On June 24, 1999,
the California Public Utilities Commission adopted a decision in the
arbitration proceeding between us and Pacific Bell which held that reciprocal
compensation would be payable for Internet service provider calls under our new
interconnection agreement with Pacific Bell which became effective on June 29,
1999. Pacific Bell has requested a rehearing of this matter. This decision does
not address reciprocal compensation withheld under the prior agreement. We do
not know at this time what other action Pacific Bell will take with respect to
this decision. A California Public Utilities Commission holding that such calls
are not entitled to reciprocal compensation could result in a significant loss
of revenue to us and an obligation to pay significant amounts to Pacific Bell.
62
<PAGE>
On October 12, 1998, we filed at the Public Utilities Commission of Nevada a
petition for arbitration of an interconnection agreement with Nevada Bell in
accordance with Section 252(b) of the Telecommunications Act of 1996. The
issues in this arbitration are whether reciprocal compensation is payable for
calls placed to Internet service providers and whether reciprocal compensation
is payable for a local-rated call placed by a dialing party in one local
calling area that is routed to a second local calling area for completion. On
April 8, 1999, the Public Utilities Commission of Nevada held that calls placed
to Internet service providers are subject to reciprocal compensation in the
same manner as other calls, but held that, under current Nevada regulatory
policy, calls routed from one local calling area to another local calling area
for completion should not be deemed local calls. Due to the geographic
centralization of Nevada populations within large local calling areas, we do
not believe that Public Utilities Commission of Nevada's ruling on the
classification of local calls will have a material effect on our planned
operations in Nevada.
On February 2, 1999, we filed at the California Public Utilities Commission
a petition for arbitration of an interconnection agreement with Citizens
Telecommunications Company of California, Inc., in accordance with Section
252(b) of the Telecommunications Act of 1996. The issues in this arbitration
are whether reciprocal compensation is payable for calls placed to Internet
service providers and what compensation arrangement should apply when calls are
exchanged through indirect interconnection over the facilities of a third party
carrier. A California Public Utilities Commission holding contrary to our
position could materially adversely affect our ability to economically serve
customers in Citizens Telecommunications Company of California, Inc.'s service
area.
We are not party to any other pending legal or regulatory proceedings that
we believe would, individually or in the aggregate, have a material adverse
effect on our financial condition or results of operations.
For additional information regarding regulatory matters, see "Risk Factors--
We may not be entitled to receive reciprocal compensation for calls to Internet
service providers."
Employees
As of March 1, 1999, we had 147 full time employees. We believe that our
future success will depend on our continued ability to attract and retain
highly skilled and qualified employees. None of our employees are currently
represented by a collective bargaining agreement. We believe that we enjoy good
relationships with our employees.
Facilities
We are headquartered in Stockton, California and lease offices and space in
a number of locations primarily for sales offices and network equipment
installations. As of March 1, 1999, we had 17 premise leases. The table below
lists our material facilities:
<TABLE>
<CAPTION>
Lease Approximate
Location Use Expiration Square Footage
-------- --- ---------- --------------
<S> <C> <C> <C>
Stockton, CA Corporate headquarters and June 2002 33,000
equipment
Oakland, CA Equipment November 2003 9,971
Los Angeles, CA Equipment September 2006 8,458
</TABLE>
We have also entered into a lease in Las Vegas, Nevada, for 12,065 square
feet, to establish a new switching facility which we expect to be operational
in 1999. The Las Vegas lease will expire in 2009. Significant construction has
been substantially completed at that site.
We believe that our leased facilities are adequate to meet our current needs
in the markets in which we currently operate. Additional facilities will be
required as we expand into new markets. Each of our material leases is
extendable at our option. Our Stockton, California lease is extendable for five
two-year periods, and each of our Oakland, Los Angeles and Las Vegas leases are
extendable for two five-year periods.
63
<PAGE>
MANAGEMENT
Executive Officers, Key Employees and Directors
Our executive officers, key employees and directors and their ages as of
March 1, 1999 are set forth below:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Executive Officers:
Wallace W. Griffin....... 60 President, Chief Executive Officer and
Director
John K. La Rue........... 49 Executive Vice President--Technology and
Network Operations and Director
Richard E. Bryson........ 45 Chief Financial Officer
Brian K. Johnson......... 38 Vice President--Sales
Joel A. Effron........... 55 Senior Vice President--Sales and Marketing
Dennis V. Meyer.......... 60 Vice President--Finance and Treasurer
Jason R. Mills........... 27 Vice President--Network Operations
Gregory Joksch........... 42 Vice President--Information Technologies
Jeff M. Webster.......... 34 Vice President--Business Operations and
Regulatory Matters
Directors:
Jerry L. Johnson......... 51 Chairman of the Board of Directors
David G. Chandler........ 41 Director
Mark J. DeNino........... 45 Director
Samuel A. Plum........... 54 Director
Dr. Jagdish N. Sheth..... 61 Director
Bruce A. Westphal........ 58 Director
</TABLE>
The present principal occupations and recent employment history of each of
our executive officers, key employees and directors listed above are set forth
below.
Wallace W. Griffin has served as the President, Chief Executive Officer and
a Director of Pac-West since the recapitalization. From 1994 to 1997, Mr.
Griffin served as a Group President for a number of Jones International
companies, including Jones Lightwave, Ltd., a competitive local exchange
carrier, and Jones Education Company, a leader in using technology to deliver
education. Concurrently, he was co-owner of a consulting and business
development company, Griffin Enterprises, Inc. From 1987 through 1992, Mr.
Griffin served as the President and Chief Executive Officer of U S West
Marketing Resources Group, where he managed the $1 billion publishing, media
software and advertising services division. Mr. Griffin has over thirty-five
years experience in telecommunications, cable television, publishing and
advertising.
John K. La Rue founded Pac-West's predecessor, also known as Pac-West
Telecomm, Inc., in 1980 and served as its President from 1980 until September
30, 1996 and as our President from our incorporation in 1996 until the
recapitalization. Since the recapitalization, Mr. La Rue has served as our
Executive Vice President of Technology and Network Operations and as a
Director.
Richard E. Bryson has served as our Chief Financial Officer since November
1998. From 1992 to 1998, Mr. Bryson worked at Bank of America as a Managing
Director in the Telecommunications Group providing emerging telecommunications
companies with corporate finance and capital markets services. From 1989 to
1992, he was President and founder of MBIC, a fund investing in growth
companies. From 1980 to 1989, he worked at Citibank in Mezzanine Investments
and Capital Markets.
64
<PAGE>
Brian K. Johnson has served as our Vice President of Sales since September
1998. Mr. Johnson will lead the expansion of our local and long distance
services. Mr. Johnson has over 15 years of sales and sales management
experience. Most recently, Mr. Johnson served for two years as Vice President
and General Manager of WinStar Telecommunications, overseeing competitive local
exchange carrier operations in the San Francisco Bay Area. Prior to joining
WinStar, Mr. Johnson was employed by Metrocall for two years as Vice President
and General Manager for the California and Nevada markets. His
telecommunications sales management experience includes positions at Comverse
Technology, LA Cellular and Harris Corporation.
Joel A. Effron has served as our Senior Vice President of Sales and
Marketing since April 1997. From 1994 through 1997, Mr. Effron ran his own
management consulting company called J. Effron & Associates. Prior to that, Mr.
Effron served as President of three corporations, including Compath, a $35
million marketing, installation and service company for business telephone
systems, Codart, a communication and entertainment start-up, and Zendex, a
computer manufacturer. Mr. Effron has over 25 years of experience in the
telecommunications industry with extensive senior management experience in
marketing, planning, policies and procedures and manpower development.
Dennis V. Meyer served as our and our predecessor's Chief Financial Officer
and Treasurer from 1994 until November 1998. In November 1998, Mr. Meyer was
appointed Vice President--Finance and Treasurer. Prior to 1994, Mr. Meyer spent
12 years in public accounting at Ernst & Ernst, now Ernst & Young, a national
accounting firm. Mr. Meyer is a certified public accountant with over twenty
years of experience as a senior financial officer of several manufacturing and
regulated transportation companies. Mr. Meyer also served as an officer in the
Air Artillery Branch of the U.S. Army.
Jason R. Mills has served as Vice President of Network Operations since
1997. Mr. Mills joined our predecessor in 1986 and has been serving as our
Director of Network Operations for the past five years.
Gregory Joksch has served as our Vice President of Information Technologies
since the recapitalization. From 1992 to 1998, he served as Director of
Information Technologies and was responsible for our information technology
systems.
Jeff M. Webster has served as our and our predecessor's Vice President of
Operations since 1991. His current areas of responsibility include human
resource management and regulatory administration including tariffs, compliance
and reporting. Mr. Webster began with Pac-West as an Account Executive in 1987
and was later promoted to general management of business operations, human
resources, administration and customer service management.
Jerry L. Johnson has served as our Chairman of the board of directors since
the recapitalization. Since 1995, Mr. Johnson has been employed by Safeguard
Scientifics, where he is responsible for managing the operating portfolio
companies and the operations team. From 1985 to 1995, he worked at U S West in
various positions, including Vice President, Network and Technology Services,
which included managing U S West's largest division, supervising 5,000
management and engineering employees and 16,000 technical and clerical
employees. From 1983 to 1985, Mr. Johnson was President and CEO of Northwestern
Bell Information Technologies.
David G. Chandler has served as one of our Directors since the
recapitalization. Mr. Chandler is a Managing Director of William Blair Capital
Partners, L.L.C., a Chicago-based private equity firm. In addition, Mr.
Chandler is a Principal of William Blair & Company where he has been employed
since 1987. Prior to joining William Blair & Company, he was an investment
banker with Morgan Stanley & Co. Incorporated from 1984 to 1987. Mr. Chandler
serves as a director of the following companies: Electronic Manufacturing
Systems, Inc., Encore Paper Company, Gibraltar Packaging Group, Harmonic
Systems Incorporated, Morton Grove Pharmaceuticals, Inc., PharmaResearch
Corporation and Sweetwater Sound, Inc.
65
<PAGE>
Mark J. DeNino has served as one of our Directors since the
recapitalization. Mr. DeNino has served as a Managing Director of TL Ventures
since 1994. Prior to that time, Mr. DeNino was an investment banker for eight
years, starting with Fidelity Bank, now First Union National Bank, where he ran
its investment banking group and was president of its venture capital SBIC. Mr.
DeNino also co-founded or has been involved in the start-up of three technology
ventures. Mr. DeNino also serves as a director of the following companies:
Coastal Security Systems, Inc., CRW Financial, Inc., FlowWise Networks, Inc.,
GMT MicroElectronics Corporation, Argus Networks Inc., Neuron Data, Inc. and
Adaptive Media, Inc.
Samuel A. Plum has served as one of our Directors since the
recapitalization. Mr. Plum has been a Managing General Partner of the general
partner of SCP Private Equity Partners, L.P. since its commencement in August
1996 and was a Managing Director of Safeguard from 1993 to 1996. From February
1989 to January 1993, Mr. Plum served as President of Charterhouse, Inc. and
Charterhouse North American Securities, Inc., the U.S. investment banking and
broker-dealer divisions of Charterhouse PLC, a merchant bank located in the
United Kingdom. From 1973 to 1989, Mr. Plum served in various capacities in the
investment banking divisions of PaineWebber Inc. and Blyth Eastman Dillon &
Co., Inc. Mr. Plum has 22 years of investment banking, mergers and acquisitions
and private equity investment experience. Mr. Plum also serves as a director of
Index Stock Photography, Inc. and Metallurge Holdings, Inc.
Dr. Jagdish N. Sheth has served as one of our Directors since July, 1999.
Dr. Sheth has also been the Charles H. Kellstadt Professor of Marketing in the
Goizueta Business School since 1991 and is the founder of the Center for
Relationship Marketing at Emory University. From 1984 to 1991, Dr. Sheth was
the Robert E. Brookner Professor of Marketing at the University of Southern
California and is the founder of its Center for Telecommunications Management.
Bruce A. Westphal has served as one of our Directors since the
recapitalization. Mr. Westphal served as the Chairman of our board of directors
from our inception in 1996 until the recapitalization. Mr. Westphal currently
serves as the Chairman of the Board of Bay Alarm and InReach Internet as well
as President of Balco Properties. Mr. Westphal served as the Chief Executive
Officer and Chairman of Bay Alarm from 1984 to 1997 and as its President from
1977 to 1984. Mr. Westphal is currently or has been active in a number of
professional organizations, including the Security Network of America, the
Central Station Alarm Association and California Alarm Association.
All members of the board of directors set forth in this prospectus have been
elected in accordance with a stockholders agreement that was entered into in
connection with the recapitalization. There are no family relationships between
any of our directors or executive officers. Our executive officers are elected
by and serve at the discretion of the board of directors. See "Certain
Relationships and Related Transactions--Shareholders Agreement."
66
<PAGE>
Executive Compensation
The following table summarizes the compensation we paid to our named
executive officers, consisting of our chief executive officer and four most
highly compensated executive officers for the fiscal year ended December 31,
1998. None of the perquisites and other benefits paid to each named executive
officer exceeded the lesser of $50,000 or 10% of the total annual salary and
bonus received by that officer. "All Other Compensation" reflects matching
contributions we made under our 401(k) plan on behalf of such officer. The
amount listed under "All Other Compensation" for Mr. La Rue includes $2,539 of
long-term disability insurance premiums we paid on behalf of Mr. La Rue and
100% dental reimbursements in the amount of $1,015. Mr. Griffin's salary is
from September 16, 1998, when he became a Pac-West employee. Prior to that time
but in that same year, Mr. Griffin received additional compensation from Pac-
West in the total amount of $203,000 under a consulting agreement. See "Certain
Relationships and Related Transactions--Consulting Agreement."
1998 Summary Compensation Table
<TABLE>
<CAPTION>
Special Non-Compete
Name and Principal Regular Transaction Covenant Other Annual All Other
Position Held Salary Bonus Bonus Payment Compensation Compensation
------------------ -------- -------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Wallace W. Griffin...... $ 87,500 $ 70,000 -- -- -- --
President, Chief
Executive Officer
and Director
John K. La Rue.......... 327,081 140,000 $1,625,000 $300,000 -- $7,898
President, Chief
Executive Officer and
Director
Jason R. Mills ......... 160,667 13,500 900,000 -- -- 4,820
Vice President--Network
Operations
Dennis V. Meyer......... 106,614 40,250 300,000 -- -- 3,198
Chief Financial Officer
and Treasurer
Jeff M. Webster......... 85,136 19,948 300,000 -- -- 2,554
Vice President--
Business Operations
</TABLE>
67
<PAGE>
Stock Incentive Plan
After the recapitalization, the executive committee of the board of
directors adopted the Pac-West Telecomm, Inc. 1999 Stock Incentive Plan, which
authorizes the granting of stock options, including restricted stock, SARS,
dividend equivalent rights, performance units, performance shares or other
similar rights or benefits to our or our subsidiaries' current or future
employees, directors, consultants, advisors. Under the Pac-West 1999 Stock
Incentive Plan, the Board is authorized to issue options to purchase shares of
common stock in such quantity, at such exercise prices, on such terms and
subject to such conditions as established by the Board. After giving effect to
the Pac-West ten for one stock split, an aggregate of 2,250,000 shares of
common stock have been reserved for option grants under the Pac-West 1999 Stock
Incentive Plan, subject to adjustment upon the occurrence of certain events to
prevent any dilution or expansion of the rights of participants that might
otherwise result from the occurrence of such events. In 1998, in accordance
with their employment agreements and after giving effect to the Pac-West ten
for one stock split, options to purchase certain shares of common stock were
granted to Messrs. Wallace W. Griffin and Richard E. Bryson as described below.
Such options will be issued under the Pac-West 1999 Stock Incentive Plan. In
addition, in 1999, and after giving effect to the Pac-West ten for one stock
split, options to purchase 335,000 shares were granted under the Pac-West 1999
Stock Incentive Plan to Messrs. John K. La Rue, Dennis V. Meyer, Jason R. Mills
and Jeff M. Webster. No options were exercised during 1998.
The amounts shown for realizable potential value are calculated assuming
that the market value of the common stock was equal to the exercise price per
share as of the date of grant of the options. This value is the approximate
price per share at which shares of the common stock would have been sold in
private transactions on or about the date on which the options were granted.
The dollar amounts under these columns assume a compounded annual market price
increase for the underlying shares of the common stock from the date of grant
to the end of the option term of 5% and 10%. This format is prescribed by the
SEC and is not intended to forecast future appreciation of shares of the common
stock. The actual value, if any, a named officer may realize will depend on the
excess of the market price for shares of the common stock on the date the
option is exercised over the exercise price. Accordingly, there is no assurance
that the value realized by a named officer will be at or near the value
estimated above.
Option Grants in 1998
<TABLE>
<CAPTION>
Potential Realizable
% of Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Price Appreciation
Underlying Employees Exercise or for Option Term
Options in Fiscal Base Price Expiration ---------------------
Name Granted (#) Year ($/Sh) Date 5% ($) 10% ($)
- ---- ----------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Wallace W. Griffin...... 250,000 61.5% $0.67 09/16/2008 105,000 267,000
Richard E. Bryson....... 156,250 38.5% $0.67 10/30/2008 66,000 167,000
</TABLE>
Qualified 401(k) and Profit Sharing Plan
We maintain a tax-qualified 401(k) plan. Employees who are 21 years of age
may elect to participate in the plan after completing six months of service
with us. We match 50% of employee contributions up to 6% of compensation
deferred. Pac-West matching contributions vest at a rate 20% per year starting
with the employee's second year of service. Although we have not historically
done so, we may also make discretionary profit-sharing contributions to all
employees who satisfy plan participation requirements.
Pension Plans
We do not maintain a pension plan.
68
<PAGE>
Employment Agreements
Messrs. Wallace W. Griffin, John K. La Rue, Richard E. Bryson, Dennis V.
Meyer and Jason R. Mills have each entered into employment agreements with us.
The employment agreements provide for initial base salaries and bonuses upon
our achievement of certain objective and subjective criteria and contain terms
as follows:
<TABLE>
<CAPTION>
Employee Effective Date Term Base Salary Bonus
-------- ------------------ ------- ----------- -----
<S> <C> <C> <C> <C>
Wallace W. Griffin........... September 16, 1998 3 years $350,000 40%
John K. La Rue............... September 16, 1998 2 years $350,000 40%
Richard E. Bryson............ October 30, 1998 2 years $225,000 40%
Dennis V. Meyer.............. October 21, 1998 1 year $115,000 25%
Jason R. Mills............... September 16, 1998 2 years $180,000 25%
</TABLE>
The employment agreements also provide for participation in all benefit plans
made available to Pac-West executives.
Each of the employment agreements may be terminated earlier by us or the
respective executive under certain conditions and Mr. Meyer's employment
agreement is automatically extended for successive one-year periods unless
terminated by either party upon 60 days notice.
In connection with their respective employment agreements, and after giving
effect to the Pac-West ten for one stock split, Mr. Griffin purchased 375,000
shares of common stock for an aggregate purchase price of $250,000 and Mr.
Bryson purchased 62,470 shares of common stock for an aggregate purchase price
of $41,667. In each case, the executives purchased said shares through a
combination of cash and promissory notes, the payments of which notes were
secured by pledge agreements pledging all of stock so purchased. We have a
right to repurchase such shares in the event of the termination of such
executive's employment with us for any reason. In addition, their respective
employment agreements granted to Mr. Griffin and Mr. Bryson options to purchase
250,000 shares and 156,250 shares, respectively, of common stock at a purchase
price of $0.67 per share.
Upon termination by us without cause, as defined in the respective
employment agreement, that executive will be entitled to receive severance
payments which, subject to certain conditions, equal:
. in the case of Mr. La Rue, base salary for the remainder of the term of
employment under the employment agreement plus the one-year period
thereafter;
. in the case of Mr. Griffin, base salary for the greater of the remainder
of the term of employment under the employment agreement or the six-month
period thereafter;
. in the case of Mr. Bryson, base salary for one year following termination
plus our payment of all health insurance premiums with respect to Mr.
Bryson's continuation coverage rights under the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, or any similar statute or
regulation then in effect, for a maximum of the one-year period after
such termination;
. in the case of Mr. Meyer, base salary for the one-year period after such
termination; and
. in the case of Mr. Mills, base salary for the remainder of the term of
employment under the employment agreement.
If the employment period is terminated as a result of the executive's
disability, then the executive and/or his estate or beneficiaries, as the case
may be, will be entitled to receive benefits under our employee benefit
programs as in effect on the date of such termination to the extent permitted
under such programs and, in addition, will be entitled to receive:
(1) an amount equal to that executive's base salary for the one-year period
after the termination of the employment period; and
(2) the amount of any annual bonus otherwise payable to the executive for
the fiscal year in which executive's employment is terminated, except
that the amount of any such annual bonus otherwise payable will be
allocated on the basis of the number of days during such fiscal year
that executive was employed by us.
69
<PAGE>
If the employment period is terminated as a result of the executive's death,
then the executive and/or his estate or beneficiaries, as the case may be, will
be entitled to receive benefits under our employee benefit programs as in
effect on the date of such termination to the extent permitted under such
programs and, in addition, will be entitled to receive the amount of any annual
bonus otherwise payable to the executive for the fiscal year in which the
executive's employment is terminated, except that the amount of any such annual
bonus otherwise payable will be allocated on the basis of the number of days
during such fiscal year that the executive was employed by us. If we terminate
the employment period for cause or if the executive resigns for any reason,
other than a termination without cause under the respective employment
agreement, then the executive will be entitled to receive his base salary
through the date of termination and we will have no further liability
whatsoever to executive.
Each of the executives have agreed to forfeit any severance obligations
owing to such executives in the event they breach certain noncompetition
provisions. See "Certain Relationships and Related Transactions--Non-
Competition; Non-Solicitation; Confidentiality Agreements."
70
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Recapitalization
Our recapitalization was completed on September 16, 1998 in accordance with
the merger agreement between us, Bay Alarm Company and John K. La Rue, the
preexisting investors, and PWT Acquisition Corp. a corporation newly formed by
an equity investment group led by Safeguard 98 Capital, L.P. and William Blair
Capital Partners VI, L.P. to effect the recapitalization. PWT was capitalized
through an investment of approximately $31.5 million in preferred stock and
$0.9 million in common stock of PWT by certain equity investors, including
Safeguard 98 Capital, L.P., SCP Private Equity Partners, L.P., TL Ventures III
L.P., EnerTech Capital Partners, William Blair Capital Partners VI, L.P., and
Mr. Wallace W. Griffin, who was named our President and Chief Executive Officer
upon the completion of the recapitalization. Immediately following the merger,
we sold approximately $4.7 million of additional common stock to the equity
investors.
In accordance with the merger agreement:
(1) PWT was merged with and into Pac-West, with Pac-West being the
surviving corporation;
(2) the outstanding preferred stock of PWT Acquisition Corp. was converted
into our convertible redeemable preferred stock and the outstanding
common stock of PWT Acquisition Corp. was converted into Pac-West's
common stock;
(3) the existing stockholders received an aggregate of $73.6 million in
cash, shares of convertible redeemable preferred stock and common stock
having an aggregate value for purposes of the recapitalization of
approximately $15.5 million, and an aggregate of $400,000 for their
respective agreements not to compete with us following the
recapitalization; and
(4) we paid bonuses to certain of our executive officers and employees in
the aggregate amount of approximately $3.5 million.
Prior to the recapitalization, Mr. John K. La Rue and Bay Alarm Company held
22% and 78%, respectively, of our outstanding common stock. In connection with
the recapitalization, and after giving effect to the Pac-West ten for one stock
split, Mr. La Rue received approximately $16.2 million in cash, 80,395 shares
of convertible redeemable preferred stock and 763,800 shares of common stock
and Bay Alarm Company received $57.4 million in cash, 285,038 shares of
convertible redeemable preferred stock and 2,707,900 shares of common stock.
Immediately after the recapitalization, Mr. La Rue and Bay Alarm held 6.1% and
21.7%, respectively, of our outstanding common stock.
Under the merger agreement, Mr. La Rue and Bay Alarm Company will also be
entitled to receive additional consideration in the form of an earnout payment
in the event we achieve certain adjusted EBITDA levels following the
recapitalization. The amount of such payment will be based upon:
(1) our adjusted EBITDA for the earnout period from January 1, 1998 through
December 31, 1998, which includes the amount of unpaid reciprocal
compensation from Pacific Bell and GTE for the earnout period we
receive before December 31, 1999, if any; and
(2) the amount of unpaid reciprocal compensation for the earnout period we
receive from Pacific Bell and GTE after December 31, 1999.
The earnout payment will be equal to:
(1) $2.50 for every $1.00 that our adjusted EBITDA for the fiscal year
ended December 31, 1998, including any unpaid reciprocal compensation
related to the earnout period received on or prior to December 31,
1999, exceeds $17.0 million; plus
(2) the amount by which the sum of
(A) the amount of any unpaid reciprocal compensation we receive after
December 31, 1999 with respect to the earnout period plus
71
<PAGE>
(B) the amount our adjusted EBITDA during the earnout period
exceeds $17.0 million.
The earnout payment cannot exceed $20.0 million.
The earnout payment will be calculated and paid after the delivery of the
final audited financial statements for the earnout period and on each separate
occasion thereafter that we receive any unpaid compensation. Any earnout
payment will take into account any prior earnout payment made under the merger
agreement. The earnout payment is also subject to possible adjustment under the
merger agreement by agreement between us and Mr. LaRue and Bay Alarm Company as
a result of a material acquisition, divestiture or other material transaction
outside of the ordinary course of our business during the earnout period. No
earnout payment was payable as of December 31, 1998. In 1999, the maximum cash
distribution under the terms of the recapitalization could be up to
approximately $15 million, net of the after tax proceeds from the withheld
reciprocal compensation.
In accordance with the merger agreement, Mr. La Rue and Bay Alarm Company
have agreed to indemnify us and certain of our related parties for all
liabilities and other losses arising from, among other things:
(1) any breach by Pac-West of any representation, warranty, covenant or
agreement we made in the merger agreement or in any schedule, exhibit,
or other related document;
(2) any claims of any brokers, finders, our employees or consultants
relating to the transactions contemplated by the merger agreement not
specifically set forth in or contemplated by the merger agreement; or
(3) any claim by any person other than PWT Acquisition Corp. or its
affiliates with respect to, or arising as a result of, any
reorganization, liquidation, dissolution, recapitalization, non due
course borrowing, merger, consolidation, sale or purchase of assets or
similar transactions proposed prior to closing of the merger; provided
that Mr. La Rue and Bay Alarm Company receive notice of such loss
within the applicable time periods set forth in the merger agreement.
Subject to certain exceptions, Mr. La Rue and Bay Alarm Company do not have any
obligation to indemnify any of the indemnified parties from any losses caused
by the breach or alleged breach of any representation or warranty contained in
the merger agreement until the indemnified parties collectively suffer related
aggregate losses in excess of $500,000, which acts as a deductible. Mr. La Rue
and Bay Alarm Company have an obligation to indemnify the indemnified parties
for all losses suffered by any of the indemnified parties in excess of the
deductible, provided that Mr. La Rue and Bay Alarm Company do not have any
obligation to indemnify the indemnified parties from such aggregate losses in
excess of an indemnity cap of $15.0 million. Despite the above, breaches or
alleged breaches of certain post-closing covenants or agreements contained in
the merger agreement will not be subject to the deductible or the indemnity
cap.
The merger agreement contains representations and warranties typical of
those kinds of agreements, including, for example, those relating to corporate
organization and capitalization, the valid authorization, execution, delivery
and enforceability of all transaction documents, the financial statements, the
absence of material adverse changes in the business, assets, financial
condition and results of operations, the absence of material undisclosed
liabilities, tax matters, the quality and title of personal and real property,
material contracts, intellectual property, employee benefits plans,
environmental matters, compliance with laws, governmental authorizations,
permits and licenses and insurance matters. Generally, our representations and
warranties expire thirty days after receipt of the audited financial statements
for fiscal 1999 except that those relating to tax matters survive until the
expiration of the applicable statute of limitations and certain other
representations and warranties which survive indefinitely.
The foregoing summary of the material terms of the merger agreement and
related matters does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all of the provisions of the merger
agreement, including the definitions of certain terms therein and the exhibits
and schedules hereto.
72
<PAGE>
Consulting Agreement
On June 30, 1998, we entered into a Consulting Agreement with Wallace W.
Griffin which terminated September 16, 1998. In accordance with such agreement
Mr. Griffin provided financial and management consulting services to us and
received fees totaling approximately $60,000. In addition, in accordance with
the merger agreement, we reimbursed Safeguard for payments of $143,000 made to
Mr. Griffin in connection with services rendered prior to June 30, 1998. After
the recapitalization, Mr. Griffin became our President and Chief Executive
Officer in accordance with his employment agreement with us.
Shareholders Agreement
In connection with the recapitalization, all of our shareholders entered
into a shareholders agreement. This agreement provides for, among other things,
the nomination of and voting for a total of seven directors of Pac-West, as
follows:
(1) one representative to be designated by John K. La Rue, provided that
John K. La Rue initially serves as that representative;
(2) one representative to be designated by Bay Alarm Company, provided that
Bruce A. Westphal initially serves as that representative;
(3) one representative to be designated by the holders of a majority of the
common stock originally purchased by William Blair Capital Partners VI,
L.P. and its permitted transferees, provided that David G. Chandler
initially serves as that representative;
(4) one representative to be designated by the holders of a majority of the
common stock originally purchased by SCP Private Equity Partners, L.P.
and its permitted transferees, provided that Samuel A. Plum initially
serves as that representative;
(5) one representative to be designated by the holders of a majority of the
common stock originally purchased by Safeguard 98 Capital, L.P. and its
permitted transferees, provided that Jerry L. Johnson initially serves
as that representative;
(6) one representative to be designated by TL Ventures III, L.P. and its
permitted transferees for so long as it holds any shares, provided that
Mark J. DeNino initially serves as that representative; and
(7) our chief executive officer.
Our shareholders have amended their shareholders agreement to increase our
board of directors to nine members. The two additional members will be
independent directors, one of whom would serve on our compensation committee
and one of whom would serve on our audit committee. The voting provisions of
the shareholders agreement will automatically terminate upon the consummation
of a sale of Pac-West or an underwritten public offering of shares or rights to
purchase shares of our common stock having an aggregate value of at least $15
million and which results in an equity valuation of Pac-West immediately prior
to such offering of at least $100 million. The shareholders agreement will
generally restrict the transfer of any shares of convertible redeemable
preferred or common stock held by the parties thereto by granting certain
parties thereto rights of first offer and participation rights in connection
with any proposed transfer by any other party, subject to certain exceptions.
In addition, the shareholders agreement will require each party to consent to a
sale of Pac-West to an independent third party if such sale is approved by the
board of directors. Subject to certain exceptions, we have agreed not to issue,
sell or otherwise transfer for consideration to any person at any time prior to
a registered public offering, any shares of common stock, or securities
convertible or exercisable into common stock, unless certain of the parties to
the shareholders agreement are given the opportunity to subscribe for and
purchase their pro rata portion of such additional shares at the same price and
on the same terms.
Registration Agreement
In connection with the recapitalization, all of our shareholders entered
into a registration agreement. In accordance with the registration agreement,
at any time prior to the third anniversary of the closing of the
73
<PAGE>
recapitalization, Safeguard may request we grant a rights offering to the
holders of our common stock, consisting of the right to purchase a number of
shares of our common stock as determined by our board of directors. The
exercise price of such rights in the rights offering will be determined by
negotiation among ourselves, the underwriters and the selling stockholders.
After the earlier of 180 days after the consummation of the rights offering or
the third anniversary of the closing of the recapitalization, the registration
agreement will grant demand registration rights to each of the four equity
investors in the recapitalization and their successors. Each of the four equity
investors in the recapitalization may request one registration at our expense
under the Securities Act of 1933 of all or any portion of their Pac-West common
stock on Form S-1 or other similar long-form registration and an unlimited
number of Form S-2 or S-3 or other similar short-form registrations, provided
that the aggregate offering value of the registrable securities requested to be
registered in any long-form registration must equal at least $25 million if the
registration is our initial registered public offering, at least $5 million in
all other long-form registrations and at least $1 million in all short-form
registrations. In the event that any one of the four equity investors in the
recapitalization makes such a demand registration request, all other parties to
the registration agreement will be entitled to participate in such
registration. The registration agreement will also grant to the parties thereto
piggyback registration rights with respect to all other registrations of our
common stock and we, subject to limited exceptions, will pay all expenses
related to the piggyback registrations.
Non-Competition; Non-Solicitation; Confidentiality Agreements
In connection with the recapitalization and in accordance with the terms of
the merger agreement, Mr. La Rue and Bay Alarm Company each have entered into a
covenant not to compete with Pac-West, not to engage, and not to permit any
affiliate to engage, for a noncompete period of two years after the closing
date of the recapitalization in any business which:
(1) provides telecommunication services of the type provided as of the
closing date by Pac-West; or
(2) provides services of the type which we have taken significant actions
as of the closing date to begin providing or of the type we have
indicated that we plan to begin providing in any business plan or
similar document delivered to PWT Acquisition Corp. or our shareholders
prior to the closing date, in each case within Arizona, California,
Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah and
Washington, the province of British Columbia, Canada and the
territories and jurisdictions of Mexico.
The noncompete restrictions do not prohibit any party from being a passive
owner of not more than 5% of the outstanding stock of any class of a
corporation which is publicly traded; and provided further that the noncompete
restrictions do not restrict the activities of any party to the extent such
party has received the consent of our board of directors to such activities.
In accordance with their respective employment agreements, Messrs. La Rue,
Griffin, Bryson, Meyer and Mills have agreed to forfeit any severance
obligations owing to such executives in the event of their breach of similar
noncompetition provisions. For purposes of Mr. Meyer's and Mr. Mills'
respective agreements, the restricted territories include Arizona, California,
Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah and Washington, the
province of British Columbia, Canada and the territories and jurisdictions of
Mexico. For purposes of Mr. Griffin's and Mr. Bryson's respective agreements,
the restricted territories include the United States of America, Canada and the
territories and jurisdictions of Mexico.
Messrs. La Rue, Griffin, Bryson, Meyer, Mills and Bay Alarm have also agreed
to maintain the confidentiality of our information and not to solicit our
employees and customers as provided in the merger agreement or their respective
employment agreements, as the case may be.
74
<PAGE>
Transaction Bonuses
In accordance with the terms of the merger agreement, each of the following
Pac-West officers and directors received a cash bonus upon consummation of the
merger, as follows:
<TABLE>
<CAPTION>
Transaction
Employee Bonus
-------- -----------
<S> <C>
Wallace W. Griffin............................................ --
John K. La Rue................................................ $1,625,000
Richard E. Bryson............................................. --
Brian K. Johnson.............................................. --
Joel A. Effron................................................ $ 50,000
Dennis V. Meyer............................................... $ 300,000
Jason R. Mills................................................ $ 900,000
Gregory Joksch................................................ $ 200,000
Jeff M. Webster............................................... $ 300,000
</TABLE>
Transactions with Significant Stockholders
Prior to the recapitalization, Bay Alarm Company held approximately 78% of
our outstanding common stock. Sales to Bay Alarm accounted for approximately
$245,000, $987,000, $1,211,000 and $231,000, or 5.8%, 3.3%, 2.9% and 1.6%, of
our revenues for the period from date of commencement on October 1, 1996 to
December 31, 1996, the years ended December 31, 1997 and 1998 and for the three
month period ended March 31, 1999, respectively. In addition, Bay Alarm Company
provides us with security monitoring services at its normal commercial rates.
Bay Alarm Company has recently purchased the real property at which our Oakland
switch facility is located. In connection with that purchase, we have
negotiated a lease with Bay Alarm Company for our continued use of that
commercial space. The monthly lease payments under the lease are approximately
$13,000 effective December 1998.
Sales to InReach Internet LLC accounted for approximately $151,000,
$1,122,000, $1,469,000 and $423,000, or 3.6%, 3.8%, 3.5% and 2.9%, of our
revenue for the period from date of commencement on October 1, 1996 to December
31, 1996, the years ended December 31, 1997 and 1998 and for the three month
period ended March 31, 1999, respectively. Mr. Bruce A. Westphal, who served as
our Chairman of the Board until the recapitalization and as a Director of the
Board since the recapitalization, is the principal stockholder and serves as
Chairman of the Board of InReach Internet.
Utility Telephone, Inc. is 100% owned by Mr. Jason R. Mills. We made a one-
time purchase of equipment from Utility Telephone, Inc. in June 1997 in the
amount of approximately $350,000.
In accordance with the terms of the La Rue/Mills Stock Transfer Agreement
dated November 23, 1998, and after giving effect to the Pac-West ten for one
stock split, Mr. La Rue has transferred 127,300 shares of common stock to Mr.
Mills. We and Mr. La Rue retain the right to repurchase this stock upon the
termination of Mr. Mills' employment with Pac-West for any reason. Upon
repurchase, the purchase price of Mr. Mills' stock will be at fair market value
unless he is terminated with cause, in which case the purchase price will be
the lesser of original cost or fair market value.
Loans from Significant Stockholder
Mr. John K. La Rue, our founder and President prior to the recapitalization,
made various loans to Pac-West from time to time during periods up to and
including 1995. The maximum amount loaned to us at any one time was $151,000.
These loans bore interest at 9.5% to 10.0% and did not contain specified
repayment terms. We repaid the balance of these loans in June 1997.
75
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding ownership of
our common stock and convertible redeemable preferred stock as of June 30,
1999, and after giving effect to the Pac-West ten for one stock split, by:
(1) each person who we know to own beneficially more than 5% of the
outstanding common stock or convertible redeemable preferred stock;
(2) each of our directors and named executive officers; and
(3) all of our directors and executive officers as a group.
Data shown on this chart relating to TL Ventures III L.P. and related
equity investors includes, after giving effect to the Pac-West ten for one
stock split:
(a) 153,133 shares of convertible redeemable preferred stock and 1,433,100
shares of common stock held by TL Ventures III L.P., located at the
address shown above;
(b) 32,054 shares of convertible redeemable preferred stock and 300,000
shares of common stock held by TL Ventures III Offshore L.P., located
at c/o Trident Trust Company (Cayman) Limited, P.O. Box 847, One
Capital Place, Fourth Floor, Grand Cayman, Cayman Islands; and
(c) 5,000 shares of convertible redeemable preferred stock and 46,800
shares of common stock held by TL Ventures III Interfund L.P., located
at c/o TL Ventures L.L.C., 800 The Safeguard Building, 435 Devon Park
Drive, Wayne, PA 19087-1515.
Safeguard Delaware, Inc. is the general partner of Safeguard 98 Capital,
L.P. and a wholly-owned subsidiary of Safeguard Scientifics, Inc. Each of
these entities may be deemed to beneficially own the shares owned by Safeguard
98 Capital.
All shares of stock shown in the following table for Messrs. Chandler,
DeNino, Plum and Westphal are owned by William Blair Capital Partners VI,
L.P.; TL Ventures III, L.P., TL Ventures III Offshore L.P. or TL Ventures III
Interfund L.P.; SCP Private Equity Partners, L.P. and Bay Alarm Company,
respectively. Mr. Chandler is a Managing Director of William Blair Capital
Partners VI, L.L.C., which is the sole general partner of William Blair
Capital Partners VI, L.P. Mr. DeNino is a Managing Director of each of the TL
Ventures investment funds above listed. Mr. Plum is a Managing General Partner
of SCP Private Equity Partners, L.P. and Mr. Westphal is the principal
stockholder and Chairman of Bay Alarm Company. As a result of these
relationships, each of these individuals may be deemed to be a beneficial
owner of such shares. Each of Messrs. Chandler, DeNino, Plum and Westphal,
however, disclaim beneficial ownership with respect to all such shares in
which he does not have a pecuniary interest. The addresses of each of these
officers or directors is as follows:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Chandler............................ c/o William Blair Capital Partners
222 W. Adams Street
Chicago, IL 60606.
DeNino.............................. c/o TL Ventures III L.P.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087.
Plum................................ c/o SCP Private Equity Partners, L.P.
435 Devon Park Drive
Building 300
Wayne, PA 19087.
Westphal............................ c/o Bay Alarm Company
925 Ygnacio Valley Road
Walnut Creek, CA 94596
</TABLE>
76
<PAGE>
The data reflected in the following table for Mr. La Rue also reflects the
fact that, in accordance with the La Rue/Mills Stock Transfer Agreement dated
November 23, 1998, and after giving effect to the Pac-West ten for one stock
split, Mr. La Rue agreed to transfer 127,300 shares of his common stock to Mr.
Mills, subject to obtaining the necessary consents from certain other
stockholders of Pac-West in accordance with the terms of the shareholders
agreement. All necessary consents have been obtained.
<TABLE>
<CAPTION>
Shares of
Shares of Participating
Common Percent of Preferred Percent of
Beneficial Owner Stock Class Stock Class
---------------- --------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Significant Stockholders:
Bay Alarm Company........... 2,707,900 21.6% 285,038 22.8%
925 Ygnacio Valley Road
Walnut Creek, CA 94596
SCP Private Equity Partners,
L.P........................ 1,995,000 15.9 213,170 17.1
435 Devon Park Drive,
Building 300
Wayne, PA 19087
William Blair Capital
Partners VI, L.P........... 1,995,000 15.9 213,170 17.1
222 West Adams Street
Chicago, IL 60606
Safeguard 98 Capital, L.P.
and related entities....... 1,995,000 15.9 213,170 17.1
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
TL Ventures III L.P. and
related equity investors... 1,779,900 14.2 190,187 15.2
700 Building
435 Devon Park Drive
Wayne, PA 19087-1990
Directors and Named Executive
Officers:
David G. Chandler........... 1,995,000 15.9 213,170 17.1
Mark J. DeNino.............. 1,779,900 14.2 190,187 15.2
Wallace W. Griffin.......... 375,000 3.0 -- --
John K. La Rue.............. 254,600 2.0 80,395 6.4
Jason R. Mills.............. 127,300 1.0 -- --
Samuel A. Plum.............. 1,995,000 15.9 213,170 17.1
Bruce A. Westphal........... 2,707,900 21.6 285,038 22.8
All of Pac-West's directors
and executive officers as a
group (14 persons)........... 9,234,700 73.5% 981,960 78.6%
</TABLE>
77
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock, after giving effect to the ten for one stock
split of the issued and outstanding common and convertible redeemable preferred
stock which became effective on March 19, 1999, consist of 1,750,000 shares of
convertible redeemable preferred stock and 15,000,000 shares of common stock.
As of June 30, 1999, our outstanding equity securities consist of 1,250,000
shares of convertible redeemable preferred stock and 12,562,470 shares of
common stock. Set forth below is a summary of the material terms of our capital
stock.
Distributions. The convertible redeemable preferred stock has a preference
amount over the common stock with respect to any distribution by Pac-West to
the holders of our capital stock or with respect to any liquidation,
dissolution or winding up of Pac-West equal to the liquidation value of such
shares, $36, plus an amount which accrues on a daily basis at a rate of 10% per
annum on the original cost of such shares, $36, compounded quarterly, after
giving effect to the Pac-West ten for one stock split. After payment of the
preference amount, the convertible redeemable preferred stock and the common
stock share ratably in any distribution made by us to the holders of our
capital stock or with respect to any liquidation, dissolution or winding up of
Pac-West.
Conversion Rights. The holders of a majority of the outstanding convertible
redeemable preferred stock have the right to convert all of the outstanding
convertible redeemable preferred stock into shares of common stock in
connection with the consummation of a public offering of our debt or equity
securities or rights to acquire any of our debt or equity securities offered to
the public. In addition, any holder of the outstanding convertible redeemable
preferred stock may convert its shares of convertible redeemable preferred
stock to shares of common stock in connection with a public offering. Each
share of convertible redeemable preferred stock will be convertible into that
number of shares of common stock determined by dividing the preference amount
by the initial public offering price of the common stock.
Redemption Rights. The holders of a majority of the outstanding convertible
redeemable preferred stock have the right to require us to redeem the
convertible redeemable preferred stock at a redemption price equal to the
preference amount:
(1) at any time after December 31, 2003; or
(2) at any time with the net proceeds of a public offering. In addition,
any holder of the outstanding convertible redeemable preferred stock
may require us to redeem our shares of convertible redeemable preferred
stock with the net proceeds of a public offering.
Despite the above, the majority holders also have the right to require us to
redeem all or any portion of the convertible redeemable preferred stock in the
event that:
(1) we fail to make any required redemption payment for the convertible
redeemable preferred stock; or
(2) we default on any obligation or agreement causing an amount in excess
of $500,000 to become due prior to its stated maturity.
The convertible redeemable preferred stock is subject to immediate
redemption upon certain events of bankruptcy and insolvency. The foregoing
redemption rights are all subject to our having sufficient funds that are:
(1) legally available in accordance with the General Corporation Law of
California for the redemption of the shares of convertible redeemable
preferred stock; and
(2) permitted to be used for the redemption of such shares of convertible
redeemable preferred stock in accordance with any debt financing
agreements of Pac-West, including the indenture governing the notes.
Voting Rights. The holders of convertible redeemable preferred stock have no
right to vote on matters submitted to a vote of our stockholders, except as
otherwise required by law. The shares of common stock will each entitle the
holder thereof to one vote per share on all matters to be voted upon by our
stockholders.
78
<PAGE>
DESCRIPTION OF INDEBTEDNESS
We have entered into a new senior credit facility providing for initial
borrowings of $20.0 million and future borrowings from time to time of up to an
additional $20.0 million for working capital and other corporate purposes. The
new senior credit facility has a three-year term and our indebtedness under
that facility is secured by all of our assets, including but not limited to our
equipment, inventory, receivables and related contracts, investment property,
computer hardware and software, bank accounts and all other goods and rights of
every kind and description.
Our borrowings under the new senior credit facility will bear interest, at
our option, at:
(1) the base rate, as defined in the new senior credit facility, or
(2) the Eurodollar rate, as defined in the new senior credit facility, plus
between 2.25 and 3.5%. As of May 31, 1999, the borrowing rate under
this facility would have been 7.69%.
We will be required to pay the lender under the new senior credit facility a
commitment fee, payable in arrears on a quarterly basis, on the average unused
portion of the new senior credit facility during such period. We may also be
required to pay an annual agency fee to the agent of the lender. In addition,
we will pay an arrangement fee. The agent and the lender will receive and
continue to receive such other fees as may be separately agreed upon with the
agent.
The new senior credit facility requires us to meet certain financial tests,
including, for example, maximum levels of debt as a ratio of EBITDA, as defined
in the new senior credit facility, minimum interest coverage and maximum amount
of capital expenditures. The new senior credit facility contains certain
covenants which, among other things, limit the incurrence of additional
indebtedness, investments, dividends, transactions with affiliates, asset
sales, acquisitions, mergers and consolidations, prepayments of other
indebtedness, including the notes, liens and encumbrances and other matters
customarily restricted in such agreements.
The new senior credit facility contains customary events of default
including, for example, payment defaults, breaches of representations and
warranties, covenant defaults, cross-defaults to certain other indebtedness,
certain events of bankruptcy and insolvency, judgment defaults, failure of any
guaranty or security document supporting the new senior credit facility to be
in full force and effect and change of control of Pac-West.
79
<PAGE>
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions."
The form and terms of the new notes are the same as the form and terms of
the old notes, which they replace, except that:
(1) the new notes bear a Series B designation and a different CUSIP number
from the old notes;
(2) the new notes have been registered under the Securities Act of 1933
and, therefore, will not bear legends restricting the transfer thereof;
and
(3) the holders of new notes will not be entitled to certain rights under
the registration rights agreement entered into in connection with the
private offering of the old notes, including the provisions providing
for an increase in the interest rate on the old notes in certain
circumstances relating to the timing of this exchange offer, which
rights will terminate when this exchange offer is consummated.
We issued the notes under an indenture between ourselves and Norwest Bank
Minnesota, N.A., as trustee, in a private transaction that is not subject to
the registration requirements of the Securities Act of 1933. The terms of the
notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as holders of these notes. Copies of the indenture and the
registration rights agreement are available as set forth below under the
subheading "Additional Information."
Brief Description of the Notes
The Notes
The notes:
. are Pac-West's general obligations;
. are effectively subordinated in right of payment to all of Pac-West's
existing and future secured indebtedness to the extent of the value of
the assets securing such indebtedness;
. are equal in right of payment to all of Pac-West's existing and future
unsubordinated, unsecured indebtedness; and
. are senior in right of payment to any of Pac-West's future subordinated
indebtedness.
The indenture permits us to incur additional indebtedness, including secured
indebtedness. We have entered into a new senior credit facility and secured our
borrowings under that facility with a first priority lien on substantially all
of our assets.
As of the date of the indenture, we have no subsidiaries. However, we may
establish subsidiaries in the future and our subsidiaries will not guarantee
these notes. The notes will therefore be effectively subordinated in right of
payment to the liabilities, including trade payables, of any future subsidiary
to the extent of the value of that subsidiary. In addition, under the
circumstances described below under the subheading "Certain Covenants--
Designation of Restricted and Unrestricted Subsidiaries," we may designate one
or more of our future subsidiaries as unrestricted subsidiaries. Unlike
restricted subsidiaries, unrestricted subsidiaries will not be subject to many
of the restrictive covenants in the indenture.
Principal, Maturity and Interest
We issued notes with a maximum aggregate principal amount of $150.0 million
in denominations of $1,000 and integral multiples of $1,000. The notes will
mature on February 1, 2009.
80
<PAGE>
Interest on these notes accrues at the rate of 13 1/2% per annum and is
payable semi-annually in arrears on February 1 and August 1, beginning on
February 1, 2000. We make each interest payment to the holders of record of
these notes on the immediately preceding January 15 and July 15.
Interest on these notes accrues from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest is computed on the basis of a 360-day year comprised of twelve 30-day
months.
Interest Reserve Account
A portion of our obligations under the notes is secured pending disbursement
in accordance with the Pledge Agreement by a pledge of a portfolio of U.S.
government securities. Upon the consummation of the private offering of the old
notes, we purchased and pledged to the trustee, for the benefit of the holders
of the notes, the Pledged Securities, which were in an amount intended to be
sufficient upon receipt of scheduled interest and principal payments, to
provide for payment in full when due of the first two scheduled interest
payments under the notes. We used approximately $19.7 million of the net
proceeds from the sale of the old notes to purchase the Pledged Securities. We
pledged the Pledged Securities as security for the payment of the principal of
and interest under the notes and all other of our Obligations under the
indenture and the notes. On each of the first two interest payment dates, the
trustee will apply the proceeds of a sufficient amount of Pledged Securities to
pay the interest then due.
Upon the acceleration of the maturity of the notes or upon certain
redemptions and repurchases of the notes, the trustee will apply the proceeds
of a sufficient amount of Pledged Securities to pay the amounts we owe to
holders of the notes at such time. Immediately following the earlier of:
(a) the payment in full of the two scheduled interest payment under the
notes; and
(b) the day on which all of the notes have been repurchased, redeemed or
defeased, if no Default or Event of Default is then continuing, the
remaining Pledged Securities, if any, will be released from the Pledge
and the outstanding old notes, if any, will be our unsecured
obligations.
The ability of holders of the notes to realize upon any such funds or receive
payment from the proceeds of the Pledged Securities may be subject to certain
bankruptcy law limitations in the event of our bankruptcy.
Methods of Receiving Payments under the Notes
If a holder has given wire transfer instructions to us, we will make all
principal, premium, if any, and interest payments on that holder's notes in
accordance with those instructions. All other payments on these notes will be
made at the office or agency of the paying agent and Registrar within the City
and State of New York unless we elect to make interest payments by check mailed
to the holders at their address set forth in the register of holders.
Paying Agent and Registrar for the Notes
The trustee will initially act as paying agent and Registrar. We may change
the paying agent or Registrar without prior notice to the holders of the notes,
and we or any of our subsidiaries may act as paying agent or Registrar.
Transfer and Exchange
A holder may transfer new notes in accordance with the indenture. The
Registrar and the trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and we may require a holder to
pay any taxes and fees required by law or permitted by the indenture. We are
not required to transfer or exchange any note selected for redemption. Also, we
are not required to transfer or exchange any note for a period of 15 days
before a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
81
<PAGE>
Optional Redemption
At any time prior to February 1, 2002, we may redeem up to 35% of the
aggregate principal amount of notes originally issued under the indenture at a
redemption price of 113.50% of the principal amount thereof, plus accrued and
unpaid interest to the redemption date, with the net cash proceeds of one or
more underwritten public equity offerings of common stock of Pac-West in which
the gross proceeds to Pac-West are at least $20.0 million; provided that
(1) at least $97.5 million in aggregate principal amount of notes remains
outstanding immediately after the occurrence of such redemption,
excluding notes held by Pac-West and its subsidiaries; and
(2) the redemption occurs within 45 days of the date of the closing of such
public equity offering.
Except in accordance with the preceding paragraph, the notes will not be
redeemable at our option prior to February 1, 2004.
After February 1, 2004, we may redeem all or a part of the notes upon not
less than 30 nor more than 60 days' notice, at the redemption prices set forth
below plus accrued and unpaid interest thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on
February 1 of the years indicated below. The redemption prices are expressed as
percentages of principal amount.
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004.......................... 106.75%
2005.......................... 104.50%
2006.......................... 102.25%
2007 and thereafter........... 100.00%
</TABLE>
Repurchase at the Option of Holders
Change of Control
If a change of control occurs, each holder of notes will have the right to
require us to repurchase all or any part of that holder's notes in accordance
with the change of control offer. All repurchases in part will be in $1,000
increments. In the change of control offer, we will offer a change of control
payment in cash equal to 101% of the aggregate principal amount of notes
repurchased plus accrued and unpaid interest thereon, if any, to the date of
purchase. Within ten business days following any change of control, we will
mail a notice to each holder describing the transaction or transactions that
constitute the change of control and offering to repurchase notes on the change
of control payment date specified in such notice, in accordance with the
procedures required by the indenture and described in such notice. We will
comply with the requirements of Rule 14e-1 and any other securities laws and
regulations under the Securities Exchange Act of 1934 to the extent such laws
and regulations are applicable in connection with the repurchase of the notes
as a result of a change of control.
On the change of control payment date, we will, to the extent lawful:
(1) accept for payment all notes or portions thereof properly tendered in
accordance with the change of control offer;
(2) deposit with the paying agent an amount equal to the change of control
payment in respect of all notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the trustee the notes so accepted
together with an officers' certificate stating the aggregate principal
amount of notes or portions thereof being purchased by Pac-West.
The paying agent will promptly mail to each holder of notes so tendered the
change of control payment for such notes, and the trustee will promptly
authenticate and mail, or cause to be transferred by book entry, to each holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each such new note will be in a principal
amount of $1,000 or an integral multiple thereof.
82
<PAGE>
We will publicly announce the results of the change of control offer on or
as soon as practicable after the change of control payment date.
The provisions described above that require us to make a change of control
offer following a change of control will be applicable regardless of whether or
not any other provisions of the indenture are applicable. Except as described
above with respect to a change of control, the indenture does not contain
provisions that permit the holders of the notes to require that we repurchase
or redeem the notes in the event of a takeover, recapitalization or similar
transaction.
We will not be required to make a change of control offer upon a change of
control if a third party makes the change of control offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
indenture applicable to a change of control offer made by Pac-West and
purchases all notes validly tendered and not withdrawn under such change of
control offer.
The definition of change of control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of all or substantially all of
our and our subsidiaries' assets taken as a whole. Although there is a limited
body of case law interpreting the phrase "substantially all," there is no
precise established definition of the phrase under applicable law. Accordingly,
the ability of a holder of notes to require us to repurchase such notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of our and our subsidiaries' assets taken as a whole to another person or
group may be uncertain.
Asset Sales
Pac-West will not, and will not permit any of its restricted subsidiaries
to, consummate an Asset Sale unless:
(1) Pac-West or the restricted subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is determined by Pac-West's board of directors
and evidenced by a resolution of the board of directors set forth in an
officers' certificate delivered to the trustee; and
(3) at least 75% of the consideration therefor received by Pac-West or such
restricted subsidiary is in the form of cash or Cash Equivalents. For
purposes of this provision, each of the following will be deemed to be
cash:
(a) any liabilities as shown on Pac-West's or such restricted
subsidiary's most recent balance sheet of our or any restricted
subsidiary other than contingent liabilities and liabilities that
are by their terms subordinated to the notes, that are assumed by
the transferee of any such assets in accordance with a customary
novation agreement that releases Pac-West or such restricted
subsidiary from further liability; and
(b) any securities, notes or other obligations received by Pac-West or
any such restricted subsidiary from such transferee that are
contemporaneously, subject to ordinary settlement periods,
converted by Pac-West or such restricted subsidiary into cash to
the extent of the cash received in that conversion.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale, we
may apply such Net Proceeds at our option:
(1) to permanently reduce indebtedness of ourselves or a restricted
subsidiary, other than Subordinated Indebtedness or intercompany
indebtedness;
(2) to acquire all or substantially all of the assets of, or a majority of
the Voting Stock of, another person;
(3) to make capital expenditures; or
(4) to acquire other long-term assets
in the case of (2), (3) or (4), in or used or useful in a Permitted Business.
83
<PAGE>
Pending the final application of any such Net Proceeds, we may temporarily
reduce revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $5.0 million, we will make an Asset
Sale Offer to all holders of notes and all holders of other indebtedness that
is ranked equally with the notes containing provisions similar to those set
forth in the indenture with respect to offers to purchase or redeem with the
proceeds of sales of assets to purchase the maximum principal amount of notes
and such other equally ranking indebtedness that may be purchased out of the
Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100%
of principal amount plus accrued and unpaid interest, if any, to the date of
purchase, and will be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, we may use such Excess Proceeds for any
purpose not otherwise prohibited by the indenture. If the aggregate principal
amount of notes and such other equally ranking indebtedness tendered into such
Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee will select
the notes and such other equally ranking indebtedness to be purchased on a
proportionate basis. Upon completion of each Asset Sale Offer, the amount of
Excess Proceeds will be reset at zero.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed;
or
(2) if the notes are not so listed, on a proportionate basis, by lot or by
such method as the trustee will deem fair and appropriate.
No notes of $1,000 or less will be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the old note will be issued in the name of the holder thereof upon cancellation
of the old note. Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on
notes or portions of them called for redemption.
Certain Covenants
Incurrence of Indebtedness and Issuance of Convertible Redeemable Preferred
Stock
Pac-West will not, and will not permit any of its restricted subsidiaries
to, create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to, any
indebtedness, including Acquired Debt. We will not issue any Disqualified Stock
and will not permit any of our restricted subsidiaries to issue any shares of
preferred stock. We may, however, incur indebtedness, including Acquired Debt,
and may issue Disqualified Stock, if the Debt to Cash Flow Ratio for our most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional indebtedness is incurred or such Disqualified Stock is issued would
have been greater than zero and less than 6.0 to 1. This will be determined on
a pro forma basis, including a pro forma
84
<PAGE>
application of the net proceeds therefrom, as if the additional indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period.
So long as no Default will have occurred and be continuing or would be
caused thereby, the first paragraph of this covenant will not prohibit the
incurrence of any of the following items of permitted debt:
(1) the incurrence by Pac-West and any restricted subsidiary of term
indebtedness under any Credit Facility; provided that the aggregate
principal amount of all term indebtedness of Pac-West and the
restricted subsidiaries outstanding under all Credit Facilities after
giving effect to such incurrence does not exceed an amount equal to
$50.0 million less the aggregate amount of all repayments of term
indebtedness under a Credit Facility that have been made by Pac-West or
any of its restricted subsidiaries since the date of the indenture;
(2) the incurrence by Pac-West and its restricted subsidiaries of existing
indebtedness;
(3) the incurrence by Pac-West of indebtedness represented by the notes and
the new notes;
(4) the incurrence by Pac-West and its restricted subsidiaries of
Subordinated Indebtedness in an aggregate principal amount outstanding
at any one time not to exceed $100.0 million;
(5) the incurrence by Pac-West or any of its restricted subsidiaries of
indebtedness to finance the cost to acquire equipment, inventory or
network assets, to the extent of the fair market value of the
equipment, inventory or network assets so acquired less, in the case of
an acquisition of Capital Stock, the Acquired Debt, if any, incurred in
connection with such acquisition;
(6) the incurrence by Pac-West of indebtedness maturing after the Stated
Maturity of the notes and having an Average Life longer than the notes
in an amount not to exceed, at any one time outstanding, two times the
difference between:
(a) the sum of
(1) all net cash proceeds received by Pac-West after the date of the
indenture as a capital contribution or from the issuance and
sale of Equity Interests, other than Disqualified Stock, to a
person that is not a subsidiary of Pac-West; and
(2) 80% of the fair market value of property, other than cash and
cash equivalents, received by Pac-West after the date of the
indenture as a capital contribution or from the issuance and
sale of Equity Interests, other than Disqualified Stock, to a
person that is not a Subsidiary of Pac-West,
and
(b) the sum of
(1) the amount of any capital contribution used in accordance with
clause 4(c)(ii) of the first paragraph, or clauses (2) or (8) of
the second paragraph, of the "--Restricted Payments" covenant
described below to make a Restricted Payment; and
(2) the amount of any capital contribution or net cash proceeds used
to consummate a transaction in accordance with which Pac-West
incurs Acquired Debt in an amount equal to at least 2 times the
amount of such capital contribution or, in the case of the
receipt of property, 2.5 times the fair market value thereof;
(7) the incurrence by Pac-West or any restricted subsidiary of Acquired
Debt;
(8) the incurrence by Pac-West or any of its subsidiaries of permitted
refinancing indebtedness in exchange for, or the net proceeds of which
are used to refund, refinance or replace indebtedness, other than
intercompany indebtedness that was permitted by the indenture to be
incurred under the first paragraph of the covenant or clauses (2), (3),
(4), (5), (6) or (14) of this paragraph;
85
<PAGE>
(9) the incurrence by Pac-West or any of its restricted subsidiaries of
intercompany indebtedness between or among Pac-West and any of its
wholly owned restricted subsidiaries; provided, however, that:
(a) if Pac-West is the obligor on such indebtedness, such indebtedness
must be expressly subordinated to the prior payment in full in cash
of all Obligations with respect to the notes; and
(b) (1) any subsequent issuance or transfer of Equity Interests that
results in any such indebtedness being held by a person other than
Pac-West or a wholly owned restricted subsidiary thereof; and
(2) any sale or other transfer of any such indebtedness to a person
that is not either Pac-West or a wholly owned restricted subsidiary
thereof will be deemed, in each case, to constitute an incurrence of
such indebtedness by Pac-West or such restricted subsidiary, as the
case may be, that was not permitted by this clause (9);
(10) the incurrence by Pac-West or any of its restricted subsidiaries of
Hedging Obligations that are incurred for the purpose of:
(a) fixing or hedging interest rate risk with respect to any floating
rate indebtedness that is permitted by the terms of this indenture to
be outstanding or
(b) protecting Pac-West and its restricted subsidiaries against changes
in currency exchange rates;
(11) the guarantee by Pac-West or any of the restricted subsidiaries of
indebtedness of Pac-West or a restricted subsidiary of Pac-West that
was permitted to be incurred by another provision of this covenant;
(12) the incurrence by Pac-West or any of its restricted subsidiaries of
indebtedness constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business in respect
of workers' compensation claims or self-insurance, or other
indebtedness with respect to reimbursement type obligations regarding
workers' compensation claims; provided, however, that obligations
arising upon the drawing of such letters of credit or the incurrence
of such indebtedness are reimbursed within 30 days following such
drawing or incurrence;
(13) the incurrence of indebtedness by Pac-West or a restricted subsidiary
under an agreement providing for indemnification, adjustment of
purchase price or similar obligations in connection with the
disposition of any business, assets or restricted subsidiary of Pac-
West, other than guarantees of indebtedness incurred by any person
acquiring all or any portion of such business, assets or restricted
subsidiary for the purpose of financing such acquisition; provided
that:
(a) such indebtedness is not reflected on the balance sheet of Pac-West
or any restricted subsidiary; and
(b) the maximum assumable liability in respect of all such indebtedness
never exceeds the gross proceeds actually received by Pac-West and
its restricted subsidiaries in connection with such disposition;
(14) the incurrence by Pac-West or any of its restricted subsidiaries of
additional indebtedness in an aggregate principal amount or accreted
value, as applicable, at any time outstanding, including all permitted
refinancing indebtedness incurred to refund, refinance or replace any
indebtedness incurred in accordance with this clause (14), not to
exceed $10.0 million; and
(15) the incurrence by Pac-West's unrestricted subsidiaries of non-recourse
debt; provided, however, that if any such indebtedness ceases to be
non-recourse debt of an unrestricted subsidiary, such event will be
deemed to constitute an incurrence of indebtedness by a restricted
subsidiary of Pac-West that was not permitted by this clause (15).
We will not incur any indebtedness, including the above-described permitted
debt, that is contractually subordinated in right of payment to any of our
other indebtedness unless such indebtedness is also contractually subordinated
in right of payment to the notes on substantially identical terms; provided,
however, that none of
86
<PAGE>
our indebtedness will be deemed to be contractually subordinated in right of
payment to any of our other indebtedness solely by virtue of being unsecured.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of
proposed indebtedness meets the criteria of more than one of the categories of
permitted debt described in clauses (1) through (15) above, or is entitled to
be incurred in accordance with the first paragraph of this covenant, we will be
permitted to classify such item of indebtedness on the date of its incurrence
in any manner that complies with this covenant.
Restricted Payments
Pac-West will not, and will not permit any of its restricted subsidiaries
to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of Pac-West's or any of its restricted subsidiaries' Equity
Interests, including, for example, any payment in connection with any
merger or consolidation involving Pac-West or any of its restricted
subsidiaries, or to the direct or indirect holders of Pac-West's or any
of its restricted subsidiaries' Equity Interests in their capacity as
such, other than dividends or distributions payable in Equity
Interests, other than Disqualified Stock, of Pac-West or to Pac-West or
a restricted subsidiary of Pac-West;
(2) purchase, redeem or otherwise acquire or retire for value, including,
for example, in connection with any merger or consolidation involving
Pac-West, any Equity Interests of Pac-West or any direct or indirect
parent of Pac-West or any restricted subsidiary of Pac-West, other than
any such Equity Interests owned by Pac-West or any restricted
subsidiary of Pac-West;
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any indebtedness that is
subordinated to the notes, except a payment of interest or principal at
the Stated Maturity thereof; or
(4) make any Restricted Investment, all such payments and other actions set
forth in clauses (1) through (4) above being collectively referred to
as "Restricted Payments", unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default will have occurred and be continuing
or would occur as a consequence thereof; and
(b) Pac-West would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional
indebtedness in accordance with the Debt to Cash Flow Ratio test
set forth in the first paragraph of the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Pac-West and its restricted
subsidiaries after the date of the indenture, excluding Restricted
Payments permitted by clauses (2), (3), (4) and (5) of the next
succeeding paragraph, is less than the sum, without duplication, of
(1) 50% of the Consolidated Net Income of Pac-West for the period,
taken as one accounting period, from the beginning of the first
fiscal quarter beginning after the date of the indenture to the
end of Pac-West's most recently ended fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit; plus
(2) 100% of the aggregate net cash proceeds received by Pac-West
since the date of the indenture as a contribution to its common
equity capital or from the issue or sale of Equity Interests of
Pac-West, other than Disqualified Stock, or from the issue or
sale of convertible or exchangeable Disqualified Stock or
convertible or exchangeable debt securities of Pac-West that
have been converted into or exchanged for such Equity Interests,
other than
87
<PAGE>
Equity Interests, or Disqualified Stock or debt securities, sold
to a subsidiary of Pac-West, except to the extent such net cash
proceeds are used to incur indebtedness in accordance with clause
(6) of the covenant described above under the caption "--
Incurrence of indebtedness and Issuance of Preferred Stock," or
to make a Restricted Payment in accordance with clause (2) or (8)
of the next succeeding paragraph, plus
(3) to the extent that any Restricted Investment that was made after
the date of the indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of:
(x) the cash return of capital with respect to such Restricted
Investment, less the cost of disposition, if any; and
(y) the initial amount of such Restricted Investment, plus
(4) 50% of any cash dividends received by Pac-West or any restricted
subsidiary after the date of the indenture from an unrestricted
subsidiary, to the extent such dividends were not otherwise
included in Consolidated Net Income of Pac-West for such period,
plus
(5) to the extent that any unrestricted subsidiary of Pac-West is
designated as a restricted subsidiary after the date of the
indenture, the lesser of:
(x) the fair market value of Pac-West's Investment in such
subsidiary as of the date of such subsidiary's designation as
a restricted subsidiary; and
(y) the sum of the fair market value of Pac-West's Investment in
such subsidiary as of the date on which such subsidiary was
originally designated as an unrestricted subsidiary and the
amount of any Investments made in such subsidiary subsequent
to such designation and treated as Restricted Payments by
Pac-West or any restricted subsidiary, plus
(6) $2.0 million.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any Subordinated Indebtedness of Pac-West or any restricted
subsidiary or of any Equity Interests of Pac-West or any restricted
subsidiary in exchange for, or out of the net cash proceeds of the
substantially concurrent sale, other than to a Subsidiary of Pac-West,
of, Equity Interests of Pac-West, other than Disqualified Stock; except
to the extent such Net Cash Proceeds are used to incur indebtedness in
accordance with clause (6) under the Limitation on indebtedness or to
make Restricted Payments in accordance with clause 4(c)(ii) of the
first paragraph, or clause (8) of this paragraph, of this "Limitation
on Restricted Payments" covenant;
(3) the defeasance, redemption, repurchase or other acquisition of
Subordinated Indebtedness of Pac-West or any restricted subsidiary with
the net cash proceeds from an incurrence of permitted refinancing
indebtedness;
(4) the payment of any dividend by a restricted subsidiary of Pac-West to
the holders of its common Equity Interests on a proportionate basis;
(5) the making of any Earnout Payments in an amount not to exceed $20.0
million in the aggregate;
(6) the making of payments or distributions to dissenting stockholders in
accordance with applicable law in connection with a consolidation,
merger or transfer of assets permitted under the covenant described
below under the caption "--Merger, Consolidation or Sale of Assets";
(7) payments made to retire Capital Stock of Pac-West to the extent
necessary, as determined in good faith by a majority of Pac-West's
board of directors, to prevent the loss of, or to secure the renewal or
reinstatement of, any governmental license or authorization held by
Pac-West or any restricted subsidiary;
88
<PAGE>
(8) Investments in any person the primary business of which is related,
ancillary or complementary to the business of Pac-West and its
restricted subsidiaries on the date of such Investments; provided that
the aggregate amount of Investments made in accordance with this clause
(8) does not exceed the sum of:
(a) $20 million; and
(b) the amount of Net Cash Proceeds received by Pac-West after the
issue date as a capital contribution or from the sale of its
Capital Stock, other than Disqualified Stock, to a person who is
not a subsidiary of Pac-West, except to the extent such Net Cash
Proceeds are used to incur indebtedness in accordance with clause
(6) under the "Limitation on Indebtedness" covenant or to make
Restricted Payments in accordance with clause 4(c)(ii) of the first
paragraph, or clause (2) of this paragraph, of this "Limitation on
Restricted Payments" covenant, plus (z) the net reduction in
Investments made in accordance with this clause (8) resulting from
distributions on or repayments of such Investments or from the Net
Cash Proceeds from the sale of any such Investment, except in each
case to the extent any such payment or proceeds is included in the
calculation of Consolidated Net Income, or from such person
becoming a restricted subsidiary, valued in each case as provided
in the definition of "Investments", provided that the net reduction
in any Investment will not exceed the amount of such Investment;
and
(9) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of Pac-West or any restricted subsidiary of
Pac-West held by any member of Pac-West's, or any of its subsidiaries',
management in accordance with any management equity subscription
agreement or stock option agreement; provided that such repurchase,
redemption or other acquisition is made in connection with the
cessation of employment by Pac-West or any restricted subsidiary of a
manager or officer, and the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests will not
exceed $5.0 million in the aggregate.
The amount of all Restricted Payments, other than cash, will be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by Pac-West or such restricted
subsidiary, as the case may be, in accordance with the Restricted Payment. The
fair market value of any assets or securities that are required to be valued by
this covenant will be determined by the board of directors whose resolution
with respect thereto will be delivered to the trustee. The board of directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $5.0 million. Not later than the date of making any
Restricted Payment, Pac-West will deliver to the trustee an officers'
certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this "Restricted Payments"
covenant were computed, together with a copy of any fairness opinion or
appraisal required by the indenture.
Liens
Pac-West will not, and will not permit any of its restricted subsidiaries to
create incur, assume or suffer to exist any Lien of any kind securing
indebtedness, Attributable Debt or trade payables on any asset now owned or
hereafter acquired, or any income or profit therefrom or assign or convey any
right to receive income therefrom except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
Pac-West will not, and will not permit any of its restricted subsidiaries to
create or permit to exist or become effective any encumbrance or restriction on
the ability of any restricted subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
Pac-West or any of its restricted subsidiaries, or with respect to any
other interest or participation in, or measured by, its profits, or pay
any indebtedness owed to Pac-West or any of its restricted
subsidiaries;
89
<PAGE>
(2) make loans or advances to Pac-West or any of its restricted
subsidiaries; or
(3) transfer any of its properties or assets to Pac-West or any of its
restricted subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) the indenture and the notes;
(2) applicable law;
(3) any instrument governing indebtedness or Capital Stock of a person
acquired by Pac-West or any of its restricted subsidiaries as in effect
at the time of such acquisition, except to the extent such indebtedness
was incurred in connection with or in contemplation of such
acquisition, which encumbrance or restriction is not applicable to any
person, or the properties or assets of any person, other than the
person, or the property or assets of the person, so acquired, provided
that, in the case of indebtedness, such indebtedness was permitted by
the terms of the indenture to be incurred;
(4) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(5) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions on the property so acquired of the
nature described in clause (3) of the preceding paragraph;
(6) any agreement for the sale or other disposition of a restricted
subsidiary that restricts distributions by such restricted subsidiary
pending its sale or other disposition;
(7) permitted refinancing indebtedness, provided that the restrictions
contained in the agreements governing such permitted refinancing
indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the indebtedness being
refinanced;
(8) Liens securing indebtedness otherwise permitted to be incurred in
accordance with the provisions of the covenant described above under
the caption "--Liens" that limit the right of Pac-West or any of its
restricted subsidiaries to dispose of the assets subject to such Lien;
(9) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements
entered into in the ordinary course of business; and
(10) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business.
Merger, Consolidation, or Sale of Assets
Pac-West may not:
(a) consolidate or merge with or into another person, whether or not Pac-
West is the surviving corporation; or
(b) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of its properties or assets, in one or more related
transactions, to another person; unless:
(1) either:
(a) Pac-West is the surviving entity; or
(b) the person formed by or surviving any such consolidation or merger,
if other than Pac-West, or to which such sale, assignment,
transfer, conveyance or other disposition will have been made is an
entity organized or existing under the laws of the United States,
any state thereof or the District of Columbia;
90
<PAGE>
(2) the person formed by or surviving any such consolidation or merger, if
other than Pac-West, or the person to which such sale, assignment,
transfer, conveyance or other disposition will have been made assumes
all the obligations of Pac-West under the notes, the indenture and the
registration rights agreement in accordance with a supplemental
indenture reasonably satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) except in the case of the merger of Pac-West with or into a wholly
owned restricted subsidiary or a merger entered into solely for the
purpose of reincorporating Pac-West in another jurisdiction, Pac-West,
or the person formed by or surviving any such consolidation or merger,
if other than Pac-West, will, on the date of such transaction after
giving pro forma effect thereto and any related financing transactions
as if the same had occurred at the beginning of the applicable four-
quarter period, be permitted to incur at least $1.00 of additional
indebtedness in accordance with the Debt to Cash Flow Ratio test set
forth in the first paragraph of the covenant described above under the
caption "Incurrence of Indebtedness and Issuance of Preferred Stock."
In addition, Pac-West may not lease all or substantially all of its properties
or assets, in one or more related transactions, to any other person. This
"Merger, Consolidation, or Sale of Assets" covenant will not apply to a sale,
assignment, transfer, conveyance or other disposition of assets between or
among Pac-West and any of its wholly owned restricted subsidiaries.
Transactions with Affiliates
Pac-West will not, and will not permit any of its restricted subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any Pac-
West Affiliate, unless:
(1) such Affiliate transaction is on terms that are no less favorable to
Pac-West or the relevant restricted subsidiary than those that would
have been obtained in a comparable transaction by Pac-West or such
restricted subsidiary with an unrelated person; and
(2) Pac-West delivers to the trustee:
(a) with respect to any Affiliate transaction or series of related
Affiliate transactions involving aggregate consideration in excess
of $1.0 million, a resolution of the board of directors set forth
in an officers' certificate certifying that such Affiliate
transaction complies with this covenant and that such Affiliate
transaction has been approved by a majority of the disinterested
members of the board of directors; and
(b) with respect to any Affiliate transaction or series of related
Affiliate transactions involving aggregate consideration in excess
of $5.0 million, an opinion as to the fairness to the holders of
such Affiliate transaction from a financial point of view issued by
an accounting, appraisal or investment banking firm of national
standing.
The following items will not be deemed to be Affiliate transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment, noncompetition, confidentiality, indemnification or
similar agreement or arrangement entered into by Pac-West or any of its
restricted subsidiaries in the ordinary course of business and
consistent with the past practice of Pac-West or such restricted
subsidiary;
(2) transactions between or among Pac-West and/or its restricted
subsidiaries;
(3) payment of reasonable directors fees to persons who are not otherwise
Affiliates of Pac-West;
(4) any sale or other issuance of Equity Interests, other than Disqualified
Stock, of Pac-West;
(5) the sale of telecommunications services to any Affiliate on an arm's
length basis which is undertaken in the ordinary course of Pac-West's
business;
91
<PAGE>
(6) transactions in accordance with the Merger Agreement or any agreement
executed prior to the date of the indenture in connection therewith,
including for example the shareholders agreement and the registration
agreement, or any renewal, replacement, extension, amendment or other
modification thereof, provided such modifications are not, on balance,
disadvantageous to the holders of the notes;
(7) payments to Bay Alarm Company in accordance with the existing lease
between Pac-West and the Bay Alarm Company for Pac-West's Oakland
facility and for security monitoring services offered at Bay Alarm
Company's prevailing commercial rates; and
(8) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption "--Restricted Payments."
Issuances of Guarantees by Restricted Subsidiaries
Pac-West will not permit any restricted subsidiary to guarantee, assume or
in any other manner become liable with respect to any indebtedness of Pac-West
which is ranking equally with or subordinate in right of payment to the notes,
other than any indebtedness incurred under a Credit Facility, unless:
(1) such restricted subsidiary simultaneously executes and delivers a
supplemental indenture to the indenture providing for a guarantee of
payment of the notes by such restricted subsidiary; and
(2) such restricted subsidiary waives and will not in any manner whatsoever
claim, or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against
Pac-West or any other restricted subsidiary as a result of any payment
by such restricted subsidiary under its Subsidiary Guarantee; provided
that this paragraph will not be applicable to any guarantee of any
restricted subsidiary that existed at the time such person became a
restricted subsidiary and was not incurred in connection with, or in
contemplation of, such person becoming a restricted subsidiary.
If the Guaranteed indebtedness is:
a. ranked equally with the notes, then the guarantee of such Guaranteed
indebtedness will be ranked equally with, or subordinated to, the
subsidiary Guarantee or
b. subordinated to the notes, then the guarantee of such Guaranteed
indebtedness will be subordinated to the subsidiary Guarantee at least
to the extent that the Guaranteed indebtedness is subordinated to the
notes.
Despite the above, any subsidiary Guarantee by a restricted subsidiary may
provide by its terms that it will be automatically and unconditionally released
and discharged upon:
(1) any sale, exchange or transfer, to any person that is not an Affiliate
of Pac-West, of all of Pac-West's and each restricted subsidiary's
Capital Stock in, or all or substantially all of the assets of, such
restricted subsidiary, which sale, exchange or transfer is not
prohibited by the indenture; or
(2) the release or discharge of the guarantee which resulted in the
creation of such subsidiary Guarantee, except a discharge or release by
or as a result of payment under such guarantee; provided, that, with
respect to clause (2), such restricted subsidiary has no indebtedness.
Designation of Restricted and Unrestricted Subsidiaries
The board of directors may designate any restricted subsidiary to be an
unrestricted subsidiary if that designation would not cause a Default. If a
restricted subsidiary is designated as an unrestricted subsidiary, all
outstanding Investments owned by Pac-West and its restricted subsidiaries in
the subsidiary so designated will be deemed to be an Investment made as of the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of the covenant described above under the
caption "--Restricted Payments" or Permitted Investments, as applicable. All
such outstanding Investments will be valued at their fair market value at the
time of such designation. That designation will be permitted only if such
92
<PAGE>
Restricted Payment would be permitted at that time and if such restricted
subsidiary otherwise meets the definition of an unrestricted subsidiary. The
board of directors may redesignate any unrestricted subsidiary to be a
restricted subsidiary if the redesignation would not cause a Default.
Sale and Leaseback Transactions
Pac-West will not, and will not permit any of its restricted subsidiaries
to, enter into any sale and leaseback transaction; provided that Pac-West or
any restricted subsidiary of Pac-West restricted subsidiary may enter into a
sale and leaseback transaction if:
(1) Pac-West or that restricted subsidiary, as applicable, could have:
(a) incurred indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the Debt to
Cash Flow Ratio test in the first paragraph of the covenant
described above under the caption "--Incurrence of Additional
Indebtedness and Issuance of Preferred Stock"; and
(b) incurred a Lien to secure such indebtedness in accordance with the
covenant described above under the caption "--Liens";
(2) the gross cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by
the board of directors and set forth in an officers' certificate
delivered to the trustee, of the property that is the subject of such
sale and leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and Pac-West applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales."
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Subsidiaries
Pac-West will not, and will not permit any of its restricted subsidiaries
to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests
in any wholly owned restricted subsidiary of Pac-West to any person, other than
Pac-West or a wholly owned restricted subsidiary of Pac-West, unless:
(1) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in such wholly owned restricted subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant described
above under the caption "--Repurchase at the Option of Holders--Asset
Sales."
In addition, Pac-West will not permit any wholly owned restricted subsidiary of
Pac-West to issue any of its Equity Interests, other than, if necessary, shares
of its Capital Stock constituting directors' qualifying shares, to any person
other than to Pac-West or a wholly owned restricted subsidiary of Pac-West.
Business Activities
Pac-West will not, and will not permit any restricted subsidiary to, engage
in any business other than Permitted Businesses.
Payments for Consent
Pac-West will not, and will not permit any of its subsidiaries to pay or
cause to be paid any consideration to or for the benefit of any holder of notes
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of the indenture or the notes unless such consideration is
offered to be paid and is paid to all holders of the notes that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
93
<PAGE>
Reports
Whether or not required by the SEC, so long as any notes are outstanding,
Pac-West will furnish to the holders of notes, within the time periods
specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if Pac-
West were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report
on the annual financial statements by Pac-West's certified independent
accountants; and
(2) all current reports that would be required to be filed with the SEC on
Form 8-K if Pac-West were required to file such reports.
If Pac-West has designated any of its subsidiaries as unrestricted
subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph will include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of Pac-West
and its restricted subsidiaries separate from the financial condition and
results of operations of the unrestricted subsidiaries of Pac-West.
In addition, whether or not required by the SEC, Pac-West will file a copy
of all of the information and reports referred to in clauses (1) and (2) above
with the SEC for public availability within the time periods specified in the
SEC's rules and regulations, unless the SEC will not accept such a filing, and
make such information available to securities analysts and prospective
investors upon request.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest under the
notes;
(2) default in payment when due of the principal of or premium, if any,
under the notes;
(3) failure by Pac-West or any of its subsidiaries to comply with the
provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control" or "--Repurchase at the Option of Holders--
Asset Sales";
(4) failure by Pac-West or any of its restricted subsidiaries for 60 days
after notice from either the trustee or the holders of at least 25% in
aggregate principal amount of the outstanding notes to comply with any
of the other agreements in the indenture or the notes;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by Pac-West or any of its restricted
subsidiaries, or the payment of which is guaranteed by Pac-West or any
of its restricted subsidiaries, whether such idebtedness or guarantee
now exists, or is created after the date of the indenture, if that
default:
(a) is caused by a payment default due to failure to pay principal of
or premium, if any, or interest on such indebtedness prior to the
expiration of the grace period provided in such indebtedness on the
date of such default; or
(b) results in the acceleration of such indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such indebtedness,
together with the principal amount of any other such indebtedness under
which there has been a payment default or the maturity of which has
been so accelerated, aggregates $5.0 million or more;
(6) failure by Pac-West or any of its restricted subsidiaries to pay final
judgments aggregating in excess of $5.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days;
94
<PAGE>
(7) Pac-West asserts in writing that the Pledge Agreement ceases to be in
full force and effect before payment in full of the obligations under
that agreement; and
(8) certain events of bankruptcy or insolvency with respect to Pac-West or
any of its restricted subsidiaries.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to Pac-West, any restricted subsidiary that is a
Significant Subsidiary or any group of restricted subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding old notes
will become due and payable immediately without further action or notice. If
any other Event of Default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the then outstanding old notes may
declare all the notes to be due and payable immediately.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding old notes may direct the
trustee in its exercise of any trust or power. The trustee may withhold from
holders of the notes notice of any continuing Default or Event of Default,
except a Default or Event of Default relating to the payment of principal or
interest, if it determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of Pac-West with the
intention of avoiding payment of the premium that Pac-West would have had to
pay if Pac-West then had elected to redeem the notes in accordance with the
optional redemption provisions of the indenture, an equivalent premium will
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the notes. If an Event of Default occurs prior to
February 1, 2004, by reason of any willful action or inaction taken or not
taken by or on behalf of Pac-West with the intention of avoiding the
prohibition on redemption of the notes prior to February 1, 2004, then the
premium specified in the indenture will also become immediately due and payable
to the extent permitted by law upon the acceleration of the notes.
Pac-West is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, Pac-West is required to deliver to the trustee a statement
specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of Pac-West or
any subsidiary, as such, will have any liability for any obligations of Pac-
West or the subsidiaries under the notes or the indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each holder of notes by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the notes. The waiver may not be effective to waive liabilities under the
federal securities laws.
Legal Defeasance and Covenant Defeasance
Pac-West may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes as legal
defeasance except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on the notes
when such payments are due from the trust referred to below;
95
<PAGE>
(2) Pac-West's obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
Pac-West's obligations in connection therewith; and
(4) the legal defeasance provisions of the indenture.
In addition, Pac-West may, at its option and at any time, elect to have the
obligations of Pac-West and the restricted subsidiaries released with respect
to certain covenants that are described in the indenture as covenant defeasance
and thereafter any omission to comply with those covenants will not constitute
a Default or Event of Default with respect to the notes. In the event covenant
defeasance occurs, certain events, described under "Events of Default," will no
longer constitute an Event of Default with respect to the notes. These events
do not include non-payment, bankruptcy, receivership, rehabilitation and
insolvency events.
In order to exercise either legal defeasance or covenant defeasance:
(1) Pac-West must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if
any, and interest on the outstanding notes on the stated maturity or on
the applicable redemption date, as the case may be, and Pac-West must
specify whether the notes are being defeased to maturity or to a
particular redemption date;
(2) in the case of legal defeasance, Pac-West will have delivered to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that:
(a) Pac-West has received from, or there has been published by, the
Internal Revenue Service a ruling; or
(b) since the date of the indenture, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel will confirm that,
the holders of the outstanding notes will not recognize income,
gain or loss for federal income tax purposes as a result of such
legal defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would
have been the case if such legal defeasance had not occurred;
(3) in the case of covenant defeasance, Pac-West will have delivered to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such covenant defeasance had not occurred;
(4) no Default or Event of Default will have occurred and be continuing
either:
(a) on the date of such deposit, other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit; or
(b) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st
day after the date of deposit;
(5) such legal defeasance or covenant defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument, other than the indenture, to which Pac-West or
any of its restricted subsidiaries is a party or by which Pac-West or
any of its restricted subsidiaries is bound;
(6) Pac-West must have delivered to the trustee an opinion of counsel to
the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
96
<PAGE>
(7) Pac-West must deliver to the trustee an officers' certificate stating
that the deposit was not made by Pac-West with the intent of preferring
the holders of notes over the other creditors of Pac-West with the
intent of defeating, hindering, delaying or defrauding creditors of
Pac-West or others; and
(8) Pac-West must deliver to the trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent relating
to the legal defeasance or the covenant defeasance have been complied
with.
Amendment, Supplement and Waiver
Without the consent of each holder affected, an amendment or waiver may not,
with respect to any notes held by a non-consenting holder:
(1) reduce the principal amount of notes whose holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes, other
than provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders";
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest under the notes, except a rescission of
acceleration of the notes by the holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment
default that resulted from such acceleration;
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers
of past Defaults or the rights of holders of notes to receive payments
of principal of or premium, if any, or interest under the notes;
(7) waive a redemption payment with respect to any note, other than a
payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders"; or
(8) make any change in the preceding amendment and waiver provisions.
Despite the above, without the consent of any holder of notes, Pac-West and
the trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Pac-West's obligations to holders of
notes in the case of a merger or consolidation or sale of all or
substantially all of Pac-West's assets;
(4) to make any change that would provide any additional rights or benefits
to the holders of notes or that does not adversely affect the legal
rights under the indenture of any such holder; or
(5) to comply with requirements of the SEC in order to effect or maintain
the qualification of the indenture under the Trust Indenture Act of
1939.
Concerning the Trustee
If the trustee becomes a creditor of Pac-West or any restricted subsidiary,
the indenture limits its right to obtain payment of claims in certain cases, or
to realize on certain property received in respect of any such claim as
security or otherwise. The trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue or resign.
97
<PAGE>
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
will occur and be continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of notes, unless such holder will have offered to the trustee security
and indemnity satisfactory to it against any loss, liability or expense.
Book-Entry, Delivery and Form
The new notes issued to qualified institutional buyers, as defined in Rule
144A under the Securities Act of 1933, initially will be in the form of one or
more registered global notes without interest coupons. Upon issuance, these
U.S. global notes will be deposited with the trustee, as custodian for DTC and
registered in the name of DTC or its nominee, in each case for credit to the
accounts of DTC's direct and indirect participants. In addition, a registered,
coupon-less U.S. global note will be established to accommodate transfers to
institutional accredited investors, as defined in Rule 501(a)(1)(2)(3) or (7)
of Regulation D under the Securities Act of 1933. The new notes issued to non-
U.S. persons will initially be in the form of a separate Regulation S global
note. Beneficial interests in the Regulation S global notes may be transferred
to a person that takes delivery in the form of an interest in the U.S. global
notes and beneficial interests in the U.S. global notes may be transferred to a
person that takes delivery in the form of an interest in the Regulation S
global notes. See "--Transfers of Interests in One Global Note for Interests in
Another Global Note."
The global notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the global notes may be
exchanged for notes in certificated form in certain limited circumstances. See
"--Transfers of Interests in Global Notes for Certificated Notes."
Depositary Procedures
DTC has advised Pac-West that DTC is a limited-purpose trust company created
to hold securities for its direct participant organizations and to facilitate
the clearance and settlement of transactions in those securities between direct
participant organizations through electronic book-entry changes in the accounts
of direct participant organizations. The direct participant organizations
include securities brokers and dealers, including the initial purchasers of the
notes, banks, trust companies, clearing corporations and certain other
organizations, including Euroclear and CEDEL. Access to DTC's system is also
available to other indirect participant organizations that clear through or
maintain a direct or indirect, custodial relationship with a direct participant
organization. DTC may hold securities beneficially owned by other persons only
through the direct participant organizations or indirect participant
organizations and such other persons' ownership interest and transfer of
ownership interest will be recorded only on the records of the direct
participant organization and/or indirect participant organization, and not on
the records maintained by DTC.
DTC has also advised Pac-West that, in accordance with DTC's procedures:
(1) upon deposit of the global notes, DTC will credit the accounts of the
direct participant organizations designated by the initial purchasers
of the notes with portions of the principal amount of the global notes
allocated by the indirect participant organizations to such direct
participant organizations; and
(2) DTC will maintain records of the ownership interests of such direct
participant organizations in the global notes and the transfer of
ownership interests by and between direct participant organizations.
DTC will not maintain records of the ownership interests of, or the transfer of
ownership interests by and between, indirect participant organizations or other
owners of beneficial interests in the global notes. Direct participant
organizations and indirect participant organizations must maintain their own
records of the ownership interests of, and the transfer of ownership interests
by and between, indirect participant organizations and other owners of
beneficial interests in the global notes.
98
<PAGE>
Investors in the U.S. global notes may hold their interests therein directly
through DTC if they are direct participant organizations in DTC or indirectly
through organizations that are direct participant organizations in DTC.
Investors in the Regulation S global notes may also hold interests in the
Regulation S global notes through organizations that are direct participant
organizations in the DTC system.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a global note to such
persons. Because DTC can act only on behalf of direct participant
organizations, which in turn act on behalf of indirect participant
organizations and others, the ability of a person having a beneficial interest
in a global note to pledge such interest to persons or entities that are not
direct participant organizations in DTC, or to otherwise take actions in
respect of such interests, may be affected by the lack of physical certificates
evidencing such interests.
Except as described in "Transfers of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the global notes will
not have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders thereof under the indenture for any purpose.
Under the terms of the indenture, Pac-West and the trustee will treat the
persons in whose names the notes are registered, including notes represented by
global notes, as the owners thereof for the purpose of receiving payments and
for any and all other purposes whatsoever. Payments in respect of the
principal, premium and interest on global notes registered in the name of DTC
or its nominee will be payable by the trustee to DTC or its nominee as the
registered holder under the indenture. Consequently, neither Pac-West, the
trustee nor any agent of Pac-West or the trustee has or will have any
responsibility or liability for:
(1) any aspect of DTC's records or any direct participant organization's or
indirect participant organization's records relating to or payments
made on account of beneficial ownership interests in the global notes
or for maintaining, supervising or reviewing any of DTC's records or
any direct participant organization's or indirect participant
organization's records relating to the beneficial ownership interests
in any global note; or
(2) any other matter relating to the actions and practices of DTC or any of
its direct participant organizations or indirect participant
organizations.
DTC has advised Pac-West that its current payment practice for payments of
principal, interest and the like with respect to securities such as the notes
is to credit the accounts of the relevant direct participant organizations with
such payment on the payment date in amounts proportionate to such direct
participant organization's respective ownership interests in the global notes
as shown on DTC's records. Payments by direct participant organizations and
indirect participant organizations to the beneficial owners of the notes will
be governed by standing instructions and customary practices between them and
will not be the responsibility of DTC, the trustee or Pac-West. Neither Pac-
West nor the trustee will be liable for any delay by DTC or its direct
participant organizations or indirect participant organizations in identifying
the beneficial owners of the notes, and Pac-West and the trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee as the registered owner of the notes for all purposes.
Interests in the global notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and, therefore, transfers between direct
participant organizations in DTC will be effected in accordance with DTC's
procedures, and will be settled in immediately available funds. Transfers
between indirect participant organizations who hold an interest through a
direct participant organization will be effected in accordance with the
procedures of such direct participant organization but generally will settle in
immediately available funds.
DTC has advised Pac-West that it will take any action permitted to be taken
by a holder of notes only at the direction of one or more direct participant
organizations to whose account interests in the global notes are credited and
only in respect of such portion of the aggregate principal amount of the notes
as to which such
99
<PAGE>
direct participant organization or direct participant organizations has or have
given direction. However, if there is an Event of Default under the notes, DTC
reserves the right to exchange global notes, without the direction of one or
more of its direct participant organizations, for notes in certificated form,
and to distribute such certificated forms of notes to its direct participant
organizations. See "--Transfers of Interests in Global Notes for Certificated
Notes."
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Regulation S global notes and in the U.S. global notes
among direct participant organizations, it is under no Obligation to perform or
to continue to perform such procedures, and such procedures may be discontinued
at any time. Neither Pac-West nor the trustee will have any responsibility for
the performance by DTC or its respective Direct and indirect participant
organizations of their respective obligations under the rules and procedures
governing any of their operations.
The information in this section concerning DTC and its book-entry system has
been obtained from sources that Pac-West believes to be reliable, but Pac-West
takes no responsibility for the accuracy thereof.
Transfers of Interests in One Global Note for Interests in Another Global Note
Transfers involving an exchange of a beneficial interest in Regulation S
global notes for a beneficial interest in U.S. global notes or vice versa will
be effected by DTC by means of an instruction originated by the trustee through
DTC Deposit/Withdraw at Custodian system. Accordingly, in connection with such
transfer, appropriate adjustments will be made to reflect a decrease in the
principal amount of the one global note and a corresponding increase in the
principal amount of the other global note, as applicable. Any beneficial
interest in the one global note that is transferred to a person who takes
delivery in the form of an interest in the other global note will, upon
transfer, cease to be an interest in such first global note and become an
interest in such other global note and, accordingly, will thereafter be subject
to all transfer restrictions and other procedures applicable to beneficial
interests in such other global note for as long as it remains such an interest.
Transfers of Interests in Global Notes for Certificated Notes
An entire global note may be exchanged for definitive notes in registered,
certificated form without interest coupons if:
(1) DTC
(a) notifies Pac-West that it is unwilling or unable to continue as
depositary for the global notes and Pac-West thereupon fails to
appoint a successor depositary within 90 days; or
(b) has ceased to be a clearing agency registered under the Exchange
Act;
(2) Pac-West, at its option, notifies the trustee in writing that it elects
to cause the issuance of certificated notes; or
(3) there will have occurred and be continuing a Default or an Event of
Default with respect to the notes.
In any such case, Pac-West will notify the trustee in writing that, upon
surrender by the direct and indirect participant organizations of their
interest in such global note, certificated notes will be issued to each person
that such Direct and indirect participant organizations and DTC identify as
being the beneficial owner of the related notes.
Beneficial interests in global notes held by any Direct or indirect
participant organization may be exchanged for certificated notes upon request
to DTC, by such direct participant organization, for itself or on behalf of an
indirect participant organization, but only upon at least 20 days' prior
written notice given to the
100
<PAGE>
trustee by or on behalf of DTC in accordance with customary DTC procedures.
Certificated notes delivered in exchange for any beneficial interest in any
global note will be registered in the names, and issued in any approved
denominations, requested by DTC on behalf of such Direct or indirect
participant organizations, in accordance with DTC's customary procedures.
In all cases described herein, such certificated notes will bear the
restrictive legend referred to in "Notice to Investors," unless Pac-West
determines otherwise in compliance with applicable law.
Neither Pac-West nor the trustee will be liable for any delay by the holder
of the global notes or the DTC in identifying the beneficial owners of notes,
and Pac-West and the trustee may conclusively rely on, and will be protected in
relying on, instructions from the holder of the global note or the DTC for all
purposes.
Transfers of Certificated Notes for Interests in Global Notes
Certificated notes may only be transferred if the transferor first delivers
to the trustee a written certificate and, in certain circumstances, an opinion
of counsel confirming that, in connection with such transfer, it has complied
with any applicable restrictions on transfer.
Same Day Settlement and Payment
The indenture requires that payments in respect of the notes represented by
the global notes, including principal, premium, if any, and interest, be made
by wire transfer of immediately available funds to the accounts specified by
the holder of such global note. With respect to certificated notes, Pac-West
will make all payments of principal, premium, if any, and interest by wire
transfer of immediately available funds to the accounts specified by the
holders thereof or, if no such account is specified, by mailing a check to each
such holder's registered address. Pac-West expects that secondary trading in
the certificated notes will also be settled in immediately available funds.
Fraudulent Conveyance Matters
A significant portion of the net proceeds of the private offering of the
notes was used to repay indebtedness received in connection with our
recapitalization. If a bankruptcy case or lawsuit is initiated by unpaid
creditors of Pac-West, the debt which we incurred to finance the
recapitalization and the debt represented by the notes may be reviewed under
the federal bankruptcy law and comparable provisions of state fraudulent
transfer laws. Under these laws, the debt could be voided, or claims in respect
of the debt could be subordinated to all of our other debts if, among other
things, at the time we incurred the indebtedness, we:
. received less than reasonably equivalent value or fair consideration for
the incurrence of such debt, and were insolvent or rendered insolvent by
reason of such incurrence; or
. were engaged in a business or transaction for which our remaining assets
constituted unreasonably small capital; or
. intended to incur, or believed that we would incur, debts beyond our
ability to pay such debts as they mature.
In addition, any payment by us could be voided and required to be returned to
us, or to a fund for the benefit of our creditors.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a debtor would be
considered insolvent if:
. the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets; or
. if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute
and mature; or
101
<PAGE>
. it could not pay its debts as they become due.
We believe that we received fair market value for the indebtedness received
in connection with the recapitalization and the old notes. On the basis of
historical financial information, recent operating history and other factors,
we believe that we, after giving effect to the recapitalization and the private
offering of the old notes was not insolvent, do not have unreasonably small
capital for the business in which we are engaged and did not incur debts beyond
our ability to pay such debts as they mature. There can be no assurance,
however, as to what standard a court would apply in making such determinations
or that a court would agree with our conclusions in this regard.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified person, indebtedness of
any other person existing at the time such other person is merged with or into
or became a subsidiary of such specified person, but excluding indebtedness
secured by a Lien encumbering any assets acquired by such person and excluding:
(1) indebtedness incurred in connection with, or in anticipation of
contemplation of, such other person merging with or into, or becoming a
subsidiary of, such specified person; and
(2) indebtedness extinguished, retired or repaid in connection with such
other person merging with or into or becoming a subsidiary of such
specified person.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control,"
as used with respect to any person, will mean the possession of the power to
direct or cause the direction of the management or policies of such person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
person will be deemed to be control. For purposes of this definition, the terms
"controlling," "controlled by" and "under common control with" will have
correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, including, for example, by way of a sale and leaseback, other
than sales of inventory in the ordinary course of business consistent
with past practices; provided that the sale, conveyance or other
disposition of all or substantially all of the assets of Pac-West and
its restricted subsidiaries taken as a whole will be governed by the
provisions of the indenture described above under the caption "--
Repurchase at Option of Holders--Change of Control" and/or the
provisions described above under the caption "--Certain Covenants--
Merger, Consolidation or Sale of Assets" and not by the provisions of
the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of Pac-West's restricted
subsidiaries or the sale of Equity Interests in any of Pac-West's
subsidiaries.
Despite the above, the following items will not be deemed to be Asset Sales:
(1) any single transaction or series of related transactions that:
(a) involves assets having a fair market value of less than $1.0
million; or
(b) results in net proceeds to Pac-West and its restricted subsidiaries
of less than $1.0 million;
102
<PAGE>
(2) a transfer of assets between or among Pac-West and its wholly owned
restricted subsidiaries;
(3) an issuance of Equity Interests by a wholly owned restricted subsidiary
to Pac-West or to another wholly owned restricted subsidiary;
(4) disposals or replacements of obsolete telecommunications equipment in
the ordinary course of business; and
(5) a Restricted Payment that is permitted by the covenant described above
under the caption "Certain Covenants--Restricted Payments."
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value will be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Securities Exchange Act of 1934, except that in
calculating the beneficial ownership of any particular person, as such term is
used in Section 13(d)(3) of the Exchange Act, such person will be deemed to
have beneficial ownership of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only
upon the occurrence of a subsequent condition.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at that time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents, however
designated, of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests, whether general or limited; and
(4) any other interest or participation that confers on a person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof,
provided that the full faith and credit of the United States is pledged
in support thereof, having maturities of not more than six months from
the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits,
in each case, with any domestic commercial bank having capital and
surplus in excess of $500 million and a Thompson Bank Watch Rating of
"B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within six months after the date of acquisition; and
103
<PAGE>
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of control" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition, other than by way
of merger or consolidation, in one or a series of related transactions,
of all or substantially all of the assets of Pac-West and its
subsidiaries taken as a whole to any person, as such term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, other than a
Principal or a Related Party of a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution of
Pac-West;
(3) the consummation of any transaction, including, for example, any merger
or consolidation, the result of which is that any person, as defined
above, other than the Principals and their Related Parties, becomes the
Beneficial Owner of more than 35% of the Voting Stock of Pac-West,
measured by voting power rather than number of shares;
(4) the first day on which a majority of the members of the board of
directors of Pac-West are not Continuing Directors; or
(5) Pac-West consolidates with, or merges with or into, any person, or any
person consolidates with, or merges with or into, Pac-West, in any such
event in accordance with a transaction in which any of the outstanding
Voting Stock of Pac-West is converted into or exchanged for cash,
securities or other property, other than any such transaction where the
Voting Stock of Pac-West outstanding immediately prior to such
transaction is converted into or exchanged for Voting Stock, other than
Disqualified Stock, of the surviving or transferee person constituting
a majority of the outstanding shares of such Voting Stock of such
surviving or transferee person immediately after giving effect to such
issuance.
"Consolidated Cash Flow" means, with respect to any person for any period,
the Consolidated Net Income of such person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale, to the extent such losses were deducted
in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such person and its
restricted subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; plus
(3) consolidated interest expense of such person and its restricted
subsidiaries for such period, whether paid or accrued and whether or
not capitalized, including, for example, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net payments, if any, in
accordance with Hedging Obligations, to the extent that any such
expense was deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization, including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period, and other non-cash expenses,
excluding any such non-cash expense to the extent that it represents an
accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period,
of such person and its restricted subsidiaries for such period to the
extent that such depreciation, amortization and other non-cash expenses
were deducted in computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such period,
other than items that were accrued in the ordinary course of business,
104
<PAGE>
in each case, on a consolidated basis and determined in accordance with GAAP.
Despite the above, the provision for taxes based on the income or profits of,
and the depreciation and amortization and other non-cash charges of, a
restricted subsidiary of Pac-West will be added to Consolidated Net Income to
compute Consolidated Cash Flow of Pac-West only to the extent that a
corresponding amount would be permitted at the date of determination to be
dividended to Pac-West by such restricted subsidiary without prior approval,
that has not been obtained, in accordance with the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that restricted subsidiary or its
stockholders.
"Consolidated Indebtedness" means, with respect to any person as of any date
of determination, the sum, without duplication, of:
(1) the total amount of indebtedness of such person and its restricted
subsidiaries; plus
(2) the total amount of indebtedness of any other person, to the extent
that such indebtedness has been Guaranteed by the referent person or
one or more of its restricted subsidiaries; plus
(3) the aggregate liquidation value of all preferred stock of restricted
subsidiaries of such person,
in each case, determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified person for
any period, the aggregate of the Net Income of such person and its restricted
subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income, but not loss, of any person that is not a restricted
subsidiary or that is accounted for by the equity method of accounting
will be included only to the extent of the amount of dividends or
distributions paid in cash to the specified person or a wholly owned
restricted subsidiary thereof;
(2) the Net Income of any restricted subsidiary will be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that restricted subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental
approval, that has not been obtained, or by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that restricted
subsidiary or its stockholders;
(3) the Net Income of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition will
be excluded;
(4) the Net Income, but not loss, of any unrestricted subsidiary will be
excluded, whether or not distributed to the specified person or one of
its subsidiaries, except for purposes of the covenant described under
the caption "--Certain Covenants--Restricted Payments," in which case
the Net Income of any unrestricted subsidiary will be included to the
extent provided under clause (1) of this definition;
(5) the portion of Net Income of any person attributable to the receipt of
Unpaid Reciprocal Compensation; and
(6) the cumulative effect of a change in accounting principles will be
excluded.
"Continuing Directors" means, as of any date of determination, any member of
the board of directors of Pac-West who:
(1) was a member of such board of directors on the date of the indenture;
or
(2) was nominated for election or elected to such board of directors with
the approval of a majority of the Continuing Directors who were members
of such board at the time of such nomination or election.
105
<PAGE>
"Credit Facilities" means, with respect to Pac-West or any restricted
subsidiary, one or more debt facilities or commercial paper facilities, in each
case with banks or other institutional lenders providing for revolving credit
loans, term loans, receivables financing or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"Debt to Cash Flow Ratio" means, as of any date of determination, the ratio
of:
(a) the Consolidated indebtedness of Pac-West as of such date to
(b) the Consolidated Cash Flow of Pac-West of the four most recent full
fiscal quarters ending immediately prior to such date for which
internal financial statements are available, determined on a pro forma
basis after giving effect to all acquisitions or dispositions of assets
made by Pac-West and its restricted subsidiaries from the beginning of
such four-quarter period through and including such date of
determination (including any related financing transactions and any Pro
Forma cost savings, as if such acquisitions and dispositions had
occurred at the beginning of such four-quarter period.
In addition, for purposes of making the computation referred to above,
(1) acquisitions that have been made by Pac-West or any of its restricted
subsidiaries, including through mergers or consolidations and including
any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the
Calculation Date, as defined herein, will be deemed to have occurred on
the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period will be calculated without giving
effect to clause (c) of the proviso set forth in the definition of
Consolidated Net Income; and
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms, or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof, or upon the
happening of any event, matures or is mandatorily redeemable, in accordance
with a sinking fund obligation or otherwise, or redeemable at the option of the
holder thereof, in whole or in part, on or prior to the date that is 91 days
after the date on which the notes mature. Despite the above sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require Pac-West to repurchase such Capital
Stock upon the occurrence of a change of control or an asset sale will not
constitute Disqualified Stock if the terms of such Capital Stock provide that
Pac-West may not repurchase or redeem any such Capital Stock in accordance with
such provisions unless such repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
"Earnout Payments" means all earnout payments made after the date of the
indenture to former shareholders and employees of Pac-West in accordance with
the Merger Agreement.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"Existing Indebtedness" means the indebtedness of Pac-West and its
restricted subsidiaries in existence on the date of the indenture, until such
amounts are repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
106
<PAGE>
"Guarantee" means a guarantee, other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, for example, by way of a pledge of assets or
through letters of credit or reimbursement agreements in respect thereof, of
all or any part of any indebtedness.
"Hedging Obligations" means, with respect to any person, the obligations of
such person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such person
against fluctuations in interest rates.
"Investments" means, with respect to any person, all investments by such
person in other persons, including Affiliates, in the forms of direct or
indirect loans, including guarantees of indebtedness or other obligations,
advances or capital contributions, excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business,
purchases or other acquisitions for consideration of indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If Pac-West or any restricted subsidiary of Pac-West sells or otherwise
disposes of any Equity Interests of any direct or indirect restricted
subsidiary of Pac-West such that, after giving effect to any such sale or
disposition, such person is no longer a restricted subsidiary of Pac-West, Pac-
West will be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
restricted subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "--Certain Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code, or equivalent statutes, of any jurisdiction.
"Merger Agreement" means the Agreement and Plan of Merger, dated as of June
30, 1998, by and among PWT Acquisition Corp., a California corporation, Pac-
West, Bay Alarm Company, a California corporation, and John K. La Rue.
"Net Income" means, with respect to any person, the net income or loss of
such person and its restricted subsidiaries, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends, excluding,
however:
(1) any gain, but not loss, together with any related provision for taxes
on such gain, but not loss, realized in connection with:
(a) any Asset Sale; or
(b) the disposition of any securities by such person or any of its
restricted subsidiaries or the extinguishment of any indebtedness
of such person or any of its restricted subsidiaries; and
(2) any extraordinary gain, but not loss, together with any related
provision for taxes on such extraordinary gain, but not loss.
"Net Proceeds" means the aggregate cash proceeds received by Pac-West or any
of its restricted subsidiaries in respect of any Asset Sale, including, for
example, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale, net of the direct costs relating to
such Asset Sale, including, for example, legal, accounting and investment
banking fees, and sales commissions, and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof, in each case after
taking into account any available tax credits or deductions and any tax sharing
arrangements and amounts required to be applied to the repayment of
indebtedness, other than indebtedness under a Credit Facility, secured by a
Lien on the asset or assets that were the subject of such Asset Sale.
107
<PAGE>
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any indebtedness.
"Permitted Business" means any business engaged primarily in the
development, ownership or operation of one or more telephone,
telecommunications or information systems or the provision of telephony,
telecommunications or information services, including, for example, any voice,
video transmission, data or Internet services, and any related, ancillary or
complementary business; provided that the determination of what constitutes a
Permitted Business will be made in good faith by the board of directors of Pac-
West.
"Permitted Investments" means:
(1) any Investment in Pac-West or in a wholly owned restricted subsidiary
of Pac-West;
(2) any Investment in Cash Equivalents;
(3) any Investment by Pac-West or any restricted subsidiary of Pac-West in
a person, if as a result of such Investment:
(a) such person becomes a wholly owned restricted subsidiary of Pac-
West; or
(b) such person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, Pac-West or a wholly owned restricted subsidiary
of Pac-West;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made in accordance with and
in compliance with the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of Equity
Interests, other than Disqualified Stock, of Pac-West;
(6) loans and advances for business-related travel, moving or similar
expenses to employees and officers of Pac-West and its restricted
subsidiaries in the ordinary course of business;
(7) investments in securities of trade creditors or customers received in
accordance with any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers;
(8) Investments in prepaid expenses, negotiable instruments held for
collection, and lease, utility, workers' compensation, performance and
other similar deposits; and
(9) other Investments in any person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made in accordance with this clause (9) since the
date of the indenture, not to exceed $5.0 million,
provided, however, that the transfer from Pac-West to a restricted subsidiary,
or to an entity that becomes a restricted subsidiary, of the property, plant
and equipment that support or are necessary to Pac-West's operations in
California will not be a Permitted Investment.
"Permitted Liens" means:
(1) Liens on the assets of Pac-West and any restricted subsidiary securing
indebtedness and other Obligations under Credit Facilities that were
permitted by the terms of the indenture to be incurred;
(2) Liens on the property or assets of one or more restricted subsidiaries
of Pac-West securing indebtedness of one or more restricted
subsidiaries of Pac-West that was permitted by the terms of the
indenture to be incurred;
(3) Liens in favor of Pac-West or its restricted subsidiaries;
(4) Liens on property of a person existing at the time such person is
merged with or into or consolidated with Pac-West or any restricted
subsidiary of Pac-West; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the person merged into or
consolidated with Pac-West or the restricted subsidiary;
108
<PAGE>
(5) Liens on property existing at the time of acquisition thereof by Pac-
West or any restricted subsidiary of Pac-West, provided that such Liens
were in existence prior to the contemplation of such acquisition;
(6) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(7) Liens to secure indebtedness, including Capital Lease Obligations,
permitted by clause (5) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock"
covering only the assets acquired with such indebtedness;
(8) Liens existing on the date of the indenture;
(9) Liens for taxes, assessments, duties or governmental charges or claims
that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision as
will be required in conformity with GAAP will have been made therefor;
(10) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed
by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as will be required by GAAP will have
been made in respect thereof;
(11) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance and
return-of-money bonds and other similar obligations, exclusive of
obligations for the payment of borrowed money;
(12) judgment Liens not giving rise to an Event of Default;
(13) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property that do not, in
the aggregate, materially detract from the value of such property or
interfere in any material respect with the use of such property in the
ordinary conduct of the business of Pac-West or any of its restricted
subsidiaries;
(14) Liens incurred in the ordinary course of business of Pac-West or any
restricted subsidiary of Pac-West with respect to obligations that do
not exceed $10.0 million at any one time outstanding and that:
(a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit other than trade credit in the
ordinary course of business; and
(b) do not in the aggregate materially detract from the value of the
property or materially impair the use thereof in the operation of
business by Pac-West or such restricted subsidiary;
(15) Liens upon specific items of inventory or other goods and proceeds of
any person securing such person's obligations in respect of bankers'
acceptances issued or created for the account of such person to
facilitate the purchase, shipment, or storage of such inventory or
other goods;
(16) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating
to such letters of credit and products and proceeds thereof;
(17) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of Pac-
West or any of its restricted subsidiaries, including rights of offset
and set-off;
(18) leases or subleases granted to others that do not materially interfere
with the ordinary course of business of Pac-West and its restricted
subsidiaries; and
(19) Liens on assets of unrestricted subsidiaries that secure non-recourse
debt of unrestricted subsidiaries.
109
<PAGE>
"Permitted refinancing indebtedness" means any indebtedness of Pac-West or
any of its restricted subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
indebtedness of Pac-West or any of its restricted subsidiaries other than
intercompany indebtedness; provided that:
(1) the principal amount or accreted value, if applicable, of such
permitted refinancing indebtedness does not exceed the principal amount
of, or accreted value, if applicable, plus accrued interest on, the
indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded, plus the amount of reasonable expenses incurred in connection
therewith;
(2) such permitted refinancing indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
such permitted refinancing indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of
payment to, the notes on terms at least as favorable to the holders of
notes as those contained in the documentation governing the
indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and
(4) such indebtedness is incurred either by Pac-West or by the restricted
subsidiary who is the obligor on the indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Pledge Agreement" means the Pledge Agreement dated as of the date of the
indenture between Pac-West and the trustee, as amended from time to time.
"Pledged Securities" means the securities, which will be direct obligations
of or obligations guaranteed by the U.S. government, purchased by Pac-West with
a portion of proceeds from the notes and pledged to the trustee for the benefit
of the holders of the notes.
"Principals" means William Blair & Company, L.L.C., William Blair Capital
Partners VI, L.P., Safeguard Scientifics, Inc., SCP Private Equity Partners,
L.P., Safeguard 98 Capital, L.P., TL Ventures III L.P. and Mr. Wallace W.
Griffin.
"Pro Forma Cost Savings" means, with respect to any period, the net
reduction in cash operating costs achieved during or after such period and on
or prior to the date of determination that are directly attributable to an
asset acquisition, which savings will be calculated on a basis consistent with
Article 11 of Regulation S-X, as such Regulation is in effect on the date
hereof.
"Related Party" with respect to any Principal means:
(1) any controlling stockholder, 80% or more owned subsidiary, or spouse or
immediate family member, in the case of an individual, of such
Principal; or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or persons beneficially holding an 80%
or more controlling interest of which consist of such Principal and/or
such other persons referred to in the immediately preceding clause (1).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted subsidiary" of a person means any subsidiary of the referent
person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
in accordance with the Securities Exchange Act of 1934, as such Regulation is
in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original
110
<PAGE>
documentation governing such indebtedness, and will not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
"Subordinated Indebtedness" means any indebtedness of Pac-West and its
restricted subsidiaries which is subordinated in right of payment to the notes
and with respect to which no payments of principal, by way of sinking fund,
mandatory redemption, maturity or otherwise, including, for example, at the
option of the holder thereof, other than in accordance with an offer to
repurchase such Subordinated Indebtedness following a change of control, which
offer may not be completed until 45 days after completion of the Offer
described under "--Repurchase at the Option of Holders--Change of Control," are
required to be made by Pac-West and its restricted subsidiaries at any time
prior to the Stated Maturity of the notes.
"Unpaid Reciprocal Compensation" means all amounts owing but not paid to
Pac-West as of December 31, 1998 by Pacific Bell or GTE California in
accordance with Pac-West's interconnection agreements with such parties.
"Unrestricted subsidiary" means any subsidiary of Pac-West that is
designated by the board of directors as an unrestricted subsidiary in
accordance with a Board Resolution, but only to the extent that such
Subsidiary:
(1) has no indebtedness other than non-recourse debt;
(2) is not party to any agreement, contract, arrangement or understanding
with Pac-West or any restricted subsidiary of Pac-West unless the terms
of any such agreement, contract, arrangement or understanding are no
less favorable to Pac-West or such restricted subsidiary than those
that might be obtained at the time from persons who are not Affiliates
of Pac-West;
(3) is a person with respect to which neither Pac-West nor any of its
restricted subsidiaries has any direct or indirect obligation:
(a) to subscribe for additional Equity Interests; or
(b) to maintain or preserve such person's financial condition or to
cause such person to achieve any specified levels of operating
results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any indebtedness of Pac-West or any of its restricted
subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of Pac-West or any of its restricted
subsidiaries and has at least one executive officer that is not a
director or executive officer of Pac-West or any of its restricted
subsidiaries.
Any designation of a subsidiary of Pac-West as an unrestricted subsidiary
will be evidenced to the trustee by filing with the trustee a certified copy of
the board resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"--Certain Covenants--Restricted Payments." If, at any time, any unrestricted
subsidiary would fail to meet the preceding requirements as an unrestricted
subsidiary, it will thereafter cease to be an unrestricted subsidiary for
purposes of the indenture and any indebtedness of such subsidiary will be
deemed to be incurred by a restricted subsidiary of Pac-West as of such date
and, if such indebtedness is not permitted to be incurred as of such date under
the covenant described under the caption "Incurrence of indebtedness and
Issuance of Preferred Stock," Pac-West will be in default of such covenant. The
board of directors of Pac-West may at any time designate any unrestricted
subsidiary to be a restricted subsidiary; provided that such designation will
be deemed to be an incurrence of indebtedness by a restricted subsidiary of
Pac-West of any outstanding indebtedness of such unrestricted subsidiary and
such designation will only be permitted if:
(1) such indebtedness is permitted under the covenant described under the
caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference
period; and
(2) no Default or Event of Default would be in existence following such
designation.
111
<PAGE>
"Voting Stock" of any person as of any date means the Capital Stock of such
person that is at the time entitled to vote in the election of the board of
directors of such person.
"Weighted Average Life to Maturity" means, when applied to any indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying:
(a) the amount of each then remaining installment, sinking fund, serial
maturity or other required payments of principal, including payment
at final maturity, in respect thereof, by
(b) the number of years, calculated to the nearest one-twelfth, that
will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such indebtedness.
112
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a discussion of certain material U.S. federal income tax
consequences of the acquisition, ownership and disposition of the notes. Unless
otherwise stated, this discussion is limited to the tax consequences to those
persons who are original owners of the notes and who are holders of such notes
as capital assets. The discussion does not purport to address specific tax
consequences that may be relevant to particular persons, including, for
example, financial institutions, broker-dealers, insurance companies, tax-
exempt organizations, and persons in special situations, such as those who hold
notes as part of a straddle, hedge, conversion transaction, or other integrated
investment. In addition, this discussion does not address U.S. federal
alternative minimum tax consequences or any aspect of state, local or foreign
taxation. This discussion is based upon the Internal Revenue Code of 1986, as
amended, the U.S. Treasury Department regulations promulgated under the
Internal Revenue Code of 1986, and administrative and judicial interpretations
of such code and regulations, all of which are subject to change, possibly with
retroactive effect. Pac-West will treat the notes as indebtedness for federal
income tax purposes, and the following discussion assumes that such treatment
is correct.
For purposes of this discussion, a U.S. holder is a holder of a note who is
a United States citizen or resident, a corporation or partnership created or
organized in or under the laws of the United States or any state, an estate the
income of which is subject to U.S. federal income taxation regardless of its
source, or a trust if a United States court exercises primary supervision over
its administration and one or more United States persons have the authority to
control all of its substantial decisions. A non-U.S. holder is a holder of a
note who is not a U.S. holder.
Prospective purchasers of the notes are urged to consult their tax advisors
concerning the United States federal income and estate tax consequences to them
of acquiring, owning and disposing of the notes, as well as the application of
state, local and foreign income and other tax laws.
Tax Consequences to U.S. Holders
Taxation of Interest
Interest paid under the notes will be includible in the income of a U.S.
holder in accordance with the U.S. holder's regular method of tax accounting. A
U.S. holder may be entitled to treat interest income under the notes as
investment income for purposes of computing certain limitations concerning the
deductibility of investment interest expense.
In the event of a change of control, a holder of a note will have the right
to require us to purchase such note at a price equal to 101% of the principal
amount thereof. The U.S. Treasury Department regulations provide that the right
of a holder of a note to require redemption of such note upon the occurrence of
a change of control will not affect the yield or maturity date of the note if,
based on all the facts and circumstances as of the issue date, it is
significantly more likely than not that a change of control giving rise to the
redemption right will not occur. We believe that the redemption provisions of
the notes will not affect the computation of the yield to maturity of the notes
and intends to report in a manner consistent with this belief.
We may redeem the notes at any time on or after February 1, 2004, and in
certain circumstances, may redeem a portion of the notes at any time prior to
February 1, 2002. Under the U.S. Treasury Department regulations, we are deemed
to exercise any option to redeem if the exercise of such option would lower the
yield of the debt instrument. We believe that we will not be treated as having
exercised an option to redeem under these rules and intend to report in a
manner consistent with this belief.
113
<PAGE>
Sale, Exchange or Retirement of the Notes
Upon the sale, exchange or retirement of the notes, other than on exchange
of old notes for new notes in accordance with this exchange offer, a U.S.
holder will recognize gain or loss equal to the difference between the amount
realized upon the sale, exchange or retirement, less a portion allocable to any
accrued and unpaid interest, which will be taxable as ordinary income, and the
U.S. holder's adjusted tax basis in the notes. A U.S. holder's adjusted tax
basis in the notes generally will be the U.S. holder's cost therefor, less any
principal payments received by such holder.
Gain or loss recognized by a U.S. holder on the sale, exchange or retirement
of the notes will be capital gain or loss. The gain or loss will be long-term
capital gain or loss if the notes have been held by the U.S. holder for more
than twelve months. Long-term capital gain is subject to a maximum federal tax
rate of 20%. The deductibility of capital losses by U.S. holders is subject to
limitation.
Exchange Offer
A U.S. holder will not recognize any taxable gain or loss on the exchange of
the old notes for new notes in accordance with this exchange offer, and a U.S.
holder's tax basis and holding period in the new notes will be the same as in
the old notes.
Tax Consequences to Non-U.S. Holders
Taxation of Interest
A non-U.S. holder generally will not be subject to U.S. federal income or
withholding tax on interest paid under the notes so long as such interest is
not effectively connected with the non-U.S. holder's conduct of a trade or
business within the United States, and the non-U.S. holder:
(1) does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of Pac-West;
(2) is not a "controlled foreign corporation" with respect to which we are
a "related person" within the meaning of the Internal Revenue Code of
1986, as amended; and
(3) satisfies the requirements of Sections 871(h) or 881(c) of the Internal
Revenue Code of 1986, as amended, as set forth below under "Owner
Statement Requirement."
If the foregoing conditions (1)-(3) are not satisfied, then interest paid under
the notes will be subject to U.S. withholding tax at a rate of 30%, unless such
rate is reduced or eliminated in accordance with an applicable tax treaty.
Sale, Exchange or Retirement of the Notes
Any capital gain a non-U.S. holder recognizes on the sale, exchange,
retirement or other taxable disposition of a note will be exempt from U.S.
federal income and withholding tax, provided that:
(1) the gain is not effectively connected with the non-U.S. holder's
conduct of a trade or business within the United States; and
(2) in the case of a non-U.S. holder that is an individual, the non-U.S.
holder is not present in the United States for 183 days or more during
the taxable year.
Effectively Connected Income
If the interest, gain or other income a non-U.S. holder recognizes on a note
is effectively connected with the non-U.S. holder's conduct of a trade or
business within the United States, the non-U.S. holder, although exempt from
the withholding tax previously discussed if an appropriate statement is
furnished, generally will be
114
<PAGE>
subject to U.S. federal income tax on the interest, gain or other income at
regular federal income tax rates. In addition, if the non-U.S. holder is a
corporation, it may be subject to a branch profits tax equal to 30% of its
"effectively connected earnings and profits," as adjusted for certain items,
unless it qualifies for a lower rate under an applicable tax treaty.
Federal Estate Taxes
A note held by an individual who at the time of death is not a citizen or
resident of the United States will not be subject to United States federal
estate tax as a result of such individual's death, provided that the individual
does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of Pac-West entitled to vote and that the
interest accrued on such notes was not effectively connected with the non-U.S.
holder's conduct of a trade or business within the United States.
Owner Statement Requirement
Sections 871(h) and 881(c) of the Internal Revenue Code of 1986, as amended,
require that either the beneficial owner of a note or a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business and that holds a
note on behalf of such owner files a statement with Pac-West or its agent to
the effect that the beneficial owner is not a United States person in order to
avoid withholding of United States federal income tax. Under current
regulations, this requirement will be satisfied if Pac-West or its agent
receives
(1) a statement from the beneficial owner of a note in which such owner
certifies, under penalties of perjury, that such owner is not a United
States person and provides such owner's name and address; or
(2) a statement from the financial institution holding the note on behalf
of the beneficial owner in which the financial institution certifies,
under penalties of perjury, that it has received the owner statement
together with a copy of the owner statement.
The beneficial owner must inform Pac-West or its agent or, in the case of a
statement described in clause (2) of the immediately preceding sentence, the
financial institution, within 30 days of any change in information on the owner
statement. The Internal Revenue Service has amended the transition period
relating to recently issued U.S. Treasury Department regulations governing
backup withholding and information reporting requirements. Withholding
certificates or statements that are valid on December 31, 1999, may be treated
as valid until the earlier of their expiration or December 31, 2000.
Certificates or statements received under the currently effective rules will
fail to be effective after December 31, 2000.
Information Reporting and Backup Withholding
We will, where required, report to the holders of notes and the Internal
Revenue Service the amount of any interest paid under the notes in each
calendar year and the amounts of tax withheld, if any, with respect to such
payments. A noncorporate U.S. holder may be subject to information reporting
and to backup withholding at a rate of 31% with respect to payments of
principal and interest made on a note, or on proceeds of the disposition of a
note before maturity, unless such U.S. holder provides a correct taxpayer
identification number or proof of an applicable exemption, and otherwise
complies with applicable requirements of the information reporting and backup
withholding rules.
In the case of payments of interest to non-U.S. holders, current U.S.
Treasury Department regulations provide that the 31% backup withholding tax and
certain information reporting requirements will not apply to such payments with
respect to which either the requisite certification, as described above, has
been received or an exemption has otherwise been established, provided that
neither Pac-West nor its payment agent has actual knowledge that the holder is
a United States person or that the conditions of any other exemption are not in
fact satisfied. Under current U.S. Treasury Department regulations, these
information reporting and backup
115
<PAGE>
withholding requirements will apply, however, to the gross proceeds paid to a
non-U.S. holder on the disposition of the notes by or through a United States
office of a United States or foreign broker, unless the non-U.S. holder
otherwise establishes an exemption. Information reporting requirements, but not
backup withholding, will also apply to payment of the proceeds of a disposition
of the notes by or through a foreign office of a United States broker or
foreign brokers with certain types of relationships to the United States unless
such broker has documentary evidence in its file that the holder of the notes
is not a United States person and such broker has no actual knowledge to the
contrary, or the holder establishes an exemption. Neither information reporting
nor backup withholding generally will apply to payment of the proceeds of a
disposition of the notes by or through a foreign office of a foreign broker not
subject to the preceding sentence.
The Treasury Department has released new U.S. Treasury Department
regulations governing the backup withholding and information reporting
requirements. The new regulations would not generally alter the treatment of a
non-U.S. holder who furnishes an owner statement to the payor. The new
regulations may change certain procedures applicable to the foreign office of a
United States broker or foreign brokers with certain types of relationships to
the United States. The new regulations are generally effective for payments
made after December 31, 2000. Non-U.S. holders should consult their own tax
advisors with respect to the impact, if any, of the new final regulations.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the holder's
United States federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
116
<PAGE>
PLAN OF DISTRIBUTION
Each participating broker-dealer that receives new notes for its own account
in accordance with this exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such new notes. This prospectus, as
it may be amended or supplemented from time to time, may be used by a
participating broker-dealer in connection with resales of new notes received in
exchange for old notes where such old notes were acquired as a result of
market-making activities or other trading activities. Pac-West has agreed that
for a period of one year after the expiration date of this exchange offer, we
will make this prospectus, as amended or supplemented, available to any
participating broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sales of the new notes by
participating broker-dealers. New notes received by participating broker-
dealers for their own account in accordance with this exchange offer may be
sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the new
notes or a combination of such methods of resale, at market prices prevailing
at the time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such participating broker-dealer and/or the
purchasers of any such new notes. Any participating broker-dealer that resells
the new notes that were received by it for its own account in accordance with
this exchange offer and any broker or dealer that participates in a
distribution of such new notes may be deemed to be an "underwriter" within the
meaning of the Securities Act of 1933 and any profit on any such resale of new
notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act of 1933. The
letter of transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a participating broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act of
1933.
For a period of one year after the expiration date we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any participating broker-dealer that requests such documents in
the letter of transmittal.
Prior to this exchange offer, there has not been any public market for the
old notes. The old notes have not been registered under the Securities Act of
1933 and will be subject to restrictions on transferability to the extent that
they are not exchanged for new notes by holders who are entitled to participate
in this exchange offer. The holders of old notes, other than any such holder
that is an affiliate of Pac-West within the meaning of Rule 405 under the
Securities Act of 1933, who are not eligible to participate in this exchange
offer are entitled to certain registration rights, and we are required to file
a shelf registration statement with respect to such old notes. The new notes
will constitute a new issue of securities with no established trading market.
We do not intend to list the new notes on any national securities exchange or
to seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. In addition, such market making
activity will be subject to the limits imposed by the Securities Act of 1933
and the Exchange Act and may be limited during this exchange offer and the
pendency of the shelf registration statements. Accordingly, no assurance can be
given that an active public or other market will develop for the new notes or
as to the liquidity of the trading market for the new notes. If a trading
market does not develop or is not maintained, holders of the new notes may
experience difficulty in reselling the new notes or may be unable to sell them
at all. If a market for the new notes develops, any such market may be
discontinued at any time.
LEGAL MATTERS
The validity of the new notes offered in this prospectus and certain other
legal matters will be passed upon on behalf of Pac-West by Kirkland & Ellis.
117
<PAGE>
EXPERTS
The financial statements and schedule included in this prospectus or
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, to the extent and for the periods
indicated in their reports, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC, Washington, D.C. 20549, a registration statement
on Form S-4 under the Securities Act of 1933 with respect to the new notes
offered hereby. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules thereto.
Certain items are omitted in accordance with the rules and regulations of the
SEC. For further information with respect to Pac-West and the new notes,
reference is made to the registration statement and the exhibits and any
schedules filed therewith. Statements contained in this prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance, if such contract or document is filed as an
exhibit, reference is made to the copy of such contract or other documents
filed as an exhibit to the registration statement, each statement being
qualified in all respects by such reference. A copy of the registration
statement, including the exhibits and schedules thereto, may be read and copied
at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains
an Internet site at http://www.sec.gov, from which interested persons can
electronically access the registration statement, including the exhibits and
any schedules thereto.
As a result of this exchange offer, we will become subject to the full
informational requirements of the Securities Exchange Act of 1934, as amended.
We will fulfill our obligations with respect to such requirements by filing
periodic reports and other information with the SEC. We also maintain an
Internet site at http://www.pacwest.com. Our web site and the information
contained therein or connected thereto will not be deemed to be incorporated
into this prospectus or the registration statement of which it forms a part.
118
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants.............. F-3
Balance Sheets............................................................. F-4
Statements of Operations................................................... F-6
Statements of Changes in Stockholders' Equity (Deficit).................... F-7
Statements of Cash Flows................................................... F-8
Notes to Financial Statements.............................................. F-9
Interim Condensed Balance Sheet (unaudited)................................ F-24
Interim Condensed Statements of Income (unaudited)......................... F-25
Interim Condensed Statements of Cash Flows (unaudited)..................... F-26
Notes to Interim Condensed Financial Statements (unaudited)................ F-27
</TABLE>
F-1
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Pac-West Telecomm, Inc.:
We have audited the accompanying balance sheets of Pac-West Telecomm, Inc.
(a California corporation) as of December 31, 1997 and 1998, and the related
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the three-month period from date of commencement (October 1, 1996) to
December 31, 1996, and for the years ended December 31, 1997 and 1998. In
addition, we have audited the statements of operations and cash flows of the
predecessor telephone and answering service divisions of Pac-West Telecomm,
Inc. (see Note 1) for the nine-month period ended September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pac-West Telecomm, Inc. as
of December 31, 1997 and 1998, and the results of its operations and its cash
flows for the three-month period from date of commencement (October 1, 1996) to
December 31, 1996, and for the years ended December 31, 1997 and 1998, and the
results of operations and cash flows of the predecessor telephone and answering
service divisions of Pac-West Telecomm, Inc. for the nine-month period ended
September 30, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
February 10, 1999 except with respect to Note 12 for which the date is March
19, 1999
F-3
<PAGE>
PAC-WEST TELECOMM, INC.
BALANCE SHEETS
As of December 31, 1997 and 1998
ASSETS
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.......................... $ 3,603,000 $15,236,000
Trade accounts receivable, net of allowances for
doubtful accounts of $300,000 and $400,000 at
December 31, 1997 and 1998, respectively.......... 3,662,000 4,623,000
Accounts receivable from related parties........... 161,000 64,000
Income taxes receivable............................ 0 1,971,000
Inventories........................................ 330,000 447,000
Prepaid expenses and other current assets.......... 398,000 861,000
Deferred financing costs, net...................... 0 457,000
Deferred tax assets................................ 160,000 151,000
----------- -----------
Total current assets........................... 8,314,000 23,810,000
----------- -----------
Equipment, Vehicles and Leasehold Improvements:
Communications equipment........................... 17,193,000 29,817,000
Office furniture and equipment..................... 1,176,000 1,965,000
Vehicles........................................... 301,000 717,000
Leasehold improvements............................. 2,869,000 5,581,000
Construction-in-progress (Note 5).................. 0 25,597,000
----------- -----------
21,539,000 63,677,000
Less: Accumulated depreciation and amortization...... (2,460,000) (6,383,000)
----------- -----------
Equipment, vehicles and leasehold improvements,
net........................................... 19,079,000 57,294,000
----------- -----------
Other Assets, net.................................. . 135,000 1,389,000
----------- -----------
Total assets................................... $27,528,000 $82,493,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PAC-WEST TELECOMM, INC.
BALANCE SHEETS
As of December 31, 1997 and 1998
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Current Liabilities:
Current portion of notes payable.................. $ 2,034,000 $ 132,000
Current portion of capital lease obligations...... 1,432,000 0
Accounts payable.................................. 1,159,000 5,147,000
Accrued payroll and related expenses.............. 331,000 846,000
Other accrued liabilities......................... 760,000 2,153,000
----------- ------------
Total current liabilities................... 5,716,000 8,278,000
----------- ------------
Senior Secured Borrowings and Other Long-Term
Obligations (Note 3)............................... 0 100,000,000
Notes Payable, less current portion................. 6,627,000 116,000
Capital Lease Obligations, less current portion..... 5,579,000 0
----------- ------------
Total long-term debt and capital lease
obligations................................ 12,206,000 100,116,000
----------- ------------
Deferred Income Taxes............................... 934,000 1,888,000
----------- ------------
Total liabilities........................... 18,856,000 110,282,000
----------- ------------
Commitments and Contingencies (Note 5)
Convertible Redeemable Preferred Stock, $0.001 par
value; 1,750,000 shares authorized; 1,250,000
issued and outstanding at December 31, 1998
(preference in liquidation of $45,000,000, plus
accrued cumulative dividends of $1,324,000)........ 0 46,324,000
Stockholders' Equity (Deficit):
Common stock:
December 31, 1997, no par value:
Authorized shares--10,000,000
Issued and outstanding shares--100,000........ 4,037,000 0
December 31, 1998, $0.001 par value:
Authorized shares--15,000,000
Issued and outstanding shares--12,562,470..... 0 13,000
Additional paid-in capital........................ 0 8,910,000
Notes receivable from stockholders................ 0 (233,000)
Retained earnings (deficit)....................... 4,635,000 (82,803,000)
----------- ------------
Total stockholders' equity (deficit)........ 8,672,000 (74,113,000)
----------- ------------
Total liabilities and stockholders' equity
(deficit).................................. $27,528,000 $ 82,493,000
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PAC-WEST TELECOMM, INC.
STATEMENTS OF OPERATIONS
For the Predecessor Telephone and Answering Service Divisions of Pac-West
Telecomm, Inc.
for the nine-month period ended September 30, 1996, and
for Pac-West Telecomm, Inc.
for the three-month period from date of commencement (October 1, 1996) to
December 31, 1996, and for the years ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
Predecessor Telephone
and Answering Service
Divisions
(Note 1) Pac-West Telecomm, Inc.
--------------------- ---------------------------------------------
Period from Date of
Nine-Month Period Commencement Year Ended Year Ended
Ended (October 1, 1996) to December December
September 30, 1996 December 31, 1996 31, 1997 31, 1998
--------------------- -------------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues (Note 5)........................................ $8,737,000 $4,232,000 $29,551,000 $42,211,000
---------- ---------- ----------- -----------
Costs and Expenses:
Operating.............................................. 4,202,000 2,064,000 12,060,000 15,344,000
Selling, general and administrative:
Selling, general and administrative.................. 3,123,000 1,519,000 7,367,000 10,779,000
Transaction bonuses and consultant's costs (Note 1).. 0 0 0 3,798,000
Depreciation and amortization.......................... 549,000 299,000 2,204,000 4,106,000
---------- ---------- ----------- -----------
Total costs and expenses........................... 7,874,000 3,882,000 21,631,000 34,027,000
---------- ---------- ----------- -----------
Income from operations............................. 863,000 350,000 7,920,000 8,184,000
---------- ---------- ----------- -----------
Other Expense (Income):
Interest expense....................................... 33,000 105,000 932,000 4,199,000
Gain on disposal of answering service division......... 0 0 (385,000) 0
Costs of merger with PWT Acquisition Corp. and
recapitalization (Note 1)............................. 0 0 0 3,004,000
Other expense (income), net............................ (34,000) 11,000 (119,000) (330,000)
---------- ---------- ----------- -----------
Total other expense (income), net.................. (1,000) 116,000 428,000 6,873,000
---------- ---------- ----------- -----------
Income before provision for income taxes and
extraordinary item................................ 864,000 234,000 7,492,000 1,311,000
Provision for Income Taxes............................... 345,000 94,000 2,997,000 1,561,000
---------- ---------- ----------- -----------
Income (loss) before extraordinary item............ 519,000 140,000 4,495,000 (250,000)
---------- ---------- ----------- -----------
Extraordinary Item: Loss on early extinguishment of debt,
net of income tax benefit of $278,000................... 0 0 0 (417,000)
---------- ---------- ----------- -----------
Net income (loss).................................. $ 519,000 $ 140,000 $ 4,495,000 $ (667,000)
- --------------------------------------------------
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PAC-WEST TELECOMM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the three-month period from date of commencement (October 1, 1996) to
December 31, 1996, and for the years ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
Notes Total
Common Stock Additional Receivable Retained Stockholders'
--------------------- Paid-in from Earnings Equity
Shares Amount Capital Stockholders (Deficit) (Deficit)
---------- ---------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30,
1996................... 0 $ 0 $ 0 $ 0 $ 0 $ 0
Issuance of common
stock for
contribution of
predecessor telephone
and answering service
divisions by CalPage
(Note 1)............. 100,000 4,037,000 0 0 0 4,037,000
---------- ---------- ---------- --------- ------------ ------------
Balance, October 1,
1996................... 100,000 4,037,000 0 0 0 4,037,000
Net income for the
three-month period
from date of
commencement (October
1, 1996) to December
31, 1996............. 0 0 0 0 140,000 140,000
---------- ---------- ---------- --------- ------------ ------------
Balance, December 31,
1996................... 100,000 4,037,000 0 0 140,000 4,177,000
Net income for the
year ended December
31, 1997............. 0 0 0 0 4,495,000 4,495,000
---------- ---------- ---------- --------- ------------ ------------
Balance, December 31,
1997................... 100,000 4,037,000 0 0 4,635,000 8,672,000
Conversion to $0.001
par value stock...... 0 (4,037,000) 4,037,000 0 0 0
Effect of merger with
PWT Acquisition Corp.
and recapitalization
(Note 1)............. 5,126,420 6,000 1,194,000 0 (86,771,000) (85,571,000)
Issuance of common
stock................ 6,898,580 7,000 4,711,000 0 0 4,718,000
Accrued cumulative
dividends--preferred
stock................ 0 0 (1,324,000) 0 0 (1,324,000)
Issuances of common
stock for cash and
notes receivable..... 437,470 0 292,000 (233,000) 0 59,000
Net loss for the year
ended December 31,
1998................. 0 0 0 0 (667,000) (667,000)
---------- ---------- ---------- --------- ------------ ------------
Balance, December 31,
1998................... 12,562,470 $ 13,000 $8,910,000 $(233,000) $(82,803,000) $(74,113,000)
========== ========== ========== ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
PAC-WEST TELECOMM, INC.
STATEMENTS OF CASH FLOWS
For the Predecessor Telephone and Answering Service Divisions of Pac-West
Telecomm, Inc.
for the nine-month period ended September 30, 1996, and
for Pac-West Telecomm, Inc.
for the three-month period from date of commencement (October 1, 1996) to
December 31, 1996, and for the years ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
Predecessor
Telephone and
Answering Service
Divisions
(Note 1) Pac-West Telecomm, Inc.
----------------- ----------------------------------------------
Nine-Month Period Period from Date of
Ended Commencement Year Ended Year Ended
September 30, (October 1, 1996) to December 31, December 31,
1996 December 31, 1996 1997 1998
----------------- -------------------- ------------ ------------
<S> <C> <C> <C> <C>
Operating Activities:
Net income (loss).......................................... $ 519,000 $ 140,000 $4,495,000 $ (667,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary item--loss on early extinguishment of debt,
net of income tax benefit............................... 0 0 0 417,000
Costs of merger with PWT Acquisition Corp. and
recapitalization........................................ 0 0 0 3,004,000
Depreciation and amortization............................ 549,000 299,000 2,204,000 4,106,000
Amortization of deferred financing costs................. 0 0 0 1,438,000
Gain on disposal of answering service division........... 0 0 (385,000) 0
Gain on disposal of equipment............................ 0 0 (15,000) 0
Provision for doubtful accounts.......................... (19,000) 6,000 216,000 100,000
Deferred income tax provision............................ 0 93,000 711,000 963,000
Changes in operating assets and liabilities:
Increase in trade accounts receivable.................. (442,000) (413,000) (2,034,000) (1,061,000)
(Increase) decrease in accounts receivable from related
parties............................................... 200,000 (94,000) (67,000) 97,000
Increase in income tax receivable...................... 0 0 0 (1,971,000)
(Increase) decrease in inventories..................... (102,000) (177,000) 195,000 (117,000)
Increase in prepaid expenses and other current assets.. (17,000) (90,000) (175,000) (263,000)
(Increase) decrease in other assets.................... 45,000 (15,000) (56,000) 91,000
Increase (decrease) in accounts payable................ (267,000) 527,000 654,000 3,988,000
Increase (decrease) in accrued compensation and other
liabilities........................................... 626,000 (201,000) 133,000 1,908,000
---------- ---------- ---------- -----------
Net cash provided by operating activities............. 1,092,000 75,000 5,876,000 12,033,000
---------- ---------- ---------- -----------
Investing Activities:
Purchase of equipment, vehicles and leasehold
improvements.............................................. (2,730,000) (1,682,000) (7,103,000) (42,176,000)
Proceeds from disposal of answering service division....... 0 0 402,000 0
Proceeds from disposal of equipment........................ 207,000 0 82,000 145,000
---------- ---------- ---------- -----------
Net cash used in investing activities................. (2,523,000) (1,682,000) (6,619,000) (42,031,000)
---------- ---------- ---------- -----------
Financing Activities:
Proceeds from notes payable................................ 2,274,000 2,508,000 5,931,000 10,514,000
Repayments on notes payable................................ (87,000) (892,000) (1,332,000) (2,658,000)
Principal payments on capital leases....................... (366,000) (67,000) (730,000) (828,000)
Payment for deferred financing costs associated with
senior notes.............................................. 0 0 0 (1,195,000)
Proceeds from senior secured borrowings.................... 0 0 0 15,587,000
Increase in other long-term obligations.................... 0 0 0 9,000,000
Proceeds from issuance of common stock..................... 0 0 0 9,000
Merger with PWT Acquisition Corp. and recapitalization:
Proceeds from the issuance of preferred stock............ 0 0 0 31,844,000
Proceeds from the issuances of common stock.............. 0 0 0 5,968,000
Proceeds from senior secured borrowings.................. 0 0 0 75,413,000
Payments to existing stockholders........................ 0 0 0 (74,015,000)
Extinguishments of notes payable and capital leases...... 0 0 0 (23,159,000)
Payment for deferred financing costs..................... 0 0 0 (1,895,000)
Costs of merger with PWT Acquisition Corp. and
recapitalization........................................ 0 0 0 (2,954,000)
Repayment of loans payable to officers and stockholder..... (43,000) 0 (211,000) 0
---------- ---------- ---------- -----------
Net cash provided by financing activities............. 1,778,000 1,549,000 3,658,000 41,631,000
---------- ---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents.. 347,000 (58,000) 2,915,000 11,633,000
Cash and Cash Equivalents:
Beginning of period........................................ 399,000 746,000 688,000 3,603,000
---------- ---------- ---------- -----------
End of period.............................................. $ 746,000 $ 688,000 $3,603,000 $15,236,000
- --------------------------------------------------
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Organization:
Pac-West Telecomm, Inc. (the Company) is engaged in the business of
providing switched local and long-distance telecommunications services and
"one-stop" integrated telecommunications services to Internet Service Providers
(ISPs), paging companies and other inbound call service providers, as well as
to medium and small businesses, principally within California.
The Company was incorporated in May 1996 in the state of California as a
wholly owned subsidiary of CalPage (a telephone, answering and paging services
company), also formerly named Pac-West Telecomm, Inc. CalPage transferred its
telephone and answering service divisions (the Predecessor Telephone and
Answering Service Divisions or the "Predecessor") to the Company effective
September 30, 1996 (the Initial Transfer). In conjunction with the Initial
Transfer, CalPage spun off the Company to the stockholders of CalPage. The
accompanying financial statements are presented on the same historical cost
basis as was used prior to the Initial Transfer.
During 1997, the Company sold the customer base and other assets of its
answering service division (see Note 10).
The success of the Company is highly dependent upon several factors. These
factors include the Company's ability to penetrate additional markets and to
manage network growth and technological change within the telecommunications
industry, the successful implementation of local and enhanced services to its
customers including ISPs, and competition from preexisting and new providers of
local and long-distance services, as well as positive and timely responses
regarding governmental regulations.
Additionally, the Company is managed by a limited number of key individuals,
several of whom are subject to employment contracts. The Company is also
dependent on the development of an effective sales force and the retention of
skilled and qualified personnel.
As of December 31, 1998, the Company's borrowings and other long-term
obligations totaled $100,248,000 and the Company had a stockholders' deficit of
$74,113,000. As discussed in Note 11, in January 1999, the Company issued
$150,000,000 of 13.5 percent senior notes due on February 1, 2009. A portion of
the proceeds from these notes was used to repay the senior secured borrowings.
The balance of the proceeds will be used for future capital expenditures and
working capital needs, including the establishment of an interest reserve to
cover certain initial interest payments due under the senior notes.
Basis of Presentation
The accompanying financial statements present the financial position of the
Company as of December 31, 1997 and 1998, and the results of its operations and
its cash flows for the period from commencement (October 1, 1996) to December
31, 1996, and for the years ended December 31, 1997 and 1998. In addition, the
accompanying financial statements present the results of the Predecessor's
operations and cash flows for the nine-month period ended September 30, 1996.
The Predecessor was a division of CalPage during the nine-month period ended
September 30, 1996. Accordingly, the results of the Predecessor's operations
and its cash flows were recorded and reported by CalPage as an integral part of
CalPage's total operations. The Company has used its best efforts to derive the
appropriate information from the books and records of CalPage and has by
necessity applied certain
F-9
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
assumptions in identifying and allocating costs and expenses to separately
report the results of operations and cash flows of the Predecessor for the
nine-month period ended September 30, 1996 in the accompanying financial
statements.
Allocated selling, general and administrative expenses for the nine-month
period ended September 30, 1996, were $1,111,000.
Assumptions used were based on headcount and job descriptions, facility
utilization, and divisional revenues. Management believes this method is a
reasonable allocation method and that the resulting amounts approximate the
amounts that would have been incurred if the Predecessor was operated on a
stand-alone basis. Revenues, direct costs, depreciation and amortization and
interest expense have been recorded based on the specific activities of the
Predecessor.
Due to the significant changes in the Company's operations since September
30, 1996, the Company believes that the financial information of the
Predecessor is not directly comparable to the Company's results of operations.
Merger and Recapitalization
On September 16, 1998, the Company completed a merger with PWT Acquisition
Corp. (PWT) and a recapitalization of the Company (the Transaction). PWT was
formed by a group of investors (the New Stockholders) for the purpose of
injecting additional equity into the Company and effecting the
recapitalization. In connection with the Transaction, PWT was merged into the
Company, with the Company being the surviving corporation.
In connection with the Transaction, Bay Alarm Company and Mr. John La Rue
(the Existing Stockholders) received cash payments of approximately $74 million
(primarily financed through senior secured borrowings--see Note 3), as well as
shares of newly issued preferred and common stock of the Company in exchange
for a substantial portion of their ownership interests. Additionally, at the
consummation of the Transaction, the Company paid transaction bonuses and
consultant's costs totaling approximately $3.8 million which are included in
the accompanying statements of operations. Under the terms of the Transaction,
the Existing Stockholders of the Company are entitled to receive additional
consideration up to $20 million in the event that the Company achieves certain
earnings targets (including receipt of certain billings under dispute--see Note
5) subsequent to the recapitalization. As of December 31, 1998, none of these
earnings targets were achieved and accordingly, no amounts have been accrued at
December 31, 1998 for payment of any additional consideration. Immediately
following consummation of the Transaction, the Existing Stockholders continued
to hold approximately 28 percent of the issued and outstanding common stock of
the Company. As a result of the continued significant ownership interests of
the Existing Stockholders, no adjustments have been made to the historical
carrying amounts of the Company's assets and liabilities as a result of the
Transaction.
F-10
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
A summary of the Transaction is as follows:
<TABLE>
<S> <C>
Issuance of convertible redeemable preferred stock*....... $ 31,844,000
Issuance of common stock, $0.001 par value................ 5,968,000
Proceeds from senior secured borrowings................... 75,413,000
-------------
Total sources of cash................................... 113,225,000
-------------
Payments to Existing Stockholders including $400,000 for
noncompete agreements*................................... (74,015,000)
Extinguishment of debt**.................................. (23,437,000)
Transaction bonuses and consultant's costs................ (3,798,000)
Transaction costs***...................................... (4,593,000)
-------------
Total uses of cash...................................... (105,843,000)
-------------
Net cash provided from Transaction...................... $ 7,382,000
=============
</TABLE>
- --------
*Net of $13,156,000 of noncash convertible redeemable preferred stock issued
as part of the Transaction payments to Existing Stockholders.
**Includes $695,000 of early extinguishment costs before income tax benefit
(see Note 4).
***Includes costs of merger with PWT Acquisition Corp. and recapitalization of
$3,004,000 (less amortization of noncompete agreements of $50,000 during
1998) and deferred financing costs incurred in connection with the senior
secured borrowings of $1,895,000; net of $256,000 of common stock issued as
payment for professional services provided.
In order to effect the above, the Company amended its articles of
incorporation such that the authorized capital of the Company consists of
15,000,000 shares of common stock and 1,750,000 shares of convertible
redeemable preferred stock (the Preferred Stock). The issued and outstanding
preferred stock and common stock of PWT was converted into Preferred Stock and
common stock of the Company, respectively, on a one-for-one basis.
2. Summary of Significant Accounting Policies:
Concentration of Customers and Suppliers
The relative concentrations of customers and suppliers are:
<TABLE>
<CAPTION>
Predecessor
(Note 1) Pac-West Telecomm, Inc.
------------------- --------------------------------------
Period from
Date of
Commencement
(October 1,
Nine-Month Period 1996) to Year Ended Year Ended
Ended September 30, December 31, December 31, December 31,
1996 1996 1997 1998
------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues (percent of
revenues):
Incumbent Local
Exchange Companies
(ILECs, see Note 5).. 2% 14% 37% 37%
Suppliers (percent of
operating costs):
Largest supplier...... 58 54 44 50
Next largest supplier. 9 11 9 7
</TABLE>
F-11
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The largest supplier is also the largest ILEC, as shown above in the
concentration of revenues. See Note 8 for revenues from related parties.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ from those estimates. See
Note 1 for assumptions used for Predecessor financial reporting.
Regulation and Competition
Rates charged by the Company for certain telephone services are subject to
the approval of various regulatory authorities. Trends in the
telecommunications industry point toward increased competition in virtually all
markets and the continued deregulation or alternative regulation of
telecommunications services in many jurisdictions.
Revenue Recognition
Except for certain billings under dispute with two significant ILEC's as
described in Note 5, the Company recognizes revenues for telecommunications
services when service is provided. Revenues from the sale of telecommunications
products are recognized upon installation, or if no installation is required,
upon shipment. Initial non-recurring installation revenues are recognized upon
completion of installation to the extent of direct costs incurred.
Cash Equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid investments with an original maturity of three months or less to be cash
equivalents.
Inventories
Inventories consist of telephone equipment, parts and installation
materials, which are valued at the lower of cost or market. Cost is determined
by the average-cost method. Provision is made to reduce slow moving inventory
to reflect its estimated net realizable value.
Other Comprehensive Income
There were no items of other comprehensive income in any period presented.
Segment Reporting
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 131, "Disclosures about Segments of an Enterprise and Related Information".
As an integrated telecommunications provider, the Company has one reportable
operating segment. While the Company's chief decision-maker monitors the
revenue streams of various services, operations are managed and financial
performance is evaluated based upon the delivery of multiple services over
common networks and facilities. This allows the Company to leverage its costs
in an effort to maximize return. As a result, there are many shared expenses
generated by the various revenue streams; because management believes that any
allocation of the expenses to multiple revenue streams would be impractical and
arbitrary, management does not currently make such allocations internally. The
chief decision-maker does however, monitor revenues streams at a more detailed
level than those depicted in the Company's historical general purpose financial
statements.
F-12
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Specifically, the following table presents revenues by service type:
<TABLE>
<CAPTION>
Pac-West Telecomm, Inc.
--------------------------------------------
Period from Date of
Commencement Year Ended Year Ended
(October 1, 1996) to December December
December 31, 1996 31, 1997 31, 1998
-------------------- ----------- -----------
<S> <C> <C> <C>
Local services.............. $1,515,000 $17,810,000 $28,147,000
Long distance services...... 1,223,000 5,133,000 6,328,000
Dedicated transport
services................... 651,000 3,312,000 4,155,000
Product and services........ 577,000 2,073,000 2,104,000
Other....................... 266,000 1,223,000 1,477,000
---------- ----------- -----------
$4,232,000 $29,551,000 $42,211,000
========== =========== ===========
</TABLE>
Reclassifications
Certain reclassifications have been made to the Company's comparative
financial statements to conform to the current year presentation.
Equipment, Vehicles and Leasehold Improvements
Equipment, vehicles and leasehold improvements transferred to the Company
are stated at the net book value on the date of the Initial Transfer.
Subsequent additions are stated at cost. Equipment includes assets acquired
under capital leases. Expenditures for maintenance are charged to expense as
incurred. Upon retirement, the asset cost and the related accumulated
depreciation are removed from the accounts. Gains and losses associated with
dispositions of equipment, vehicles and leasehold improvements are reflected as
a component of other income, net in the accompanying statements of operations.
Equipment, vehicles and leasehold improvements from the Initial Transfer are
depreciated or amortized over their remaining useful lives as of the date of
the Initial Transfer. For subsequent additions including assets acquired under
capital leases, depreciation and amortization is computed using the straight-
line method based on the following estimated useful lives:
<TABLE>
<C> <S>
Equipment.............. 3 to 7 years
Vehicles............... 5 years
Leasehold improvements. 10 years or life of
lease, whichever is
shorter
</TABLE>
The Company capitalizes interest on self-constructed capital projects when
construction involves considerable time and major expenditures. Such interest
is capitalized as part of the cost of the equipment and leasehold improvement
and is amortized over the remaining life of the assets. Interest is capitalized
based on rates for borrowings that are outstanding over the period required to
complete the asset. In 1998, the Company capitalized $303,000 of interest
related to the construction of assets. Capitalizable interest in all other
periods presented was insignificant.
Depreciation and amortization of equipment, vehicles and leasehold
improvements was $299,000, $2,204,000 and $4,106,000, for the period from
commencement (October 1, 1996) to December 31, 1996, and for the years ended
December 31, 1997 and 1998, respectively. Depreciation and amortization of
equipment, vehicles and leasehold improvements was $549,000 for the
Predecessor's nine-month period ended September 30, 1996.
F-13
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deferred Financing Costs, Net
Deferred financing costs, net consist of capitalized amounts for bank
financing fees, professional fees, and other expenses related to the senior
secured borrowings obtained on September 16, 1998 (see Note 3). Amortization is
computed using the straight-line method over the term of the borrowings through
January 29, 1999. Amortization expense for the year ended December 31, 1998,
was $1,438,000 and is included within interest expense in the accompanying
statements of operations.
Other Assets
At December 31, 1998, other assets consist primarily of deferred financing
costs of $1,195,000 associated with the Company's subsequent issuance of senior
notes (see Note 11) and the long-term portion of covenants not to compete of
$150,000. Upon issuance of the senior notes, the deferred financing costs will
be amortized over the estimated maturity of the debt of 10 years.
Other Accrued Liabilities
Other accrued liabilities include approximately $424,000 and $1,018,000 as
of December 31, 1997 and 1998, respectively, of amounts collected from
customers for taxes due to various governmental and regulatory authorities.
Supplemental Statements of Cash Flow Information
<TABLE>
<CAPTION>
Predecessor
(Note 1) Pac-West Telecomm, Inc.
------------------ ---------------------------------------------
Period from Date of
Commencement
Nine-Month Period (October 1, 1996) Year Ended Year Ended
Ended to December 31, December 31, December 31,
September 30, 1996 1996 1997 1998
------------------ ------------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash paid during the
period for:
Interest (net of
amounts capitalized). $ 33,000 $ 101,000 $ 924,000 $ 2,565,000
Income taxes.......... 145,000 0 2,351,000 2,195,000
Supplemental disclosure
of non-cash
transactions:
Acquisition of fixed
assets using capital
lease obligations.... 844,000 2,217,000 4,781,000 290,000
Issuance of the
Preferred Stock in
conjunction with the
Transaction.......... 0 0 0 13,156,000
Refinancing of capital
lease obligation with
note payable......... 0 0 0 1,599,000
</TABLE>
Income Taxes
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires the asset and liability method of accounting for income
taxes. Under this method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying the applicable statutory
tax rate to the differences between the financial statement carrying amounts
and the tax basis of existing assets and liabilities. Under SFAS No. 109, the
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date based on the applicable tax rate.
F-14
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and for Hedging Activities," effective
for fiscal years beginning after June 15, 1999. Management does not expect
adoption of SFAS No. 133 in future periods to have a significant impact on the
Company's financial statements.
3. Senior Secured Borrowings:
On September 16, 1998, concurrent with the Transaction discussed in Note 1,
the Company entered into a senior secured borrowing agreement with several
financial institutions allowing for borrowings up to $100,000,000. The
outstanding balance under this agreement was due at the earlier of the
completion of a high-yield debt offering (see Note 11) or March 16, 1999, with
interest due monthly, bearing interest at a floating rate equal to, at the
Company's option, the base rate (defined as the higher of (a) 0.5 percent above
the latest Federal Funds Rate; and (b) the rate of interest in effect as
publicly announced by the principal lender as its "reference rate"), or the
offshore rate (as defined in the senior secured borrowings agreement) plus 2.0
percent. As of December 31, 1998, the Company had elected to utilize the
offshore rate, which was 8.625 percent, including the additional 2.0 percent.
The borrowings were secured by substantially all assets of the Company. The
Company was subject to certain covenants, which included limitations on
additional debt, restrictions on the payment of dividends and maintenance of
certain interest coverage requirements.
At December 31, 1998, the Company had senior secured borrowings outstanding
of $91,000,000 and other obligations of $9,000,000. The $9,000,000 of other
obligations related to equipment purchases incurred as of December 31, 1998,
which were subsequently financed through additional senior secured borrowings
(see Note 5).
On January 29, 1999, the Company paid off all outstanding senior secured
borrowings and accrued interest through the issuance of a high-yield debt
offering due February 1, 2009 (see Note 11). As a result of the subsequent
refinancing, the senior secured borrowings and other obligations have been
classified as long-term debt and other long-term obligations in the
accompanying balance sheet as of December 31, 1998.
4. Notes Payable, Extraordinary Item and Line of Credit:
Notes Payable
Notes payable consisted of the following:
<TABLE>
<CAPTION>
1997 1998
----------- ---------
<S> <C> <C>
Contracts payable to banks and finance companies for
equipment, requiring monthly principal and interest
payments of $1,474 to $69,921 at interest rates
from 8.6 percent to 9.6 percent, due through June
2003, repaid in full in September 1998............. $ 8,454,000 $ 0
Contracts payable to banks and finance companies for
vehicles, requiring monthly principal and interest
payments of $355 to $1,510 at interest rates from
0.9 percent to 8.3 percent due through June 2001... 207,000 248,000
----------- ---------
8,661,000 248,000
Less: Current portion............................... (2,034,000) (132,000)
----------- ---------
$ 6,627,000 $ 116,000
=========== =========
</TABLE>
F-15
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Notes payable are secured by all of the Company's owned equipment and
vehicles. Aggregate future principal payments by year on notes payable are as
follows:
<TABLE>
<S> <C>
1999............................ $132,000
2000............................ 99,000
2001............................ 17,000
--------
$248,000
========
</TABLE>
Extraordinary Item--Loss on Early Extinguishment of Debt
In conjunction with the Transaction (see Note 1) and the receipt of the
senior secured borrowings during 1998, as discussed in Note 3, the Company
repaid amounts outstanding under notes payable and capital leases for
equipment. The resulting loss from the early extinguishment of the debt of
$695,000, less the applicable income tax benefit of $278,000, has been
reflected as an extraordinary item in the accompanying statements of
operations.
Line of Credit
The Company maintained a credit agreement with a bank that provided for a
line of credit with a maximum borrowing limit of $2,500,000. The credit
agreement and related security agreement contained various restrictive
covenants, including restrictions on the incurrence of new liens and long-term
indebtedness except for the financing of new equipment, the payment of
dividends, the entering into business combinations or mergers, and requirements
to maintain certain financial ratios. For the years ended December 31, 1997 and
1998, no amounts were borrowed under this line of credit. During 1998, the
Company terminated the line of credit.
5. Commitments and Contingencies:
Leases
The Company leases its four principal facilities in Stockton, Oakland, Los
Angeles and Las Vegas pursuant to noncancelable operating leases that expire in
2002, 2003, 2006 and 2009, respectively. The lease expiring in 2002 also
contains five two-year renewal options. The leases expiring in 2003, 2006 and
2009 also contain two five-year renewal options. Prior to September 16, 1998,
the Company leased certain equipment under capital leases that were repaid in
connection with the Transaction (see Note 1). The Company also leases telephone
equipment and telephone circuits on both a month-to-month basis, as well as
under annual and long-term noncancellable leases. Management of the Company
expects that these leases will be renewed or replaced by other leases in the
normal course of business.
The Company's future minimum lease payments with initial terms in excess of
one year for the years ending December 31 are as follows:
<TABLE>
<CAPTION>
Operating Leases
----------------------
Telephone
Circuits
and
Space Equipment
---------- -----------
<S> <C> <C>
1999............................................... $ 947,000 $ 4,516,000
2000............................................... 908,000 4,114,000
2001............................................... 907,000 3,982,000
2002............................................... 768,000 2,456,000
2003............................................... 640,000 599,000
2004 and thereafter................................ 1,911,000 0
---------- -----------
$6,081,000 $15,667,000
========== ===========
</TABLE>
F-16
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Rental expense charged to operations for the period from commencement
(October 1, 1996) to December 31, 1996, and for the years ended December 31,
1997 and 1998, for all operating leases for space was $76,000, $432,000 and
$650,000, respectively. Rental expense charged to operations by the Predecessor
for space for the nine-month period ended September 30, 1996 was $125,000.
Rental expense for space is included in selling, general and administrative
expense in the accompanying statements of operations. Rental expense charged to
operations for telephone circuits and equipment was approximately $1,000,000,
$6,000,000 and $9,935,000 for the period from commencement (October 1, 1996) to
December 31, 1996, and for the years ended December 31, 1997 and 1998,
respectively. Rental expense charged to operations by the Predecessor for
telephone circuits and equipment for the nine-month period ended September 30,
1996 was approximately $1,700,000. Rental expense for telephone circuits and
equipment is included in operating costs in the accompanying statements of
operations.
Rental expense paid to related parties was approximately $35,000 for the
year ended December 31, 1998 and $0 for all other periods presented.
Purchase Commitments
At December 31, 1998, the Company had commitments under various contracts
for the purchase of telephone switch equipment. The Company has recorded
$25,597,000 of construction-in-progress in the accompanying balance sheet as of
December 31, 1998, for equipment received prior to year-end but not yet
installed. This amount includes $9,000,000 of purchases that were subsequently
financed through the issuance of additional senior secured borrowings (see Note
3).
In addition, at December 31, 1998, the Company had approximately $52,000,000
of purchase orders outstanding for telephone switching equipment due for
delivery during 1999 and 2000. These purchase orders are cancelable up to 60
days prior to delivery and are expected to be financed from proceeds received
from the senior notes (see Note 11) and from internally generated cash flows.
Employment Agreements
The Company has entered into employment agreements with certain key
executives that provide for minimum annual base salaries, bonus entitlements
upon the achievement of certain objectives, and the issuance of options under
the new 1999 Employee Stock Option Plan (see Note 11).
These employment agreements, which were approved by the Company's
stockholders in 1998 in connection with the Transaction (see Note 1), granted
options to two executives to purchase up to 406,250 shares of the Company's
common stock. The exercise price of these options of $0.67 per share
approximated the fair market value of the Company's common stock at the date of
grant. These options vest over various dates through October 2001 and expire at
various dates through October 2008.
The Company accounted for the option grants under APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and accordingly, no compensation
cost has been recognized in the accompanying financial statements as the option
exercise price approximated the estimated fair market value of the stock on the
date of grant.
Had compensation cost for the options been determined in accordance with
SFAS No. 123, "Accounting for Stock Based Compensation," the Company's pro
forma net loss would have increased $3,000 to $670,000 for the year ended
December 31, 1998. No options were exercisable at December 31, 1998. The
weighted average fair value of options granted during 1998 was $0.09 and the
weighted average contractual life remaining at December 31, 1998 was 9.8 years.
F-17
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model, with the following weighted-average
assumptions used for grants during the year ended December 31, 1998: weighted
average risk-free interest rate of 5.0 percent; expected dividend yields of 0
percent; expected lives of two to three years; and expected volatility of 0
percent.
The employment agreements were effective as of or subsequent to the close of
the Transaction and have terms varying from one to three years; however, they
may be terminated by either party at an earlier date under certain
circumstances. As of December 31, 1998, the Company accrued approximately
$304,000 in accrued payroll and related expenses in the accompanying balance
sheet for bonuses payable under these agreements.
Revenue Recognition--Billings under Dispute
The Company has established interconnection agreements with certain
Incumbent Local Exchange Companies (ILECs) in California. The
Telecommunications Act of 1996 requires ILECs to enter into interconnection
agreements with Competitive Local Exchange Companies (CLECs, such as the
Company) and other competitors and requires state Public Utilities Commissions
(PUCs) to arbitrate such agreements.
The interconnection agreements outline, among other items, compensation
arrangements for calls originating or terminating in the other party's
switching equipment, payment terms, and level of services.
Two ILECs with which the Company has interconnection agreements have
withheld payments from amounts billed by the Company under their agreements
during the years ended December 31, 1997 and 1998, as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Total amount billed to specified ILECs during the
year.............................................. $14,858,000 $48,264,000
Amount withheld by specified ILECs and not recorded
as revenue in the Company's statements of
operations........................................ (3,793,000) (32,845,000)
Amounts received for prior withholding and recorded
as revenue........................................ 0 254,000
----------- -----------
Net amount recorded as revenue from the specified
ILECs during the year........................... $11,065,000 $15,673,000
=========== ===========
</TABLE>
The ILECs withheld no payments before August 1997. The first ILEC withheld
payment of 48 percent of the Company's August 1997 billing and continued to
withhold payments monthly, at declining percentages, including a withholding of
20 percent of the December 1997 billing. During 1998, this ILEC withheld an
average of 69 percent of amounts billed. The ILEC has indicated that it has
paid the withheld amounts into an escrow account pursuant to a dispute claim.
The other ILEC has withheld payments on 100 percent of the monthly amounts
billed by the Company for October 1997 through December 1997 and has withheld
an average of 59 percent of amounts billed during 1998. In 1998, this ILEC paid
$254,000 of amounts previously withheld from 1997 billings. This ILEC has made
no escrow payments.
Both ILECs have continued to withhold significant percentages of payments
during 1999.
The issue giving rise to the dispute, based on correspondence with the first
ILEC, relates to the classification of telephone calls entering the Company's
system and terminating to an ISP. Under the interconnection agreements, the
ILECs are obligated to pay the Company for calls originating in the ILECs'
systems and terminating in the Company's system. Local calls are the most
prevalent calls compensated for under the interconnection agreements.
F-18
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The first ILEC filed a complaint with the Superior Court of the State of
California that outlined its opinion that Internet traffic calls made to an ISP
are not local calls (but rather interstate calls), and as such are not covered
by the interconnection agreement and are not subject to the jurisdiction of the
PUC. Management understands a similar position was taken by the other ILEC. The
Superior Court ordered this complaint stayed pending the California PUC's
(CPUC's) review of the issues raised by the complaint.
The first ILEC has requested (without specifying any particular monetary
claims) that the Company refund, with interest, all amounts previously paid to
the Company for Internet traffic calls. All revenues recognized from this ILEC
in the Company's financial statements since the Company's commencement,
including those amounts associated with ISP calls previously paid to the
Company, total $24,998,000, consisting of $10,533,000 and $13,861,000 for the
years ended December 31, 1997 and 1998, respectively. It is not possible for
the Company or for the ILECs (based on the Company's understanding of their
systems) to determine which calls to an ISP telephone number are then
connected, by way of the ISP's equipment, on to the Internet network.
Accordingly, it is not possible to identify amounts specifically billed to or
paid by the ILECs for calls actually connected, by way of the ISP's equipment,
on to the Internet network.
Management, after consultation with its regulatory attorneys, believes that
calls originated in the ILECs' systems and terminated in the Company's system
at an ISP, including all calls actually connected by way of the ISP's equipment
on to the Internet network, are local calls, and, accordingly, the Company is
entitled to compensation pursuant to its interconnection agreements with the
ILECs. Further, the Company believes decisions and actions taken by PUCs of
various states, including California, support the Company's position. As a
result, no amounts have been accrued for in the Company's financial statements
for any potential refunds of any amounts previously received from these ILECs.
In October 1998, the CPUC issued a decision supporting the Company's position
that local telephone calls placed to ISPs terminate at the ISP and, therefore,
are local calls entitled to reciprocal compensation. Subsequent to this
decision, the ILEC involved in this complaint filed an Application for
Rehearing of the above decision. In addition, in February 1999, the Federal
Communications Commission (FCC) issued a Declaratory Ruling on the issue of
reciprocal compensation for calls bound to ISP's. The FCC ruled that these
calls are jurisdictionally interstate calls. The FCC, however, determined that
this issue did not resolve the question of whether reciprocal compensation is
owed. The FCC noted a number of factors that would allow the state PUC's to
leave their decisions requiring the payment of compensation undisturbed. The
Company cannot predict the impact of the FCC's ruling on existing state
decisions, or the outcome of pending appeals or on additional cases in this
matter. Given the uncertainty concerning the final outcome of the CPUC
proceedings, the possibility of future extended appeals or additional
litigation, and future decisions by the FCC, management continues to record the
revenue associated with reciprocal compensation billings to the two ILECs
discussed above on a cash-received basis.
6. Stockholders' Equity:
Common Stock
Pursuant to the Transaction, the stockholders of the Company entered into a
Shareholders' Agreement that provides for, among other things, the election of
certain individuals as Directors of the Company, restrictions on transfers,
rights of first-offer, and participation rights in any shares of Preferred
Stock or common stock. Under this agreement, the Company has agreed not to
issue or sell additional shares of common stock prior to an initial public
offering, unless certain parties to the Shareholders' Agreement are given the
opportunity to subscribe for and purchase their pro rata portion of the
additional shares at the same price and same terms.
The stockholders of the Company also entered into a Registration Agreement,
whereby at any time prior to September 26, 2001, a certain stockholder may
request the Company grant holders of its common stock the right to purchase a
certain number of shares of the Company's common stock (the Rights Offering).
Within a
F-19
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
certain period after the Rights Offering closes, the Company's stockholders may
request that the Company register all or any portion of the stockholders'
common stock in the Company with the Securities and Exchange Commission (SEC),
when the offering value of the Company's securities in an initial public
offering is at least $25,000,000.
Convertible Redeemable Preferred Stock
On September 16, 1998, the Company, as discussed in Note 1, amended and
restated its articles of incorporation to allow for the issuance of the
1,750,000 shares of nonvoting $0.001 par value Preferred Stock. The Preferred
Stock has preference over common stock in liquidation equal to the liquidation
value of $36 per share, plus accrued dividends computed at a 10 percent rate,
compounded quarterly (the Preference Amount). After payment of the Preference
Amount, the Preferred Stock and the common stock share ratably in any
distribution by the Company. At December 31, 1998, $1,324,000 (or $1.059 per
outstanding share of Preferred Stock) is accrued for cumulative preferred
dividends.
The holders of a majority of the outstanding Preferred Stock have the right
to convert all of the outstanding Preferred Stock into shares of common stock
in connection with the consummation of a public offering of debt or equity
securities or rights to acquire any debt or equity securities of the Company
offered to the public (a Public Offering). Additionally, any holder of at least
5 percent of the outstanding Preferred Stock may convert its shares of
Preferred Stock to shares of common stock in connection with a Public Offering.
Each share of Preferred Stock will be convertible into a number of shares of
common stock determined by dividing the Preference Amount by the initial Public
Offering price of the common stock.
The Company is required to redeem at the request of a majority of the
holders in the event of a Public Offering or after December 31, 2003, all of
the Preferred Stock outstanding. In addition, any 5 percent holder may require
the Company to redeem its shares of Preferred Stock with the net proceeds of a
Public Offering at a redemption price equal to 100 percent of the liquidation
preference thereof, plus accumulated and unpaid dividends at the date of
redemption.
7. Income Taxes:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Pac-West Telecomm, Inc.
----------------------------------------------
Period from Date of
Commencement Year Ended Year Ended
(October 1, 1996) to December 31, December 31,
December 31, 1996 1997 1998
-------------------- ------------ ------------
<S> <C> <C> <C>
Current:
Federal.................. $ 0 $1,783,000 $ 353,000
State.................... 1,000 503,000 245,000
Deferred:
Federal.................. 76,000 546,000 861,000
State.................... 17,000 165,000 102,000
------- ---------- ----------
$94,000 $2,997,000 $1,561,000
======= ========== ==========
</TABLE>
The provision for income taxes for the nine-month period of the Predecessor
has been calculated using the Company's overall effective tax rate for the
period from commencement (October 1, 1996) to December 31, 1996. In conjunction
with the Initial Transfer, CalPage assumed various liabilities of the
Predecessor including deferred taxes of $280,000 at September 30, 1996.
F-20
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company's provision for income tax differed from the amount computed by
applying the statutory federal income tax rate to income before income taxes
and extraordinary item, as follows:
<TABLE>
<CAPTION>
Predecessor
(Note 1) Pac-West Telecomm, Inc.
----------------- ---------------------------------------------
Period from Date of
Nine-Month Period Commencement
Ended (October 1, 1996) Year Ended Year Ended
September 30, to December 31, December 31, December 31,
1996 1996 1997 1998
----------------- ------------------- ------------ ------------
<S> <C> <C> <C> <C>
Income tax determined by applying the statutory federal
income tax rate to income before income taxes and
extraordinary item....................................... $294,000 $79,000 $2,547,000 $ 446,000
State income taxes, net of federal income tax benefit..... 51,000 15,000 450,000 230,000
Federal income tax effect of nondeductible costs related
to the Transaction
(see Note 1)............................................. 0 0 0 885,000
-------- ------- ---------- ----------
Provision for income taxes................................ $345,000 $94,000 $2,997,000 $1,561,000
======== ======= ========== ==========
</TABLE>
The cumulative balance sheet effects of deferred tax items are:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Trade accounts receivable allowances.............. $ 129,000 $ 171,000
Vacation and other accrued expenses............... 26,000 76,000
Inventory reserves................................ 46,000 46,000
Tax credits....................................... 0 876,000
State taxes....................................... 250,000 163,000
----------- -----------
Deferred tax assets............................. 451,000 1,332,000
----------- -----------
Depreciation...................................... (1,097,000) (2,834,000)
Capitalized interest.............................. 0 (130,000)
Prepaid expenses and other........................ (128,000) (105,000)
----------- -----------
Deferred tax liabilities........................ (1,225,000) (3,069,000)
----------- -----------
Net deferred tax liability........................ (774,000) (1,737,000)
Less: Amounts classified as current deferred tax
assets........................................... 160,000 151,000
----------- -----------
Net noncurrent deferred tax liability........... $ (934,000) $(1,888,000)
=========== ===========
</TABLE>
Tax credits of $876,000, shown above, represent tax credits associated with
the payment of Alternative Minimum Tax (AMT) arising in 1998. Such credits,
which do not expire, may be used to offset future income taxes payable.
8. Related-Party Transactions:
Loans Payable to Officers and Stockholder
The Predecessor and the Company had loans payable to certain former officers
and a stockholder of the Company. The loans payable bore interest at 9.5
percent to 10.0 percent and did not contain specified
F-21
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
repayment terms. Interest expense related to these loans was $4,000 and $7,000,
for the period from commencement (October 1, 1996) to December 31, 1996, and
for the year ended December 31, 1997, respectively. Interest expense related to
these loans was $14,000 for the Predecessor's nine-month period ended September
30, 1996. The principal and related accrued interest were paid in full for all
such loans during 1997.
Bay Alarm Company (Bay Alarm)
Bay Alarm (a major stockholder of the Company) and its subsidiary, InReach
Internet, LLC, are collectively one of the Company's largest customers of
telephone network services, comprising approximately $396,000, $2,109,000, and
$2,680,000, or 9.4 percent, 7.1 percent and 6.4 percent of the Company's
revenues for the three-month period from commencement (October 1, 1996) to
December 31, 1996, and for the years ended December 31, 1997 and 1998,
respectively. Revenues from Bay Alarm and InReach Internet LLC comprised
approximately $891,000, or 10.2 percent of the Predecessor's revenues for the
nine-month period ended September 30, 1996.
The Company also had amounts due from Bay Alarm as of December 31, 1997 and
1998. These amounts are included in accounts receivable from related parties in
the accompanying balance sheets. The Company owed Bay Alarm $850,000 at the
date of commencement (October 1, 1996) related to debt assumed from the Initial
Transfer. This amount was repaid in full by December 31, 1996.
Bay Alarm provides the Company with security monitoring services at its
normal commercial rates. The Company has recorded $10,000, $48,000 and $58,000
as selling, general and administrative expense for these services for the
three-month period from commencement (October 1, 1996) to December 31, 1996,
and for the years ended December 31, 1997 and 1998, respectively. The
Predecessor recorded approximately $11,000 as selling, general and
administrative expense for services received from Bay Alarm for the nine-month
period ended September 30, 1996.
As outlined in Note 5, Leases, the company began leasing its facility in
Oakland from Bay Alarm during 1998. In addition to rent paid under this lease,
the company recorded selling, general and administrative expense of $59,000 for
the year ended 1998 for related utility charges.
Notes Receivable from Stockholders
In 1998, in connection with the Transaction, a stockholder of the Company,
who is also an officer, purchased 375,000 shares of common stock from the
Company for $250,000. The Company received $50,000 in cash from the stockholder
and entered into a note receivable for the remaining balance of $200,000.
Subsequent to the Transaction, another officer of the Company acquired 62,470
shares of common stock for $42,000. The Company received $9,000 in cash and
entered into a note receivable for the remaining $33,000 due from the officer.
The notes accrue interest at 5.54 percent and 5.12 percent, respectively,
compounded annually, with any unpaid accrued interest and principal due at the
earlier of (1) the sale of the above stock with proceeds received first applied
to unpaid interest, then to principal; (2) sale of the Company; (3) 60 days
from the date the stockholder is no longer an employee of the Company or a
subsidiary; or (4) September 16, 2003 and October 16, 2003, respectively.
9. Retirement Plan:
In October 1996, the Company adopted a 401(k) retirement plan (the Plan) for
all full-time employees who have completed six months of service. The plan year
is from January 1 to December 31, and the Company will contribute $0.50 for
every $1.00 contributed by the employee, subject to the Company's contribution
not exceeding 3 percent of the employee's salary. Participants become fully
vested after six years of service,
F-22
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
although they vest incrementally on an annual basis after two years of service
and until the six-year period is completed. The Company recorded selling,
general and administrative expense of $63,000 and $58,000 for the years ended
December 31, 1997 and 1998, respectively, for the Company's matching
contributions.
Employees of the Company previously contributing to the CalPage 401(k)
retirement plan (with identical provisions to the Plan) were able to roll their
accumulated benefits into the Plan at date of commencement (October 1, 1996),
with all prior employer contributions becoming fully vested on the date of
rollover.
10. Sale of Answering Service Division:
In March 1997, the Company sold the customer base and other assets of its
answering service division for $420,000, payable $200,000 in cash and a
promissory note of $220,000. The promissory note was paid in October 1997 at a
discount of $18,000. The Company recognized a net gain of $385,000 on the sale
in the year ended December 31, 1997.
11. Subsequent Events:
On January 29, 1999, the Company issued $150,000,000 of senior unsecured
ten-year notes (the Senior Notes) at par. The Senior Notes bear interest at
13.5 percent payable in semiannual installments, with principal due on February
1, 2009.
Proceeds of the Senior Notes were used to repay the senior secured
borrowings (see Note 3) and to establish an interest reserve account to cover
certain initial interest payments due under the Senior Notes.
The Senior Notes carry provisions that allow the Company, at its option, to
(i) redeem up to 35 percent of the notes with proceeds of certain public
offerings of equity prior to February 1, 2002, (ii) redeem all or part of the
notes at specified prices on or after February 1, 2004, or (iii) offer to
exchange the notes within 180 days from the issue date for a new issue of
identical debt securities registered under the Securities Act of 1933, as
amended (the Securities Act). The Company intends to register these notes under
the Securities Act during the first six months of 1999.
Basic covenants of these notes restrict the Company's future ability to pay
dividends, repurchase stock, pledge or sell assets as security for other
transactions, or engage in mergers and business combinations. The covenants
allow the Company to incur additional debt subject to various limitations.
In January 1999, the Company's Board of Directors approved the terms of the
1999 Employee Stock Option Plan (the 1999 Stock Plan) pursuant to which
qualified employees and members of the Board of Directors can be issued options
to purchase the Company's common stock at the fair market value at the date of
grant. An aggregate of 2,250,000 shares of common stock have been reserved for
option grants under the 1999 Stock Plan.
12. Ten-for-One Stock Split:
On March 19, 1999, the board of directors authorized a ten-for-one split of
the Company's authorized and outstanding common stock and Preferred Stock. All
share and per share data have been restated to reflect the ten-for-one split.
F-23
<PAGE>
PAC-WEST TELECOMM, INC.
INTERIM CONDENSED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31,
ASSETS 1999
------ ------------
<S> <C>
Current Assets:
Cash and cash equivalents...................................... $ 41,372,000
Restricted cash................................................ 19,844,000
Trade accounts receivable, net of allowance for doubtful
accounts of $450,000.......................................... 4,597,000
Accounts receivable from related parties....................... 100,000
Income taxes receivable........................................ 544,000
Inventories.................................................... 450,000
Prepaid expenses and other current assets...................... 989,000
Deferred financing costs, net.................................. 600,000
Deferred tax assets............................................ 556,000
------------
Total current assets......................................... 69,052,000
Equipment, Vehicles and Leasehold Improvements, net.............. 59,528,000
Deferred Financing Costs, net.................................... 5,467,000
Other Assets..................................................... 264,000
------------
Total assets................................................. $134,311,000
============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<S> <C>
Current Liabilities:
Current portion of notes payable............................... $ 121,000
Accounts payable............................................... 2,492,000
Accrued payroll and related expenses........................... 694,000
Accrued interest on Senior Notes............................... 3,485,000
Other accrued liabilities...................................... 2,207,000
------------
Total current liabilities.................................... 8,999,000
Senior Notes and Other Long-Term Obligations..................... 150,088,000
Deferred Income Taxes............................................ 2,366,000
------------
Total liabilities............................................ 161,453,000
------------
Convertible Redeemable Preferred Stock, $0.001 par value;
1,750,000 shares authorized; 1,250,000 issued and outstanding
(preference in liquidation of $45,000,000, plus accrued
cumulative dividends of $2,466,000)............................. 47,466,000
Stockholders' Equity (Deficit):
Common stock, $0.001 par value, 15,000,000 shares authorized
and 12,562,470 shares issued and outstanding.................. 13,000
Additional paid-in capital..................................... 7,768,000
Notes receivable from stockholders............................. (233,000)
Retained earnings (deficit).................................... (82,156,000)
------------
Total stockholders' equity (deficit)......................... (74,608,000)
------------
Total liabilities and stockholders' equity (deficit)......... $134,311,000
============
</TABLE>
See notes to the interim condensed financial statements.
F-24
<PAGE>
PAC-WEST TELECOMM, INC.
INTERIM CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three-Month Period Ended
-----------------------------
March 31, 1998 March 31, 1999
-------------- --------------
<S> <C> <C>
Revenues $10,252,000 $14,416,000
----------- -----------
Costs and Expenses:
Operating....................................... 3,731,000 4,062,000
Selling, general and administrative............. 2,002,000 4,303,000
Depreciation and amortization................... 845,000 1,449,000
----------- -----------
Total costs and expenses...................... 6,578,000 9,814,000
----------- -----------
Income from operations........................ 3,674,000 4,602,000
Other Expense (Income):
Interest expense................................ 377,000 4,050,000
Interest income................................. (48,000) (527,000)
Other expense................................... 23,000 --
----------- -----------
Total other expense, net...................... 352,000 3,523,000
----------- -----------
Income before provision for income taxes...... 3,322,000 1,079,000
Provision for Income Taxes........................ 1,329,000 432,000
----------- -----------
Net income.................................... $ 1,993,000 $ 647,000
=========== ===========
</TABLE>
See notes to the interim condensed financial statements.
F-25
<PAGE>
PAC-WEST TELECOMM, INC.
INTERIM CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended
-----------------------------
March 31, 1998 March 31, 1999
-------------- --------------
<S> <C> <C>
Operating Activities:
Net income..................................... $ 1,993,000 $ 647,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 845,000 1,449,000
Amortization of deferred financing costs..... -- 625,000
Interest earned on restricted cash........... -- (148,000)
Provision for doubtful accounts.............. 20,000 50,000
Deferred income taxes provision.............. 300,000 73,000
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts
receivable................................ 1,059,000 (60,000)
Decrease in income tax receivable.......... -- 1,427,000
Increase in inventories.................... (40,000) (3,000)
Increase in prepaid and other current
assets.................................... (416,000) (128,000)
Increase in other assets................... (17,000) (120,000)
Increase (decrease) in accounts payable and
accrued liabilities....................... 485,000 (2,885,000)
Increase in accrued interest on Senior
Notes..................................... -- 3,485,000
Increase in income taxes payable........... 1,329,000 132,000
----------- -------------
Net cash provided by operating
activities.............................. 5,558,000 4,544,000
----------- -------------
Investing Activities:
Purchase of equipment, vehicles and leasehold
improvements.................................. (1,275,000) (3,633,000)
Purchase of investments (classified as
restricted cash).............................. -- (19,696,000)
Proceeds from disposal of equipment............ 90,000 --
----------- -------------
Cash used in investing activities........ (1,185,000) (23,329,000)
----------- -------------
Financing Activities:
Proceeds from issuance of Senior Notes......... -- 150,000,000
Payments for financing costs................... -- (5,040,000)
Repayment of senior secured borrowings......... -- (100,000,000)
Borrowings under notes payable and capital
leases........................................ 847,000 --
Principal payments on notes payable and capital
leases........................................ (1,102,000) (39,000)
----------- -------------
Net cash provided by (used in) financing
activities.............................. (255,000) 44,921,000
----------- -------------
Net increase in cash and cash
equivalents............................. 4,118,000 26,136,000
Cash and Cash Equivalents:
Beginning of period............................ 3,603,000 15,236,000
----------- -------------
End of period.................................. $ 7,721,000 $ 41,372,000
=========== =============
</TABLE>
See notes to the interim condensed financial statements.
F-26
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
1. Basis of Presentation:
The accompanying unaudited interim condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered necessary for a
fair presentation for the periods indicated have been included. Operating
results for the three-month period ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. These unaudited interim condensed financial statements should be read in
conjunction with the audited financial statements and the notes thereto of Pac-
West Telecomm, Inc. (the Company) as of and for the year ended December 31,
1998.
2. Restricted Cash:
Restricted cash represents short-term investments deposited in an interest
reserve trust account to fund initial interest payments due through February 1,
2000 under the $150,000,000 of Senior Notes.
3. Equipment, Vehicles and Leasehold Improvements:
Equipment, vehicles and leasehold improvements include network and other
communication equipment, office furniture and equipment, vehicles, leasehold
improvements and construction in progress. These assets are stated at cost,
which includes direct costs and capitalized interest, and are depreciated once
placed in service using the straight-line method. Capitalized interest of $0
and $624,000 was recorded during the three-month periods ended March 31, 1998
and 1999, respectively. Repair and maintenance costs are expensed as incurred.
Equipment, vehicles and leasehold improvements at March 31, 1999 consist of
the following:
<TABLE>
<S> <C>
Network and other communication equipment.................... $34,289,000
Office furniture and equipment............................... 2,267,000
Vehicles..................................................... 865,000
Leasehold improvements....................................... 6,062,000
Construction-in-progress..................................... 23,827,000
-----------
67,310,000
Less: Accumulated depreciation and amortization.............. (7,782,000)
-----------
Equipment, vehicles and leasehold improvements, net.......... $59,528,000
===========
</TABLE>
4. Deferred Financing Costs, net:
Deferred financing costs, net consist primarily of capitalized amounts for
underwriter fees, professional fees and other expenses related to the issuance
of the $150,000,000 of Senior Notes. The deferred financing costs are being
amortized over the expected 10-year term of the Notes beginning January 29,
1999. Amortization expense for the three-month period ended March 31, 1999 was
$100,000, which is included in interest expense in the accompanying condensed
statements of income.
F-27
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
5. Income Taxes:
The provision for income taxes for the three month periods ended March 31,
1998 and 1999 consist of the income tax determined by applying the applicable
statutory federal income tax rate of 34% plus 6% for state income taxes net of
federal income tax benefit.
6. Senior Notes and Other Long-term Obligations:
Senior Notes and other long-term obligations at March 31, 1999 consist of
the following:
<TABLE>
<S> <C>
Senior Notes................................................ $150,000,000
Notes payable, less current portion......................... 88,000
------------
Total....................................................... $150,088,000
============
</TABLE>
On January 29, 1999, the Company issued $150,000,000 of Senior Notes at par.
The Senior Notes bear interest at 13.5 percent payable in semiannual
installments, with principal due on February 1, 2009.
Proceeds of the Senior Notes were used to repay $100,000,000 of senior
secured borrowings (including $9,000,000 of other long-term obligations
subsequently financed through senior secured borrowings) and to establish an
interest reserve account to cover interest payments due under the Senior Notes
through February 1, 2000.
The Senior Notes carry provisions that allow the Company, at its option, to
(i) redeem up to 35 percent of the notes with proceeds of certain public
offerings of equity prior to February 1, 2002, (ii) redeem all or part of the
notes at specified prices on or after February 1, 2004, or (iii) offer to
exchange the notes within 180 days from the issue date for a new issue of
identical debt securities registered under the Securities Act of 1933, as
amended (the Securities Act). The Company is in the process of registering
these notes under the Securities Act.
Basic covenants of these notes restrict the Company's future ability to pay
dividends, repurchase stock, pledge or sell assets as security for other
transactions, or engage in mergers and business combinations. The covenants
allow the Company to incur additional debt subject to various limitations.
The Company has a new three-year senior credit facility that will permit
initial borrowings of $20.0 million and future borrowings of up to an
additional $20.0 million to finance working capital, the cost of the Company's
planned capital expansion and other corporate transactions. The borrowings will
be secured by substantially all of the Company's assets. Borrowings under this
new senior credit facility will bear interest, at the Company's option, at (1)
the Base Rate (as defined) or (2) the Eurodollar Rate (as defined) plus between
2.25 and 3.5%. The credit facility requires the Company to meet certain
financial tests, including, without limitation, maximum levels of debt as a
ratio of EBITDA (as defined), minimum interest coverage and maximum amount of
capital expenditures. The credit facility will contain certain covenants which,
among other things, limit the incurrence of additional indebtedness,
investments, dividends, transactions with affiliates, asset sales,
acquisitions, mergers and consolidations, prepayments of other indebtedness
(including the Senior Notes), liens and encumbrances and other matters
customarily restricted in such agreements.
7. Purchase Commitments:
At March 31, 1999, the Company has approximately $53,000,000 of purchase
orders outstanding for network equipment due for delivery during 1999 and 2000.
These purchase orders are cancelable up to 60 days prior to delivery and are
expected to be financed from proceeds received from the Senior Notes (see Note
6) and from internally generated cash flows.
F-28
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
In addition, the Company is in the process of implementing a new billing and
operations support system. Total estimated costs for this system aggregate
approximately $15,000,000 of which approximately $7,500,000 is estimated to be
incurred in 1999, $6,000,000 in 2000, and $1,500,000 in 2001.
8. Revenue Recognition:
Service revenues are recognized in the month in which the service is
provided, except for reciprocal compensation generated by calls placed to
Internet service providers connected through the Company's network. The rights
of CLECs (such as the Company) to receive this type of compensation is the
subject of numerous regulatory and legal challenges. Until this issue is
ultimately resolved, the Company will recognize this revenue on a cash-received
basis.
The two ILECs with which the Company has interconnection agreements have
withheld payments from amounts billed by the Company under their agreements
since August 1997. Amounts withheld during the three-month periods ended March
31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
Three Month Period Ended
-----------------------------
March 31, 1998 March 31, 1999
-------------- --------------
<S> <C> <C>
Total amount billed to specified ILECs..... $ 9,322,000 $ 19,465,000
Amount withheld by specified ILECs and not
recorded as revenue in the Company's
statements of operations.................. (5,032,000) (13,401,000)
----------- ------------
Net amount recorded as revenue from the
specified ILECs........................... $ 4,290,000 $ 6,064,000
=========== ============
</TABLE>
The cumulative amount of reciprocal compensation withheld by the specified
ILECs and not recorded as revenue by the Company through March 31, 1999 is
$49,785,000.
9. Stockholders' Equity:
Ten-for-One Stock Split
On March 19, 1999, the board of directors authorized a ten-for-one split of
the Company's authorized and outstanding common stock and Preferred Stock. All
share and per share data have been restated to reflect the ten-for-one split.
Convertible Redeemable Preferred Stock
The Preferred Stock has preference over common stock in liquidation equal to
the liquidation value of $36 per share, plus accrued dividends computed at a 10
percent rate, compounded quarterly (the Preference Amount). After payment of
the Preference Amount, the Preferred Stock and the common stock share ratably
in any distribution by the Company. At March 31, 1999, $2,466,000 (or $1.973
per outstanding share of Preferred Stock) is accrued for cumulative preferred
dividends.
Stock Options
In January 1999, the Company's Board of Directors approved the terms of the
1999 Employee Stock Option Plan (the 1999 Stock Plan) pursuant to which
qualified employees and members of the Board of Directors can be issued options
to purchase the Company's common stock at the fair market value at the date of
grant. An aggregate of 2,250,000 shares of common stock have been reserved for
option grants under the 1999 Stock Plan.
F-29
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
10. Comprehensive Income:
In September 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes reporting and disclosure requirements for
comprehensive income and its components within the financial statements. There
were no items of other comprehensive income for the three month periods ended
March 31, 1998 and 1999; therefore comprehensive income is the same as net
income for both periods.
11. Legal Proceedings:
The Company is a party to the Pacific Bell and California Public Utility
Commission proceedings related to reciprocal compensation payment and other
interconnection agreement issues. See Note 8 to these condensed financial
statements and the Company's 1998 audited financial statements.
12. Segment Reporting:
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 131, "Disclosures about Segments of an Enterprise and Related Information".
As an integrated telecommunications provider, the Company has one reportable
operating segment. While the Company's chief decision-maker monitors the
revenue streams of various services, operations are managed and financial
performance is evaluated based upon the delivery of multiple services over
common networks and facilities. This allows the Company to leverage its costs
in an effort to maximize return. As a result, there are many shared expenses
generated by the various revenue streams; because management believes that any
allocation of the expenses to multiple revenue streams would be impractical and
arbitrary, management does not currently make such allocations internally. The
chief decision-maker does however, monitor revenue streams at a more detailed
level than those depicted in the Company's historical general purpose financial
statements.
Specifically, the following table presents revenues by service type:
<TABLE>
<CAPTION>
Three Month Period
Ended
-----------------------
March 31, March 31,
1998 1999
----------- -----------
<S> <C> <C>
Local services................................... $ 6,855,000 $10,662,000
Long distance services........................... 1,583,000 1,879,000
Dedicated transport services..................... 910,000 1,132,000
Product and services............................. 503,000 345,000
Other............................................ 401,000 398,000
----------- -----------
$10,252,000 $14,416,000
=========== ===========
</TABLE>
13. Subsequent Event:
On June 24, 1999, the California PUC adopted a decision in the arbitration
proceeding described in Note 11 between the Company and Pacific Bell which held
that reciprocal compensation would be payable for Internet service provider
calls under our new interconnection agreement with Pacific Bell which became
effective on June 29, 1999. However, this decision is subject to possible
appeal by Pacific Bell and does not address reciprocal compensation withheld
under the prior agreement. Management does not know at this time what action
Pacific Bell will take with respect to this decision.
F-30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$150,000,000
Pac-West Telecomm, Inc.
Exchange Offer for
13 1/2% Senior Notes due 2009
----------------
PROSPECTUS
----------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
We are incorporated under the laws of the State of California. Section 317
of the General Corporation Law of the State of California provides that a
California corporation may indemnify any person who is, or is threatened to be
made, party to any proceeding (other than an action by or in the right of the
corporation to procure a judgment in its favor) by reason of the fact that the
person is or was an agent of the corporation, against expenses, judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with the proceeding if that person acted in good faith and in a
manner the person reasonably believed to be in the best interests of the
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe the conduct of the person was unlawful. A corporation has power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person is or was an agent of the corporation, against expenses actually and
reasonably incurred by that person in connection with the defense or settlement
of the action if the person acted in good faith, in a manner the person
believed to be in the best interests of the corporation and its shareholders.
Under Article IV of our Amended and Restated Articles of Incorporation and
Article VI of our Amended and Restated By-Laws, we will indemnify each person
who was or is made a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she, is or
was a director or officer, of Pac-West or is or was serving at the request of
Pac-West as a director, officer, employee, fiduciary, or agent of another
corporation or of a partnership, joint venture, trust or other enterprise
including service with respect to employee benefit plans, whether the basis of
such action, suit or proceeding is alleged action in an official capacity as a
director, officer, employee, fiduciary or agent or in any other capacity while
serving as a director, officer, employee, fiduciary or agent, to the fullest
extent which we are empowered to do so by the General Corporation Law of the
State of California, as the same exists or may hereafter be amended against all
expense, liability and loss including attorneys' fees actually and reasonably
incurred by such person in connection with such action, suit or proceeding. We
may, by action of our board of directors, provide indemnification to our
employees and agents with the same scope and effect as the foregoing
indemnification of directors and officers. Such right of indemnification will
be a contract right and will not be exclusive of any other right which such
directors, officers or representatives may have or hereafter acquire under any
statute, our Certificate of Incorporation, our By-Laws, agreement, vote of
stockholders or disinterested directors or otherwise.
In addition, Section 204 of the General Corporation Law of the State of
California allows a corporation to eliminate the personal liability of a
director of a corporation to the corporation or to any of its stockholders for
monetary damages for a breach of fiduciary duty as a director, provided,
however, that:
(A) such a provision may not eliminate or limit the liability of directors:
(1) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law;
(2) for acts or omissions that a director believes to be contrary to
the best interests of the corporation or its shareholders or that
involve the absence of good faith on the part of the director;
(3) for any transaction from which a director derived an improper
personal benefit;
(4) for acts or omissions that show a reckless disregard for the
director's duty to the corporation or its shareholders in
circumstances in which the director was aware, or should have been
aware, in the ordinary course of performing a director's duties, of
a risk of serious injury to the corporation or its shareholders;
(5) for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to
the corporation or its shareholders,
(6) under Section 310, or (7) under Section 316;
II-1
<PAGE>
(B) no such provision will eliminate or limit the liability of a
director for any act or omission occurring prior to the date when the
provision becomes effective; and
(C) no such provision will eliminate or limit the liability of an
officer for any act or omission as an officer, notwithstanding that the
officer is also a director or that his or her actions, if negligent or
improper, have been ratified by the directors.
Article IV of our Amended and Restated Articles of Incorporation includes a
provision which eliminates directors' personal liability to the full extent
permitted under the General Corporation Law of the State of California.
We maintain a policy of directors and officers liability insurance covering
certain liabilities incurred by our directors and officers in connection with
the performance of their duties.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
The following exhibits are filed in connection with Item 601 of
Regulation S-K:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S> <C>
*2.1 Agreement of Merger, dated September 16, 1998, between PWT
Acquisition Corp. and Pac-West Telecomm, Inc., as amended.
*2.2 Agreement and Plan of Merger, dated June 30, 1998, between
PWT Acquisition Corp., Pac-West Telecomm, Inc., Bay Alarm
Company and John K. La Rue, as amended.
*3.1 Amended and Restated Articles of Incorporation of Pac-West
Telecomm, Inc.
*3.2 Amended and Restated By-Laws of Pac-West Telecomm, Inc.
*4.1 Purchase Agreement, dated January 29, 1999, between Pac-
West Telecomm, Inc. and NationsBanc Montgomery Securities
LLC, CIBC Oppenheimer Corp. and First Union Capital
Markets, as initial purchasers of the notes.
*4.2 Indenture, dated January 29, 1999, between Pac-West
Telecomm, Inc. and Norwest Bank Minnesota, N.A., pursuant
to which the Series B 13 1/2% senior notes due 2009 will
be issued.
*4.3 Form of Series B 13 1/2% senior notes due 2009 (included
in Exhibit 4.2).
*4.4 Registration Rights Agreement, dated January 29, 1999,
between Pac-West Telecomm, Inc. and NationsBanc Montgomery
Securities LLC, CIBC Oppenheimer Corp. and First Union
Capital Markets, as initial purchasers of the notes.
5.1 Opinion of Kirkland & Ellis regarding legality of
securities being registered.
*10.1 Shareholders Agreement, dated September 16, 1998, between
Pac-West, John K. La Rue, Bay Alarm Company, certain named
investors and certain named executives.
*10.2 A/B Exchange Registration Rights Agreement, dated
September 16, 1998, between Pac-West, John K. La Rue, Bay
Alarm Company, certain investors and certain executives.
*10.3 Stock Purchase Agreement, dated September 16, 1998,
between PWT Acquisition Corp. and certain named investors.
*10.4 Stock Purchase Agreement, dated September 16, 1998,
between Pac-West and certain named investors.
*10.5 Pledge and Security Agreement, dated January 29, 1999,
between Pac-West and Norwest Bank Minnesota, N.A.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S> <C>
*10.6(a) Pac-West Telecomm, Inc. 1999 Stock Incentive Plan.
*10.6(b) Pac-West Telecomm, Inc. 1999 Stock Incentive Plan form of
notice of Stock Option Award and Stock Option Award
Agreement between Pac-West and its grantees as designated.
*10.7 Employment Agreement, dated June 30, 1998, between Pac-
West and John K. La Rue.
*10.8 Executive Agreement, dated September 16, 1998, between
Pac-West and Wallace W. Griffin.
*10.9 Executive Agreement, dated October 30, 1998, between Pac-
West and Richard E. Bryson.
*10.10 Employment Agreement, dated October 21, 1998, between Pac-
West and Dennis V. Meyer.
*10.11 Employment Agreement, dated September 14, 1998, between
Pac-West and Jason R. Mills.
*10.12 Confidentiality Agreement, dated September 16, 1998,
between Pac-West and John K. La Rue.
*10.13 Confidentiality Agreement, dated September 16, 1998,
between Pac-West and Wallace W. Griffin.
*10.14 Confidentiality Agreement, dated September 16, 1998,
between Pac-West and Richard E. Bryson.
*10.15 Confidentiality Agreement, dated October 22, 1998, between
Pac-West and Dennis V. Meyer.
*10.16 Confidentiality Agreement, dated September 16, 1998,
between Pac-West and Jason R. Mills.
*10.17 Lease Agreement, dated as of June 23, 1995, as amended, by
and between Geremia Brothers and Pac-West for 4202 and
4210 Coronado Avenue, Stockton, California.
*10.18 Lease Agreement, dated as of July 3, 1996, as amended, by
and between One Wilshire Arcade Imperial, Ltd., Paramount
Group, Inc. and Pac-West for 624 South Grand Avenue, Suite
1210, Los Angeles, California.
*10.19 Balco Properties Office Lease, dated as of November 10,
1998, by and between Balco Properties and Pac-West for
Franklin Building, 1624 Franklin Street, Suites 40, 100,
Mezzanine, 201, 203, 210, 214 and 222, Oakland,
California.
*10.20 Lease Agreement, dated as of December 17, 1998, by and
between Wing Fong & Associates LLC and Pac-West for 302
and 304 East Carson Street, Las Vegas, Nevada.
*10.21 Promissory Note, dated September 16, 1998, between Pac-
West and Wallace W. Griffin, and related Executive Stock
Pledge Agreement between same parties of even date.
*10.22 Promissory Note, dated October 30, 1998, between Pac-West
and Richard Bryson, and related Executive Stock Pledge
Agreement between same parties of even date.
*10.23 Loan and Security Agreement, dated June 15, 1999, between
Pac-West, Union Bank of California, N.A., and other
lenders as designated.
10.24 Interconnection Agreement under Sections 251 and 252 of
the Telecommunications Act of 1996, dated June 29, 1999,
between Pac-West and Pacific Bell, and related Errata to
Approved Interconnection Agreement dated June 30, 1999.
10.25 Telecommunication Facility Interconnection Agreement,
dated June 21, 1996, between Pac-West and GTE California
Inc.
10.26 Master Interconnection and Resale Agreement for the State
of Nevada, dated January 15, 1999, between Pac-West and
The Nevada Division of Central Telephone Company d/b/a
Sprint of Nevada.
*12.1 Statement regarding computation of ratio.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
*24.1 Powers of Attorney (included on the signature page to the
original filing).
*25.1 Statement of Eligibility of Trustee.
*27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C>
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Tender Instructions.
</TABLE>
- --------
* Previously filed.
(b) Financial Statement Schedules.
The following financial statement schedules are included in this
registration statement:
Schedule II--Valuation and Qualifying Accounts
All other schedules for which the provision is made in the applicable
accounting regulations of the SEC are not required under the related
instructions, are inapplicable or not material, or the information called for
thereby is otherwise included in the financial statements and therefore has
been omitted.
Item 22. Undertakings.
(a) We will undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(A) To include any prospectus required by Section10(a)(3) of the
Securities Act of 1933;
(B) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(C) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (1)(A) and (1)(B) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
SEC by us pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment will be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time will be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) For purposes of determining any liability under the Securities Act of
1933, each filing of our annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement will be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Pac-West
pursuant to the foregoing provisions, or otherwise, we have been advised that
in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by a director, officer or
controlling person of Pac-West in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the
II-4
<PAGE>
question whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(d) We will respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
(e) We will supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it
became effective.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, Pac-West
Telecomm, Inc. has duly caused this amendment no. 2 to its registration
statement to be signed on its behalf by the undersigned, who is duly authorized
to do so, in the City of Stockton, California, as of July 29, 1999.
PAC-WEST TELECOMM, INC.
/s/ Wallace W. Griffin
By: _________________________________
Wallace W. Griffin
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
amendment no. 2 to its registration statement has been signed by the following
persons in the capacities indicated as of July 29, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Wallace W. Griffin President, Chief Executive Officer and
___________________________________________ Director
Wallace W. Griffin (Principal Executive Officer)
/s/ Richard E. Bryson Chief Financial Officer (Principal
___________________________________________ Financial Officer)
Richard E. Bryson
/s/ Dennis V. Meyer Vice President--Finance and Treasurer
___________________________________________ (Principal Accounting Officer)
Dennis V. Meyer
Jerry L. Johnson* Chairman of the Board of Directors
___________________________________________
Jerry L. Johnson
John K. La Rue* Director and Executive Vice President--
___________________________________________ Technology and Network Operations
John K. La Rue
David G. Chandler* Director
___________________________________________
David G. Chandler
Mark J. DeNino* Director
___________________________________________
Mark J. DeNino
Samuel A. Plum* Director
___________________________________________
Samuel A. Plum
Director
___________________________________________
Dr. Jagdlish N. Sheth
Bruce A. Westphal* Director
___________________________________________
Bruce A. Westphal
</TABLE>
/s/ Richard E. Bryson
*By _________________________________
Richard E. Bryson
Attorney-in-fact
II-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
We have audited in accordance with generally accepted auditing standards,
the financial statements of Pac-West Telecomm, Inc. included in this
registration statement and have issued our report thereon dated February 10,
1999 except with respect to Note 12 for which the date is March 19, 1999. Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying Schedule II--Valuation and
Qualifying Accounts is the responsibility of the company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Francisco, California,
February 10, 1999
S-1
<PAGE>
PAC-WEST TELECOMM, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Balance Balance
at Charged to Charged to at End
Beginning Costs and Other of
Description of Period Expenses Accounts Deductions Period
----------- --------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts.................. $300,000 $100,000 -- -- $400,000
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Balance
Balance at Charged to Charged to at End
Beginning Costs and Other of
Description of Period Expenses Accounts Deductions Period
----------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts................. $84,000 $216,000 -- -- $300,000
</TABLE>
FOR THE THREE-MONTH PERIOD FROM
DATE OF COMMENCEMENT (OCTOBER 1, 1996) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts............... $78,000 $6,000 -- -- $84,000
</TABLE>
S-2
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S> <C>
*2.1 Agreement of Merger, dated September 16, 1998, between PWT
Acquisition Corp. and Pac-West Telecomm, Inc., as amended.
*2.2 Agreement and Plan of Merger, dated June 30, 1998, between
PWT Acquisition Corp., Pac-West Telecomm, Inc., Bay Alarm
Company and John K. La Rue, as amended.
*3.1 Amended and Restated Articles of Incorporation of Pac-West
Telecomm, Inc.
*3.2 Amended and Restated By-Laws of Pac-West Telecomm, Inc.
*4.1 Purchase Agreement, dated January 29, 1999, between Pac-
West Telecomm, Inc. and NationsBanc Montgomery Securities
LLC, CIBC Oppenheimer Corp. and First Union Capital
Markets, as initial purchasers of the notes.
*4.2 Indenture, dated January 29, 1999, between Pac-West
Telecomm, Inc. and Norwest Bank Minnesota, N.A., pursuant
to which the Series B 13 1/2% senior notes due 2009 will
be issued.
*4.3 Form of Series B 13 1/2% senior notes due 2009 (included
in Exhibit 4.2).
*4.4 Registration Rights Agreement, dated January 29, 1999,
between Pac-West Telecomm, Inc. and NationsBanc Montgomery
Securities LLC, CIBC Oppenheimer Corp. and First Union
Capital Markets, as initial purchasers of the notes.
5.1 Opinion of Kirkland & Ellis regarding legality of
securities being registered.
*10.1 Shareholders Agreement, dated September 16, 1998, between
Pac-West, John K. La Rue, Bay Alarm Company, certain named
investors and certain named executives.
*10.2 A/B Exchange Registration Rights Agreement, dated
September 16, 1998, between Pac-West, John K. La Rue, Bay
Alarm Company, certain investors and certain executives.
*10.3 Stock Purchase Agreement, dated September 16, 1998,
between PWT Acquisition Corp. and certain named investors.
*10.4 Stock Purchase Agreement, dated September 16, 1998,
between Pac-West and certain named investors.
*10.5 Pledge and Security Agreement, dated January 29, 1999,
between Pac-West and Norwest Bank Minnesota, N.A.
*10.6(a) Pac-West Telecomm, Inc. 1999 Stock Incentive Plan.
*10.6(b) Pac-West Telecomm, Inc. 1999 Stock Incentive Plan form of
Notice of Stock Option Award and Stock Option Award
Agreement between Pac-West and its grantees as designated.
*10.7 Employment Agreement, dated June 30, 1998, between Pac-
West and John K. La Rue.
*10.8 Executive Agreement, dated September 16, 1998, between
Pac-West and Wallace W. Griffin.
*10.9 Executive Agreement, dated October 30, 1998, between Pac-
West and Richard E. Bryson.
*10.10 Employment Agreement, dated October 21, 1998, between Pac-
West and Dennis V. Meyer.
*10.11 Employment Agreement, dated September 14, 1998, between
Pac-West and Jason R. Mills.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S> <C>
*10.12 Confidentiality Agreement, dated September 16, 1998,
between Pac-West and John K. La Rue.
*10.13 Confidentiality Agreement, dated September 16, 1998,
between Pac-West and Wallace W. Griffin.
*10.14 Confidentiality Agreement, dated September 16, 1998,
between Pac-West and Richard E. Bryson.
*10.15 Confidentiality Agreement, dated October 22, 1998, between
Pac-West and Dennis V. Meyer.
*10.16 Confidentiality Agreement, dated September 16, 1998,
between Pac-West and Jason R. Mills.
*10.17 Lease Agreement, dated as of June 23, 1995, as amended, by
and between Geremia Brothers and Pac-West for 4202 and
4210 Coronado Avenue, Stockton, California.
*10.18 Lease Agreement, dated as of July 3, 1996, as amended, by
and between One Wilshire Arcade Imperial, Ltd., Paramount
Group, Inc. and Pac-West for 624 South Grand Avenue, Suite
1210, Los Angeles, California.
*10.19 Balco Properties Office Lease, dated as of November 10,
1998, by and between Balco Properties and Pac-West for
Franklin Building, 1624 Franklin Street, Suites 40, 100,
Mezzanine, 201, 203, 210, 214 and 222, Oakland,
California.
*10.20 Lease Agreement, dated as of December 17, 1998, by and
between Wing Fong & Associates LLC and Pac-West for 302
and 304 East Carson Street, Las Vegas, Nevada.
*10.21 Promissory Note, dated September 16, 1998, between Pac-
West and Wallace W. Griffin, and related Executive Stock
Pledge Agreement between same parties of even date.
*10.22 Promissory Note, dated October 30, 1998, between Pac-West
and Richard Bryson, and related Executive Stock Pledge
Agreement between same parties of even date.
*10.23 Loan and Security Agreement, dated June 15, 1999, between
Pac-West, Union Bank of California, N.A., and other
lenders as designated.
10.24 Interconnection Agreement under Sections 251 and 252 of
the Telecommunications Act of 1996, dated June 29, 1999,
between Pac-West and Pacific Bell, and related Errata to
Approved Interconnection Agreement dated June 30, 1999.
10.25 Telecommunication Facility Interconnection Agreement,
dated June 21, 1996, between Pac-West and GTE California
Inc.
10.26 Master Interconnection and Resale Agreement for the State
of Nevada, dated January 15, 1999, between Pac-West and
The Nevada Division of Central Telephone Company d/b/a
Sprint of Nevada.
*12.1 Statement regarding computation of ratio.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
*24.1 Powers of Attorney (included on the signature page to the
original filing).
*25.1 Statement of Eligibility of Trustee.
*27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Tender Instructions.
</TABLE>
- --------
* Previously filed.
<PAGE>
Exhibit 5.1
[Kirkland & Ellis Letterhead]
July 28, 1999
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, California 95204
Re: Series B 13 1/2% Senior Notes due 2009
---------------------------------------
Ladies and Gentlemen:
We are acting as special counsel to Pac-West Telecomm, Inc., a California
corporation (the "Company"), in connection with the proposed registration by the
Company of up to $150,000,000 in aggregate principal amount of the Company's
Series B 13 1/2% Senior Notes due 2009 (the "New Notes"), pursuant to a
Registration Statement on Form S-4, filed with the Securities and Exchange
Commission (the "Commission") on April 21, 1999 under the Securities Act of
1933, as amended (the "Securities Act") (such Registration Statement, as amended
or supplemented, is hereinafter referred to as the "Registration Statement"),
for the purpose of effecting an exchange offer (the "Exchange Offer") for the
Company's 13 1/2% Senior Notes due 2009 (the "Old Notes"). The New Notes are to
be issued pursuant to an Indenture (the "Indenture"), dated as of January 29,
1999, between the Company and Norwest Bank Minnesota, as Trustee.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (1) the corporate and organizational documents of the
Company, (2) minutes and records of the corporate proceedings of the Company
with respect to the issuance of the New Notes, and (3) the Registration
Statement and exhibits thereto.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of the
signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto other than the Company and the due authorization, execution and
delivery of all documents by the parties thereto other than the Company. As to
any facts material to the opinions expressed herein which we have not
independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Company and others.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that:
<PAGE>
(1) The Company is a corporation existing and in good standing under the
General Corporation Law of the State of California.
(2) The sale and issuance of the New Notes has been validly authorized by
the Company.
(3) When, as and if (a) the Registration Statement shall have become
effective pursuant to the provisions of the Securities Act, (b) the
Indentures shall have been qualified pursuant to the provisions of the
Trust Indenture Act of 1939, as amended, (c) the Old Notes shall
have been validly tendered to the Company, (d) the New Notes shall
have been issued in the form and containing the terms described in the
Registration Statement, the Indentures, the resolutions of the
Company's Board of Directors (or authorized committee thereof)
authorizing the foregoing and any legally required consents,
approvals, authorizations and other order of the Commission and any
other regulatory authorities to be obtained, and (e) the New Notes
have been authenticated by the Trustee, the New Notes when issued
pursuant to the Exchange Offer will be legally issued, fully paid and
nonassessable and will constitute valid and binding obligations of the
Company.
Our opinions expressed above are subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (1)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (2) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), and (3)
any laws except the laws of the State of New York and on our review of the
applicable provisions of the California Business Corporation Act as such statute
relates to the Company set forth therein. For purposes of the opinion in
paragraph 1, we have relied exclusively upon certificates issued by the
California Secretary of State and such opinions are not intended to provide any
conclusion or assurance beyond that conveyed by such certificates.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Legal Matters" in the Registration Statement. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of the rules and regulations of
the Commission.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the issuance of the New Notes.
2
<PAGE>
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the State of New York or the California Business Corporation Act be
changed by legislative action, judicial decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purposes.
Yours very truly,
/s/ Kirkland & Ellis
KIRKLAND & ELLIS
3
<PAGE>
GENERAL TERMS AND CONDITIONS
PACIFIC/PAC-WEST TELECOM
022499
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252
OF THE TELECOMMUNICATIONS ACT OF 1996
by and between
PACIFIC BELL
AND
PAC-WEST TELECOMM
<PAGE>
GENERAL TERMS AND CONDITIONS
Page i of v
PACIFIC/PAC-WEST TELECOM
022499
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS.......................................................................... 1
2. INTERPRETATION AND CONSTRUCTION...................................................... 7
3. IMPLEMENTATION SCHEDULE AND INTERCONNECTION ACTIVATION DATES......................... 7
4. INTERCONNECTION PURSUANT TO SEC 251(c)(2)(A),(B),(C); 47 CFR (S)51.305(a)(1)......... 7
4.1 Scope............................................................................ 7
4.2 Interconnection Coverage (S) 251(c)(2)(B) and (C), 47 CFR (S)51.305(a)(2)........ 8
4.3 Methods for Interconnection...................................................... 8
5. TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE SERVICE TRAFFIC PURSUANT TO
SECTION 251(c)(2)(D); 252(d)(1) AND (2); 47 CFR (S) 51.305(a)(5)........................ 9
5.1 Scope of Traffic................................................................. 9
5.2 Responsibilities of the Parties.................................................. 10
5.3 Reciprocal Compensation for Termination of Local Traffic......................... 12
5.3.2 Applicability of Rates...................................................... 12
5.3.3 Rate Elements............................................................... 12
5.3.4 Local Traffic Interconnection Rates......................................... 13
5.4 Reciprocal Compensation for Transit Traffic...................................... 13
5.5 Reciprocal Compensation for Termination of IntraLATA Interexchange Traffic....... 14
5.6 Compensation for Origination and Termination of Switched Access Service
Traffic to or from an IXC (Meet-Point Billing ("MPB") Arrangements).............. 14
</TABLE>
<PAGE>
GENERAL TERMS AND CONDITIONS
Page ii of v
PACIFIC/PAC-WEST TELECOM
022499
<TABLE>
<S> <C>
5.7 Maintenance of Service.............................................................. 16
6. TRANSMISSION AND ROUTING OF SWITCHED ACCESS TRAFFIC PURSUANT TO 251(c)(2).............. 17
6.1 Scope of Traffic.................................................................... 17
7. TRANSPORT AND TERMINATION OF OTHER TYPES OF TRAFFIC.................................... 17
7.1 Information Services Traffic........................................................ 17
8. SIGNALING.............................................................................. 17
9. NUMBERING.............................................................................. 18
9.9 NXX Migration....................................................................... 19
10. RESALE -- SECTIONS 251(b)(1); 251(c)(4); 252(d)(3); and 271(c)(2)(B)(xiv).............. 19
10.1 Availability of PACIFIC Retail Telecommunications Services for Resale............... 19
10.2 Availability of CLEC Retail Telecommunication Services for Resale................... 19
11. UNBUNDLED NETWORK ELEMENTS -- SECTIONS 251(c)(3), 271(c)(2)(B) (ii),(iv),(v),(vi),(x).. 19
12. NOTICE OF CHANGES -- SECTION 251(c)(5)................................................. 19
13. COLLOCATION -- SECTION 251(c)(6)....................................................... 20
14. NUMBER PORTABILITY -- SECTIONS 251(b)(2) and 271(c)(2)(B)(xi).......................... 20
15. DIALING PARTY - SECTION 251(b)(3); 271(c)(2)(B)(xii); and 271(e)(2).................... 20
16. ACCESS TO RIGHTS-OF-WAY -- SECTION 251(b)(4) and 271(c)(2)(B)(iii)..................... 20
17. DATABASE ACCESS -- SECTION 271(c)(2)(B)(x)............................................ 21
18. INTERCEPT REFERRAL ANNOUNCEMENTS....................................................... 21
19. COORDINATED REPAIR CALLS............................................................... 21
</TABLE>
<PAGE>
GENERAL TERMS AND CONDITIONS
Page iii of v
PACIFIC/PAC-WEST TELECOM
022499
<TABLE>
<S> <C>
20. OTHER SERVICES 271(c)(b)(2)(vii) and 271(c)(2)(b)(viii)................................... 21
20.1 White Pages............................................................................ 21
20.2 911 and E911 Services.................................................................. 22
20.3 Directory Assistance ("DA")............................................................ 22
20.4 Operator Services...................................................................... 22
20.5 Hosting................................................................................ 22
20.6 Signaling System 7 Interconnection..................................................... 22
21. GENERAL RESPONSIBILITIES OF THE PARTIES................................................... 22
22. EFFECTIVE DATE, TERM, AND TERMINATION..................................................... 24
23. DISCLAIMER OF REPRESENTATIONS AND WARRANTIES.............................................. 25
24. CHANGES IN END USER LOCAL EXCHANGE SERVICE PROVIDER SELECTION............................. 25
25. SEVERABILITY.............................................................................. 26
26. INTELLECTUAL PROPERTY..................................................................... 26
27. INDEMNIFICATION........................................................................... 26
28. LIMITATION OF LIABILITY................................................................... 29
29. REGULATORY APPROVAL....................................................................... 30
30. MISCELLANEOUS............................................................................. 30
30.1 Authorization.......................................................................... 30
30.2 Compliance and Certification........................................................... 31
30.3 Law Enforcement........................................................................ 31
</TABLE>
<PAGE>
GENERAL TERMS AND CONDITIONS
Page iv of v
PACIFIC/PAC-WEST TELECOM
022499
<TABLE>
<S> <C>
(a) Intercept Devices:................................................................. 31
(b) Subpoenas:......................................................................... 31
(c) Emergencies:....................................................................... 31
30.4 Independent Contractor................................................................. 32
30.5 Force Majeure.......................................................................... 32
30.6 Confidentiality........................................................................ 32
30.7 Governing Law.......................................................................... 34
30.8 Taxes.................................................................................. 35
30.9 Non-Assignment......................................................................... 36
30.10 Non-Waiver............................................................................. 37
30.11 Audits................................................................................. 37
30.12 Disputed Amounts....................................................................... 37
30.13 Dispute Resolution..................................................................... 38
30.14 Notices................................................................................ 39
30.15 Publicity and Use of Trademarks or Service Marks....................................... 40
30.16 Section 252(i) Obligations............................................................. 40
30.17 Joint Work Product..................................................................... 41
30.18 Intervening Law........................................................................ 41
30.19 No Third Party Beneficiaries; Disclaimer of Agency..................................... 42
30.20 No License............................................................................. 42
30.21 Survival............................................................................... 42
</TABLE>
<PAGE>
GENERAL TERMS AND CONDITIONS
Page v of v
PACIFIC/PAC-WEST TELECOM
022499
<TABLE>
<S> <C>
30.22 Scope of Agreement............................................... 42
30.23 Entire Agreement................................................. 43
</TABLE>
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 1 OF 48
PACIFIC/PAC-WEST TELECOM
022499
INTERCONNECTION AGREEMENT UNDER SECTIONS 251 AND 252 OF THE
TELECOMMUNICATIONS ACT OF 1996
This Interconnection Agreement under Sections 251 and 252 of the
Telecommunications Act of 1996 ("Agreement") is by and between Pacific Bell, a
California Corporation ("PACIFIC"), and PAC-WEST TELECOM, INC, ("CLEC") a
California Corporation doing business at 4202 Coronado Avenue, Stockton, CA.
WHEREAS, the Parties want to interconnect their networks at mutually agreed
upon points of interconnection to provide, directly or indirectly, Telephone
Exchange Services and Exchange Access to residential and business end users
predominantly over their respective telephone exchange service facilities in
California; and
WHEREAS, the Parties are entering into this Agreement to set forth the
respective obligations of the Parties and the terms and conditions under which
the Parties will interconnect their networks and provide other services as
required by the Telecommunications Act of 1996 ("the Act") and additional
services as set forth herein; and
WHEREAS, for purposes of this Agreement, the Parties intend to operate
where PACIFIC is the incumbent local exchange carrier and CLEC, a competitive
local exchange carrier, is certified by the California Public Utilities
Commission, as required.
NOW, THEREFORE, CLEC and PACIFIC hereby agree as follows:
1. DEFINITIONS
-----------
1.1 "Act" means the Communications Act of 1934 [47 U.S.C. 153(R)], as
amended by the Telecommunications Act of 1996.
1.2 "Affiliate" is as defined in the Act.
1.3 "AMA" means the Automated Message Accounting structure inherent in
switch technology that initially records telecommunication message
information. AMA format is contained in the Automated Message
Accounting document published by Bellcore as GR-1100-CORE which
defines the industry standard for message recording.
1.4 "Automatic Number Identification" or "ANI" is a Feature Group D or a
CAMA signaling parameter that forwards the telephone ("CAMA") or
billing number ("FG-D") of the calling party.
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 2 OF 48
PACIFIC/PAC-WEST TELECOM
022499
1.5 "Busy Line Verification Interrupt" or "BLVI" means a service in which
an End User requests an operator to confirm the busy status of a line
and requests an interruption of the call.
1.6 "Calling Party Number" or "CPN" is a Signaling System 7 ("SS7")
parameter whereby the ten (10) digit number of the calling party is
forwarded from the End Office.
1.7 "Central Office Switch" means a single switching system within the
public switched telecommunications network, including the following:
(a) "End Office Switches" which are Class 5 switches where End User
Exchange Services are directly connected and offered; and
(b) "Tandem Office Switches" or "Access Tandems" which are switches
used to connect and switch calls over interoffice trunks between
End Office Switches.
Central Offices may be employed as combination End Office/Tandem
Office switches.
1.8 "CLASS Features" mean certain CCS-based features available to End
Users including, but not limited to: Automatic Call Back; Call Trace;
Distinctive Ringing/Call Waiting; Selective Call Forward; and
Selective Call Rejection.
1.9 "Collocation" is defined in Appendix PHYSICAL COLLOCATION. Generally,
however, "collocation" refers to an arrangement whereby one Party's
(the "Collocating Party") facilities are terminated in its equipment
necessary for Interconnection or for access to Network Elements on an
unbundled basis which has been installed and maintained at the
premises of a second Party (the "Housing Party"). Collocation may be
"physical" or "virtual." "Physical Collocation" is defined in Appendix
PHYSICAL COLLOCATION and generally refers to the Collocating Party
installing and maintaining its own equipment in the Housing Party's
premises. "Virtual Collocation is defined in Appendix NIM and
generally refers to the "Housing Party" owning, installing and
maintaining the collocated equipment in the Housing Party's premises.
1.10 "Commission" or "CPUC" means the California Public Utilities
Commission.
1.11 "Common Channel Signaling" or "CCS" is a special network, fully
separate from the transmission path of the public switched network,
that digitally transmits call
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 3 OF 48
PACIFIC/PAC-WEST TELECOM
022499
set-up and network control data. Unless otherwise agreed by the
Parties, the CCS protocol used by the Parties shall be SS7.
1.12 "Competitive Local Exchange Carriers - "CLEC" is as defined in the
Act.
1.13 "Control Office" means an exchange carrier center or office
designated as its company's single point of contact for the
provisioning and maintenance of its portion of interconnection
arrangements.
1.14 "Dialing Parity" is as defined in the Act. As used in this
Agreement, Dialing Parity refers to both Local Dialing Parity and Toll
Dialing Parity.
1.15 "Digital Signal Level" means one of several transmission rates in the
time-division multiplex hierarchy.
1.16 "Digital Signal Level 0" or "DS-0" means the 64 Kbps zero-level
signal in the time-division multiplex hierarchy.
1.17 "Digital Signal Level 1" or "DS-1" means the 1.544 Mbps first-level
signal in the time-division multiplex hierarchy. In the time-division
multiplexing hierarchy of the telephone network, DS-1 is the initial
level of multiplexing.
1.18 "Digital Signal Level 3" or "DS-3" means the 44.736 Mbps third-level
in the time-division multiplex hierarchy. In the time-division
multiplexing hierarchy of the telephone network, DS-3 is defined as
the third level of multiplexing.
1.19 "End User" means a third-party residence or business that subscribes
to Telecommunications Services provided by either of the Parties or by
another telecommunications service provider.
1.20 "Exchange Access" see Switched Access.
1.21 "Exchange Message Record" or "EMR" means the standard used for
exchange of Telecommunications message information among
Telecommunications Carriers for billable, non-billable, sample,
settlement and study data. EMR format is contained in Bellcore
Practice BR-010-200-010 CRIS Exchange Message Record.
1.22 "Fiber Meet" means an Interconnection architecture method whereby the
Parties physically interconnect their networks via an optical fiber
interface (as opposed to an electrical interface) at a mutually
agreed-upon location.
1.23 "Interconnection" is as defined in the Act.
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 4 OF 48
PACIFIC/PAC-WEST TELECOM
022499
1.24 "Interconnection Activation Date" is the date that the construction
of the joint facility Interconnection arrangement has been completed,
trunk groups have been established, and joint trunk testing is
completed.
1.25 "Interexchange Carrier" or "IXC" (also referred to as "Switched
Access Customer") means a carrier that provides, directly or
indirectly, interLATA or intraLATA Telephone Toll Services. For
purposes of Section 6 of this Agreement, the term "IXC" includes any
entity which purchases FGB or FGD Switched Access Service in order to
originate or terminate traffic to/from CLEC's End Users.
1.26 "IntraLATA Toll Traffic" means those intraLATA station calls that are
not defined as Local Traffic in this Agreement.
1.27 "Line Side" refers to End Office switch connections that have been
programmed to treat the circuit as a local line connected to a
terminating station (e.g., an ordinary subscriber's telephone station
set, a PBX, answering machine, facsimile machine or computer). Line
Side connections offer only those transmission and signal features
appropriate for a connection between an End Office and such
terminating station.
1.28 "Local Exchange Routing Guide" or "LERG" means a Bellcore Reference
Document used by LECs and IXCs to identify NPA-NXX routing and homing
information as well as Network Element and equipment designations.
1.29 "Local Exchange Traffic" is as defined in the Act.
1.30 "Local Interconnection Trunks/Trunk Groups" are used for the
termination of Local Exchange Traffic, using Bellcore Technical
Reference GR-317-CORE ("GR-317").
1.31 "Local Calls" are as defined by the Commission. Local Calls
currently include all 0-12 mile calls based on the rate centers of the
originating and terminating NPA-NXXs of the callers, irrespective of
whether the routing point of an NPA-NXX is different than the rate
center of that NPA-NXX (these include but are not limited to ZUM Zone
1 and ZUM Zone 2 calls) and, where established in incumbent LEC
tariffs, ZUM Zone 3 and Extended Area Service (EAS) calls.
1.32 "Losses" means any and all losses, costs (including court costs),
claims, damages (including fines, penalties, and criminal or civil
judgments and settlements), injuries, liabilities and expenses
(including attorneys' fees).
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 5 OF 48
PACIFIC/PAC-WEST TELECOM
022499
1.33 "MECAB" refers to the Multiple Exchange Carrier Access Billing
("MECAB") document prepared by the Billing Committee of the Ordering
and Billing Forum ("OBF"), which functions under the auspices of the
Carrier Liaison Committee ("CLC") of the Alliance for
Telecommunications Industry Solutions ("ATIS"). The MECAB document,
published by Bellcore as Special Report SR-BDS-000983, contains the
recommended guidelines for the billing of access services provided to
an IXC by two or more LECs, or by one LEC in two or more states within
a single LATA.
1.34 "MECOD" refers to the Multiple Exchange Carriers Ordering and Design
"MECOD") Guidelines for Access Services - Industry Support Interface,
a document developed by the Ordering/Provisioning Committee of the
Ordering and Billing Forum ("OBF"), which functions under the auspices
of the Carrier Liaison Committee ("CLC") of the Alliance for
Telecommunications Industry Solutions ("ATIS"). The MECOD document,
published by Bellcore as Special Report SR STS-002643, establishes
methods for processing orders for access service which is to be
provided to an IXC by two or more telecommunications providers.
1.35 "Meet-Point Billing" or "MPB" refers to a billing arrangement whereby
two or more Telecommunications Carriers jointly provide for Switched
Access Service to an IXC, with each LEC receiving an appropriate share
of its switched access revenues as defined by its effective access
tariffs.
1.36 "Meet Point Trunks/Trunk Groups" ("MPTGs") are used for the joint
provision of Switched Access services, utilizing Bellcore Technical
References GR-394-CORE ("GR-394") and GR-317-CORE ("GR-317"). MPTGs
are those between a local End Office and an Access Tandem as described
in FSD 20-24-0000 and 20-24-0300.
1.37 "Mid-Span Meet" means an interconnection between two LECs whereby
each provides its own cable and equipment up to the meet point of the
cable facilities. The meet point is the demarcation establishing
ownership of and responsibility for each LEC's portion of the
transmission facility.
1.38 "Network Element Bona Fide Request" or "BFR" means the process
described in Appendix UNE that is attached hereto and incorporated
herein that prescribes the terms and conditions relating to a Party's
request that the other Party provide a Network Element.
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 6 OF 48
PACIFIC/PAC-WEST TELECOM
022499
1.39 "Originating Line Information ("OLI")" is an SS7 Feature Group D
signaling parameter which refers to the number transmitted through the
network identifying the billing number of the calling party.
1.40 "Point of Interconnection" or "POI" means a physical location at
which the Parties' networks meet for the purpose of establishing
interconnection. POIs include a number of different technologies and
technical interfaces based on the Parties' mutual agreement.
1.41 "Rating Point" means the Vertical and Horizontal ("V&H") coordinates
associated with a particular telephone number for rating purposes.
1.42 "Routing Point" means a location which a LEC has designated on its
own network as the homing or routing point for traffic inbound to
Exchange Service provided by the LEC which bears a certain NPA-NXX
designation. The Routing Point is employed to calculate mileage
measurements for the distance-sensitive transport element charges of
Switched Access services. The Routing Point need not be the same as
the Rating Point, nor must it be located within the Rate Center area,
but must be in the same LATA as the NPA-NXX.
1.43 "Switched Access" service means an offering of access to services or
facilities for the purpose of the origination or termination of
traffic from or to Exchange Service customers in a given area pursuant
to a Switched Access tariff. Switched Access Services includes:
Feature Group A ("FGA)", Feature Group B ("FGB"), Feature Group C
("FGC"), Feature Group D ("FGD"), Toll Free Service, 700 and 900
access. Switched Access service does not include traffic exchanged
between LECs for the purpose of local exchange interconnection.
1.44 "Synchronous Optical Network" or "SONET" means an optical interface
standard that allows inter-networking of transmission products from
multiple vendors. The base rate is 51.84 Mbps ("OC-1/STS-1") and
higher rates are direct multiples of the base rate, up to 13.22 Gbps.
1.45 "Telephone Exchange Service" is as defined in the Act.
1.46 "Toll Free Service" means service provided with any dialing sequence
that invokes toll-free, i.e., 800-like, service processing. Toll Free
Service includes calls to the Toll Free Service 800/888 NPA SAC codes
and excludes services using standard NPA-NXX dialing patterns,
irrespective of whether the routing point of the NPA-NXX is in a
different rate center than the rating point of that NPA-NXX.
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 7 OF 48
PACIFIC/PAC-WEST TELECOM
022499
1.47 "Trunk-Side" refers to a Central Office Switch connection that is
capable of, and has been programmed to treat the circuit as connecting
to another switching entity, for example, another Central Office
switch. Trunk-Side connections offer those transmission and signaling
features appropriate for the connection of switching entities and
cannot be used for the direct connection of ordinary telephone station
sets.
1.48 "Wire Center" means an occupied structure or portion thereof in which
a Party has the exclusive right of occupancy and which serves as a
Routing Point for Switched Access Service.
2. INTERPRETATION AND CONSTRUCTION
-------------------------------
[Section Deleted]
3. IMPLEMENTATION SCHEDULE AND INTERCONNECTION ACTIVATION DATES
------------------------------------------------------------
Subject to the terms and conditions of this Agreement, Interconnection of
the Parties' facilities and equipment pursuant to Sections 4, 5, and 6 for
the transmission and routing of Telephone Exchange Service Traffic and
Exchange Access Traffic shall be established for each Exchange Area on
Appendix DCO attached hereto and incorporated by reference. Appendix DCO
may be revised and supplemented from time to time upon the mutual agreement
of the Parties to reflect the Interconnection of additional Exchange Areas
by modifying or updating Appendix DCO.
4. INTERCONNECTION PURSUANT TO SECTION 251(C)(2)(A),(B),(C); 47 CFR (S)
51.305(A)(1)
4.1 Scope
-----
This Section refers to the physical architecture for Interconnection
of the Parties' facilities and equipment for the transmission and
routing of Telephone Exchange Service traffic and Exchange Access
traffic pursuant to Section 251(c)(2) of the Act. Appendix ITR
(Interconnection Trunking Requirements), attached hereto and
incorporated by reference prescribes the specific trunk groups (and
traffic routing parameters). Appendixes NIM and PHYSICAL COLLOCATION
describe the facilities for the transmission and routing of traffic as
described in Appendix ITR.
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 8 OF 48
PACIFIC/PAC-WEST TELECOM
022499
4.2 Interconnection Coverage (S) 251(c)(2)(B) and (C), 47 CFR (S)
-------------------------------------------------------------
51.305(a)(2)
------------
The Parties will provide for interconnection of their networks that is
at least equal in quality to that provided by PACIFIC to itself or to
any subsidiary, affiliate, or any other party to which PACIFIC
provides interconnection and shall interconnect at any technically
feasible point in their network as defined in Appendix NIM and
COLLOCATION, attached hereto and incorporated by reference. The
Parties will establish Local Interconnection Trunks to exchange Local
and IntraLATA Toll traffic. All traffic exchanged over Local
Interconnection Trunk Groups will be treated as CLEC traffic and
subject to the terms and conditions of this Agreement. Neither Party
shall terminate Switched Access traffic over Local Interconnection
Trunks. Separate two-way Meet Point trunks will be established for the
joint provisioning of Switched Access traffic. Local Interconnection
will be provided via two-way trunks unless both Parties agree to
implement one-way trunks on a case-by-case basis. In depth
description is included in Appendix ITR.
4.2.1 The Parties shall interconnect their facilities as follows:
----------------------------------------------------------
(a) Each Party will establish a Local Interconnection Trunk
Group with each Access Tandem in the LATA(s) in which it
originates or terminates Local and/or Toll traffic with
the other Party. Parties may not route Local
Interconnection traffic to an Access Tandem destined for
an NXX that subtends another tandem. The Parties agree
that direct trunking to an End Office from either Party's
End Office or Access Tandem is permitted under the terms
of this section.
(b) In addition to the tandem interconnection described above,
either Party may establish End Office-to-End Office or End
Office-to-tandem or tandem-to-tandem trunk groups. In the
case of host-remote End Offices, such interconnection
shall occur at the location of the host or remote, at the
option of the Party deploying the host-remote End Office.
4.3 Methods for Interconnection
---------------------------
Methods for Interconnection and Physical Architecture shall be as
defined in Appendix NIM.
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 9 OF 48
PACIFIC/PAC-WEST TELECOM
022499
5. TRANSMISSION AND ROUTING OF TELEPHONE EXCHANGE SERVICE TRAFFIC PURSUANT TO
--------------------------------------------------------------------------
SECTION 251(c)(2)(D); 252(d)(1) AND (2); 47 CFR (S)51.305(a)(5)
---------------------------------------------------------------
5.1 Scope of Traffic
----------------
This Section 5 prescribes traffic routing parameters for Local
Interconnection Trunk Group(s) the Parties shall establish over the
Interconnections specified in Section 4.
5.1.1 Either Party may opt at any time to terminate, i.e., overflow,
to the other Party some or all Local Exchange Traffic and
intraLATA Toll traffic originating on its network, together
with Switched Access traffic, via Feature Group D or Feature
Group B Switched Access Services. Either Party may otherwise
purchase these Switched Access Services from the other Party
subject to the rates, terms and conditions specified in its
standard intrastate access tariffs, including any usage-
sensitive rates for the Local Exchange or intraLATA Toll
traffic terminated over the Switched Access service.
5.1.2 Each Party shall deliver to the other Party over the Local
Interconnection Trunk Group(s) only such traffic which is
destined for those publicly dialable NPA-NXX codes served by
End Offices that directly subtend the Access Tandem or to those
Wireless Service Providers that directly subtend the Access
Tandem.
5.1.3 Unless otherwise agreed to, each Party shall deliver all
traffic destined to terminate at either Party's End Office or
tandem in accordance with the serving arrangements defined in
the LERG Common Language Location Identifier (CLLI) Code.
5.1.4 Where the Parties deliver over the Local Interconnection Trunk
Group(s) miscellaneous calls (e.g., time, weather, NPA-555,
Mass Calling Codes) destined for each other, they shall deliver
such traffic in accordance with the serving arrangements
defined in the LERG Common Language Location Identifier Code.
5.1.5 N11 codes (e.g., 611, 811, & 911) shall not be sent between
CLEC's and PACIFIC's network over the Local Interconnection
Trunk Group(s).
5.1.6 For purposes of compensation under this Agreement, the traffic
traded between CLEC and PACIFIC will be classified as either
Local Traffic, Transit Traffic, IntraLATA Interexchange
Traffic, or interLATA Interexchange Traffic. The Parties agree
that, notwithstanding the
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 10 OF 48
PACIFIC/PAC-WEST TELECOM
022499
classification of traffic under this Agreement, either Party is
free to define its own "local" calling area(s) for purposes of
its provision of Telecommunications Services to its End Users.
5.1.7 All Local Calls, including Local Calls originated by or
terminated to any internet service provider, are subject to
payment of local reciprocal compensation under the terms of
this Agreement.
5.1.8 Calls originated by one Party's End User and terminated to the
other Party's End User will be classified as "Local Traffic"
for purposes of intercompany compensation, if they are "Local
Calls" as defined by this Agreement (Section 1.31).
5.1.9 PACIFIC shall deliver all traffic destined to terminate at
CLEC's End Office in accordance with the serving arrangements
defined in the Common Language Location Identifier Code, except
PACIFIC will not deliver calls destined to CLEC End Office(s)
via another LEC's or CLEC's tandem.
5.1.10 PACIFIC shall terminate traffic from third party LECs, CLECs,
or Wireless Service Providers delivered to PACIFIC's network
through CLEC's tandem. Prior to the routing of such traffic,
the Parties agree to negotiate the issues of network capacity
and forecasting caused by such termination. The Parties shall
conduct such negotiations in good faith and shall not
unreasonably withhold consent to the routing of such traffic.
5.1.11 PACIFIC shall complete traffic delivered from CLEC destined to
third-party LECs, CLECs or WSPs in the LATA, when these third
parties subtend PACIFIC's tandem(s). PACIFIC shall have no
responsibility to ensure that any third party LEC, CLEC or WSP
will accept such traffic.
5.2 Responsibilities of the Parties
-------------------------------
5.2.1 Each Party to this Agreement will be responsible for the
accuracy and quality of its data as submitted to the respective
Parties involved.
5.2.2 Each Party will include in the information transmitted to the
other for each call being terminated on the other's network,
where available, the originating Calling Party Number ("CPN").
5.2.3 If the percentage of calls passed with CPN is greater than
ninety percent (90%), all calls exchanged without CPN
information will be billed as
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 11 OF 48
PACIFIC/PAC-WEST TELECOM
022499
either Local Traffic or IntraLATA Toll Traffic in direct
proportion to the minutes of use ("MOU") of calls exchanged
with CPN information. If the percentage of calls passed with
CPN is less than ninety percent (90%), all calls passed without
CPN will be billed as Switched Access.
5.2.4 For intraLATA Toll Free Service calls where such service is
provided by one of the Parties, the compensation shall be
charged by the Party originating the call, rather than the
Party terminating the call. This includes originating charges
as well as a Basic Toll Free Access Query charge as specified
in Appendix PRICING or CLEC's local exchange tariff.
5.2.5 Each Party will calculate terminating interconnection minutes
of use based on standard Automatic Message Accounting ("AMA")
recordings made within each Party's network. These recordings
are the basis for each Party to generate bills to the other
Party.
5.2.6 Measurement of minutes of use over Local Interconnection Trunk
Groups shall be in actual conversation seconds. The total
conversation seconds over each individual Local Interconnection
Trunk Group will be totaled for the entire monthly bill and
then rounded to the next whole minute.
5.2.7 Each Party will provide the other, within thirty (30) calendar
days or by mutually agreed upon date after the end of each
calendar quarter, a usage report with the following information
regarding traffic it sent to (i.e., terminated over) the Local
Interconnection Trunk arrangements.
5.2.7.1 Total traffic volume described in terms of minutes and
messages and by call type (local, toll and other)
terminated to each other over the Local
Interconnection Trunk Groups; and
5.2.7.2 Percent Local Usage ("PLU") and Percent Local Minutes.
5.2.8 Upon mutual agreement of the Parties, originating records for
local, transit, and intraLATA toll traffic shall be exchanged
for the purposes of billing intercompany terminating
compensation.
5.2.8.1 On a monthly basis, each Party will record its
originating MOUs including identification of the
originating and terminating NXXs for all intercompany
calls.
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 12 OF 48
PACIFIC/PAC-WEST TELECOM
022499
5.2.8.2 Each Party will transmit the summarized originating
MOUs above to the transiting and/or terminating Party
for subsequent monthly intercompany settlement
billing.
5.2.8.3 Bills rendered by either Party will be paid within
fifteen (15) days of receipt subject to subsequent
audit verification.
5.2.8.4 MOUs for the rates contained herein will be measured
in seconds by call type, and accumulated each billing
period into one (1) minute increments for billing
purposes in accordance with industry rounding
standards.
5.2.8.5 Each Party will multiply the tandem routed and end
office routed terminating MOUs by the appropriate rate
contained in this Section to determine the total
monthly billing to each Party.
5.3 Reciprocal Compensation for Termination of Local Traffic
--------------------------------------------------------
5.3.1 The Compensation set forth below will apply to all Local
Traffic as defined in Section
5.3.2 Applicability of Rates
----------------------
5.3.2.1 The rates, terms, conditions in this Section 5.3 apply
only to the termination of Local Traffic, unless
otherwise noted in Section 5.
5.3.3 Rate Elements
-------------
5.3.3.1 The Parties will pay to one another the charges for
the following rate elements for the termination of
Local Traffic.
(a) Tandem Switching - (where used) compensation for the
use of tandem switching functions (which includes
subtending tandem offices:
(i) Setup per Call, and
(ii) MOU;
(b) Common Transport ("where used") - compensation for
the transmission facilities between the local tandem
and the End Offices subtending that tandem.
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 13 OF 48
PACIFIC/PAC-WEST TELECOM
022499
(i) Fixed Mileage and
(ii) Variable Mileage
(c) Basic Switching- Interoffice Terminating:
(i) Setup per Call
(ii) MOU;
5.3.4 Local Traffic Interconnection Rates
-----------------------------------
See Appendix Pricing
5.4 Reciprocal Compensation for Transit Traffic
-------------------------------------------
5.4.1 Transit Traffic allows one Party to send traffic to a third
party network through the other Party's tandem. A Transit
Traffic rate element applies to all MOUs between a Party and
third party networks that transit the other Party's tandem
switch. The originating Party will be billed Transit Traffic
rate element unless otherwise specified.
The Transit Traffic rate element shall be equal to the Tandem
Switching rate plus two times the Common Transport Fixed rate
element as specified in Appendix PRICING.
5.4.2 When CLEC uses a PACIFIC access tandem to transit a toll call
to another LEC end office, and that LEC is a member of the
California Toll Pool, ("Pooling LEC"), PACIFIC will bill, and
CLEC will pay, PACIFIC's local switching and proportionate
local transport rates in addition to the transit rate above.
PACIFIC will remit such revenues to the California Toll Pool.
When a Pooling LEC originates a toll call that terminates to a
Party's NXX, Party will bill and PACIFIC will pay, Party's
local switching and local transport rates as if the call
originated from a PACIFIC end office.
5.4.3 If either Party receives a call through the other Party's
Access Tandem that originates from another LEC, CLEC or
Wireless Service Provider, the Party receiving the transited
call will not charge the other Party any rate element for this
call regardless of whether the call is local or toll. The
Parties will establish appropriate billing relationships
directly with the Wireless Service Provider, other CLEC or LEC
with the exception of the independent LECs listed in Section
21.11 of this Agreement.
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 14 OF 48
PACIFIC/PAC-WEST TELECOM
022499
5.4.4 In the event one Party originates traffic that transits the
second Party's network to reach a third party
telecommunications carrier with whom the originating Party does
not have a traffic interchange agreement, then originating
Party will indemnify the second Party against any and all
charges levied by such third party telecommunications carrier,
including any termination charges related to such traffic and
any attorneys fees and expenses.
5.5 Reciprocal Compensation for Termination of IntraLATA Interexchange
------------------------------------------------------------------
Traffic
-------
For intrastate intraLATA interexchange service traffic, compensation
for termination of intercompany traffic will be at terminating access
rates for Message Telephone Service ("MTS") and originating access
rates for 800 Service as set forth in each Party's Intrastate Access
Service Tariff. For interstate intraLATA intercompany service traffic
(i.e., when a LATA crosses a state boundary), compensation for
termination of intercompany traffic will be at terminating access
rates for Message Telephone Service ("MTS") and originating access
rates for 800 Service as set forth in each Party's Intrastate Access
Service Tariff.
5.6 Compensation for Origination and Termination of Switched Access
---------------------------------------------------------------
Service Traffic to or from an IXC (Meet-Point Billing ("MPB")
-------------------------------------------------------------
Arrangements)
-------------
5.6.1 The Parties will establish MPB arrangements in order to provide
Switched Access Services to IXCs via PACIFIC's Access Tandem
switches in accordance with the MPB guidelines adopted by and
contained in the Ordering and Billing Forum's MECOD and MECAB
documents.
5.6.2 For interstate, interLATA traffic, the Parties will charge IXCs
according to access rates as set forth in each Party's own
applicable tariffs.
5.6.3 Billing to IXCs for the Switched Access Services jointly
provided by the Parties via Meet-Point Billing arrangement
shall be according to the multiple bill/single tariff method.
As described in the MECAB document, each Party will render a
bill in accordance with its own tariff for that portion of the
service it provides. For the purpose of this Agreement, CLEC is
the Initial Billing Company ("IBC") and PACIFIC is the
Subsequent Billing Company ("SBC"). The actual rate values for
each element shall be the rates contained in that Party's own
applicable access tariffs.
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 15 OF 48
PACIFIC/PAC-WEST TELECOM
022499
5.6.4 The Parties will maintain provisions in their respective
federal and state access tariffs, or provisions within the
National Exchange Carrier Association ("NECA") Tariff No. 4, or
any successor tariff, sufficient to reflect this MPB
arrangement, including MPB percentages.
5.6.5 As detailed in the MECAB document, the Parties will, in
accordance with accepted time intervals, exchange all
information necessary to accurately, reliably, and promptly
bill third Parties for Switched Access Services traffic jointly
handled by the Parties via the Meet Point Arrangement. Each
Party reserves the right to charge the other Party for the
recording/processing functions it performs. Information shall
be exchanged in Exchange Message Record ("EMR") format, on
magnetic tape or via a mutually acceptable electronic file
transfer protocol.
5.6.6 Meet-Point Billing shall also apply to all jointly provided MOU
traffic bearing the 900, 800, and 888 NPAs or any other non-
geographic NPAs which may likewise be designated for such
traffic in the future where the responsible party is an IXC.
When PACIFIC performs 800 database queries, PACIFIC will charge
the service provider for the database query in accordance with
standard industry practices and applicable tariffs.
5.6.7 Each Party shall coordinate and exchange the billing account
reference ("BAR") and billing account cross reference ("BACR")
numbers for the Meet Point Billing service. Each Party shall
notify the other if the level of billing or other BAR/BACR
elements change, resulting in a new BAR/BACR number.
5.6.8 Each Party will provide the other with the Switched Access
detailed usage data within thirty (30) days of the end of the
billing period. Each Party will provide to the other the
Switched Access summary usage data within ten (10) working days
after the date that a bill is rendered to the IXC by the
initial Party. To the extent CLEC provides PACIFIC with Access
Usage Records, PACIFIC will compensate CLEC on the same terms
as CLEC compensates PACIFIC. PACIFIC acknowledges that
currently there is no charge for Summary Usage Data Records but
that such a charge may be appropriate. At CLEC's request,
PACIFIC will negotiate a mutual and reciprocal charge for
provision of Summary Usage Data Records.
5.6.9 Errors may be discovered by CLEC, the IXC or PACIFIC. Both
PACIFIC and CLEC agree to provide the other Party with
notification of any discovered errors within two (2) business
days of the discovery.
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 16 OF 48
PACIFIC/PAC-WEST TELECOM
022499
5.6.10 In the event of a loss of data, both Parties shall cooperate to
reconstruct the lost data within sixty (60) days of
notification and if such reconstruction is not possible, shall
accept a reasonable estimate of the lost data, based upon at
least three (3), but no more than twelve (12) months of prior
usage data, if available.
5.7 Maintenance of Service
----------------------
5.7.1 A Maintenance of Service charge applies whenever either Party
requests the dispatch of the other Party's personnel for the
purpose of performing maintenance activity on the
interconnection trunks, and any of the following conditions
exist:
(a) no trouble is found in the interconnection trunks; or
(b) the trouble condition results from equipment, facilities
or systems not provided by the Party whose personnel were
dispatched; or
(c) trouble clearance did not otherwise require dispatch and,
upon dispatch requested for repair verification, the
interconnection trunk did not exceed Maintenance Limits.
5.7.2 If a Maintenance of Service initial charge has been applied and
trouble is subsequently found in the facilities of the Party
whose personnel were dispatched, the charge will be canceled.
5.7.3 Billing for Maintenance of Service is based on each half-hour
or fraction thereof expended to perform the work requested. The
time worked is categorized and billed at one of the following
three rates:
(a) basic time;
(b) overtime; or
(c) premium time,
as defined for billing by PACIFIC in PACIFIC's revised tariff
CPUC . No. 175-T and in CLEC's Exchange tariff.
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 17 OF 48
PACIFIC/PAC-WEST TELECOM
022499
6. TRANSMISSION AND ROUTING OF SWITCHED ACCESS TRAFFIC PURSUANT TO 251(c)(2)
-------------------------------------------------------------------------
6.1 Scope of Traffic
----------------
Section Appendix ITR (Interconnection Trunking Requirements) attached
to this Interconnection Agreement prescribes parameters for certain
trunk groups ("Meet Point Trunks") to be established over the
Interconnections.
7. TRANSPORT AND TERMINATION OF OTHER TYPES OF TRAFFIC
---------------------------------------------------
7.1 Reserved for Future Use
-----------------------
8. SIGNALING
---------
8.1 The Parties will interconnect their networks using SS7 signaling as
defined in GR-000317-CORE and GR-000394-CORE, including ISDN User Part
("ISUP") for trunk signaling and Transaction Capabilities Application
Part ("TCAP") for CCS-based features in the interconnection of their
networks. Either Party may establish CCS interconnections either
directly and/or through a third party. Whether direct or by third
party, CCS interconnection shall be pursuant to PUB L-780023-PB/NB. If
CCS interconnection is established through a third party, the rates,
terms, and conditions of the parties' respective tariffs will apply.
If CCS interconnection is established directly between CLEC and
PACIFIC, the rates, terms, and conditions of Appendix SS7 will apply.
8.2 The Parties will cooperate in the exchange of TCAP messages to
facilitate full interoperability of CCS-based features between their
respective networks, including all CLASS features and functions, to
the extent each carrier offers such features and functions to its own
End Users. All CCS signaling parameters deployed by both Parties will
be provided including CPN. All privacy indicators will be honored.
8.3 CCS shall be used in conjunction with Meet Point Trunks; except
multifrequency ("MF") signaling will be used on a separate Meet Point
Trunk Group to complete originating calls to Switched Access customers
that use MF FGD signaling protocol. MF and CCS trunk groups shall not
be provided within a DS-1 facility; a separate DS-1 per signaling type
must be used.
8.4 Originating FGB calls delivered to PACIFIC's tandem(s) shall use
GR-317 signaling format unless the associated FGB carrier employs GR-
394 signaling for its FGB traffic at the serving Access Tandem.
<PAGE>
GENERAL AND CONDITIONS
PAGE 18 OF 48
PACIFIC/PAC-WEST TELECOM
022499
9. NUMBERING
---------
9.1 Nothing in this Agreement shall be construed to limit or otherwise
adversely impact in any manner either Party's right to employ or to
request and be assigned any North American Numbering Plan ("NANP")
number resources including, but not limited to, central office ("NXX")
codes pursuant to the Central Office Code Assignment Guidelines', or
to establish, by tariff or otherwise, Exchanges and Rating Points
corresponding to such NXX codes. Each Party is responsible for
administering the NXX codes it is assigned.
9.2 At a minimum, in those areas where CLEC intends to provide
facilities-based local exchange service, CLEC shall obtain at least
one NXX per incumbent local exchange carrier rate center which is
required to ensure compliance with the industry-approved Central
Office Code NXX Assignment Guidelines (April, 1997) and the FCC's
Second Report and Order in CC Docket 96-116 released August 18, 1997
(Local Number Portability).
9.3 Each Party agrees to make available via the LERG, up-to-date listings
of its own assigned NPA-NXX codes, along with associated Rating Points
and Exchanges.
9.4 Each Party is responsible to program and update its own switches and
network systems to recognize and route traffic to the other Party's
assigned NXX codes at all times. Neither Party shall impose fees or
charges on the other Party for such required programming and updating
activities.
9.5 Each Party is responsible to input required data into the Routing
Data Base Systems ("RDBS") and into the Bellcore Rating Administrative
Data Systems ("BRADS") or other appropriate system(s) necessary to
update the Local Exchange Routing Guide ("LERG"), unless negotiated
otherwise.
9.7 Upon the request of CLEC, PACIFIC shall perform LERG input for
CLEC. CLEC agrees to pay PACIFIC the sum of $110 per NXX in exchange
for PACIFIC's input of required data necessary to update the Local
Exchange Routing Guide ("LERG") on CLEC's behalf. PACIFIC shall not
be liable for any losses or damages arising out of errors, defects, or
failures associated with the input of CLEC's data into the LERG.
- ----------------------
/1/ Last published by the Industry Numbering Committee ("INC") as INC 95-0407-
008, Revision April 1997, formerly ICCF 93-0729-010.
<PAGE>
GENERAL AND CONDITIONS
PAGE 19 OF 48
PACIFIC/PAC-WEST TELECOM
022499
9.8 Neither Party is responsible for notifying the other Parties' End
Users of any changes in dialing arrangements, including those due to
NPA exhaust, unless otherwise ordered by the law, the Commission, the
FCC, or a court.
9.9 NXX Migration
-------------
Where either Party has activated an entire NXX for a single End User,
or activated more than half of an NXX for a single End User with the
remaining numbers in that NXX either reserved for future use or
otherwise unused, if such End User chooses to receive service from the
other Party, the first Party shall cooperate with the second Party to
have the entire NXX reassigned in the LERG (and associated industry
databases, routing tables, etc.) to an End Office operated by the
second Party. Such transfer will require development of a transition
process to minimize impact on the Network and on the End User(s)'
service and will be subject to appropriate industry lead times
(currently forty-five (45) days) for movements of NXXs from one switch
to another. The Party to whom the NXX is migrated will pay NXX
migration charges of $10,000 per NXX to the Party formerly assigned
the NXX.
10. RESALE -- SECTIONS 251(b)(1); 251(c)(4); 252(d)(3); and 271(c)(2)(B)(xiv)
-------------------------------------------------------------------------
10.1 Availability of PACIFIC Retail Telecommunications Services for Resale
---------------------------------------------------------------------
PACIFIC shall offer to CLEC for resale at wholesale rates its
Telecommunications Services, as described in Section 251(c)(4) of the
Act, pursuant to the terms and conditions of Appendix RESALE attached
hereto and incorporated herein by this reference.
10.2 Availability of CLEC Retail Telecommunication Services for Resale
-----------------------------------------------------------------
CLEC shall make available its Telecommunications Services for resale
at wholesale rates to PACIFIC in accordance with Section 251(b)(1) of
the Act.
11. UNBUNDLED NETWORK ELEMENTS -- SECTIONS 251(c)(3), 271(c)(2)(B)
--------------------------------------------------------------
(ii),(iv),(v),(vi),(x)
----------------------
Pursuant to Appendix UNE, which is attached hereto and made a part hereof,
PACIFIC will provide CLEC access to Unbundled Network Elements for the
provision of a telecommunication service as required by Sections 251 and
252 of the Act and in compliance with those portions of the FCC's First
Report and Order in CC Docket No. 96-98 that are in effect, subject to any
modifications on reconsideration, stay or appeal, under the terms and
conditions described herein and in the Appendices hereto.
12. NOTICE OF CHANGES -- SECTION 251(c)(5)
--------------------------------------
<PAGE>
GENERAL AND CONDITIONS
PAGE 20 OF 48
PACIFIC/PAC-WEST TELECOM
022499
Nothing in this Agreement shall limit either Party's ability to upgrade its
network through the incorporation of new equipment, new software or
otherwise. Both Parties will comply with the Network Disclosure rules
adopted by the FCC in CC Docket No. 96-98, Second Report and Order, as may
be amended from time to time. Both Parties agree to coordinate
interconnection matters consistent with the requirements of the Americans
with Disabilities Act (42 U.S.C. 12101) and with Sections 255 and 256 of
the Act.
13. COLLOCATION -- SECTION 251(c)(6)
--------------------------------
13.1 PACIFIC shall provide to CLEC Physical Collocation pursuant to
Appendix PHYSICAL COLLOCATION.
13.2 PACIFIC shall provide to CLEC Virtual Collocation pursuant to Appendix
NIM.
14. NUMBER PORTABILITY -- SECTIONS 251(b)(2) and 271(c)(2)(B)(xi)
-------------------------------------------------------------
The Parties shall provide to each other Interim Number Portability ("INP")
and Permanent Number Portability ("PNP") on a reciprocal basis. Pursuant to
the provisions in the Act and the FCC's First Report and Order, and in
accordance with the terms and conditions outlined in Appendix PORT, which
is attached hereto and incorporated herein, PACIFIC will provide CLEC
Interim Number Portability through Remote Call Forwarding and Direct Inward
Dialing technology.
15. DIALING PARITY -- SECTION 251(b)(3); 271(c)(2)(B)(xii); and 271(e)(2)
---------------------------------------------------------------------
15.1 The Parties shall provide Local Dialing Parity to each other as
required under Section 251(b)(3) of the Act.
15.2 PACIFIC shall provide IntraLATA Dialing Parity in accordance with
Section 271(e)(2) of the Act and Section 8 of the Commission's
regulations in Docket 97-2010.
16. ACCESS TO RIGHTS-OF-WAY -- SECTION 251(b)(4) and 271(c)(2)(B)(iii)
------------------------------------------------------------------
Each Party shall provide the other Party access to its poles, ducts,
rights-of-way and conduits it owns or controls, pursuant to Appendix ROW,
in accordance with Section 224 of the Act on terms, conditions, and prices
comparable to those offered to any other Telecommunications provider
pursuant to each Party's applicable tariffs and/or standard agreements.
<PAGE>
GENERAL AND CONDITIONS
PAGE 21 OF 48
PACIFIC/PAC-WEST TELECOM
022499
17. DATABASE ACCESS -- SECTION 271(c)(2)(B)(x)
-------------------------------------------
In accordance with Section 27 (c)(2)(B)(x) of the Act, PACIFIC shall
provide CLEC with nondiscriminatory access to databases and associated
signaling necessary for call routing and completion. When requesting access
to databases not otherwise provided for in this Agreement, or appropriate
interfaces, regardless of whether they constitute Unbundled Network
Elements, CLEC will use the Network Element Bona Fide Request process. This
process is defined in Appendix UNE, which is attached hereto and
incorporated herein by reference.
18. INTERCEPT REFERRAL ANNOUNCEMENTS
--------------------------------
When an End User customer changes from one Party to the other Party and
does not retain its original telephone number, the Party formerly providing
service to the End User will provide a referral announcement on the
abandoned telephone number. This announcement will provide details on the
new number to be dialed to reach this customer. These arrangements will be
provided reciprocally for the same period of time and under the same terms
and conditions as either provides to its existing End User customers.
19. COORDINATED REPAIR CALLS
------------------------
To avoid and minimize the potential for End User confusion, each Party
shall inform their respective End Users of their respective repair bureau
telephone number(s) to access such bureaus. In the event that either Party
receives a misdirected repair call, the Parties agree to employ the
following procedures for handling such calls:
(a) To the extent the correct provider can be determined, misdirected
repair calls will be referred to the proper provider of local exchange
service in a courteous manner, at no charge, and the End User will be
provided the correct contact telephone number.
(b) In responding to repair calls, neither Party shall make disparaging
remarks about the other, nor shall they use these repair calls as the
basis for internal referrals, to solicit customers, or to market
services, nor shall they initiate extraneous communications beyond the
direct referral to the correct repair telephone number.
20. OTHER SERVICES 271(c)(B)(2)(vii) and 271(c)(2)(B)(viii)
-------------------------------------------------------
20.1 White Pages
-----------
In accordance with Section 271(c)(2)(B)(viii) of the Act, PACIFIC will
make nondiscriminatory access to White Pages service available under
the terms and conditions of Appendix WP, attached hereto and
incorporated by reference.
<PAGE>
GENERAL AND CONDITIONS
PAGE 22 OF 48
PACIFIC/PAC-WEST TELECOM
022499
20.2 911 and E911 Services
---------------------
Pursuant to Section 271(c)(2)(B)(vii)(I) of the Act, PACIFIC will make
nondiscriminatory access to 911 and E911 services available under the
terms and conditions of Appendix 911, attached hereto and incorporated
by reference.
20.3 Directory Assistance ("DA")
---------------------------
Pursuant to Section 271(c)(2)(B)(vii)(II) of the Act, PACIFIC will
provide nondiscriminatory access to DA services under the terms and
conditions identified in Appendix DA, attached hereto and incorporated
by reference.
20.4 Operator Services
-----------------
Pursuant to Section 271(c)(2)(B)(vii)(III) of the Act, PACIFIC shall
provide nondiscriminatory access to Operator Services under the terms
and conditions identified in Appendix OS, attached hereto and
incorporated by reference.
20.5 Hosting
-------
At CLEC's request, PACIFIC shall perform hosting responsibilities for
the provision of billable message data and/or access usage data
received from a CLEC for distribution to the appropriate billing
and/or processing location or for delivery to a CLEC of such data via
PACIFIC's internal network or the nationwide CMDS network pursuant.
20.6 Signaling System 7 Interconnection
----------------------------------
At CLEC's request, PACIFIC shall perform SS7 interconnection services
for CLEC pursuant to Appendix SS7, attached hereto and incorporated by
reference.
21. GENERAL RESPONSIBILITIES OF THE PARTIES
---------------------------------------
21.1 Each Party is individually responsible to provide facilities within
its network that are necessary for routing, transporting, measuring,
and billing traffic from the other Party's network and for delivering
such traffic to the other Party's network in the standard format
compatible with PACIFIC's network as referenced in Bellcore's BOC
Notes on LEC Networks Practice No. SR-TSV-002275, and to terminate the
traffic it receives in that standard format to the proper address on
its network. The Parties are each solely responsible for participation
in and compliance with national network plans, including the National
Network Security Plan and the Emergency Preparedness Plan.
21.2 Neither Party shall use any service related to or use any of the
services or elements provided in this Agreement in any manner that
interferes with other persons in the use of their service, prevents
other persons from using their service, or otherwise impairs the
quality of service to other carriers or to either Party's End
<PAGE>
GENERAL AND CONDITIONS
PAGE 23 OF 48
PACIFIC/PAC-WEST TELECOM
022499
Users. Either Party may discontinue or refuse service, but only for so
long as the other Party is violating this provision. Upon such
violation, either Party shall provide the other Party notice of the
violation at the earliest practicable time.
21.3 Each Party is solely responsible for the services it provides to its
End Users and to other Telecommunications Carriers.
21.4 The Parties shall work cooperatively to minimize fraud associated with
third-number billed calls, calling card calls, and any other services
related to this Agreement.
21.5 At all times during the term of this Agreement, each Party shall keep
and maintain in force at each Party's expense all insurance required
by law (e.g. workers' compensation insurance) as well as general
liability insurance for personal injury or death to any one person,
property damage resulting from any one incident, and automobile
liability with coverage for bodily injury for property damage. Upon
request from the other Party, each Party shall provide to the other
Party evidence of such insurance (which may be provided through a
program of self insurance).
21.6 Unless otherwise stated, each Party will render a monthly bill to
the other for service(s) provided hereunder. Remittance in full will
be due within fifteen (15) days of that billing date. Interest shall
apply on overdue amounts (other than disputed amounts which are
subject to Section 30.12) at the rate specified in Section 30.12,
unless otherwise specified in an applicable tariff. Each Party
reserves the right to net delinquent amounts against amounts otherwise
due the other.
21.7 PACIFIC participates at OBF to develop standardized methods and
shall implement ordering and billing formats/processes consistent with
industry guidelines as capabilities are deployed. Where such
guidelines are not available or PACIFIC decides not to fully utilize
industry guidelines, PACIFIC will provide CLEC with information on its
ordering and billing format/process and requirements at the earliest
practicable time.
21.8 For the purposes of establishing provisioning and billing service
to CLEC, CLEC is required to provide to PACIFIC its PACIFIC authorized
and nationally recognized OCN for facilities-based business
(interconnection and/or Unbundled Network Elements) in PACIFIC. CLEC
name associated with specific OCN must be consistent in PACIFIC.
21.9 Unless otherwise agreed, if the designated Party fails to file
the jointly signed agreement with the Commission within thirty (30)
days of both Parties signatures, then the signed agreement is null and
no longer valid. If the contract becomes null, either Party can
initiate negotiations to a new agreement.
<PAGE>
GENERAL AND CONDITIONS
PAGE 24 OF 48
PACIFIC/PAC-WEST TELECOM
022499
22. EFFECTIVE DATE, TERM, AND TERMINATION
-------------------------------------
22.1 This Agreement shall be effective upon approval by the CPUC (the
"Effective Date").
22.2 The initial term of this Agreement shall be two (2) years (the
"Term") which shall commence on the Effective Date. Absent the receipt
by one Party of written notice from the other Party at least sixty
(60) days prior to the expiration of the Term to the effect that such
Party does not intend to extend the Term of this Agreement, this
Agreement shall automatically renew and remain in full force and
effect on and after the expiration of the Term until terminated by
either Party pursuant to Section 22.3, below.
22.3 Either Party may terminate this Agreement in the event that the
other Party fails to perform a material obligation that disrupts the
operation of either Party's network and/or End User service and fails
to cure such material nonperformance within forty-five (45) days after
written notice thereof.
22.4 If pursuant to Section 22.2, above, this Agreement continues in
full force and effect after the expiration of the Term, either Party
may terminate this Agreement ninety (90) days after delivering written
notice to the other Party of its intention to terminate this
Agreement, subject to Section 22.5, below. Neither Party shall have
any liability to the other Party for termination of this Agreement
pursuant to this Section 22.4 other than its obligations under Section
22.5, below.
22.5 Upon termination or expiration of this Agreement in accordance
with this Section 22, above:
(a) each Party shall comply immediately with its obligations set
forth in Section 30.6, below; and
(b) each Party shall promptly pay all amounts (including any late
payment charges) owed under this Agreement; and
(c) each Party 's indemnification obligations shall survive.
22.6 If upon expiration or termination the Parties are negotiating a
successor agreement, during such period each Party shall continue to
perform its obligations and provide the services described herein that
are to be included in the successor agreement until such time as the
latter agreement becomes effective; provided however, that if the
Parties are unable to reach agreement
<PAGE>
GENERAL AND CONDITIONS
PAGE 25 OF 48
PACIFIC/PAC-WEST TELECOM
022499
within six (6) months after termination or expiration of this
Agreement, either Party has the right to submit this matter to the
Commission for resolution. Until a survivor agreement is reached or
the Commission resolves the matter, whichever is sooner, the terms,
conditions, rates, and charges stated herein will continue to apply,
subject to a true-up based on the successor agreement, if any. Each
Party agrees that it will negotiate in good faith concerning a
successor agreement to this Agreement, upon request of the other
Party, commencing nine months before the end of the initial term.
22.7 No remedy set forth in this Agreement is intended to be exclusive and
each and every remedy shall be cumulative and in addition to any other
rights or remedies now or hereafter existing under applicable law or
otherwise.
23. DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
--------------------------------------------
EXCEPT AS EXPRESSLY PROVIDED UNDER THIS AGREEMENT, NO PARTY MAKES OR
RECEIVES ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES,
FUNCTIONS AND PRODUCTS IT PROVIDES UNDER OR CONTEMPLATED BY THIS AGREEMENT
AND THE PARTIES DISCLAIM THE IMPLIED WARRANTIES OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR PURPOSE. ADDITIONALLY, NEITHER PACIFIC NOR CLEC
ASSUMES RESPONSIBILITY WITH REGARD TO THE CORRECTNESS OF DATA OR
INFORMATION SUPPLIED BY THE OTHER WHEN THIS DATA OR INFORMATION IS ACCESSED
AND USED BY A THIRD PARTY.
24. CHANGES IN END USER LOCAL EXCHANGE SERVICE PROVIDER SELECTION
-------------------------------------------------------------
Each Party will abide by applicable state or federal laws and regulations
in obtaining End User authorization prior to changing End User's local
service provider to itself and in assuming responsibility for any
applicable charges as specified in Section 258(b) of the Telecommunications
Act of 1996. CLEC shall make authorization available to PACIFIC upon
request and at no charge. Only an End User can initiate a challenge to a
change in its local exchange service provider. If an End User notifies
PACIFIC or CLEC that the End User requests local exchange service, the
Party receiving such request shall be free to immediately provide service
to such End User. When an End User changes or withdraws authorization, each
Party shall release customer-specific facilities in accordance with the End
User's direction or the End User's authorized agent. Further, when an End
User abandons the premise, PACIFIC is free to reclaim the unbundled network
element facilities for use by another customer and is free to issue service
orders required to reclaim such facilities.
<PAGE>
GENERAL AND CONDITIONS
PAGE 26 OF 48
PACIFIC/PAC-WEST TELECOM
022499
25. SEVERABILITY
------------
25.1 The Parties negotiated the services, arrangements, Interconnection,
terms and conditions of this Agreement as a total arrangement and it
is intended to be nonseverable, subject only to Section 30.16 of this
Agreement.
25.2 In the event the Commission, the FCC, or a court rejects any portion
or determines that any provision of this Agreement is contrary to law,
or is invalid or unenforceable for any reason, the Parties shall
continue to be bound by the terms of this Agreement, insofar as
possible, except for the portion rejected or determined to be
unlawful, invalid, or unenforceable. In such event, the Parties shall
negotiate in good faith to replace the rejected, unlawful, invalid, or
unenforceable provision and shall not discontinue service to the other
Party during such period if to do so would disrupt existing service
being provided to an End User. Nothing in this Agreement shall be
construed as requiring or permitting either Party to contravene any
mandatory requirement of federal or state law, or any regulations or
orders adopted pursuant to such law.
26. INTELLECTUAL PROPERTY
---------------------
CLEC as the provider of the Unbundled Network Elements will provide all
features, functions, and capabilities of the individual elements. PACIFIC
will provide a list of all vendors/licensers applicable to the subject
Unbundled Network Element(s) (which vendors have provided PACIFIC a
software license) within seven (7) days of a request for such a list by
CLEC. PACIFIC agrees to use its best efforts to facilitate the obtaining
of any necessary license or right to use agreement. PACIFIC makes no
warranties, express or implied, concerning CLEC's (or any third party's)
rights with the respect to use of intellectual property (including without
limitation, patent, copyright, and trade secret rights). PACIFIC reserves
the right to amend the Intellectual Property provision of this Agreement to
reflect the FCC ruling (and any appeal therefrom) in CC Docket No. 96-98
(File No. CCBPol 97-4), In the Matter of Petition of MCI for Declaratory
------------------------------------------------
Ruling.
-------
27. INDEMNIFICATION
---------------
27.1 Except as otherwise provided herein or in specific appendices, each
Party shall be responsible only for service(s) and facility(ies) which
are provided by that Party, its authorized agents, subcontractors, or
others retained by such parties, and neither Party shall bear any
responsibility for the service(s) and facility(ies) provided by the
other Party, its agents, subcontractors, or others retained by such
parties.
27.2 Except as otherwise provided herein or in specific appendices, and to
the extent not prohibited by law and not otherwise controlled by
tariff, each Party (the "Indemnifying Party") shall defend and
indemnify the other Party (the
<PAGE>
GENERAL AND CONDITIONS
PAGE 27 OF 48
PACIFIC/PAC-WEST TELECOM
022499
"Indemnified Party") and hold such Indemnified Party harmless against
any loss to a third party arising out of the negligence or willful
misconduct by such Indemnifying Party, its agents, its End User,
contractors, or others retained by such parties, in connection with
the indemnifying provision of services or functions under this
Agreement.
27.3 In the case of any loss alleged or made by an End User of either
Party, the Party whose End User alleged or made such loss
("Indemnifying Party") shall defend and indemnify the other Party
("Indemnified Party") against any and all such claims or loss by its
End Users regardless of whether the underlying service was provided or
unbundled element was provisioned by the Indemnified Party, unless the
loss was caused by the gross negligence or intentional misconduct of
the other ("Indemnified") Party.
27.4 CLEC agrees to indemnify, defend and hold PACIFIC harmless from any
loss arising out of PACIFIC's provision of 911 services to CLEC or out
of CLEC's End Users' use of the 911 service, whether suffered, made,
instituted, or asserted by CLEC or its End Users, including for any
personal injury or death of any person or persons, except for loss
which is the direct result of PACIFIC'S own negligence or willful
misconduct.
27.5 PACIFIC shall not be liable for damages to an End User's premises
resulting from the furnishing of unbundled elements, including the
installation and removal of equipment and associated wiring, unless
the damage is caused by PACIFIC's negligence or willful misconduct.
PACIFIC does not guarantee or make any warranty with respect to
unbundled elements when used in an explosive atmosphere.
27.6 Each Party shall be indemnified, defended and held harmless by the
other Party against any loss arising from a Party's use of services or
elements provided under this Agreement involving:
(a) tort claims, including claims for libel;
(b) slander;
(c) invasion of privacy; or
(d) infringement of copyright arising from a Party's own
communications or the communications of its End Users.
This includes, but is not limited to, suits arising from disclosure of
any customer-specific information associated with either the
originating or terminating numbers
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 28 OF 48
PACIFIC/PAC-WEST TELECOM
022499
used to provision unbundled elements provided hereunder or all other
claims arising out of any act or omission of the End User in the
course of using services or functions provided pursuant to this
Agreement.
27.7 The Indemnifying Party agrees to defend any suit brought against the
Indemnified Party for any loss identified in this Section or specific
appendices. The Indemnified Party agrees to notify the Indemnifying
Party promptly in writing of any written claims, lawsuits or demands
for which the Indemnifying Party may be responsible under this
Agreement. The Indemnified Party shall cooperate in every reasonable
way to facilitate defense or settlement. The Indemnifying Party shall
have the right to control and conduct the defense and settlement of
any action or claim subject to the consultation of the Indemnified
Party. The Indemnifying Party shall not be responsible for any
settlement unless the Indemnifying Party approved such settlement in
advance and agrees to be bound by the settlement agreement.
27.8 CLEC acknowledges that its right under this contract to interconnect
with PACIFIC's network and to unbundle and/or combine PACIFIC's
network elements (including combining with CLEC's network elements)
may be subject to or limited by intellectual property (including,
without limitation, patent, copyright, and trade secret rights) and
contract rights of third parties. It is the sole obligation of CLEC to
obtain any consents, authorizations, or licenses under intellectual
property or proprietary rights held by third parties that may be
necessary for its use of PACIFIC network facilities under this
Agreement. PACIFIC hereby conveys no licenses to use such intellectual
property rights and makes no warranties, express or implied,
concerning CLEC's (or any third party's) rights with respect to such
intellectual property and contract rights, including, without
limitation, whether such rights will be violated by such
interconnection or unbundling and/or combining of elements (including
combining with CLEC's network elements) in PACIFIC's network. PACIFIC
does not and shall not indemnify or defend, nor be responsible for
indemnifying or defending CLEC for any liability losses, claims,
costs, damages, demand, penalties, or other expenses arising out of,
caused by, or relating to CLEC's interconnection with PACIFIC's
network and unbundling and/or combining PACIFIC's network elements
(including combining with CLEC's network elements).
27.9 CLEC agrees to indemnify and hold PACIFIC harmless from and against
all liability, losses, claims, costs, damages, demand, penalties, or
other expenses, including but not limited to costs of litigation and
reasonable attorneys fees, arising out of, caused by, or relating to
any real or potential claim, demand, or action that CLEC's
interconnection with PACIFIC's network, or CLEC's use of services or
functions offered hereunder, or unbundling and/or combining of
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 29 OF 48
PACIFIC/PAC-WEST TELECOM
022499
PACIFIC's network elements (including combining with CLEC's network
elements) violates or infringes upon any intellectual property rights
of any third party or constitutes a breach of contract. CLEC shall
notify PACIFIC in writing within ten (10) days after CLEC receives
notification of any claim or suit subject to this provision. PACIFIC
shall undertake and control the defense and settlement of any such
claim or suit and CLEC shall cooperate fully with PACIFIC in
connection herewith. In no event shall PACIFIC be liable for any
consequential damages or loss of profits which CLEC may suffer
arising out of same.
27.10 CLEC shall reimburse PACIFIC for damages to PACIFIC facilities
utilized to provide unbundled elements hereunder caused by the
negligence or willful act of CLEC or resulting from CLEC's improper
use of PACIFIC facilities, or due to malfunction of any facilities or
equipment provided by other than PACIFIC. Nothing in the foregoing
provision shall be interpreted to hold one CLEC liable for another
local service provider or End User's actions. Upon reimbursement for
damages, PACIFIC will cooperate with CLEC in prosecuting a claim
against the person causing such damage. CLEC shall be subrogated to
the right of recovery by PACIFIC for the damages to the extent of
such payment.
28. LIMITATION OF LIABILITY
-----------------------
28.1 Except for indemnity obligations under this Agreement, or except as
otherwise provided in specific appendices, each Party's liability to
the other Party for any loss relating to or arising out of any
negligent act or omission in its performance under this Agreement,
whether in contract or tort, shall not exceed in total the amount
PACIFIC or CLEC has to or would have charged the other Party for the
affected service(s) or function(s) which were not performed or were
otherwise improperly performed.
28.2 Except for losses alleged or made by an End User of either Party, or
except as otherwise provided in specific appendices, in the case of
any loss alleged or made by a third party arising under the
negligence or willful misconduct of both Parties, each Party shall
bear, and its obligation under this section shall be limited to, that
portion (as mutually agreed to by the Parties) of the resulting
expense caused by its own negligence or willful misconduct or that of
its agents, servants, contractors, or others acting in aid or concert
with it.
28.3 In no event shall either Party have any liability whatsoever to the
other Party for any indirect, special, consequential, incidental, or
punitive damages, including but not limited to, loss of anticipated
profits or revenue or other economic loss in connection with or
arising from anything said, omitted, or done hereunder (collectively,
"Consequential Damages"), even if the other Party has been advised
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 30 OF 48
PACIFIC/PAC-WEST TELECOM
022499
of the possibility of such damages; provided that the foregoing shall
not limit a Party's obligation under this Agreement to indemnify,
defend, and hold the other Party harmless against any amounts payable
to a third party, including any losses, costs, fines, penalties,
criminal or civil judgments or settlements, expenses (including
attorney's fees) and Consequential Damages of such third party.
29. REGULATORY APPROVAL
-------------------
29.1 The Parties understand and agree that this Agreement will be filed
with the Commission and may thereafter be filed with the FCC. The
Parties believe in good faith and agree that the terms in this
Agreement, to which they have agreed (i.e. excluding arbitrated
provisions) are not inconsistent with the specifically mentioned
sections of the Act and are in the public interest. Each Party
covenants and agrees to fully support approval of this Agreement by
the Commission or the FCC under Section 252 of the Act without
modification.
30. MISCELLANEOUS
-------------
30.1 Authorization
-------------
30.1.1 PACIFIC is a corporation duly organized, validly existing and
in good standing under the laws of the State of California and
has full power and authority to execute and deliver this
Agreement and to perform the obligations hereunder.
30.1.2 CLEC is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and
has full power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.
30.2 Compliance and Certification
----------------------------
30.2.1 Each Party shall comply with all federal, state, and local
laws, rules, and regulations applicable to its performance
under this Agreement.
30.2.2 Each Party warrants that it has obtained all necessary state
certification required in those states in which it has ordered
services from the other Party pursuant to this Agreement. Upon
request by any state governmental entity, each Party shall
provide proof of certification.
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 31 OF 48
PACIFIC/PAC-WEST TELECOM
022499
30.2.3 Each Party represents and warrants that any equipment, facilities
or services provided to the other Party under this Agreement comply
with the Communications Law Enforcement Act ("CALEA"). Each Party
shall indemnify and hold the other Party harmless from any and all
penalties imposed upon the other Party for such noncompliance and
shall at the non-compliant Party's sole cost and expense, modify or
replace any equipment, facilities or services provided to the other
Party under this Agreement to ensure that such equipment, facilities
and services fully comply with CALEA.
30.3 Law Enforcement
---------------
PACIFIC and CLEC shall handle law enforcement requests as follows:
(a) Intercept Devices:
-----------------
Local and federal law enforcement agencies periodically request
information or assistance from local telephone service providers.
When either Party receives a request associated with an End User
of the other Party, it shall refer such request to the Party that
serves such End User, unless the request directs the receiving
Party to attach a pen register, trap-and-trace or form of
intercept on the Party's facilities, in which case that Party
shall comply with any valid request.
(b) Subpoenas:
---------
If a Party receives a subpoena for information concerning an End
User the Party knows to be an End User of the other Party, it
shall refer the subpoena to the requesting party with an
indication that the other Party is the responsible company,
unless the subpoena requests records for a period of time during
which the Party was the End User's service provider, in which
case the Party will respond to any valid request.
(c) Emergencies:
-----------
If a Party receives a request from a law enforcement agency for
temporary number change, temporary disconnect, or one-way denial
of outbound calls for an End User of the other Party by the
receiving Party's switch, that Party will comply with a valid
emergency request. However, neither Party shall be held liable
for any claims or damages arising from compliance with such
requests on behalf of the other Party's End User and the Party
serving such End User agrees to indemnify and hold the other
Party harmless against any and all such claims.
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 32 OF 48
PACIFIC/PAC-WEST TELECOM
022499
30.4 Independent Contractor
----------------------
Each Party and each Party's contractor shall be solely responsible for
the withholding or payment of all applicable federal, state and local
income taxes, social security taxes and other payroll taxes with
respect to its employees, as well as any taxes, contributions or other
obligations imposed by applicable state unemployment or workers'
compensation acts. Each Party has sole authority and responsibility to
hire, fire and otherwise control its employees.
30.5 Force Majeure
-------------
Neither Party shall be liable for any delay or failure in performance
of any part of this Agreement from any cause beyond its control and
without its fault or negligence including, without limitation, acts of
nature, acts of civil or military authority, government regulations,
embargoes, epidemics, terrorist acts, riots, insurrections, fires,
explosions, earthquakes, nuclear accidents, floods, work stoppages,
equipment failure, cable cuts, power blackouts, volcanic action, other
major environmental disturbances, unusually severe weather conditions,
inability to secure products or services of other persons or
transportation facilities or acts or omissions of transportation
carriers In such event, the Party affected shall, upon giving prompt
notice to the other Party, be excused from such performance on a day-
to-day basis to the extent of such interference (and the other Party
shall likewise be excused from performance of its obligations on a
day-for-day basis to the extent such Party's obligations related to
the performance so interfered with). The affected Party shall use its
best efforts to avoid or remove the cause of nonperformance and both
Parties shall proceed to perform with dispatch once the causes are
removed or cease.
30.6 Confidentiality
---------------
30.6.1 All information, including but not limited to specifications,
microfilm, photocopies, magnetic disks, magnetic tapes,
drawings, sketches, models, samples, tools, technical
information, data, employee records, maps, financial reports,
and market data:
(a) furnished by one Party (the "Disclosing Party") to the
other Party (the "Receiving Party") dealing with
customer-specific, facility-specific, or usage-specific
information, other than customer information communicated
for the purpose of publication or directory database
inclusion, 911, call processing, billing or settlement or
as otherwise mutually agreed upon; or
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 33 OF 48
PACIFIC/PAC-WEST TELECOM
022499
(b) in written, graphic, electromagnetic, or other tangible
form and marked at the time of delivery as "Confidential"
or "Proprietary;"; or
(c) communicated orally and declared to the Receiving Party at
the time of delivery, or by written notice given to the
Receiving Party within ten (10) days after declaration to
be "Confidential" or "Proprietary" (collectively referred
to as "Proprietary Information"), shall remain the
property of the Disclosing Party.
30.6.2 Upon request by the Disclosing Party, the Receiving Party shall
return all tangible copies of Proprietary Information, whether
written, graphic, or otherwise. In the event of the expiration
or termination of this Agreement for any reason whatsoever,
each Party shall return to the other Party or destroy all
Proprietary Information and other documents, work papers and
other material (including all copies thereof) obtained from the
other Party in connection with this Agreement.
30.6.3 Each Party shall keep all the other Party's Proprietary
Information confidential in the same manner in which it keeps
its own Proprietary Information confidential, and shall use the
other Party's Proprietary Information only for performing the
covenants contained in the Agreement and shall disclose such
Proprietary Information only to those employees, contractors,
agents or Affiliates who have a need to know. Neither Party
shall use the other Party's Proprietary Information for any
other purpose except upon such terms and conditions as may be
agreed upon between the Parties in writing.
30.6.4 Unless otherwise agreed, the obligations of confidentiality and
nonuse set forth in the Agreement do not apply to such
Proprietary Information that:
(a) was at the time of receipt, already known to the Receiving
Party, free of any obligation to keep confidential and
evidenced by written records prepared prior to delivery by
the Disclosing Party;
(b) is, or becomes publicly known through no wrongful act of
the receiving Party;
(c) is rightfully received from a third person having no
direct or indirect secrecy or confidentiality obligation
to the Disclosing Party with respect to such information;
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 34 OF 48
PACIFIC/PAC-WEST TELECOM
022499
(d) is independently developed by an employee, agent, or
contractor of the Receiving Party which individual is not
involved in any manner with the provision of services
pursuant to the Agreement and does not have any direct or
indirect access to the Proprietary Information;
(e) is disclosed to a third person by the Disclosing Party
without similar restrictions on such third person's
rights;
(f) is approved for release by written authorization of the
Disclosing Party;
(g) is required to be made public by the Receiving Party
pursuant to applicable law or regulation provided that the
Receiving Party shall provide the Disclosing Party with
written notice of such requirement as soon as possible and
prior to such disclosure. The Disclosing Party may then
either seek appropriate protective relief from all or part
of such requirement or, if it fails to successfully do so,
it shall be deemed to have waived the Receiving Party's
compliance with Section 30.6 with respect to all or part
of such requirement. The Receiving Party shall use all
commercially reasonable efforts to cooperate with the
Disclosing Party in attempting to obtain any protective
relief which such Disclosing Party chooses to obtain.
Notwithstanding the foregoing, PACIFIC shall be entitled
to disclose confidential information on a confidential
basis to regulatory agencies upon request for information
as to PACIFIC's activities under the Act.
30.6.5 Notwithstanding any other provision of this Agreement, the
Proprietary Information provisions of this Agreement shall
apply to all information furnished by either Party to the other
in furtherance of the purpose of this Agreement, even if
furnished before the date of this Agreement.
30.6.6 Pursuant to Section 222(b) of the Act, both Parties agree to
limit their use of Proprietary Information received from the
other to the permitted purposed identified in the Act.
30.7 Governing Law
-------------
For all claims under this Agreement that are based upon issues within
the jurisdiction (primary or otherwise) of the FCC, the exclusive
jurisdiction and remedy for all such claims shall be as provided for
by the FCC and the Act. For all claims under this Agreement that are
based upon issues within the jurisdiction
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 35 OF 48
PACIFIC/PAC-WEST TELECOM
022499
(primary or otherwise) of the Commission, the exclusive jurisdiction
for all such claims shall be with such Commission, and the exclusive
remedy for such claims shall be as provided for by such Commission. In
all other respects, this Agreement shall be governed by the domestic
laws of the State of California without reference to conflict of law
provisions.
30.8 Taxes
-----
30.8.1 Each Party purchasing services hereunder shall pay or
otherwise be responsible for all federal, state, or local
sales, use, excise, gross receipts, transaction or similar
taxes, fees, or surcharges (hereinafter "Tax") imposed on or
with respect to the services provided by or to such Party,
except for any Tax on either Party's corporate existence,
status, or income. Whenever possible, these amounts shall be
billed as a separate item on the invoice. To the extent a sale
is claimed to be for resale tax exemption, the purchasing
Party shall furnish the providing Party a proper resale tax
exemption certificate as authorized or required by statute or
regulation by the jurisdiction providing said resale tax
exemption. Failure to timely provide said resale tax exemption
certificate will result in no exemption being available to the
purchasing Party until such time as the purchasing Party
presents a valid certificate.
30.8.2 With respect to any purchase of services, facilities or other
arrangements, if any Tax is required or permitted by
applicable law to be collected from the purchasing Party by
the providing Party, then:
(a) the providing Party shall bill the purchasing Party for
such Tax;
(b) the purchasing Party shall remit such Tax to the
providing Party; and
(c) the providing Party shall remit such collected Tax to the
applicable taxing authority.
30.8.3 With respect to any purchase hereunder of services, facilities
or arrangements that are resold to a third party, if any Tax
is imposed by applicable law on the End User in connection
with any such purchase, then:
(a) the purchasing Party shall be required to impose and/or
collect such Tax from the End User; and
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 36 OF 48
PACIFIC/PAC-WEST TELECOM
022499
(b) the purchasing Party shall remit such Tax to the applicable
taxing authority.
The purchasing Party agrees to indemnify and hold harmless the
providing Party on an after-tax basis for any costs incurred by
the providing Party as a result of actions taken by the
applicable taxing authority to collect the Tax from the
providing Party due to the failure of the purchasing Party to
pay or collect and remit such tax to such authority.
30.8.4 If the providing Party fails to collect any Tax as required
herein, then, as between the providing Party and the purchasing
Party:
(a) the purchasing Party shall remain liable for such
uncollected Tax; and
(b) the providing Party shall be liable for any penalty and
interest assessed with respect to such uncollected Tax by
such authority.
However, if the purchasing Party fails to pay any taxes
properly billed, then, as between the providing Party and the
purchasing Party, the purchasing Party will be solely
responsible for payment of the taxes, penalty and interest.
30.8.5 If the purchasing Party fails to impose and/or collect any Tax
from End Users as required herein, then, as between the
providing Party and the purchasing Party, the purchasing Party
shall remain liable for such uncollected Tax and any interest
and penalty assessed thereon with respect to the uncollected
Tax by the applicable taxing authority. With respect to any Tax
that the purchasing Party has agreed to pay or impose on and/or
collect from End Users, the purchasing Party agrees to
indemnify and hold harmless the providing Party on an after-tax
basis for any costs incurred by the providing Party as a result
of actions taken by the applicable taxing authority to collect
the Tax from the providing Party due to the failure of the
purchasing Party to pay or collect and remit such Tax to such
authority.
30.9 Non-Assignment
--------------
Each Party covenants that, if it sells or otherwise transfers to a
third party its Telephone Exchange and Switched Access network
facilities within any territory within which PACIFIC is an Incumbent
Local Exchange Carrier ("PACIFIC's Territory")as of the date of this
Agreement, or any portion thereof, to a third party, it will require
as a condition of such transfer that the transferee agree to be
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 37 OF 48
PACIFIC/PAC-WSET TELECOM
022499
bound by this Agreement with respect to services provided over the
transferred facilities. Except as provided in this paragraph,
neither Party may assign or transfer (whether by operation of law
or otherwise) this Agreement (or any rights or obligations
hereunder) to a third party without the prior written consent of
the other Party; provided that each Party may assign this
Agreement to a corporate Affiliate or an entity under its common
control or an entity acquiring all or substantially all of its
assets or equity by providing prompt written notice to the other
Party of such assignment or transfer. Any attempted assignment or
transfer that is not permitted is void ab initio. Without limiting
the generality of the foregoing, this Agreement shall be binding
upon and shall inure to the benefit of the Parties' respective
successors and assigns.
30.10 Non-Waiver
----------
Failure of either Party to insist on performance of any term or
condition of this Agreement or to exercise any right or privilege
hereunder shall not be construed as a continuing or future waiver
of such term, condition, right or privilege.
30.11 Audits
------
Each Party to this Agreement will be responsible for the accuracy
and quality of its data as submitted to the respective Parties
involved.
30.11.1 Upon reasonable written notice and at its own expense,
each Party or its authorized representative (providing
such authorized representative does not have a conflict
of interest related to other matters before one of the
Parties) shall have the right to conduct an audit of the
other Party to give assurances of compliance with the
provisions of this Agreement; provided, that neither
Party may request more than two (2) such audits within
any twelve (12) month period. This includes on-site
audits at the other Party's or the Party's vendor
locations. Each Party, whether or not in connection with
an audit, shall maintain reasonable records for a minimum
of twenty-four (24) months and provide the other Party
with reasonable access to such information as is
necessary to determine amounts receivable or payable
under this Agreement. Each Party's right to access
information for audit purposes is limited to data not in
excess of twenty-four (24) months in age.
30.12 Disputed Amounts
----------------
30.12.1 Any undisputed amounts not paid when due shall accrue interest
from the date such amounts were due at the lesser of:
(a) one and one-half percent (1-1/2%) per month; or
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 38 OF 48
PACIFIC/PAC-WSET TELECOM
022499
(b) the highest rate of interest that may be charged
under applicable law.
30.13 DISPUTE RESOLUTION.
------------------
30.13.1 Alternative to Litigation. Except as provided under Section 252
-------------------------
of the Act with respect to the approval of this Agreement by the
Commission, the Parties desire to resolve disputes arising out
of or relating to this Agreement without litigation.
Accordingly, except for action seeking a temporary restraining
order or an injunction related to the purposes of this
Agreement, or suit to compel compliance with this dispute
resolution process, the Parties agree to use the following
alternative dispute resolution procedures as their sole remedy
with respect to any controversy or claim arising out of or
relating to this Agreement or its breach.
30.13.2 Negotiations. At the written request of a Party, each Party will
------------
appoint a knowledgeable, responsible representative to meet and
negotiate in good faith to resolve any dispute arising out of or
relating to this Agreement. The Parties intend that these
negotiations be conducted by non-lawyer, business
representatives. The location, format, frequency, duration, and
conclusion of these discussions shall be left to the discretion
of the representatives. Upon agreement, the representatives may
utilize other alternative dispute resolution procedures such as
mediation to assist in the negotiations. Discussions and
correspondence among the representatives for purposes of these
negotiations shall be treated as Confidential Information
developed for purposes of settlement, exempt from discovery, and
shall not be admissible in the arbitration described below or in
any lawsuit without the concurrence of all Parties. Documents
identified in or provided with such communications, which are
not prepared for purposes of the negotiations, are not so
exempted and may, if otherwise discoverable, be discovered or
otherwise admissible, be admitted in evidence, in the
arbitration or lawsuit.
30.13.3 Arbitration. If the negotiations do not resolve the dispute
-----------
within sixty (60) business days of the initial written request,
the dispute shall be submitted to binding arbitration by a
single arbitrator pursuant to the Commercial Arbitration Rules
of the American Arbitration Association ("AAA") then in effect
except that the Parties may select an arbitrator outside AAA
rules upon mutual agreement. A Party may demand such arbitration
in accordance with the procedures set out in those rules. The
Parties shall mutually agree upon a discovery plan including the
type and number of interrogatories and depositions allowed. If
unable to agree on the discovery plan the Parties will ask the
arbitrator to issue an arbitration plan consistent with the AAA
rules. The arbitration hearing shall be commenced within sixty
(60) business days of the
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 39 OF 48
PACIFIC/PAC-WSET TELECOM
022499
demand for arbitration. The arbitration shall be held in a
mutually agreeable city. The arbitrator shall control the
scheduling so as to process the matter expeditiously. The
Parties may submit written briefs. The arbitrator shall rule on
the dispute by issuing a written opinion within thirty (30)
business days after the close of hearings. The times specified
in this section may be extended upon mutual agreement of the
Parties or by the arbitrator upon a showing of good cause.
Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction.
30.13.4 Expedited Arbitration Procedures. If the issue to be resolved
--------------------------------
through the negotiations referenced in Sections 30.13.2 and
30.13.3 directly and materially affects service to either
Party's End Users, then the period of resolution of the dispute
through negotiations before the dispute is to be submitted to
binding arbitration shall be five (5) business days. Once such a
service affecting dispute is submitted to arbitration, the
arbitration shall be conducted pursuant to the expedited
procedures rules of the Commercial Arbitration Rules of the AAA
(i.e., rules 53 through 57) then in effect.
30.13.5 Costs. Each Party shall bear its own costs of these procedures.
-----
A Party seeking discovery shall reimburse the responding Party
the costs of production of documents (including search time and
reproduction costs). The Parties shall equally split the fees of
the arbitration and the arbitrator.
30.13.6 Continuous Service. The Parties shall continue providing
------------------
services to each other during the pendency of any dispute
resolution procedure, and each Party shall continue to perform
its obligations (including making payments in accordance with
this Agreement).
30.13.7 No Conflict
-----------
30.13.7.1 The Dispute Resolution procedures set forth in this
Agreement are not intended to conflict with
applicable requirements of the Act or the state
commission with regard to procedures for the
resolution of disputes arising out of this Agreement.
In the event of any such conflict, the requirements
of the Act or the Commission shall control.
30.14 Notices
-------
Any notice to a Party required or permitted under this Agreement
shall be in writing and shall be deemed to have been received on
the date of service if served personally; on the date receipt is
acknowledged in writing by the recipient if
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 40 OF 48
PACIFIC/PAC-WSET TELECOM
022499
delivered by regular mail; or on the date stated on the receipt if
delivered by certified or registered mail or by a courier service that
obtains a written receipt. Notice may also be provided by facsimile,
which shall be effective on the next Business Day following the date
of transmission as reflected in the facsimile confirmation sheet.
"Business Day" shall mean Monday through Friday, PACIFIC/CLEC holidays
excepted. Any notice shall be delivered using one of the alternatives
mentioned in this section and shall be directed to the applicable
address indicated below or such address as the Party to be notified
has designated by giving notice in compliance with this section.
====================================================================
NOTICE CONTACT CLEC CONTACT PACIFIC CONTACT
--------------------------------------------------------------------
NAME/TITLE Jeff Webster Jerry Gilmore - Director
--------------------------------------------------------------------
STREET ADDRESS 4202 Coronado Ave. 370 Third St., Room 716
--------------------------------------------------------------------
CITY, STATE, ZIP CODE Stockton, CA 95204 San Francisco, CA 94107
--------------------------------------------------------------------
TELEPHONE NUMBER 209 926-3275 415 542-3010
--------------------------------------------------------------------
FAX NUMBER 209 926-4272 415 543-2516
--------------------------------------------------------------------
30.15 Publicity and Use of Trademarks or Service Marks
------------------------------------------------
30.15.1 The Parties agree not to use in any advertising or sales
promotion, press releases, or other publicity matters any
endorsements, direct or indirect quotes, or pictures
implying endorsement by the other Party or any of its
employees without such Party's prior written approval. The
Parties will submit to each other for written approval,
prior to publication, all publicity matters that mention or
display one another's name and/or marks or contain language
from which a connection to said name and/or marks may be
inferred or implied; the Party to whom a request is directed
shall respond promptly. Nothing herein, however, shall be
construed as preventing either Party from publicly stating
the fact that it has executed this Agreement with the other
Party.
30.15.2 Nothing in this Agreement shall grant, suggest, or imply any
authority for one Party to use the name, trademarks, service
marks, or trade names of the other for commercial purposes
without prior written approval.
30.16 Section 252(i) Obligations
--------------------------
If Pacific enters into an agreement (the "Other Agreement") approved
by the Commission or FCC pursuant to Section 252 of the Act
(regardless of whether the approved agreement was negotiated or
arbitrated) which provides for the provision of any individual
interconnection, service, or network element arrangement covered in
this Agreement to another requesting
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 41 OF 48
PACIFIC/PAC-WSET TELECOM
022499
Telecommunications Carrier, including an Affiliate, Pacific shall
make available to CLEC such individual interconnection, service, or
network element arrangement upon the terms and conditions provided
in the Other Agreement which are legitimately related to the
purchase of the individual element being sought. CLEC shall notify
Pacific in writing of the terms and conditions which it desires to
incorporate into this Agreement, and Pacific shall submit the
request by advice letter to the Commission for approval within 30
days after such notice from CLEC. At its sole option, CLEC may also
avail itself of the Other Agreement in its entirety. Nothing in this
Section 30.16 is intended to or shall be construed to restrict in
any manner any Party's rights pursuant to Section 252 of the Act or
any regulations adopted thereunder.
30.17 Joint Work Product
------------------
This Agreement is the joint work product of the Parties and has been
negotiated by the Parties and their respective counsel and shall be
fairly interpreted in accordance with its terms and, in the event of
any ambiguities, no inferences shall be drawn against either Party.
30.18 Intervening Law
---------------
This Agreement is entered into as a result of both private
negotiation between the Parties and the incorporation of the results
of arbitration by the California Public Utilities Commission. If the
actions of the State of California or federal legislative bodies,
courts, or regulatory agencies of competent jurisdiction, including
but not limited to the United States Supreme Court's decision in
AT&T Corp. v. Iowa Utilities Bd., 1999 WL 24568 (U.S.), and any
---------------------------------
remand thereof, invalidate, modify, or stay the enforcement of laws
or regulations that were the basis for a provision of this
Agreement, the affected provision shall be invalidated, modified, or
stayed, consistent with the action of the legislative body, court,
or regulatory agency. In such event, the Parties shall expend
diligent efforts to arrive at an agreement respecting the
modifications to the Agreement. If negotiations fail, disputes
between the Parties concerning the interpretation of the actions
required or provisions affected by such governmental actions shall
be resolved pursuant to the dispute resolution process provided for
in this Agreement.
The Parties further acknowledge and agree that by executing this
Agreement, neither Party waives any of its rights, remedies, or
arguments with respect to AT&T Corp. v. Iowa Utilities Bd., 1999 WL
---------------------------------
24568 (U.S.), or the outcome of any remand thereof including its
rights under this paragraph. Finally, whenever
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 42 OF 48
PACIFIC/PAC-WSET TELECOM
022499
a tariffed rates is cited or quoted, it is understood that said cite
incorporates any changes to said tariffs as required by the
Telecommunications Act of 1996.
30.19 No Third Party Beneficiaries; Disclaimer of Agency
--------------------------------------------------
This Agreement is for the sole benefit of the Parties and their permitted
assigns, and nothing herein express or implied shall create or be
construed to create any third-party beneficiary rights hereunder. Except
for provisions herein expressly authorizing a Party to act for another,
nothing in this Agreement shall constitute a Party as a legal
representative or agent of the other Party, nor shall a Party have the
right or authority to assume, create or incur any liability or any
obligation of any kind, express or implied, against or in the name or on
behalf of the other Party unless otherwise expressly permitted by such
other Party. Except as otherwise expressly provided in this Agreement, no
Party undertakes to perform any obligation of the other Party, whether
regulatory or contractual, or to assume any responsibility for the
management of the other Party's business.
30.20 No License
----------
No license under patents, copyrights or any other intellectual property
right (other than the limited license to use consistent with the terms,
conditions and restrictions of this Agreement) is granted by either Party
or shall be implied or arise by estoppel with respect to any transactions
contemplated under this Agreement.
30.21 Survival
--------
The Parties' obligations under this Agreement which by their nature are
intended to continue beyond the termination or expiration of this
Agreement shall survive the termination or expiration of this Agreement.
30.22 Scope of Agreement
------------------
This Agreement is intended to describe and enable specific
Interconnection and compensation arrangements between the Parties. This
Agreement does not obligate either Party to provide arrangements not
specifically provided herein.
30.23 Entire Agreement
----------------
The terms contained in this Agreement and any Schedules, Exhibits,
Appendices, tariffs and other documents or instruments referred to
herein, which are incorporated into this Agreement by this reference,
constitute the entire agreement between the Parties with respect to the
subject matter hereof, superseding all prior understandings, proposals
and other communications, oral or written. Neither Party shall be bound
by any preprinted terms additional to or different from those in this
Agreement that may appear subsequently in the other Party's form
documents, purchase orders, quotations, acknowledgments, invoices or
other
<PAGE>
GENERAL TERMS AND CONDITIONS
PAGE 43 OF 48
PACIFIC/PAC-WSET TELECOM
022499
communications. This Agreement may only be modified in writing signed by an
officer of each Party.
PAC-WEST TELECOM Pacific Bell
By SBC Telecommunication, Inc.
Its authorized agent
Signature: /s/ Wallance W. Griffin Signature: /s/ Sandy Kinney
-------------------------- -----------------------------
Name: WALLACE W. GRIFFIN Name: Sandy Kinney
------------------------------- ----------------------------------
(Print or Type) (Print or Type)
Title: PRESIDENT & CEO Title: President - Industry Markets
------------------------------
(Print or Type)
Date: June 29, 1999 Date: June 28, 1999
------------------------------- ---------------------------------
<PAGE>
BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
In the Matter of the Application of Pacific Bell )
(U-1001-C) for arbitration of an interconnection )
agreement with Pac-West Telecomm, Inc. ) Application 98-11-024
(U-5266-C) pursuant to Section 252(b) of the )
Telecommunications Act of 1996 )
____________________________________________________)
ERRATA TO APPROVED INTERCONNECTION AGREEMENT
Pac-West Telecomm, Inc. ("Pac-West") hereby submits the following corrected
pages to the Approved Interconnection Agreement between Pacific Bell and Pac-
West Telecomm, Inc., filed on June 29, 1999, pursuant to Ordering Paragraph 1 of
Decision 99-06-088 dated June 24, 1999, and an additional letter from counsel
for Pacific Bell to counsel for Pac-West as follows:
1. "Pac-West Telecom" on the title page has been corrected to "Pac-West
Telecomm, Inc."
2. "Pac-West Telecom, Inc." in the third line of the first paragraph on
page 1 of 48 of the General Terms and Conditions has been corrected to "Pac-West
Telecomm, Inc." Please note that the page headers throughout the document
include the identifier "Pacific/Pac-West Telecom." The header should state
"Pacific/Pac-West Telecomm." Since this language is not part of the text of the
Interconnection Agreement and in an effort to conserve resources, Pac-West is
merely noting this correction and not including separate errata pages.
3. A letter dated June 29, 1999 from Daniel J. McCarthy of Pacific Bell
to James M. Tobin of Morrison & Foerster, counsel for Pac-West. This letter was
attached to the
<PAGE>
copies of the Interconnection Agreement executed by Pacific Bell and delivered
to Pac-West for execution.
Counsel Pacific Bell has concurred in the contents of this Errata.
Respectfully submitted,
/s/ James M. Tobin
James M. Tobin
Mary E. Wand
Ruth Ann Keene
Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105-2482
(415) 268-7000 (telephone)
(415) 268-7522 (facsimile)
June 30, 1999
<PAGE>
TELECOMMUNICATION FACILITY INTERCONNECTION AGREEMENT
----------------------------------------------------
PURSUANT TO THIS TELECOMMUNICATION FACILITY INTERCONNECTION AGREEMENT
("Agreement") for wireline interconnection, GTE California Inc. (GTEC), with its
address for purposes of this Agreement at One GTE Place, Thousand Oaks,
California, and Pac-West Telecomm Inc. (Pac-West) with its address for the
purposes of this Agreement at 4210 Coronado Avenue, Stockton, California
(collectively, "the Parties") will extend certain arrangements to one another
within each LATA in which they both operate within the State of California, as
described and according to the terms, conditions, and pricing specified
hereunder. The Parties enter into this Agreement without prejudice to any
positions they have taken previously, or may take in the future in any
legislative, regulatory, or other forum.
This Agreement shall at all times be subject to such changes or modifications by
the California Public Utilities Commission (CPUC or Commission) or Federal
Communication Commission as either may, from time to time, direct the exercise
of its jurisdiction. If any such modifications renders the Agreement inoperable
or creates any ambiguity or requirement for further amendment to the Agreement,
the Parties will negotiate in good faith to agree upon any necessary amendments
to the Agreement.
ARTICLE 1
RECITALS
WHEREAS, The Telecommunications Act of 1996, signed into law February 8,
1996, --(Pub.L. NO.104-104), gives to the Commission and to the Federal
Communications Commission the authority to promulgate rules and regulations in
accordance therewith; and
WHEREAS, Pac-West and GTE intend to act in accordance with the
requirements, duties and obligations and rights contained in the
Telecommunications Act of 1996 and with any rules and regulations promulgated
thereunder, and
WHEREAS, GTE and Pac-West desire to enter into arrangements for
interconnectivity between their respective common carrier networks, for the
purposes of terminating traffic on each other's network; and
WHEREAS, in the service of inter-operability, the Parties should be able to
efficiently exchange traffic and signaling at well-defined and standardized
points of mutually agreed interconnection;
NOW, THEREFORE, in consideration of the mutual provisions contained herein
and good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged. "GTEC" and Pac-West hereby covenant and agree as follows:
<PAGE>
ARTICLE 2
DEFINITIONS
2.01 "Automatic Number Identification" or " ANI" is a signaling parameter
which refers to the number transmitted through the network identifying
the billing number of the calling party.
2.02 "Calling Party Number" or CPN is a Common Channel Signaling parameter
which refers to the number transmitted through the network
identifying the calling party.
2.03 "Centum Call Seconds (CCS) is a traffic measurement wherein a scan
interval of 100 seconds is used to record usage.
2.04 "End Office Switches" which are Class 5 switches from which end user
Exchange Services are directly connected and offered.
2.05 "Tandem Office Switches" are Class 4 switches which are used to
connect and switch trunks between and among other network Switches.
One Switch may be employed as combination End Office/Tandem Office
switches (combination Class 5/Class 4).
2.06 "Commission" or "CPUC" means the California Public Utilities
Commission.
2.07 "Common Channel Signaling" or "CCS" denotes a method of digitally
transmitting call set-up and network control data over a special
network fully separate from the public switched network that carries
the actual call.
2.08 "Cross Connection" means an intra-wire center channel connecting the
parties' separate pieces of telecommunications equipment.
2.09 "DS1" is a digital signal rate of 1.544 Mbps.
2.10 "DS3" is a digital signal rate of 44.736 Mbps.
2.11 "Electronic File Transfer" refers to any system/process which utilizes
an electronic format and protocol to send/receive data files.
2.12 "Exchange Message Record" or "EMR" is the standard used for the
exchange of telecommunications message information among Local
Exchange Carriers for billable, non-billable, sample, settlement and
study data. EMR format is contained in BR-010-200-010-CRIS Exchange
2
<PAGE>
Message Record, a Bellcore document which defines industry standards
for exchange message records.
2.13 "Exchange Service" means a service offered to end users which provides
the end user with a telephonic connection to, and a unique local
telephone number address on, the public switched telecommunications
network, and which enables such end user to generally place calls to,
or receive calls from, all other stations on the public switched
telecommunications network. Exchange services includes, but not
limited to basic residence and business line service PBX-trunk,
CentraNet(sm) line service and ISDN line services. Exchange Service
does not include Private Line, Toll, Switched and Special Access
Services.
2.14 "Interconnection" denotes the physical interconnection of transmission
facilities used by parties to operate their respective communication
networks. Unless expressly agreed to otherwise, the facilities will be
fiber transmission facilities. The architecture in interconnection may
include several methods, including, but not limited to: virtual
expanded interconnection service (EIS) as provided in GTEC's CPUC
Tariff Schedule C-1, Section 17, mid-span meet, tarriffed special
access services, and transmission capacity furnished by third parties.
2.15 "Interexchange Carrier" or "IXC" means a provider of stand-alone
interLATA telecommunications services.
2.16 "ISDN" means Integrated Services digital network which is a switched
network service providing end-to-end digital connectivity for the
simultaneous transmission of voice and data. ISDN is provisioned end-
to-end pursuant to TR-444.
2.17 "Local Exchange Traffic" means Zone Usage Measurement ("ZUM") Zone 1,
Zone 2, Zone 3 and Extended Area Service Calls.
2.18 "Local Exchange Carrier" or "LEC" and "Competitive Local Exchange
Carrier" or "CLC" shall have the meanings as set forth in Commission
rules for Local Competition, D. 95-07-054, App. A., Sections 3.A and
B, respectively.
2.19 "MECAB" refers to the Multiple Exchange Carrier Access Billing
("MECAB") document prepared by the Billing Committee of the Ordering
and Billing Forum ("OBF"), which functions under the auspices of the
Carrier Liaison Committee ("CLC") of the Alliance for
Telecommunication Industry Solutions ("ATIS"). The
3
<PAGE>
MECAB document, published by Bellcore as Special Report SR-BDS-000983,
contains the recommended guidelines for the billing of an access
service provided by two or more LECs, or by one LEC in two or more
states within a single LATA.
2.20 "MECOD" refers to the Multiple Exchange Carriers Ordering and Design
("MECOD") Guidelines for Access Services - Industry Support Interface,
a document developed by the Ordering/Provisioning Committee under the
auspices of the Ordering and Billing forum ("OBF"), which functions
under the auspices of the Carrier Liaison Committee ("CLC") of the
alliance for Telecommunications Industry solutions ("ATIS"). The MECOD
document published by Bellcore as Special Report SR STS-002643,
established methods for processing orders for access service which is
to be provided by two or more LECs.
2.21 "Meet-Point-Billing" or "MPB" refers to an arrangement whereby GTE and
Pac-West jointly provide facilities between a GTE tandem switch and an
PAC-West end office switch (or vise versa) in order to provide
switched access service to one or more interexchange carriers. MPB
establishes the procedures to bill the interexchange carriers for the
jointly provided switched access.
2.22 "Mid-Span Fiber Meet" is an interconnection architecture whereby two
carriers mutually agree to jointly plan and engineer their facility
meet-point at a designated manhole or junction location by means of a
fiber splice transmission facility.
2.23 "NANP" means the "North America Numbering Plan", the system of
telephone numbering employed in the United States, Canada and the
Caribbean countries which employ NPA 809.
2.24 "Numbering Plan area" or "NPA" is also sometimes referred to as an
area code. This is the three digit indicator which is defined by the
"A", "B", and "C" digits of each 10-digit telephone number within the
North American Numbering Plan ("NANP"). Each NPA contains 800 possible
NXX Codes. There are two general categories of NPA, "Geographic NPA"
and Non-Geographic NPAs". A "Geographic NPA" is associated with a
defined geographic area, and all telephone numbers bearing such NPA
are associated with services provided within that geographic area. A
"Non-Geographic NPA", also known as a "Service Access Code" or SAC
Code" is typically associated with a specialized telecommunications
4
<PAGE>
service which may be provided across multiple geographic NPA
area; 800,900,700, and 888 are examples of Non-Geographic NPAs.
2.25 "NXX", "NXX Code", "Central Office Code" or "CO Code" is the
three digit switch entity indicator which is defined by the "D",
"E", and "F" digit of a 10-digit telephone number within the
North America Numbering Plan ("NANP"). Each NXX Code contains
10,000 station numbers. Historically entire NXX code blocks have
been assigned to specific individual local exchange end office
switches.
2.26 "Percent of Local Usage" (PLU) is a calculation which represents
the ratio of local minutes to the sum of local and intralata toll
minutes between exchange carriers sent over Local Interconnection
Trunks. Directory Assistance, BLV/BLVI, 900, 967 transiting calls
from other exchange carriers or wireless carriers and switched
access calls are not included in the calculation of PLU.
2.27 "Point of Interconnection (POI)" denotes the physical equipment
interface that establishes the technical interface, the test
point and the point of operational responsibility hand-off
between GTE and the CLC for the Local Interconnection of their
networks. The splice point at a mid-span fiber meet is not a POI.
2.28 "Rate Center" means a specific geographic point associated with a
specific geographic area, and the NPA-NXX(s) that service that
area, for the provision of local exchange service. The rate
center point is identified by V and H coordinates. It is used to
classify end user traffic as toll or local and to calculate
mileage for distance sensitive end user rates based on the
originating and terminating rate centers.
2.29 "Routing Point" means a location which a LEC or CLC has
designated on its own network as the homing (routing) point for
traffic inbound to Exchange Services provided by the LEC or CLC
which bear a certain NPA-NXX designation. The Routing Point is
employed to calculate mileage measurements for the distance
sensitive transport element charges of Switched Access Services.
The Routing Point need not be the same as the Rating Point, nor
must it be located within the rate center area, but must be in
the same LATA as the NPA-NXX.
2.30 "Referral Service" means a process in which calls are
5
<PAGE>
================================================================================
Pac-West Pac-West POI GTE Access
Switches Routing Point Tandem
- --------------------------------------------------------------------------------
LSANCARC9KD LSANCARC9KD SNMNCAXP SNMNCAXP43T
- --------------------------------------------------------------------------------
LSANCARC0KD LSANCARC0KD SNMNCAXP LNBHCAXP45T
- --------------------------------------------------------------------------------
LSANCARCAKD LSANCARCAKD LSANCAXP THOKCAXF81T
- --------------------------------------------------------------------------------
LSANCARCBKD LSANCARCBKD SNMNCAXP ONTRCAXP80T
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SNBBCAMC0KD SNBBCAMC0KD SNBBCAXF SNBBCAXF83T
- --------------------------------------------------------------------------------
PLSPCAXG1KD PLSPCAXG1KD PLSPCAXG PLSPCAXG88T
================================================================================
3.03 Connection at All GTE Tandems Within Each LATA:
Pac-West will connect with each and every GTE access tandem in
the LATA(s) in which it originates traffic and interconnects with
GTE.
3.04 Single POI Model, for each GTE access tandem where Pac-West and GTE
interconnect for the exchange of local and intraLATA toll and meet
point Switched Access traffic, Pac-West and GTE agree that there will
be a single POI located within GTE's franchise territory within the
serving area for that particular access tandem.
3.05 Notwithstanding Section 3.03, above, GTE shall not permit direct
connections (optical patch panel) or cross-connections (DSX) between
any Virtual EIS arrangement at the same wire center location. However,
this Agreement does not preclude Pac-West from acquiring from GTE
special access service to connect a Virtual EIS arrangement for the
purpose of establishing a POI at a distant GTE wire center or to
connect between Virtual EIS arrangements in different wire centers.
3.06 The Parties will use best efforts to install meet point and local
interconnection trunks, including expedited in-service requests. In no
case however, will the installation interval exceed 35 days, unless
agreed to by the ordering Party.
3.07 All final trunk groups between the Parties carrying meet-point traffic
will be engineered to a P.005 grade of service. All other final trunk
groups between the Parties will be engineered to a P.01 grade of
service.
7
<PAGE>
================================================================================
Pac-West Pac-West POI GTE Access
Switches Routing Point Tandem
- --------------------------------------------------------------------------------
LSANCARC9KD LSANCARC9KD SNMNCAXP SNMNCAXP43T
- --------------------------------------------------------------------------------
LSANCARC0KD LSANCARC0KD SNMNCAXP LNBHCAXP45T
- --------------------------------------------------------------------------------
LSANCARCAKD LSANCARCAKD LSANCAXP THOKCAXF81T
- --------------------------------------------------------------------------------
LSANCARCBKD LSANCARCBKD SNMNCAXP ONTRCAXP80T
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SNBBCAMC0KD SNBBCAMC0KD SNBBCAXF SNBBCAXF83T
- --------------------------------------------------------------------------------
PLSPCAXG1KD PLSPCAXG1KD PLSPCAXG PLSPCAXG88T
================================================================================
3.03 Connection at All GTE Tandems Within Each LATA:
Pac-West will connect with each and every GTE access tandem in
the LATA(s) in which it originates traffic and interconnects with
GTE.
3.04 Single POI Model, for each GTE access tandem where Pac-West and GTE
interconnect for the exchange of local and intraLATA toll and meet
point Switched Access traffic, Pac-West and GTE agree that there will
be a single POI located within GTE's franchise territory within the
serving area for that particular access tandem.
3.05 Notwithstanding Section 3.03, above, GTE shall not permit direct
connections (optical patch panel) or cross-connections (DSX) between
any Virtual EIS arrangement at the same wire center location. However
this Agreement does not preclude Pac-West from acquiring from GTE
special access service to connect a Virtual EIS arrangement for the
purpose of establishing a POI at a distant GTE wire center or to
connect between Virtual EIS arrangements in different wire centers.
3.06 The Parties will use best efforts to install meet point and local
interconnection trunks, including expedited in-service requests. In no
case however, will the installation interval exceed 35 days, unless
agreed to by the ordering Party.
3.07 All final trunk groups between the Parties carrying meet-point traffic
will be engineered to a P.005 grade of service. All other final trunk
groups between the Parties will be engineered to a P.01 grade of
service.
7
<PAGE>
=========================================================
Pac-West Pac-West POI GTE Access
Switches Routing Point Tandem
- ---------------------------------------------------------
LSANCARC9KD LSANCARC9KD SNMNCAXP SNMNCAXP43T
- ---------------------------------------------------------
LSANCARC0KD LSANCARC0KD SNMNCAXP LNBHCAXP45T
- ---------------------------------------------------------
LSANCARCAKD LSANCARCAKD LSANCAXP THOKCAXF8IT
- ---------------------------------------------------------
LSANCARCBKD LSANCARCBKD SNMNCAXP ONTRCAXP80T
- ---------------------------------------------------------
- ---------------------------------------------------------
SNBBCAMC0KDD SNBBCAMC0KD SNBBCAXF SNBBCAXF83T
- ---------------------------------------------------------
PLSPCAXGIKD PLSPCAXGIKD PLSPCAXG PLSPCAXG88T
- ---------------------------------------------------------
3.03 Connection all All GTE Tandems Within Each LATA:
Pac-West will connect with each and every GTE access tandem in
the LATA's in which it originates traffic and interconnects with
GTE.
3.04 Single POI Model, for each GTE access tandem where Pac-West and GTE
interconnect for the exchange of local and intraLATA toll and meet
point Switched Access traffic, Pac-West and GTE agree that there will
be a single POI located within GTE's franchise territory within the
serving area for that particular access tandem.
3.05 Notwithstanding Section 3.03, above, GTE shall not permit direct
connections (optical patch panel) or cross-connections (DSX) between
any Virtual EIS arrangement at the same wire center location. However
this Agreement does not preclude Pac-West from acquiring from GTE
special access service to connect a Virtual EIS arrangement for the
purpose of establishing a POI at a distant GTE wire center or to
connect between Virtual EIS arrangements in different wire centers.
3.06 The Parties will use best efforts to install meet point and local
interconnection trunks, including expedited in-service requests. In no
case however, will the installation interval exceed 35 days, unless
agreed to by the ordering Party.
3.07 All final trunk groups between the Parties carrying meet-point traffic
will be engineered to a P.005 grade of service. All other final trunk
groups between the Parties will be engineered to a P.01 grade of
service.
7
<PAGE>
ARTICLE 4
NUMBER RESOURCES AND NUMBER PORTABILITY
4.01 Nothing in this Agreement shall be construed to, in any manner, limit
or otherwise adversely impact Pac-West's right to employ or to request
and be assigned any North American Number Plan (NANP) number resources
including, but not limited to central office (NXX) codes pursuant to
the Central Office Code Assignment Guidelines. Any request for
numbering resources by Pac-West shall be made directly to the NANP
Number Plan Administrator. GTE shall not be responsible for the
requesting or the assignment of number resources to Pac-West. Pac-West
shall not request number resources to be assigned to any GTE switching
entity.
4.02 If Pac-West establishes Rate Centers other than those maintained by
GTE, the parties will work in good faith to plan and execute the
necessary network and routing modifications to accommodate new Rate
Centers established by Pac-West.
4.03 Pac-West shall use reasonable efforts to designate at least one POI in
GTE's exchange area for all NPA-NXX's associated with GTE's rate
centers. Pac West shall designate at least one location within a Rate
Center as a Routing Point for its NPA-NXX's.
4.04 The Parties will comply with code administration requirements as
prescribed by the Federal Communications Commission, the CPUC, and
accepted industry guidelines.
4.05 It shall be the responsibility of each Party to program and update its
own switches and network systems pursuant to the Local Exchange
Routing Guide (LERG) guidelines to recognize and route traffic to the
other Party's assigned NXX codes at all times. Neither Party shall
impose any fees or charges whatsoever on the other Party for such
activities.
4.06 Each Party shall provide the other Party with Service Provider Number
Portability (SPNP) for the purpose of allowing end user customers to
change service-providing Parties without changing their telephone
number. GTE shall provide its SPNP to Pac-West at the rates and under
the terms and conditions set forth in its tariff. Pac-West shall
provide SPNP to GTE at rates and under the terms and conditions set
forth in its tariff.
ARTICLE 5
MEET POINT BILLING
8
<PAGE>
5.01 Meet-Point Billing (MPB) arrangements shall be established between the
Parties to enable Pac-West to provide, at its option, Switched Access
Services interexchange carriers via a GTE access tandem in accordance
with the Meet-Point billing guideline adopted by and contained in the
Ordering and Billing Forum's MECAB and MECOD documents. In the case
???? Switched Access Services provided through a GTE tandem, GTE will
not route traffic to or from an interexchange carrier until an order
is received from the interexchange carrier for completion of such
traffic. In no event will GTE be required to route access traffic
through more than one tandem for connection to/from an interexchange
carrier except cases in which Pac-West connects to a secondary tandem
at the request of GTE due to a capacity ???? constraint in a GTE
tandem as described in 5.02 ???? such cases, GTE will switch traffic
to/from Pac-West and an IXC through the required number of tandems to
complete a call. GTE will rate its portion ???? call as if the Pac-
West meet point was located ???? the tandem where the capacity
constraint exists Pac-West shall have sole responsibility to ensure
that any interexchange carrier will accept traffic Pac-West directs to
the interexchange carrier.
5.02 Except in instances of capacity limitations, GTE ???? permit and
enable Pac-West to identify the GTE access tandem closest to the Pac-
West Routing Point associated with the NPA-NXX as the home tandem ????
which Switched Access Services are interchanged ???? the Parties. In
instances of capacity limitation designated access tandem switch, Pac-
West shall ???? allowed to identify an adjacent GTE access tandem GTE
???? provision additional capacity. Pac-West will not incur any higher
charges or degradation of ???? if it accepts service in a secondary
tandem due ???? capacity constrain ts.
5.03 Pursuant to Section 5.02 above, Pac-West shall provide written notice
to GTE identifying the a???? access tandem. Within ten (10) business
days of receiving Pac-West notice, GTE shall provide a written notice
back to Pac-West confirming its selection or stating why the access
tandem is not appropriate and proposing an alternate.
5.04 Common Channel Signaling (CCS) shall be utilized in conjunction with
meet-point billing arrangement ???? extent such signaling is resident
in the GTE access tandem switch.
9
<PAGE>
5.05 Pac-West and GTE will use their best reasonable efforts,
individually and collectively, to maintain provisions in their
respective federal and state access tariffs, and/or provisions
within the National Exchange Carrier Association ("NECA") Tariff
No. 4, or any successor tariff, sufficient to reflect this meet-
point billing arrangement, including meet-point billing
percentages.
5.06 As detailed in the MECAB document, Pac-West and GTE will in a
timely fashion exchange all information necessary to accurately,
reliably and promptly bill interexchange carriers for Switched
Access Services traffic jointly handled by Pac-West and GTE via
the meet-point arrangement. Information shall be exchanged in
Electronic Message Record (EMR) format on magnetic tape or via a
mutually acceptable electronic file transfer protocol.
5.07 GTE and Pac-West shall employ the thirty (30) day cycle interval
billing period for meet-point billing, and shall provide each
other, at no charge and once a month (unless the Parties
otherwise mutually agree, the switched access detailed usage
data. GTE will provide Pac-West with the switched access detailed
usage data within ten (10) days of the end of the calendar month
billing period. Pac-West will provide to GTE the switched access
summary usage data within forty-five (45) days of receipt from
GTE of the switched access detailed usage data.
5.08 Billing to interexchange carriers (including any future
interexchange entities operated by GTE or its affiliates) for the
Switched Access Services jointly provided by GTE and Pac-West via
the meet-point billing arrangement shall be according to the
multiple-bill/multiple-tariff/1/ method. However, upon mutual
agreement, the Parties will enter into single bill arrangements.
Switched Access charges to third parties shall be calculated
utilizing the rates specified in GTE and Pac-West's respective
federal and state access tariffs, in conjunction with the
appropriate meet-point bill percentages specified for each meet-
point arrangement either in those tariffs, in the NECA No. 4
tariff or any functional successor to the NECA No. 4 tariff.
5.09 MPB will apply to all traffic bearing the 800, 888 or
___________________
/1/NECA lists multiple bill/multiple tariff as multiple bill/single tariff
10
<PAGE>
any other non-geographic NPA which may be likewise ???? designated for
such traffic in the future, where t???? responsible party is an IXC.
In those situations w???? the responsible party for such traffic is
other th???? GTE full switched access rates will be charged to ????
responsible LEC or CLC.
5.10 Neither party will charge the other for meet point ???? billing trunks
or the underlying facilities. Pac???? West and GTE shall use their
best efforts to negot???? the terms and conditions for meet-point
billing including but not limited to the Meet Point Billing????
options, bill period, and exchange of usage and bi???? data, and to
sign such an agreement in a timely manner after the effective date of
this Agreement.
5.11 There are certain types of calls that require excha???? of billing
records between the Parties. These type???? calls include: Toll Free
Service Calls, 900 calls, ???? Feature Group B and D Switched Access
calls to and ???? IXCs, and intrastate alternate billed calls (e.g.,
???? calling card, bill-to-third, and collect). The exchange of
billing records for calls of this type ???? be distributed through the
existing CMDS processes. ???? the parties will negotiate and execute
a separate agreement within 30 days from the effective date of this
Agreement, for the settlement of revenues associated with the calls
described above.
ARTICLE 6
INTERCONNECTION TRUNKING
6.01 The Parties shall reciprocally terminate local exch???? traffic and
intraLATA toll calls, and meet-point switched access originating on
each others' network ???? follows:
A. Interconnection will be provided via two-way ???? trunks.
Separate two-way trunks will be establi???? to exchange:
1. Local and IntaLATA toll two-way trunks bet???? GTE and
Pac-West.
2. Meet-Point trunking for Switched Access tra???? between GTE
as an access tandem provider an ???? West as a CLC.
3. Feature Group D (FGD) access trunking betwe???? GTE as a LEC
and Pac-West as an IXC. Pac????
11
<PAGE>
West at its option, may terminate local c???? intraLATA toll
traffic over FGD access tr???? with compensation subject to
the terms and conditions of GTE's Schedule Cal. P.U.C. ????
Switched Access tariff.
B. Tandem switching may be used for trunking be ???? GTE and
Pac-West provided that:
1. GTE will switch calls that terminate on a ???? subtending
GTE end office.
2. The Parties will jointly develop and agree???? Joint
Interconnection Grooming Plan presc???? standards to ensure
that traffic exchanged ???? jointly provided trunk groups
experiences consistent P.01 or better grade of service ????
other appropriate, relevant industry-accep???? quality,
reliability and availability stan???? Such plan shall also
include mutually agre???? upon standards for the configuration
of ???? segregated trunk groups. In addition, the ???? shall
also include standards and procedure ???? notification of
trunk disconnections and ???? discoveries of trunk
disconnections; neither Party shall be expected to maintain
active status for trunk disconnected by the other for an
extended or indefinite period of ti???? The Parties will use
their best collective ???? faith efforts to complete and agree
on such within 90 days following the execution of ????
Agreement.
6.02 Intercompany forecast information must be currently provided by
the Parties to each other twice a year. The Semi-annual forecasts
shall include:
A. Yearly forecasted CCS and trunk quantities for a minimum of
five (5) years;
B. The Common Language Location Identifiers (CLLI ???? and
C. A description of major network projects antici???? for the
following six (6) months. Based on available information in
providing such descri???? the Parties agree to work in good
faith.
6.03 If differences in semi-annual forecasts of the Parties vary by more
than twenty-four (24) trunks, Parties shall meet to attempt to
reconcile the for???? to within twenty-four (24) trunks. If the
Parties, ????
12
<PAGE>
after escalation to an executive level, are unabl???? reach such
reconcilation, either party may invoke default option of one-way
trunking on the affected route.
A. If a trunk group is under seventy-five percent (75%) of CCS
capacity on a monthly average ba???? for each month of any six
(6) month period, e???? Party may issue an order to resize the
trunk ???? which shall be left with not less than twenty-five
percent (25%) excess capacity.
B. Each Party shall provide a specified point of contact for
planning forecasting and servicing purposes.
6.04 Orders to add, change, or disconnect trunks shall ???? processed by
the use by the use of an Access Service Request (ASR) or any order
process determining the industry.
A. Related orders requiring coordination shall be submitted at
the same time.
B. Prior to ordering trunk groups, the initiating Party will contact
the other Party and exchange study data, and also review and
negotiate the forecasted requirements. Orders for two-way ????
groups will not be processed until such action ???? taken and
ordered quantities are agreed to. In the event however, will the
forecast negotiation process exceed 20 business days.
C. By mutual consent, either party may order one-way trunk groups
to satisfy particular network nee????
D. Trunk orders shall include at a minimum the following
information:
1. Correct CLLI codes
2. CLCI-MSG identifiers;
3. If SS7 signaling is required, Pac-West's SS ???? point code
must be included;
4. Orders to augment or disconnect trunk groups shall include
the GTE two-six code, which identifies the particular
signaling, routing digits; and
5. Software translations and routing
13
<PAGE>
information (e.g., feature group
signaling, routing digits; and
6. Correctly populated fields denoting NC/NCI codes.
E. An order for two-way trunking may be converted to an order
for one-way trunking at the option of either Party if:
1. No agreement can be reached between the Parties within
the standards set forth in this Agreement, including
but not limited to the standards for network design or
the capacity or grade of service required.
2. The order is received without compliance with Section
6.04 A.& B.
F. The Parties agree that the ASR or other forms used for
ordering must be complete for the order to be processed.
Trunk orders shall include at a minimum the following
information:
1. Correct CLLI codes;
2. CLCI-MSG identifiers;
3. If SS7 signaling is required, Pac-West SS7 point
code must be included;
6.05 Two-way trunk groups shall be jointly managed by GTE and Pac-
West. One way trunk groups are under exclusive control of the
trunk group originator.
6.06 The Parties will work cooperatively to develop trouble resolution
procedures, including procedures between the parties respective
network control centers. If either Party receives a call from the
subscriber of the other Party, the employees of the Party
receiving the call will not make any damaging or disparaging
remarks about the other Party whatsoever, and will refer the call
to the other party. If the receiving Party receiving the call
cannot determine to which Party the call should be referred, or
does not have the appropriate telephone number, the receiving
party will suggest that the caller refer to an invoice to find
the appropriate telephone number.
ARTICLE 7
DATA BASE SERVICES
14
<PAGE>
7.01 Pac-West may order E-911 Interconnection trunks, and GTE shall
provide the service to Pac-West as authorized and at the approved
tariffed rates as specified in GTE tariff Schedule Cal P.U.C. No.
K6.
7.02 When an end user changes service from GTE to Pac-West, or from
Pac-West to GTE and does not retain its original telephone
number, the party formerly providing service to the end user will
provide a referral service on the abandoned telephone number. The
Parties shall provide these arrangements reciprocally. For
residential customers, referral will be provided for thirty (30)
days. For business customers, referral will be provided for the
life of their current directory listing.
ARTICLE 8
COMPENSATION
8.01 As Ordered in CPUC D. 95-12-056, traffic volumes on jointly
provided two-way trunk groups shall be measured by both Parties.
On a quarterly basis, the Parties shall submit to each other the
amount of local traffic which is terminating on the other Party's
network. Compensation for traffic other than the local usage will
be determined based on the Percentage of Local Usage (PLU).
Unless otherwise required by CPUC order or bill processing
requirements, the reporting interval for PLU should be the same
as reporting intervals for PIU (Percentage of Interstate Usage)
as authorized for access purposes. Compensation shall be paid for
IntraLATA toll calls, toll free (i.e., 800/888) directory
assistance, busy line verification, emergency interrupt.
Compensation shall be paid using each Party's CPUC approved
tariffs and as specified below for local call termination. Data
used to determine compensation is subject to verification by the
other Party.
1. The following compensation rates shall apply for traffic
carried from Pac-West to GTE:
a. Applicable to all local (Zone 1, Zone 2 and Zone 3
Usage Measurement ("ZUM"), Extended Area Service based
on Switched Access rates from Schedule Cal P.U.C.
No. C-1.
- Tandem switched transport - facility Per mile/min
15
<PAGE>
- Mileage is calculated based on airline miles
between the Vertical and Horizontal ("V&H")
coordinates of the POI and the GTE end office.
- Fixed transport Termination - Two terminations per
minute of use (MOU)
- Tandem switching - per MOU
- End Office Switching
b. Toll Rate: Applicable to intraLATA toll calls,
based on intrastate Switched Access rates.
- Tandem switched transport - facility Per mile/min
- Mileage is calculated based on airline miles
between the Vertical and Horizontal ("V&H")
coordinates of the POI and the GTE end office.
- Fixed transport Termination - Two terminations per
minute of use (MOU)
- Tandem switching - per MOU
- Network Interconnection Charge - per MOU
- End Office Switching
- Information Surcharge
The applicable rates for the above elements can be found in GTE's
Schedule Cal. P.U.C. No. C-1.
c. Transit Rate: When Pac-West uses a GTE access tandem
to originate a call to a third party LEC, another
CLC, a wireless service provider or another Pac-West
end office, Pac-West shall compensate GTE at the
rate of $.0015 per minute. If GTE enters into an
interconnection agreement with another CLC that
provides for a transit rate lower that the rate set
forth in GTE's tariff, that transit rate will be
substituted for the rate set in this paragraph upon
the effective date of that agreement. If Pac-West
receives a call through a GTE access tandem that
originates from another
16
<PAGE>
CLC, LEC, or wireless provider, Pac-West will not charge GTE any rate
elements for this call, regardless of whether the call is local or
toll. Pac-West will establish appropriate billing relationships
directly with the other CLC, LEC or wireless provider. Pac-West will
not route calls through GTE's access tandems to any other CLC, LEC or
wireless provider with which GTE has not entered into an
interconnection agreement (including but not limited to, Type 1, Type
2A and Type 2B interconnection agreements entered into pursuant to D.
95-12-056) that has been filed with and approved by the CPUC. If such
calls are nonetheless so routed, GTE will not complete such calls.
2. The following compensation rates shall apply for traffic carried from GTE
to Pac-West:
a. Applicable to all local (Zone 1, Zone 2 and Zone 3 Usage
Measurement ("ZUM"), Extended Area Service.
- Set-up (per call) .01434
- MOU .003
b. Toll Rate: Applicable to intraLATA toll
calls,
- Set-up (per call)
- MOU
The applicable rates for the above elements can be found in Pac-West tariff
Cal PUC 2-T
c. Transit rate: GTE shall pay a transit rate equal to the rate set in
Paragraph 8.02.1.c. when GTE uses a Pac-West switch to originate a
call to a third party LEC, another CLC, a wireless service provider or
another access tandem.
3. Compensation for Local Interconnection Facilities
-------------------------------------------------
The local interconnection facilities connecting the Pac-West routing points
to the POI mutually agreed upon by both parties as set forth on the table
in Paragraph 3.02 above will be established by Pac West. The cost of these
facilities will be paid for solely by Pac-West.
17
<PAGE>
ARTICLE 9
TERM AND TERMINATION OF THE AGREEMENT
9.01 This Agreement shall become effective upon the most recent date
of signature of the Parties (the "Effective Date").
9.02 The initial term of this Agreement shall be one year from the
Effective Date. This Agreement, at all times shall be subject to
such changes or modifications by the Commission as the Commission
may, from time to time, require in the exercise of its
jurisdiction. If any such modification renders the Agreement
inoperable or creates any ambiguity or requirement for future
amendment to the Agreement, the Parties will negotiate in good
faith to agree upon any necessary amendments to the Agreement.
Either Party may terminate this Agreement at the end of the
initial term or at any time thereafter following 60 days' prior
written notice; provided that, the other party at any time during
such 60 day period, may request negotiation of a new
interconnection agreement, in which case interconnection shall
continue between the Parties in full accordance with all of the
terms of this Agreement pending execution of a replacement
interconnection agreement within 125 days from the date the
agreement terminates. If parties are unable to come to agreement
within 125 days, both parties agree to seek resolution from the
CPUC.
9.03 Notwithstanding anything to the contrary contained herein, a
Party may terminate this Agreement to a specific exchange area of
such Party in the event that such Party sells or otherwise
transfers the exchange area or does not provide service in the
exchange area. provided that, the transferee of such exchange
area must first, as condition precedent to such transfer, agree,
for the express benefit of the non-transferring Party, to
continue to interconnect with the non-transferring Party in full
accordance with terms of this Agreement pending execution of a
replacement interconnection agreement between the transferee and
the non-transferring Party. Notwithstanding termination of this
Agreement to a specific exchange area, this Agreement shall
remain in full force and effective in remaining exchange areas
until the Termination Date.
ARTICLE 10
RESPONSIBILITIES OF THE PARTIES
10.01 Pac-West and GTE agree to exchange such reports
18
<PAGE>
and/or to facilitate the proper billing of traffic. Either Party
may request an audit of such usage reports on no fewer than 10
business days' written notice and any audit shall be accomplished
during normal business hours at the office of the Party being
audited. Such audit must be performed by mutually agree-to
independent auditor paid for by the Party requesting the audit.
Such audits shall be requested within six months of having
received the PLU factor and usage reports from the other party.
10.02 Pac-West and GTE will review engineering requirements on a annual
basis and establish forecasts for trunk and facilities
utilization provided under this Agreement. New trunk groups will
be implemented as dictated by engineering requirements for either
GTE or Pac-West.
10.03 Pac-West and GTE shall share responsibility for all Control
Office functions for local interconnection trunks and trunk
groups and both Parties shall share the overall coordination,
installation, and maintenance responsibilities for these trunks
and trunk groups
10.04 Pac-West and GTE shall share responsibility for all Control
Office functions for the meet point trunking arrangement trunks
and trunk groups, and shall be responsible for the overall
coordination, installation, and maintenance responsibilities for
these trunks and trunk groups.
10.05 Pac-West and GTE shall:
1. Provide trained personnel with adequate and compatible test
equipment to work with each other's technicians.
2. Notify each other when there is any change affecting the
service requested including the due date.
3. Coordinate and schedule testing activities of their own
personnel, and other as applicable, to ensure its
interconnections trunk/trunk groups are installed per the
interconnection order, meet agreed-upon acceptance test
requirements, and are placed in service by the due date.
4. Perform sectionalization to determine if a trouble is
located in its facility or its portion of the
interconnection trunks prior to referring the trouble to
each other.
5. Advise each other if there is an equipment failure
19
<PAGE>
which may affect the interconnection trunks
6. Provide each other with a trouble reporting number that is
readily accessible and available 24 hour/7 days a week.
7. Provide each other test line numbers and access to the test
lines.
ARTICLE 11
CONFIDENTIAL INFORMATION
11.01 All information, including but not limited to specifications,
photocopies, magnetic disks, magnetic tapes, drawings, sketches,
models, samples, tools, technical information, data, employee
records, maps, financial reports, and market data, (1) furnished
by one Party to the other Party dealing with customer specific,
facility specific, or usage specific information, other than
customer information communicated for the purpose of publication
of directory database inclusion, or (ii) in written, graphic
electromagnetic, or other tangible forum and marked at the time
of deliver as "Confidential" or "Proprietary", or (iii) by
written notice give to the receiving Party within ten (10) days
after delivery, to be "Confidential" or "Proprietary"
(collectively referred to as "Proprietary Information"), shall
remain the property of the disclosing Party.
Upon request by the disclosing Party, the receiving Party shall
return all tangible copies of Proprietary Information, whether
written, graphic or otherwise, except that the receiving Party
may retain one copy for archival purposes.
11.02 The obligation of confidentiality and use with respect to
Confidential Information disclosed by one Party to the other
Party shall survive any termination of this Agreement for a
period of three (3) years from the date of initial disclosure of
the Confidential Information.
11.03 Each Party shall use the same degree of care to protect the
originating Party's Confidential information from disclosure that
it uses to protect its own confidential information. The
receiving Party shall only disclose the Confidential information
of the originating Party to those employees, contractors, or
agents of the receiving Party who have a need for it in order to
provide telecommunication services and facilities in
20
<PAGE>
accordance with the terms of this Agreement and shall only use the
information in connection with providing such services.
11.04 If either Party is served with legal process or receives from a
regulatory agency, a request to disclose confidential or proprietary
information belonging to the originating Party, that Party shall
immediately notify the originating Party prior to disclosing such
information and will cooperate with it to maintain the confidentiality
of the information until there has been either a legal ruling on the
originating Party's objections to such disclosure or the originating
Party has reached an agreement with the requesting party regarding
the terms and conditions of disclosure. Each Party agrees not to
disclose Confidential or Proprietary Information of the other Party to
any third Party, except as noted above, without written consent of the
originating Party.
ARTICLE 12
INDEMNIFICATION AND LIMITATION OF LIABILITY
12.01 Each Party agrees to release indemnify, defend and hold harmless the
other Party from all losses, claims, demands, damages, expenses, suits
or other actions, or any liability whatsoever, including but not
limited to, cost and attorney's fees, whether suffered, made,
instituted or asserted by any other party or person for invasion of
privacy, personal injury to, or death of, any person or persons, or
for losses damages or destruction of property, whether or not owned by
others, proximately caused by the indemnifying Party's negligence or
willful misconduct, regardless of the form of action.
12.02 DISCLAIMER. EXCEPT AS SPECIFICALLY PROVIDED TO THE CONTRARY IN THIS
-----------
AGREEMENT, NEITHER PARTY MAKES REPRESENTATIONS OR WARRANTIES TO THE
OTHER PARTY CONCERNING THE SPECIFIC QUALITY OF ANY SERVICES PROVIDED
UNDER THIS AGREEMENT. THE PROVIDING PARTIES DISCLAIM, WITHOUT
LIMITATION, ANY WARRANTY OR GUARANTEE OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE, ARISING FROM THE COURSE OF PERFORMANCE,
COURSE OF DEALING, OR FROM USAGES OF TRADE.
12.03 A willful breach of this Agreement which means an intentional act or
an intentional failure to act, actual or constructive knowledge of the
consequences thereof, and a conscious failure to act to avert such
consequences. Except in the case of willful breach of this Agreement
that either prevents the interchange of
21
<PAGE>
traffic in the manner contemplated by this Agreement, or prevents a
Party from properly billing for interchanged traffic each Party
providing services shall have its liability, whether in contract, tort
or otherwise, limited to direct damages, which shall not exceed the
pro rata portion of the charges for services provided pursuant to this
Agreement for the period during which the services are inoperative,
not to exceed in total the providing Party's monthly charges for
services provided. Except in the case of a willful breach of this
Agreement, Under no circumstance shall providing Party be responsible
or liable for indirect, incidental or consequential damages,
including, but not limited to, damages arising from the use or
performance of equipment, software or the loss of use of equipment or
software or accessories attached thereto, delay, error or loss of
data. In connection with this limitation of liability, the Parties
recognize that the providing Party may, from time to time, provide
advice, make recommendations or supply other analysis related to the
equipment or services described in this Agreement and while the
providing Party shall use diligent efforts in this regard, receiving
Party acknowledges and agrees that this limitation of liability shall
apply to provision of such advice, recommendation and analysis.
ARTICLE 13
DISPUTE RESOLUTION
The Parties agree that in the event of a default or violation
hereunder, or for any dispute arising under this Agreement or related
agreements, the Parties may have in connection with this Agreement,
the Parties shall first confer to discuss in good faith the dispute
and seek resolution prior to taking any action before any court or
regulator, or before authorizing any public statement about or
authorizing disclosure of the nature of the dispute to any third
party. Such conference shall occur at least at the Vice President
level for each Party. In the case of GTE, its Vice President, or
equivalent officer, shall participate in the meet and confer meeting,
and Pac West Vice President, or equivalent officer, shall participate.
Thereafter, for any matter that either Party wishes to bring before
the CPUC for resolution, the Parties will employ the Dispute
Resolution procedures set forth in pp. 36-39 of the Order, recognizing
that the Parties have already escalated the dispute to the executive
level as provided in the Dispute Resolution procedures.
ARTICLE 14
DEFAULT
22
<PAGE>
If either Party believes the other is in breach of the agreement or otherwise in
violation of law, it shall first give sixty (60) days' notice of such breach or
violation and an opportunity for allegedly defaulting Party to cure. Thereafter,
the Parties shall employ the Dispute Resolution procedures set forth at pp.
36-39 of the Order.
ARTICLE 15
FORCE MAJEURE
In the event performance of this Agreement or any obligation hereunder is
prevented, restricted or interfered with by reason of acts of God, war,
revolution, civil commotion, acts of the public enemy, embargo, acts of the
government in its sovereign capacity, labor difficulties, unavailability of
equipment or software from vendors, changes made at the request of one Party to
the other Party or any other circumstance beyond reasonable control of the Party
affected, the Party affected upon giving prompt notice to the other Party, shall
be excused from such performance on a day-to-day basis to the extent of such
prevention, restriction or interference (and the other Party shall likewise be
excused from performance of its obligations on a day-to-day basis until the
delay restriction or interference has ceased; provided, however, that the Party
so affected shall use diligent efforts to avoid or remove such cause of
nonperformance and both Parties shall proceed whenever such causes or removed or
cease.
ARTICLE 16
AMENDMENTS
Any amendment, modification or supplement to this Agreement must be in writing
and signed by an authorized representative of each Party. The term "this
Agreement" shall include all future amendments, modifications and supplements.
ARTICLE 17
ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the Parties pertaining the
subject matter of this Agreement and supersedes any and all prior agreements of
any kind whether oral or written.
ARTICLE 18
GOVERNING LAW
23
<PAGE>
This Agreement shall be governed by the construed in
accordance with the laws of the State of California.
ARTICLE 19
NOTICES
Any notice to a Party required or permitted under this
Agreement shall be given in writing and shall be deemed
given on the date of service if notice is served
personally, or on the following business day when
served through electronic mail or facsimile, or on the
date received if notice is served through certified or
registered mail, or on the date receipt is acknowledged
in writing by the receiving Party if served through
regular mail. Business days are Monday's through
Fridays, excepting those days which are holidays of
either or both GTE and Pac-West. Notice shall be given
as follows:
To Ms. Jenny M. Wong
GTE California Incorporated
One GTE Place
Thousand Oaks, CA
Mailcode CA500GC
EMail:
Facsimile:(805)372-7321
Copy to: Susan D. Rossi
GTE California Incorporated
One GTE Place
Thousand Oaks, CA
Mailcode Ca500LB
Facsimile: 805-373-7515
To PAC-WEST TELECOMM, Inc.
John K. La Rue
4210 Coronado Avenue
Stockton, CA 95204
ARTICLE 20
ASSIGNMENT
Any assignment by either Party of any right, obligation or duty,
in whole or in part, or of any interest, without the express
written consent of the other Party, shall be void, except that
either Party may assign all of its rights, obligations and duties
to any legal entity that is a subsidiary or affiliate of that
Party without consent but with required written modification of
this Agreement. The effectiveness of assignment shall be
conditioned upon the assignee's assumption of the rights,
obligations and duties of the assigning
24
<PAGE>
Party.
ARTICLE 21
CONSTRUCTION
This Agreement shall not be construed for or against either Party because such
party prepared or caused its legal representative to prepare this Agreement or
any portion thereof.
ARTICLE 22
PUBLICITY AND USE OF TRADE NAMES
Any news release, public announcement, advertising or any other form of
publicity pertaining to this Agreement or the services provided under and as a
result of this Agreement shall be subject to prior written approval of both GTE
and Pac-West. Furthermore, notwithstanding the foregoing sentence, nothing in
this Agreement shall be deemed to grant, suggest or imply any authority for one
Party to use the name, trademark(s), service marks or trade names of the other
Party for any purpose whatsoever.
ARTICLE 23
INDEPENDENT CONTRACTOR RELATIONSHIP
Persons provided by each Party in the performance of this Agreement shall be
solely that Party's employees and shall be under the sole and exclusive
direction and control of that Party. They shall not be considered employees of
the other Party for any purpose. Each Party shall remain an independent
contractor with respect to the other Party and shall be responsible for
compliance with all laws, rules and regulations involving but not limited to,
employment of labor, hours of labor, health and safety, working conditions and
payment of wages. Each Party shall also be responsible for the payment of taxes,
including federal, state and municipal taxes, chargeable or assessed with
respect to its employees such as Social Security, unemployment worker's
compensation, disability insurance and federal and state withholding. Each Party
shall indemnify the other Party for any loss, damage, liability, claim, demand
or penalty that may be sustained by reason of its failure to comply with this
provision.
ARTICLE 24
USE OF SUBCONTRACTORS
Either Party may enter into subcontracts with third
25
<PAGE>
parties or affiliates for the performance of that Party's obligations
or duties under this Agreement.
IN WITNESS WHEREOF, each Party has executed this Agreement to be
effective as of the most recent date set forth below by the signature
of its duly authorized representative.
For: GTE California Incorporated For: PAC-WEST Telecomm Inc.
By /s/ Timothy J. McCallion By: /s/ John K. LaRue
---------------------------------- ------------------------------------
Name: Timothy J. McCallion Name: John K. LaRue
------------------------------- ----------------------------------
Regulatory & Governmental
Title: Affairs Vice President-West Title: President
------------------------------ ---------------------------------
Date: June 21, 1996 Date: June 19, 1996
------------------------------- ----------------------------------
26
<PAGE>
parties or affiliates for the performance of that Party's obligations
or duties under this Agreement.
ARTICLE 25
SIGNATURE OF THE PARTIES
IN WITNESS WHEREOF, each Party has executed this Agreement to be
effective as of the most recent date set forth below by the signature
of its duly authorized representative.
For: GTE California Incorporated For: PAC-WEST Telecomm Inc.
By__________________________________ By: ___________________________________
Name:_______________________________ Name:__________________________________
Title:______________________________ Title:_________________________________
Date:_______________________________ Date:__________________________________
FORM APPROVED
[SIGNATURE ILLEGIBLE]
----------------------------------
Attorney
Date 6-20-96
------------------------------
26
<PAGE>
[LOGO OF SPRINT APPEARS HERE]
MASTER INTERCONNECTION AND RESALE AGREEMENT
FOR THE STATE OF NEVADA
January 15, 1999
Pac-West Telecomm. Inc
and
The Nevada Division of Central Telephone Company
d/b/a Sprint of Nevada
THIS DOCUMENT REPRESENTS THE CURRENT POSITIONS OF THE SPRINT OPERATING TELEPHONE
COMPANIES WITH RESPECT TO INTERCONNECTION AND RESALE. SPRINT RESERVES THE RIGHT
TO MODIFY THESE POSITIONS. THIS DOCUMENT IS NOT AN OFFER.
<PAGE>
TABLE OF CONTENTS
Page No.
--------
PART A - DEFINITIONS
1. DEFINED TERMS........................................................ 2
PART B - GENERAL TERMS AND CONDITIONS
1. SCOPE OF THIS AGREEMENT............................................. 13
2. REGULATORY APPROVALS................................................ 13
3. TERM AND TERMINATION................................................ 14
4. POST TERMINATION INTERIM SERVICE ARRANGEMENTS....................... 15
5. CHARGES AND PAYMENT................................................. 16
6. AUDITS AND EXAMINATIONS............................................. 17
7. INTELLECTUAL PROPERTY RIGHTS........................................ 18
8. LIMITATION OF LIABILITY............................................. 19
9. INDEMNIFICATION..................................................... 19
10. BRANDING............................................................ 20
11. CONFIDENTIALITY AND PUBLICITY....................................... 21
12. DISCLAIMER OF WARRANTIES............................................ 22
13. ASSIGNMENT AND SUBCONTRACT.......................................... 22
14. GOVERNING LAW....................................................... 23
15. RELATIONSHIP OF PARTIES............................................. 23
16. NO THIRD PARTY BENEFICIARIES........................................ 23
17. NOTICES............................................................. 23
18. WAIVERS............................................................. 24
19. SURVIVAL............................................................ 24
20. FORCE MAJEURE....................................................... 24
21. DISPUTE RESOLUTION.................................................. 25
22. COOPERATION ON FRAUD................................................ 26
23. TAXES............................................................... 26
ii
<PAGE>
<TABLE>
<S> <C>
24. AMENDMENTS AND MODIFICATIONS........................................... 26
25. SEVERABILITY........................................................... 27
26. HEADINGS NOT CONTROLLING............................................... 27
27. ENTIRE AGREEMENT....................................................... 27
28. COUNTERPARTS........................................................... 27
29. SUCCESSORS AND ASSIGNS................................................. 27
30. IMPLEMENTATION PLAN.................................................... 27
31. FEDERAL JURISDICTIONAL AREAS........................................... 29
ATTACHMENT I - GENERAL PRINCIPLES
1. PRICE SCHEDULE......................................................... 31
2. LOCAL SERVICE RESALE................................................... 31
3. INTERCONNECTION AND RECIPROCAL COMPENSATION............................ 31
4. UNBUNDLED NETWORK ELEMENTS............................................. 32
ATTACHMENT II - LOCAL RESALE
1. TELECOMMUNICATIONS SERVICES PROVIDED FOR RESALE........................ 33
2. GENERAL TERMS AND CONDITIONS........................................... 33
ATTACHMENT III - NETWORK ELEMENTS
1. GENERAL................................................................ 36
2. UNBUNDLED NETWORK ELEMENTS............................................. 36
3. BONA FIDE REQUEST PROCESS FOR FURTHER UNBUNDLING....................... 37
4. NETWORK INTERFACE DEVICE............................................... 38
5. LOOP................................................................... 39
6. LOCAL SWITCHING........................................................ 40
7. TANDEM SWITCHING....................................................... 42
8. TRANSPORT.............................................................. 43
9. SIGNALING SYSTEMS AND DATABASES........................................ 44
10. OPERATOR SERVICES...................................................... 48
11. DIRECTORY ASSISTANCE SERVICE........................................... 49
</TABLE>
iii
<PAGE>
ATTACHMENT IV - INTERCONNECTION
1. LOCAL INTERCONNECTION TRUNK ARRANGEMENT............................... 50
2. INTERCONNECTION COMPENSATION MECHANISMS............................... 51
3. SIGNALING............................................................. 53
4. NETWORK SERVICING..................................................... 53
5. NETWORK MANAGEMENT.................................................... 55
6. USAGE MEASUREMENT..................................................... 55
7. TRANSIT TRAFFIC....................................................... 56
8. RESPONSIBILITIES OF THE PARTIES....................................... 57
ATTACHMENT V - INTERIM NUMBER PORTABILITY
1. SPRINT PROVISION OF INTERIM NUMBER PORTABILITY........................ 59
2. INTERIM NUMBER PORTABILITY............................................ 59
3. REQUIREMENTS FOR INP.................................................. 60
ATTACHMENT VI - LOCAL NUMBER PORTABILITY
1. INTRODUCTION ......................................................... 63
2. TRANSITION FROM INP TO LNP............................................ 64
3. TESTING............................................................... 64
4. ENGINEERING AND MAINTENANCE........................................... 64
5. E911/911.............................................................. 65
6. BILLING............................................................... 65
ATTACHMENT VII - GENERAL BUSINESS REQUIREMENTS
1. PROCEDURES............................................................ 66
2. ORDERING AND PROVISIONING............................................. 67
3. BILLING............................................................... 74
4. PROVISION OF SUBSCRIBER USAGE DATA.................................... 75
5. GENERAL NETWORK REQUIREMENTS.......................................... 81
6. MISCELLANEOUS SERVICES AND FUNCTIONS.................................. 82
ATTACHMENT VIII - REPORTING STANDARDS
1. GENERAL............................................................... 99
2. PARITY AND QUALITY MEASUREMENTS....................................... 99
iv
<PAGE>
INTERCONNECTION AND RESALE AGREEMENT
This Interconnection and Resale Agreement (the "Agreement"), entered
into this day of , 199 , is entered into by and between
----- ------------ --
Pac-West Telecomm. Inc. ("CLEC"), a California corporation, and the Nevada
division of Central Telephone Company, a Delaware corporation, d/b/a Sprint of
Nevada ("Sprint"), to establish the rates, terms and conditions for local
interconnection, local resale, and purchase of unbundled network elements
(individually referred to as the "service" or collectively as the "services").
WHEREAS, the Parties wish to interconnect their local exchange networks
for the purposes of transmission and termination of calls, so that customers of
each can receive calls that originate on the other's network and place calls
that terminate on the other's network, and for CLEC's use in the provision of
exchange access ("Local Interconnection"); and
WHEREAS, CLEC wishes to purchase Telecommunications Services for resale
to others, and Sprint is willing to provide such service; and
WHEREAS, CLEC wishes to purchase unbundled network elements, ancillary
services and functions and additional features ("Network Elements"), and to use
such services for itself or for the provision of its Telecommunications Services
to others, and Sprint is willing to provide such services; and
WHEREAS, the Parties intend the rates, terms and conditions of this
Agreement, and their performance of obligations thereunder, to comply with the
Communications Act of 1934,as amended (the "Act"), the Rules and Regulations of
the Federal Communications Commission ("FCC"), and the orders, rules and
regulations of the Public Utilities Commission of Nevada (the "Commission"); and
WHEREAS, the parties wish to replace any and all other prior
agreements, written and oral,applicable to the state of Nevada.
Now, therefore, in consideration of the terms and conditions contained
herein, CLEC and Sprint hereby mutually agree as follows:
1
<PAGE>
PART A - DEFINITIONS
1. DEFINED TERMS
1.1. Certain terms used in this Agreement shall have the meanings as
otherwise defined throughout this Agreement. Other terms used but not
defined herein will have the meaning ascribed to them in the Act or
in the Rules and Regulations of the FCC or the Commission. The
Parties acknowledge that other terms appear in this Agreement which
are not defined or ascribed as stated above. The parties agree that
any such terms shall be construed in accordance with their customary
usage in the telecommunications industry as of the effective date of
this Agreement.
1.2. "911 Site Administrator" is a person assigned by CLEC to establish
and maintain E911 service location information for its subscribers.
1.3. "911 Service" means a universal telephone number which give the
public direct access to the Public Safety Answering Point (PSAP).
Basic 911 service collects 911 calls from one or more local exchange
switches that serve a geographic area. The calls are then sent to the
correct authority designated to receive such calls.
1.4. "Access Service Request (ASR)" means the industry standard forms and
supporting documentation used for ordering Access Services. The ASR
may be used to order trunking and facilities between CLEC and Sprint
for Local Interconnection.
1.5. "Access Services" refers to interstate and intrastate switched access
and private line transport services.
1.6. "Act" means the Communications Act of 1934, as amended.
1.7. "Affiliate" is as defined in the Act.
1.8. "Ancillary Traffic" means all traffic destined for ancillary
services, or that may have special billing requirements, including,
but not limited to the following:
1.8.1. Directory Assistance:
1.8.2. 911/E911:
1.8.3. Operator call termination (busy line interrupt and verify);
and Information services requiring special billing (e.g.,
900 and 950).
1.9. "Automated Message Accounting (AMA)" is the structure inherent in
switch technology that initially records telecommunication message
information. AMA format is contained in the Automated Message
Accounting document, published by Bellcore at GR-1100-CORE which
defines the industry standard for message recording.
2
<PAGE>
1.10. "Automatic Location Identification (ALI)" is a feature developed for
E911 systems that provides for a visual display of the caller's
telephone number, address and the names of the emergency response
agencies that are responsible for that address.
1.11. "Automatic Location Identification/Data Management System (ALI/DMS)"
means the emergency service (E911/911) database containing subscriber
location information (including name, address, telephone number, and
sometimes special information from the local service provider) used
to determine to which Public Safety Answering Point (PSAP) to route
the call.
1.12. "ALI Gateway" is a telephone company computer facility that
interfaces with CLEC's 911 administrative site to receive Automatic
Location Identification data from CLEC.
1.13. "Automatic Number Identification (ANI)" is a feature that identifies
and displays the number of a telephone line that originates a call.
1.14. "Automatic Route Selection (ARS)" is a service feature associated
with a specific grouping of lines that provides for automatic
selection of the least expensive or most appropriate transmission
facility for each call based on criteria programmed into the system.
1.15. "ATU - C" refers to an ADSL Transmission Unit - Central Office.
1.16. "ATU - R" refers to an ADSL Transmission Unit - Remote.
1.17. "Busy Line Verify/Busy Line Verify Interrupt (BLV/BLVI)" means an
operator call in which the caller inquires as to the busy status of,
or request an interruption of a call on another subscriber's
telephone line.
1.18. "Business Day(s)" means the days of the week excluding Saturdays,
Sundays, and all Sprint holidays.
1.19. "Carrier Access Billing System (CABS)" is the system which is defined
in a document prepared under the direction of the Billing Committee
of the OBF. The CABS document is published by Bellcore in Volumes 1,
1A, 2, 3, 3A, 4 and 5 as Special Reports SR-OPT-001868, SR-OPT-
0011869, SR-OPT-001871, SR-OPT-001872, SR-OPT-001873, SR-OPT-001874,
and SR-OPT-001875, respectively, and contains the recommended
guidelines for the billing of access and other connectivity services.
Sprint's carrier access billing system is its Carrier Access Support
System (CASS). CASS mirrors the requirements of CABS.
1.20. "Common Channel Signaling (CCS)" is a method of digitally
transmitting call set-up and network control data over a digital
signaling network fully separate from the public switched telephone
network that carries the actual call.
1.21. "Calling Party Number (CPN)" is CCS parameter which refers to the
number
3
<PAGE>
transmitted through the network identifying the calling party.
1.22. "Central Office Switch" ("Central Office", or "CO"), "End Office" or
"Tandem", or Remote Switch are switching facilities within the public
switched telecommunications network, including, but not limited to:
1.22.1. "End Office Switch" is a switch from which end user
Telephone Exchange Services are directly connected and
offered.
1.22.2. "Tandem Switch" is a switch which is used to connect and
switch trunk circuits between and among Central Office
Switches.
1.22.3. "Remote Switch" is a switch that is away from the host or
control office. All or most of the central control
equipment for the remote switch is located at the host or
control office.
1.23. "Centrex" means a Telecommunications Service associated with a
specific grouping of lines that uses central office switching
equipment for call routing to handle direct dialing of calls, and to
provide numerous private branch exchange-like features.
1.24. "Charge Number" is a CCS parameter which refers to the number
transmitted through the network identifying the billing number of the
calling party.
1.25. "CLASS/LASS" (Bellcore Service Mark) refers to service features that
utilize the capability to forward a calling party's number between
end offices as part of call setup. Feature include Automatic
Callback, Automatic Recall, Caller ID, Call Trace, and Distinctive
Ringing.
1.26. "Competitive Local Exchange Carrier (CLEC) or Alternative Local
Exchange Carrier (ALEC)" means any entity or person authorized to
provide local exchange services in competition with an ILEC.
1.27. "CLEC 911 Database Records" are the CLEC subscriber records to be
provided by CLEC to Sprint for inclusion in Sprint's E911 database.
1.28. "Commission" means the Public Utilities Commission of Nevada.
1.29. "Common Transport" provides a local interoffice transmission path
between the Sprint Tandem Switch and a Sprint or CLEC end office
switch. Common Transport is shared between multiple customers and is
required to be switched at the Tandem.
1.30. "Confidential and or Proprietary Information" has the meaning set
forth in Article 11 of Part A -- General Terms and Conditions.
1.31. "Contract Year" means a twelve- (12) month period during the term of
the contract commencing on the Effective Date and each anniversary
thereof.
1.32. "Control Office" is an exchange carrier center or office designated
as the party's
4
<PAGE>
single point of contact for the provisioning and maintenance of its
portion of local interconnection arrangements.
1.33. "Custom Calling Features" means a set of Telecommunications Service
features available to residential and single-line business customers
including call-waiting, call-forwarding and three-party calling.
1.34. "Customer Proprietary Network Information (CPNI)" means:
1.34.1. information that relates to the quantity, technical
configuration, type, destination, and amount of use of a
Telecommunications Service subscribed to by any customer of
a Telecommunications carrier, and that is made available to
the carrier by the customer solely by virtue of the carrier
customer relationship; and
1.34.2 information contained in the bills pertaining to telephone
exchange service or telephone toll service received by a
customer of a carrier.
1.35. "Database Management System (DBMS)" is a computer process used to
store, sort, manipulate and update the data required to provide
selective routing and ALI.
1.36. "Dedicated Transport" provides a local interoffice transmission path
between sprint and/or CLEC central offices. Dedicated Transport is
limited to the use of a single customer and does not require
switching at a Tandem.
1.37. "Directory Assistance Database" refers to any subscriber record used
by Sprint in its provision of live or automated operator-assisted
directory assistance including but not limited to 411. 555-1212,
NPA-555-1212.
1.38. "Directory Assistance Services" provides listings to callers.
Directory Assistance Services may include the option to complete the
call at the caller's direction.
1.39. "Discloser" means that Party to this Agreement which has disclosed
Confidential Information to the other Party.
1.40. "DSLAM" refers to a Digital Subscriber Line Access Multiplexer.
1.41. "Duct" is a single enclosed path to house facilities to provide
telecommunications services.
1.42. "Enhanced 911 Service (E911)" means a telephone communication
service which will automatically route a call dialed "9-1-1" to a
designated public safety answering point (PSAP) attendant and will
provide to the attendant the calling party's telephone number and,
when possible, the address from which the call is being placed and
the emergency response agencies responsible for the location from
which the call was dialed.
1.43. "E911 Message Trunk" is a dedicated line, trunk or channel between
two central
5
<PAGE>
offices or switching devices which provides a voice and signaling
path for E911 calls.
1.44. "Effective Date" is either thirty (30) days after the date
referenced in the opening paragraph of the Agreement, the filing
date of this Agreement with the Commission if the Commission has
defined the Effective Date as such, or as otherwise required by the
Commission. Absent specific Commission rules to the contrary, the
Effective Date shall be no earlier than proof of CLEC certification
in the jurisdiction.
1.45. "Electronic Interfaces" means access to operations support systems
consisting of preordering, ordering, provisioning, maintenance and
repair and billing functions.
1.46. "Emergency Response Agency" is a governmental entity authorized to
respond to requests from the public to meet emergencies.
1.47. "Environmental Hazard" means any substance the presence, use,
transport, abandonment or disposal of which:
1.47.1. requires investigation, remediation, compensation, fine or
penalty under any Applicable Law (including, without
limitation, the Comprehensive Environmental Response
Compensation and Liability Act, Superfund Amendment and
Reauthorization Act, Resource Conservation Recovery Act, the
Occupational Safety and Health Act and provisions with
similar purposes in applicable foreign, state and local
jurisdiction); or
1.47.2 poses risks to human health, safety or the environment
(including, without limitation, indoor, outdoor or orbital
space environments) and is regulated under any Applicable
Law.
1.48. "Emergency Service number (ESN)" is a number assigned to the ALI and
selective routing databases for all subscriber telephone numbers.
The ESN designates a unique combination of fire, police and
emergency medical service response agencies that serve the address
location of each in-service telephone number.
1.49. "Exchange Message record system (EMR)" refers to the exchanging
telecommunications message information for billable, non-billable,
sample, settlement and study data. EMR format is contained in BR-
010-200-010 CRIS Exchange Message Record, published by Bellcore and
which defines the industry standard for exchange message records.
1.50. "Enhanced Directory Assistance" refers to directory Assistance
services, including but not limited to reverse search, talking
yellow pages, and locator services.
1.51. "Expanded Interconnection Service (EIS)" is the collocation
arrangement which Sprint provides in its designated wire centers.
6
<PAGE>
1.52. "Grandfather Service" means service which is no longer available for
new customers and is limited to the current customer at their
current locations with certain provisioning limitations, including
but not limited to upgrade denials, feature adds/changes and
responsible/billing party.
1.53. "FCC" means the Federal Communications Commission.
1.54. "Incumbent Local Exchange Carrier (ILEC)" means any local exchange
carrier that was, as of February 8, 1996, deemed to be a member of
the Exchange Carrier Association as set forth for the in 47 CFR (S)
69.601 (b) of the FCC's regulations.
1.55. "Interexchange Carrier (IXC)" means a provider of interexchange
telecommunications services.
1.56. "Interim Number Portability (INP)" is a service arrangement whereby
subscribers who change local service providers may retain existing
telephone numbers without impairment of quality, reliability, or
convenience when remaining at their current location or changing
their location within the geographic area served by the initial
carrier's serving central office. Upon implementation of Local
Number Portability, defined herein, INP services will be
discontinued.
1.57. "Line Information Data Base (LIDB)" means a Service Control Point
(SCP) database that provides for such functions as calling card
validation for telephone line number cards issued by Sprint and
other entities and validation fo collect and billed-to-third
services.
1.58. "Local Loop" refers to a transmission path between the main
distribution frame [cross-connect], or its equivalent, in a Sprint
Central Office or wire center, and up to the Network Interface
Device at a customer's premises, to which CLEC is granted exclusive
use. This includes, but is not limited to, two-wire and four-wire
cooper analog voice-grade loops, two-wire and four-wire loops that
are conditioned to transmit the digital signals needed to provide
services such as ISDN and DS1-level signals.
1.59. "Local Number Portability (LNP)" means the ability of users of
Telecommunications Services to retain, at the same Sprint served
rate center, existing telecommunications numbers without impairment
of quality, reliability, or convenience when switching from one
telecommunications carrier to another.
1.60. "Local Service Request (LSR)" means an industry standard form or a
mutually agreed upon change thereof, used by the Parties to add,
establish, change or disconnect local services.
1.61. "Local Traffic" means traffic (excluding CMRS traffic) that is
originated and terminated within Sprint's local calling area, or
mandatory expanded area service (EAS) area, as defined by State
commissions or, if not defined by State commissions then as defined
in existing Sprint tariffs.
<PAGE>
1.62 "Master Street Address Guide (MSAG)" is a database defining the
geographic area of an E911 service. It includes an alphabetical list
of the street names, high-low house number ranges, community names,
and emergency service numbers provided by the countries or their
agents to Sprint.
1.63 "Multiple Exchange Carrier Access Billing (MECAB)" refers to the
document prepared by the Billing Committee of the Alliance for
Telecommunications Industry Solutions (ATIS) Ordering and Billing
Forum (OBF). The MECAB document contains the recommended guidelines
for the billing of an access service provided to a customer by two or
more providers or by one provider in two or more states within a
single LATA.
1.64 "Multiple Exchange Carrier Ordering and Design (MECOD) Guidelines for
Access Services - Industry Support Interface" refers to a document
developed by the Ordering/Provisioning Committee of ATIS OBF. The
MECOD document contains the recommended guidelines for processing
orders for access service which is to be provided by two or more
telecommunications carriers.
1.65 "North American Numbering Plan (NANP)" means the system or method of
telephone numbering employed in the United States, Canada, and certain
Caribbean countries. It denotes the three-digit Numbering Plan Area
code and a seven digit telephone number made up of a three-digit
Central Office code plus a four-digit station number.
1.66 "National Emergency Number Association (NENA)" is an association with
a mission to foster the technological advancement, availability and
implementation of 911 nationwide.
1.67 "Network Element" as defined in the Act.
1.68 "Numbering Plan Area (NPA)" (sometimes referred to as an area code) is
the three-digit indicator which is designated by the first three
digits of each 10-digit telephone number within the NANP. Each NPA
contains 800 possible NXX Codes. There are two general categories of
NPA. "Geographic NPAs" and "Non-Geographic NPAs." A Geographic NPA" is
associated with a defined geographic area, and all telephone numbers
bearing such NPA are associated with services provided within that
geographic area. A "Non-Geographic NPA," also known as a "Service
Access Code (SAC Code)" is typically associated with a specialized
telecommunications service which may be provided across multiple
geographic NPA areas: 500, 800, 900, 700, and 888 are examples of Non-
Geographic NPAs.
1.69 "NXX," "NXX Code,"NNX," "COC," "Central Office Code," or "CO Code" is
the three-digit switch entity indicator which is defined by the
fourth, fifth and sixth digits of a 10-digit telephone number within
NANP.
1.70 "OBF" means the Ordering and Billing Forum, which functions under the
auspices of the Carrier Liaison Committee (CLC) of the Alliance for
8
<PAGE>
Telecommunications Industry Solutions (ATIS)
1.71. "Operator Systems" is the Network Element that provides operator and
automated call handling with billing, special services, subscriber
telephone listings, and optional call completion services.
1.72. "Operator Services" provides for:
1.72.1. operator handling for call completion (e.g., collect calls);
1.72.2. operator or automated assistance for billing after the
subscriber has dialed the called number (e.g., credit card
calls); and
1.72.3. special services (e.g., BLV/BLI, Emergency Agency call).
1.73. "Parity" means, subject to the availability, development and
implementation of necessary industry standard Electronic Interfaces,
the provision by Sprint of services. Network Elements, functionality
or telephone numbering resources under this Agreement to CLEC,
including provisioning and repair, at least equal in quality to those
offered to Sprint, its Affiliates or any other entity that obtains
such services. Network Elements, functionality or telephone numbering
resources. Until the implementation of necessary Electronic
Interfaces, Sprint shall provide such services. Network Elements,
functionality or telephone numbering resources on a non-
discriminatory basis to CLEC as it provides to its Affiliates or any
other entity that obtains such services. Network Elements,
functionality or telephone numbering resources.
1.74 "P.01 Transmission Grade Of Service (GOS)" means a trunk facility
provisioning standard with the statistical probability of no more
than one call in 100 blocked on initial attempt during the average
busy hour.
1.75 "Parties" means, jointly, Pac-West Telecomm. Inc. and the Nevada
division of Central Telephone Company d/b/a Sprint of Nevada, and no
other entity, affiliate, subsidiary or assign.
1.76. "Party" means either Pac-West Telecomm. Inc. or the Nevada division
of Central Telephone Company d/b/a Sprint of Nevada, and no other
entity, affiliate, subsidiary or assign.
1.77. "Percent Local Usage (PLU)" is a calculation which represents the
ratio of the local minutes to the sum of local and intraLATA toll
minutes between exchange carriers sent over Local Interconnection
Trunks, Directory assistance, BLV/BLVI, 900, and 976 transiting calls
from other exchange carriers and switched access calls are not
included in the calculation of PLU.
1.78. "Point Of Interconnection (POI)" is a mutually agreed upon point of
demarcation where the networks of Sprint and CLEC interconnect for
the exchange of traffic.
1.79. "Point of Presence (POP)" means an IXC's point of presence.
9
<PAGE>
1.80. "Proprietary Information" shall have the same meaning as
Confidential Information.
1.81. "Public Safety Answering Point (PSAP)" is the public safety
communications center where 911 calls placed by the public for a
specific geographic area will be answered.
1.82. "Rate Center" means the geographic point and corresponding
geographic area which are associated with one or more particular
NPA-NXX codes which have been assigned to Sprint or CLEC for its
provision of Basic Exchange Telecommunications Services. The "rate
center point" is the finite geographic point identified by a
specific V&H coordinate, which is used to measure distance-sensitive
end user traffic to/from the particular NPA-NXX designations
associated with the specific Rate Center. The "rate center area" is
the exclusive geographic area identified as the area within which
Sprint or CLEC will provide Basic Exchange Telecommunications
Services bearing the particular NPA-NXX designations associated with
the specific Rate Center. The Rate Center point must be located
within the Rate Center area.
1.83. "Recipient" means that party to this Agreement (a) to which
Confidential Information has been disclosed by the other party or
(b) who has obtained Confidential Information in the course of
providing services under this Agreement.
1.84. "Rebranding" occurs when CLEC purchases a wholesale service from
Sprint when CLEC'c brand is substituted for the Sprint brand.
1.85. "Reseller" is a category of Local Exchange service providers who
obtain dial tone and associated Telecommunications Services from
another provider for resale to their end user subscribers.
1.86 "Routing Point" means a location which Sprint or CLEC has designated
on its own network as the homing (routing) point for traffic inbound
to Basic Exchange Services provided by Sprint or CLEC which bear a
certain NPA-NXX designation. The Routing Point is employed to
calculate mileage measurements for the distance-sensitive transport
element charges of Switched Access Services. Pursuant to Bellcore
Practice BR 795-100-100, the Routing Point may be an "End Office"
location, or a "LEC Consortium Point of Interconnection." Pursuant
to that same Bellcore Practice, examples of the latter shall be
designated by a common language location identifier (CLLI) code with
(x)KD in positions 9.10.11. where (x) may by any alphanumeric A-Z
OR 0-9. The above referenced Bellcore document refers to the
Routing Point as the Rating Point. The Rating Point/Routing Point
need not be the same as the Rate Center Point, nor must it be
located within the Rate Center Area, but must be in the same LATA as
the NPA-NXX.
1.87. "Small Exchange Carrier Access Billing (SECAB)" means the document
prepared
10
<PAGE>
by the Billing Committee of the OBF. The SECAB document, published
by ATIS as Special Report SR OPT-001856, contains the recommended
guidelines for the billing of access and other connectivity
services.
1.88. "Selective Routing" is a service which automatically routes an E911
call to the PSAP that has jurisdictional responsibility for the
service address of the telephone that dailed 911, irrespective of
telephone company exchange or wire center boundaries.
1.89. "Signaling Transfer Point(STP)" means a signaling point that
performs message routing functions and provides information for the
routing of messages between signaling points within or between CCIS
networks. A STP transmits, receives and processes CCIS messages.
1.90. "Switch" means a Central Office Switch as defined in this Part A.
1.91. "Switched Access Detail Usage Data" means a category 1101XX record
as defined in the EMR Bellcore Practice BR 010-200-010.
1.92. "Switched Exchange Access Service" means the offering of
transmission or switching services to Telecommunications Carriers
for the purpose of the origination or termination of Telephone Toll
Service. Switched Exchange Access Services include: Feature Group
A, Feature Group B, Feature Group D,800/888 access and 900 access
and their successor or similar Switched Exchange Access Services.
1.93. "Synchronous Optical Network (SONET)" is an optical interface
standard that allows interworking of transmission products from
multiple vendors (i.e. midspan meets). The base rate is 51.84 MHps
(OC-1/STS-1 and higher rates are direct multiples of the base rate
up to 1.22 GHps).
1.94. "Tandem Office Switches", "Tandem", and "Tandem Switching"
describe Class 4 switches which are used to connect and switch
trunk circuits between and among end office switches and other
tandems.
1.95. "Tariff" means a filing made at the state or federal level for
the provision of a telecommunications service by a
telecommunications carrier that provides for the terms, conditions
and pricing of that service. Such filing may be required or
voluntary and may or may not be specifically approved by the
Commission or FCC.
1.96. "Technically Feasible" refers solely to technical or operational
concerns rather than economic, space, or site considerations.
1.97. "Telecommunications" as defined in the Act.
1.98. "Telecommunications Carrier" as defined in the Act.
1.99. "Telecommunication Services" means the offering of
telecommunications for a
11
<PAGE>
fee directly to the public, or to such classes of users as to be
effectively available directly to the public, regardless of the
facilities used.
1.100. "Thousands Block of Numbers" shall mean 1000 or more consecutive
numbers beginning and ending on a digit boundary, e.g., 949-1000 to
949-1999.
1.101. "Transit Service" means the delivery of Local or non-Local Traffic
by Sprint or CLEC, that originated on one Party's network,
transited through the other Party's network, and terminated to a
third party Telecommunications Carrier's network.
1.102. "Transit Traffic" means Local or non-Local traffic that originated
on one Party's network, and terminated to a third party
Telecommunications Carrier's network.
1.103. "Trunk-Side" refers to a Central Office Switch connection that is
capable of, and has been programmed to treat the circuit as,
connecting to another switching entity or another central office
switch. Trunk side connections offer those transmission and
signaling features appropriate for the connection of switching
entities, and cannot be used for the direct connection of ordinary
telephone station sets.
1.104. "Voluntary Federal Subscriber Financial Assistance Programs" are
government programs that subsidize the provision of
Telecommunications Services to low-income subscribers, pursuant to
requirements established by the appropriate state regulatory body.
1.105. "Wholesale Service" as defined in the Act.
1.106. "Wire Center" denotes a building or space within a building which
serves as an aggregation point on a given carrier's network, where
transmission facilities and circuits are connected or switched.
Wire center can also denote a building in which one or more central
offices, used for the provision of Basic Exchange Services and
access services, are located. However, for purposes of EIC service.
Wire Center shall mean those points eligible for such connections
as specified in the FCC Docker No. 91-141, and rules adopted
pursuant thereto.
1.107. "xDSL" refers to a generic term for a new series of high speed
transmission protocols, equipment, and services designed to operate
over copper wire. This series includes but is not limited to ADSL,
VDSL, SDSL, and others.
12
<PAGE>
PART B - GENERAL TERMS AND CONDITIONS
1. SCOPE OF THIS AGREEMENT
1.1. This Agreement, including Parts A, B, and Attachments I through
VIII, specifies the rights and obligations of each party with
respect to the establishment, purchase, and sale of Local
Interconnection, resale of Telecommunications Services and Unbundled
Network Elements. Certain terms used in this Agreement shall have
the meanings defined in PART A -- DEFINITIONS, or as otherwise
elsewhere defined throughout this Agreement. Other terms used but
not defined herein will have the meanings ascribed to them in the
Act, in the FCC's and in the Commission's Rules and Regulations.
PART B sets forth the general terms and conditions governing this
Agreement. The attachments set forth, among other things,
descriptions of the services, pricing, technical and business
requirements, and physical and network security requirements.
LIST OF ATTACHMENTS:
----------------------------------------------------
I. Price Schedule
----------------------------------------------------
II. Local Resale
----------------------------------------------------
III. Network Elements
----------------------------------------------------
IV. Interconnection
----------------------------------------------------
V. Interim Number Portability
----------------------------------------------------
VI. Local Number Portability
----------------------------------------------------
VII. General Business Requirements
----------------------------------------------------
VIII. Reporting Standards
----------------------------------------------------
1.2. Sprint shall provide notice of network changes and upgrades in
accordance with (SS) 51.325 through 51.335 of Title 47 of the Code
of Federal Regulations.
1.3. The services and facilities to be provided to CLEC by Sprint in
satisfaction of this Agreement may be provided pursuant to Sprint
tariffs and then current practices.
2. REGULATORY APPROVALS
2.1. This Agreement, and any amendment or modification hereof, will be
submitted to the Commission for approval in accordance with (S) 252
of the Act within thirty (30) days after obtaining the last required
Agreement signature. Sprint and CLEC shall use their best efforts to
obtain approval of this Agreement by any regulatory body having
jurisdiction over this Agreement. In the event any governmental
authority or agency rejects any provision hereof, the Parties shall
negotiate promptly and in good faith such revisions as may
reasonably be required to achieve approval.
13
<PAGE>
2.2. The Parties acknowledge that the respective rights and obligations
of each party as set forth in this Agreement are based on the texts
of the Act and the rules and regulations promulgated thereunder by
the FCC and the Commission as of the Effective Date ("Applicable
Rules"). In the event of any amendment of the Act, any effective
legislative action or any effective regulatory or judicial order,
rule, regulation, arbitration aware, dispute resolution procedures
under this Agreement or other legal action purporting to apply the
provisions of the Act to the Parties or in which the FCC or the
Commission makes a generic determination that is generally
applicable which revises, modifies or reverses the Applicable Rules
(individually and collectively, Amended Rules), either Party may, by
providing written notice to the other Party, require that the
affected provisions of this Agreement be renegotiated in good faith
and this Agreement shall be amended accordingly to reflect the
pricing, terms and conditions of each such Amended Rules relating to
any of the provisions in this Agreement.
2.3. Notwithstanding any other provision of this Agreement to the
contrary (S)2.2 hereof shall control. Any rates, term or conditions
thus developed or modified shall be substituted in place of those
previously in effect and shall be deemed to have been effective
under this Agreement as of the effective date established by the
amended rules, whether such action was commenced before or after the
Effective Date of this Agreement. Should the Parties be unable to
reach agreement with respect to the applicability of such order or
the resulting appropriate modifications to this Agreement, either
party may invoke the Dispute Resolution provisions of this
Agreement, it being the intent of the parties that this Agreement
shall be brought into conformity with the then current obligations
under the Act as determined by the amended rules.
2.4. Additional services, beyond those specified herein, requested by
either party relating to the subject matter of this Agreement will
be incorporated into this Agreement by written amendment hereto.
3. TERMS AND TERMINATION
3.1. This Agreement shall be deemed effective upon the Effective Date,
provided however that if CLEC has any outstanding past due
obligations to Sprint, this Agreement will not be effective until
such time as any past due obligations with Sprint are paid in full.
No order or request for services under this Agreement shall be
processed before the Effective Date, except as may otherwise be
agreed in writing between the Parties, provided CLEC has established
a customer account with Sprint and has completed the Implementation
Plan described in Article 30 hereof.
3.2. Except as provided herein, Sprint and CLEC agree to provide service
to each other on the terms defined in this Agreement for a period of
two year(s) ending January 14, 2001 ("End Date").
14
<PAGE>
3.3. In the event that CLEC desires uninterrupted service under this
Agreement during negotiations. CLEC shall provide to Sprint written
notification appropriate under the Act, and if the Parties are
actually in arbitration before the appropriate Commission or FCC prior
to the End Date, this Agreement will continue in effect only until the
issuance of an order approving the new Agreement, whether a final non-
appealable order or not, by the Commission or FCC resolving the issues
set forth in such arbitration request.
3.4. In the event of default, the non-defaulting Party may immediately
terminate this Agreement in whole or in part, as set forth herein:
3.4.1. Either Party's insolvency or initiation of bankruptcy or
receivership proceedings by or against the Party: or
3.4.2. Either Party's material breach of any of the terms or
conditions hereof, including the failure to make any
undisputed payment when due provided that the non-defaulting
Party so advises the defaulting Party in writing of the event
of the alleged default and the defaulting Party does not
remedy the alleged default within sixty (60) days after
written notice thereof: and provided further that any such
termination shall be limited to terminating only those
obligations of the non-defaulting Party under this agreement
that are reasonable effected by the default.
3.5. Termination of this Agreement for any cause shall not release either
Party from any liability which at the time of termination has already
accrued to the other Party or which thereafter may accrue in respect
to any act or omission prior to termination or from any obligation
which is expressly stated herein to survive termination.
3.6. In the event this agreement is terminated under (S) 3.4 Sprint may
immediately discontinue processing orders for new service from CLEC
and file with the Commission to terminate this agreement and reassign
CLEC's customers pursuant to the Commission's guidelines for CLEC's
that abandon service.
3.7. Notwithstanding the above, should Sprint sell or trade substantially
all the assets in an exchange or group of exchanges that Sprint uses
to provide Telecommunications Services then Sprint may terminate this
Agreement in whole or in part as to that particular exchange or group
of exchanges upon sixty (60) days prior written notice. Sprint agrees
to provide Carrier with notice of the proposed sale or trade within
five (5) days of the public announcement of execution of an agreement,
memorandum of understanding or letter of intent relating to the
proposed sale or transfer of Sprint's assets in an exchange or group
of exchanges. Sprint shall provide Carrier notice for the purpose of
enabling Carrier to initiate negotiations for a successor agreement
with the proposed buyer.
4. POST TERMINATION INTERIM SERVICE ARRANGEMENTS
15
<PAGE>
4.1. In the event that this Agreement expires under (S) 3.2. it is the
intent of the Parties to provide in this Article for interim service
arrangements between the Parties at the time of expiration so that
service to end users will not be interrupted should a new agreement
not be consummated prior to the End Date. Therefore, except in the
case of termination as a result of either Party's default under (S)
3.4. or for termination upon sale under (S) 3.7. for service made
available under this Agreement and existing as of the End Date, the
Parties agree that those services may continue uninterrupted at the
request of either Party provided that:
4.1.1. a new agreement is voluntarily entered into by the Parties;
or
4.1.2. service is provided under such standard terms and conditions
or tariffs approved by and made generally available by the
Commission, if they exist at the time of termination; or
4.1.3. CLEC elects to take service pursuant to the entire terms and
conditions of an existing agreement between Sprint and
another CLEC for the remaining term of that agreement. If
neither (S) 4.1.1 or (S) 4.1.2 ar in effect, and CLEC does
not designate an agreement under this subsection, Sprint may
designate such agreement.
5. CHARGES AND PAYMENT
5.1. In consideration of the services provided by Sprint under this
Agreement, CLEC shall pay the charges set forth in Attachment I
subject to the provisions of (S)(S) 2.2 and 2.3 hereof. The billing
and payment procedures for charges incurred by CLEC hereunder are set
forth in Attachment VIII.
5.2 In addition to any other applicable charges under this Article 5 and
Attachment I, if CLEC purchases unbundled Local Switching elements,
CLEC shall pay Sprint for intrastate toll minutes of use traversing
such unbundled Local Switching elements, intrastate carrier common
line and interconnection charges as outlined on Attachment I hereto
and any explicit intrastate universal service mechanism based on
access charges.
5.3. Subject to the terms of this Agreement, the Parties shall pay
invoices by the due date shown on the invoice. For invoices not paid
when due, late payment charges will be assessed under (S) 5.5. If the
payment due date is a Saturday, Sunday or a designated bank holiday,
payment shall be made the next business day.
5.4 Billed amounts for which written, itemized disputes or claims have
been filed are not due for payment until such disputes or claims have
been resolved in accordance with the provisions governing dispute
resolution of this Agreement, Itemized, written disputes must be
filed with Sprint's National Exchange Access Center ("NEAC") no later
than the due date of the related invoice. A copy of the dispute must
be sent with the remittance of the remainder of the invoice.
16
<PAGE>
5.5. Sprint will assess late payment charges to CLEC equal to the lesser of
one and one-half percent (1.5%) per month or the maximum rate allowed
by law for commercial transactions, of the balance due, until the
amount due is paid in full.
5.6. In addition to late payment charges, Sprint will use the following
collection procedures in connection with CLEC's past due amounts.
5.6.1. First, the late payment charge described in (S) 5.5 above will
be added to accounts that are not paid within a thirty (30) day
period.
5.6.2. Second, a notice will be sent to CLEC on day 31 stating that
unless full payment is received within the next thirty (30)
days Sprint will suspend processing new orders.
5.6.3. Third, if the CLEC account remains delinquent on day 61 Sprint
will send a second notice to CLEC stating that Sprint has
suspended processing new orders and unless payment is received
by day 90, service for all CLEC end user customers will be
suspended.
5.6.4. Fourth, should the CLEC account remain outstanding on day 91
Sprint will deny service and send a letter to CLEC stating that
their service has been suspended for non-payment.
5.7. Sprint reserves the right to periodically revise its collection
procedure to conform to then current business practices and
regulations. Sprint will provide timely notification to CLEC of
changes to its collection practice in a manner consistent with its own
customer notification.
6. AUDITS AND EXAMINATIONS
6.1. As used herein "Audit" shall mean a comprehensive review of services
performed under this Agreement: "Examination" shall mean an inquiry
into a specific element of or process related to services performed
under this Agreement billed amounts. Either party (the "Requesting
Party") may perform one (1) Audit per twelve (12) month period
commencing with the Effective Date. The Audit period will include no
more than the preceding twelve (12) month period as of the date of the
Audit request. The Requesting Party may perform Examinations, as it
deems necessary, with the assistance of the other Party, which will
not be unreasonably withheld.
6.2. Upon thirty (30) days written notice by the Requesting Party to
Audited Party, Requesting Party shall have the right through its
authorized representative to make an Audit or Examination, during
normal business hours, of any records, accounts and processes which
contain information bearing upon the provision of the services
provided and performance standards agreed to under this Agreement.
Within the above-described thirty (30) day period, the Parties shall
reasonably agree upon the scope of the Audit or Examination, the
documents and processes to
17
<PAGE>
be reviewed, and the time, place and manner in which the Audit or
Examination shall be performed. Audited Party agrees to provide Audit
or Examination support, including appropriate access to and use of
Audited Party's facilities (e.g. conference rooms, telephones, copying
machines).
6.3. Each party shall bear its own expenses in connection with the conduct
of the Audit or Examination. The reasonable cost of special data
extraction required by the Requesting Party to conduct the Audit or
Examination will be paid for by the Requesting Party. For purposes of
this (S) 6.3, a "Special Data Extraction" shall mean the creation of
an output record or informational report (from existing data files)
that is not created in the normal course of business. If any program
is developed to Requesting Party's specifications and at Requesting
Party's expense, Requesting Party shall specify at the time of request
whether the program is to be retained by Audited party for reuse for
any subsequent Audit or Examination.
6.4. Adjustments based on the audit findings may be applied to the twelve
(12) month period included in the audit. Adjustments, credits or
payments shall be made and any corrective action shall commence within
thirty (30) days from receipt of requesting Party's receipt of the
final audit report to compensate for any errors or omissions which are
disclosed by such Audit or Examination and are agreed to by the
Parties. Interest shall be calculated in accordance with (S) 5.5
herein.
6.5. Neither such right to examine and audit nor the right to receive an
adjustment shall be affected by any statement to the contrary
appearing on checks or otherwise, unless such statement expressly
waiving such right appears in writing, is signed by the authorized
representative of the party having such right and is delivered to the
other party in a manner sanctioned by this Agreement.
6.6. This Article 6 shall survive expiration or termination of this
Agreement for a period of one (1) year after expiration or termination
of this Agreement.
7. INTELLECTUAL PROPERTY RIGHTS
7.1. Any intellectual property which originates from or is developed by a
Party shall remain in the exclusive ownership of that Party. Except
for a limited license to use patents or copyrights to the extent
necessary for the Parties to use any facilities or equipment
(including software) or to receive any service solely as provided
under this Agreement, no license in patent, copyright, trademark or
trade secret, or other proprietary or intellectual property right now
or hereafter owned, controlled or licensable by a Party, is granted to
the other Party or shall be implied or arise by estoppel.
7.2. Neither Party shall have any obligation to defend, indemnify or hold
harmless, or acquire any license or right for the benefit of, or owe
any other obligation or any liability to, the other Party based on or
arising from any claim, demand, or proceeding by any third party
alleging or asserting that the use of any circuit, apparatus or
system, or the use of any software, or the performance of any service
18
<PAGE>
or method or the provision or use of any facilities by either party
under this Agreement, constitutes direct or contributory
infringement, or misuse or misappropriation of any patent, copyright,
trademark, trade secret, or any other proprietary or intellectual
property right of any third party.
7.3. Following notice of an infringement claim against Sprint based on the
use by CLEC of a service or facility, CLEC shall at CLEC's expense
procure from the appropriate third parties the right to continue to
use the alleged infringing intellectual property or if CLEC fails to
do so. Sprint may charge CLEC for such costs as permitted under a
Commission order.
8. LIMITATION OF LIABILITY
8.1. Except as otherwise set forth in this Agreement, neither Party shall
be responsible to the other for any indirect, special, consequential
or punitive damages, including (without limitation) damages for loss
of anticipated profits or revenue or other economic loss in
connection with or arising from anything said, omitted, or done
hereunder (collectively "Consequential Damages"), whether arising in
contract or tort, provided that the foregoing shall not limit a
Party's obligation under Article 9 to indemnify, defend, and hold the
other party harmless against amounts payable to third parties.
Notwithstanding the foregoing, in no event shall Sprint's liability
to CLEC for a service outage exceed an amount equal to the
proportionate charge for the service(s) or unbundled element(s)
provided for the period during which the service was affected.
9. INDEMNIFICATION
9.1. Each Party agrees to indemnify and hold harmless the other Party from
and against claims for damage to tangible personal or real property
and/or personal injuries arising out of the negligence or willful act
or omission of the indemnifying Party or its agents, servants,
employees, contractors or representatives. To the extent not
prohibited by law, each Party shall defend, indemnify, and hold the
other Party harmless against any loss to a third party arising out of
the negligence or willful misconduct by such indemnifying Party, its
agents, or contractors in connection with its provision of service or
functions under this Agreement. Notwithstanding the above, in the
case of any loss alleged or damage claim made by a Customer of either
Party in connection with the service provided by that Party, and
which allegation or claim relates in some way to a service provided
under this Agreement, the Party whose customer alleged such loss
shall indemnify the other Party and hold it harmless against any or
all of such loss alleged by each and every Customer which arises out
of the negligence or willful misconduct of the indemnifying Party.
The indemnifying Party under this Article agrees to defend any suit
brought against the other Party either individually or jointly with
the indemnified Party for any such loss, injury, liability, claim or
demand. The indemnified Party agrees to notify the other Party
promptly, in writing, of any written claims, lawsuits or demands for
which it is
19
<PAGE>
claimed that the indemnifying Party is responsible under this Article
and to cooperate in every reasonable way to facilitate defense or
settlement of claims. The indemnifying Party shall have complete
control over defense of the case and over the terms of any proposed
settlement or compromise thereof. The indemnifying Party shall not be
liable under this Article for settlement by the indemnified Party of
any claim, lawsuit, or demand, if the indemnifying Party has not
approved the settlement in advance, unless the indemnifying Party has
had the defense of the claim, lawsuit, or demand tendered to it in
writing and has failed to assume such defense. In the event of such
failure to assume defense, the indemnifying Party shall be liable for
any reasonable settlement made by the indemnified Party without
approval of the indemnifying Party.
9.2. Each Party agrees to indemnify and hold harmless the other Party from
all claims and damages arising from the Indemnifying Party's
discontinuance of service to one of the Indemnifying Party's
subscribers for nonpayment.
9.3 When the lines or services of other companies and Carriers are used
in establishing connections to and/or from points not reached by a
Party's lines, neither Party shall be liable for any act or omission
of the other companies or Carriers.
9.4. In addition to its indemnity obligations hereunder, each Party shall,
to the extent allowed by law or Commission Order, provide, in its
tariffs and contracts with its subscribers that relate to any
Telecommunications Services or Network Element provided or
contemplated under this Agreement, that in no case shall such Party
or any of its agents, contractors or others retained by such Party
be liable to any subscriber or third party for (i) any loss relating
to or arising out of this Agreement, whether in contract or tort,
that exceeds the amount such Party would have charged the applicable
subscriber for the service(s) or function(s) that gave rise to such
loss, and (ii) Consequential Damages (as defined in Article 8 above).
10. BRANDING
10.1. CLEC shall provide the exclusive interface to CLEC subscribers,
except as CLEC shall otherwise specify for the reporting of trouble
or other matters identified by CLEC for which Sprint may directly
communicate with CLEC subscribers. In those instances where CLEC
requests that Sprint personnel interface with CLEC subscribers, such
Sprint personnel shall inform the CLEC subscribers that they are
representing CLEC, or such brand as CLEC may specify.
10.2. Other business materials furnished by Sprint to CLEC subscribers
shall bear no corporate name, logo, trademark or tradename.
10.3. Except as specifically permitted by a Party, in no event shall either
Party provide information to the other Party's subscribers about the
other Party or the other Party's products or services.
20
<PAGE>
10.4. Sprint shall share pertinent details of Sprint's training approaches
related to branding with CLEC to be used by Sprint to assure that
Sprint meets the branding requirements agreed to by the Parties.
10.5. This Article 10 shall not confer on either Party any rights to the
service marks, trademarks and/or trade names owned by or used in
connection with services by the other Party, except as expressly
permitted in writing by the other Party.
11. CONFIDENTIALITY AND PUBLICITY
11.1. All information which is disclosed by one party ("Disclosing Party")
to the other ("Recipient") in connection with this Agreement, or
acquired in the course of performance of this Agreement, shall be
deemed confidential and proprietary to the Disclosing Party and
subject to this Agreement, such information including but not
limited to, orders for services, usage information in any form, and
CPNI as that term is defined by the Act and the rules and
regulations of the FCC ("Confidential and/or Proprietary
Information").
11.2. During the term of this Agreement, and for a period of one (1) year
thereafter, Recipient shall (i) use it only for the purpose of
performing under this Agreement, (ii) hold it in confidence and
disclose it only to employees or agents who have a need to know it
in order to perform under this Agreement, and (iii) safeguard it
from unauthorized use or Disclosure using no less than the degree of
care with which Recipient safeguards its own Confidential
Information.
11.3. Recipient shall have no obligation to safeguard Confidential
Information (i) which was in the Recipient's possession free of
restriction prior to its receipt from Disclosing Party, (ii) which
becomes publicly known or available through no breach of this
Agreement by Recipient, (iii) which is rightly acquired by Recipient
free of restrictions on its Disclosure or, (iv) which is
independently developed by personnel of Recipient to whom the
Disclosing Party's Confidential Information had not been previously
disclosed. Recipient may disclose Confidential Information if
required by law, a court, or governmental agency, provided that
Disclosing Party has been notified of the requirement promptly after
Recipient becomes aware of the requirement, and provided that
Recipient undertakes all lawful measures to avoid disclosing such
information until Disclosing Party has had reasonable time to obtain
a protective order. Recipient agrees to comply with any protective
order that covers the Confidential Information to be disclosed.
11.4. Each Party agrees that Disclosing Party would be irreparably injured
by a breach of this Article 11 by Recipient or its representatives
and that Disclosing Party shall be entitled to seek equitable
relief, including injunctive relief and specific performance, in the
event of any breach of this Article 11. Such remedies shall not be
exclusive, but shall be in addition to all other remedies available
at law or in equity.
21
<PAGE>
11.5. Unless otherwise agreed, neither Party shall publish or use the
other Party's logo, trademark, service mark, name, language,
pictures, symbols or words from which the other Party's name may
reasonably be inferred or implied in any product, service,
advertisement, promotion, or any other publicity matter, except that
nothing in this paragraph shall prohibit a Party from engaging in
valid comparative advertising. This (S) 11.5 shall confer no rights
on a Party to the service marks, trademarks and trade names owned or
used in connection with services by the other Party or its
Affiliates, except as expressly permitted by the other Party.
11.6. Neither Party shall produce, publish, or distribute any press
release nor other publicity referring to the other Party or its
Affiliates, or referring to this Agreement, without the prior
written approval of the other Party. Each party shall obtain the
other Party's prior approval before discussing this Agreement in any
press or media interviews. In no event shall either Party
mischaracterize the contents of this Agreement in any public
statement or in any representation to a governmental entity or
member thereof.
11.7. Except as otherwise expressly provided in this Article 11, nothing
herein shall be construed as limiting the rights of either Party
with respect to its customer information under any applicable law,
including without limitations (S) 222 of the Act.
12. DISCLAIMER OF WARRANTIES
12.1. EXCEPT AS SPECIFICALLY PROVIDED ELSEWHERE IN THIS AGREEMENT TO THE
CONTRARY, NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED WITH RESPECT TO QUALITY, FUNCTIONALITY OR
CHARACTERISTICS OF THE SERVICES PROVIDED PURSUANT TO THIS AGREEMENT,
INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY
AND/OR FITNESS FOR A PARTICULAR PURPOSE. NO REPRESENTATION OR
STATEMENT MADE BY EITHER PARTY OR ANY OF ITS AGENTS OR EMPLOYEES,
ORAL OR WRITTEN, INCLUDING, BUT NOT LIMITED TO, ANY SPECIFICATIONS,
DESCRIPTIONS OR STATEMENTS PROVIDED OR MADE SHALL BE BINDING UPON
EITHER PARTY AS A WARRANTY.
13. ASSIGNMENT AND SUBCONTRACT
13.1. If any Affiliate of either Party succeeds to that portion of the
business of such Party that is responsible for, or entitled to, any
rights, obligations, duties, or other interests under this
Agreement, such Affiliate may succeed to those rights, obligations,
duties, and interest of such Party under this Agreement. In the
event of any such succession hereunder, the successor shall
expressly undertake in writing to the other Party the performance
and liability for those obligations and
22
<PAGE>
duties as to which it is succeeding a Party to this Agreement.
Thereafter, the successor Party shall be deemed Carrier or Sprint and
the original Party shall be relieved of such obligations and duties,
except for matters arising out of events occurring prior to the date
of such undertaking.
13.2. Except as herein before provide, and except for an assignment
confined solely to moneys due or to become due, any assignment of
this Agreement or of the work to be performed, in whole or in part,
or of any other interest of a Party hereunder, without the other
Party's written consent, which consent shall not be unreasonably
withheld or delayed, shall be void. It is expressly agreed that any
assignment of monies shall be void to the extent that it attempts to
impose additional obligations other than the payment of such moneys
on the other Party or the assignee additional to the payment of such
moneys.
14. GOVERNING LAW
14.1. This Agreement shall be governed by and construed in accordance with
the Act, orders of the Commission, and the FCC's Rules and
Regulations, except insofar as state law may control any aspect of
this Agreement, in which case the domestic laws of the State of
Nevada, without regard to its conflicts of laws principles, shall
govern. In all other respects, in the event of a conflict between the
provisions of this Agreement and the Act, the provisions of the Act
shall govern.
15. RELATIONSHIP OF PARTIES
15.1. It is the intention of the Parties that each Party shall be an
independent contractor and nothing contained herein shall constitute
the Parties as joint ventures, partners, employees or agents of one
another, and neither Party shall have the right or power to bind or
obligate the other.
16. NO THIRD PARTY BENEFICIARIES
16.1. The provisions of this Agreement are for the benefit of the Parties
hereto and not for any other person, and this Agreement shall not
provide any person not a party hereto with any remedy, claim,
liability, reimbursement, right of action, or other right in excess
of those existing without reference hereto. This shall not be
construed to prevent Carrier from providing its Telecommunications
Services to other carriers.
17. NOTICES
171.1 Except as otherwise provided herein, all notices or other
communication hereunder shall be deemed to have been duly given when
made in writing and delivered in person or deposited in the United
States mail, certified mail, postage prepaid, return receipt
requested and addresses as follows:
23
<PAGE>
If to Sprint: If to
Director CLEC: Jeff Webster
Local Carner Markets VP Regulatory Affairs
Sprint Pac-West Telecomm, Inc
2330 Shawnee Mission Pkwy 4210 Coronado Avenue
Mailstop KSFR WB0301 Stockton CA 95204
Fairway, KS 66205
with a Brian Theis With a John Clark, Esq
(Regulatory Counsel)
copy to: Regional Director Goodin, MacBride, Squen.
Sprint of Nevada Copy to: Schlotz & Ritchie
330 S. Valley View Blvd. 505 Sansome Street,
Suite 900
Las Vegas NV 89152 San Francisco, CA 94111
17.2. If personal delivery is selected to give notice, a receipt of such
delivery shall be obtained. The address to which notices or
communications may be given to either party may be changed by
written notice given by such Party to the other pursuant to this
Article 17.
18. WAIVERS.
18.1. No waiver of any provisions of this Agreement and no consent to any
default under this Agreement shall be effective unless the same
shall be in writing and properly executed by or on behalf of the
Party against whom such waiver or consent is claimed.
18.2. No course of dealing or failure of any Party to strictly enforce any
term, right, or condition of this Agreement in any instance shall be
construed as a general waiver or relinquishment of such term, right
or condition.
18.3. Waiver by either party of any default by the other Party shall not
be deemed a waiver of any other default.
19. SURVIVAL
19.1. Termination of this Agreement, or any part hereof, for any cause
shall not release either Party from any liability which at the same
time of termination had already accrued to the other Party or which
thereafter accrues in any respect to any act or omission occurring
prior to the termination or from an obligation which is expressly
stated in this Agreement to survive termination including but not
limited to (S)(S) 5.6.7.8.11.16.18.21.
20. FORCE MAJEURE
20.1. Neither Party shall be held liable for any delay or failure in
performance of any
24
<PAGE>
part of this Agreement from any cause beyond its control and without
its fault or negligence, such as acts of God, acts of civil or
military authority, embargoes, epidemics, war, terrorist acts, riots,
insurrections, fires, explosions, earthquakes, nuclear accidents,
floods, power blackouts, strikes, work stoppage affecting a supplier
or unusually severe weather. No delay or other failure to perform
shall be excused pursuant to this Article 20 unless delay or failure
and consequences thereof are beyond the control and without the fault
or negligence of the Party claiming excusable delay or other failure
to perform. In the event of any such excused delay in the performance
of a Party's obligation(s) under this Agreement, the due date for the
performance of the original obligation(s) shall be extended by a term
equal to the time lost by reason of the delay. In the event of such
delay, the delaying Party shall perform its obligations at a
performance level no less than that which it uses for its own
operations. In the event of such performance delay or failure by
Sprint, Sprint agrees to resume performance in a nondiscriminatory
manner and not favor its own provision of Telecommunications Services
above that of CLEC.
21. DISPUTE RESOLUTION
21.1. The Parties recognize and agree that the Commission has continuing
jurisdiction to implement and enforce all terms and conditions of
this Agreement. Accordingly, the Parties agree that any dispute
arising out of or relating to this Agreement that the Parties
themselves cannot resolve may be submitted to the Commission for
resolution. The Parties agree to seek expedited resolution by the
Commission, and shall request that resolution occur in no event later
than sixty (60) days from the date of submission of such dispute. If
the Commission appoints an expert(s) or other facilitator(s) to
assist in its decision making, each party shall pay half of the fees
and expenses so incurred. During the Commission proceeding each Party
shall continue to perform its obligations under this Agreement
provided, however, that neither Party shall be required to act in any
unlawful fashion. This provision shall not preclude the Parties from
seeking relief available in any other forum.
21.2. If any portion of an amount due to a Party ("the Billing Party")
under this Agreement is subject to a bona fide dispute between the
---- ----
Parties, the Party billed (the "Non-Paying Party") shall within
thirty (30) days of its receipt of the invoice containing such
disputed amount give written notice to the Billing Party at the
address(es) indicated in Article 17 herein of the amounts it disputes
("Disputed Amounts") and include in such notice the specific details
and reason for disputing each item. The Non-Paying Party shall pay
when due all undisputed amounts to the Billing Party, and shall
include a copy of the dispute with the payment of the undisputed
amounts. The balance of the Disputed Amount, after the necessary
adjustments have been made for the disputed amounts found in CLEC's
favor, shall be paid with late charges, if appropriate, upon final
determination of such dispute.
25
<PAGE>
21.3. If the Parties are unable to resolve the issues related to the
Disputed Amounts in the normal course of business within thirty (30)
days after delivery to the Billing Party of notice of the Disputed
Amounts, each of the Parties shall appoint a designated
representative that has authority to settle the dispute and that is
at a higher level of management than the persons with direct
responsibility for administration of this Agreement. The designated
representatives shall meet as often as they reasonably deem
necessary in order to discuss the dispute and negotiate in good
faith in an effort to resolve such dispute. The specific format for
such discussions will be left to the discretion of the designated
representatives, however all reasonable requests for relevant
information made by one Party to the other Party shall be honored.
21.4. If the Parties are unable to resolve issues related to the Disputed
Amounts within thirty (30) days after the Parties' appointment of
designated representatives pursuant to (S) 21.3, then either Party
may file a complaint with the Commission to resolve such issues or
proceed with any other remedy pursuant to law or equity. The
Commission may direct payment of any or all funds plus applicable
late charges to be paid to either Party.
22. COOPERATION ON FRAUD
22.1. The Parties agree that they shall cooperate with one another to
investigate, minimize and take corrective action in cases of fraud.
The Parties' fraud minimization procedures are to be cost effective
and implemented so as not to unduly burden or harm one party as
compared to the other.
23. TAXES
23.1 Any Federal, state or local excise, license, sales, use, or other
taxes or tax-like charges (excluding any taxes levied on income)
resulting from the performance of this Agreement shall be borne by
the Party upon which the obligation for payment is imposed under
applicable law, even if the obligation to collect and remit such
taxes is placed upon the other Party. Any such taxes shall be shown
as separate items on applicable billing documents between the
Parties. The Party obligated to collect and remit taxes shall do so
unless the other Party provides such Party with the required
evidence of exemption. The Party so obligated to pay any such taxes
may contest the same in good faith at its own expense, and shall be
entitled to the benefit of any refund or recovery, provided that
such party shall not permit any lien to exist on any asset of the
other party by reason of the contest. The Party obligated to collect
and remit taxes shall cooperate fully in any such contest by the
other Party by providing records, testimony and such additional
information or assistance as may reasonably be necessary to pursue
the contest.
24. AMENDMENTS AND MODIFICATIONS
24.1 No provision of this Agreement shall be deemed waived, amended or
modified by
26
<PAGE>
either party unless such a waiver, amendment or modification is in
writing, dated, and signed by both Parties.
25. SEVERABILITY
25.1 Subject to Part B, Article 2, if any part of this Agreement is held
to be invalid for any reason, such invalidity will affect only the
portion of this Agreement which is invalid. In all other respects
this Agreement will stand as if such invalid provision had not been a
part thereof, and the remainder of the Agreement shall remain in full
force and effect.
26. HEADINGS NOT CONTROLLING
26.1 The headings and numbering of Articles, Sections, Parts and
Attachments in this Agreement are for convenience only and shall not
be construed to define or limit any of the terms herein or affect the
meaning or interpretation of this Agreement.
27. ENTIRE AGREEMENT
27.1 This Agreement, including all Parts and Attachments and subordinate
documents attached hereto or referenced herein, all of which are
hereby incorporated by reference herein, constitute the entire matter
thereof, and supersede all prior oral or written agreements,
representations, statements, negotiations, understandings, proposals,
undertakings with respect to the subject matter thereof.
28. COUNTERPARTS
28.1 This Agreement may be executed in counterparts. Each counterpart
shall be considered an original and such counterparts shall together
constitute one and the same instrument.
29. SUCCESSORS AND ASSIGNS
29.1 This Agreement shall be binding upon, and inure to the benefit of,the
Parties hereto and their respective successors and permitted assigns.
30. IMPLEMENTATION PLAN
30.1 This Agreement sets forth the overall standards of performance for
services, processes, and systems capabilities that the Parties will
provide to each other, and the intervals at which those services,
processes and capabilities will be provided. The Parties understand
that the arrangements and provision of services described in this
Agreement shall require technical and operational coordination
between the Parties. Accordingly, the Parties agree to form a team
(the "Implementation Team") that shall develop and identify those
processes, guidelines, specifications, standards and additional terms
and conditions necessary to support the terms of this Agreement. Each
Party shall designate, in writing, no more than (4)
27
<PAGE>
persons to be permanent members of the Implementation Team;provided
that either Party may include in meetings or activities such
technical specialists or other individuals as may be reasonably
required to address a specific task, matter or subject. Each Party
may replace its representatives by delivering written notice thereof
to the other Party.
30.2. The agreements reached by the Implementation Team shall be documented
in an operations manual (the "Implementation Plan") within one
hundred-twenty (120) days of both Parties having designated members
of the Implementation Team. The Implementation Plan shall address the
following matters, and may include any other matters agreed upon by
the Implementation Team;
30.2.1. the respective duties and responsibilities of the Parties
with respect to the administration and maintenance of the
interconnections (including signaling) specified in
Attachment 3 and the trunk groups specified in Attachment 4
and including standards and procedures for notification and
discoveries of trunk disconnects;
30.2.2. disaster recovery and escalation provisions,
30.2.3. access to Operations Support Systems functions provided
hereunder including gateways and interfaces;
30.2.4. escalation procedures for ordering, provisioning,
billing,and maintenance;
30.2.5. single points of contact for ordering, provisioning,
billing, and maintenance;
30.2.6. service ordering and provisioning procedures, including
provision of the trunks and facilities;
30.2.7. provisioning and maintenance support;
30.2.8. conditioning and provisioning of collocation space and
maintenance of Virtually Collocated equipment;
30.2.9. procedures and processes for Directories and Directory
Listings;
30.2.10. billing processes and procedures;
30.2.11. network planning components including time intervals;
30.2.12. joint systems readiness and operational readiness plans;
30.2.13. appropriate testing of services, equipment, facilities
and Network Elements;
30.2.14. monitoring of inter-company operational processes;
30.2.15. procedures for coordination of local PIC changes and
processing;
28
<PAGE>
30.2.16. physical and network security concerns; and
30.2.17. such other matters specifically referenced in this
Agreement that are to be agreed upon by the Implementation
Team and/or contained in the Implementation Plan.
30.3. The Implementation Plan may be amended from time to time by the
Implementation Team, as the team deems appropriate. Unanimous written
consent of the permanent members of the Implementation Team shall be
required for any action of the Implementation Team. If the
Implementation Team is unable to act, the existing provisions of the
Implementation Plan shall remain in full force and effect.
31. FEDERAL JURISDICTIONAL AREAS
31.1. CLEC understands and agrees that this agreement serves as actual
notice that Sprint and its Affiliates have entered into a binding
contract to provide exclusive telecommunications services for the
Army and Air Force Exchange Service ("AAFES") during the term of this
agreement. The AAFES contract specifies among other things, that
Sprint shall provide all telecommunications services to officer and
enlisted temporary living facilities (commonly named Bachelor Officer
Quarters and Bachelor Enlisted Quarters) and to all unaccompanied
enlisted personnel barracks on United States Army bases. CLEC agrees
it will not market to or attempt to secure any customer located in an
area governed by this exclusive telecommunications service provider
contract.
29
<PAGE>
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed by its duly authorized representatives.
"Sprint" "CLEC"
THE NEVADA DIVISION PAC-WEST TELECOMM.INC.
OF CENTRAL TELEPHONE
COMPANY, D/B/A SPRINT OF
NEVADA
By: /s/ Brian Theis By: /s/ Jeff Webster
---------------- ------------------------
Name /s/ Brian T.Theis Name
(typed): ----------------- (typed): /s/ Jeff Webster
------------------------
Title: Regional Director Title: Vice President Business
----------------- Operations
------------------------
Date: _________________ Date: 01/15/99
------------------------
30
<PAGE>
ATTACHMENT I
GENERAL PRINCIPLES
1. PRICE SCHEDULE
1.1. Subject to the provisions of Part B, Article 2 of this Agreement, all
rates provided under this Agreement shall remain in effect for the
term of this Agreement.
2. LOCAL SERVICE RESALE
2.1. The rates that CLEC shall pay to Sprint for Local Resale are as set
forth in Table 1 of this Attachment and shall be applied consistent
with the provisions of Attachment II of this Agreement.
3. INTERCONNECTION AND RECIPROCAL COMPENSATION
3.1. The rates to be charged for the exchange of Local Traffic are set
forth in Table 1 of this Attachment and shall be applied consistent
with the provisions of Attachment IV of this Agreement.
3.2. Compensation for the termination of toll traffic and the origination
of 800 traffic between the interconnecting parties shall be based on
the applicable access charges in accordance with FCC and Commission
Rules and Regulations and consistent with the provisions of Attachment
IV of this Agreement.
3.3 INP is available in all Sprint service areas where LNP is not
available. Once LNP is available, all INP arrangements will be
converted to LNP. Where INP is available and a toll call is completed
through Sprint's INP arrangement (e.g., remote call forwarding) to
CLEC's subscriber. CLEC shall be entitled to applicable access charges
in accordance with the FCC and Commission Rules and Regulations. If a
national standard billing method has not been developed for a CLEC to
directly bill a carrier access for a toll call that has been completed
using interim number portability, then the blended rate per line
method described in (S) 3.3.1 herein will be used.
3.3.1. The Parties will jointly determine the amount of traffic that
will be considered INP'ed traffic for compensation purposes.
The ported party shall charge the porting party on a per line
basis using an average of Sprint's per line minutes of use and
Sprint's access rates in lieu of any other compensation
charges for terminating such traffic. The traffic that is not
identified as INP'ed will be compensated as local
interconnection as set forth in (S) 3.1.
3.3.2. For compensation of the INP Local Traffic, the Parties shall
jointly develop a process which will allow compensation for
INP'ed traffic to be based on the initial origination point
and final terminated point of the
31
<PAGE>
INP'ed call. The full reciprocal compensation rate, as listed
in the Pricing Schedule, shall apply for Local Traffic, and
full switched access charges, as listed in applicable tariffs,
shall apply for intraLATA and interLATA. All three sets of
rates will be weighted together based on the agreed minutes of
use patterns to establish a single rate per INP line.
3.3.3. CLEC shall pay a transit rate, comprised of the transport and
tandem rate elements, as set forth in Table 1 of this
Attachement when CLEC uses a Sprint access tandem to terminate
a local call to a third party LEC or another CLEC. Sprint shall
pay CLEC a transit rate equal to the Sprint rate referenced
above when Sprint uses a CLEC switch to terminate a local call
to a third party LEC or another CLEC.
3.4 To receive reciprocal compensation for local calls, the call must
originate and terminate within Sprint's tariffed local calling area.
In order to treat a call terminating to CLEC as local, CLEC will
established a point of interconnection (POI) as defined in Attachment
IV, (S)1.2.1 herin, within Sprint's local serving area (or at Sprint's
option, at the tandem/host office). Should CLEC not establish a POI,
as noted above, each Party will compensate the other via the
intraLATA toil settlement arrangement currently in existence between
Sprint and CLEC, which is based on the rates and elements included in
the Parties access tariffs. In addition, Sprint will bill toll charges
to Sprint's end users that originate calls to CLEC's NXXs.
4. UNBUNDLED NETWORK ELEMENTS
4.1. The charges that CLEC shall pay to Sprint for Unbundled Network
Elements are set forth in Table 1 of this Attachment I.
32
<PAGE>
TABLE 1 NETWORK ELEMENT PRICE LIST-SPRINT NEVADA
- ------------------------------------------------------------
RESALE DISCOUNTS:
- ------------------------------------------------------------
Other than Operator/DA 21.00%
Op Assist/DA 21.00%
- ------------------------------------------------------------
USAGE FILE CHARGES:
- ------------------------------------------------------------
Message Provisioning, per message $0.005
Data Transmission, per message $0.002
Tape Charge, per tape $50.00
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
RATE ELEMENT SOURCE RECURRING RATE NRC
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TELRIC COST STUDY
- ------------------------------------------------------------------------------------------------------
Service Order NRC $25.15
- ------------------------------------------------------------------------------------------------------
Service Order Listing Only $20.82
- ------------------------------------------------------------------------------------------------------
Service Order via IRES $ 3.66
- ------------------------------------------------------------------------------------------------------
Central Office interconnection Charge $ 4.90
- ------------------------------------------------------------------------------------------------------
Trip Charge $17.00
- ------------------------------------------------------------------------------------------------------
Outside Plant interconnection (2-W) $30.76
- ------------------------------------------------------------------------------------------------------
Outside Plant interconnection (4-W) $51.52
- ------------------------------------------------------------------------------------------------------
Testing $ 1.31
- ------------------------------------------------------------------------------------------------------
Loop Rework Charge (2-W) $ 9.55
- ------------------------------------------------------------------------------------------------------
Loop Rework Charge (4-W) $13.70
- ------------------------------------------------------------------------------------------------------
Trouble Isolation and Testing $68.36
- ------------------------------------------------------------------------------------------------------
NID TELRIC COST STUDY
- ------------------------------------------------------------------------------------------------------
Network Interface Device w/1 Line $ 1.55
- ------------------------------------------------------------------------------------------------------
Network Interface Device w/2 Lines $ 1.77
- ------------------------------------------------------------------------------------------------------
Network Interface Device w/6 Lines $ 3.10
- ------------------------------------------------------------------------------------------------------
LOOP TELRIC COST STUDY
- ------------------------------------------------------------------------------------------------------
Analog 2-wire Band 1 $ 9.51
- ------------------------------------------------------------------------------------------------------
Band 2 $12.59
- ------------------------------------------------------------------------------------------------------
Band 3 $15.71
- ------------------------------------------------------------------------------------------------------
Band 4 $22.45
- ------------------------------------------------------------------------------------------------------
Band 5 $53.36
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Analog 4-wire Band 1 $15.12
- ------------------------------------------------------------------------------------------------------
Band 2 $20.02
- ------------------------------------------------------------------------------------------------------
Band 3 $24.99
- ------------------------------------------------------------------------------------------------------
Band 4 $35.70
- ------------------------------------------------------------------------------------------------------
Band 5 $84.84
- ------------------------------------------------------------------------------------------------------
LOCAL SWITCHING TELRIC COST STUDY
- ------------------------------------------------------------------------------------------------------
Band 1 $ 6.17
- ------------------------------------------------------------------------------------------------------
Band 2 $ 7.21
- ------------------------------------------------------------------------------------------------------
Band 3 $10.42
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Intrastate CCL Ong* Intrastate Access Tariff N/A
- ------------------------------------------------------------------------------------------------------
Intrastate CCL Term* N/A
- ------------------------------------------------------------------------------------------------------
RIC* Current tariff rate
- ------------------------------------------------------------------------------------------------------
LOOP & PORT COMB. Discount TELRIC COST STUDY
- ------------------------------------------------------------------------------------------------------
(1 Line NID. 2 Wire Loop & Basic Port) $ 1.68 N/A
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
FEATURES TELRIC COST STUDY
- ------------------------------------------------------------------------------------------------------
CCL Package* $ 0.35 $ 2.55
- ------------------------------------------------------------------------------------------------------
3 Way Calling - Usage Sens. $ 0.01 N/A
- ------------------------------------------------------------------------------------------------------
CLASS Package $ 4.31 $ 4.90
- ------------------------------------------------------------------------------------------------------
</TABLE>
Page 1 of 9
<PAGE>
TABLE 1 NETWORK ELEMENT PRICELIST - SPRINT NEVADA
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
. Automatic Recall - Usage Per Call $ 0.003 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
. Customer Originated Trace - Per Trace $ 0.17 $ 0.47
- ------------------------------------------------------------------------------------------------------------------------------------
. Automatic Callback - Usage-per Trace $ 0.01 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
CENTREX Package $ 10.95 $ 23.06
- ------------------------------------------------------------------------------------------------------------------------------------
. 3 Way Conf/Consult/Hold Transfer $ 2.95 $ 13.20
- ------------------------------------------------------------------------------------------------------------------------------------
. Conf Calling - 6 Way Station Control $ 4.69 $ 13.20
- ------------------------------------------------------------------------------------------------------------------------------------
. Dial Transfer to Tandem Tie Line $ 0.11 $ 88.02
- ------------------------------------------------------------------------------------------------------------------------------------
. Direct Connect $ 0.01 $ 13.20
- ------------------------------------------------------------------------------------------------------------------------------------
. Meet Me Conference $ 31.03 $ 22.24
- ------------------------------------------------------------------------------------------------------------------------------------
. Multi-Hunt Service $ 0.05 $ 13.20
- ------------------------------------------------------------------------------------------------------------------------------------
INTERIM NUMBER PORTABILITY TELRIC COST STUDY
- ------------------------------------------------------------------------------------------------------------------------------------
RCF Residential $ 0.07 $ 0.47
- ------------------------------------------------------------------------------------------------------------------------------------
RCF Business $ 0.29 $ 0.47
- ------------------------------------------------------------------------------------------------------------------------------------
Call Path Residential $ 0.01 $ 0.42
- ------------------------------------------------------------------------------------------------------------------------------------
Call Path Business $ 0.05 $ 0.42
- ------------------------------------------------------------------------------------------------------------------------------------
TANDEM SWITCHING TELRIC COST STUDY
- ------------------------------------------------------------------------------------------------------------------------------------
$ 0.001341 $ 93.40
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORT TELRIC COST STUDY
- ------------------------------------------------------------------------------------------------------------------------------------
Dedicated DS 1 1 Zone - 1 Ring $ 64.51 $ 102.53
- ------------------------------------------------------------------------------------------------------------------------------------
2 Zone - 1 Ring $ 93.79 $ 102.53
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 1 Ring, 1 Zone 2 Rings $ 126.34 $ 102.53
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 1 Ring, 1 Zone 3 Rings $ 197.46 $ 102.53
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 2 Rings $ 97.06 $ 102.53
- ------------------------------------------------------------------------------------------------------------------------------------
2 Zone 2 Rings $ 156.57 $ 102.53
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 2 Rings, 1 Zone 3 Rings $ 227.68 $ 102.53
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 1 Ring, 1 Zone 2 Rings, 1 Zone 3 Rings $ 256.96 $ 102.53
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 3 Rings $ 168.17 $ 102.53
- ------------------------------------------------------------------------------------------------------------------------------------
2 Zone, 3 Rings $ 295.28 $ 102.53
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Dedicated DS 3 1 Zone - 1 Ring $ 819.93 $ 207.09
- ------------------------------------------------------------------------------------------------------------------------------------
2 Zone - 1 Ring $ 1,639.86 $ 207.09
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 1 Ring, 1 Zone 2 Rings $ 2,486.11 $ 207.09
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 1 Ring, 1 Zone 3 Rings $ 4,379.10 $ 207.09
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone - 2 Rings $ 1,666.18 $ 207.09
- ------------------------------------------------------------------------------------------------------------------------------------
2 Zone - 2 Rings $ 3,332.36 $ 207.09
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 2 Rings, 1 Zone 3 Rings $ 5,225.34 $ 207.09
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 1 Ring, 1 Zone 2 Rings, 1 Zone 3 Rings $ 6,045.28 $ 207.09
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone - 3 Rings $ 3,559.17 $ 207.09
- ------------------------------------------------------------------------------------------------------------------------------------
2 Zone - 3 Rings $ 7,118.33 $ 207.09
- ------------------------------------------------------------------------------------------------------------------------------------
Common
- ------------------------------------------------------------------------------------------------------------------------------------
State Wide Average $ 0.000493 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
RECIPROCAL COMPENSATION TELRIC COST STUDY
- ------------------------------------------------------------------------------------------------------------------------------------
(End Office/TDM Switching/Transport)
- ------------------------------------------------------------------------------------------------------------------------------------
END OFFICE $ 0.002532 $ 93.40
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TANDEM SWITCHING $ 0.001341 $ 93.40
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORT
- ------------------------------------------------------------------------------------------------------------------------------------
Dedicated DS 1 1 Zone - 1 Ring $ 64.51 $ 102.53
- ------------------------------------------------------------------------------------------------------------------------------------
2 Zone - 1 Ring $ 696.79 $ 102.53
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 9
<PAGE>
TABLE 1 NETWORK ELEMENT PRICE LIST-SPRINT NEVADA
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 Zone 1 Ring, 1 Zone 2 Rings $ 126.34 $102.53
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 1 Ring, 1 Zone 3 Rings $ 197.46 $102.53
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 2 Rings $ 97.06 $102.53
- ------------------------------------------------------------------------------------------------------------------------------------
2 Zone 2 Rings $ 156.57 $102.53
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 2 Rings, 1 Zone 3 Rings $ 227.66 $102.53
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 1 Ring, 1 Zone 2 Rings 1 Zone 3 Rings $ 256.96 $102.53
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 3 Rings $ 168.17 $102.53
- ------------------------------------------------------------------------------------------------------------------------------------
2 Zone, 3 Rings $ 295.28 $102.53
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Dedicated DS 3 1 Zone - 1 Ring $ 819.93 $207.09
- ------------------------------------------------------------------------------------------------------------------------------------
2 Zone - 1 Ring $1,639.86 $207.09
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 1 Ring, 1 Zone 2 Rings $2,486.11 $207.09
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 1 Ring, 1 Zone 3 Rings $4.379.10 $207.09
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 2 Rings $1,666.18 $207.09
- ------------------------------------------------------------------------------------------------------------------------------------
2 Zone 2 Rings $3,332.36 $207.09
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 2 Rings, 1 Zone 3 Rings $5,225.34 $207.09
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 1 Ring, 1 Zone 2 Rings 1 Zone 3 Rings $6,045.28 $207.09
- ------------------------------------------------------------------------------------------------------------------------------------
1 Zone 3 Rings $3,559.17 $207.09
- ------------------------------------------------------------------------------------------------------------------------------------
2 Zone, 3 Rings $7,118.33
- ------------------------------------------------------------------------------------------------------------------------------------
Common (MOU)
- ------------------------------------------------------------------------------------------------------------------------------------
State Wide Average $0.000493 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
INTERCONNECTION Interstate Access Tariff
- ------------------------------------------------------------------------------------------------------------------------------------
CROSS CONNECTION
- ------------------------------------------------------------------------------------------------------------------------------------
DS0 Elec X-Conn $ 0.96
- ------------------------------------------------------------------------------------------------------------------------------------
DS1 Elec X-Conn $ 2.99
- ------------------------------------------------------------------------------------------------------------------------------------
DS3 Elec X-Conn $ 26.47
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON CHANNEL SIGNALING
- ------------------------------------------------------------------------------------------------------------------------------------
INTERCONNECTION SERVICE TELRIC COST STUDY
- ------------------------------------------------------------------------------------------------------------------------------------
STP Port $ 491.55 $244.28
- ------------------------------------------------------------------------------------------------------------------------------------
STP Switching $ 0.9841 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
56.0 Kbps Channel Termination $ 65.00 $160.65
- ------------------------------------------------------------------------------------------------------------------------------------
56.0 Kbps SS7 Link Fixed $ 75.00 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
56.0 Kbps SS7 Link Per Mile $ 3.00 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1.544 MPBS Channel Termination $ 115.00 $350.00
- ------------------------------------------------------------------------------------------------------------------------------------
1.544 MBPS SS7 Link Fixed $ 70.00 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1.544 MBPS SS7 Link Per Mile $ 5.00 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Multiplexing DS1 to DS0 (required w/1.544 Mbps) $ 200.00 $108.73
- ------------------------------------------------------------------------------------------------------------------------------------
Global Title Translation per service add/cng Interstate Access Tariff $ 10.90
- ------------------------------------------------------------------------------------------------------------------------------------
Originating Point Code per OPC per service add/cng Interstate Access Tariff $ 21.80
- ------------------------------------------------------------------------------------------------------------------------------------
LINE INFORMATION DATABASE TELRIC COST STUDY
- ------------------------------------------------------------------------------------------------------------------------------------
LIDB Administration Service (effective 5/11/98, on longer offering) N/A
- ------------------------------------------------------------------------------------------------------------------------------------
LIDB Database Transport per query Current tariff rate
- ------------------------------------------------------------------------------------------------------------------------------------
LIDB Database per query Current tariff rate
- ------------------------------------------------------------------------------------------------------------------------------------
Toll Free Code Access Service query Current tariff rate
- ------------------------------------------------------------------------------------------------------------------------------------
Toll Free Code Optional Service query Current tariff rate
- ------------------------------------------------------------------------------------------------------------------------------------
DIRECTORY ASSISTANCE SERVICES TELRIC COST STUDY
- ------------------------------------------------------------------------------------------------------------------------------------
Sprint Nevada Tariff
- ------------------------------------------------------------------------------------------------------------------------------------
DA Database Listing & Update per listing or update $ 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
DA Data Base Query Service per query $ 0.0140
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pages 3 of 9
<PAGE>
TABLE 1
NETWORK ELEMENT PRICE LIST - SPRINT NEVADA
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOLL AND LOCAL OPERATOR SERVICES
- -------------------------------------------------------------------------------------------------------------------------
Toll and Local Assistance Service (Live) per attempt $0.877
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
DA OPERATOR SERVICE TELRIC COST STUDY
- -------------------------------------------------------------------------------------------------------------------------
Sprint Nevada Tariff
- -------------------------------------------------------------------------------------------------------------------------
DA Operator Service (Live) per attempt $0.351
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
911. TANDEM PORT TELRIC COST STUDY
- -------------------------------------------------------------------------------------------------------------------------
Sprint Nevada Tariff
- -------------------------------------------------------------------------------------------------------------------------
Per DSO Equivalent Port $21.38 $133.18
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
OPERATIONAL SUPPORT SYSTEMS
- -------------------------------------------------------------------------------------------------------------------------
OSS Interfaces* ICB ICB
- -------------------------------------------------------------------------------------------------------------------------
* Sprint is working on OSS and rates will be added
- -------------------------------------------------------------------------------------------------------------------------
as they are developed.
=========================================================================================================================
</TABLE>
Page 4 of 9
<PAGE>
Table 1 LOCAL LOOPS-SPRINT NEVADA
2 Wire Voice 4 Wire Voice
EXCHANGE CLLI Band Grade Rate Grade Rate
- --------------------------------------------------------------------------------
Las Vegas XBH LSVGNVXBH BAND1 $ 9.51 $15.12
Las Vegas XGH LSVGNVXGH BAND1 $ 9.51 $15.12
Las Vegas XHH LSVGNVXHH BAND2 $12.59 $20.02
Las Vegas XKH LSVGNVXKH BAND2 $12.59 $20.02
Las Vegas XLH LSVGNVXLH BAND2 $12.59 $20.02
Las Vegas XMH LSVGNVXMH BAND2 $12.59 $20.02
North Las Vegas XFH NLVGNVXFH BAND2 $12.59 $20.02
Las Vegas XIH LSVGNVXIH BAND3 $15.71 $24.99
Las Vegas XRH LSVGNVXRH BAND3 $15.71 $24.99
Las Vegas XTH LSVGNVXTH BAND3 $15.71 $24.99
Las Vegas XWH LSVGNVXWH BAND3 $15.71 $24.99
Boulder City BLCYNVXFH BAND4 $22.45 $35.70
Henderson HNSNNVXFH BAND4 $22.45 $35.70
Las Vegas XUH LSVGNVXUH BAND4 $22.45 $35.70
Las Vegas XVH LSVGNVXVH BAND4 $22.45 $35.70
North Las Vegas XGH NLVGNVXGH BAND4 $22.45 $35.70
Blue Diamond/Jeans BDMDMNVXSR/JEANNVXF BAND5 $53.36 $84.84
Laughlin LGLNNVXFH BAND5 $53.36 $84.84
Mount Charieston MTCHNVXFR BAND5 $53.36 $84.84
Searchlight/Nelson SRCHNVXFR/NLSNNVXBR BAND5 $53.36 $84.84
Page 5 of 9
<PAGE>
TABLE 1 LOCAL SWITCHING-SPRINT NEVADA
Rate
Band Rate
- --------------------------------------------------------------
LAS VEGAS (EAST-1), NV 1 $ 6.17
LAS VEGAS (EAST-2), NV 1 $ 6.17
LAS VEGAS (MAIN-2), NV 1 $ 6.17
LAS VEGAS (NORTH-5), NV 1 $ 6.17
LAS VEGAS (NORTH-8), NV 1 $ 6.17
LAS VEGAS (SOUTH-5 #1), NV 1 $ 6.17
LAS VEGAS (SOUTH-5 #2), NV 1 $ 6.17
LAS VEGAS (WEST), NV 1 $ 6.17
LAS VEGAS (WEST-8), NV 1 $ 6.17
NORTH LAS VEGAS (NORTH-2), NV 1 $ 6.17
HENDERSON (564/5/6), NV 2 $ 7.21
LAS VEGAS (EAST-7), NV 2 $ 7.21
LAS VEGAS (MAIN-1), NV 2 $ 7.21
LAS VEGAS (SOUTH-6), NV 2 $ 7.21
LAS VEGAS (SOUTH 897/6.361*), NV 2 $ 7.21
LAS VEGAS (WEST-6), NV 2 $ 7.21
NORTH LAS VEGAS (NORTH-3), NV 2 $ 7.21
BLUE DIAMOND. NV 3 $ 10.42
BOULDER CITY (293/4), NV 3 $ 10.42
JEAN (874), NV 3 $ 10.42
LAUGHLIN (298/9*), NV 3 $ 10.42
MT. CHARLESTON. NV 3 $ 10.42
Page 6 of 9
<PAGE>
TABLE 1 RECIPROCAL COMPENSATION-END OFFICE
SPRINT-NEVADA
BLUE DIAMOND, NV $0.002532
BOULDER CITY (293/4), NV $0.002532
HENDERSON (564/5/6), NV $0.002532
JEAN (874), NV $0,002532
LAS VEGAS (EAST-1), NV $0.002532
LAS VEGAS (EAST-2), NV $0.002532
LAS VEGAS (EAST-7), NV $0.002532
LAS VEGAS (MAIN-1), NV $0.002532
LAS VEGAS (MAIN-2), NV $0.002532
LAS VEGAS (NORTH-5), NV $0.002532
LAS VEGAS (NORTH-8), NV $0.002532
LAS VEGAS (SOUTH-5#1), NV $0.002532
LAS VEGAS (SOUTH-5#2), NV $0.002532
LAS VEGAS (SOUTH-6), NV $0.002532
LAS VEGAS (SOUTH 897/6.361*), NV $0.002532
LAS VEGAS (WEST), NV $0.002532
LAS VEGAS (WEST-6), NV $0.002532
LAS VEGAS (WEST-8), NV $0.002532
LAUGHLIN (298/9*), NV $0.002532
MT.CHARLESTON, NV $0.002532
NORTH LAS VEGAS (NORTH-2), NV $0.002532
NORTH LAS VEGAS (NORTH-3), NV $0.002532
Page 7 of 9
<PAGE>
TABLE 1
DEDICATED TRANSPORT - DSI
SPRINT - NEVADA
<TABLE>
<CAPTION>
BLCYNVXF LSVGNVXR LSVGNVXI LSVGNVXM HNSNNVXF LSVGNVXB NLVGNVXF NLVGNVXG
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BLCYNVXF $168.17 $227.68 $197.46 $295.28 $168.17 $227.68 $227.68
LSVGNVXR $168.17 $126.34 $ 93.79 $168.17 $ 64.51 $126.34 $126.34
LSVGNVXI $227.68 $126.34 $126.34 $227.68 $ 97.06 $ 97.06 $ 97.06
LSVGNVXM $197.46 $ 93.79 $126.34 $197.46 $ 64.51 $126.34 $126.34
HNSNNVXF $295.28 $168.17 $227.68 $197.46 $168.17 $227.68 $227.68
LSVGNVXB $168.17 $ 64.51 $ 97.06 $ 64.51 $168.17 $ 97.06 $ 97.06
NLVGNVXF $227.68 $126.34 $ 97.06 $126.34 $227.68 $ 97.06 $ 97.06
NLVGNVXG $227.68 $126.34 $ 97.06 $126.34 $227.68 $ 97.06 $ 97.06
LSVGNVXU $227.68 $126.34 $156.57 $126.34 $227.68 $ 97.06 $156.57 $156.57
LSVGNVXT $227.68 $126.34 $ 97.06 $126.34 $227.68 $ 97.06 $ 97.06 $ 97.06
LSVGNVXG $197.46 $ 64.51 $126.34 $ 64.51 $197.46 $ 64.51 $126.34 $126.34
LSVGNVXL $197.46 $ 64.51 $126.34 $ 93.79 $197.46 $ 64.51 $126.34 $126.34
LSVGNVXV $227.68 $126.34 $156.57 $126.34 $227.68 $ 97.06 $156.57 $156.57
LSVGNVXK $197.46 $ 93.79 $126.34 $ 93.79 $197.46 $ 64.51 $126.34 $126.34
LSVGNVXH $227.68 $126.34 $156.57 $126.34 $227.68 $ 97.06 $156.57 $156.57
LSVGNVXW $227.68 $126.34 $156.57 $126.34 $227.68 $ 97.06 $156.57 $156.57
<CAPTION>
LSVGNVXU LSVGNVXT LSVGNVXG LSVGNVXL LSVGNVXV LSVGNVXK LSVGNVXH LSVGNVXW
<C> <C> <C> <C> <C> <C> <C> <C>
BLCYNVXF $227.68 $227.68 $197.46 $197.46 $227.68 $197.46 $227.68 $227.68
LSVGNVXR $126.34 $126.34 $ 64.51 $ 64.51 $126.34 $ 93.79 $126.34 $126.34
LSVGNVXI $156.57 $ 97.06 $126.34 $126.34 $156.57 $126.34 $156.57 $156.57
LSVGNVXM $126.34 $126.34 $ 64.51 $ 93.79 $126.34 $ 93.79 $126.34 $126.34
HNSNNVXF $227.68 $227.68 $197.46 $197.46 $227.68 $197.46 $227.68 $227.68
LSVGNVXB $ 97.06 $ 97.06 $ 64.51 $ 64.51 $ 97.06 $ 64.51 $ 97.06 $ 97.06
NLVGNVXF $156.57 $ 97.06 $126.34 $126.34 $156.57 $126.34 $156.57 $156.57
NLVGNVXG $156.57 $ 97.06 $126.34 $126.34 $156.57 $126.34 $156.57 $157.57
LSVGNVXU $ 97.06 $126.34 $126.34 $156.57 $126.34 $156.57 $ 97.06
LSVGNVXT $ 97.06 $126.34 $126.34 $156.57 $126.34 $156.57 $ 97.06
LSVGNVXG $126.34 $126.34 $ 64.51 $126.34 $ 64.51 $126.34 $126.34
LSVGNVXL $126.34 $126.34 $ 64.51 $ 97.06 $ 93.79 $126.34 $126.34
LSVGNVXV $156.57 $156.57 $126.34 $ 97.06 $126.34 $156.57 $156.57
LSVGNVXK $126.34 $126.34 $ 64.51 $ 93.79 $126.34 $ 97.06 $ 97.06
LSVGNVXH $156.57 $156.57 $126.34 $126.34 $156.57 $ 97.06 $ 97.06
LSVGNVXW $ 97.06 $ 97.06 $126.34 $126.34 $156.57 $ 97.06 $ 97.06
</TABLE>
Page 8 of 9
<PAGE>
TABLE 1
DEDICATED TRANSPORT - DS3
SPRINT - NEVADA
<TABLE>
<CAPTION>
BLCYNVXF LSVGNVXR LSVGNVXI LSVGNVXM HSNNVXF LSVGNVXB NLVGNVXF NLVGNVXG
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BLCYNVXF $3,559.17 $5,225.34 $4,379.10 $7,118.33 $3,559.17 $5,225.34 $5,225.34
LSVGNVXR $3,559.17 $2,486.11 $1,639.86 $3,559.17 $ 819.93 $2,486.11 $2,486.11
LSVGNVXI $5,225.34 $2,486.11 $2,486.11 $5,225.34 $1,666.18 $1,666.18 $1,666.18
LSVGNVXM $4,379.10 $1,639,86 $2,486.11 $4,379.10 $ 819.93 $2,486.11 $2,486.11
HSNNVXF $7,118.33 $3,559.17 $5,225.34 $4,379.10 $3,559.17 $5,225.34 $5,225.34
LSVGNVXB $3,559.17 $ 819.93 $1,666.18 $ 819.93 $3,559.17 $1,666.18 $1,666.18
NLVGNVXF $5,225.34 $2,486.11 $1,666.18 $2,486.11 $5,225.34 $1,666.18 $1,666.18
NLVGNVXG $5,225.34 $2,486.11 $1,666.18 $2,486.11 $5,225.34 $1,666.18 $1,666.18
LSVGNVXU $5,225.34 $2,486.11 $3,332.36 $2,486.11 $5,225.34 $1,666.18 $3,332.36 $3,332.36
LSVGNVXT $5,225.34 $2,486.11 $1,666.18 $2,486.11 $5,225.34 $1,666.18 $1,666.18 $1,666.18
LSVGNVXG $4,379.10 $ 819.93 $2,486.11 $ 819.93 $4,379.10 $ 819.93 $2,486.11 $2,486.11
LSVGNVXL $4,379.10 $ 819.93 $2,486.11 $1,639.86 $4,379.10 $ 819.93 $2,486.11 $2,486.11
LSVGNVXV $5,225.34 $2,486.11 $3,332.36 $2,486.11 $5,225.34 $1,666.18 $3,332.36 $3,332.36
LSVGNVXK $4,379.10 $1,639,86 $2,486.11 $1,639.86 $4,379.10 $ 819.93 $2,486.11 $2,486.11
LSVGNVXH $5,225.34 $2,486.11 $3,332.36 $2,486.11 $5,225.34 $1,666.18 $3,332.36 $3,332.36
LSVGNVXW $5,225.34 $2,486.11 $3,332.36 $2,486.11 $5,225.34 $1,666.18 $3,332.36 $3,332.36
<CAPTION>
LSVGNVXU LSVGNVXT LSVGNVXG LSVGNVXL LSVGNVXV LSVGNVXK LSVGNVXH LSVGNVXW
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BLCYNVXF29A $5,225.34 $5,225.34 $4,379.10 $4,379.10 $5,225.34 $4,379.10 $5,225.34 $5,225.34
LSVGNVXR45A $2,486.11 $2,486.11 $ 819.93 $ 819.93 $2,486.11 $1,639.86 $2,486.11 $2,486.11
LSVGNVXI45E $3,332.36 $1,666.18 $2,486.11 $2,486.11 $3,332.36 $2,486.11 $3,332.36 $3,332.36
LSVGNVXM45H $2,486.11 $2,486.11 $ 819.93 $ 819.93 $2,486.11 $1,639.86 $2,486.11 $2,486.11
HSNNVXF56A $5,225.34 $5,225.34 $4,379.10 $4,379.10 $5,225.34 $4,379.10 $5,225.34 $5,225.34
LSVGNVXB41T $1,666.18 $1,666.18 $ 819.93 $ 819.93 $1,666.18 $ 819.93 $1,666.18 $1,666.18
NLVGNVXF64A $3,332.36 $1,666.18 $2,486.11 $2,486.11 $3,332.36 $2,486.11 $3,332.36 $3,332.36
NLVGNVXG64E $3,332.36 $1,666.18 $2,486.11 $2,486.11 $3,332.36 $2,486.11 $3,332.36 $3,332.36
LSVGNVXU645 $1,666.18 $2,486.11 $2,486.11 $3,332.36 $2,486.11 $3,332.36 $1,666.18
LSVGNVXT64C $1,666.18 $2,486.11 $2,486.11 $3,332.36 $2,486.11 $3,332.36 $1,666.18
LSVGNVXG73C $2,486.11 $2,486.11 $ 819.93 $2,486.11 $ 819.93 $2,486.11 $2,486.11
LSVGNVXL73H $2,486.11 $2,486.11 $ 819.93 $1,666.18 $1,639.86 $2,486.11 $2,486.11
LSVGNVXV361 $3,332.36 $3,332.36 $2,486.11 $1,666.18 $2,486.11 $3,332.36 $3,332.36
LSVGNVXK36E $2,486.11 $2,486.11 $ 819.93 $1,639.86 $2,486.11 $1,666.18 $1,666.18
LSVGNVXH87K $3,332.36 $3,332.36 $2,486.11 $2,486.11 $3,332.36 $1,666.18 $1,666.18
LSVGNVXW36A $1,666.18 $1,666.18 $2,486.11 $2,486.11 $3,332.36 $1,666.18 $1,666.18
</TABLE>
Page 9 of 9
<PAGE>
ATTACHMENT II
LOCAL RESALE
1. TELECOMMUNICATIONS SERVICES PROVIDED FOR RESALE
1.1. At the request of CLEC, and pursuant to the requirements of the Act
and FCC and Commission Rules and Regulations, Sprint shall make
available to CLEC for resale Telecommunications Services that Sprint
currently provides or may provide hereafter at retail to subscribers
who are not telecommunications carriers. Such resale may be as allowed
by the FCC and Commission. The Telecommunications Services provided by
Sprint to CLEC pursuant to this Attachment II are collectively
referred to as "Local Resale."
1.2. To the extent that this Attachment describes services which Sprint
shall make available to CLEC for resale pursuant to this Agreement,
this list of services is neither all inclusive nor exclusive.
2. GENERAL TERMS AND CONDITIONS
2.1. Pricing. The prices charged to CLEC for Local Resale are set forth in
Attachment I of this Agreement.
2.1.1.CENTREX Requirements
2.1.1.1. At CLEC's option, CLEC may purchase the entire set of
CENTREX features or a subset of any such features.
2.1.1.2. All features and functions of CENTREX Service,
including CENTREX Management System (CMS), whether
offered under tariff or otherwise, shall be available
to CLEC for resale.
2.1.1.3. Sprint shall make information required for an "as is"
transfer of CENTREX subscriber service, features,
functionalities and CMS capabilities available to
CLEC.
2.1.1.4. Consistent with Sprint's tariffs, CLEC, at its
expense, may collect all data and aggregate the
CENTREX local exchange, and IntraLATA traffic usage
of CLEC subscribers to qualify for volume discounts
on the basis of such aggregated usage.
2.1.1.5. CLEC may request that Sprint suppress the need for
CLEC subscribers to dial "9" when placing calls
outside the CENTREX System. Should CLEC request this
capability for its subscriber, the subscriber will
not be able to use 4-digit dialing.
2.1.1.6. CLEC may resell call forwarding in conjunction with
CENTREX Service.
33
<PAGE>
2.1.1.7. CLEC may purchase any CENTREX Service for resale
subject to the requirements of Sprint's tariff.
2.1.1.8. Sprint shall make available to CLEC for resale
intercom calling within the same CENTREX system. To
the extent that Sprint offers its own subscribers
intercom calling between different CENTREX systems.
Sprint shall make such capability available to CLEC
for resale.
2.1.1.9. CLEC may resell Automatic Route Selection ("ARS"),
CLEC may aggregate multiple CLEC subscribers on
dedicated access facilities where such aggregation is
allowed by law, rule or regulation.
2.1.2. Voluntary Federal and State Subscriber Financial Assistance
Programs
2.1.2.1. Subsidized local Telecommunications Services are
provided to low-income subscribers pursuant to
requirements established by the appropriate state
regulatory body, and include programs such as
Voluntary Federal Subscriber Financial Assistance
Program and Link-up America. Voluntary Federal and
State Subscriber Financial Assistance Programs are
not Telecommunications Services that are available
for resale under this Agreement. However, when a
Sprint subscriber who is eligible for such a federal
program or other similar state program chooses to
obtain Local Resale from CLEC and CLEC serves such
subscriber via Local Resale, Sprint shall identify
such subscriber's eligibility to participate in such
programs to CLEC in accordance with the procedures
set forth herein.
2.1.3. Grandfathered Services. Sprint shall offer for resale to CLEC
all Grandfathered Services solely for the existing
grandfathered base on a customer specific basis. Sprint shall
make reasonable efforts to provide CLEC with advance copy of
any request for the termination of service and/or
grandfathering to be filed by Sprint with the Commission.
2.1.4. Contract Service Arrangements, Special Arrangements, and
Promotions. Sprint shall offer for resale all of its
Telecommunications Services available at retail to subscribers
who are not Telecommunications Carriers, including but not
limited to Contract Service Arrangements (or ICB), Special
Arrangements (or ICB), and Promotions in excess of ninety (90)
days, all in accordance with FCC and Commission Rules and
Regulations.
2.1.5. Voice Mail Service is not a Telecommunications Service
available for resale under this Agreement. However, where
available, Sprint shall make available for Local Resale the
SMDI-E (Station Message Desk Interface-
34
<PAGE>
Enhanced), or SMDI, Station Message Desk Interface where SMDI-E
is not available, feature capability allowing for Voice Mail
Services. Sprint shall make available the MWI (Message Waiting
Indicator) interrupted dial tone and message waiting light
feature capabilities where technically available. Sprint shall
make available CF-B/DA (Call Forward on Busy/Don't Answer), CF/B
(Call Forward on Busy), and CF/DA (Call Forward Don't Answer)
feature capabilities allowing for Voice Mail services.
2.1.6. Hospitality Service, Sprint shall provide all blocking, screening
and all other applicable functions available for hospitality
lines under tariff.
2.1.7. LIDB Administration
2.1.7.1. Sprint shall maintain customer information for CLEC
customers who subscribe to resold Sprint local service
dial tone lines, in Sprint's LIDB in the same manner that
it maintains information in LIDB for its own similarly
situated end-user subscribers. Sprint shall update and
maintain the CLEC information in LIDB on the same schedule
that it uses for its own similarly situated end-user
subscribers.
2.1.7.2. Until such time as Sprint's LIDB has the software
capability to recognize a resold number as CLEC's. Sprint
shall store the resold number in its LIDB at no charge and
shall retain revenue for LIDB look-ups to the resold
number.
35
<PAGE>
ATTACHMENT III
NETWORK ELEMENTS
1. GENERAL
1.1. Pursuant to the following terms, Sprint will unbundle and separately
price and offer Unbundled Network Elements, ("UNEs") such that CLEC
will be able to subscribe to and interconnect to whichever of these
unbundled elements CLEC requires for the purpose of providing local
telephone service to its end users. CLEC shall pay Sprint each month
for the UNEs provisioned, and shall pay the non-recurring charges
listed in Attachment I or agreed to by the Parties. It is CLEC's
obligation to combine Sprint-provided UNEs with any facilities and
services that CLEC may itself provide.
2. UNBUNDLED NETWORK ELEMENTS
2.1. Sprint shall offer UNEs to CLEC for the purpose of offering
Telecommunication Services to CLEC subscribers. Sprint shall offer
UNEs to CLEC on an unbundled basis on rates, terms and conditions that
are just, reasonable, and non-discriminatory in accordance with the
terms and conditions of this Agreement. The initial set of UNEs
include:
2.1.1. Network Interface Device ("NID")
2.1.2. Local Loop
2.1.3. Switching Capability
2.1.3.1. Local Switching
2.1.3.2. Tandem Switching
2.1.4. Interoffice Transport Facilities
2.1.4.1. Common
2.1.4.2. Dedicated
2.1.5. Signaling Networks & Call Related Databases
2.1.6. Operations Support Systems
2.1.7. Operator Services & Directory Assistance
2.2. CLEC may use one or more UNEs to provide any feature, function,
capability, or service option that such UNE(s) is (are) technically
capable of providing. It is CLEC's obligation to combine Sprint-
provided UNEs with any and all facilities and services whether
provided by Sprint, CLEC, or any other party.
36
<PAGE>
2.3. Each UNE provided by Sprint to CLEC shall be at Parity with the
quality of design, performance, features, functions, capabilities and
other characteristics, including but not limited to levels and types
of redundant equipment and facilities for power, diversity and
security, that Sprint provides to itself, Sprint's own subscribers, to
a Sprint Affiliate or to any other entity.
3. BONA FIDE REQUEST PROCESS FOR FURTHER UNBUNDLING
3.1. Each Party shall promptly consider and analyze access to categories of
UNE not covered in this Agreement with the submission of a Network
Element Bona Fide Request hereunder. The UNE Bona Fide Request process
set forth herein does not apply to those services requested pursuant
to FCC Rule (S) 51.319 adopted in First Report & Order. CC Docket No.
96-98, (rel. Aug. 8, 1996).
3.2. A UNE Bona Fide Request shall be submitted in writing and shall
include a technical description of each requested UNE.
3.3. The requesting Party may cancel a UNE Bona Fide Request at any time,
but shall pay the other Party's reasonable and demonstrable costs of
processing and/or implementing the UNE Bona Fide Request up to the
date of cancellation.
3.4. Within ten (10) business days of its receipt, the receiving Party
shall acknowledge receipt of the UNE Bona Fide Request.
3.5. Except under extraordinary circumstances, within thirty (30) days of
its receipt of a UNE Bona Fide Request, the receiving Party shall
provide to the requesting Party a preliminary analysis of such UNE
Bona Fide Request. The preliminary analysis shall confirm that the
receiving Party will offer access to the UNE or will provide a
detailed explanation that access to the UNE does not qualify as a UNE
that is required to be provided under the Act.
3.6. Upon receipt of the preliminary analysis, the requesting Party shall,
within thirty (30) days, notify the receiving Party of its intent to
proceed or not to proceed.
3.7. The receiving Party shall promptly proceed with the UNE Bona Fide
Request upon receipt of written authorization from the requesting
Party. When it receives such authorization, the receiving Party shall
promptly develop the requested services, determine their availability,
calculate the applicable prices and establish installation intervals.
3.8. As soon as feasible, but not more than ninety (90) days after its
receipt of authorization to proceed with developing the UNE Bona Fide
Request, the receiving Party shall provide to the requesting Party a
UNE Bona Fide Request quote which will include, at a minimum, a
description of each UNE, the availability, the applicable rates and
the installation intervals.
3.9. Within thirty (30) days of its receipt of the UNE Bona Fide Request
quote, the requesting Party must either confirm its order for the UNE
Bona Fide Request
37
<PAGE>
pursuant to the UNE Bona Fide Request quote or seek arbitration
by the Commission pursuant to (S) 252 of the Act.
3.10. If a Party to a UNE Bona Fide Request believes that the other
Party is not requesting, negotiating or processing the UNE Bona
Fide Request in good faith, or disputes a determination, or price
or cost quote, such Party may seek mediation or arbitration by
the Commission pursuant to (S) 252 of the Act.
4. NETWORK INTERFACE DEVICE
4.1. The NID is a single-line termination device or that portion of a
multiple-line termination device required to terminate a single
line or circuit. The function of the NID is to establish the
network demarcation point between a CLEC and its subscriber. The
NID features two independent chambers or divisions which separate
the service provider's network from the subscriber's inside
wiring. Each chamber or division contains the appropriate
connection points or posts to which the service provider and the
subscriber each make their connections. The NID contains a
protector which provides a protective ground connection,
protection against lightning and other high voltage surges and is
capable of terminating cables such as twisted pair cable.
4.2. CLEC may connect its NID to Sprint's NID; may connect an
unbundled loop to its NID; or may connect its own Loop to
Sprint's NID. Sprint will provide one NID termination for each
loop. If additional NID terminations are required, CLEC may
request them pursuant to process detailed in Article 4 herein.
4.3. With respect to multiple-line termination devices. CLEC shall
specify the quantity of NIDs it requires within such device.
Figure 1 shows a schematic of a NID
[DIAGRAM APPEARS HERE]
Figure 1 - Network Interface Device
4.4. Technical Requirements
4.4.1. The Sprint NID shall provide a clean, accessible point of
connection for
38
<PAGE>
the inside wiring and for the Distribution Media and/or
cross connect to CLEC's NID and shall maintain a connection
to ground that meets the requirements set forth below. Each
party shall ground its NID independently of the other
party's NID.
4.4.2 The NID shall be the interface to subscriber's premises
wiring for all loop technologies.
5. LOOP
5.1. A Loop is a transmission path between the main distribution frame
[cross-connect], or its equivalent, in a Sprint Central Office or wire
center, and up to the demarcation point at a customer's premises. This
includes, but not limited to, two-wire and four-wire copper analog
voice-grade loops, two-wire and four-wire loops that are conditioned
to transmit the digital signals needed to provide services such as
ISDN and DSI-level signals. Sprint will also provide conditioned loops
for Telecommunications Services requiring loops unfettered by any
intervening equipment (e.g., filters, load coils, range extenders,
bridge taps, etc.), so that CLEC can use these loops for a variety of
Telecommunications Services that can be supported by use of copper by
attaching appropriate terminal equipment at the ends. Where CLEC
requests that a loop or a portion of a loop is dedicated to their
exclusive use, it will be done at CLEC's expense.
5.2. Loop Capabilities
5.2.1. Voice grade loops are analog loops that facilitate the
transmission of analog voice grade signals in the 300-3000
Hz range and terminates in a 2-wire or 4-wire electrical
interface at the CLEC's customer premises. CLEC shall not
install equipment on analog loops that exceeds the specified
bandwidth.
5.2.2. Sprint will provide non-voice grade loops on the basis of
the service that will be provisioned over the loop. Sprint
requires CLEC to provide in writing (via the service order)
the grade of service desired in a particular loop (e.g.,
ISDN-BRI, PRI, ADSL, HDSL, DS1, etc.) so that the loop may
be engineered to meet the appropriate spectrum compatibility
requirements. If CLEC requires a change in the grade of
service of a particular loop, (e.g., changing from ISDN
service to ADSL), CLEC shall notify Sprint in writing of the
requested change in grade of service (via a service order).
If Sprint finds that it is not technically feasible to
provide the new level of service to CLEC, Sprint will notify
CLEC that it is unable to meet the request. If a particular
grade of service is installed but CLEC uses the loop to
provide a service that exceeds the engineered capacity of a
medium (i.e., interferes with other services) or if the
service provided by CLEC causes interference to other
services Sprint will suspend that particular service then
notify CLEC and work with CLEC to develop an
39
<PAGE>
agreeable resolution.
5.2.3. CLEC will submit a BFR for non-voice grade loops that are not
currently price-listed.
5.2.4. Reverse ADSL Loops. All DSL ATU-C units in Sprint's network,
including those integrated into DSLAMs, should either reside
within a Sprint host or remote central office. If an ADSL
copper loop should start at an outside location, and is looped
through a host or remote, and then to the subscriber, the
copper plant from the outside location to the Sprint central
office must be a facility dedicated to ADSL transmission only
and not part of Sprint's regular feeder or distribution plant.
5.2.5. CLEC shall meet the power spectral density requirement given in
the respective technical references listed below:
5.2.6. For Basic Rate ISDN: Bellcore TR-NWT-000393 Generic
Requirements for ISDN Basic Access Digital Subscriber Lines.
5.2.7. For HDSL installations: Bellcore TA-NWT-001210 Generic
Requirements for High-Bit-Rate Digital Subscriber Lines. Some
fractional T1 derived products operating at 768 kbps may use
the same standard.
5.2.8. For ADSL: ANSI T1, 413-1995 (Issue 1) Asymmetrical Digital
Subscriber Line (ADSL) Metallic Interface. Note: Issue 2 of the
standard will be balloted soon. It will drop an option that was
in Issue 1 called Power Boost. Sprint does not permit the Power
Boost option used in its local network.
5.2.9. As an alternative to (S)(S) 5.2.6, 5.2.7 and 5.2.8. CLEC may
meet the requirements given in ANSI document T1E1.4/97-180R1.
"Normative Text for Spectral Compatibility Evaluations" dated
June 30, 1997.
5.3. If Sprint uses Integrated Digital Loop Carrier or other similar remote
concentration devices, Sprint will make alternative arrangements at
CLEC's request, to provide an unbundled local loop. Alternative
arrangements may include copper facilities, dedicated transmission
equipment or the deployment of newer devices providing for multiple
hosting. The cost of modifications will be recovered from the
requesting CLEC.
6. LOCAL SWITCHING
6.1. Local Switching is the Network Element that provides the functionality
required to connect the appropriate lines or trunks wired to the Main
Distributing Frame (MDF) or Digital Cross Connect (DSX) panel to a
desired line or trunk. Such functionality shall include all of the
features, functions, and capabilities that the underlying Sprint
switch providing such Local Switching function provides for Sprint's
own services. Functionality may include, but is not limited to: line
40
<PAGE>
signaling and signaling software, digit reception, dialed number
translations, call screening, routing, recording, call supervision, dial
tone, switching, telephone number provisioning, announcements, calling
features and capabilities (including call processing), Centrex, or
Centrex like services, Automatic Call Distributor (ACD), CLEC pre-
subscription (e.g., long distance Carrier, intraLATA toil), Carrier
Identification Code (CIC) portability capabilities, testing and other
operational features inherent to the switch and switch software.
6.2. Technical Requirements
6.2.1. Sprint shall provide its standard recorded announcements (as
designated by CLEC) and call progress tones to alert callers of
call progress and disposition. CLEC will use the BFR process for
unique announcements.
6.2.2. Sprint shall change a subscriber from Sprint's Telecommunications
Services to CLEC's Telecommunications Services without loss of
feature functionality unless expressly agreed otherwise by CLEC.
6.2.3. Sprint shall control congestion points such as mass calling
events, and network routing abnormalities, using capabilities
such as Automatic Call Gapping, Automatic Congestion Control, and
Network Routing Overflow. Application of such control shall be
competitively neutral and not favor any user of unbundled
switching or Sprint.
6.2.4. Sprint shall offer all Local Switching features that are
technically feasible and provide feature offerings at Parity with
those provided by Sprint to itself or any other party.
6.3. Interface Requirements. Sprint shall provide the following interfaces:
6.3.1. Standard Tip/Ring interface including loopstart or groundstart,
on-hook signaling (e.g.: for calling number, calling name and
message waiting lamp);
6.3.2. Coin phone signaling;
6.3.3. Basic and Primary Rate Interface ISDN adhering to ANSI standards
Q.931. Q.932 and appropriate Bellcore Technical Requirements:
6.3.4. Two-wire analog interface to PBX to include reverse battery, E&M,
wink start and DID:
6.3.5. Four-wire analog interface to PBX to include reverse battery,
E&M, wink start and DID: and
6.3.6. Four-wire DS1 interface to PBX or subscriber provided equipment
(e.g., computers and voice response systems).
6.4. Sprint shall provide access to interfaces, including but not limited to:
41
<PAGE>
6.4.1. SS7 Signaling Network, Dial Pulse or Multi-Frequency
trunking if requested by CLEC:
6.4.2. Interface to CLEC operator services systems or Operator
Services through appropriate trunk interconnections for the
system: and
6.4.3. Interface to CLEC directory assistance services through the
CLEC switched network or to Directory Services through the
appropriate trunk interconnections for the system: and 950
access or other CLEC required access to interexchange
carriers as requested through appropriate trunk interfaces.
7. TANDEM SWITCHING
7.1. Tandem Switching is the function that establishes a communications
path between two switching offices (connecting trunks to trunks)
through a third switching office (the tandem switch) including but not
limited to CLEC. Sprint, independent telephone companies, IXCs and
wireless Carriers. A host/remote end office configuration is not a
Tandem Switching arrangement.
7.2. Technical Requirements
7.2.1. The requirements for Tandem Switching include, but are not
limited to, the following:
7.2.1.1. Interconnection to Sprint tandem(s) will provide
CLEC local interconnection for local and toll access
service purposes to the Sprint end offices and NXXs
which interconnect with that tandem(s) either
directly or through other Sprint facilities for
local and toll service purposes, and to other
companies which are likewise connected to that
tandem(s).
7.2.1.2. Interconnection to a Sprint tandem for transit
purposes will provide CLEC interexchange access to
Sprint LXCs, other local carriers, ILECs, and CMRS
providers which are connected to that tandem.
7.2.1.3. Where a Sprint Tandem Switch also provides End-Office
Switch functions, interconnection to a Sprint tandem
serving that exchange will also provide CLEC access to
Sprint's end offices.
7.2.2. Tandem Switching shall preserve CLASS/LASS features and Caller
ID as traffic is processed.
7.2.3. To the extent technically feasible, Tandem Switching shall
record billable events for distribution to the billing center
designated by CLEC.
7.2.4. Tandem Switching shall control congestion using capabilities
such as Automatic Congestion Control and Network Routing
Overflow.
42
<PAGE>
Congestion control provided or imposed on CLEC traffic shall be
Parity with controis being provided or imposed on Sprint traffic
(e.g., Sprint shall not block CLEC traffic and leave its traffic
unaffected or less affected).
7.2.5. The Local Switching and Tandem Switching functions may be
combined in an office. If this is done, both Local Switching and
Tandem Switching shall provide all of the functionally required
of each of those. Network Elements in this Agreement.
7.2.6. Tandem Switching shall provide interconnection to the E911 PSAP
where the underlying Tandem is acting as the E911 Tandem.
7.3. Interface Requirements
7.3.1. Direct trunks will be utilized for interconnection to Sprint
Tandems, excluding transit traffic via common trunks as may be
required under the Act.
7.3.2. Sprint shall provide all signaling necessary to provide Tandem
Switching with no loss of feature functionality.
8. TRANSPORT
8.1. Common Transport
8.1.1. Common Transport provides a local interoffice transmission path
between the Sprint tandem switch and a Sprint or CLEC end office
switch, or between a host in one rate center and a remote in
another rate center. Common transport is shared between multiple
carriers and is required to be switched at the tandem.
8.1.2. Sprint may provide Common Transport at DS-0, DS-1, DS-3. STS-1
or higher transmission bit rate circuits.
8.1.3. Sprint shall be responsible for engineering, provisioning, and
maintenance of the underlying Sprint equipment and facilities
that are used to provide Common Transport.
8.2. Dedicated Transport
8.2.1. Dedicated Transport provides a local interoffice transmission
path between Sprint and/or CLEC central offices. Dedicated
transport is limited to the use of a single carrier and does
not require switching at a tandem.
8.2.2. Technical Requirements
Where technologically feasible and available, Sprint shall
offer Dedicated Transport consistent with the underlying
technology as follows:
43
<PAGE>
8.2.2.2. When Sprint provides Dedicated Transport, the
entire designated transmission circuit (e.g.:DS-1,
DS-3, STS-1) shall be dedicated to CLEC designated
traffic.
8.2.2.3. Where Sprint has technology available, Sprint shall
offer Dedicated Transport using currently available
technologies including, but not limited to, DS1 and DS3
transport systems. SONET (or SDH) Bi-directional Line
Switched Rings, SONET (or SDH) Unidirectional Path
Switched Rings, and SONET (or SDH) point-to-point
transport systems (including linear add-drop systems),
at all available transmission bit rates.
9. SIGNALING SYSTEMS AND DATABASES
9.1. Signaling Systems
9.1.1. Signaling Link Transport
9.1.1.1. Signaling Link Transport is a set of two or four
dedicated 56 Kbps transmission paths between CLEC-
designated Signaling Points of Interconnection (SPOI)
that provides appropriate physical diversity and a
cross connect at a Sprint STP site.
9.1.1.2. Technical Requirements, Signaling Link Transport
shall consist of full duplex mode 56 Kbps transmission
paths.
9.1.2. Signaling Transfer Points(STPs)
9.1.2.1. Signaling Transfer Points (STPs) provide
functionality that enable the exchange of SS7 messages
among and between switching elements, database elements
and signaling transfer points.
9.1.2.2. Figure 2 depicts Signaling Transfer Points.
44
<PAGE>
Signaling Transfer Points.
[GRAPH APPEARS HERE]
Figure 2
9.1.2.3. Technical Requirements. STPs shall provide access to and
fully suport the functions of all other Network Elements
connected to the Sprint SS7 network. These include:
9.1.2.3.1 Sprint Local Switching or Tandem Switching;
9.1.2.3.2. Sprint Service Control Points/Databases;
9.1.2.3.3. Third-party local or Tandem Switching systems;
and
9.1.2.3.4. Third-party provided STPs.
9.1.2.4 Interfaces Requirements: Sprint shall provide the following
STP options to connect CLEC or CLEC-designated local switching
systems or STPs to the Sprint SS7 network:
9.1.2.4.1. An A-link interface from CLEC local switching
systems; and
45
<PAGE>
9.1.2.4.2 B or D-link interface from CLEC STPs.
9.1.2.4.3. Each type of interface shall be provided by one
or more sets (layers) of signaling links, as
follows:
9.1.2.4.4. An A-link layer shall consist of two links, as
depicted in Figure 3.
[GRAPH APPEARS HERE]
Figure 3. A-Link Interface
9.1.2.4.5 AB or D-link layer shall consist of four links,
as depicted in Figure 4.
[GRAPH APPEARS HERE]
Figure 4. D-Link Interface
9.1.2.4.6. Signaling Point of Interconnection (SPOI)
for each link shall be located at a cross-connect
element, such as a DSX-1, in the Central Office (CO)
where the Sprint STPs is located. There shall be a
DS-1 or higher rate transport
46
<PAGE>
interface at each of the SPOIs. Each signaling
link shall appear as a DS-0 channel within the
DS-1 or higher rate interface.
9.2. Line Information Database (LIDB)
9.2.1. The LIDB is a transaction-oriented database accessible CCS
networks. It contains records associated with subscribers Line
Numbers and Special Billing Numbers. LIDB accepts queries from
other Network Elements, or CLEC's network, and provides
appropriate responses. The query originator need not be the owner
of LIDB date. LIDB queries include functions such as screening
billed numbers that provides the ability to accept Collect or
Third Number Billing calls and validation of Telephone Lines
Number based non-proprietary calling cards. The interface for the
LIDB functionality is the interface between the Sprint CCS
network and other CCS networks. LIDB also interfaces to
administrative systems. The administrative system interface
provides Work Centers with an interface to LIDB for functions
such as provisioning, auditing of data, access to LIDB
measurements and reports.
9.2.2. Technical Requirements
9.2.2.1. Prior to the availability of Local Number
Portability, Sprint shall enable CLEC to store in
Sprint's LIDB any subscriber Line Number or Special
Billing Number record, whether ported or not, for which
the NPA-NXX or NXX-0/1XX Group is supported by that LIDB,
and NPA-NXX and NXX-0/1XX Group Records, belonging to an
NPA-NXX or NXX-0/1XX owned by CLEC.
9.2.2.2. Subsequent to the availability of a long-term
solution for Number Portability, Sprint, under the terms
of a separate agreement with CLEC, shall enable CLEC to
store in Sprint's LIDB any subscriber Line Number or
Special Billing Number record, whether ported or not,
regardless of the number's NPA-NXX or NXX-0/1XX.
9.2.2.3. Print shall perform the following LIDB functions for
CLEC's subscriber records in LIDB: Billed Number
Screening (provides information such as whether the
Billed Number may accept Collect or Third Number Billing
calls); and Calling Card Validation.
9.2.2.4. Sprint shall process CLEC's subscriber records in
LIDB at Parity with Sprint subscriber records, with
respect to other LIDB functions Sprint shall indicate to
CLEC with additional functions (if any) are performed by
LIDB in their network.
9.2.2.5. Sprint shall perform backup and recovery of all of
CLEC's data in LIDB at Parity with backup and recovery of
all other records in
47
<PAGE>
the LIDB, including sending to LIDB all changes made
since the date of the most recent backup copy.
9.3. Toil Free Number Database
9.3.1. The Toil Free Number Database provides functionality
necessary for toil free (e.g.: 800 and 888) number services
by providing routing information and additional vertical
features during call set-up in response to queries from
STPs. Sprint, under the terms of a separate agreement with
CLEC, shall provide the Toll Free Number Database in
accordance with the following:
9.3.2. Technical Requirements
9.3.2.1. Sprint shall make the Sprint Toll Free Number
Database available for CLEC to query, from CLEC's
designated switch including Sprint unbundled local
switching with a toll-free number and originating
information.
9.3.2.2. The Toll Free Number Database shall return CLEC
identification and, where applicable, the queried
toll free number, translated numbers and
instructions as it would in response to a query from
a Sprint switch.
9.3.3. Interface Requirements. The Signaling interface between the
CLEC or other local switch and the Toll-Free Number database
shall use the TCAP protocol, together with the signaling
network interface.
10. OPERATOR SERVICES
10.1. Sprint shall provide for the routing of local Operator Services
calls (including but not limited to 0+.0-) dialed by CLEC
subscribers directly to either the CLEC Operator Service platform to
the extent Sprint's switch can perform this customized routing, or
Sprint Operator Service to the extent there is a Sprint provided
Operator Service platform for that serving area.
10.1.1. Sprint shall provide Operator Service to CLEC as described
below until, at CLEC's discretion. Sprint routes calls to
the CLEC Local Operator Services platform.
10.1.1.1. Sprint agrees to provide CLEC subscribers the
same Operator Services available to Sprint
subscribers to the extent there is a Sprint
provided Operator Services platform for the serving
area. Sprint shall make available its service
enhancements on a non-discriminatory basis.
10.1.1.2. Operator Services provided to CLEC subscribers
shall be branded in accordance with Part B. Article
10 of this Agreement.
48
<PAGE>
10.1.1.3. Sprint shall exercise the same level of fraud
control in providing Operator Service to CLEC that
Sprint provides for its own Operator Service.
11. DIRECTORY ASSISTANCE SERVICE
11.1. Sprint shall provide for the routing of directory assistance calls
(including but not limited to 411. 555-1212. NPA-555-1212) dialed
by CLEC's option, either (a) the CLEC DA service platform to the
extent Sprint's switch can perform this customized routing, or (b)
Sprint's DA service platform to the extent there is a Sprint
provided DA service platform that servicing area.
11.1.1. Sprint shall provide CLEC with the same level of support
for the provisioning of Directory Assistance as Sprint
provides itself. Quality of service standards shall be
measured at the aggregate level in accordance with
standards and performance measurements that are at Parity
with the standards and/or performance measurements that
Sprint uses and/or which are required by law or regulatory
agency rules or orders.
11.1.2 Directory Assistance services provided by Sprint to CLEC
subscribers shall be branded in accordance with Part B,
Article 10 of this Agreement.
49
<PAGE>
ATTACHMENT IV
INTERCONNECTION
1. LOCAL INTERCONNECTION TRUNK ARRANGEMENT
1.1. The Parties agree to initially use two-way trunks (one-way
directionalized) for an interim period. The Parties shall transition
from directionalized two-way trunks upon mutual agreement, absent
engineering or billing issues. The Parties shall transition all one-
way trunks established under this Agreement.
1.1.1. The Parties shall initially reciprocally terminate Local
Traffic and IntraLATA InterLATA toll calls originating on the
other Party's network as follows:
1.1.1.1. The Parties shall make available to each other two-
way trunks for the reciprocal exchange of combined
Local Traffic, and non-equal access IntraLATA toll
traffic.
1.1.1.2. Separate two-way trunks will be made available for
the exchange of equal-access InterLATA or IntraLATA
interchange traffic that transits Sprint's network.
1.1.1.3. Separate trunks will be utilized for connecting
CLEC's switch to each 911/E911 tandem.
1.1.1.4. Separate trunk groups will be utilized for connecting
CLEC's Operator Service Center to Sprint's Operator
Service center for operator-assisted busy line
interrupt/verify.
1.1.1.5. Separate trunk groups will be utilized for connecting
CLEC's switch to Sprint's Directory Assistance center
in instances where CLEC is purchasing Sprint's
unbundled Directory Assistance service.
1.2. Point of Interconnection
1.2.1. Point of Interconnection (POI) means the physical point that
establishes the technical interface, the test point, and the
operational responsibility hand-off between CLEC and Sprint for
the local interconnection of their networks. CLEC is limited to
constructing one POI in each Sprint LATA.
1.2.2. CLEC will be responsible for engineering and maintaining its
network on its side of the POI. Sprint will be responsible for
engineering and maintaining its network on its side of the POI.
1.2.3 For construction of new facilities when the parties choose to
interconnect at a mid-span meet. CLEC and Sprint will jointly
provision the facilities that connect the two networks. Sprint
will be the "controlling carrier" for
50
<PAGE>
purposes of MECOD guidelines, as described in the joint
implementation plan. Sprint will provide fifty percent (50%)
of the facilities or to its exchange boundary, whichever is
less.
1.2.4. Should CLEC prefer new interconnection facilities may be
provisioned via third party facilities or CLEC lease of
tariffed services from Sprint. Special construction charges,
if applicable, will be charged in accordance with Sprint's
access service tariff.
1.2.4.1. If third party leased facilities are used for
interconnection, or if leased facilities are provided
under a meet-point arrangement between Sprint and a
third-party, the POI will be defined as the Sprint
office in which the leased circuit terminates. CLEC is
responsible to terminate the leased facility in a
collocation space if unbundled loops or switched ports
will be purchased in the central office) or a set of
Sprint-provided DSX jacks to clearly establish the
POI.
1.2.4.2. If Sprint-provided-leased facilities are used, the
POI will be defined as the demarcation point between
Sprint's facility and CLEC's equipment as long as the
end point is within Sprint's exchange area.
2. INTERCONNECTION COMPENSATION MECHANISMS
2.1. Each party is responsible for bringing their facilities to POI.
2.2. Interconnection Compensation
2.2.1 If Sprint provides one-hundred percent (100%) of the
facility. Sprint will charge CLEC one-hundred percent (100%)
of the lease rates for the facility. CLEC may charge Sprint
a proportionate amount of Sprint's dedicated transport rate
based on the use of the facility as described above.
2.2.2 If a meet-point is established via construction of new
facilities or re-arrangement of existing physical facilities
between Sprint and CLEC, the relative use factor will be
reduced by the proportionate length of haul provided by each
party. Sprint shall be responsible for network provisioning
as described in (S) 1.2.3. herein.
2.2.3. If CLEC provides one-hundred percent (100%) of the
interconnection facility via lease of meet-point circuits
between Sprint and a third-party, lease of third party
facilities: or construction of its own facilities: CLEC may
charge Sprint for proportionate amount based on relative
usage using the lesser of:
2.2.3.1 Sprint's dedicated interconnection rate:
51
<PAGE>
2.2.3.2. Its own costs if filed and approved by a commission of
appropriate jurisdiction: and
2.2.3.3. The actual lease cost of the interconnecting facility.
2.3 Compensation for Local Traffic Transport and Termination
2.3.1. The POI determines the point at which the originating carrier
shall pay the terminating carrier for the completion of that
traffic. The following compensation elements shall apply:
2.3.1.1. "Transport." which includes dedicated and common
transport and any necessary Tandem Switching of Local
Traffic from the interconnection point between the two
carriers to the terminating carrier's end-office switch
that directly serves the called end-user: and
2.3.1.2. "Termination." which includes the switching of Local
Traffic at the terminating carrier's end office switch.
2.4 When a CLEC subscriber places a call to Sprint's subscriber, CLEC will hand
off that call to Sprint at the POI. Conversely, when Sprint hands off Local
Traffic to CLEC for CLEC to transport and terminate, Sprint may use the
established POI or Sprint designate its own POI.
2.4.1 CLEC and Sprint may each designate a POI at any technically
feasible point including but not limited to any electronic or
manual cross-connect points, collocations, entrance facilities,
and mid-span meets. The transport and termination charges for
Local Traffic flowing through a POI shall be as follows:
2.4.1.1 When calls from CLEC are terminating on Sprint's
network through the Sprint Tandem Switch, CLEC will pay
Sprint for transport charges from the POI to the Tandem
for dedicated transport. CLEC shall also pay a charge for
Tandem Switching, common transport to the end office,
and end-office termination.
2.4.1.2. When Sprint terminates calls to CLEC's subscribers
using CLEC's switch, Sprint shall pay CLEC for transport
charges from the POI to the CLEC switching center for
dedicated transport. Sprint shall also pay to CLEC
a charge symmetrical to its own charges for the
functionality actually provided by CLEC for call
termination.
2.4.1.3. CLEC may choose to establish direct trunking to any
given end office. If CLEC leases trunks from Sprint, it
shall pay charges for dedicated transport. For calls
terminating from CLEC to subscribers served by these
directly-linked end offices, CLEC
52
<PAGE>
shall also pay an end-office termination. For Sprint traffic
terminating to CLEC over the direct end office trunking,
compensation payable by Sprint shall be the same as that detailed
in (S) 2.4.1.2 above.
3. SIGNALING
3.1 Signaling protocol. The parties will interconnect their networks using
SS7 signaling where technically feasible and available as defined in
FR 905 Bellcore Standards including ISDN user part (ISUP) for trunk
signaling and TCAP for CCS-based features in the interconnection of
their networks. All Network Operations Forum (NOF) adopted standards
shall be adhered to.
3.2. Refer to Attachment III, Article 9 for detailed terms of SS7 Network
Interconnection.
3.3. Standard interconnection facilities shall be extended superframe (ESF)
with B8ZS line code. Where ESF/B8ZS is not available, CLEC will agree
to using other interconnection protocols on an interim basis until the
standard ESF/B8ZS is available. Sprint will provide anticipated dates
of availability for those areas not currently ESF/B8ZS compatible.
3.3.1. Where CLEC is unwilling to utilize an alternate
interconnection protocol, CLEC will provide Sprint an initial
forecast of 64 Kbps clear channel capability ("64K CCC") trunk
quantities within thirty (30) days of the Effective Date
consistent with the forecasting agreements between the
parties. Upon receipt of this forecast, the parties will begin
joint planning for the engineering, procurement, and
installation of the segregated 64K CCC Local Interconnection
Trunk Groups, and the associated ESF facilities, for the sole
purpose of transmitting 64K CCC data calls between CLEC and
Sprint. Where additional equipment is required, such equipment
would be obtained, engineered, and installed on the same basis
and with the same intervals as any similar growth job for LXC,
CLEC, or Sprint internal customer demand for 64K CCC trunks.
4. NETWORK SERVICING
4.1 Trunk Forecasting
4.1.1. The Parties shall work towards the development of joint
forecasting responsibilities for traffic utilization over
trunk groups. Orders for trunks that exceed forecasted
quantities for forecasted locations will be accommodated as
facilities and or equipment are available. The Parties shall
make all reasonable efforts and cooperate in good faith to
develop alternative solutions to accommodate orders when
facilities are not available. Intercompany forecast
information must be provided by the Parties to each other
twice a year. The initial trunk forecasting meeting
53
<PAGE>
should take place soon after the first implementation
meeting. A forecast should be provided at or prior to the
first implementation meeting. The semi-annual forecasts
shall project trunk gain/loss on a monthly basis for the
forecast period, and shall include:
4.1.1.1. Semi-annual forecasted trunk quantities (which
include baseline data that reflect actual Tandem and
end office Local Interconnection and meet point
trunks and Tandem-subtending Local Interconnection
end office equivalent trunk requirements) for no more
than two years (current plus one year):
4.1.1.2. The use of Common Language Location Identifier
(CLLI-MSG), which are described in Bellcore
documents BR 795-100-100 and BR 795-400-100:
4.1.1.3. Description of major network projects that affect
the other Party will be provided in the semi-annual
forecast. Major network projects include but are not
limited to trunking or network rearrangements, shifts
in anticipated traffic patterns, or other activities
by either party that are reflected by a significant
increase or decrease in trunking demand for the
following forecasting period.
4.1.2. Parties shall meet to review and reconcile their forecasts
if forecasts vary significantly.
4.1.3. Each Party shall provide a specified point of contact for
planning forecasting and trunk servicing purposes.
4.1.4. Trunking can be established to Tandems or end offices or a
combination of both via either one-way or two-way trunks.
Trunking will be at the DS-0, DS-1, DS-3/OC-3 level, or
higher, as agreed upon by CLEC and Sprint.
4.1.5. The parties agree to abide by the following if a forecast
cannot be agreed to: local interconnection trunk groups will
be provisioned to the higher forecast. A blocking standard
of one percent (1%) during the average busy hour shall be
maintained. Should the Parties not agree upon the forecast,
and the Parties engineer facilities at the higher forecast,
the Parties agree to abide by the following:
4.1.5.1. In the event that one Party over-forecasts its
trunking requirements by twenty percent (20%) or
more, and the other Party acts upon this forecast to
its detriment, the other Party may recoup any actual
and reasonable expense it incurs.
4.1.5.2. The calculation of the twenty percent (20%) over-
forecast will be based on the number of DS-1
equivalents for the total traffic volume to Sprint.
54
<PAGE>
4.1.5.3. Expenses will only be recouped for non-recoverable
facilities that cannot otherwise be used at any time
within twelve (12) months after the initial installation
for another purpose including but not limited to: other
traffic growth between the Parties, internal use, or use
with another party.
4.2. Grade of Service. A blocking standard of one percent (1%) during the
average busy hour, as defined by each Party's standards, for final
trunk groups between a CLEC end office and a Sprint access Tandem
carrying meet point traffic shall be maintained. All other final
trunk groups are to be engineered with a blocking standard of one
percent (1%). Direct end office trunk groups are to be engineered
with a blocking standard of one percent (1%).
4.3. Trunk Servicing. Orders between the Parties to establish, add, change
or disconnect trunks shall be processed by use of an ASR, or another
industry standard eventually adopted to replace the ASR for trunk
ordering.
5. NETWORK MANAGEMENT
5.1. Protective Protocols. Either Party may use protective network traffic
management controls such as 7-digit and 10-digit code gaps on traffic
toward each other's network, when required to protect the public
switched network from congestion due to facility failures, switch
congestion or failure or focused overload. CLEC and Sprint will
immediately notify each other of any protective control action
planned or executed.
5.2. Expansive Protocols. Where the capability exists, originating or
terminating traffic reroutes may be implemented by either party to
temporarily relieve network congestion due to facility failures or
abnormal calling patterns. Reroutes will not be used to circumvent
normal trunk servicing. Expansive controls will only be used when
mutually agreed to by the parties.
5.3. Mass Calling. CLEC and Sprint shall cooperate and share pre-planning
information, where available, regarding cross-network call-ins
expected to generate large or focused temporary increases in call
volumes, to prevent or mitigate the impact of these events on the
public switched network. Mass calling numbers are not cannot be used
in conjunction with INP.
6. USAGE MEASUREMENT
6.1. Each Party shall calculate terminating interconnection minutes of
use based on standard AMA recordings made within each Party's
network, these recordings being necessary for each Party to generate
bills to the other Party. In the event either Party cannot measure
minutes terminating on its network where technically feasible, the
other Party shall provide the measuring mechanism or the Parties
shall otherwise agree on an alternate arrangement.
55
<PAGE>
6.2. Measurement of minutes of use over Local Interconnection trunk groups
shall be in actual conversation seconds. The total conversation
seconds over each individual Local Interconnection trunk group will
be totaled for the entire monthly bill period and then rounded to the
next whole minute.
6.3. Prior to the commencement of billing for interconnection, each Party
shall provide to the other, the PLU of the traffic terminated to each
other over the Local Interconnection trunk groups.
6.3.1. The Parties agree to review the accuracy of the PLU on a
regular basis. If the initial PLU is determined to be
inaccurate by more than twenty percent (20%), the Parties agree
to implement the new PLU retroactively to the Effective Date of
the contract.
7. TRANSIT TRAFFIC
7.1. Transit Trafifc means the delivery of local traffic by CLEC or Sprint
originated by the end user of one Party and terminated to a third
party LEC, ILEC, or CMRS provider over the local/intraLATA
interconnection trunks. The following traffic types will be delivered
by either Party: local traffic and intraLATA toll and switched traffic
originated from CLEC or Sprint and delivered to such third party LEC,
ILEC, or CMRS: and intraLATA 800 traffic.
7.2. Terms and conditions
7.2.1. Each Party acknowledges that it is the originating Party's
responsibility to enter into arrangements with each third party
LEC, ILEC, OR CMRS provider for the exchange of transit traffic
to that third party, unless the Parties agree otherwise in
writing.
7.2.2. Each Party acknowledges that the transiting Party does not have
any responsibility to pay any third party LEC, ILEC, or CMRS
provider charges for termination or any identifiable transit
traffic from the originating Party. Both Parties reserve the
right not to pay such charges on behalf of the originating
Party.
7.3. Payment Terms and Conditions
7.3.1. In addition to the payment terms and conditions contained in
other sections of this Agreement, the Parties shall compensate
each other for transit service as follows:
7.3.1.1. The originating Party shall pay to the transiting
Party a transit service charge as set forth in the
Pricing Schedule; and
7.3.1.2. If the terminating Party requests, and the
transiting Party does not provide, the terminating
Party with the originating record in order for the
terminating Party to bill the originating Party, the
56
<PAGE>
terminating Party shall default bill the transiting
Party for transited traffic which does not identify the
originating Party.
7.4. Billing Records and Exchange of Data
7.4.1 Parties will use the best efforts to convert all networks
transporting transit traffic to deliver each call to the
other Party's network with SS7 Common Channel Interoffice
Signalling (CCIS) and other appropriate TCAP messages in
order to facilitate full interoperability and billing
functions. The Parties agree to send all message indicators,
including originating telephone number, local routing number
and CIC.
7.4.2. The transiting Party agrees to provide the terminating Party
information on traffic originated by a third party CLEC,
ILEC, or CMRS provider. To the extent Sprint incurs
additional cost in providing this billing information. CLEC
agrees to reimburse Sprint for its direct costs of providing
this information.
7.4.3. To the extent that the industry adopts a standard record
format for recording originating and/or terminating transit
calls, both Parties agree to comply with the industry-
adopted format to exchange records.
8. RESPONSIBILITIES OF THE PARTIES
8.1. Sprint and CLEC will review engineering requirements consistent with
the Implementation Plan describe in Part B, Article 30 and Part C.
Attachment IV, Article 4 and otherwise as set forth in this
Agreement.
8.2. CLEC and Sprint shall share responsibility for all Control Office
functions for Local Interconnection Trunks and Trunk Groups, and
both parties shall share the overall coordination, installation, and
maintenance responsibilities for these trunks and trunk groups.
8.3 CLEC and Sprint shall:
8.3.1 Provide trained personnel with adequate and compatible test
equipment to work with each other's technicians.
8.3.2 Notify each other when there is any change affecting the
service requested, including the due date.
8.3.3 Coordinate and schedule testing activities of their own
personnel, and others as applicable, to ensure its
interconnection trunks/trunk groups are installed per the
interconnection order, meet agreed-upon acceptance test
requirements, and are placed in service by the due date.
8.3.4. Perform sectionalization to determine if a trouble is
located in its facility of its portion of the
interconnection trunks prior to referring the trouble to
57
<PAGE>
each other.
8.3.5. Advise each other's Control Office if there is an equipment
failure which may affect the interconnection trunks.
8.3.6. Provide each other with a trouble reporting/repair contact
number that is readily accessible and available twenty-four (24)
hours/seven (7) days a week. Any changes to this contact
arrangement must be immediately provided to the other party.
8.3.7. Provide to each other test-line numbers and access to test
lines.
8.3.8. Cooperatively plan and implement coordinated repair procedures
for the meet point and Local Interconnection trunks and
facilities to ensure trouble reports are resolved in a timely
and appropriate manner.
58
<PAGE>
ATTACHMENT V
INTERIM NUMBER PORTABILITY
1. SPRINT PROVISION OF INTERIM NUMBER PORTABILITY
1.1 Sprint shall provide INP in accordance with requirements of the Act
and FCC Rules and Regulations. INP shall be provided with minimum
impairment of functionality, quality, reliability and convenience to
subscribers of CLEC services until such time as LNP service is offered
in the Sprint rate center, in which case INP will be discontinued.
Beginning on the date LNP is available in an area, INP orders will no
longer be processed, and the Parties will work together to convert the
existing INP lines to LNP.
2. INTERIM NUMBER PORTABILITY
2.1. Interim Number Portability (INP) shall be provided to the extent
technical capabilities allow, by a Sprint directed Remote Call
Forwarding (RCF). In the event RCF is a purchased feature of the CLEC
end user, there is no relationship between RCF and INP. Once LNP is
generally available in Sprint's serving area, RCF will be provided
only as a retail service offering by Sprint.
2.2. Remote Call Forwarding (RCF) is an INP method to provide subscribers
with service-provider portability by redirecting calls within the
telephone network. When RCF is used to provide interim number
portability, calls to the ported number will first route to the Sprint
switch to which the ported number was previously assigned. The Sprint
switch will then forward the call to a number associated with the CLEC
designated switch to which the number is ported. CLEC may order any
additional paths to handle multiple simultaneous calls to the same
ported telephone number.
2.3 The trunking requirements will be agreed upon by Sprint and CLEC
resultant from application of sound engineering principles. These
trunking options may include SS7 signaling, in-band signaling, and
may be one-way or two-way. The trunks used may be the same as those
used for exchange of other Local Traffic and toll traffic between
Sprint and CLEC.
2.4. Local Exchange Routing Guide (LERG) Reassignment, Portability for an
entire NXX shall be provided by utilizing reassignment of the block
to CLEC through the LERG. Updates to translations in the Sprint
switching office from which the telephone number is ported will be
made by Sprint prior to the date on which LERG changes become
effective, in order to redirect calls to the CLEC switch via route
indexing.
2.5 Other Currently Available Number Portability Provisions:
2.5.1 Where SS7 is available, Sprint shall exchange with CLEC, SS7
TCAP
59
<PAGE>
messages as required for the implementation CLASS or other
features available in the Sprint network, if technically
feasible.
2.5.2. Upon notification that CLEC will be initiating INP, Sprint
shall disclose to CLEC any technical or capacity limitations
that would prevent use of the requested INP in the affected
switching office. Sprint and CLEC shall cooperate in the
process of porting numbers to minimize subscriber out-of-
service time, including promptly updating switch translations,
where necessary, after notification that physical cut-over has
been completed (or initiated), as CLEC may designate.
2.5.3 For INP, CLEC shall have the right to use the existing Sprint
911 infrastructure for all 911 capabilities. When RCF is used
for CLEC subscribers, both the ported numbers and shadow
numbers shall be stored in ALI databases. CLEC shall have the
right to verify the accuracy of the information in the ALI
databases.
2.5.3.1. When any INP method is used to port a subscriber,
the donor provider must maintain the LIDB record for
that number to reflect appropriate conditions as
reported to it by the porting service provider. The
donor must outclear call records to CLEC for billing
and collection from the subscriber. Until such time as
Sprint's LIDB has the software capability to recognize
a ported number as CLEC's, Sprint shall store the
ported number in its LIDB at no charge and shall retain
revenue for LIDB look-ups to the ported number. At such
time as Sprint's LIDB has the software capability to
recognize that the ported number is CLEC's then, if
CLEC desires to store numbers on Sprint's LIDB, the
parties shall negotiate a separate LIDB database
storage and look-up agreement.
2.5.4. Sprint will send a CARE transaction 2231 to notify LXC that
access is now provided by a new CLEC for that number.
3. REQUIREMENTS FOR INP
3.1 Cut-Over Process
3.1.1. Sprint and CLEC shall cooperate in the process of porting
numbers from one carrier to another so as to limit service
outage for the ported subscriber.
3.1.1.1. For a Coordinated Cutover Environment, Sprint and
CLEC will coordinate the disconnect and switch
translations as close to the requested time as
possible. The coordination shall be pre-specified by
CLEC and agreed to by both parties and in no case shall
begin more than thirty (30) minutes after the agreed
upon time.
60
<PAGE>
3.1.1.2. For a Non-Coordinated Cutover Environment, the
Parties will agree to a mutually satisfactory cutover
time and Sprint shall schedule an update of
disconnect and switch transiations at the agreed upon
cutover time. Such updates will be available to CLEC
at Parity with Sprint's own availability for such
activity. Sprint and CLEC shall each provide an
appropriate operations contact with whom the Parties
can contact in the event manual intervention is
needed to complete the cutover. In the event of
manual intervention, and if Sprint is unable to
resolve the issue within sixty (60) minutes, Sprint
shall notify CLEC of the issue and CLEC and Sprint
shall determine the plan to resolve it.
3.2. Testing Sprint and CLEC shall cooperate in conducting CLEC's testing
to ensure interconnectivity between systems. Sprint shall inform
CLEC of any system updates that may affect the CLEC network and
Sprint shall, at CLEC's request, perform tests to validate the
operation of the network. Additional testing requirements may apply
as specified by this Agreement.
3.3 Installation Timeframes
3.3.1. Installation Time Frames for RCF INP, where no other work is
required, will be completed using Sprint's standard interval
for service installation of complex services.
3.3.2. If a subscriber elects to move its Telephone Exchange Service
back to Sprint while on an INP arrangement, Sprint shall
notify CLEC of the Subscriber's termination of service with
CLEC and the Subscriber's instructions regarding its
telephone number(s) at Parity with what is offered to other
Sprint customers.
3.4. Call Referral Announcements. Should CLEC direct Sprint to terminate
INP measures, Sprint shall allow CLEC to order a referral announcement
available in that switch.
3.5. Engineering and Maintenance. Sprint and CLEC will cooperate to ensure
that performance of trunking and signaling capacity is engineered
and managed at levels which are at Parity with that provided by Sprint
to its subscribers and to ensure effective maintenance testing through
activities such as routine testing practices, network trouble
isolation processes and review of operational elements for
translations, routing and network fault isolation.
3.6. Operator Services and Directory Assistance
3.6.1 With respect to operator services and directory assistance
associated with INP for CLEC subscribers, Sprint shall provide
the following;
3.6.1.1 While INP is deployed;
61
<PAGE>
3.6.1.1.1. Sprint shall allow CLEC to order provisioning of
Telephone Line Number (TLN) calling cards and Billed
Number Screening (BNS), in its LIDB, for ported
numbers, as specified by CLEC. Sprint shall continue
to allow CLEC access to its LIDB. Other LIDB
provisions are specified in this Agreement.
3.6.1.1.2. Where Sprint has control of directory listings
for NXX codes containing ported numbers, Sprint
shall maintain entries for ported numbers as
specified by CLEC.
3.6.2. Sprint OSS shall meet all requirements specified in "Generic
Operator Services Switching Requirements for Number
Portability." Issue 1.00. Final Draft, April 12, 1996, Editor -
Nortel.
3.7. Number Reservation. When a subscriber ports to another service
provider and has previously secured, via a tariffed offering, a
reservation of line numbers from the donor provider for possible
activation at some future point, these reserved but inactive numbers
shall "port" along with the active numbers being ported by the
subscriber in order to ensure that the end user subscriber will be
permitted to expand its service using the same number range it could
use if it remained with the donor provider. However, Sprint will not
port vacant numbers.
62
<PAGE>
ATTACHMENT VI
LOCAL NUMBER PORTABILITY
1. INTRODUCTION
1.1. Upon implementation of LNP, both Parties agree to conform and provide
such LNP pursuant to FCC regulations and compliance with the Industry
Forum. To the extent consistent with the FCC and Industry rules as
amended from time to time, the requirements for LNP shall include the
following:
1.1.1. Subscribers must be able to change local service providers and
retain the same telephone number(s) within the serving wire
center utilizing the portability method in effect within the
porting MSA, as offered by the porting carrier, and within the
area of portability as defined by the FCC or state commission
having jurisdiction over this Agreement.
1.1.2. The LNP network architecture shall not subject Parties to any
degradation of service in any relevant measure, including
transmission quality, switching and transport costs, increased
call set-up time and post-dial delay.
1.1.3. Parties agree that when an NXX is defined as portable, it
shall also be defined as portable in all LNP capable offices
which have direct trunks to the given switch.
1.1.4. When a subscriber ports to another service provider and has
previously secured a reservation of line numbers from the
donor provider for possible activation at some future point,
these reserved but inactive numbers shall port along with the
active numbers being ported by the subscriber only in states
where appropriate charges from Sprint tariffs are executed for
reserved numbers.
1.1.5. NXX Availability. Not all NXXs in each CO may be available for
porting.
1.1.6. LERG Reassignment. Portability for an entire NXX shall be
provided by utilizing reassignment of the NXX to CLEC through
the LERG.
1.1.7. Coordination of service order work outside normal business
hours (8:00AM to 5:00PM) shall be at requesting Party's
expense. Premium rates will apply for service order work
performed outside normal business hours, weekends, and
holidays.
1.1.8. Mass Calling Events. Parties will notify each other at least
seven (7) days in advance where ported numbers are utilized.
Parties will only port mass calling numbers using switch
translations and a choke network for call routing. Porting on
mass calling numbers will be handled outside the
63
<PAGE>
normal porting process and comply with any applicable state or
federal regulatory requirements developed for mass calling
numbers.
2. TRANSITION FROM INP TO LNP
2.1 Existing INP Arrangements. As Sprint provision LNP according to the
industry schedule in a Wire Center/Central Office, there will be a
maximum of a ninety (90) day transition from INP to LNP. At the time,
the CLEC will be required to fully implement LNP according to industry
standards.
2.2 Once LNP is available in an area, all new portability will be LNP and
INP will no longer be offered.
3. TESTING
3.1 An Interconnection Agreement (or Memorandum of Understanding, or
Porting Agreement) detailing conditions for LNP must be in effect
between the Parties prior to testing.
3.2 Testing and operational issues will be addressed in the implementation
plans as described in Part A. Section 30 of the agreement.
3.3 CLEC must be NPAC certified and have met Sprint testing parameters
prior to activating LNP. If LNP implementation by a CLEC/CMRS provider
occurs past the FCC activation date, testing and porting will be done
at CLEC's expense.
3.4 Parties will cooperate to ensure effective maintenance testing through
activities such as routine testing practices, network trouble
isolation processes and review of operational elements for translation
routing and network fault isolation.
3.5 Parties shall cooperate in testing performed to ensure
interconnectivity between systems. All LNP providers shall notify each
connected provider of any system updates that may affect the CLEC or
Sprint network. Each LNP provider shall, at each other's request,
jointly perform tests to validate the operation of the network.
Additional testing requirements may apply as specified by this
Agreement or in the Implementation Plan.
4. ENGINEERING AND MAINTENANCE
4.1 Each LNP provider will monitor and perform effective maintenance
through testing and the performance of proactive maintenance
activities such as routine testing, development of and adherence to
appropriate network trouble isolation processes and periodic
review of operational elements for translations, routing and network
faults.
4.2 It will be the responsibility of the Parties to ensure that the
network is stable and maintenance and performance levels are
maintained in accordance with state commission requirements. It will
be the responsibility of the Parties to perform
64
<PAGE>
fault isolation in their network before involving other providers.
4.3. Additional engineering and maintenance requirements shall apply as
specified in this Agreement or the Implementation Plan.
5. E911/911
5.1. When a subscriber ports to another service provider, the donor
provider shall use information provided by the porting provider to
update the 911 tandem switch routing tables and 911/ALI database to
correctly route, and provide accurate information to PSAP call
centers.
5.2. Prior to implementation of LNP, the Parties agree to develop,
implement, and maintain efficient methods to maintain 911 database
integrity when a subscriber ports to another service provider. The
Parties agree that the customer shall not be dropped from the 911
database during the transition.
6. BILLING
6.1. When an IXC terminates an InterLATA or IntraLATA toll call to either
party's local exchange customer whose telephone number has been ported
from one party to the other, the parties agree that the party to whom
the number has been ported shall receive revenues from those IXC
access charges associated with end office switching, local transport,
RIC, and CCL, as appropriate, and such other applicable charges. The
party from whom the number has been ported shall be entitled only to
receive any entrance facility fees, access tandem fees and appropriate
local transport charges as set forth in this Agreement. Such access
charge payments will be adjusted to the extent that the paying party
has already paid Reciprocal Compensation for the same minutes of use.
When a call for which access charges are not applicable is terminated
to a party's local exchange customer whose telephone number has been
ported from the other party, the parties agree that the Reciprocal
compensation arrangements described in this Agreement shall apply.
6.2. Non-Payment. Customers lose the right to the ported telephone number
upon non-payment of charges. Sprint will not port telephone numbers of
customers who have bills in default.
65
<PAGE>
ATTACHMENT VII
GENERAL BUSINESS REQUIREMENTS
1. PROCEDURES
1.1. Contact with Subscribers
1.1.1. Each Party at all times shall be the primary contact and
account control for all interactions with its subscribers,
except as specified by that Party. Subscribers include
active subscribers as well as those for whom service orders
are pending.
1.1.2. Each Party shall ensure that any of its personnel who may
receive subscriber inquiries, or otherwise have opportunity
for subscriber contact from the other Party's subscribers
regarding the other Party's services; (i) provide
appropriate referrals to subscribers who inquire about the
other Party's services or products; (ii) do not in any way
disparage or discriminate against the other Party, or its
products or services; and (iii) do not provide information
about its products or services during that same, inquiry or
subscriber contact.
1.1.3. Sprint shall not use CLEC's request for subscriber
information, order submission, or any other aspect of CLEC's
processes or services to aid Sprint's marketing or sales
efforts.
1.2. Expedite and Escalation Procedures
1.2.1 Sprint and CLEC shall develop mutually acceptable escalation
and expedite procedures which may be invoked at any point in
the Service Ordering, Provisioning, Maintenance, and
Subscriber Usage Data transfer processes to facilitate rapid
and timely resolution of disputes. In addition Sprint and
CLEC will establish intercompany contacts lists for purposes
of handling subscriber and other matters which require
attention/resolution outside of normal business procedures
within thirty (30) days after CLEC's request. Each party
shall notify the other party of any changes to its
escalation contact list as soon as practicable before such
changes are effective.
1.2.2. No later than thirty (30) days after CLEC's request Sprint
shall provide CLEC with contingency plans for those cases in
which normal Service Ordering, Provisioning, Maintenance.
Billing, and other procedures for Sprint's unbundled Network
Elements, features, functions, and resale services are
inoperable.
1.3 Subscriber of Record. Sprint shall recognize CLEC as the Subscriber
of Record for all Network Elements or services for resale ordered by
CLEC and shall send all notices, invoices, and information, which
pertain to such ordered services
66
<PAGE>
directly to CLEC, CLEC will provide Sprint with addresses to which
Sprint shall send all such notices, invoices, and information.
1.4. Services Offerings
1.4.1. Sprint shall provide CLEC with access to new services,
features and functions concurrent with Sprint's notice to
CLEC of such changes, if such service, feature or function
is installed and available in the network or as soon
thereafter as it is installed and available in the network,
so that CLEC may conduct market testing.
1.4.2. Essential Services. For purposes of service restoral, Sprint
shall designate a CLEC access line as an Essential Service
Line (ESL) at Parity with Sprint's treatment of its own
subscribers and applicable state law or regulation, if any.
1.4.3. Blocking Services. Upon request from CLEC, employing Sprint-
approved LSR documentation, Sprint shall provide blocking of
700, 900, and 976 services, or other services of similar
type as may now exist or be developed in the future, and
shall provide Billed Number Screening (BNS), including
required LIDB updates, or equivalent service for blocking
completion of bill-to-third party and collect calls, on a
line, PBX, or individual service basis. Blocking shall be
provided the extent (a) it is an available option for the
Telecommunications Service resold by CLEC, or (b) it is
technically feasible when requested by CLEC as a function of
unbundled Network Elements.
1.4.4. Training Support. Sprint shall provide training, on a non-
discriminatory basis, for all Sprint employees who may
communicate, either by telephone or face-to-face, with CLEC
subscribers. Such training shall include compliance with the
branding requirements of this Agreement including without
limitation provisions of forms, and unbranded 'Not at Home"
notices.
2. ORDERING AND PROVISIONING
2.1. Ordering and Provisioning Parity. Sprint shall provide necessary
ordering and provisioning business process support as well as those
technical and systems interfaces as may be required to enable CLEC
to provide the same level and quality of service for all resale
services, functions, features, capabilities and unbundled Network
Elements at Parity.
2.2. National Exchange Access Center (NEAC)
2.2.1. Sprint shall provide a NEAC or equivalent which shall serve
as CLEC's point of contact for all activities involved in
the ordering and provisioning of Sprint's unbundled Network
Elements, features, function, and resale
67
<PAGE>
services.
2.2.2 The NEAC shall provide to CLEC a nationwide telephone
number (available from 6:00 a.m. to 8:00 p.m. Eastern
Standard Time, Monday through Friday, and 8:00 am through
5:00 P.M. Eastern Standard Time on Saturday) answered by
competent, knowledgeable personnel and trained to answer
questions and resolve problems in connection with the
ordering and provisioning of unbundled Network Elements
(except those associated with local trunking inter-
connection), features, functions, capabilities, and resale
services.
2.2.3. Sprint shall provide, as requested by CLEC, through the
NEAC, provisioning and premises visit installation support
in the form of coordinated scheduling, status, and dispatch
capabilities during Sprint's standard business hours and at
other times as agreed upon by the parties to meet subsciber
demand.
2.3. Street Address Guide (SAG). Within thirty (30) days of CLEC's written
request. Sprint shall provide to CLEC the SAG data, or its
equivalent, in an electronic format mutually agreeable to the
parties. All changes and updates to the SAG shall be provided to in a
mutually agreed format and timeframe.
2.4. CLASS and Custom Features. Where generally available in Sprints
serving area. CLEC, at the tariff rate, may order the entire set of
CLASS,CENTREX and Custom feautres and functions, or a subset of any
one of such features.
2.5. Number Administration/Number Reservation
2.5.1. Sprint shall provide testing and loading of CLEC's NXX on
the same basis as Sprint provides itself or its affiliates.
Further, Sprint shall provide CLEC with access to
abbreviated dialing codes, and the ability to obtain
telephone numbers, including vanity numbers, while a
subscriber is on the phone with CLEC. When CLEC uses numbers
from a Sprint NXX, Sprint shall provide the same range of
number choices to CLEC, including choice of exchange
number, as Sprint provides its own subscribers. Reservation
and aging of Sprint NXX's shall remain Sprint's
responsibility.
2.5.2. In conjunction with an order for service, Sprint shall
accept CLEC orders for vanity numbers and blocks of numbers
for use with complex services including, but not limited
to, DID, CENTREX, and Hunting arrangements, as requested by
CLEC.
2.5.3. For simple services number reservations and aging of
Sprint's numbers, Sprint shall provide real-time
confirmation of the number reservation when the Electronic
Interface has been implemented. For number reservations
associated with complex services. Sprint shall provide
confirmation of the number reservation within twenty-four
(24) hours of
68
<PAGE>
CLEC's request. Consistent with the manner in which Sprint provides
numbers to its own subscribers, no telephone number assignment is
guaranteed until service has been installed.
2.6 Service Order Process Requirements
2.6.1. Service Migrations and New Subsciber Additions
2.6.1.1. For resale services, other than for a CLEC order to
convert "as is" a CLEC subscriber. Sprint shall not
disconnect any subsciber service or existing features at
any time during the migration of that subscriber to CLEC
service without prior CLEC agreement.
2.6.1.2. For services provided through UNEs, Sprint shall
recognize CLEC as an agent, in accordance with OBF
developed processes, for the subscriber in coordinating the
disconnection of services provided by another CLEC or
Sprint. In addition, Sprint and CLEC will work
cooperatively to minimize service interruptions during the
conversion.
2.6.1.3. Unless otherwise directed by CLEC and when technically
capable, when CLEC orders resale Telecommunications
Services or UNEs all trunk or telephone numbers currently
associated with existing services shall be retained without
loss of feature capability and without loss of associated
ancillary services including, but not limited to, Directory
Assistance and 911/E911 capability.
2.6.1.4. For subscriber conversions requiring coordinated cut-
over activities, on a per order basis, Sprint, to the
extent resources are readily available, and CLEC will agree
on a scheduled conversion time, which will be a designated
time period within a designated date.
2.6.1.4.1. Any request made by CLEC to coordinate
conversions after normal working hours, or on
Saturday's or Sunday's or Sprint holidays shall be
performed at CLEC's expense.
2.6.1.5. A general Letter of Agency (LOA) initiated by CLEC or
Sprint will be required to process a PLC or PIC change
order. Providing the LOA, or a copy of the LOA, signed by
the end user will not be required to process a PLC or PIC
change ordered by CLEC or Sprint. CLEC and Sprint agree
that PLC or PIC change orders will be supported with
appropriate documentation and verification as required by
FCC and Commission rules. In the event of a subsciber
complaint of an unauthorized PLC record change where the
Party that ordered such change is unable to produce
appropriate
69
<PAGE>
documentation and verification as required by FCC and Commission
rules (or, if there are no rules applicable to PLC record
changes, then such rules as are applicable to changes in long
distance carriers of record), such Party shall be liable to pay
and shall pay all nonrecurring and/or other charges associated
with reestablishing the subscriber's local service with the
original local carrier.
2.6.2. Intercept Treatment and Transfer Service Announcements. Sprint shall
provide unbranded intercept treatment and transfer of service
announcements to CLEC's subscribers. Sprint shall provide such
treatment and transfer of service announcement in accordance with
local tariffs and as provided to similarly situated Sprint subscribers
for all service disconnects, suspensions, or transfers.
2.6.3. Due Date
2.6.3.1. Sprint shall supply CLEC with due date intervals to be used
by CLEC personnel to determine service installation dates.
2.6.3.2. Sprint shall use best efforts to complete orders by the CLEC
requested DDD within agreed upon intervals.
2.6.4. Subscriber Premises Inspections and Installations
2.6.4.1. CLEC shall perform or contract for all CLEC's needs
assessments, including equipment and installation requirements
required beyond the Demarcation/NID, located at the
subscriber premises.
2.6.4.2. Sprint shall provide CLEC with the ability to schedule
subscriber premises installations at the same morning and
evening commitment level of service offered Sprint's own
customers. The parties shall mutually agree on an interim
process to provide this functionality during the
implementation planning process.
2.6.5. Firm Order Confirmation (FOC)
2.6.5.1. Sprint shall provide to CLEC, a Firm Order Confirmation
(FOC) for each CLEC order. The FOC shall contain the
appropriate data elements as defined by the OBF standards.
2.6.5.2. For a revised FOC, Sprint shall provide standard detail as
defined by the OBF standards.
2.6.5.3. Sprint shall provide to CLEC the date that service is
scheduled to be installed.
2.6.6. Order Rejections
70
<PAGE>
2.6.6.1. Sprint shall reject and return to CLEC any order that
Sprint cannot provision, due to technical reasons,
missing information, or jeopardy conditions resulting
from CLEC ordering service at less than the standard
order interval. When an order is rejected, Sprint
shall, in its reject notification, specifically
describe all the reasons for which the order was
rejected. Sprint shall reject any orders on account of
the customer Desired Due Date conflicts with published
Sprint order provisioning interval requirements .
2.6.7. Service Order Changes
2.6.7.1. In no event will Sprint change a CLEC initiated
service order without a new service order directing said
change. If an installation or other CLEC ordered work
requires a change from original CLEC service order in any
manner, CLEC shall initiate a revised service order. If
requested by CLEC, Sprint shall then provide CLEC an
estimate of additional labor hours and/or materials.
2.6.7.1.1. When a service order is completed, the
cost of the work performed will be reported
promptly to CLEC.
2.6.7.2. If a CLEC subscriber requests a service change at the
time of installation or other work being performed by
Sprint on behalf of CLEC. Sprint, while at the subscriber
premises, shall direct the CLEC subscriber to contact
CLEC, and CLEC will initiate a new service order.
2.7. Network Testing. Sprint shall perform all its standard pre-service
testing prior to the completion of the service order.
2.8. Service Suspensions/Restorations. Upon CLEC's request through an
Industry Standard, OBF, Suspend/Restore Order, or mutually agreed upon
interim procedure, Sprint shall suspend or restore the functionality
of any Network Element, feature, function, or resale service to which
suspend/restore is applicable. Sprint shall provide restoration
priority on a per network element basis in a manner that conforms with
any applicable regulatory Rules and Regulations or government
requirements.
2.9. Order Completion Notification. Upon completion of the requests
submitted by CLEC, Sprint shall provide to CLEC a completion
notification in an industry standard, OBF, or in a mutually agreed
format. The completion notification shall include detail of the work
performed, to the extent this is defined within OBF guidelines, and in
an interim method such standards are defined.
2.10.Specific Unbundling Requirements. CLEC may order and Sprint shall
provision unbundled Network Elements. However, it is CLEC's
responsibility to combine
71
<PAGE>
the individual network elements should it desire to do so.
2.11. Systems Interfaces and Information Exchanges
2.11.1. General Requirements
2.11.1.1. Sprint shall provide to CLEC Electronic Interface(s)
for transferring and receiving information and executing
transactions for all business functions directly or
indirectly related to Service Ordering and Provisioning of
Network Elements, features, functions and
Telecommunications Services. The Interface(s) shall be
developed/designed for the transmission of data from CLEC
to Sprint, and from Sprint to CLEC
2.11.1.2. Interim interfaces or processes may be modified, if so
agreed by CLEC and Sprint during the interim period
2.11.1.3. Until the Electronic Interface is available, Sprint
agrees that the NEAC or similar function will accept
CLEC orders. Orders will be transmitted to the NEAC via
an interface or method agreed upon by CLEC and Sprint.
2.11.2. For any CLEC subscriber Sprint shall provide, subject to
applicable rules, orders, and decisions. CLEC with access CPNI
without requiring CLEC to produce a signed LOA, based on CLEC's
blanket representation that subscriber has authorized CLEC to
obtain such CPNI.
2.11.2.1. The preordering Electronic Interface includes the
provisioning of CPNI from Sprint to CLEC. The Parties
agree to execute a LOA agreement with the Sprint end user
prior to requesting CPNI for that Sprint end user CPNI
only when the end user has specifically given permission
to receive CPNI. The Parties agree that they will conform
to FCC and/or state regulations regarding the
provisioning of CPNI between the parties, and regarding
the use of that information by the requesting party.
2.11.2.2 The requesting Party will document end user permission
obtained to receive CPNI, whether or not the end user has
agreed to change local service providers. For end users
changing service from one party to the other, specific
end user LOAs may be requested by the Party receiving
CPNI requests to investigate possible slamming incidents,
and for other reasons agreed to by the Parties.
2.11.2.3. The receiving Party may also request documentation of
an LOA if CPNI is requested and a subsequent service
order for the change of local service is not received. On
a schedule to be
72
<PAGE>
determined by Sprint will perform a comparison of
requests for CPNI to service orders received for the
change of Local Service to CLEC. Sprint will produce a
report of unmatched requests for CPNI, and may require an
LOA from CLEC for each unmatched request. CLEC agrees to
provide evidence of end user permission for receipt of
CPNI for all end users in the request by Sprint within
three (3) business days or receipt of a request from
Sprint. Should Sprint determine that there has been a
substantial percentage of unmatched LOA requests. Sprint
reserves the right to immediately disconnect the
preordering Electronic Interface.
2.11.2.4. If CLEC is not able to provide the LOA for ninety-
five percent (95%) of the end users requested by Sprint,
or if Sprint determines that an LOA is inadequate, CLEC
will be considered in breach of the agreement, CLEC can
cure the breach by submitting to Sprint evidence of an LOA
for each inadequate or omitted LOA within three (3)
business days of notification of the breach.
2.11.2.5. Should CLEC not be able to cure the breach in the
timeframe noted above Sprint will discontinue processing
new service orders until, in Sprint's determination. CLEC
has corrected the problem that caused the breach.
2.11.2.6. Sprint will resume processing new service orders upon
Sprint's timely review and acceptance of evidence provided
by CLEC to correct the problem that caused the breach.
2.11.2.7 If CLEC and Sprint do not agree that CLEC requested
CPNI for a specific end user, or that Sprint has erred in
not accepting proof of an LOA, the Parties may immediately
request dispute resolution in accordance with Part B.
Sprint will not disconnect the preordering Electronic
Interface during the Alternate Dispute Resolution
process.
2.11.2.8. When available per Electronic Interface
Implementation Sprint shall provide to CLEC
Electronic Interface to Sprint information systems
to allow CLEC to assign telephone number(s) (if the
subscriber does not already have a telephone number
or requests a change of telephone number) at Party.
2.11.2.9. When available per Electronic Interface
Implementation Plan, Sprint shall provide to CLEC an
Electronic Interface to schedule dispatch and
installation appointments at Party.
2.11.2.10. When a available per Electronic Interface
Implementation Plan, Sprint shall provide to CLEC an
electronic Interface to Sprint subscriber
information systems which will allow CLEC to
73
<PAGE>
determine if a service call is needed to install the line
or service at Parity.
2.11.2.11. When available per Electronic Interface
Implementation Plan, Sprint shall provide to CLEC an
Electronic Interface to Sprint information systems which
will allow CLEC to provide service availability dates at
Parity.
2.11.2.12. When available per Electronic Interface
Implementation Plan, Sprint shall provide to CLEC an
Electronic Interface which transmits status information
on service orders at Parity. Until an Electronic
Interface is available, Sprint agrees that Sprint will
provide proactive status on service orders at the
following critical intervals: acknowledgement, firm order
confirmation, and completion according to interim
procedures to be mutually developed.
2.12. Standards
2.12.1. General Requirements. CLEC and Sprint shall agree upon the
appropriate ordering and provisioning codes to be used for
UNEs. These codes shall apply to all aspects of the
unbundling of that element and shall be known as data
elements as defined by the Telecommunications Industry
Forum Electronic Data Interchange Service Order
Subcommittee (TCIF-EDI-SOSC).
3. BILLING
3.1. Sprint shall comply with various industry, OBF, and other standards
referred to throughout this Agreement. Sprint and CLEC will review
any changes to industry standards, and Sprint's interpretation of
these standards before they are implemented by Sprint. Until
industry standards are adopted and implemented, Sprint shall utilize
an interim process as determined by Sprint and reviewed by CLEC as
part of the Implementation Plan.
3.2. Sprint shall bill CLEC for each service supplied by Sprint to CLEC
pursuant to this Agreement at the rates set forth in this Agreement.
3.3. Sprint shall provide to CLEC a single point of contact for
interconnection at the National Access Service Center (NASC), and
Network Elements and resale at Sprint's NEAC, to handle any
Connectivity Billing questions or problems that may arise during the
implementation and performance of the terms and conditions of this
Agreement.
3.4. Sprint shall provide a single point of contact for handling of any
data exchange questions or problems that may arise during the
implementation and performance of the terms and conditions of this
Agreement.
74
<PAGE>
3.5. Subject to the terms of this Agreement, CLEC shall pay Sprint within
thirty (30) days from the Bill Date. If the payment due date is a
Saturday, Sunday or has been designated a bank holiday payment shall
be made the next business day.
3.6. Billed amounts for which written, itemized disputes or claims have
been filed shall be handled in accordance with the procedures set
forth in Part B, Article 21 of this Agreement.
3.7. Sprint will assess late payment charges to CLEC in accordance with
Part B.(S) 5.5 of this Agreement.
3.8. Sprint shall credit CLEC for incorrect Connectivity Billing charges
including without limitation; overcharges, services ordered or
requested but not delivered, interrupted services, services of poor
quality and installation problems if caused by Sprint. Such
reimbursements shall be set forth in the appropriate section of the
Connectivity Bill pursuant to CABS, or SECAB standards.
3.9. Where Parties have established interconnection, Sprint and the CLEC
agree to conform to MECAB and MECOD guidelines. They will exchange
Billing Account Reference and Bill Account Cross Reference
information and will coordinate Initial Billing Company/Subsequent
Billing Company billing cycles, Sprint and CLEC will exchange the
appropriate records to bill exchange access charges to the IXC,
Sprint and CLEC agree to capture EMR records for inward terminating
and outward originating calls and send them to the other, as
appropriate, in daily or other agreed upon interval, via and agreed
upon media (e.g., Connect Direct, cartridge or magnetic tape).
3.10. Revenue Protection, Sprint shall make available to CLEC, at Parity
with what Sprint provides to itself, its Affiliates and other local
telecommunications CLECs, all present and future fraud prevention or
revenue protection features, including prevention, detection, or
control functionality embedded within any of the Network Elements.
These features include, but are not limited to screening codes,
information digits assigned such as information digits `29' and `70'
which indicate prison and COCOT pay phone originating line types
respectively, call blocking of domestic, international, 800, 888,
900, NPA-976, 700, 500 and specific line numbers, and the capability
to require end-user entry of an authorization code for dial tone,
Sprint shall, when technically capable and consistent with the
implementation schedule for Operations Support Systems (OSS),
additionally provide partitioned access to fraud prevention,
detection and control functionality within pertinent OSS.
4. PROVISION OF SUBSCRIBER USAGE DATA
4.1. This Article 4 sets forth the terms and conditions for Sprint's
provision of Recorded Usage Data (as defined in this Attachment VIII)
to CLEC and for information exchange regarding long distance billing.
The parties agree to record call information for interconnection in
accordance with this Article 4. To the
75
<PAGE>
extent technically feasible, each party shall record all call detail
information associated with completed calls originated by or
terminated to the other Party's local exchange subscriber. Sprint
shall record for CLEC the messages that Sprint records for and bills
to its end users. These records shall be provided at a party's request
and shall be formatted pursuant to Bellcore's EMR standards and the
terms and conditions of this Agreement. These records shall be
transmitted to the other party on non-holiday business days in EMR
format via CDN, or provided on a cartridge or magnetic tape. Sprint
and CLEC agree that they shall retain, at each party's sole expense,
copies of all EMR records transmitted to the other party for at least
forty-five (45) calendar days after transmission to the other party.
4.2. General Procedures
4.2.1. Sprint shall comply with various industry and OBF standards
referred to throughout this Agreement.
4.2.2. Sprint shall comply with OBF standards when recording and
transmitting Usage Data.
4.2.3. Sprint shall record all usage originating from CLEC subscribers
using resold services ordered by CLEC, where Sprint records
those same services for Sprint subscribers. Recorded Usage Data
includes, but is not limited to, the following categories of
information:
4.2.3.1. Use of CLASS/LASS/Custom Features that Sprint
records and bills for its subscribers on a per usage
basis.
4.2.3.2. Calls to Information Providers (IP) reached via
Sprint facilities will be provided in accordance with
(S)4.2.7.
4.2.3.3. Calls to Directory Assistance where Sprint
provides such service to a CLEC subscriber.
4.2.3.4. Calls completed via Sprint-provided Operator
Services where Sprint provides such service to CLEC's
local service subscriber and where Sprint records such
usage for its subscribers using Industry Standard
Bellcore EMR billing records.
4.2.3.5. For Sprint-provided Centrex Service,station level
detail.
4.2.4. Retention of Records. Sprint shall maintain a machine readable
back-up copy of the message detail provided to CLEC for a
minimum of forty-five (45) calendar days. During the forty-five
(45) day period, Sprint shall provide any data back-up to CLEC
upon the request of CLEC. If the forty-five (45) day has
expired, Sprint may provide the data back-up at CLEC's expense.
4.2.5. Sprint shall provide to CLEC Recorded Usage Data for CLEC
subscribers. Sprint shall not submit other CLEC local usage
data as part of the CLEC
76
<PAGE>
Recorded Usage Data.
4.2.6. Sprint shall not bill directly to CLEC subscribers any
recurring or non-recurring charges for CLEC's services to the
subscriber except where explicitly permitted to do so within a
written agreement between Sprint and CLEC.
4.2.7. Sprint will record 976/N11 calls and transmit them to the IP
for billing. Sprint will not bill these calls to either the
CLEC or the CLEC's end user.
4.2.8. Sprint shall provide Recorded Usage Data to CLEC billing
locations as agreed to by the Parties.
4.2.9. Sprint shall provide a single point of contact to respond to
CLEC call usage, data error, and record transmission inquires.
4.2.10. Sprint shall provide CLEC with a single point of contact and
remote identifiers (IDs) for each sending location.
4.2.11. CLEC shall provide a single point of contact responsible for
receiving usage transmitted by Sprint and receiving usage
tapes from a courier service in the event of a facility
outage.
4.2.12. Sprint shall bill and CLEC shall pay the charges for Recorded
Usage Data. Billing and payment shall be in accordance with
the applicable terms and conditions set forth herein.
4.3. Charges
4.3.1. Access services, including revenues associated therewith,
provided in connection with the resale of services hereunder
shall be the responsibility of Sprint and Sprint shall
directly bill and receive payment on its own behalf from an
LXC for access related to interexchange calls generated by
resold or rebranded customers.
4.3.2. Sprint will be responsible for returning EMI/EMR records to
LXCs with the proper EMR Return Code along with the Operating
Company Number (OCN) of the associated ANI, (i.e., Billing
Number).
4.3.3. Sprint will deliver a monthly statement for wholesale services
in the medium (e.g.: NDM, paper, diskette, cartridge, magnetic
tape, or CD-ROM) requested by CLEC as follows:
4.3.3.1. Invoices will be provided in a standard Carrier
Access Billing format or other such format as Sprint
may determine:
4.3.3.2. Where local usage charges apply and message detail
is created to support available services, the
originating local usage at the call detail level in
standard EMR industry format will be exchanged
77
<PAGE>
daily or at other mutually agreed upon intervals,
and CLEC will pay Sprint for providing such call
detail;
4.3.3.3. The Parties will work cooperatively to exchange
information to facilitate the billing of in and
out collect and inter/intra-region alternately
billed messages;
4.3.3.4. Sprint agrees to provide information on the
end-user's selection of special features where
Sprint maintains such information (e.g.; billing
method, special language) when CLEC places the
order for service;
4.3.3.5. Monthly recurring charges for
Telecommunications Services sold pursuant to this
Agreement shall be billed monthly in advance.
4.3.3.6. Sprint shall bill for message provisioning and,
if applicable data tape charges, related to the
provision of usage records. Sprint shall also bill
CLEC for additional copies of the monthly invoice.
4.3.4. For billing purposes, and except as otherwise
specifically agreed to in writing, the Telecommunications
Services provided hereunder are furnished for a minimum
term of one month. Each month is presumed to have thirty
(30) days.
4.4. Central Clearinghouse & Settlement
4.4.1. Sprint and CLEC shall agree upon Clearinghouse and
Incollect/Outcollect procedures.
4.4.2 Sprint shall settle with CLEC for both intra-region and
inter-region billing exchanges of calling card, bill-to-
third party, and collect calls under separately
negotiated settlement arrangements.
4.5. Lost Data
4.5.1. Loss of Recorded Usage Data. CLEC Recorded Usage Data
determined to have been lost, damaged or destroyed as a
result of an error or omission by Sprint in its
performance of the recording function shall be recovered
by Sprint at no charge to CLEC. In the event the data
cannot be recovered by Sprint, Sprint shall estimate the
messages and associated revenue, with assistance from
CLEC, based upon the method described below. This
method shall be applied on a consistent basis, subject to
modifications agreed to by Sprint and CLEC. This estimate
shall be used to adjust amounts CLEC owes Sprint for
services Sprint provides in conjunction with the
provision of Recorded Usage Data.
4.5.2. Partial Loss. Sprint shall review its daily controls to
determine if data has been lost. When there has been a
partial loss, actual message and minute
78
<PAGE>
volumes shall be reported, if possible through recovery as
discussed in 4.1.4.1 above. Where actual data are not
available, a full day shall be estimated for the recording
entity, as outlined in the following paragraphs. The amount
of the partial loss is then determined by subtracting the
data actually recorded for such day from the estimated total
for such day.
4.5.3. Complete Loss. When Sprint is unable to recover data as
discussed in 4.1.4.1 above estimated message and minute
volumes for each loss consisting of an entire AMA tape or
entire data volume due to its loss prior to or during
processing, lost after receipt, degaussed before processing,
receipt of a blank or unreadable tape, or lost for other
causes, shall be reported.
4.5.4. Estimated Volumes. From message and minute volume reports for
the entity experiencing the loss, Sprint shall secure
message/minute counts for the four (4) corresponding days of
the weeks preceding that in which the loss occurred and
compute an average of these volumes. Sprint shall apply the
appropriate average revenue per message ("arpm") agreed to by
CLEC and Sprint to the estimated message volume for messages
for which usage charges apply to the subscriber to arrive at
the estimated lost revenue.
4.5.5. If the day of loss is not a holiday but one (1) (or more) of
the preceding corresponding days is a holiday, use additional
preceding weeks in order to procure volumes for two (2) non-
holidays in the previous two (2) weeks that correspond to the
day of the week that is the day of the loss
4.5.6. If the loss occurs on a weekday that is a holiday (except
Christmas and Mother's day), Sprint shall use volumes from
the two (2) preceding Sundays.
4.5.7. If the loss occurs on Mother's day or Christmas day, Sprint
shall use volumes from that day in the preceding year
multiplied by a growth factor derived from an average of
CLEC's most recent three (3) month message volume growth. If
a previous year's message volumes are not available, a
settlement shall be negotiated.
4.6 Testing, Changes and Controls
4.6.1. The Recorded Usage Data, EMR format, content, and
transmission process shall be tested as agreed upon by CLEC
and Sprint.
4.6.2. Control procedures for all usage transferred between Sprint
and CLEC shall be available for periodic review. This review
may be included as part of an Audit of Sprint by CLEC or as
part of the normal production interface management function.
Breakdowns which impact the flow of usage between Sprint and
CLEC must be identified and jointly resolved as they occur.
The resolution may include changes to control procedures, so
79
<PAGE>
similar problems would be avoided in the future. Any changes
to control procedures would need to be mutually agreed upon
by CLEC and Sprint.
4.6.3. Sprint Software Changes
4.6.3.1. When Sprint plans to introduce any software
changes which impact the format or content
structure of the usage data feed to CLEC,
designated Sprint personnel shall notify CLEC, no
less than ninety (90) calendar days before such
changes are implemented.
4.6.3.2. Sprint shall communicate the projected changes
to CLEC's single point of contact so that
potential impacts on CLEC processing can be
determined.
4.6.3.3. CLEC personnel shall review the impact of the
change on the entire control structure. CLEC shall
negotiate any perceived problems with Sprint and
shall arrange to have the data tested utilizing the
modified software if required.
4.6.3.4. If it is necessary for Sprint to request changes
in the schedule, content or format of usage data
transmitted to CLEC, Sprint shall notify CLEC.
4.6.4. CLEC Requested Changes:
4.6.4.1. CLEC may submit a purchase order to negotiate and
pay for changes in the content and format of the
usage data transmitted by Sprint.
4.6.4.2. When the negotiated changes are to be
implemented, CLEC and/or Sprint shall arrange for
testing of the modified data.
4.7. Information Exchange and Interfaces
4.7.1. Product/Service Specific, Sprint shall provide a Bellcore
standard 42-50-01 miscellaneous charge record to support the
Special Features Star Services if these features are part of
Sprint's offering and are provided for Sprint's subscribers
on a per usage basis.
4.7.2. Rejected Recorded Usage Data
4.7.2.1. Upon agreement between CLEC and Sprint, messages
that cannot be rated and/or billed by CLEC may be
returned to Sprint via CDN or other medium as
agreed by the Parties. Returned messages shall be
sent directly to Sprint in their original EMR
format utilizing standard EMR return codes.
4.7.2.2. Sprint may correct and resubmit to CLEC any
messages returned to Sprint. Sprint will not be
liable for any records
80
<PAGE>
determined by Sprint to be billable to a CLEC end user. CLEC
will not return a message that has been corrected and
resubmitted by Sprint. Sprint will only assume liability for
errors and unguideables caused by Sprint.
5. GENERAL NETWORK REQUIREMENTS
5.1. Sprint shall provide repair, maintenance and testing for all resold
Telecommunications Services and such UNEs that Sprint is able to test,
in accordance with the terms and conditions of this Agreement.
5.2. During the term of this Agreement, Sprint shall provide necessary
maintenance business process support as well as those technical and
systems interfaces at Parity. Sprint shall provide CLEC with
maintenance support at Parity.
5.3. Sprint shall provide on a regional basis, a point of contact for CLEC
to report vital telephone maintenance issues and trouble reports
twenty four (24) hours and seven (7) days a week.
5.4. Sprint shall provide CLEC maintenance dispatch personnel on the same
schedule that it provides its own subscribers.
5.5. Sprint shall cooperate with CLEC to meet maintenance standards for all
Telecommunications Services and unbundled network elements ordered
under this Agreement. Such maintenance standards shall include,
without limitation, standards for testing, network management, call
gapping, and notification of upgrades as they become available.
5.6. All Sprint employees or contractors who perform repair service for
CLEC subscribers shall follow Sprint standard procedures in all their
communications with CLEC subscribers. These procedures and protocols
shall ensure that:
5.6.1. Sprint employees or contractors shall perform repair service
that is equal in quality to that provided to Sprint
subscribers: and
5.6.2. Trouble calls from CLEC shall receive response time priority
that is equal to that of Sprint subscribers and shall be
handled on a "first come first served" basis regardless of
whether the subscriber is a CLEC subscriber or a Sprint
subscriber.
5.7. Sprint shall provide CLEC with scheduled maintenance for resold lines,
including, without limitation, required and recommended maintenance
intervals and procedures, for all Telecommunications Services and
network elements provided to CLEC under this Agreement equal in
quality to that currently provided by Sprint in the maintenance of its
own network. CLEC shall perform its own testing for UNEs.
5.8. Sprint shall give maximum advance notice to CLEC of all non-scheduled
81
<PAGE>
maintenance or other planned network activities to be performed by
Sprint on any network element, including any hardware, equipment,
software, or system providing service functionality of which CLEC
has advised Sprint may potentially impact CLEC subscribers.
5.9. Notice of Network Event. Each party has the duty to alert the other
to any network events that can result or have resulted in service
interruption, blocked calls, or negative changes in network
performance as follows:
5.9.1. Any cable or electronics outage that affects fifty percent
(50%) or more of the in-service lines of a central office or
one-thousand (1000) access lines, whichever is less with a
duration of two (2) minutes or more.
5.9.2. Toll or EAS isolation of an entire exchange with duration of
two (2) minutes or more.
5.9.3. Any digital cross-connect or fiber optic complete system
failure lasting two (2) minutes or more.
5.10. On all misdirected calls from CLEC subscribers requesting repair,
Sprint shall provide such CLEC subscriber with the correct CLEC
repair telephone number as such number is provided to Sprint by
CLEC. Once the Electronic Interface is established between Sprint
and CLEC, Sprint agrees that CLEC may report troubles directly to a
single Sprint repair/maintenance center for both residential and
small business subscribers, unless otherwise agreed to by CLEC.
5.11. Upon establishment of an Electronic Interface, Sprint shall notify
CLEC via such electronic interface upon completion of trouble
report. The report shall not be considered closed until such
notification is made. CLEC will contract its subscriber to determine
if repairs were completed and confirm the trouble no longer exists.
5.12. Sprint shall perform all testing for resold Telecommunications
Services.
5.13. Sprint shall provide test results to CLEC, if appropriate, for
trouble clearance. In all instances, Sprint shall provide CLEC with
the disposition of the trouble.
5.14. If Sprint initiates trouble handling procedures, it will bear all
costs associated with that activity. If CLEC requests the trouble
dispatch and either there is not trouble found, or the trouble is
determined to be beyond the end user demarcation point, then
CLEC will bear the cost.
6. MISCELLANEOUS SERVICES AND FUNCTIONS
6.1. General
6.1.1. To the extent that Sprint does not provide the services
described in this Article 12 to itself, Sprint will use
reasonable efforts to facilitate the
82
<PAGE>
acquisition of such services for or by CLEC through the
existing service provider, CLEC must contract directly with
the service provider for such services.
6.1.2. Basic 911 and E911 General Requirements
6.1.2.1. Basic 911 and E911 provides a caller access to the
appropriate emergency service bureau by dialing a 3-digit
universal telephone number (911). Basic 911 and E911
access from Local Switching shall be provided to CLEC in
accordance with the following:
6.1.2.2. E911 shall provide additional routing flexibility for
911 calls. E911 shall use subscriber data, contained in
the ALI/DMS, to determine to which PSAP to route the
call.
6.1.2.3. Basic 911 and E911 functions provided to CLEC shall be
at Parity with the support and services that Sprint
provides to its subscribers for such familiar
functionality.
6.1.2.4. Basic 911 and E911 access when CLEC purchases Local
Switching shall be provided to CLEC in accordance with
the following:
6.1.2.4.1. Sprint shall conform to all state
regulations concerning emergency services.
6.1.2.4.2. For E911, Sprint shall use its service
order process to update and maintain subscriber
information in the ALI/DMS. Through this
process, Sprint shall provide and validate
CLEC subscriber information resident or
entered into the ALI/DMS.
6.1.2.4.3. Sprint shall provide for overflow
911 traffic to be routed to Sprint Operator
Services or, at CLEC's discretion, directly to
CLEC operator services.
6.1.3. Basic 911 and E911 access from the CLEC local switch shall be
provided to CLEC in accordance with the following:
6.1.3.1. If required by CLEC, Sprint, at CLEC's sole
expense, shall interconnect direct trunks from the
CLEC network to the E911 PSAP, or the E911 Tandems as
designated by CLEC. Such trunks may alternatively be
provided by CLEC.
6.1.3.2. In government jurisdictions where Sprint has
obligations under existing agreements as the primary
provider of the 911 System to the county (Host
SPRINT), CLEC shall participate in the provision
83
<PAGE>
of the 911 System as follows:
6.1.3.2.1. Each party shall be responsible for
those portions of the 911 System for which it
has control, including any necessary
maintenance to each party's portion of the 911
System.
6.1.3.2.2. Host SPRINT shall be responsible for
maintaining the E-911 database. Sprint shall be
responsible for maintaining the E-911 routing
database.
6.1.4. If a third party is the primary service provider to a
government agency, CLEC shall negotiate separately with such
third party with regard to the provision of 911 service to
the agency. All relations between such third party and CLEC
are totally separate from this Agreement and Sprint makes no
representations on behalf of the third party.
6.1.5. If CLEC or its Affiliate is the primary service provider to
a government agency, CLEC and Sprint shall negotiate the
specific provisions necessary for providing 911 service to
the agency and shall include such provisions in an
amendment to this Agreement.
6.1.6. Interconnection and database access shall be priced as
specified in Attachment I.
6.1.7. Sprint shall comply with established, competitively neutral
intervals for installation of facilities, including any
collocation facilities, diversity requirements, etc.
6.1.8. In a resale situation, where it may be appropriate for
Sprint to update the ALI database, Sprint shall update such
database with CLEC data in an interval at Parity with that
experienced by Sprint subscribers.
6.1.9. Sprint shall transmit to CLEC daily all changes,
alterations, modifications, and updates to the emergency
public agency telephone numbers linked to all NPA NXX's.
This Transmission shall be electronic and be a separate feed
from the subscriber listing feed.
6.1.10. Sprint shall provide to CLEC the necessary UNEs for CLEC to
provide E911/911 services to government agencies. If such
elements are not available from Sprint, Sprint shall offer
E911/911 service for resale by CLEC to government agencies.
6.1.11. The following are Basic 911 and E911 Database Requirements
6.1.11.1. The ALI database shall be managed by Sprint, but
is the property of Sprint and CLEC for those records
provided by CLEC.
84
<PAGE>
6.1.11.2. To the extent allowed by the governmental agency, and
where available, copies of the MSAG shall be provided
within three business days from the time requested and
provided on diskette, magnetic tape, or in a format
suitable for use with desktop computers.
6.1.11.3. CLEC shall be solely responsible for providing CLEC
database records to Sprint for inclusion in Sprint's ALI
database on a timely basis.
6.1.11.4. Sprint and CLEC shall arrange for the automated input
and periodic updating of the E911 database information
related to CLEC end users. Sprint shall work
cooperatively with CLEC to ensure the accuracy of the
data transfer by verifying it against the MSAG. Sprint
shall accept electronically transmitted files or magnetic
tape that conform to NENA Version #2 format.
6.1.11.5. CLEC shall assign an E911 database coordinator charged
with the responsibility of forwarding CLEC end user. ALI
record information to Sprint or via a third-party entity,
charged with the responsibility of ALI record transfer.
CLEC assumes all responsibility for the accuracy of the
data that CLEC provides to Sprint.
6.1.11.6. CLEC shall provide information on new subscribers to
Sprint within one (1) business day of the order
completion. Sprint shall update the database within two
(2) business days of receiving the data from CLEC. If
Sprint detects an error in the CLEC provided data, the
data shall be returned to CLEC within two (2) business
days from when it was provided to Sprint. CLEC shall
respond to requests from Sprint to make corrections to
database record errors by uploading corrected records
within two (2) business days. Manual entry shall be
allowed only in the event that the system is not
functioning properly.
6.1.11.7. Sprint agrees to treat all data on CLEC subscribers
provided under this Agreement as confidential and to use
data on CLEC subscribers only for the purpose of
providing E911 services.
6.1.11.8. Sprint shall adopt use of a CLEC Code (NENA standard
five-character field) on all ALI records received from
CLEC. The CLEC Code will be used to identify the CLEC of
record in LNP/INP configurations.
6.1.11.9. Sprint shall identify which ALI databases cover which
states, counties or parts thereof, and identify and
communicate a Point of Contact for each.
85
<PAGE>
6.1.12. The following are basic 911 and E911 Network Requirements
6.1.12.1. Sprint at CLEC's option, shall provide a
minimum of two (2) E911 trunks per 911 switching
entity, or that quantity which will maintain P.01
transmission grade of service, whichever is the
higher grade of service. Where applicable these
trunks will be dedicated to routing 911 calls from
CLEC's switch to a Sprint selective router.
6.1.12.2. Sprint shall provide the selective routing of
E911 calls received from CLEC's switching office.
This includes the ability to receive the ANI of
CLEC's subscriber, selectively route the call to
the appropriate PSAP, and forward the subscriber's
ANI to the PSAP. Sprint shall provide CLEC with
the appropriate CLLI codes and specifications
regarding the Tandem serving area associated
addresses and meet-points in the network.
6.1.12.3. CLEC shall ensure that its switch provides an
eight-digit ANI consisting of an information digit
and the seven-digit exchange code. CLEC shall also
ensure that its switch provides the line number of
the calling station. Where applicable, CLEC shall
send a ten-digit ANI to Sprint when there is an
ANI failure the CLEC shall send the Central Office
Trunk Group number in the Emergency Service
Central Office (ESCO) format.
6.1.12.4. Each ALI discrepancy report shall be jointly
researched by Sprint and CLEC. Corrective action
shall be taken immediately by the responsible
party.
6.1.12.5. Where Sprint controls the 911 network, Sprint
should provide CLEC with a detailed written
description of, but not limited to, the following
information:
6.1.12.5.1. Geographic boundaries of the
government entities, PSAPs, and
exchanges as necessary.
6.1.12.5.2. LECs rate centers/exchanges, where
"Rate Center" is defined as a
geographically specified area used for
determining mileage dependent rates in
the Public Switched Telephone Network.
6.1.12.5.3. Technical specifications for
network interface. Technical
specifications for database loading and
maintenance.
6.1.12.5.4. Sprint shall identify special
routing arrangements to
86
<PAGE>
complete overflow.
6.1.12.5.5. Sprint shall begin restoration of E911 and/or
E911 trunking facilities immediately upon
notification of failure or outage. Sprint must
provide priority restoration of trunks or networks
outages on the same terms/conditions it provides
itself and without the imposition of
Telecommunications Service Priority (TSP).
6.1.12.5.6. Repair service shall begin immediately upon
receipt of a report of a malfunction. Repair service
includes testing and diagnostic service from a
remote location, dispatch of or in-person visit(s)
of personnel. Technicians will be dispatched without
delay.
6.1.12.6. Sprint shall identify any special operator-assisted calling
requirements to support 911.
6.1.12.7. Trunking shall be arranged to minimize the likelihood of
central office isolation due to cable cuts or other equipment
failures. There will be an alternate means of transmitting a
911 call to a PSAP in the event of failures.
6.1.12.8. Circuits shall have interoffice, loop and CLEC system
diversity when such diversity can be achieved using existing
facilities. Circuits will be divided as equally as possible
across available CLEC systems. Diversity will be maintained or
upgraded to utilize the highest level of diversity available in
the network.
6.1.12.9. All 911 trunks must be capable of transmitting and receiving
Baudot code or ASII necessary to support the use of
Telecommunications Devices for the Deaf (TTY/TDDS).
6.1.13. Basic 911 and E911 Additional Requirements
6.1.13.1. All CLEC lines that have been ported via INP shall reach the
correct PSAP when 911 is dialed. Sprint shall send both the
ported number and the CLEC number (if both are received from
CLEC). The PSAP attendant shall see both numbers where the PSAP
is using a standard ALI display screen and the PSAP extracts
both numbers from the data that is sent.
6.1.13.2. Sprint shall work with the appropriate government agency to
provide CLEC the ten-digit POTS number of each PSAP which sub-
tends each Sprint selective router/911 Tandem to which CLEC is
interconnected.
87
<PAGE>
6.1.13.3. Sprint shall notify CLEC 48 hours in advance of
any scheduled testing or maintenance affecting CLEC
911 service, and provide notification as soon as
possible of any unscheduled outage affecting CLEC 911
service.
6.1.13.4. CLEC shall be responsible for reporting all
errors, defects and malfunctions to Sprint. Sprint
shall provide CLEC with the point of contact for
reporting errors, defects, and malfunctions in the
service and shall also provide escalation contacts.
6.1.13.5. CLEC may enter into subcontracts with third
parties, including CLEC Affiliates, for the
performance of any of CLEC's duties and obligations
stated herein.
6.1.13.6. Sprint shall provide Sufficient planning
information regarding anticipated moves to SS7
signaling, for 911 services, for the next twelve (12)
months.
6.1.13.7. Sprint shall provide notification of any impacts
to the 911 services provided by Sprint to CLEC
resulting from of any pending Tandem moves, NPA
splits, or scheduled maintenance outages, with enough
time to react.
6.1.13.8. Sprint shall identify process for handling of
"reverse ALI" inquiries by public safety entities.
6.1.13.9. Sprint shall establish a process for the
management of NPA splits by populating the ALI
database with the appropriate new NPA codes.
6.2. Directory Assistance Service
6.2.1. Sprint shall provide for the routing of directory assistance
calls (including but not limited to 411, 555-1212,
NPA-555-1212) dialed by CLEC subscribers directly to, at
CLEC's option, either (a) the CLEC DA service platform to
the extent Sprint's switch can perform this customized
routing, or (b) Sprint DA service platform to the extent
there is a DA service platform for that servicing area.
6.2.2. CLEC subscribers shall be provided the capability by Sprint
to dial the same telephone numbers for access to CLEC
Directory Assistance that Sprint subscribers dial to access
Sprint Directory Assistance.
6.2.3. Should CLEC elect to resell Sprint Directory Assistance,
Sprint shall provide Directory Assistance functions and
Services to CLEC for its subscribers as described below.
6.2.3.1. Sprint agrees to provide CLEC subscribers with the
same
88
<PAGE>
Directory Assistance service available to Sprint
subscribers.
6.2.3.2. Sprint shall notify CLEC in advance of any changes or
enhancements to its DA service, and shall make available
such service enhancements on a non-discriminatory basis to
CLEC.
6.2.3.3. Sprint shall provide Directory Assistance to CLEC
subscribers in accordance with Sprint's internal local
operator procedures and standards.
6.2.3.4. Sprint shall provide CLEC with the same level of
support for the provisioning of Directory Assistance
as Sprint provides itself. Quality of service standards
shall be measured at the aggregate level in accordance
with the standards and performance measurements that are
at Parity with the standards and/or performance
measurements that Sprint uses and/or which are required by
law, regulatory agency, or by Sprint's own internal
procedures, whichever are the most rigorous.
6.2.3.5. Service levels shall comply, at a minimum, with State
Regulatory Commission requirements for number of rings to
answer, and disaster recovery options.
6.2.3.6. CLEC or its designated representatives may inspect any
Sprint owned or sub-contracted office, which provides DA
services, upon five (5) business days notice to Sprint.
6.2.3.7. Directory Assistance services provided by Sprint to
CLEC subscribers shall be branded in accordance with
Part B. Article 10 of this Agreement.
6.2.3.8. Sprint shall provide the following minimum Directory
Assistance capabilities to CLEC's subscribers:
6.2.3.8.1. A maximum of two subscriber listings and/or
addresses or Sprint Parity per CLEC subscriber
request.
6.2.3.8.2. Telephone number and address to CLEC
subscribers upon request, except for non-published/
unlisted numbers, in the same states where such
information is provided to Sprint subscribers.
6.2.3.8.3. Upon CLEC's request, call completion to the
requested number for local and intraLATA toll calls
shall be sent to the network specified by CLEC where
such call completion routing is technically
feasible. If fulfillment of such routing receive is
not technically feasible. Sprint shall
<PAGE>
promptly notify CLEC if and when such routing
becomes feasible. Rating and billing
responsibility shall be agreed to by CLEC and
Sprint.
6.2.3.8.4. Populate the Directory Assistance database in
the same manner and in the same time frame as for
Sprint subscribers.
6.2.3.8.5. Any information provided by a Directory
Assistance Automatic Response Unit (ARU) shall be
repeated the same number of times for CLEC
subscribers as for Sprint's subscribers.
6.2.3.9. Sprint shall provide CLEC call detail records in a
mutually agreed format and manner.
6.3. Operator Services
6.3.1. Sprint shall provide for the routing of local operator
services calls (including but not limited to 0+, 0-) dialed
by CLEC subscribers directly to either the CLEC operator
service platform or Sprint operator service platform to the
extent Sprint's switch can perform this customized routing,
as specified by CLEC.
6.3.2. CLEC subscribers shall be provided the capability by Sprint
to dial the same telephone numbers to access CLEC operator
service that Sprint subscribers dial to access Sprint
operator service.
6.3.3. Should CLEC elect to resell Sprint Operator Services, Sprint
shall provide Operator Services to as described below.
6.3.3.1. Sprint agrees to provide CLEC subscribers the same
Operator Services available to Sprint subscribers.
Sprint shall make available its service enhancements
on a non-discriminatory basis.
6.3.3.2. Operator Services provided to CLEC subscribers
shall be branded in accordance with Part B. Article
10 of this Agreement.
6.3.3.3. Sprint shall provide the following minimum
Operator Service capabilities to CLEC subscribers:
6.3.3.3.1. Sprint shall complete 0- and 0- dialed
local calls.
6.3.3.3.2. Sprint shall complete 0- intraLATA toll
calls.
6.3.3.3.3. Sprint shall complete calls that are
billed to a 0- access calling card.
90
<PAGE>
6.3.3.3.4. Sprint shall complete person-to-person calls.
6.3.3.3.5. Sprint shall complete collect calls.
6.3.3.3.6. Sprint shall provide the capability for callers
to bill to a third party and complete such calls.
6.3.3.3.7. Sprint shall complete station-to-station calls.
6.3.3.3.8. Sprint shall process emergency calls.
6.3.3.3.9. Sprint shall process Busy Line Verify and Busy
Line Verify and Interrupt requests.
6.3.3.3.10. To the extent not prohibited by law or
regulation, Sprint shall process emergency call trace.
6.3.3.3.11. Sprint shall process operator-assisted directory
assistance calls.
6.3.3.3.12. Sprint shall provide basis rate quotes, subject
to Sprint's operator systems being capable to perform
unique rating for CLEC.
6.3.3.3.13. Sprint shall process time-and-charges requests,
at Parity with Sprint's own service offerings.
6.3.3.3.14. Sprint shall route 0-traffic directly to a
"live" operator team.
6.3.3.3.15. When requested by CLEC, Sprint shall provide
instant credit on operator services calls as provided to
Sprint subscribers or shall inform CLEC subscribers to
call an 800 number for CLEC subscriber service to request
a credit. Sprint shall provide one 800 number for
business subscribers and another for residential
subscribers.
6.3.3.3.16. Caller assistance for the disabled shall be
provided in the same manner as provided to Sprint
subscribers.
6.3.3.3.17. When available, Sprint shall provide operator-
assisted conference calling.
6.3.4. Operator Service shall provide CLEC's local usage rates when providing
91
<PAGE>
rate quote and time-and-charges services, and subject to the
provisions described herein.
6.3.5. Operator Service shall adhere to equal access requirements.
6.3.6. Sprint shall exercise the same level of fraud control in
providing Operator Service to CLEC that Sprint provides for
its own operator service.
6.3.7. Sprint shall query for Billed Number Screening restrictions
when handling Collect. Third Party, and Calling Card Calls,
both for station to station and person to person call types.
6.3.8. Sprint shall provide at an aggregate level for the operator
service center, service measurements and accounting reports
to CLEC at Parity with the service measurements and
accounting reports Sprint provides itself.
6.3.9. CLEC or its designated representatives may inspect any
Sprint owned or sub-contracted office, which provides
Operator Services, upon five (5) business days notice to
Sprint.
6.3.10. Sprint shall direct CLEC subscriber account and other
similar inquiries to the subscriber service center
designated by CLEC.
6.3.11. Sprint shall provide call records in accordance with Article
4 of this Attachment VIII.
6.3.12. Sprint shall accept and process overflow 911 traffic routed
from CLEC to the underlying platform used to provide
Operator Service where such overflow is performed by Sprint
for its subscribers.
6.3.13. Sprint shall engineer its BLV/BLVI facilities to accommodate
the anticipated volume of BLV/BLVI requests during the Busy
Hour. CLEC may, from time to time, provide its anticipated
volume of BLV/BLVI requests to Sprint. In those instances
when the BLV/BLVI systems and databases become unavailable,
Sprint shall promptly inform CLEC.
6.4. Directory Assistance and Listings Service Requests
6.4.1. These requirements pertain to Sprint's DA and Listings
Service Request process that enables CLEC to (a) submit
CLEC subscriber information for inclusion in Sprint
Directory Assistance and Directory Listings databases: (b)
submit CLEC subscriber information for inclusion in
published directories: and (c) provide CLEC subscriber
delivery address information to enable Sprint to fulfill
directory distribution obligations.
6.4.2. When implemented by the Parties, Sprint shall accept orders
on a real-time basis via electronic interface in accordance
with OBF Directory Service Request standards within three
(3) months of the effective date of this Agreement. In the
interim Sprint shall create a standard format and order
92
<PAGE>
process by which CLEC can place an order with a single point of
contact within Sprint.
6.4.3. Sprint will provide to CLEC the following Directory Listing Migration
Options valid under all access methods including but not limited to
Resale. UNEs and Facilities-Based:
6.4.3.1. Migrate with no Changes. Retain all white page listings for
the subscriber in both DA and DL. Transfer ownership and billing
for white page listings to CLEC.
6.4.3.2. Migrate with Additions. Retain all white page listings for
the subscriber in both DA and DL. Incorporate the specified
additional listings order. Transfer ownership and billing for the
white page listings to CLEC.
6.4.3.3. Migrate with Deletions. Retain all white page listings for
the subscriber in both DA and DL. Delete the specified listings
from the listing order. Transfer ownership and billing for the
white page listings to CLEC.
6.4.3.4. To ensure accurate order processing, Sprint or its directory
publisher shall provide to CLEC the following information, with
updates promptly upon changes:
6.4.3.4.1. A matrix of NXX to centlral office:
6.4.3.4.2. Geographical maps if available of Sprint service
area:
6.4.3.4.3. A description of calling areas covered by each
directory, including but not limited to maps of calling
areas and matrices depicting calling privileges within
and between calling areas:
6.4.3.4.4. Listing format rules:
6.4.3.4.5. Standard abbreviations acceptable for use in
listings and addresses:
6.4.3.4.6. Titles and designations: and
6.4.3.4.7. A list of all available directories and their
Business Office close dates
6.4.4. Based on changes submitted by CLEC Sprint shall update and
maintain
93
<PAGE>
directory assistance and directory listings data for CLEC
subscribers who:
6.4.4.1. Disconnect Service:
6.4.4.2. Change CLEC:
6.4.4.3. Install Service:
6.4.4.4. Change any service which affects DA information:
6.4.4.5. Specify Non-Solicitation: and
6.4.4.6. Are Non-Published, Non-Listed, or Listed.
6.4.5. Sprint shall not charge for storage of CLEC subscriber
information in the DA and DL systems.
6.4.6. CLEC shall not charge for storage of Sprint subscriber
information in the DA and DL systems.
6.5 Directory Listings General Requirements. CLEC acknowledges that many
directory functions including but not limited to yellow page listings,
enhanced white page listings, information pages, directory proofing, and
directory distribution are not performed by Sprint but rather are performed
by and are under the control of the directory publisher. CLEC acknowledges
that for a CLEC subscriber's name to appear in a directory, CLEC must
submit a Directory Service Request (DSR). Sprint shall use reasonable
efforts to assist CLEC in obtaining an agreement with the directory
publisher that treats CLEC at Parity with the publisher's treatment of
Sprint.
6.5.1. This (S) 6.5.1 pertains to listings requirements published in the
traditional white pages.
6.5.2. Sprint shall include in its master subscriber system database all
white pages listing information for CLEC subscribers in Sprint
territories where CLEC is providing local telephone exchange
services and has submitted a DSR.
6.5.3. Sprint agrees to include one basic White pages listing for each
CLEC customer located within the geographic scope of its White
Page directories, at no additional charge to CLEC. A basic White
Pages listing is defined as a customer name, address and either
the CLEC assigned number for a customer or the number for which
number portability is provided, but not both numbers. Basic White
Pages listings of CLEC customers will be interfiled with listings
of Sprint and other LEC customers.
6.5.4. CLEC agrees to provide CLEC customer listing information,
including without limitation directory distribution information,
to Sprint, at no
94
<PAGE>
charge. Sprint will provide CLEC with the appropriate format for
provision of CLEC customer listing information to Sprint. The parties
agree to adopt a mutually acceptable electronic format for the
provision of such information as soon as practicable. In the event OBF
adopts an industry-standard format for the provision of such
information, the parties agree to adopt such format.
6.5.5. Sprint agrees to provide White Pages database maintenance services to
CLEC. CLEC will be charged a Service Order entry fee upon submission
of Service Orders into Sprint's Service Order Entry (SOE) System,
which will include compensation for such database maintenance
services. Service Order entry fees apply when Service Orders
containing directory records are entered into Sprint's SOE System
initially, and when Service Orders are entered in order to process a
requested change to directory records.
6.5.6. CLEC customer listing information will be used solely for the
provision of directory services, including the sale of directory
advertising to CLEC customers.
6.5.7. In addition to a basic White Pages listing, Sprint will provide, at
the rates set forth in Attachment I of this Agreement, tariffed White
Pages listings (e.g.: additional, alternate, foreign and non-published
listings) for CLEC to offer for resale to CLEC's customers.
6.5.8. Sprint, or its directory publisher, agree to provide White Pages
distribution services to CLEC customers within Sprint's service
territory at no additional charge to CLEC. Sprint represents that the
quality, timeliness, and manner of such distribution services will be
at Parity with those provided to Sprint and to other CLEC customers.
6.5.9. Sprint agrees to include critical contact information pertaining to
CLEC in the "Information Pages" of those of its White Pages
directories containing information pages, provided that CLEC meets
criteria established by its directory publisher. Critical contact
information includes CLEC's business office number, repair number,
billing information number, and any other information required to
comply with applicable regulations, but not advertising or purely
promotional material. CLEC will not be charged for inclusion of its
critical contact information. The format, content and appearance of
CLEC's critical contact information will conform to applicable Sprint
directory publisher's guidelines and will be consistent with the
format, content and appearance of critical contact information
pertaining to all CLECs in a directory.
6.5.10. Sprint will accord CLEC customer listing information the same level of
confidentiality that Sprint accords its own proprietary customer
listing information. Sprint shall ensure that access to CLEC customer
proprietary
95
<PAGE>
listing information will be limited solely to those of Sprint and
Sprint's directory publisher's employees, agents and contractors
that are directly involved in the preparation of listings, the
production and distribution of directories, and the sale of
directory advertising. Sprint will advise its own employees, agents
and contractors and its directory publisher of the existence of
this confidentiality obligation and will take appropriate measures
to ensure their compliance with this obligation. Notwithstanding
any provision herein to the contrary, the furnishing of White Pages
proofs to a CLEC that contains customer listings of both Sprint and
CLEC will not be deemed a violation of this confidentially
provision.
6.5.11 Sprint will sell or license CLEC's customer listing information to
any third parties unless CLEC submits written requests that Sprint
refrain from doing so. Sprint and CLEC will work cooperatively to
share any payments for the sale or license of CLEC customer listing
information to third parties. Any payments due to CLEC for its
customer listing information will be net of administrative
expenses incurred by Sprint in providing such information to third
parties. The parties acknowledge that the release of CLEC's
customer listing to Sprint's directory publisher will not
constitute the sale or license of CLEC's customer listing
information causing any payment obligation to arise pursuant to
this (S) 6.5.11.
6.6 Other Directory Services. Sprint will exercise reasonable efforts to cause
its directory publisher to enter into a separate agreement with CLEC which
will address other directory services desired by CLEC as described in this
(S) 6.6. Both parties acknowledge that Sprint's directory publisher is not
a party to this Agreement and that the provisions contained in this (S)
6.6 are not binding upon Sprint's directory publisher.
6.6.1. Sprint's directory publisher will negotiate with CLEC concerning
the provision of a basic Yellow Pages listings to CLEC customers
located within the geographic scope of publisher's Yellow Pages
directories and distribution of Yellow Pages directories to CLEC
customers.
6.6.2. Directory advertising will be offered to CLEC customers on a
nondiscriminatory basis and subject to the same terms and
conditions that such advertising is offered to Sprint and other
CLEC customers. Directory advertising will be billed to CLEC
customers by directory publisher.
6.6.3. Directory publisher will use commercially reasonable efforts to
ensure that directory advertising purchased by customers who switch
their service to CLEC is maintained without interruption.
6.6.4. Information pages, in addition to any information page or portion
of an information page containing critical contact information as
described above in (S) 6.5.9 may be purchased from Sprint's
directory publisher, subject to applicable directory publisher
guidelines, criteria, and regulatory
96
<PAGE>
requirements.
6.6.5. Directory publisher maintains full authority as publisher over its
publishing policies, standards and practices, including decisions
regarding directory coverage area, directory issue period,
compilation, headings, covers, design, content or format of
directories, and directory advertising sales.
6.7 Directory Assistance Data. This section refers to the residential,
business, and government subscriber records used by Sprint to create and
maintain databases for the provision of live or automated operator
assisted Directory Assistance. Directory Assistance Data is information
that enables telephone exchange CLECs to swiftly and accurately respond to
requests for directory information, including, but not limited to name,
address and phone numbers. Under the provisions of the Act and the FCC's
Interconnection order, Sprint shall provide unbundled and non-dis-
criminatory access to the residential, business and government subscriber
records used by Sprint to create and maintain databases for the provision
of live or automated operator assisted Directory Assistance. This access
shall be provided under separate contract.
6.8 Systems Interfaces and Exchanges
6.8.1. Directory Assistance Data Information Exchanges and Interfaces
6.8.1.1. Subscriber List Information
6.8.1.1.1 Sprint shall provide to CLEC, within sixty
(60) days after the Approval Date of this
Agreement, or at CLEC's request, all published
Subscriber List Information (including such
information that resides in Sprint's master
subscriber system/accounts master file for the
purpose of publishing directories in any format as
specified by the Act) via an electronic data
transfer medium and in a mutually agreed to format,
on the same terms and conditions and at the same
rates that the Sprint provides Subscriber List
Information to itself or to other third parties.
All changes to the Subscriber List Information
shall be provided to CLEC pursuant to a mutually
agreed format and schedule. Both the initial List
and all subsequent Lists shall indicate for each
subscriber whether the subscriber is classified as
residence or business class of service.
6.8.1.1.2. Clec shall provide directory listings to
Sprint pursuant to the directory listing and
delivery requirements in the approved OBF format,
at a mutually agreed upon timeframe. Other formats
and requirements shall not be
97
<PAGE>
used unless mutually agreed to by the parties.
6.9 Listing Types
LISTED The listing information is available for all directory
requirements.
NON-LISTED The listing information is available to all directory
requirements, but the information does not appear in
the published street directory.
NON-PUBLISHED A directory service may confirm, by name and address,
the presence of a listing, but the telephone number is
not available. The listing information is not available
in either the published directory or directory
assistance.
98
<PAGE>
ATTACHMENT VIII
REPORTING STANDARDS
1. GENERAL
1.1. Sprint shall satisfy all service standards, intervals, measurements,
specifications, performance requirements, technical requirements, and
performance standards (Performance Standards) that are specified in
this agreement or are required by law or regulation. In addition,
Sprint's performance under this Agreement shall be provided to CLEC
will be at Parity with the performance Sprint provides itself for like
service(s).
1.2. Sprint and CLEC agree that all financial remedies available to end-
user and access customers for same or like services will be offered to
CLEC. At such time that state or federal commission-approved
credits/financial remedies are put in place between Sprint and any of
its CLEC customers. Sprint would renegotiate this arrangement where
such arrangements exist.
2. PARITY AND QUALITY MEASUREMENTS
2.1. Sprint will develop self-reporting capabilities comparing Sprint
results with CLEC results for the following measures of service parity
within six (6) months, but no later than December 31, 1998, of the
Effective Date:
2.1.1. Percentage of Commitment Times Met - Service Order.
2.1.2. Percentage of Commitment Times Met - Trouble Report.
2.1.3. Trouble Reports per 100 Access Lines (Resale only)
2.1.4. Recent Repeated Trouble Reports
2.1.5. Average Receive to Clear
2.1.6. Percentage of Installed Orders without Repair in the first
five (5) days
2.2. In the event CLEC chooses to utilize the Sprint operator service
platform the following measures will be implemented within six (6)
months of the date of first use by CLEC:
2.2.1. Average Toll Answer Time; and
2.2.2. Average Directory Assistance Answer Time.
2.3. All above measures will be implemented in a manner that is consistent
with the current measures Sprint makes of its own performance
99
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
San Francisco, California
July 28, 1999
