<PAGE>
As filed with the Securities and Exchange Commission on April 22, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Amount maximum Amount of
Title of each class of to be aggregate registration
securities to be registered registered offering price fee (1)
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<S> <C> <C> <C>
13 1/2% Senior Notes due 2009, Series B........ $150,000,000 100% $41,700
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</TABLE>
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(1) Calculated in accordance with Rule 457 under the Securities Act of 1933, as
amended.
----------------
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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+This information in this Prospectus is not complete and may be changed. These +
+securities may not be sold until the registration statement filed with the +
+SEC is effective. This Prospectus is not an offer to sell nor is it an offer +
+to buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 22, 1999
PROSPECTUS
Pac-West Telecomm, Inc.
Exchange Offer for
$150,000,000
13 1/2% Senior Notes Due 2009
Material Terms of Exchange Offer
. Expires 5:00 p.m., New . The exchange of notes will not be a taxable
York City time, , exchange for U.S. federal income tax purposes
1999, unless extended
. We will not receive any proceeds from the
. Not subject to any Exchange Offer
condition other than the
Exchange Offer not
violate applicable law
or any applicable
interpretation of the
Staff of the SEC
. The terms of the notes to be issued are
substantially identical to the outstanding
notes, except for certain transfer
restrictions and registration rights relating
to the outstanding notes
. All outstanding notes
that are validly
tendered and not validly
withdrawn will be
exchanged
. Tenders of outstanding
notes may be withdrawn
any time prior to the
expiration of the
Exchange Offer
No public market exists for the outstanding notes or the exchange notes. We
do not intend to list the exchange notes on any securities exchange or seek
approval for quotation through any automated trading system. The notes may be
sold in the over-the-counter market, in negotiated transactions or through a
combination of such methods.
For a discussion of certain factors that you should consider before
participating in this Exchange Offer, see "Risk Factors" beginning on page 14
of this Prospectus.
Neither the SEC nor any state securities commission has approved the notes to
be distributed in the 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.............................................................. 14
The Exchange Offer........................................................ 28
Use of Proceeds........................................................... 37
Capitalization............................................................ 38
Unaudited Pro Forma Financial Data........................................ 39
Selected Financial Data................................................... 43
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 45
Business.................................................................. 53
Management................................................................ 69
Certain Relationships and Related Transactions............................ 74
Principal Shareholders.................................................... 79
Description of Capital Stock.............................................. 81
Description of Indebtedness............................................... 82
Description of Notes...................................................... 83
Certain United States Federal Tax Considerations.......................... 116
Plan of Distribution...................................................... 120
Legal Matters............................................................. 120
Experts................................................................... 121
Where You Can Find More Information....................................... 121
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. Throughout this Prospectus, unless otherwise noted,
the words "Pac-West," "we," "our," "ours" and "us" refer only to Pac-West
Telecomm, Inc. and its predecessor.
The Exchange Offer
On January 29, 1999, Pac-West completed the private offering of $150,000,000
13 1/2% Senior Notes due 2009 (the "Initial Offering").
We entered into a Registration Rights Agreement with the placement agents in
the private offering in which we agreed, among other things, to deliver to you
this Prospectus and:
(1) to file the Exchange Offer on or before April 29, 1999;
(2) to use our best efforts to have the Exchange Offer declared effective
by the SEC on or before July 28, 1999; and
(3) unless the Exchange Offer would not be permitted by applicable law or
SEC policy, to commence the Exchange Offer and use our best efforts to
issue the Exchange Notes by August 27, 1999.
In the Exchange Offer, you are entitled to exchange your existing notes
("Old Notes") for registered notes ("Exchange Notes") with substantially
identical terms. We collectively refer to the Old Notes and Exchange Notes as
the "Notes." If, among other things, the three conditions listed above are not
satisfied, the interest rate on the Old Notes will be increased until such
conditions are satisfied. You should read the discussion under the heading "--
Summary of Terms of the Exchange Notes" and "Description of Notes" for further
information regarding the Exchange Notes.
We believe that the Exchange Notes issued in the Exchange Offer may be
resold by you without compliance with the registration and prospectus delivery
provisions of the Securities Act, subject to certain conditions. 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 ("CLEC")
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
medium and small businesses.
We built our network to capitalize on the significant growth in national
Internet usage and in the related demand for switched local services by
regional and national ISPs, as well as the increasing demand of medium and
small businesses for customized and integrated telecommunications services. We
believe our network architecture and presence in each California local access
and transport area ("LATA") provide us with significant competitive advantages
over incumbent local exchange carriers ("ILECs") and other CLECs, particularly
for ISPs, paging companies and other inbound call service providers. Our
network enables these companies to provide their business and residential
customers with access to ISP, paging and other services from almost any point
in California through a local call.
Our owned switch, leased transport network development strategy 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. For the year ended December 31, 1998,
we had net revenues of approximately $42.2 million and EBITDA (as
3
<PAGE>
defined) of approximately $16.1 million. Our revenues include reciprocal
compensation only to the extent it is received in cash because our right to
receive reciprocal compensation revenues is currently being challenged by
Pacific Bell and GTE, the two ILECs with which we have interconnection
agreements. See "Risk Factors--Reciprocal Compensation for Internet Access
Service."
Our Markets
Our primary market is California, which we believe is the largest and
fastest growing telecommunications market in the United States. We own and
operate switches in Los Angeles, Oakland and Stockton, have local points of
presence in all 11 California LATAs, and have over 350 assigned local prefixes
and 3.5 million telephone numbers available for use. Our 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 ISPs, 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 neighboring Western states, including Nevada, Arizona,
Washington, Colorado, Texas, Utah, Idaho, Montana, New Mexico, Oregon and
Wyoming. 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.
Pac-West focuses on providing services to high-volume, telecommunications
intensive users and to medium and small businesses (companies with fewer than
100 employees). Our customers include 78 regional and national ISPs, including
Concentric Network Corp., Mindspring Enterprises, Inc., The Grid Inc., InReach
Internet LLC and EarthLink, Inc., and national paging companies like Metrocall,
Inc. and PageMart Wireless, Inc.
We believe that our greatest opportunity for rapid growth is to continue to
grow with and provide high quality services to our ISP customers. By building
our network to meet demand from existing ISP customers that are increasing
their capacity in existing markets and expanding into new geographic markets,
we believe we can:
. quickly achieve predictable, high utilization rates on newly deployed
network assets from high volume users;
. generate a high return on invested capital in a short period of time; and
. 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 ("IDC"), 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 ISPs in the United States. We believe
that we are strategically positioned to become one of the leading providers of
telecommunications services to ISPs in our target markets.
We believe many medium and small businesses have significant and increasing
needs for advanced telecommunication services that are not adequately served by
ILECs or other CLECs. Our target state markets have approximately 1.5 million
medium and small businesses and approximately 15.4 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 and services
themselves. We believe our complete product 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.
4
<PAGE>
Our Network
Pac-West's network strategy is to own its switches and lease its 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 transport 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 owned switch, leased transport strategy 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 switching sites (the "Super POPs") in Los Angeles, Oakland
and Stockton and digital nodes in each of California's 11 LATAs. We believe our
network architecture and presence in each California LATA provide us with
significant competitive advantages over ILECs and other CLECs, particularly for
ISPs, paging companies and other inbound call service providers.
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 California through a local call. In this way, our customers can
achieve statewide coverage with significantly lower capital and operating
expenses. Our Super POPs offer ISPs highly reliable, low cost tandem switching
and the ability to build lower cost networks by collocating equipment at our
three Super POPs rather than in all 11 LATAs. In addition, our interconnection
arrangements and statewide leased transport network allow ISPs to obtain
statewide coverage at local calling rates, which reduces switching and
transmission costs.
Our Super POPs use Alcatel USA's tandem switches and, as of March 1, 1999,
had an installed capacity of 187,000 ports and total expandable capacity of
260,000 ports. By the end of the second quarter of 1999, we expect to increase
our California Super POP's total expandable capacity to 345,000 ports. We plan
to duplicate our network strategy of owned switch, leased transport and
statewide local coverage in each of our target markets. We intend to install
new Super POPs in Nevada, Washington and Arizona in 1999 or early 2000.
Our Strategy
Our objective is to become a leading provider of telecommunications services
to ISPs, paging companies and other inbound call service providers as well as
medium and small businesses in each of our target markets. We plan to do this
by:
. Capitalizing on growing ISP demand for local services;
. Focusing on the medium and small business market;
. Expanding our direct sales force;
. Targeting California and Western United States;
. Deploying a capital-efficient network;
. Installing an advanced, uniform technology platform; and
. Expanding our customer base through potential acquisitions.
For more information relating to our strategy, see "Business--Strategy."
The Recapitalization
We were recapitalized on September 16, 1998. We implemented the
recapitalization through the following transactions (which we collectively
refer to in this Prospectus as the "Recapitalization"):
. An equity investor group consisting of Safeguard 98 Capital, L.P., SCP
Private Equity Partners, L.P., TL Ventures III L.P., EnerTech Capital
Partners, L.P., William Blair Capital Partners VI, L.P., Mr. Wallace W.
Griffin and others, invested approximately $37.8 million of equity into
Pac-West;
5
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. We borrowed approximately $75.4 million under a senior secured credit
facility (the "Senior Credit Facility");
. Our existing stockholders retained a significant equity interest in Pac-
West having a value for purposes of the Recapitalization of approximately
$15.5 million and received approximately $74.0 million in cash;
. We paid bonuses of approximately $3.5 million to certain of our executive
officers and employees;
. We repaid approximately $23.2 million of our existing debt; and
. We paid approximately $5.8 million in fees and expenses.
The existing stockholders are also entitled to receive additional payments
of up to $20.0 million in the event that Pac-West achieves certain earnings
levels and receives certain unpaid reciprocal compensation. See "Certain
Relationships and Related Transactions--Recapitalization" and "Risk Factors--
Reciprocal Compensation for Internet Access Service."
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
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. (the
"Initial Purchasers") pursuant to a Purchase
Agreement dated January 27, 1999 (the "Purchase
Agreement"). The Initial Purchasers subsequently
resold the Notes to (1) qualified institutional
buyers pursuant to Rule 144A under the Securities
Act and (2) qualified buyers outside the United
States in reliance upon Regulation S under the
Securities Act.
Registration Rights You are entitled to exchange your Old Notes for
Agreement................ Exchange Notes with substantially identical terms.
The Exchange Offer is intended to satisfy these
rights. After the Exchange Offer is complete, you
will no longer be entitled to any exchange or
registration rights with respect to your Old Notes.
The Exchange Offer
The Exchange Offer........ We are offering to exchange $1,000 principal amount
of 13 1/2% Senior Notes due 2009 of Pac-West
Telecomm, Inc. which have been registered under the
Securities Act for each $1,000 principal amount of
our outstanding 13 1/2% 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. All Old Notes that
are validly tendered and not validly withdrawn will
be exchanged.
As of the date of this Prospectus there are $150
million principal amount of Old Notes outstanding.
6
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We will issue Exchange Notes on or promptly after
the expiration of the Exchange Offer.
General................... The form and terms of the Exchange Notes are the
same as the form and terms of the Old Notes (which
they replace) except that:
. the Exchange Notes bear a Series B
designation and a different CUSIP Number from
the Old Notes;
. the Exchange Notes have been registered under
the Securities Act and, therefore, will not
bear legends restricting their transfer; and
. the holders of Exchange Notes will not be
entitled to certain rights under the
Registration Rights Agreement, including the
provisions providing for an increase in the
interest rate on the Old Notes in certain
circumstances relating to the timing of the
Exchange Offer, which rights will terminate
when the Exchange Offer is consummated. See
"The Exchange Offer--Purpose and Effect of
the Exchange Offer."
The Exchange Notes will evidence the same debt as
the Old Notes and will be entitled to the benefits
of the Indentures. See "Description of Notes."
Resales................... We believe that the Exchange Notes issued in the
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 provided that:
. the Exchange 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 Exchange Notes
issued to you in the Exchange Offer; and
. you are not an "affiliate" of ours.
If our belief is inaccurate and you transfer any
Exchange Notes issued to you in the Exchange Offer
without delivering a prospectus meeting the
requirements of the Securities Act or without an
exemption from registration of your Exchange Notes
from such requirements, you may incur liability
under the Securities Act. We do not assume or
indemnify you against any such liability.
Each broker-dealer that is issued Exchange Notes in
the 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 in connection with any resale of
the Exchange Notes. A broker-dealer may use this
Prospectus for an offer to resell, resale or other
retransfer of the Exchange Notes issued to it in
the Exchange Offer.
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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.
Conditions to the The Exchange Offer is not subject to any condition
Exchange Offer........... other than that the Exchange Offer not violate
applicable law or any applicable interpretation of
the Staff of the SEC.
Procedures for Tendering
Old Notes held in the
Form of Book-Entry
Interests................
The Old Notes were issued as global securities in
bearer form without interest coupons. The Old Notes
were deposited with Norwest Minnesota Bank, N.A.,
as book-entry depositary, when they were issued.
The Norwest Minnesota Bank, N.A. issued a
certificateless depositary interest in each note,
which represents a 100% interest in the note, to
The Depositary Trust Company ("DTC"). Beneficial
interests in the Notes, which are held by direct or
indirect participants in DTC through the
certificateless depositary interests (the "Book-
Entry Interests"), are shown on, and transfers of
the Notes can be made only through, records
maintained in book-entry form by DTC (with respect
to its participants) and its participants.
If you are a holder of an Old Note held in the form
of a Book-Entry Interest and you wish to tender
your Book-Entry Interest for exchange pursuant to
the Exchange Offer, you must transmit to Norwest
Minnesota Bank, N.A., as exchange agent, on or
prior to the Expiration Date:
either
. a properly completed and duly executed Letter
of Transmittal, which accompanies this
Prospectus, or a facsimile of the Letter of
Transmittal, including all other documents
required by the Letter of Transmittal, to the
Exchange Agent at the address set forth on
the cover page of the Letter of Transmittal;
or
. a computer-generated message transmitted by
means of DTC's Automated Tender Offer Program
system and received by the Exchange Agent and
forming a part of a confirmation of book
entry transfer in which you acknowledge and
agree to be bound by the terms of the Letter
of Transmittal;
and, either
. a timely confirmation of book-entry transfer
of your Old Notes into the Exchange Agent's
account at DTC, pursuant to the procedure for
book-entry transfers described in this
Prospectus under the heading "The Exchange
Offer --Procedures for Tendering," must be
received by the Exchange Agent on or prior to
the Expiration Date; or
. the documents necessary for compliance with
the guaranteed delivery procedures described
below.
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Procedures for Tendering
Definitive Old Notes.....
Subject to certain conditions, if you are a holder
of Book-Entry Interests in the Old Notes in
definitive form, you are entitled to receive, in
exchange for your Book-Entry Interests, Exchange
Notes in definitive form which are in equal
principal amounts to your Book-Entry Interests. If
you acquire Old Notes in definitive form prior to
the Expiration Date, you must tender your Old Notes
in accordance with the procedures described in this
Prospectus under the heading "The Exchange Offer--
Procedures for Tendering."
Untendered Old Notes...... If you are eligible to participate in the 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
Interests and your name does not appear on a
security position listing of DTC as the holder of
such Book-Entry Interests or if you are a
beneficial owner of Exchange Notes that are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
you wish to tender such Book-Entry Interest or
Exchange Notes in the Exchange Offer, you should
contact such person in whose name your Book-Entry
Interests or Exchange Notes are registered promptly
and instruct such 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, or the
procedure for book-entry transfer cannot be
completed on time or certificates for the Exchange
Notes cannot be delivered on time, you may tender
your Old Notes pursuant to 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 Exchange 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 Exchange Notes pursuant to the Exchange Offer.
We will pay all of our expenses incident to the
Exchange Offer.
Exchange Agent............ Norwest Minnesota Bank, N.A. is serving as the
exchange agent in connection with the Exchange
Offer.
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Summary of Terms of the Exchange Notes
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that the Exchange Notes will be registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
and will not be entitled to registration under the Securities Act. The Exchange
Notes will evidence the same debt as the Old Notes, and the same indenture will
govern both the Exchange Notes and the Old Notes.
Exchange 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, commencing on August 1, 1999.
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 Initial Offering
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.
Assuming we had completed the Initial Offering on
December 31, 1998 and applied the net proceeds as
intended, the Notes would have been effectively
subordinated to approximately $248,000 of our
secured indebtedness.
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Certain Covenants......... We will issue the Exchange Notes under an indenture
with Norwest Bank Minnesota, N.A., as trustee (the
"Indenture"). 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 Exchange
Notes at the prices listed in the section
"Description of Notes."
Form of Exchange Notes.... The Exchange 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 Exchange 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 Exchange 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.
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Summary Financial Data
This information was derived from our audited financial statements and
related notes contained elsewhere in this Prospectus. Please read this summary
along with "Management's Discussion and Analysis of Financial Condition and
Results of Operations," our audited financial statements with related notes and
our unaudited pro forma financial data with related notes contained elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
Period from
Commencement Year Ended
(October 1, 1996) December 31,
to December 31, ---------------------
1996(1) 1997 1998
----------------- -------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues (2)........................... $ 4,232 $ 29,551 $ 42,211
Costs and Expenses:
Operating costs....................... 2,064 12,060 15,344
Selling, general and administrative:
Selling, general and administrative. 1,519 7,367 10,779
Transaction bonuses and consultant's
costs (3).......................... -- -- 3,798
Depreciation and amortization......... 299 2,204 4,106
------- -------- --------
Income from operations.............. 350 7,920 8,184
Interest expense....................... (105) (932) (4,199)
Gain on disposal of answering service
division.............................. -- 385 --
Costs of merger and recapitalization
(3)................................... -- -- (3,004)
Other income (expense), net............ (11) 119 330
------- -------- --------
Income before provision for income
taxes and extraordinary item....... 234 7,492 1,311
Provision for income taxes............. 94 2,997 1,561
------- -------- --------
Income (loss) before extraordinary
item............................... 140 4,495 (250)
Extraordinary item--loss on early
extinguishment of debt, net of income
tax benefit of $278 (3)............... -- -- (417)
------- -------- --------
Net income (loss)................... $ 140 $ 4,495 $ (667)
======= ======== ========
Other Financial Data:
Reciprocal compensation withheld (2)... $ -- $ 3,793 $ 32,591
EBITDA (4)............................. 633 10,538 16,091
EBITDA margin %........................ 15.0% 35.7% 38.1%
Capital expenditures................... $ 3,899 $ 11,884 $ 42,466
Cash provided by (used in):
Operating activities.................. 75 5,876 12,033
Investing activities.................. (1,682) (6,619) (42,031)
Financing activities.................. 1,549 3,658 41,631
Ratio of earnings to fixed charges (5). 2.1x 5.8x 1.2x
<CAPTION>
December 31, 1998
---------------------
Actual Pro Forma
-------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data: (6)
Cash and cash equivalents (7)............................ $ 15,236 $ 40,735
Restricted cash (7)...................................... -- 19,696
Working capital.......................................... 15,532 61,053
Property, plant and equipment, net....................... 57,294 57,294
Total assets............................................. 82,493 132,219
Total debt............................................... 100,248 150,248
Convertible Redeemable Preferred Stock, including accrued
cumulative dividends of $1,324.......................... 46,324 46,324
Stockholders' equity (deficit)........................... (74,113) (74,387)
</TABLE>
12
<PAGE>
- --------
(1) On October 1, 1996, we began operations when our predecessor company
transferred its telephone and answering service divisions to Pac-West. 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 Exchange Notes.
(2) We recognize reciprocal compensation as revenue only to the extent received
in cash. Pacific Bell and GTE, the two ILECs 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 ISPs. 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--Reciprocal Compensation for
Internet Access Service".
(3) Transaction bonuses and consultant's costs, costs of merger and
recapitalization and the extraordinary item all relate to the
Recapitalization.
(4) "EBITDA" represents earnings before interest, net; income taxes;
depreciation and amortization; 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 and $327,000 for the period from commencement (October 1, 1996) to
December 31, 1996, and for the years ended December 31, 1997 and 1998,
respectively. EBITDA is not a measurement of financial performance under
generally accepted accounting principles and does not represent cash flows
from operations. Accordingly, do not regard this amount as an alternative
to net income (loss) or as an indicator of our operating performance or as
an alternative to cash flows as a measure of liquidity. We believe that
EBITDA is widely used by analysts, investors and other interested parties
in the telecommunications industry but it is not necessarily comparable
with similarly titled measures for other companies. See the Statements of
Cash Flows in the audited financial statements.
(5) 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.
(6) These amounts reflect our balance sheet data as of December 31, 1998: (A)
on an actual basis which includes the effect of the Recapitalization and
(B) on a pro forma basis to give effect to the Initial Offering and the
Exchange Offer as if they had occurred on December 31, 1998. See "Unaudited
Pro Forma Financial Data."
(7) Pro forma cash and cash equivalents include $25.5 million of unrestricted
net proceeds from the Initial Offering and the Exchange Offer. Pro forma
restricted cash represents $19.7 million of cash deposited in an interest
reserve trust account to fund the initial interest payments due under the
Notes.
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<PAGE>
RISK FACTORS
Ownership of the Old Notes or the Exchange 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
the Old Notes in the Exchange Offer.
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; and
. general economic conditions.
Actual results may differ materially from those suggested by the forward-
looking statements for various reasons, including those discussed in this
section.
Substantial Leverage--Our substantial indebtedness could adversely affect our
financial health and prevent us from fulfilling our obligations under the
Notes.
We have a significant amount of indebtedness. On an unaudited pro forma
basis, as of December 31, 1998, our borrowings and other long-term obligations
totaled $150,248,000, and we had a stockholders' deficit of $74,387,000. Our
substantial indebtedness could have important consequences to you. For example,
it 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 certain of our less
leveraged competitors; and
. limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
Furthermore, failing to comply with those covenants could result in an
event of default which, if not cured or waived, could have a material
adverse effect on us.
See "Description of Notes--Repurchase at the Option of Holder--Change of
Control" and "Description of Indebtedness."
Ability to Service Debt--We will require a significant amount of cash to
service our indebtedness. Our ability to generate cash depends on many factors
beyond our control.
Our ability to make payments on and to refinance our indebtedness, including
the Notes, and to fund planned capital expenditures and marketing efforts will
depend on our ability to generate cash in the future.
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<PAGE>
This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.
We cannot assure you that our business will generate sufficient cash flows
from operations, that our currently anticipated growth in revenues and cash
flows will be realized on schedule or that future borrowings will be available
to us under available credit facilities in an amount sufficient to enable us to
pay our indebtedness, including the Notes, or to fund our other liquidity
needs. We may need to refinance all or a portion of our indebtedness, including
the Notes on or before maturity. We cannot assure you that we will be able to
refinance any of our indebtedness, including the Notes or any then existing
credit facility, on commercially reasonable terms or at all.
Significant Capital Requirements and Need for Additional Financing--We will
need to make significant capital expenditures in order to expand, and
additional indebtedness could increase our leverage related risks.
In order to expand and develop our current business and services and enter
new markets, we will need to make significant capital expenditures.
Specifically, we expect to make capital expenditures in 1999 alone of between
$30 and $50 million. We expect to fund these expenditures through existing
resources, internally generated funds, and equity financings or through
additional indebtedness. We cannot assure you, however, that we will succeed in
generating sufficient funds or in raising sufficient debt or equity financing
on acceptable terms. Our future capital requirements depend on a number of
factors, some of which we can control and others of which are beyond our
control. The factors which we can control include marketing expenses and
staffing levels. Those factors which are beyond our control include competitive
conditions, governmental regulations and capital costs. If, due to these and
other factors, 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
negatively affect our growth and our ability to compete in the
telecommunications industry. We are currently negotiating a new senior credit
facility (the "New Senior Credit Facility") that would permit initial
borrowings of $20.0 million and future borrowings of up to an additional $20.0
million to finance, among other things, the cost of our planned expansion.
These borrowings would be secured by substantially all of our assets. The
addition of new debt to our current debt levels could intensify the leverage-
related risks that we now face. See "Capitalization," "Selected Financial
Data," "Description of Notes--Repurchase at the Option of Holder--Change of
Control" and "Description of Indebtedness."
Business Development and Expansion Risks; Possible Inability to Manage Growth--
Rapid expansion may place a significant strain on our resources.
Our future success will depend, in part, on our ability to expand our
business in order to satisfy the ever growing needs of our customers, to
achieve economies of scale and to benefit from the infrastructure we have
established. Our success in expanding our business will depend, in part, on our
ability to:
.assess potential markets;
.obtain required governmental authorizations, franchises, and permits;
.implement interconnection and collocation arrangements with ILECs;
.lease adequate trunking capacity from IXCs, ILECs and CLECs;
.purchase and install switches in additional markets; and
.develop a sufficient customer base.
We have significantly expanded our operations, and if we are successful in
implementing our plans, our operations could continue to expand at a rapid
rate. This rapid expansion historically has and in the future will place
significant additional strains on our management, nonmanagement employees,
financial and other resources. Obtaining suitable locations, negotiating
interconnection and other agreements, obtaining required
15
<PAGE>
authorizations and permits and the development of appropriate customer and
vendor relations needed in connection with any expansion are logistically
difficult and personnel intensive.
Our ability to manage any future growth will depend on our ability to
maintain our operations, control our costs, maintain compliance with all
applicable regulations, maintain effective quality controls, expand our
internal management, technical, information, and accounting systems, and
attract, train and retain qualified personnel. We cannot assure you that we
will be able to successfully manage our future growth in the evolving, highly
competitive and highly regulated telecommunications field. Any failure to
smoothly expand and improve these areas and systems could adversely affect our
customer growth, our quality of services and our ability to meet our
obligations under the Notes.
Risks Related to Future Acquisitions--We may make acquisitions which could
subject us to a number of operational risks.
We may also expand our operations through acquisitions, which commonly
involve additional risks, including:
. the difficulty of assimilating the acquired business and employees;
. the potential disruption of our ongoing business and diversion of our
resources and management time;
. our possible inability to maintain uniform standards, controls,
procedures and policies;
. our possible lack of prior experience in a particular market; and
. possible strains in our relationships with employees or customers as a
result of changes in management or staffing.
We cannot assure you if or when or that we will make any acquisitions or that
the acquired business will be successfully integrated into our operations or
will perform as expected. We currently have no definitive agreement with
respect to any potential acquisition. However, we occasionally discuss and
assess potential acquisitions with other companies. Our ability to finance an
acquisition may be constrained by our high leverage and by restrictions
contained in the indenture, the New Senior Credit Facility, and any other
credit facility we may enter into in the future. We may also enter into joint
venture transactions. In addition to the risks associated with acquisitions,
joint ventures have the added risk that other joint venture partners may have
economic, business or legal interests or objectives that are inconsistent with
ours. We may also have to fulfill our joint venture partners' economic or other
obligations if they are unable to do so.
Governmental Regulation--Regulatory matters could impact our ability to conduct
our business.
Pac-West's networks and our provision of telecommunications services are
heavily regulated at the federal, state, and local levels. If we experience
delays in obtaining required approvals or fail to comply with regulatory
requirements, our business and our ability to meet our obligations under the
Notes could suffer. In addition, regulatory requirements may change with little
notice through legislative, administrative, and court decisions. We cannot be
sure that future such decisions will not be materially adverse to our business.
The FCC exercises jurisdiction over our interstate and international
services. To comply with the FCC requirements, we must file tariffs with the
FCC, file specified required reports, pay a variety of regulatory fees and
assessments to the FCC, and obtain prior FCC authorization to install and
operate international facilities and to provide international long distance
services (including resale). State regulatory commissions exercise jurisdiction
over Pac-West's intrastate services. Therefore, we must obtain regulatory
authorization and/or file tariffs at the state agencies of most states in which
we operate. If we seek to overbuild some of our network segments, local
authorities would regulate our access to municipal rights-of-way. In addition,
local regulations such as building codes, franchise requirements, zoning laws
and licensing, may vary by county or city, and could also affect any buildouts.
We cannot be sure that the FCC or state commissions will grant us the required
16
<PAGE>
authority to provide our services or that they will not take action against us
if they find that we have provided services without the necessary
authorizations. If we do not obtain authority, or if we do not file and update
our FCC and state tariffs properly, third parties or regulators could challenge
our actions. Any such challenges could result in substantial legal and
administrative expenses for Pac-West.
The Telecommunications Act of 1996 and related regulatory rulings (the
"Telecommunications Act") significantly deregulated the domestic
telecommunications industry, including the local exchange, long distance, and
cable television industries. However, since the Telecommunications Act is still
subject to judicial review and further FCC rule-making, it is difficult to
predict how it will affect our business. Federal and state authorities are also
contemplating and currently implementing many regulatory actions regarding
interconnection, pricing and other issues, which could significantly change the
telecommunications industry. These changes may be adverse to Pac-West's
interests.
Currently, federal law prohibits regional Bell operating companies
("RBOCs"), including Pacific Bell and Nevada Bell, from engaging in some
businesses, including in-region interLATA long distance telephone service.
However, this restriction may be removed by the FCC if the RBOCs meet certain
specified conditions and the FCC determines that it is in the public interest.
In addition, two RBOCs have entered into "teaming agreements" with Qwest
Communications International, Inc. ("Qwest"), under which the RBOC solicits
customers for Qwest's long distance service and handles billing of those
customers for a fee. These agreements would permit the RBOCs to offer their
customers a full package of local and long distance services in direct
competition with Pac-West's offerings even though the RBOCs are not themselves
directly providing the long distance component of the service. The FCC has
determined that these "teaming" arrangements violate the Telecommunications
Act's prohibition on marketing of interLATA services by RBOCs. Qwest and the
RBOCs are appealing that decision.
Allowing RBOCs to offer, either directly or through a teaming agreement,
long-distance service to its local customers may negatively affect our business
in two ways. First, it would remove the major incentive RBOCs have to cooperate
with companies like ours to foster competition within their service areas,
although the RBOCs would still have to comply with provisions of the
Telecommunications Act requiring all ILECs to offer interconnection and network
access. Second, unlike RBOCs, Pac-West is currently legally able to offer our
customers both long distance and local exchange services. We believe this
ability to offer "one-stop shopping" gives Pac-West a marketing advantage which
it would lose if the restrictions on RBOCs were lifted. See "Business--
Regulation."
In addition to its requirements for ILECs, the Telecommunications Act
subjects companies like Pac-West to federal regulatory requirements concerning
local exchange service provision. All ILECs and CLECs must interconnect with
other carriers, provide nondiscriminatory access to rights-of-way, offer
reciprocal compensation for termination of traffic and provide dialing parity
and telephone number portability. The effect of these requirements on Pac-West
may vary based on the way they are implemented by the FCC and state public
utilities commissions, and by related decisions of courts reviewing those
implementation actions. For example, recent court decisions have left the rules
governing the pricing, terms and conditions of interconnection agreements
uncertain, which could make it more difficult to negotiate or enforce these
agreements, or require that they be renegotiated. The Telecommunications Act
also requires all telecommunications carriers to ensure that persons with
disabilities have access to and are able to use their services.
In providing interexchange telecommunications service, Pac-West must pay
access charges to ILECs and other CLECs when we use their facilities to
originate or terminate interexchange calls. Also, as a CLEC, Pac-West provides
access services to other interexchange service providers. The FCC regulates
ILECs' interstate access charges extensively. CLECs are subject to a lesser
degree of regulation, but we must comply with the FCC requirement that all
charges be just, reasonable and not unreasonably discriminatory. In two orders
released on December 24, 1996 and May 16, 1997, the FCC dramatically changed
the interstate access charge
17
<PAGE>
structure. The December 24th order removed restrictions on ILECs' ability to
lower access prices and relaxed the regulation of new switched access services
in the markets where there are other providers of access services. If federal
regulators do not monitor this increased pricing flexibility, it could
materially damage our ability to compete in providing interstate access
services. The May 16th order substantially increased the costs that ILECs which
are subject to the FCC's price cap rules recover through monthly, non-traffic-
sensitive access charges, substantially decreased the costs that such ILECs
recover through traffic-sensitive access charges and announced the FCC's plan
to bring interstate access rate levels more in line with cost. The plan will
include rules which may grant price-cap affected ILECs increased pricing
flexibility provided they show increased actual or potential competition in
their respective markets. The United States Court of Appeals for the Eighth
Circuit upheld this order on appeal. The manner in which the FCC implements
this approach to lowering access charges could materially affect our ability to
compete in providing interstate services.
Interconnection Agreements--A significant portion of our revenues arise from
interconnection agreements that are subject to renewal and renegotiation.
We must interconnect with ILEC networks in order to service our customers,
and we depend on the ILECs' infrastructure to meet our customers' needs and to
provide a consistent level of service. The Telecommunications Act mandates that
ILECs interconnect with companies like ours but we cannot assure you that we
will be able to do so at rates, 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 ILECs, our services will be
less attractive to customers. Our primary interconnection agreement is with
Pacific Bell. The initial term of this agreement has expired; however, the
agreement will remain in force until a replacement agreement is finalized. The
same situation exists with our interconnection agreement with GTE. We and
Pacific Bell disagree on the appropriate terms for a replacement agreement. The
most significant of these disagreements involves the applicability of
reciprocal compensation under the agreement to two categories of calls: (1)
calls to ISPs we serve, and (2) local rated calls between customers located in
different rate centers under certain network configurations. The failure to
reach agreement on favorable terms to us could have a material adverse effect
on our business. In addition, the parties have been unable to agree on the
level of compensation payable for calls subject to the agreement. The parties
also disagree on other material terms of the agreement. Pacific Bell has sought
mandatory arbitration of these issues before the California Public Utilities
Commission (the "CPUC"). In addition, we will need new interconnection
agreements in each new market we enter. We cannot be certain that the new
interconnection agreements or the renegotiated interconnection agreements will
be on terms as favorable to us as the current interconnection agreements. See
"Business--Regulatory Proceedings--Regulatory Proceedings--Interconnection
Agreements."
Reciprocal Compensation for Internet Access Service--Our right to receive
reciprocal compensation with respect to certain calls is currently being
challenged at the state and federal levels.
We derive a substantial portion of our revenues from reciprocal compensation
paid by ILECs with which we have interconnection agreements. Reciprocal
compensation increased significantly in recent fiscal quarters as a result of
increasing inbound call volume from our ISP and other customers. For the years
ended December 31, 1997 and 1998, recorded reciprocal compensation accounted
for approximately 37.4% and 37.1%, respectively, of our revenues. Two ILECs
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 traffic terminating to ISPs. These ILECs contend that
such ISP 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 ILECs
and not included in revenues was $3.8 million and $32.6 million for the years
ended December 31, 1997 and 1998, respectively. If such withheld reciprocal
compensation had been received and included in revenues, reciprocal
compensation would have accounted for approximately 44.6% and 64.5% of our
revenues for the years ended December 31, 1997 and 1998, respectively. In the
event that all or a portion of the withheld reciprocal compensation is paid,
the terms of the
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Recapitalization require us to pay additional distributions to certain owners
of up to $20.0 million. See "Certain Relationships and Related Transactions--
Recapitalization."
The applicability of reciprocal compensation to ISP calls is an industry-
wide issue currently under review by both federal and state regulators. The
applicability of reciprocal compensation to local rated calls between customers
located in different rate centers is also under investigation by the CPUC. The
outcome of these regulatory proceedings could have a material adverse affect on
our operations. At this time, we can provide no assurance that these issues
will be decided in a manner which is consistent with our position or our past
practices under our interconnection agreement with Pacific Bell. See
"Business--Regulatory Proceedings--Regulatory Proceedings--Jurisdiction over
and Compensation for ISP Traffic." We cannot be certain of the outcome of the
arbitration proceeding with Pacific Bell or the terms of the interconnection
agreement that will result from those proceedings. It is possible that the
resulting interconnection terms and conditions could have a materially negative
impact on our operations.
On February 26, 1999, the FCC issued a Declaratory Ruling on the issue of
inter-carrier compensation for calls bound to ISPs. The FCC ruled that the
calls are jurisdictionally mixed and 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. The FCC noted a
number of factors that would allow the state public utilities commissions
("PUCs") to leave their decisions requiring the payment of reciprocal
compensation undisturbed. That decision has been appealed. 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.
Competition--Our business is very competitive, and increased competition could
adversely affect us.
The telecommunications industry is highly competitive. In each of our target
markets, we will be competing principally with the ILEC serving that area. The
ILECs are well-established providers of local telephone services with most of
the telephone subscribers within their respective service areas. ILECs also
have long-standing relationships with regulatory authorities at the federal and
state levels. Although FCC administrative decisions and initiatives mandate
increased business opportunities to CLECs like Pac-West, they also provide the
ILECs with increased pricing flexibility for their private line and special
access and switched access services. In addition, the FCC has proposed a rule
that would provide for increased ILEC pricing flexibility and deregulation for
competitive access services (as opposed to local exchange services) either
automatically or after certain competitive levels are reached. If the
regulators allow ILECs 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, CLECs such as Pac-West could suffer materially.
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 marketplace. These
additional competitors consist of other CLECs, resellers, 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. Furthermore, the development of new technologies could give rise to
significant new competitors. The Telecommunications Act imposes certain
regulatory requirements on all local exchange carriers, including Pac-West,
while granting the FCC expanded authority to reduce the level of regulation
applicable to any or all telecommunications carriers, including ILECs. The
manner in which these provisions of the Telecommunications Act are implemented
and enforced could seriously affect our ability to successfully compete against
ILECs and other telecommunications companies. We also compete with equipment
vendors and installers and telecommunications management
19
<PAGE>
companies. Many of our current and potential competitors have substantially
greater financial (including access to public capital markets), technical,
marketing, personnel, brand name and other resources than Pac-West.
We believe that the main competitive factors affecting our business
operations are pricing levels and policies, reliable customer service, accurate
billing and, to a lesser extent, variety of services. Our ability to compete
effectively will depend on our continued ability to maintain high quality,
market-driven services at prices equal to or below those of our competitors. To
maintain our competitive position, we must be able to reduce our prices in
order to meet any rate reductions offered by others. Any such rate reductions,
however, could adversely affect our business.
In addition, we compete with companies offering competing technologies. Many
long distance carriers are building and managing high bandwidth networks, other
carriers are offering DSL services, cable modem service providers are offering
high-speed Internet access over hybrid fiber networks, and several new
companies are emerging as wireless, including satellite based, data service
providers. We may not be able to compete effectively in or target markets
against these competing technologies, and our failure to compete effectively
could have a material adverse effect on our business and our ability to meet
our obligations under the Notes.
We Depend on ISPs--Our inability to maintain a large ISP customer base could
adversely affect our business.
For the three months ended March 31, 1999, nine of our fifteen largest
customers in terms of revenues are ISPs. Revenues from direct billings to ISPs
accounted for approximately 16.2% and 23.3% of our revenues for the years ended
December 31, 1997 and 1998, respectively. These percentages do not include
revenues received from ILECs relating to reciprocal compensation for
terminating calls to ISPs. We believe that our success in the foreseeable
future will depend in large part on our ability to develop and maintain a large
ISP customer base. The competition for ISP customers in the telecommunications
industry, however, is intense, and we expect it will continue to increase. Our
competitors for ISP customers include integrated online service providers with
their own communications networks. Many of these competitors have greater
financial, technological, marketing, and personnel resources than Pac-West.
Accordingly, we cannot assure you that we will be able to continue to increase
our ISP customer base.
Need to Adapt to Technological Change--New technologies could reduce the demand
for our services.
Rapid and significant changes in technology are common in the
telecommunications industry. We rely on third parties to develop and provide us
with new technology. We cannot predict the effect of technological changes on
our business. We expect that new products and technologies applicable to our
services will emerge. New products and technologies may be superior and render
obsolete the technologies that we currently use. The development of competing
technologies, such as integrated services digital network (ISDN) lines, cable
modems, T-1 circuits and digital subscriber lines (DSLs), 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
technologies and services. We believe our future success will depend, in part,
on our ability to meet our customers' needs by anticipating and adapting to
technological changes on a timely basis. We cannot assure you that we will
obtain timely access to new technology on satisfactory terms or incorporate new
technology into our systems in a cost effective manner or at all.
Dependence on Key Personnel--Our loss of certain key executive officers could
negatively impact our business prospects.
A limited number of key executive officers manage Pac-West. Losing the
services of one or more of these individuals, particularly Mr. Wallace W.
Griffin, Mr. John K. La Rue, Mr. Richard E. Bryson, Mr. Brian K.
20
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Johnson, Mr. Dennis V. Meyer, and Mr. Jason R. Mills, could seriously affect
our business prospects. Recognizing this fact, we have entered into employment
agreements with each of these executives. We also believe that our future
success depends on our ability to develop an effective sales force and attract
and retain highly skilled personnel. So far, we believe we have succeeded in
achieving these goals. However, the competition for qualified managers in the
telecommunications industry is intense. Therefore, we cannot assure you that we
will continue to succeed in hiring such high quality personnel. See
"Management--Employment Agreements."
Risks Relating to Long Distance Business--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. The long distance business is extremely
competitive and prices have declined substantially in recent years. We expect
that they will continue to do so. We rely on long distance carriers to provide
transmission and termination services for some of our 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 cannot meet our minimum volume commitments, we
may have to pay underutilization charges. If we need more capacity than we
estimated, we may have to seek additional capacity through alternative, more
expensive means.
Difficulties in Implementing Local and Enhanced Services--We may have
difficulties implementing our switched local and enhanced services due to
competitive pressures.
Pac-West participates in the highly competitive local telecommunications
industry. The local dial tone services market in most states was only recently
opened to competition as a result of the Telecommunications Act. In order to
succeed, we will have to develop new products, systems and services, as well as
develop new marketing initiatives.
We cannot assure you that we will be able to successfully implement our
switched and enhanced services strategy. Our switched services may not be
profitable due to a variety of factors, including lack of adequate customer
demand, our inability to secure access to ILEC facilities on acceptable terms
and competition and pricing pressure from ILECs and other CLECs.
The Telecommunications Act required ILECs to unbundle network elements and
permit us to buy origination and termination services. However, we cannot be
sure that the ILECs will unbundle their services in a timely manner or offer
services to us at acceptable rates. In addition, we must negotiate
interconnection agreements with ILECs in order to successfully implement our
switched and enhanced services. These negotiations can be time-consuming and
expensive and they must satisfy certain federal, state and local regulations.
ILECs generally have little incentive beyond their regulatory obligations to
provide competitors like Pac-West with interconnection, resale opportunities,
or unbundled facilities on reasonable terms. Accordingly, regulatory decisions,
and court decisions reviewing them, may greatly affect the rates, terms, and
conditions of these agreements and arrangements. We cannot assure you that the
regulatory decisions will be favorable to Pac-West and our business plans. In
addition, recent court decisions have left the rules governing pricing, terms,
and conditions of interconnection agreements uncertain. This could make
negotiating and enforcing such agreements more difficult and protracted and may
require us to renegotiate our existing agreements. See "--Competition" and
"Business--Regulation."
In order to provide local service to customers on a timely and competitive
basis, new carriers like Pac-West must work in coordination with ILECs.
However, many new carriers have experienced difficulties when attempting to do
so, particularly with respect to provisioning, interconnection, collocation,
and implementing
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the new carriers' systems to order and receive unbundled network elements and
wholesale services from the ILECs. In addition, the Telecommunications Act
attempted to encourage RBOCs to cooperate with the new carriers by prohibiting
RBOCs from providing in-region long-distance services until there is adequate
local competition in their area. So far, the FCC has not permitted Pacific
Bell, the RBOC in California, to offer long-distance services in that market.
Once Pacific Bell (or the RBOCs in other regions) is allowed to offer in-region
long distance service, we cannot be sure that it will cooperate with us as
necessary. If we cannot obtain the cooperation of an ILEC in a region, our
ability to offer timely and cost-effective services would be significantly
impaired. See "--Governmental Regulation."
Finally, our implementation of switched and enhanced services also depends
on the equipment manufacturers' ability to meet our switch roll out schedule.
We cannot be sure that switches will be placed in service on our expected
schedule, or that even if they are put in service as expected, they will be
used to the extent we expect.
We Depend on Leased Transport Capacity--Our inability to obtain or retain
sufficient leased transport capacity could seriously affect our operations.
We currently lease transport capacity from IXCs, ILECs and other CLECs. This
leased transport connects our switches to particular ILEC central offices. We
cannot assure you that we will continue to be able to lease this transport on a
timely basis or on acceptable terms. If we cannot continue to do so, our
ability to penetrate certain market areas could be hindered or we could be
forced to make additional unexpected up-front capital expenditures to install
our own fiber. These added delays and expenses could negatively affect our
ability to meet our obligations under the Notes. See "Business--Network."
Risk of System Failure--Our computer systems and network infrastructure, and
those of our major customers or suppliers, may malfunction as a result of
natural disaster, operational disruption or other unanticipated problem.
Our operations are dependant upon our ability to support our highly complex
network infrastructure and avoid damage from fires, earthquakes, floods, power
losses, excessive sustained or peak user demand, telecommunications failures,
network software flaws, transmission cable cuts and similar events. 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 have not developed a formal
disaster recovery plan. Any damage or failure that causes interruptions in our
operations could have a material adverse effect on our business and our ability
to meet our obligations under the Notes.
Year 2000 Issues--Our computer systems and network infrastructure, and those of
our major customers or suppliers, may malfunction as a result of Year 2000
issues.
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot distinguish
21st century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates and, as a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements. We have reviewed our
computer systems to identify those areas that could be affected by "Year 2000"
issues. We believe that all but two of our systems are Year 2000 compliant. Our
long distance billing system and one of our accounting systems are not yet Year
2000 compliant. We are in the process of replacing our long distance billing
system to accommodate future anticipated growth with a new Year 2000 compliant
system. The manufacturer of the noncompliant accounting system has provided us
with software that is represented to be 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 such issues exist, these
systems
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may need to be replaced or upgraded to become Year 2000 compliant. We have not
developed a formal disaster recovery plan to recover data that may be affected
by Year 2000 issues.
We believe that many of our customers and suppliers, particularly the ILECs
and long distance carriers, are also impacted by the Year 2000 issue, which in
turn could affect us. We utilize third-party equipment and software and
interact with ILECs, major suppliers and major customers that each have
equipment and software that may not be Year 2000 compliant. Failure of such
third-party or ILEC 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 ILECs, long
distance carriers and others on whose services we depend or with 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."
Risks Associated with Implementing a new Billing and OSS System.
Our existing billing and operation systems support ("OSS") system is not
adequate to meet our expected future needs and is not Year 2000 compliant. We
are in the process of implementing a new billing and OSS system. There are
numerous risks of implementing a new billing and OSS system. Failure to deliver
hardware or develop software on a timely basis, as a result of losses of or
changes in personnel, errors in software, miscalculations or circumstances
beyond our control, could result in costly delays, and particular functions or
the entire system could fail to work as expected requiring additional
development and implementation time. The failure to implement a new billing and
OSS system 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 as a result of our expansion into new states, expansion could be delayed
or limited as a result of capacity limitations, and new product or service
introductions may be delayed. The occurrence of any of these events could have
a material adverse affect on our business and on our ability to meet our
obligations under the Notes.
Effective Subordination--Although your Notes are referred to as "Senior Notes,"
they will be effectively subordinated to our secured debt and the debt of any
future subsidiaries.
The Notes are unsecured and therefore will be effectively subordinated to
any secured debt we may incur, including the New Senior Credit Facility, to the
extent of the value of the assets securing such debt. In the event of a
bankruptcy or similar proceeding involving us, our assets which serve as
collateral will be available to satisfy the obligations under any secured debt
before any payments are made under the Notes. In addition, although we
currently have no subsidiaries we may establish subsidiaries in the future. In
that case, our operating cash flows and our ability to service our
indebtedness, including the Notes, could depend upon the operating cash flows
of our subsidiaries and their payments to us in the form of loans, dividends or
otherwise. Our subsidiaries would be separate legal entities, would not
guarantee our obligations under the Notes, and would have no obligation to pay
any amounts due pursuant to the Notes or to make any funds available for that
purpose, whether by dividends, interest, loans, advances or other payments. In
addition, our subsidiaries' payment of dividends and the making of loans,
advances and other payments to us may be subject to regulatory and contractual
restrictions. Such restrictions may include requirements to maintain minimum
levels of working capital and other assets. In the event of a bankruptcy,
liquidation or reorganization of any of our subsidiaries, creditors of our
subsidiaries will generally be entitled to payment of their claims from the
assets of those subsidiaries before any assets are made available for
distribution to us, except to the extent we may also have a claim as a
creditor.
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Restrictive Covenants--The New Senior Credit Facility will contain various
covenants which limit our management's discretion in the operations of our
business.
The New Senior Credit Facility will contain various 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 will require 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, if the agreements so provide, 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."
Influence of Significant Stockholders; Potential Conflicts of Interest--We are
majority owned by the Equity Investors and their interests may conflict with
your interests.
Through their significant equity ownership, the Equity Investors (the group,
consisting of 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., which own approximately 63.5% of our Common Stock) may
significantly influence, and ultimately determine, the direction of our future
operations. Some decisions about our operations or financial structure may
present conflicts of interest between the Equity Investors and the holders of
the Notes. For example, the Equity Investors may want to pursue acquisitions,
divestitures, or other transactions which they believe could increase the value
of their equity investment in Pac-West. Those kinds of transactions, however,
may increase the financial risk to Note holders. In addition to their Pac-West
investment, some of the Equity Investors have invested significantly in other
telecommunications companies, ISPs, and related businesses, and they or their
affiliates may make further similar investments in the future. Through these
investments, the Equity Investors may develop relationships with businesses
which are competitive with us. These relationships may lead to conflicts
involving arrangements between Pac-West and the Equity Investors' other
holdings. The Equity 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."
Limited Historical Financial Information--We became an independent company on
October 1, 1996.
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. On September 30, 1996, our predecessor transferred its telephone and
answering service divisions (the "Predecessor Telephone and Answering Service
Divisions") to Pac-West. 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
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business strategy on operating as a CLEC. This Prospectus only includes audited
financial information for the Predecessor Telephone and Answering Service
Divisions of our predecessor for the nine months ended September 30, 1996, and
of Pac-West for the period from our commencement on October 1, 1996 to December
31, 1996 and for the years ended December 31, 1997 and 1998. As a result,
prospective investors have limited historical financial information upon which
to base an evaluation of our performance and an investment in the Notes.
This Prospectus also includes selected unaudited financial information of
the Predecessor Telephone and Answering Service Divisions for the years ended
December 31, 1995 and 1994. We have prepared this financial information based
on a number of assumptions and estimates of certain assets, liabilities and
expenses that were not historically recorded at the divisional level, but were
associated with the businesses transferred to us. In addition, 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. As a result,
we caution you not to rely unduly on this selected unaudited financial
information.
Variability of Quarterly Operating Results.
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. This variability could have a material adverse affect on
our financial condition and on our ability to meet our obligations under the
Notes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations--Quarterly Results."
Transactions with Significant Stockholder--We derive significant revenues from
sales to a former majority stockholder.
Prior to the Recapitalization, Bay Alarm Company ("Bay Alarm") held
approximately 78.0% of our Common Stock. As a result of the Recapitalization,
Bay Alarm reduced its interest in Pac-West to 21.7% of our Common Stock and
22.8% of our outstanding Class A Participating Preferred Stock ("Convertible
Redeemable Preferred Stock"). Our sales to Bay Alarm Company and its affiliate,
InReach Internet LLC, collectively accounted for approximately 7.1% of our
revenues for the year ended December 31, 1997 and 6.4% of our revenues for the
year ended December 31, 1998. 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. See "Certain Relationships and Related Transactions"
and "Principal Shareholders."
Change of Control--We may not have the ability to raise the funds necessary to
finance the Change of Control offer required by the Indenture.
If we undergo a Change of Control (as defined), we may need to refinance
large amounts of our debt, including the debt under the Notes and under the New
Senior Credit Facility. If a Change of Control occurs, we must offer to buy
back the 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. We
would fund any repurchase obligation with our available cash, cash generated
from other sources such as borrowings, sales of equity, or funds provided by a
new controlling person. However, we cannot assure you that there will be
sufficient funds available for any required repurchases of the Notes when a
Change of Control occurs. In addition, we expect that the New Senior Credit
Facility will prohibit 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
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circumstance, we will go into default under both the Notes and the New Senior
Credit Facility. Any future debt which we incur may also contain restrictions
on repayment which come into effect upon a Change of Control. If a Change of
Control occurs, we cannot assure you that we will have sufficient funds to
satisfy all of our debt obligations. These buyback requirements may also delay
or make it harder for others to obtain control of Pac-West. In addition,
certain important corporate events, such as leveraged recapitalizations that
would increase the level of our indebtedness, would not constitute a Change of
Control under the Indenture. See "Description of Notes--Repurchase of the
Option of Holders--Change of Control" and "Description of Indebtedness."
Fraudulent Conveyance Matters--Federal and state laws allow courts, under
specific circumstances, to void debts and require Note holders to return
payments received from debtors.
A significant portion of the net proceeds of the Initial Offering was used
to repay indebtedness received in connection with the 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, we, at the time we incurred the
indebtedness:
. 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
. 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 Offering of
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.
Lack of Public Market for the Notes--You may not be able to sell your Notes.
The Old Notes were not registered under the Securities Act or under the
securities laws of any state and may not be resold unless they are subsequently
registered or an exemption from the registration requirements of the Securities
Act and applicable state securities laws is available. The Exchange Notes will
be registered under
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the Securities Act, but will constitute a new issue of securities with no
established trading market, and there can be no assurance as to:
. the liquidity of any such market that may develop;
. the ability of holders to sell their Exchange Notes; or
. the price at which the holders would be able to sell their Exchange
Notes.
If such a market were to exist, the Exchange Notes may trade at higher or lower
prices than their principal amount or purchase price, depending on many
factors, including prevailing interest rates, the market for similar debentures
and the financial performance of Pac-West.
We understand that the Initial Purchasers presently intend to make a market
in the Notes. However, they are not obligated to do so, and any market-making
activity with respect to the Notes may be discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Securities Exchange Act, and may be
limited during the Exchange Offer or during the period we are trying to
establish a shelf registration statement for the Notes, if required. There can
be no assurance that an active trading market will exist for the Notes or that
such trading market will be liquid.
Notes that are not tendered or are tendered but not accepted will, following
the consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof, and, upon consummation of the Exchange
Offer, certain registration rights with respect to the Old Notes will
terminate. In addition, any Old Note holder who tenders in the Exchange Offer
for the purpose of participating in a distribution of the Exchange Notes may be
deemed to have received restricted securities, and if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. To the extent that
Old Notes are tendered and accepted in the Exchange Offer, the trading market
for untendered and tendered but unaccepted Old Notes could be adversely
affected.
No Obligation to Notify--We are not obligated to notify you of untimely or
defective tenders of Old Notes.
We will issue Exchange Notes pursuant to this Exchange Offer only after a
timely receipt of your Old Notes, a properly completed and duly executed letter
of transmittal and all other required documents. Therefore, if you want to
tender your Old Notes, please allow sufficient time to ensure timely delivery.
We are under no duty to give notification of defects or irregularities with
respect to the tenders of Old Notes for exchange.
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THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
We originally sold the Old Notes on January 29, 1999 to the Initial
Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently placed the Old Notes with (1) qualified institutional buyers in
reliance on Rule 144A under the Securities Act and (2) qualified buyers outside
the United States in reliance upon Registration S under the Securities Act.
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 the Exchange Offer Registration
Statement declared effective by the SEC on or prior to 180 days after
the Closing Date;
(3) unless the Exchange Offer would not be permitted by applicable law or
Commission policy, we will commence the Exchange Offer and use our best
efforts to issue on or prior to 30 business days after the date on
which the Exchange Offer Registration Statement was declared effective
by the SEC, Exchange Notes in exchange for all Notes tendered prior
thereto in the Exchange Offer; and
(4) if obligated to file the Shelf Registration Statement, 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 such obligation arises.
For each Old Note surrendered to us pursuant to the Exchange Offer, the
holder of such Old Note will receive an Exchange Note having a principal amount
equal to that of the surrendered note. Interest on each Old Note will accrue
from the last interest payment date on which interest was paid on the Old Note
surrendered in exchange therefor or, if no interest has been paid on such Old
Note, from the date of its original issue. Interest on each Exchange Note will
accrue from the date of its original issue.
Under existing interpretations of the Staff of the SEC contained in several
no-action letters to third parties, the Exchange Notes will in general be
freely tradeable after the Exchange Offer without further registration under
the Securities Act. However, any purchaser of Old Notes who is our "affiliate"
or who intends to participate in the Exchange Offer for the purpose of
distributing the Exchange 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 the Exchange Offer; and
(3) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the
Exchange Notes, unless such sale or transfer is made pursuant to an
exemption from such requirements.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
us in the Letter of Transmittal or Agent's Message that:
(1) the Exchange Notes are to be acquired by the holder or the person
receiving such Exchange Notes, whether or not such person is the
holder, in the ordinary course of business;
(2) the holder or any such other person (other than a broker-dealer
referred to in the next sentence) is not engaging and does not intend
to engage, in distribution of the Exchange Notes;
(3) the holder or any such other person has no arrangement or understanding
with any person to participate in the distribution of the Exchange
Notes;
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(4) neither the holder nor any such other person is our "affiliate" within
the meaning of Rule 405 under the Securities Act; and
(5) the holder or any such other person acknowledges that if such holder or
any other person participates in the Exchange Offer for the purpose of
distributing the Exchange Notes it must comply with the registration
and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on
those no-action letters.
As indicated above, each Participating Broker-Dealer that receives an
Exchange 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) to distribute the Exchange Notes
to be received in the Exchange Offer and (C) will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
Exchange Notes. For a description of the procedures for resales by Participant
Broker-Dealers, see "Plan of Distribution."
In the event that changes in the law or the applicable interpretations of
the Staff of the SEC do not permit us to effect such 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; and
(3) use our reasonable best efforts to keep effective the Shelf
Registration Statement until two years after the Issue Date.
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 such 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 such Old Notes pursuant to 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, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such 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:
(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;
(b) any of such Registration Statements is not declared effective by the
SEC on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"); or
(c) we fail to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer
Registration Statement; or
(d) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but thereafter ceases to be effective
or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement (each
such event referred to in clauses (a) through (d) above a "Registration
Default"),
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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 the Exchange Offer, holders of the Old Notes
who were eligible to participate in the 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 Exchange Notes in
exchange for each $1,000 principal amount of outstanding Old Notes accepted in
the Exchange Offer. Holders may tender some or all of its Old Notes pursuant to
the Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that:
(1) the Exchange Notes bear a Series B designation and a different CUSIP
Number from the Old Notes;
(2) the Exchange Notes have been registered under the Securities Act and
hence will not bear legends restricting the transfer thereof; and
(3) the holders of the Exchange Notes will not be entitled to certain
rights under the Registration Rights Agreement, including the
provisions providing for an increase in the interest rate on the Old
Notes in certain circumstances relating to the timing of the Exchange
Offer, all of which rights will terminate when the Exchange Offer is
terminated.
The Exchange 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 the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of California, or the Indenture in connection with
the Exchange Offer. We intend to conduct the Exchange Offer in accordance with
the applicable requirements of the Exchange Act and the rules and regulations
of the SEC thereunder.
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 Exchange Notes from us.
30
<PAGE>
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.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. We will pay all charges and expenses, other
than transfer taxes in certain circumstances, in connection with the Exchange
Offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" will mean 5:00 p.m., New York City time, on
, 1999, unless we, in our sole discretion, extend the Exchange Offer,
in which case the term "Expiration Date" will mean the latest date and time to
which the Exchange Offer is extended.
In order to extend the 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, in our sole discretion, (1) to delay accepting any Old
Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any
of the conditions set forth below under "--Conditions" will not have been
satisfied, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent or (2) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders.
Interest on the Exchange Notes
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on August 1, 1999. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each February 1
and August 1, commencing on August 1, 1999.
Procedures for Tendering
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal or transmit an Agent's
Message in connection with a book-entry transfer, and mail or otherwise deliver
such Letter of Transmittal or such facsimile, together with the Old Notes and
any other required documents, to the Exchange Agent prior to 5:00 p.m., New
York City time, on the Expiration Date. To be tendered effectively, the Old
Notes, Letter of Transmittal or an Agent's Message and other required documents
must be completed and received by the Exchange Agent at the address set forth
below under "Exchange Agent" prior to 5:00 p.m., New York City time, on the
Expiration Date. Delivery of the Old Notes may be made by book-entry transfer
in accordance with the procedures described below. Confirmation of such book-
entry transfer must be received by the Exchange Agent prior to the Expiration
Date.
The term "Agent's Message" means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry, which states that such book-
31
<PAGE>
entry transfer facility has received an express acknowledgment from the
participant in such book-entry transfer facility tendering the Old Notes that
such participant has received and agrees: (1) to participate in the Automated
Tender Option Program ("ATOP"); (2) to be bound by the terms of the Letter of
Transmittal; and (3) that we may enforce such agreement against such
participant.
By executing the Letter of Transmittal, each holder will make to us the
representations set forth above in the third paragraph under the heading "--
Purpose and Effect of the Exchange Offer."
The tender by a holder and our acceptance thereof will constitute agreement
between such 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 (as defined below) 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 a member firm of the Medallion System (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed 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, The Depository Trust Company (the "Book-Entry
Transfer Facility"), for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in the Book-Entry Transfer Facility's system may make book-entry
delivery of Old Notes by causing such Book-Entry Transfer Facility to transfer
such Old Notes into the Exchange Agent's account with respect to the Old Notes
in accordance with the Book-Entry Transfer Facility's procedures for such
transfer. Although delivery of the Old Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility,
unless an
32
<PAGE>
Agent's Message is received by the Exchange Agent in compliance with ATOP, an
appropriate Letter of Transmittal properly completed and duly executed with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at its
address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to the Book-
Entry Transfer Facility does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by us in our sole 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 right in our sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. Our interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within
such time as the Issuer will determine. Although we intend to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Issuer, 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.
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, may effect a tender if:
(A) the tender is made through an Eligible Institution;
(B) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate
number(s) of such Old Notes and the principal amount of Old Notes
tendered, stating that the tender is being made thereby and
guaranteeing that, within 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 the Book-Entry Transfer Facility), and any
other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent; and
(C) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all
tendered Old Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility), and all other documents required
by the Letter of Transmittal are received by the Exchange Agent upon
five New York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided 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.
33
<PAGE>
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth 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 having deposited the Old Notes to be
withdrawn (the "Depositor");
(2) identify the Old Notes to be withdrawn (including the certificate
number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of
the account at the Book-Entry Transfer Facility to be credited);
(3) be signed by the holder in the same manner as the original signature on
the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to
the Old Notes register the transfer of such Old Notes into the name of
the person withdrawing the tender; and
(4) specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by us, whose 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 the Exchange Offer and no
Exchange Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes which have been tendered but
which are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes
may be retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, we will not be
required to accept for exchange, or exchange notes for, any Old Notes, and may
terminate or amend the Exchange Offer as provided in this Prospectus before the
acceptance of such Old Notes, if:
(1) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer
which, in our sole judgment, might materially impair our ability to
proceed with the 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, in our sole judgment,
might materially impair our ability to proceed with the Exchange Offer
or materially impair the contemplated benefits of the Exchange Offer to
us; or
(3) any governmental approval has not been obtained, which approval we
will, in our sole discretion, deem necessary for the consummation of
the Exchange Offer as contemplated hereby.
If we determine in our sole discretion that any of the conditions are not
satisfied, we may (1) refuse to accept any Old Notes and return all tendered
Old Notes to the tendering holders, (2) extend the Exchange Offer and retain
all Old Notes tendered prior to the expiration of the Exchange Offer, subject,
however, to the rights of holders to withdraw such Old Notes (see "--Withdrawal
of Tenders") or (3) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all properly tendered Old Notes which have not been
withdrawn.
34
<PAGE>
Exchange Agent
Norwest Minnesota Bank, N.A. has been appointed as Exchange Agent for the
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: Overnight Courier:
c/o c/o
Attn: Attn:
By Hand: Facsimile Transmission:
c/o For Information Telephone
Attn: (call collect):
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 the Exchange
Offer and will not make any payments to brokers, dealers, or others soliciting
acceptances of the 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 therewith.
We will pay the cash expenses to be incurred in connection with the 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 Exchange 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 the Exchange Offer. The expenses of the Exchange Offer
will be deferred and charged to expense over the term of the Exchange Notes.
Consequences of Failure to Exchange
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (1) to us (upon redemption thereof or otherwise), (2) so
long as the Old Notes are eligible for resale pursuant to Rule 144A, to a
person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to us), (3) outside the United
States to a foreign person in a transaction meeting the requirements of Rule
904 under the Securities Act, or (4) pursuant to an effective registration
statement under the Securities Act, in each case in accordance with any
applicable securities laws of any state of the United States.
35
<PAGE>
Resale of the Exchange Notes
With respect to resales of Exchange 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 Exchange Notes, whether or
not such person is the holder (other than a person that is our "affiliate"
within the meaning of Rule 405 under the Securities Act) in exchange for Old
Notes in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement or understanding with any person
to participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
However, if any holder acquires Exchange Notes in the Exchange Offer for the
purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the Staff of the 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 in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating Broker-
Dealer that receives Exchange Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such Participating Broker-Dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
36
<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of our obligations under
the Registration Rights Agreement. We will not receive any cash proceeds from
the issuance of the Exchange Notes. In consideration for issuing the Exchange
Notes contemplated in this Prospectus, we will receive Old Notes in like
principal amount, the form and terms of which are the same as the form and
terms of the Exchange Notes (which replace the Old Notes), except as otherwise
described in this Prospectus.
We received $145.2 million from the sale of the Old Notes (after deducting
the fees and expenses of the Initial Offering and the Exchange Offer, but
excluding $1.2 million in expenses incurred prior to the closing of the Initial
Offering). We used $100.0 million of the net proceeds to repay an existing
senior credit facility (the "Senior Credit Facility"), and approximately $19.7
million to fund the interest reserve account.
We have and will continue to use the remaining net proceeds of the Initial
Offering, together with cash generated from operations, to fund the costs of
the initial phase of our planned expansion through the end of 1999. Our
principal capital expenditure requirements for such expansion will include the
purchase and installation of switches, transmission equipment collocated in
ILEC 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. 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, there can be no assurance that our actual capital requirements
will not exceed the amounts described above.
As part of our strategy, we may make strategic acquisitions, and a portion
of the proceeds from the Initial Offering 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.
37
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998:
(1) on an actual basis, which includes the effect of the Recapitalization; and
(2) on an unaudited pro forma basis to give effect to the Initial Offering and
the Exchange Offer. The Old Notes surrendered in exchange for the Exchange
Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the Exchange Notes will not result in any increase or decrease in
our indebtedness. This table should be read in conjunction with the "Unaudited
Pro Forma Financial Data," "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>
December 31, 1998
---------------------
Actual Pro Forma
-------- -----------
(unaudited)
(in thousands)
<S> <C> <C>
Cash and cash equivalents (1)...................... $ 15,236 $ 40,735
Restricted cash (1)................................ -- 19,696
======== ========
Total debt (including current maturities):
13 1/2% Senior Notes............................. -- 150,000
Senior secured borrowings and other long-term
obligations..................................... 100,000 --
Notes payable and capital lease obligations...... 248 248
New Senior Credit Facility (2)................... -- --
-------- --------
Total debt..................................... 100,248 150,248
-------- --------
Convertible Redeemable Preferred Stock, including
accrued cumulative dividends of $1,324 (3)........ 46,324 46,324
Stockholders' equity (deficit):
Common Stock..................................... 13 13
Additional paid-in capital....................... 8,910 8,910
Notes receivable from stockholders............... (233) (233)
Retained earnings (deficit)...................... (82,803) (83,077)
-------- --------
Total stockholders' equity (deficit)........... (74,113) (74,387)
-------- --------
Total capitalization........................... $ 72,459 $122,185
======== ========
</TABLE>
- --------
(1) Pro forma cash and cash equivalents include $25.5 million of unrestricted
net proceeds from the Initial Offering and the Exchange Offer. Pro forma
restricted cash represents $19.7 million of cash deposited in an interest
reserve trust account to fund the initial interest payments due under the
Notes.
(2) The New Senior Credit Facility is expected to provide for initial
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."
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<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The Unaudited Pro Forma Condensed Statement of Operations Data for the year
ended December 31, 1998 gives pro forma effect to the Initial Offering and the
Exchange Offer as if they had occurred on January 1, 1998. The Unaudited Pro
Forma Condensed Balance Sheet Data at December 31, 1998 gives effect to the
Initial Offering and the Exchange Offer as if they had occurred on that date.
The Unaudited Pro Forma Condensed Statement of Operations Data does not purport
to represent what our results of operations would have been if the Initial
Offering and the 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 financial statements and accompanying
notes thereto included in this Prospectus.
PAC-WEST TELECOMM, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT 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>
39
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
Year Ended December 31, 1998
(in thousands)
(1) Selling, general and administrative expenses include transaction bonuses
and consultant's costs of $3,798.
(2) The pro forma interest expense as a result of the Initial Offering is
summarized as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1998
------------
<S> <C>
Historical interest expense................................. $4,199
Historical interest and amortization of deferred financing
costs associated with historical borrowings repaid by the
Initial Offering........................................... (4,181)
Interest related to the portion of the Notes assumed to
replace the Company's historical borrowings (at 13.5%)..... 4,983
Amortization of expected debt issuance costs ($6.0 million
over a 10 year period)..................................... 600
------
Pro forma interest expense.................................. $5,601
======
</TABLE>
(3) Other expense, net 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 Initial Offering and the
Exchange Offer using our effective income tax rate of 40%.
Note: The Unaudited Pro Forma Condensed Statement 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
Initial Offering; and
(B) Interest expense related to the Notes reflects the incremental interest
resulting from the portion of the Notes being used to refinance the
Company's lower rate historical borrowings, see "Use of Proceeds."
40
<PAGE>
PAC-WEST TELECOMM, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET DATA
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
ASSETS Historical Pro Forma
------ ---------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (1)(2)(3)..................... $15,236 $ 40,735
Restricted cash (1)(2)(3)............................... -- 19,696
Trade accounts receivable, net of allowance for doubtful
accounts............................................... 4,623 4,623
Accounts receivable from related parties................ 64 64
Income tax receivable................................... 1,971 1,971
Inventories............................................. 447 447
Prepaid expenses and other current assets............... 861 861
Deferred financing costs, net (3)(4).................... 457 600
Deferred tax assets..................................... 151 334
------- --------
Total current assets.................................. 23,810 69,331
Equipment, vehicles and leasehold improvements............ 63,677 63,677
Less: Accumulated depreciation and amortization........... (6,383) (6,383)
------- --------
Equipment, vehicles and leasehold improvements, net..... 57,294 57,294
Other assets, net (3)..................................... 1,389 5,594
------- --------
Total assets.......................................... $82,493 $132,219
======= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<S> <C> <C>
Current Liabilities:
Current portion of notes payable........................ $ 132 $ 132
Accounts payable........................................ 5,147 5,147
Accrued payroll and related expenses.................... 846 846
Other accrued liabilities............................... 2,153 2,153
------- --------
Total current liabilities............................. 8,278 8,278
Long-term Liabilities:
Senior secured borrowings and other long-term
obligations (2)........................................ 100,000 --
Notes payable, less current portion..................... 116 116
13 1/2% Senior Notes (1)(5)............................. -- 150,000
Deferred income taxes................................... 1,888 1,888
------- --------
Total liabilities..................................... 110,282 160,282
Convertible Redeemable Preferred Stock, including accrued
cumulative dividends of $1,324 (6)....................... 46,324 46,324
Stockholders' Equity (Deficit):
Common stock............................................ 13 13
Additional paid-in capital.............................. 8,910 8,910
Notes receivable from stockholders...................... (233) (233)
Retained earnings (deficit) (4)......................... (82,803) (83,077)
------- --------
Total stockholders' equity (deficit).................. (74,113) (74,387)
------- --------
Total liabilities and stockholders' equity (deficit).. $82,493 $132,219
======= ========
</TABLE>
41
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET DATA
December 31, 1998
(in thousands)
The Unaudited Pro Forma Condensed Balance Sheet Data gives effect to the
following transactions as if each had occurred on December 31, 1998:
(1) Receipt of $150,000 from the issuance of the Old Notes.
(2) Repayment of $100,000 of senior secured borrowings and other long-term
obligations from the proceeds of the Initial Offering.
(3) Deferred financing costs incurred of approximately $6,000 of which $600 is
classified as current and $5,400 is included in other assets ($1,195 was
incurred as of December 31, 1998).
(4) The write-off in January 1999 of approximately $457 of unamortized deferred
financing costs related to the senior secured borrowings and recognition of
the related income tax benefit of $183.
(5) The Notes are due and payable in full on February 1, 2009. We may redeem
the Notes at any time after February 1, 2004. Before February 1, 2002, up
to 35% of the Notes may be redeemed with the net proceeds from a public
offering of Common Stock.
(6) The Convertible Redeemable Preferred Stock is redeemable at the option of
the holders in the event of a public offering or at any time after December
31, 2003. Additionally, the Convertible Redeemable Preferred Stock may be
converted into shares of Common Stock at the option of the holders in the
event of a public offering. Dividends accrue on the Convertible Redeemable
Preferred Stock at the rate of 10% per annum, compounded quarterly. These
dividends are cumulative. See "Description of Capital Stock."
42
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of: (1) the
Predecessor Telephone and Answering Service Divisions for the years ended
December 31, 1994 and 1995 and the nine months ended September 30, 1996 and (2)
Pac-West for the period from our commencement (October 1, 1996) to December 31,
1996 and the years ended December 31, 1997 and 1998. Our selected financial
data as of the dates and for the periods indicated were derived from audited
financial statements contained elsewhere in this Prospectus and the unaudited
financial statements of the Predecessor Telephone and Answering Service
Divisions for the years ended December 31, 1994 and December 31, 1995. 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.
<TABLE>
<CAPTION>
Predecessor Telephone and Year Ended
Answering Service Divisions (1) Period from December 31,
--------------------------------------- Commencement -----------------
Nine Months (October 1,
Year Ended Year Ended Ended 1996) to
December 31, December 31, September 30, December 31,
1994 1995 1996 1996 1997 1998
------------ ------------ ------------- ------------ ------- --------
(unaudited) (unaudited)
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues (2)............ $ 6,775 $ 8,900 $ 8,737 $ 4,232 $29,551 $ 42,211
Costs and Expenses:
Operating costs........ 2,959 3,498 4,202 2,064 12,060 15,344
Selling, general and
administrative:
Selling, general and
administrative........ 2,687 3,011 3,123 1,519 7,367 10,779
Transaction bonuses and
consultant's costs
(3)................... -- -- -- -- -- 3,798
Depreciation and
amortization.......... 495 512 549 299 2,204 4,106
------- ------- ------- ------- ------- --------
Income from operations. 634 1,879 863 350 7,920 8,184
Interest expense........ (19) (93) (33) (105) (932) (4,199)
Gain on disposal of
answering service
division............... -- -- -- -- 385 --
Costs of merger and
recapitalization (3)... -- -- -- -- -- (3,004)
Other income (expense),
net.................... 11 17 34 (11) 119 330
------- ------- ------- ------- ------- --------
Income before provision
for income taxes and
extraordinary item.... 626 1,803 864 234 7,492 1,311
Provision for income
taxes.................. 250 722 345 94 2,997 1,561
------- ------- ------- ------- ------- --------
Income (loss) before
extraordinary item.... 376 1,081 519 140 4,495 (250)
Extraordinary item--loss
on early extinguishment
of debt, net of income
tax benefit of $278
(3).................... -- -- -- -- -- (417)
------- ------- ------- ------- ------- --------
Net income (loss)...... $ 376 $ 1,081 $ 519 $ 140 $ 4,495 $ (667)
======= ======= ======= ======= ======= ========
Other Financial Data:
Reciprocal compensation
withheld (2)........... $ -- $ -- $ -- $ -- $ 3,793 $ 32,591
EBITDA (4).............. 1,129 2,388 1,431 633 10,538 16,091
EBITDA margin %......... 16.7% 26.8% 16.4% 15.0% 35.7% 38.1%
Cash provided by (used
in):
Operating activities... $ 1,018 $ 1,758 $ 1,092 $ 75 $ 5,876 $ 12,033
Investing activities... (1,155) (1,266) (2,523) (1,682) (6,619) (42,031)
Financing activities... 196 (350) 1,778 1,549 3,658 41,631
Ratio of earnings to
fixed charges (5)...... -- -- -- 2.1x 5.8x 1.2x
Balance Sheet Data (as
of end of period):
Cash and cash
equivalents............ $ 257 $ 399 $ 746 $ 688 $ 3,603 $ 15,236
Working capital
(deficit).............. (321) (219) 626 398 2,598 15,532
Property, plant and
equipment, net......... 2,311 3,065 5,883 9,483 19,079 57,294
Total assets............ 3,945 5,141 8,641 12,966 27,528 82,493
Total debt (6).......... 1,106 591 3,256 7,022 15,672 100,248
Convertible Redeemable
Preferred Stock,
including accrued
cumulative dividends of
$1,324................. -- -- -- -- -- 46,324
Stockholders' equity
(deficit).............. 1,445 2,526 4,037 4,177 8,672 (74,113)
</TABLE>
43
<PAGE>
- --------
(1) 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 commencement (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 the Predecessor 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 Exchange Notes.
(2) We recognize reciprocal compensation as revenue only to the extent received
in cash. Pacific Bell and GTE, the two ILECs 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 ISPs. 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--Reciprocal Compensation for
Internet Access Service."
(3) Transaction bonuses and consultant's costs, costs of merger and
recapitalization and the extraordinary item all relate to the
Recapitalization.
(4) "EBITDA" represents earnings before interest, net; income taxes;
depreciation and amortization; 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 and $327,000 for the Predecessor Telephone and
Answering Service Divisions for the years ended December 31, 1994 and 1995,
and the nine months ended September 30, 1996, and Pac-West for the period
from commencement (October 1, 1996) to December 31, 1996, and for the years
ended December 31, 1997 and 1998, respectively. EBITDA is not a measurement
of financial performance under generally accepted accounting principles and
does not represent cash flows from operations. Accordingly, do not regard
this amount as an alternative to net income (loss) or as an indicator of
our operating performance or as an alternative to cash flows as a measure
of liquidity. We believe that EBITDA is widely used by analysts, investors
and other interested parties in the telecommunications industry but it is
not necessarily comparable with similarly titled measures for other
companies. See the Statements of Cash Flows in the audited financial
statements.
(5) 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. Due to the significant changes in
our operations since September 30, 1996, we believe that the ratios of
earnings to fixed charges of the Predecessor Telephone and Answering
Service Divisions are not meaningful and therefore are not included in the
table.
(6) As of December 31, 1998, total debt includes $91.0 million of senior
secured borrowings and $9.0 million of other long-term obligations for
equipment received as of year-end which was subsequently financed through
additional senior secured borrowings. This total of $100.0 million was
repaid on January 29, 1999 through the issuance of the Initial Offering.
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations is qualified in its entirety by, and should be read in
conjunction with, the Financial Statements and related notes thereto included
elsewhere in this Prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties including, without limitation,
statements of our plans, objectives, expectations and intentions. Although we
believe that our plans, intentions and expectations reflected in or suggested
by such forward looking statements are reasonable, we can give no assurance
that such plans, intentions or expectations will be achieved. Important factors
that could cause actual results to differ materially from the forward looking
statements we make in this Offering Memorandum are set forth below and
elsewhere in this Offering Memorandum. Such factors include, but are not
limited to, those discussed in "Risk Factors," "Business" and elsewhere in this
Prospectus. We disclaim any obligation to update information contained in any
forward-looking statement.
Overview
We are a rapidly growing CLEC that provides switched local and long distance
telecommunications services and "one-stop" integrated telecommunications
services to ISPs, paging companies and other inbound call service providers 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 the Predecessor 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 CLEC. For the year ended
December 31, 1998 (recognizing reciprocal compensation only to the extent
received in cash), we had net revenues of approximately $42.2 million and
EBITDA of approximately $16.1 million.
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 ILECs as reciprocal compensation (which results from
Pac-West terminating calls made by ILEC customers), 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 ILECs 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 ISP and other customers. For
the years ended December 31, 1997 and 1998, recorded reciprocal compensation
accounted for approximately 37.4% and 37.1%, respectively, of our revenues. Two
ILECs 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 traffic terminating to ISPs. These ILECs contend that
such ISP 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 ILECs
and not included in revenues was $3.8 million for the year ended December 31,
1997, and $32.6 million for the year ended December 31, 1998. If such withheld
reciprocal compensation had been received and included in revenues, reciprocal
compensation would have accounted for approximately 44.6% and 64.5% of our
revenues, respectively, in each of the above described periods. In the event
that all or a portion of the withheld reciprocal compensation is paid, the
terms of the Recapitalization require us to pay additional distributions to
certain owners of up to $20.0 million. In
45
<PAGE>
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."
We expect that reciprocal compensation will continue to represent a
significant portion of our revenues in the future. We are currently negotiating
new interconnection agreements and the terms of the related reciprocal
compensation. We expect that the per minute reciprocal compensation rate may
decline significantly under the new interconnection agreements. See "Risk
Factors--Interconnection Agreements" and "--Reciprocal Compensation for
Internet Access Service."
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 ILEC or other CLEC. 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
ILEC and other CLEC 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. Management expects
Pac-West 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. Management expects 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) the Predecessor Telephone and Answering Service Divisions for
the nine months ended September 30, 1996 and Pac-West for the period from our
commencement (October 1, 1996) to December 31, 1996 on a combined basis; and
(2) Pac-West for the years ended December 31, 1997 and 1998. We have combined
the operations of the Predecessor Telephone and Answering Service Divisions and
Pac-West for the year ended December 31, 1996 to facilitate management's
discussion and analysis of financial results. Due to the 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. 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.
<TABLE>
<CAPTION>
Combined (1) Pac-West
------------ ------------
1996 1997 1998
------------ ----- -----
(Unaudited)
<S> <C> <C> <C>
Statements of Operations Data:
Revenues...................................... 100.0% 100.0% 100.0%
Operating costs............................... 48.3 40.8 36.4
Selling, general and administrative expenses
(2).......................................... 35.8 24.9 34.5
Depreciation and amortization expense......... 6.5 7.5 9.7
Income from operations (2).................... 9.4 26.8 19.4
Net income (loss) (3)......................... 5.1 15.2 (1.6)
</TABLE>
46
<PAGE>
- --------
(1) Combines the results of operations of the Predecessor Telephone and
Answering Service Divisions for the nine months ended September 30, 1996
with those of Pac-West for the period from our commencement (October 1,
1996) to December 31, 1996.
(2) 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 the aforementioned period.
(3) The net loss for 1998 includes the costs of the 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.
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 ISPs, an increase of $1.2 million in local and long
distance usage revenues, and an increase of $0.8 million in dedicated transport
(i.e. private line) revenues.
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 CLEC 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 transaction bonuses and consultant's costs, 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 Initial Offering.
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 effective tax rate for 1998
(federal and state) 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
ISPs, an increase of $0.7
47
<PAGE>
million in local and long distance usage revenues and an increase of $1.0
million in dedicated transport revenues.
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, CLEC 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 ISP customers and a
rapid increase in revenues from ISP 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 effective tax rate (federal and state) was 40% for both 1996 and 1997.
48
<PAGE>
Quarterly Results
The following tables set forth certain unaudited quarterly financial data
for the eight quarters ended December 31, 1998. In the opinion of management,
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 adjustments (consisting only of 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.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------
1997 1998
---------------------------------- ----------------------------------
Mar. 31 June 30 Sep. 30 Dec. 31 Mar. 31 June 30 Sep. 30 Dec. 31
------- ------- ------- ------- ------- ------- ------- -------
(unaudited, in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues (1)............ $4,992 $6,421 $7,998 $10,140 $10,252 $9,680 $ 9,500 $12,779
Costs and expenses:
Operating costs........ 2,549 3,032 3,160 3,319 3,731 4,060 3,867 3,686
Selling, general and
administrative:
Selling, general and
administrative...... 1,663 1,609 1,839 2,256 2,002 2,217 2,715 3,845
Transaction bonuses
and consultant's
costs............... -- -- -- -- -- -- 3,798 --
Depreciation and
amortization.......... 480 514 549 661 845 856 1,063 1,342
------ ------ ------ ------- ------- ------ ------- -------
Income (loss) from
operations.......... 300 1,266 2,450 3,904 3,674 2,547 (1,943) 3,906
Interest expense........ (203) (200) (213) (316) (377) (409) (882) (2,531)
Gain (loss) on disposal
of
answering service
division............... 403 -- -- (18) -- -- -- --
Other income (expense),
net (2)................ 10 10 27 72 25 22 (2,776) 55
------ ------ ------ ------- ------- ------ ------- -------
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
Provision (benefit) for
income taxes........... 204 430 906 1,457 1,329 864 (1,205) 573
------ ------ ------ ------- ------- ------ ------- -------
Income (loss) before
extraordinary item.. 306 646 1,358 2,185 1,993 1,296 (4,396) 857
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
====== ====== ====== ======= ======= ====== ======= =======
Other Financial Data:
Reciprocal compensation
withheld (1)........... $ -- $ -- $1,304 $ 2,489 $ 5,032 $7,823 $ 9,531 $10,205
EBITDA.................. 1,185 1,784 3,003 4,566 4,519 3,403 2,921 5,248
Capital expenditures.... 1,424 764 1,948 7,748 1,275 6,588 13,031 21,572
</TABLE>
- --------
(1) Pac-West recognizes reciprocal compensation only to the extent it is
received in cash. Pacific Bell and GTE, the two ILECs 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 ISPs. 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.
(2) 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 for the quarters ended March 31, June 30,
September 30 and December 31 of 1997 and March 31, June 30, September 30
and December 31 of 1998, respectively.
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 ILECs, 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 EBDITA declined in each of the second and third
quarters of 1998. The decline in revenues was due primarily
49
<PAGE>
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 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
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 Super POPs. During the fourth quarter of 1998, we
expanded switch capacity to existing and new customers. Our revenues, income
from operations and EBITDA for the fourth quarter of 1998 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
ISP customers. In addition, new service orders from medium and small businesses
have accelerated in the fourth quarter 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 $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 (October 1, 1996) to December 31, 1996 and
for the Predecessor 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 $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 (October 1, 1996) to December 31, 1996 and for the
Predecessor Telephone and Answering Service Divisions for the nine months ended
September 30, 1996 were $1.7 million and $2.5 million, respectively.
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 from
the Equity Investors, $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 (October 1, 1996) to December 31, 1996 and for the
Predecessor Telephone and Answering Service Divisions for the nine months ended
September 30, 1996 was $1.5 million and $1.8 million, respectively.
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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 $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 (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, there can be no assurance that our
actual capital requirements will not exceed the amounts described above.
We expect to enter into a New Senior Credit Facility and are currently
negotiating its terms. Based upon discussions with possible lenders for the New
Senior Credit Facility, we expect that such facility will provide for initial
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 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 April 9, 1999, the borrowing
rate under this facility would have been 7.75%. Our borrowings under the New
Senior Credit Facility will be secured by all of our assets. We expect the New
Senior Credit Facility to have a three year term. See "Description of
Indebtedness."
Our principal sources of funds following the 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 (classified as
restricted cash) to provide for the payment of the first two scheduled interest
payments under the Notes. See "Description of Notes--Interest Reserve Account."
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. Our future
operating performance and ability to service or refinance the Notes and to
repay, extend or refinance the New Senior Credit Facility will be subject to
future economic conditions and to financial, business and other factors, many
of which are beyond our control.
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 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 (such as investments and debt) 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
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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
$150 million of fixed interest Senior 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 Senior Notes due February 1, 2009. 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
We have reviewed our computer systems to identify those areas that could be
affected by "Year 2000" issues. We believe that all but two of our systems are
Year 2000 compliant. Our long distance billing system and one of our accounting
systems are not yet Year 2000 compliant. We are in the process of replacing our
long distance billing system to accommodate future anticipated growth with a
new Year 2000 compliant system. The manufacturer of the noncompliant accounting
system has provided us with software that is represented to be Year 2000
compliant. We have not completed our review of our non-computer systems for
Year 2000 issues relating to embedded microprocessors. To the extent that such
issues exist, these systems may need to be replaced or upgraded to become Year
2000 compliant. We have not developed a formal disaster recovery plan to
recover data that may be affected by Year 2000 issues.
We believe that many of our customers and suppliers, particularly the ILECs
and long distance carriers, are also impacted by the Year 2000 issue, which in
turn could affect us. We utilize third-party equipment and software and
interact with ILECs, major suppliers and major customers that each have
equipment and software that may not be Year 2000 compliant. Failure of such
third-party or ILEC 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, prospects, operating results and financial condition. 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, prospects, operating results and financial condition. We are
assessing the compliance efforts of our major customers and suppliers. If the
systems of certain of our customers and suppliers, particularly the ILECs, long
distance carriers and others on whose services we depend or with 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 "Risk Factors--Year 2000
Issues."
New Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and for Hedging Activities
("Statement 133"). Statement 133 is effective for years beginning after June
15, 1999. Statement 133 provides a comprehensive and consistent standard for
the recognition and measurement of derivatives and hedging activities.
Management does not anticipate that the adoption of Statement 133 will have a
material impact on our financial position or the results of our operations.
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BUSINESS
Our Company
We are a rapidly growing CLEC providing switched local and long distance
telecommunications services and "one-stop" integrated telecommunications
services to ISPs, 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
switched local services by regional and national ISPs, as well as the
increasing demand of medium and small businesses for customized and integrated
telecommunications services. We believe our network architecture and presence
in each California LATA provides us with significant competitive advantages
over ILECs and other CLECs, particularly for ISPs, paging companies and other
inbound call service providers. Our network enables these companies to provide
their business and residential customers with access to ISP, paging and other
services from almost any point in California through a local call. Our owned
switch, leased transport network development strategy 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. For the year ended December 31, 1998
(recognizing reciprocal compensation only to the extent received in cash), we
had net revenues of approximately $42.2 million and EBITDA (as defined) of
approximately $16.1 million.
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, which we believe is the largest and
fastest growing telecommunications market in the United States. We own and
operate switches in Los Angeles, Oakland and Stockton, have local points of
presence in all 11 California LATAs, and have over 350 assigned local prefixes
and 3.5 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 ISPs, 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
neighboring Western states, including Nevada, Arizona, Washington, Colorado,
Texas, Utah, Idaho, Montana, New Mexico, Oregon and Wyoming. 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.
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The following table sets forth certain information regarding the markets in
which Pac-West currently operates and our anticipated geographic network
buildout.
<TABLE>
<CAPTION>
1997 Target Customer Base 1996 Revenues (in millions)
---------------------------------------- --------------------------------------
Number of
Medium & Total Local Local
Launch Number of Small Business Exchange Exchange Long Total
Period ISPs (1) Business (2) 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
Montana................ 2000 125 24,801 101,241 162 62 500 724
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
Wyoming................ 2000 68 14,363 77,750 109 48 261 418
----- --------- ---------- ------- ------ ------- -------
Total Planned
Markets............. -- 884,376 7,887,420 11,067 4,089 20,379 35,535
--------- ---------- ------- ------ ------- -------
Total Pac-West
Markets............. 1,388 1,484,549 15,361,365 $19,490 $6,485 $35,521 $61,496
========= ========== ======= ====== ======= =======
</TABLE>
- --------
(1) Since ISPs are often present in more than one state, for purposes of
presenting the total number of ISPs, each ISP is counted only once.
(2) Defined as businesses with fewer than 100 employees.
We focus on providing services to high-volume, telecommunications intensive
users and to medium and small businesses. Pac-West's customers include 78
regional and national ISPs, including Concentric Network Corp., Mindspring
Enterprises, Inc., The Grid, Inc., InReach Internet LLC and EarthLink, Inc.,
and national paging companies like Metrocall, Inc. and PageMart Wireless, Inc.
We believe that our greatest opportunity for rapid growth is to continue to
grow with and provide high quality services to our ISP customers. By building
our network to meet demand from existing ISP 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. IDC, 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
ISPs in the United States. We believe that we are strategically positioned to
become one of the leading providers of telecommunications services to ISPs 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 ILECs or other CLECs. Our target state markets have
approximately 1.5 million medium and small businesses and approximately 15.4
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 offering of system
design, equipment selection and installation,
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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 owned
switch, leased transport strategy 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 switching sites (the "Super POPs") in Los Angeles, Oakland
and Stockton and digital nodes in each of California's 11 LATAs. We believe our
network architecture and presence in each California LATA provides us with
significant competitive advantages over ILECs and other CLECs, particularly for
ISPs, paging companies and other inbound call service providers. 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
California through a local call. In this way, our customers can achieve
statewide coverage with significantly lower capital and operating expenses. Our
Super POPs offer ISPs highly reliable, low cost tandem switching and the
ability to build lower cost networks by collocating equipment at our three
Super POPs rather than in all 11 LATAs. In addition, our interconnection
arrangements and statewide leased transport network allow ISPs to obtain
statewide coverage at local calling rates, which reduces switching and
transmission costs.
Our Super POPs use Alcatel USA's tandem switches and, as of March 1, 1999,
had an installed capacity of 187,000 ports and total expandable capacity of
260,000 ports. By the end of the second quarter of 1999, we expect to increase
our California Super POP's total expandable capacity to 345,000 ports. We plan
to duplicate our network strategy of owned switch, leased transport and
statewide local coverage in each of our target markets. We intend to install
new Super POPs in Nevada, Washington and Arizona in 1999 or early 2000.
Leased Transmission Capacity. We lease our transmission facilities from
IXCs, ILECs and other CLECs. 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
(5) the opportunity for our network to provide backhaul carriage for other
telecommunications service providers, such as long distance and
wireless carriers.
Interconnection. We have interconnection agreements with Pacific Bell and
GTE. Both agreements have expired and are currently being renegotiated by the
parties. Pursuant to their terms, however, these agreements remain in force
during renegotiation. We believe that interconnection arrangements between the
ILECs and other CLECs will be in place at appropriate times in other markets
that we may enter. Interconnection agreements between us and ILECs are subject
to approval of the relevant state commission, and under the terms of the
Telecommunications Act, each ILEC which is subject to the Telecommunications
Act is
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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. Pac-West
currently is in arbitration with Pacific Bell and Citizens Telecommunications
Company of California, Inc ("Citizens") in California and Nevada Bell in
Nevada. See "--Regulation."
Strategy
Our objective is to become a leading provider of telecommunications services
to ISPs, paging companies and other inbound call service providers as well as
medium and small businesses in each of our target markets. We plan to do this
by:
Capitalizing on Growing ISP 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 ISPs in the U.S., which, in turn, has
created strong demand for local access lines nationwide. Pac-West currently has
78 ISP customers in California. Many of these ISPs already operate in several
states and are continuing to expand into additional markets. Also, many ISPs
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. Our network
architecture offers ISPs three primary benefits:
. non-blocking, matrix switches, which support high calling volumes and
long holding times for ISP calls;
. statewide local calling capabilities through established physical points
of presence in each LATA within a state, which reduces ISPs' transmission
costs; and
. the ability to collocate Internet modems and servers in fewer locations,
which enables ISPs 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 ILECs and
other CLECs. 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.
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 will offer
coverage throughout the Western United States, one of the
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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 ISPs, 1.5 million medium and small
businesses and 15.4 million business lines in 1997, and generated approximately
$61.5 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.
Deploying a Capital-Efficient Network. 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 owned switch, leased transport
strategy provides us with significant cost and time-to-market advantages over
competitors using an owned switch, owned fiber strategy.
Installing an Advanced, Uniform Technology Platform. We have chosen Alcatel
USA's digital tandem switches as a consistent central technology platform. Due
to their high call carrying capacity, non-blocking matrix switching
characteristics 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 ISP
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 our overall network architecture 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 CLECs 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.
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.
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ISP Services. We provide ISPs physical and virtual collocation services at
each of our three switches. Physical collocation enables an ISP to install its
equipment in any or all of our switch facilities and interconnect directly to
our tandem switches. Collocated equipment is protected by the same cooling,
power back-up and security systems protecting our switches. An ISP's ability to
collocate equipment at only three sites in California, rather than in all 11
LATAs, reduces its capital expenditures and maintenance requirements. We
receive monthly rental revenue from the ISP for the space used.
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 ISPs.
Data Networking Services--We provide high-speed, broadband services to
use for data communications, such as private corporate networks.
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. Pac-West is 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 ILECs. We had 46
professional sales personnel as of December 31, 1998 and 58 professional sales
personnel as of March 1, 1999. 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.
Marketing. In its existing markets, Pac-West seeks to position itself as a
high quality alternative to ILECs 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 ISPs, paging companies, call centers and medium and small businesses.
Nine of our top fifteen customers are ISPs. For the
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year ended December 31, 1997 and 1998, ISPs accounted for approximately 16.2%
and 23.3%, respectively, of our revenues, not including reciprocal compensation
related to terminating calls to ISPs.
The following is a list of certain of our ISP 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 and InReach Internet collectively accounted for
approximately 7.1% of our revenue for the year ended December 31, 1997 and 6.4%
of our revenue for the year ended December 31, 1998. 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 and InReach Internet.
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.
Incumbent Local Exchange Carriers. In each of the markets we target, we will
compete principally with the ILEC serving that area, such as Pacific Bell and
GTE in California. Some ILECs, including GTE, are offering long distance
services to their local telephone customers. The RBOCs, including Pacific Bell,
are actively seeking removal of federal regulatory restrictions that prevent
them from entering the long distance market. Many experts expect the RBOCs 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 RBOCs expect to offset share losses in their local markets by capturing a
significant percentage of the in-region long distance market, especially in the
residential segment where the RBOCs' 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 RBOCs 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 ILECs over us in certain respects. While
recent regulatory initiatives, which allow CLECs such as ourselves to
interconnect with ILEC 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 ILECs.
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With respect to competitive access services (as opposed to switched local
exchange services), the FCC recently proposed a rule that would provide for
increased ILEC pricing flexibility and deregulation for such access services
either automatically or after certain competitive levels are reached. If the
ILECs 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 ILECs,
including us, could be materially adversely affected. If future regulatory
decisions afford the ILECs increased access service pricing flexibility or
other regulatory relief, such decisions could also have a material adverse
effect on competitors to the ILEC, 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 CLECs, out-of-region ILECs, 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 ILEC 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 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 ILECs. The
manner in which these provisions of the Telecommunications Act are implemented
and enforced could have a material adverse effect on our ability to
successfully compete against ILECs and other telecommunications service
providers.
The changes in the Telecommunications Act radically altered the market
opportunity for traditional CLECs. Because many existing CLECs 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 CLECs since 1996 to take advantage of the opening of the local market.
With the Telecommunications Act requiring unbundling of the ILEC networks,
CLECs are now able to enter the market more rapidly by installing switches and
leasing trunk and loop capacity until traffic volume justifies building
facilities. New CLECs 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 ISP 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 ("WTO") agreement on basic telecommunications
services, the United States and 68 other members of the WTO 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
WTO agreement could provide us with significant opportunities to compete in
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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 WTO agreement, it could also provide similar opportunities to our
competitors. There can be no assurance that the pro-competitive effects of the
WTO agreement will not have a material adverse effect on our business,
financial condition and results of operations or that members of the WTO will
implement the terms of the WTO 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 RBOCs that have some degree of
market power. The FCC imposes less regulation on common carriers without market
power including, to date, CLECs. 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.
In August 1996, the FCC released a decision (the "Interconnection Decision")
establishing rules implementing the Telecommunications Act requirements that
ILECs negotiate interconnection agreements and providing guidelines for review
of such agreements by state public utilities commissions. On July 18, 1997, the
Eighth Circuit vacated certain portions of the Interconnection Decision,
including provisions establishing a pricing methodology and a procedure
permitting new entrants to "pick and choose" among various provisions of
existing interconnection agreements between ILECs and their competitors. On
October 14, 1997, the Eighth Circuit issued a decision vacating additional FCC
rules affecting the use of combinations of an ILEC'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 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 by which the FCC will 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 (either 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 is intended to increase competition. The act
opens the local services market by requiring ILECs to permit interconnection to
their networks and establishing ILEC obligations with respect to:
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Reciprocal Compensation. Requires all ILECs and CLECs 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 ILECs and CLECs to permit resale of their
telecommunications services without unreasonable restrictions or
conditions. In addition, ILECs 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 ILEC in the wholesale
offering.
Interconnection. Requires all ILECs and CLECs to permit their
competitors to interconnect with their facilities. Requires all ILECs to
permit interconnection at any technically feasible point within their
networks, on nondiscriminatory terms, at prices based on cost (which may
include a reasonable profit). At the option of the carrier seeking
interconnection, collocation of the requesting carrier's equipment in the
ILECs' premises must be offered, except where an ILEC can demonstrate space
limitations or other technical impediments to collocation.
Unbundled Access. Requires all ILECs to provide nondiscriminatory access
to unbundled network elements (including certain network facilities,
equipment, features, functions, and capabilities) at any technically
feasible point within their networks, on nondiscriminatory terms, at prices
based on cost (which may include a reasonable profit).
Number Portability. Requires all ILECs and CLECs to permit users of
telecommunications services to retain existing telephone numbers without
impairment of quality, reliability or convenience when switching from one
telecommunications carrier to another.
Dialing Parity. Requires all ILECs and CLECs 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 ILECs and CLECs to permit
competing carriers access to poles, ducts, conduits and rights-of-way at
regulated prices.
ILECs are required to negotiate in good faith with carriers requesting any
or all of the above arrangements. If the negotiating carriers cannot reach
agreement within a prescribed time, either carrier may request arbitration of
the disputed issues by the state regulatory commission. Where an agreement has
not been reached, ILECs remain subject to interconnection obligations
established by the FCC and state telecommunication regulatory commissions.
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 July 1, 1999.) 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.
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The Telecommunications Act codifies the ILECs' equal access and
nondiscrimination obligations and preempts inconsistent state regulation. The
Telecommunications Act also contains special provisions that eliminate the AT&T
Antitrust Consent Decree (and similar antitrust restrictions on the RBOCs)
restricting the RBOCs from providing long distance services and engaging in
telecommunications equipment manufacturing. The Telecommunications Act
permitted the RBOCs to enter the out-of-region long distance market immediately
upon its enactment. Further, provisions of the Telecommunications Act permit a
RBOC to enter the long distance market in its traditional service area if it
satisfies several procedural and substantive requirements, including obtaining
FCC approval upon a showing that the RBOC has entered into interconnection
agreements (or, under some circumstances, has offered to enter into such
agreements) in those states in which it seeks long distance relief, the
interconnection agreements satisfy a 14-point "checklist" of competitive
requirements, and the FCC is satisfied that the RBOC's entry into long distance
markets is in the public interest. To date, several petitions by RBOCs for such
entry have been denied by the FCC, and none has been granted.
Under the Telecommunications Act, any entity, including cable television
companies and electric and gas utilities, may enter any telecommunications
market, subject to reasonable state regulation of safety, quality and consumer
protection. Because implementation of the Telecommunications Act is subject to
numerous federal and state policy rulemaking proceedings and judicial review
there is still uncertainty as to what impact such legislation will have on us,
but it is likely to encourage additional competitive entry in markets we serve.
Pursuant to 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 ILECs.
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 RBOCs 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 ILECs charge all customers the same price for the
same service. Thus, the ILECs 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 ILECs 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 ILECs that
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are subject to competition in their service areas and provide such ILECs 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 ILECs and other CLECs when it uses the
facilities of those companies to originate or terminate interexchange calls.
Also, as a CLEC, we provide access services to other interexchange service
providers. The interstate access charges of ILECs are subject to extensive
regulation by the FCC, while those of CLECs are subject to a lesser degree of
FCC regulation but remain subject to the requirement that all charges be just,
reasonable, and not unreasonably discriminatory. In two orders released on
December 24, 1996, and May 16, 1997, the FCC made major changes to the
interstate access charge structure. In the December 24th order, the FCC removed
restrictions on ILECs' 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 ILECs
subject to the FCC's price cap rules ("Price Cap ILECs") recover through
monthly, non-traffic-sensitive access charges and substantially decreased the
costs that Price Cap ILECs recover through traffic-sensitive access charges. In
the May 16th order, which was recently 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 ILECs increased pricing flexibility upon
demonstrations of increased competition (or potential competition) in relevant
markets. The manner in which the FCC implements this approach to lowering
access charge levels could have a material effect on our ability to compete in
providing interstate access services.
Thirty state commissions have addressed, in the context of arbitration or
enforcement proceedings, the issue of whether the obligation to pay reciprocal
compensation to CLECs should apply to local telephone calls terminating to
ISPs. In every state, the state commission ruled that reciprocal compensation
is owed for such calls. Several of these cases are presently on appeal. Four
federal courts (in Texas, Washington, Oregon and Illinois) have upheld the
state commission decisions on appeal, and no court has reversed such a
decision. On October 22, 1998, the CPUC issued a decision holding that local
telephone calls placed to ISPs terminate at the ISPs' 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. We
cannot predict the outcome of the CPUC proceeding or of future appeals, or of
additional pending cases. 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. ISPs 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.
On February 26, 1999, the FCC issued a Declaratory Ruling on the issue of
inter-carrier compensation for calls bound to ISPs. 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. The FCC noted a
number of factors that would allow the state PUCs to leave their decisions
requiring the payment of reciprocal compensation undisturbed. 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.
On July 22, 1998, the CPUC issued a ruling soliciting comments on the rating
and routing of telephone calls between rate centers. Specifically, the CPUC
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. A decision on these issues is expected by
Spring 1999. We often provide service to our ISP 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
CPUC Decision holding that such calls are not entitled to reciprocal
compensation
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could result in a substantial loss of revenue to us. While the results of this
proceeding are unknown, we expect that we will not be prohibited from providing
service using this method. See "Risk Factors--Interconnection Agreements," "--
Reciprocal Compensation for Internet Access Service" and "--We Depend on ISPs."
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 agreements and the terms of our reciprocal compensation
arrangements with GTE. On November 16, 1998, Pacific Bell filed a Petition for
Arbitration of an interconnection agreement pursuant to Section 252(b) of the
Telecommunications Act (the "Petition"). The Petition proposes that telephone
calls to ISPs be excluded from calls subject to reciprocal compensation. The
Petition also proposes 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 ISPs 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 CPUC
held that calls to ISPs 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--Interconnection Agreements" and "--Reciprocal Compensation
for Internet Access Service."
Recently Bell Atlantic sued a CLEC in Virginia seeking to obtain the refund
of reciprocal compensation payments for calls to ISPs. The CLEC has moved to
dismiss the complaint. We do not know how this litigation will be resolved.
State Regulation
The Telecommunications Act is intended to increase competition in the
telecommunications industry, especially in the local exchange market. With
respect to local services, ILECs are required to allow interconnection to their
networks and to provide unbundled access to network facilities, as well as a
number of other procompetitive measures. Because the implementation of the
Telecommunications Act 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.
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.
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.
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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.
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 ISP customers.
Pacific Bell argued that such calls to ISPs 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 ISPs. We filed a demurrer to the
complaint, seeking a stay of any further action by the court on the basis that
the CPUC has primary jurisdiction over the complaint. The court granted our
demurrer (in part) on October 23, 1997, staying Pacific Bell's action pending
CPUC review of issues in Pacific Bell's complaint.
Regulatory Proceedings--Jurisdiction over and Compensation for ISP Traffic
We derive a substantial portion of our revenue from ILECs in the form of
reciprocal compensation payments. For the years ended December 31, 1997 and
1998, reciprocal compensation payments accounted for approximately 37.4% and
37.1%, 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 ILECs 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 ISPs. These ILECs 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 total reciprocal
compensation withheld by these ILECs and not included in revenue was $3.8
million and $32.6 million for the years ended December 31, 1997 and 1998,
respectively. If such amounts were not withheld, reciprocal compensation would
have accounted for approximately 44.6% and 64.5% of our revenues for the years
ended December 31, 1997 and 1998, respectively. See "Risk Factors--
Interconnection Agreements" and "--Reciprocal Compensation for Internet Access
Service."
On November 21, 1997, we filed a complaint against Pacific Bell requesting
(among other things) that the CPUC order that calls to ISPs 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 outcome of the CPUC 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 CPUC 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 ISPs. If the CPUC
acts contrary to our position, and it is determined that the compensation
associated with past ISP traffic is greater than the amount already withheld,
we could be required to reimburse the ILECs the difference between these two
amounts.
Thirty state commissions have addressed the issue of whether the obligation
to pay reciprocal compensation should apply to local calls to ISPs. Every state
commission to address this issue to date has ruled that compensation is owed
for such calls. Several of these cases are being appealed. So far, four federal
courts (in Texas, Washington, Oregon and Illinois) have upheld state commission
decisions and no court has reversed such a decision.
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On October 22, 1998, the CPUC issued a decision holding that calls placed to
ISPs are local calls and are subject to reciprocal compensation. On November
30, 1998, Pacific Bell and GTE filed Applications for Rehearing. We cannot
predict the outcome of the CPUC 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 CPUC 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 ISPs. If the CPUC
acts contrary to our position and the compensation associated with past ISP
traffic is greater than the amount already withheld, we could be required to
reimburse the ILECs 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 ISPs. The FCC ruled that the
calls are jurisdictionally 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. The FCC noted a number of factors that
would allow the state PUCs to leave their decisions requiring the payment of
reciprocal compensation undisturbed. 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 ISPs. If the
FCC's decision results in action being taken that is contrary to our position,
and it is determined that the compensation associated with past ISP traffic is
greater than the amount already withheld, we could be required to reimburse the
ILECs for the difference between these two amounts.
Regulatory Proceedings--Rating and Routing of Calls
By CPUC 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 CPUC 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 CPUC 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 CPUC 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 CPUC issued
a ruling soliciting comments on the continuing propriety of Pac-West's service
methods. Specifically, the CPUC 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 CPUC holding that such calls
are not entitled to reciprocal compensation could result in a significant loss
of revenue to us.
Regulatory Proceedings--Interconnection Agreements
We are currently in the process of renegotiating our interconnection
agreements which govern the terms of our reciprocal compensation arrangements
with GTE and Pacific Bell. On November 16, 1998, Pacific Bell filed a Petition
for Arbitration of an interconnection agreement pursuant to Section 252(b) of
the Telecommunications Act (the "Petition"). In its Petition, Pacific Bell
requested arbitration on three issues: (1) the jurisdiction of calls placed to
ISPs; (2) reciprocal compensation rates; and (3) term of the agreement.
On November 18, 1998, Pacific Bell filed a complaint against us at the CPUC
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 ISP 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
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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. A CPUC 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.
On October 12, 1998, we filed at the Public Utilities Commission of Nevada
("PUCN") a petition for arbitration of an interconnection agreement with Nevada
Bell pursuant to Section 252(b) of the Telecommunications Act. The issues in
this arbitration are whether reciprocal compensation is payable for calls
placed to ISPs 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 PUCN held that
calls placed to ISPs 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
PUCN'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 CPUC a petition for arbitration of an
interconnection agreement with Citizens pursuant to Section 252(b) of the
Telecommunications Act. The issues in this arbitration are whether reciprocal
compensation is payable for calls placed to ISPs and what compensation
arrangement should apply when calls are exchanged through indirect
interconnection over the facilities of a third party carrier. A CPUC holding
contrary to our position could materially adversely affect our ability to
economically serve customers in Citizens' 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--
Reciprocal Compensation for Internet Access Service."
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 undertaken 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, our Oakland, California lease is extendable for two five-year
periods, our Los Angeles lease is extendable for two five-year periods and our
Las Vegas lease is extendable for two five-year periods.
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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
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 CLEC, 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.
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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 as Vice President and General
Manager of WinStar Telecommunications, overseeing CLEC operations in the San
Francisco Bay Area. Prior to joining WinStar, Mr. Johnson was employed by
Metrocall Paging 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. Prior to joining Pac-West, Mr. Effron served as
President of three corporations, including a $35 million marketing,
installation and service company for business telephone systems, a
communication and entertainment start-up, and 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 with 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 is currently responsible for
our network operations.
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.
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
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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.
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 pursuant to 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."
Executive Compensation
The following table summarizes the compensation we paid to our chief
executive officer and four most highly compensated executive officers for the
fiscal year ended December 31, 1998 (collectively, the "Named Executive
Officers").
1998 Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------------------------------------------
Special Non-Compete
Name and Principal Regular Transaction Convenant Other Annual All Other
Position Held Salary Bonus Bonus Payment Compensation(1) Compensation(2)
------------------ -------- -------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Wallace W. Griffin (3).. $ 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(4)
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>
- --------
(1) 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 each Named Executive Officer.
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<PAGE>
(2) Reflects matching contributions we made under our 401(k) plan on behalf of
such Named Executive Officer.
(3) Mr. Griffin's salary is from September 16, 1998, when he became a Pac-West
employee. Prior to that time, Mr. Griffin received compensation from Pac-
West under a consulting agreement. See "Certain Relationships and Related
Transactions--Consulting Agreement."
(4) Amount also 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.
Stock Incentive Plan
After the Recapitalization, the Executive Committee of the Board of
Directors adopted the Pac-West Telecomm, Inc. 1999 Stock Incentive Plan (the
"1999 Stock Plan"), which authorizes the granting of stock options, restricted
stock, SARS, dividend equivalent rights, performance units, performance shares
or other similar rights or benefits (the "Options") to our or our subsidiaries'
current or future employees, directors, consultants, advisors. Under the 1999
Stock 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 Stock Split, an aggregate of 2,250,000 shares of Common Stock have been
reserved for Option grants under the 1999 Stock 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, and after giving effect to the Stock Split, Options to
purchase 250,000 shares and 156,250 shares, respectively, of Common Stock were
granted to Messrs. Wallace W. Griffin and Richard E. Bryson, respectively,
pursuant to their employment agreements. Such Options will be issued under the
1999 Stock Plan. In addition, in 1999, and after giving effect to the Stock
Split, Options to purchase 335,000 shares were granted under the 1999 Stock
Plan to Messrs. John K. La Rue, Dennis V. Meyer, Jason R. Mills and Jeff M.
Webster. No Options were exercised during 1998.
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.
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
(collectively, the "Employment Agreements"). The Employment Agreements provide
for initial base salaries and bonuses upon our achievement of certain objective
and subjective criteria, as follows:
<TABLE>
<CAPTION>
Employee Base Salary Bonus
-------- ----------- -----
<S> <C> <C>
Wallace W. Griffin...................................... $350,000 40%
John K. La Rue.......................................... $350,000 40%
Richard E. Bryson....................................... $225,000 40%
Dennis V. Meyer......................................... $115,000 25%
Jason R. Mills.......................................... $180,000 25%
</TABLE>
The Employment Agreements also provide for participation in all benefit plans
made available to Pac-West executives.
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<PAGE>
The Employment Agreements became effective as of September 16, 1998 (the
date of the closing of the Recapitalization) in the case of Messrs. Griffin, La
Rue and Mills, October 21, 1998 in the case of Mr. Meyer and October 30, 1998
in the case of Mr. Bryson. The Employment Agreements will remain effective for
three years in the case of Mr. Griffin, two years in the case of Messrs. La
Rue, Bryson and Mills, and one year in the case of Mr. Meyer. 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 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 ("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
thereunder 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 pro rated on the basis of the number of days during such fiscal year
that executive was employed by us. 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 thereunder 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 pro rated 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 any resignation deemed to be 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."
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Recapitalization
The Recapitalization (the "Recapitalization") was completed on September 16,
1998 pursuant to the Merger Agreement (the "Merger Agreement") between us, Bay
Alarm and John K. La Rue (the "Existing Investors") and PWT Acquisition Corp.
("PWT"), 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 of the 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.
Pursuant to 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 was converted into our Convertible Redeemable Preferred Stock (the
"Preferred Stock") and the outstanding common stock of PWT was converted into
Pac-West's common stock (the "Common Stock"); (3) the Existing Stockholders
received an aggregate of $73.6 million in cash, shares of 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 held 22% and
78%, respectively, of our outstanding Common Stock. In connection with the
Recapitalization, and after giving effect to the Stock Split, Mr. La Rue
received approximately $16.2 million in cash, 80,395 shares of Preferred Stock
and 763,800 shares of Common Stock and Bay Alarm received $57.4 million in
cash, 285,038 shares of 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, the Existing Investors will also be entitled to
receive additional consideration (the "Earnout Payment") of up to $20.0 million
in the event we achieve certain EBITDA levels following the Recapitalization.
The amount of such payment will be based upon: (1) our EBITDA for the period
from January 1, 1998 through December 31, 1998 (the "Earnout Period"), which
includes the amount of unpaid reciprocal compensation ("Unpaid Compensation")
from Pacific Bell and GTE for the Earnout Period we receive before December 31,
1999 (if any) and (2) the amount of Unpaid 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 EBITDA for the
fiscal year ending December 31, 1998 (including, without limitation, any Unpaid
Compensation with respect 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 Compensation we receive after December 31, 1999
with respect to the Earnout Period plus (B) the amount of our EBITDA during the
Earnout Period, exceeds $17.0 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 the Existing Investors 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.
Pursuant to the Merger Agreement, the Existing Investors have agreed to
indemnify us and certain of our related parties (the "Indemnified Parties") for
all liabilities and other losses arising from, among other things,
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<PAGE>
(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 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; provided
that the Existing Investors receive notice of such loss within the applicable
time periods set forth in the Merger Agreement. Subject to certain exceptions,
the Existing Investors 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 (the "Deductible"). The Existing Investors 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 the Existing
Investors do not have any obligation to indemnify the Indemnified Parties from
such aggregate losses in excess of $15.0 million (the "Indemnity Cap").
Notwithstanding the foregoing, 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
agreements of like nature, including, without limitation, 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.
Consulting Agreement
On June 30, 1998, we entered into a Consulting Agreement with Wallace W.
Griffin which terminated September 16, 1998. Pursuant to such agreement Mr.
Griffin provided financial and management consulting services to us and
received fees totaling approximately $60,000. In addition, pursuant to 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
pursuant to 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 (the "Blair Holders"), provided that
David G. Chandler initially serves as that representative;
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(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 (the "SCP Holders"), 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 (the "Safeguard Holders"), 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 are currently in the process of amending the Shareholders
Agreement to increase our board of directors to nine members. The two
additional members would 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 (as defined in the
Shareholders Agreement) 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 Class A 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. Pursuant to the Registration Agreement, at any
time prior to the third anniversary of the closing of the Recapitalization,
Safeguard may request we grant to the holders of our common stock the right to
purchase a number of shares of our Common Stock as determined by our board of
directors (the "Rights Offering"). 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 certain demand
registration rights to the Safeguard Holders, the SCP Holders, the holders of a
majority of the Common Stock originally purchased by TL Ventures III, L.P. ("TL
Holders") and the Blair Holders. Each of the Safeguard Holders, the SCP
Holders, the TL Holders and the Blair Holders may request one registration at
our expense under the Securities Act 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 of the Safeguard
Holders, the SCP Holders, the TL Holders or the Blair Holders 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 ("Piggyback
Registrations") and we, subject to limited exceptions, will pay all expenses
related to the Piggyback Registrations.
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Non-Competition; Non-Solicitation; Confidentiality Agreements
In connection with the Recapitalization and pursuant to the terms of the
Merger Agreement, Mr. La Rue and Bay Alarm each have agreed not to compete with
Pac-West ("Non-Compete Covenant"), not to engage, and not to permit any
affiliate to engage, for a period of two years after the closing date of the
Recapitalization (the "Noncompete Period"), directly or indirectly, in any
business which (A) provides telecommunication services of the type provided as
of the closing date by Pac-West or (B) 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 or our shareholders prior to the closing
date, in each case within any of the Restricted Territories (as defined below).
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.
For purposes of these agreements, "Restricted Territories" means 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.
Pursuant to 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,
"Restricted Territories" means 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, "Restricted
Territories" means 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.
Transaction Bonuses
Pursuant to 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.............................................. $ 50,000
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 held approximately 78% of our
outstanding Common Stock. Sales to Bay Alarm accounted for approximately
$245,000, $987,000 and $1,211,000, or 5.8%, 3.3% and 2.9%, of our revenues for
the period from date of commencement (October 1, 1996) to December 31, 1996,
the year ended December 31, 1997 and the year ended December 31, 1998,
respectively. In addition, Bay Alarm provides us with security monitoring
services at its normal commercial rates. Bay Alarm has recently purchased the
real property at which our Oakland switch facility is located. In connection
with that purchase, we have
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negotiated a lease with Bay Alarm 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 accounted for approximately $151,000, $1,122,000
and $1,469,000, or 3.6%, 3.8% and 3.5%, of our revenue for the period from date
of commencement (October 1, 1996) to December 31, 1996, the year ended December
31, 1997 and the year ended December 31, 1998, 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. ("Utility Telephone") is 100% owned by Mr. Jason R.
Mills. We made a one-time purchase of equipment from Utility Telephone in June
1997 in the amount of approximately $350,000.
Pursuant to the terms of the La Rue/Mills Stock Transfer Agreement dated
November 23, 1998, and after giving effect to the 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.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding ownership of
our Common Stock and Preferred Stock as of March 31, 1999, and after giving
effect to the Stock Split, by (1) each person who we know to own beneficially
more than 5% of the outstanding Common Stock or Preferred Stock, (2) each of
our directors and Named Executive Officers and (3) all of our directors and
executive officers as a group.
<TABLE>
<CAPTION>
Shares of
Common Percent of Shares of Percent of
Beneficial Owner Stock Class Preferred 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.. 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)....................... 1,779,900 14.2 190,187 15.2
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Directors and Named Executive
Officers:
David G. Chandler (2)...... 1,995,000 15.9 213,170 17.1
Mark J. DeNino (3)......... 1,779,900 14.2 190,187 15.2
Wallace W. Griffin......... 375,000 3.0 -- --
John K. La Rue (4)......... 254,600 2.0 80,395 6.4
Jason R. Mills (4)......... 127,300 1.0 -- --
Samuel A. Plum (5)......... 1,995,000 15.9 213,170 17.1
Bruce A. Westphal (6)...... 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>
- --------
(1) Includes, after giving effect to the Stock Split: (1) 153,133 shares of
Preferred Stock and 1,433,100 shares of Common Stock held by TL Ventures
III L.P., located at the address shown above; (2) 32,054 shares of
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
(3) 5,000 shares of 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.
(2) All shares of stock shown are owned by William Blair Capital Partners VI,
L.P. Mr. Chandler is a Managing Director of William Blair Capital Partners
VI, L.L.C., which is the sole general partner of
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William Blair Capital Partners VI, L.P. As a result, Mr. Chandler may be
deemed to be a beneficial owner of such shares. Mr. Chandler disclaims
beneficial ownership with respect to all such shares in which he does not
have a pecuniary interest. Mr. Chandler's address is c/o William Blair
Capital Partners, 222 W. Adams Street, Chicago, IL 60606.
(3) All shares of stock shown are owned by TL Ventures III L.P., TL Ventures
III Offshore L.P., or TL Ventures III Interfund L.P. Mr. DeNino is a
Managing Director of each of these investment funds and, as a result, may
be deemed to be a beneficial owner of the shares held by such funds. Mr.
DeNino disclaims beneficial ownership with respect to all such shares in
which he does not have a pecuniary interest. Mr. DeNino's address is c/o TL
Ventures III L.P., 800 The Safeguard Building, 435 Devon Park Drive, Wayne,
PA 19087. See Footnote 1.
(4) Pursuant to the La Rue/Mills Stock Transfer Agreement dated November 23,
1998, and after giving effect to the 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. As of the
date hereof, all necessary consents have been obtained.
(5) All shares of stock shown are owned by SCP Private Equity Partners, L.P.
Mr. Plum is a Managing General Partner of SCP Private Equity Partners, L.P.
and, as a result, may be deemed to be the beneficial owner of the shares
held by such fund. Mr. Plum disclaims beneficial ownership with respect to
all such shares in which he does not have a pecuniary interest. Mr. Plum's
address is c/o SCP Private Equity Partners, L.P., 435 Devon Park Drive,
Building 300, Wayne, PA 19087.
(6) All shares of stock shown are owned by Bay Alarm Company. Mr. Westphal is
the principal stockholder and the Chairman of Bay Alarm Company. As a
result, Mr. Westphal may be deemed to be a beneficial owner of such shares.
Mr. Westphal's address is c/o Bay Alarm Company, 925 Ygnacio Valley Road,
Walnut Creek, CA 94596.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock, after giving effect to the ten for one stock
split ("Stock Split") of the issued and outstanding Common and Preferred Stock
which became effective on March 19, 1999, consist of 1,750,000 shares of
Preferred Stock and 15,000,000 shares of Common Stock. As of April 15, 1999,
our outstanding equity securities consist of 1,250,000 shares of 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 Preferred Stock has a preference 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 (the "Preference Amount"), after giving
effect to the Stock Split. After payment of the Preference Amount, the
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 Preferred
Stock (the "Majority Holders") 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 our debt or equity securities or rights to acquire any
of our debt or equity securities offered to the public ("Public Offering"). In
addition, any holder 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 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 Majority Holders have the right to require us to
redeem the 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
Preferred Stock may require us to redeem our shares of Preferred Stock with the
net proceeds of a Public Offering. Notwithstanding the foregoing, the Majority
Holders also have the right to require us to redeem all or any portion of the
Preferred Stock in the event that: (1) we fail to make any required redemption
payment for the 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 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
pursuant to the General Corporation Law of California for the redemption of the
shares of Preferred Stock and (2) permitted to be used for the redemption of
such shares of Preferred Stock pursuant to any debt financing agreements of
Pac-West, including the Indenture governing the Notes.
Voting Rights. The holders of 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.
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DESCRIPTION OF INDEBTEDNESS
We expect to enter into a new senior credit facility ("New Senior Credit
Facility") to provide 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. We expect the New Senior Credit Facility
to have a three-year term and for our indebtedness under that facility to be
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.
We anticipate that 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 April 9, 1999, the
borrowing rate under this facility would have been 7.75%.
We expect 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. In addition, we
will be required to 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.
We expect the New Senior Credit Facility will require us to meet certain
financial tests, including, without limitation, 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. We also expect
the New Senior 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 Notes), liens
and encumbrances and other matters customarily restricted in such agreements.
We expect the New Senior Credit Facility will contain customary events of
default, including without limitation, 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.
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DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, unless otherwise
noted, the words "Pac-West," "we," "our," "ours" and "us" refer only to Pac-
West Telecomm, Inc. and not to its predecessor or any future subsidiary.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes (which they replace) except that (1) the Exchange Notes bear a
Series B designation and a different CUSIP Number from the Old Notes, (2) the
Exchange Notes have been registered under the Securities Act and, therefore,
will not bear legends restricting the transfer thereof, and (3) the holders of
Exchange Notes will not be entitled to certain rights under the Registration
Rights Agreement, including the provisions providing for an increase in the
interest rate on the Old Notes in certain circumstances relating to the timing
of the Exchange Offer, which rights will terminate when the Exchange Offer is
consummated.
We issued the Notes under an Indenture (the "Indenture") between ourselves
and Norwest Bank Minnesota, N.A., as trustee (the "Trustee"), in a private
transaction that is not subject to the registration requirements of the
Securities Act. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "Trust Indenture Act").
The 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 expect to enter into the New Senior Credit Facility and to
secure our borrowings thereunder 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.
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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, commencing on
August 1, 1999. 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
pursuant to the Pledge Agreement by a pledge of a portfolio of U.S. government
securities (the "Pledged Securities"). Upon the consummation of the Initial
Offering, 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 or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and 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.
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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 Public Equity Offerings; 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 pursuant to 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 (expressed
as percentages of principal amount) 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:
<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 (equal to $1,000 or an integral
multiple thereof) of that Holder's Notes pursuant to the Change of Control
Offer. 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, pursuant to the procedures
required by the Indenture and described in such notice. We will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the Change of Control Payment Date, we will, to the extent lawful:
(1) accept for payment all Notes or portions thereof properly tendered
pursuant to 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.
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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 pursuant to 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
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(4) to acquire other long-term assets
in the case of (2), (3) or (4), in or used or useful in a Permitted Business.
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 pari passu 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 pari passu 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 pari passu Indebtedness tendered into such Asset Sale Offer exceeds
the amount of Excess Proceeds, the Trustee will select the Notes and such other
pari passu Indebtedness to be purchased on a pro rata 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 pro rata 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 original Note will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on
the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
Certain Covenants
Incurrence of Indebtedness and Issuance of Preferred Stock
Pac-West will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise, with
respect to (collectively, "incur") any Indebtedness (including Acquired Debt),
and we will not issue any Disqualified Stock and will not permit any of our
Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that we may 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, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom) as if the
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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 Indebtedness (collectively,
"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 Exchange 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 (including the cost of design,
development, acquisition, construction, installation, improvement,
transportation or integration) to acquire equipment, inventory or
network assets (including acquisitions of the Capital Stock of a Person
that is or becomes a Restricted Subsidiary of Pac-West) 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 pursuant to 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 pursuant to which Pac-West incurs
Acquired Debt in an amount equal to at least 2 times (or, in the
case of the receipt of property, 2.5 times of the fair market
value thereof) the amount of such capital contribution;
(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
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(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;
(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 pursuant to 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 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 our Indebtedness
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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 pursuant to 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, without limitation, 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,
without limitation, 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 pursuant to the Debt to Cash Flow Ratio test set forth
in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of 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 commencing 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
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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 pursuant to clause (6) of
the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock," or to make a
Restricted Payment pursuant to 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 pursuant to clause (6) under the Limitation on
Indebtedness or to make Restricted Payments pursuant to 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 pro rata 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
pursuant to 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;
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(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 pursuant to 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 pursuant to clause (6) under the "Limitation on
Indebtedness" covenant or to make Restricted Payments pursuant to
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 pursuant to 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 pursuant to 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, pursuant to 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, directly or indirectly, 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, directly or indirectly, 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;
(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.
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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 pursuant
to 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, directly or indirectly: (1) consolidate or merge with or
into another Person (whether or not Pac-West is the surviving corporation); or
(2) 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;
(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 pursuant to 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
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period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt to Cash Flow Ratio test set forth in the first
paragraph of the covenant described above under the caption "Incurrence
of Indebtedness and Issuance of Preferred Stock."
In addition, Pac-West may not, directly or indirectly, 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
Affiliate (each, an "Affiliate Transaction"), 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;
(6) transactions pursuant to the Merger Agreement or any agreement executed
prior to the date of the Indenture in connection therewith (including
without limitation 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 pursuant to 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."
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Issuances of Guarantees by Restricted Subsidiaries
Pac-West will not permit any Restricted Subsidiary, directly or indirectly,
to guarantee, assume or in any other manner become liable with respect to any
Indebtedness of Pac-West which is pari passu (other than any Indebtedness
incurred under a Credit Facility) with or subordinate in right of payment to
the Notes ("Guaranteed Indebtedness"), unless:
(1) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a guarantee (a
"Subsidiary 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) pari passu with the Notes, then the
guarantee of such Guaranteed Indebtedness will be pari passu 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.
Notwithstanding the foregoing, 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
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
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"--Incurrence of Additional Indebtedness and Issuance of Preferred
Stock" and (b) incurred a Lien to secure such Indebtedness pursuant to
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, directly
or indirectly, 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.
Reports
Whether or not required by the Securities and Exchange Commission (the
"Commission"), so long as any Notes are outstanding, Pac-West will furnish to
the Holders of Notes, within the time periods specified in the Commission's
rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K
if 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
Commission 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
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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 Commission, Pac-West will file a
copy of all of the information and reports referred to in clauses (1) and (2)
above with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission 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 Old 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 Indebtedness or guarantee
now exists, or is created after the date of the Indenture, if that
default:
(a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has
been so accelerated, aggregates $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;
(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
thereunder; 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
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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 pursuant to 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 Old Notes ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding Old Notes to receive payments in
respect of the principal of, premium, if any, and interest on such
Notes when such payments are due from the trust referred to below;
(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 ("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 (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Notes.
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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 Old 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 Old 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 Old 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;
(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;
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(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.
Notwithstanding the preceding, 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 Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture
Act.
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 Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding Old
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 Exchange Notes issued to "qualified institutional buyers," as defined in
Rule 144A under the Securities Act ("QIBs"), initially will be in the form of
one or more registered global notes without interest coupons (collectively, the
"144A Global Notes"). Upon issuance, the 144A 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 (as defined below). In addition, a registered global note without
coupons (an "IAI Note" and, together with the 144A Global Notes, the "U.S.
Global Notes") 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. The Exchange Notes issued to non-U.S. Persons will
initially be in the form of a separate global note (the "Regulation S Global
Note." Beneficial
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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." All registered global notes are referred to herein
collectively "Global Notes."
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 participating organizations (collectively, the
"Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in the accounts of Direct Participants. The Direct
Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations, including Euroclear and CEDEL. Access to DTC's system is also
available to other entities that clear through or maintain a direct or
indirect, custodial relationship with a Direct Participant (collectively, the
"Indirect Participants"). DTC may hold securities beneficially owned by other
persons only through the Direct Participants or Indirect Participants and such
other persons' ownership interest and transfer of ownership interest will be
recorded only on the records of the Direct Participant and/or Indirect
Participant, and not on the records maintained by DTC.
DTC has also advised Pac-West that, pursuant to DTC's procedures, (1) upon
deposit of the Global Notes, DTC will credit the accounts of the Direct
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes allocated by the Indirect Participants to
such Direct Participants, and (2) DTC will maintain records of the ownership
interests of such Direct Participants in the Global Notes and the transfer of
ownership interests by and between Direct Participants. DTC will not maintain
records of the ownership interests of, or the transfer of ownership interests
by and between, Indirect Participants or other owners of beneficial interests
in the Global Notes. Direct Participants and Indirect Participants must
maintain their own records of the ownership interests of, and the transfer of
ownership interests by and between, Indirect Participants and other owners of
beneficial interests in the Global Notes.
Investors in the U.S. Global Notes may hold their interests therein directly
through DTC if they are Direct Participants in DTC or indirectly through
organizations that are Direct Participants in DTC. Investors in the Regulation
S Global Notes may also hold interests in the Regulation S Global Notes through
organizations that are Direct Participants 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 Participants, which in
turn act on behalf of Indirect Participants 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 Participants 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
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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's or Indirect Participant'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's or Indirect Participant'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 Participants or Indirect
Participants.
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 Participants with such payment
on the payment date in amounts proportionate to such Direct Participant's
respective ownership interests in the Global Notes as shown on DTC's records.
Payments by Direct Participants and Indirect Participants 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 Participants or Indirect Participants 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
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in immediately available funds. Transfers between Indirect
Participants who hold an interest through a Direct Participant will be effected
in accordance with the procedures of such Direct Participant 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 Participants
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
Direct Participant or Direct Participants 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
Participants) for Notes in certificated form, and to distribute such
certificated forms of Notes to its Direct Participants. 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 Participants, 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 Participants 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 (DWAC) 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
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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 ("Certificated Notes") 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 Participants of their
interest in such Global Note, Certificated Notes will be issued to each person
that such Direct and Indirect Participants and DTC identify as being the
beneficial owner of the related Notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by
such Direct Participant (for itself or on behalf of an Indirect Participant),
but only upon at least 20 days' prior written notice given to the 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 Participants (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.
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.
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"Acquired Debt" means, with respect to any specified Person,
(1) 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:
(2) Indebtedness secured by a Lien encumbering any assets acquired by such
Person.
Notwithstanding the preceding, the following Indebtedness will not be deemed
to be Acquired Indebtedness:
(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, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of
the Voting 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, without limitation, 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.
Notwithstanding the preceding, 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;
(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.
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"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, 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
(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 Exchange Act) 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, without limitation, 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, directly or indirectly, of more than 35%
of the Voting Stock of Pac-West, measured by voting power rather than
number of shares;
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(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 pursuant to 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, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, 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, pursuant to 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,
in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the preceding, 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), pursuant to 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
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(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, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to 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.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the difference between
(1) the sum of:
(a) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date; plus
(b) the respective amounts reported on such Person's balance sheet as
of such date with respect to any series of preferred stock (other
than Disqualified Stock) that by its terms is not entitled to the
payment of dividends unless such dividends may be declared and paid
only out of net earnings in respect of the year of such declaration
and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, and
(2) the sum of:
(a) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such
business) subsequent to the date of the Indenture in the book value
of any asset owned by such Person or a consolidated Restricted
Subsidiary of such Person,
(b) all investments as of such date in unconsolidated Restricted
Subsidiaries and in Persons that are not Restricted Subsidiaries
(except, in each case, Permitted Investments), and
(c) all unamortized debt discount and expense and unamortized deferred
charges as of such date, all of the foregoing determined in
accordance with GAAP.
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"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.
"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 (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow
from such lenders against such receivables) 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, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature. Notwithstanding the preceding 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 pursuant to 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 pursuant to 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).
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"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.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(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.
"Indebtedness" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any property,
except any such balance that constitutes an accrued expense or trade
payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
the specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount; and
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If 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
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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 (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, without
limitation, any cash received upon the sale or other disposition of any non-
cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, 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.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Pac-West nor any of its Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder
of any other Indebtedness (other than the Notes) of Pac-West or any of
its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of Pac-West or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"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, without limitation, any
voice, video transmission, data
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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 pursuant to 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
pursuant to 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 pursuant to 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;
(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;
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(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.
"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,
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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.
"Public Equity Offering" means any underwritten public offering of common
stock of Pac-West in which the gross proceeds to Pac-West are at least $20.0
million.
"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
pursuant to the Act, as such Regulation is in effect on the date hereof.
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"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and 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, without limitation, at
the option of the holder thereof (other than pursuant to 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.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of that Person (or a combination
thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Unpaid Reciprocal Compensation" means all amounts owing but not paid to
Pac-West as of December 31, 1998 by Pacific Bell or GTE California pursuant to
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 pursuant to
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
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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.
"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.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) will at
the time be owned by such Person and/or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
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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 hold such Notes as capital
assets ("Holders"). 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 "Code"), the Treasury Department regulations promulgated
thereunder (the "Treasury Regulations"), and administrative and judicial
interpretations thereof, 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 Treasury 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 Treasury 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.
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Sale, Exchange or Retirement of the Notes
Upon the sale, exchange or retirement of the Notes (other than on exchange
of Old Notes for Exchange Notes pursuant to the 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 Exchange Notes pursuant to the Exchange Offer, and a U.S.
Holder's tax basis and holding period in the Exchange 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 Code, and (3) satisfies the requirements of Sections 871(h) or 881(c) of
the Code, 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 pursuant to 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 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
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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 Code 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 (a "Financial Institution") 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 (an "Owner 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 Treasury 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 Treasury
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 Treasury Regulations, these information reporting and backup
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 Treasury Regulations governing the
backup withholding and information reporting requirements. The new regulations
would not generally alter the treatment of a Non-U.S.
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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, 1999. 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.
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PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. Pac-West has
agreed that for a period of one year after the Expiration Date, 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 Exchange Notes by
Participating Broker Dealers. Exchange Notes received by Participating Broker-
Dealers for their own account pursuant to the Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating Broker-Dealer and/or the
purchasers of any such Exchange Notes. Any Participating Broker-Dealer that
resells the Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a Participating Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 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 the Exchange Offer, there has not been any public market for the
Old Notes. The Old Notes have not been registered under the Securities Act and
will be subject to restrictions on transferability to the extent that they are
not exchanged for Exchange Notes by holders who are entitled to participate in
this Exchange Offer. 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) who are not eligible to participate in the Exchange Offer are
entitled to certain registration rights, and we are required to file a Shelf
Registration Statement with respect to such Old Noes. The Exchange Notes will
constitute a new issue of securities with no established trading market. We do
not intend to list the Exchange 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 and the Exchange
Act and may be limited during the 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 Exchange Notes or as to the
liquidity of the trading market for the Exchange Notes. If a trading market
does not develop or is not maintained, holders of the Exchange Notes may
experience difficulty in reselling the Exchange Notes or may be unable to sell
them at all. If a market for the Exchange Notes develops, any such market may
be discontinued at any time.
LEGAL MATTERS
The validity of the Exchange Notes offered in this Prospectus and certain
other legal matters will be passed upon on behalf of Pac-West by
.
120
<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 with respect to the Exchange 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 Exchange 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 the 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.
121
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants.............. F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-5
Statements of Changes in Stockholders' Equity (Deficit).................... F-6
Statements of Cash Flows................................................... F-7
Notes to Financial Statements.............................................. F-8
</TABLE>
F-1
<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-2
<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 tax 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-3
<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-4
<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-5
<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, 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-6
<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-7
<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, the stockholders in CalPage
exchanged a portion of their stock for the Company's common stock. 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 and 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 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.
F-8
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Assumptions used were based in part on headcount and job descriptions,
facility utilization, divisional revenues, and certain other causal
relationships between operating revenues and expenses. Revenues 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. 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.
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.
F-9
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
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
Revenues are generally recognized when service is provided or equipment is
shipped and/or installed. See Note 5 for discussion of the revenue recognition
policy related to certain billings under dispute with two significant ILECs.
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.
F-10
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 and the Predecessor operate in one reporting segment providing
local and long-distance telephone services.
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-11
<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-12
<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-13
<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.
F-14
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
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).
F-15
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 September 2002 and expire
at various dates through September 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 by $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.
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>
F-16
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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
F-17
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 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.
F-18
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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> <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>
F-19
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 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
F-20
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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, 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.
F-21
<PAGE>
PAC-WEST TELECOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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-22
<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 (hereinafter a "proceeding"), 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 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 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 pursuant to 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 Senior 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 Senior
Notes.
*5.1 Opinion of 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 Pac-West Telecomm, Inc. 1999 Stock Incentive Plan.
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.
12.1 Statement regarding computation of ratio.
23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of (included in Exhibit 5.1).
24.1 Powers of Attorney (included in the signature page).
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>
- --------
* To be filed by amendment.
II-3
<PAGE>
(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 Commission 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 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
II-4
<PAGE>
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
Pursuant to the requirements of the Securities Act of 1933, Pac-West
Telecomm, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Stockton,
California, as of April 22, 1999.
PAC-WEST TELECOMM, INC.
/s/ Richard E. Bryson
By: _________________________________
Richard E. Bryson
Authorized Officer
Each person whose signature appears below: (1) appoints Wallace W. Griffin
and Richard E. Bryson, and each of them, as true and lawful attorneys-in-fact
and agents with full power of substitution and resubstitution for him and in
his name, in all capacities, (A) to sign all amendments (including pre-
effective and post-effective amendments) to this Registration Statement (and
any registration statement filed pursuant to Rule 462(b) under the Securities
Act); (B) to file such amendments with all exhibits and other related documents
with the Securities and Exchange Commission; and (C) to perform every act
necessary in connection with (A) or (B); and (2) ratifies and confirms
everything that such attorneys-in-fact and agents, or any of them, or their or
his substitute or substitutes, may lawfully do or cause to be done by virtue of
this appointment.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of April 22, 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
/s/ Jerry L. Johnson Chairman of the Board of Directors
___________________________________________
Jerry L. Johnson
/s/ John K. La Rue Director and Executive Vice President--
___________________________________________ Technology and Network Operations
John K. La Rue
/s/ David G. Chandler Director
___________________________________________
David G. Chandler
/s/ Mark J. DeNino Director
___________________________________________
Mark J. DeNino
/s/ Samuel A. Plum Director
___________________________________________
Samuel A. Plum
/s/ Bruce A. Westphal Director
___________________________________________
Bruce A. Westphal
</TABLE>
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 Page
------- ----------- ----
<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 Senior 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
Senior Notes.
*5.1 Opinion of 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 Pac-West Telecomm, Inc. 1999 Stock Incentive Plan.
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>
<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.
12.1 Statement regarding computation of ratio.
23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of (included in Exhibit 5.1).
24.1 Powers of Attorney (included in the signature page).
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>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 2.1
AGREEMENT OF MERGER
OF
PWT ACQUISITION CORP.
AND
PAC-WEST TELECOMM, INC.
This AGREEMENT OF MERGER entered into on September 16, 1998 by PWT
ACQUISITION CORP. and PAC-WEST TELECOMM, INC. as approved by the Board of
Directors of each of said corporations:
1. PWT ACQUISITION CORP., which is a corporation incorporated in the State of
California, and which is sometimes hereinafter referred to as the "disappearing
corporation," shall be merged with and into PAC-WEST TELECOMM, INC., which is a
corporation incorporated in the State of California, and which is sometimes
hereinafter referred to as the "surviving corporation."
2. The separate existence of the disappearing corporation shall cease upon the
effective date of the merger in accordance with the provisions of the General
Corporation Law of the State of California.
3. The surviving corporation shall continue its existence under its present
name pursuant to the provisions of the General Corporation Law of the State of
California.
4. The Articles of Incorporation of the surviving corporation shall be amended
and restated to read as set forth on Exhibit A attached hereto upon the
effective date of the merger and shall continue in full force and effect until
amended and changed in the manner prescribed by the provisions of the General
Corporation Law of the State of California.
5. The bylaws of the disappearing corporation upon the effective date of the
merger shall be the bylaws of said surviving corporation and shall continue in
full force and effect until changed, altered or amended as therein provided and
in the manner prescribed by the provisions of the General Corporation Law of the
State of California.
6. The members of the Board of Directors of the disappearing corporation upon
the effective date of the merger shall continue to be the members of the Board
of Directors of the surviving corporation, all of whom shall hold their
directorships until the election, choice, and qualification of their respective
successors or until their tenure is otherwise terminated in accordance with the
bylaws of the disappearing corporation.
7. The officers of the surviving corporation upon the effective date of the
merger shall continue to be the officers of the surviving corporation, all of
whom shall hold their office until the election,
<PAGE>
choice, and qualification of their respective successors or until their tenure
is otherwise terminated in accordance with the bylaws of the disappearing
corporation.
8. Each issued and outstanding share of the disappearing corporation's
preferred stock, par value $.01 per share, shall, upon the effective date of the
merger, be converted into one share of the surviving corporation's preferred
stock and each issued and outstanding share of the disappearing corporation's
common stock, par value $.01 per share, shall be converted into one share of the
surviving corporation's common stock. Each issued and outstanding share of the
capital stock of the surviving corporation shall be converted into $7,361.60 of
cash, 3.65433 shares of the surviving corporation's preferred stock, par value
$.01 per share, provided that the aggregate number of shares of preferred stock
so issuable to each holder shall be rounded to the nearest 0.1 of a share, and
34.717 shares of the surviving corporation's common stock, par value $.01 per
share, provided that the aggregate number of shares of common stock so issuable
to each holder shall be rounded to the nearest 10 shares.
9. The Agreement of Merger herein entered into has been approved by the
shareholders entitled to vote thereon of the disappearing corporation and of the
surviving corporation in the manner prescribed by the provisions of the General
Corporation Law of the State of California.
10. The disappearing corporation and the surviving corporation hereby agree
that they will cause to be executed and filed and/or recorded any document or
documents prescribed by the laws of the State of California, and that they will
cause to be performed all necessary acts therein and elsewhere to effectuate the
merger.
11. The corporations party to this Agreement of Merger are also parties to an
Agreement and Plan of Merger. The two agreements are intended to be construed
together in order to effectuate their purposes.
12. The Board of Directors and the proper officers of the disappearing
corporation and of the surviving corporation, respectively, are hereby
authorized, empowered and directed to do any and all acts and things, and to
make, execute, deliver, file, and/or record any and all instruments, papers and
documents which shall be or become necessary, proper or convenient to carry out
or put into effect any of the provisions of this Agreement of Merger or of the
merger herein provided for.
13. The effective date of the merger is the date upon which a copy of this
Agreement of Merger is filed with the Secretary of State of California.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement of Merger
as of the 16th day of September, 1998.
PWT ACQUISITION CORP.
By: /s/ David G. Chandler
--------------------------------------------
David G. Chandler, President
By: /s/ Lawrence I. Shagrin
--------------------------------------------
Lawrence I. Shagrin, Assistant Secretary
PAC-WEST TELECOMM, INC.
By: /s/ John K. La Rue
----------------------
President
By: /s/ Roger L. Westphal
----------------------
Secretary
<PAGE>
EXHIBIT 2.2
EXECUTION COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
by and among
PWT ACQUISITION CORP., a California corporation,
PAC-WEST TELECOMM, INC., a California corporation,
BAY ALARM COMPANY, a California corporation
and
JOHN K. LA RUE
================================================================================
Dated June 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS..................................................... 2
1.1 Definitions.......................................... 2
1.2 Other Definitions.................................... 7
ARTICLE 2
THE MERGER 8
2.1 The Merger........................................... 8
2.2 Effective Time of the Merger......................... 8
2.3 Effect of Merger..................................... 8
2.4 Closing.............................................. 9
ARTICLE 3
THE SURVIVING CORPORATION....................................... 9
3.1 Articles of Incorporation............................ 9
3.2 By-Laws.............................................. 9
3.3 Directors............................................ 9
3.4 Officers............................................. 9
3.5 Capital Stock........................................ 9
ARTICLE 4
CONVERSION OF SHARES............................................ 10
4.1 Conversion of Shares................................. 10
4.2 No Further Transfers................................. 10
4.3 Dissenter's Rights................................... 10
ARTICLE 5
PAYMENT OF PURCHASE PRICE....................................... 10
5.1 Purchase Price Per Share............................. 10
5.2 Surrender of Shares for Payment; Payment
of Transaction Bonuses.............................. 11
5.3 Additional Contingent Purchase Price Payment......... 11
ARTICLE 6
CONDITIONS TO CLOSING........................................... 13
6.1 Conditions to the Company's Obligations.............. 13
6.2 Conditions to Acquisition's Obligation............... 15
ARTICLE 7
COVENANTS PRIOR TO CLOSING...................................... 17
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<PAGE>
7.1 Affirmative Covenants................................ 17
7.2 Negative Covenants................................... 20
7.3 Consent of Acquisition............................... 21
ARTICLE 8
REPRESENTATIONS AND WARRANTIES REGARDING THE
COMPANY......................................................... 21
8.1 Organization, Corporate Power and Licenses........... 22
8.2 Capitalization....................................... 22
8.3 Authorization; No Breach............................. 22
8.4 Subsidiaries......................................... 23
8.5 Financial Statements................................. 23
8.6 Absence of Undisclosed Liabilities................... 24
8.7 No Material Adverse Effect........................... 24
8.8 Absence of Certain Developments...................... 25
8.9 Assets............................................... 26
8.10 Contracts and Commitments............................ 27
8.11 Intellectual Property Rights......................... 29
8.12 Government Licenses and Permits...................... 30
8.13 Litigation; Proceedings.............................. 30
8.14 Compliance with Laws and Regulations................. 31
8.15 Environmental and Safety Requirements................ 31
8.16 Employees............................................ 32
8.17 Employee Benefit Plans............................... 32
8.18 Insurance............................................ 34
8.19 Tax Matters.......................................... 34
8.20 Brokerage; Transaction Bonus......................... 35
8.21 Bank Accounts........................................ 36
8.22 Names and Locations.................................. 36
8.23 Affiliate Transactions............................... 36
8.24 Warranties........................................... 36
8.25 Consents and Approvals............................... 36
8.26 Customers and Suppliers.............................. 37
8.27 Disclosure........................................... 37
8.28 Closing Date......................................... 37
8.29 No Implied Representations or Warranties............. 37
ARTICLE 9
REPRESENTATIONS AND WARRANTIES
OF ACQUISITION.................................................. 38
9.1 Organization and Power............................... 38
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<PAGE>
9.2 Authorization........................................ 38
9.3 No Violation......................................... 38
9.4 Governmental Authorities and Consents................ 38
9.5 Litigation........................................... 39
9.6 Brokerage............................................ 39
9.7 Financing............................................ 39
9.8 Hart-Scott-Rodino Matters............................ 39
9.9 Capitalization....................................... 39
9.10 Closing Date......................................... 39
ARTICLE 10
TERMINATION..................................................... 40
10.1 Termination.......................................... 40
10.2 Effect of Termination................................ 40
10.3 Waiver of Right to Terminate......................... 40
ARTICLE 11
ADDITIONAL AGREEMENTS; COVENANTS AFTER
CLOSING......................................................... 41
11.1 Survival............................................. 41
11.2 Indemnification...................................... 41
11.3 Scope of the Shareholders' Liability................. 45
11.4 Indemnification and Insurance........................ 45
11.5 Mutual Assistance and Records........................ 46
11.6 Non-Competition; Non-Solicitation.................... 46
11.7 Tax Matters.......................................... 49
11.8 Press Release and Announcements...................... 50
11.9 Expenses............................................. 50
11.10 Specific Performance................................. 51
11.11 Arbitration Procedure................................ 51
11.12 Further Transfers.................................... 53
11.13 Transition Assistance................................ 53
11.14 Communications....................................... 53
11.15 Reasonable Best Efforts To Consummate
Closing Transaction.................................. 53
11.16 Confidentiality...................................... 53
11.17 Schedules............................................ 54
11.18 Settlement of Reciprocal Compensation Disputes....... 54
11.19 Additional Sale of Common Stock...................... 54
11.20 Memorandum; Disclaimer of Projections................ 55
ARTICLE 12
SECURITIES...................................................... 55
12.1 Investment Representations of the Shareholders....... 55
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<PAGE>
12.2 Legend............................................... 55
ARTICLE 13
MISCELLANEOUS................................................... 56
13.1 Amendment and Waiver................................. 56
13.2 Notices.............................................. 56
13.3 Assignment........................................... 60
13.4 Severability......................................... 60
13.5 No Strict Construction............................... 60
13.6 Captions............................................. 60
13.7 No Third Party Beneficiaries......................... 60
13.8 Complete Agreement................................... 60
13.9 Counterparts......................................... 61
13.10 Delivery by Facsimile................................ 61
13.11 Governing Law........................................ 61
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<PAGE>
LIST OF DISCLOSURE SCHEDULES
Schedules Section Reference
Licenses Schedule 1.1, 1.1, 8.12
Customers and Suppliers Schedule 1.1, 1.1, 8.26
Permitted Liens Schedule 1.1, 1.1
Transaction Bonuses Schedule 1.1, 5.2, 8.20, 11.2(a)(i)
Shareholders Distribution Schedule 5.2, 5.2
Required Contract Consents Schedule 6.2(c), 6.2(c)
Prepaid Creditors Schedule 7.1(n)
Future Developments Schedule 7.2(a)(i), 7.2(a)(iii)
Company Capitalization Schedule 8.2(a), 8.2(b)
Financial Statements Schedule 8.5(a), 8.5(b)
Disputed Accounts Receivable Schedule 8.5(b), 8.5(b)
Liabilities Schedule 8.6
Developments Schedule 8.7, 8.8(a)
Capital Expenditures Budget Schedule 8.8(a)(viii)
Contracts Schedule 8.8(c), 8.10, 8.10(a), 8.10(b)
Assets Schedule 8.9(a), 8.9(c)
Leased Real Property Schedule 6.2(j)(iv), 6.2(j)(v), 8.8(c), 8.9(b)
Intellectual Property Schedule 8.11(a), 8.11(b), 8.11(c)
Litigation Schedule 8.13
Compliance Schedule 8.14, 8.14(a), 8.14(b)
Environmental Schedule 8.15
Employees Schedule 8.16
Employee Benefits Schedule 8.17(b), 8.17(c), 8.17(d), 8.17(e),
8.17(g), 8.17(h)
Insurance Schedule 8.18
Taxes Schedule 8.19(a), 8.19(c), 8.19(d)
Brokerage Schedule 8.20, 11.2(a)(i), 11.9
Bank Account Schedule 8.21
Names and Locations Schedule 8.22
Affiliated Transactions Schedule 8.23
Warranty Schedule 8.24
Consents Schedule 8.3, 8.25
Acquisition Consents Schedule 9.4
Acquisition Brokerage Schedule 9.6, 11.2(b), 11.9
Surviving Corporation Capitalization
Schedule 9.9, 11.19
Current Activities Schedule 11.6(a)
-v-
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit Section Reference
- ------- -----------------
Exhibit A - Agreement of Merger 1.1, 2.2
Exhibit B - Form of Shareholders Agreement 1.1, 3.3
Exhibit C - Form of Registration Agreement 1.1, 6.1(e)
Exhibit D - Officer's Certificate of Acquisition 6.1(f)(i)
Exhibit E - Officer's Certificate of the Company 6.1(i)
Exhibit F-1 - Form of Opinion of Special Transaction
Counsel to the Company 6.2(m)
Exhibit F-2 - Form of Opinion of Regular Corporate
Counsel to the Company 6.2(m)
Exhibit F-3 - Form of Opinion of Corporate Counsel
to the Company and the Surviving
Corporation 6.2(m)
Exhibit F-4 - Form of Opinion of Regulatory Counsel
to the Company 6.2(m)
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<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of June 30, 1998, by and among PWT Acquisition Corp., a
California corporation ("Acquisition"), Pac-West Telecomm, Inc., a California
corporation (the "Company"), Bay Alarm Company, a California corporation and
John K. La Rue (individually, a "Shareholder" and collectively, the
"Shareholders").
WITNESSETH
WHEREAS, the Shareholders own all of the issued and outstanding shares
of the Company's Common Stock, no par value per share ("Company Common Stock"),
as of the date of this Agreement.
WHEREAS, the boards of directors of Acquisition and the Company deem
advisable and in their best interests the merger of Acquisition with and into
the Company (the "Merger") upon the terms and conditions set forth herein and in
accordance with the provisions of the California General Corporation Law (the
"CGCL"). Acquisition and the Company are sometimes collectively referred to
herein as the "Constituent Corporations" and the Company, following the
effectiveness of the Merger, is sometimes referred to herein as the "Surviving
Corporation."
WHEREAS, Acquisition has been formed for the purpose of engaging in
the Merger and has conducted no business prior hereto.
WHEREAS, immediately after the Effective Time (as defined below),
pursuant to a stock purchase agreement executed contemporaneously with the
closing of this Agreement and as part of a plan of the Shareholders and the
parties to the stock purchase agreement, the parties to such stock purchase
agreement will acquire additional shares of common stock from the Surviving
Corporation.
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties, covenants, agreements and conditions contained
herein, and in order to set forth the terms and conditions of the Merger and the
mode of carrying the same into effect, the parties hereby agree as follows:
<PAGE>
ARTICLE 1
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" of any particular Person shall mean any other Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities or
otherwise; and such "control" will be presumed if the first Person owns 5% or
more of the voting capital stock or other ownership interests, directly or
indirectly, of such other Person.
"Affiliated Group" shall mean an affiliated group as defined in
Section 1504 of the Code (or any analogous combined, consolidated or unitary
group defined under state, local or foreign income Tax law) of which the Company
is or has been a member.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall mean the Surviving Corporation's Common Stock,
par value $.01 per share.
"Company's knowledge" shall mean the actual knowledge or awareness of
each of John K. La Rue, Bruce A. Westphal, Dennis V. Meyer, Jeffrey Webster and
Joel Effron.
"EBITDA" shall mean, for the Surviving Corporation, (i) net income in
conformity with generally accepted accounting principles consistently applied
with the audited financial statements of the Company for the fiscal year ended
December 31, 1997 plus (ii) only to the extent deducted in the determination of
such net income (A) any income taxes, (B) interest expenses and (C) amortization
and depreciation and other similar non-cash items, less (iii) only to the extent
added in the determination of net income, interest income. It is agreed and
understood by the parties hereto that (i) all Unpaid Compensation received by
the Surviving Corporation on or prior to December 31, 1999 from PacBell or GTE
with respect to all Unpaid Compensation due the Company or the Surviving
Corporation for the Earnout Period (as defined in Section 5.3 below) shall be
included in the calculation of EBITDA of the Surviving Corporation during the
Earnout Period, (ii) all Repaid Compensation required to be repaid by the
Surviving Corporation with respect to the Earnout Period shall be included in
the calculation of EBITDA of the Surviving Corporation during the Earnout Period
as a reduction thereof, (iii) all Unpaid Compensation received by, or Repaid
Compensation repaid by, the Company or the Surviving Corporation with respect to
any period other than the Earnout Period shall not be included in the
calculation of EBITDA of the Surviving Corporation during the Earnout Period,
(iv) all Transaction Bonuses (as defined below) paid by the Surviving
Corporation at the Closing pursuant to Section 5.2 below shall not be included
in the calculation of
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<PAGE>
EBITDA of the Surviving Corporation during the Earnout Period, (v) all
Transaction Expenses (as defined in Section 11.9 below) and all other fees,
charges and expenses incurred by the Company or the Surviving Corporation
primarily in connection with the transactions contemplated hereby (including all
fees and expenses of any third-party lending sources) shall not be included in
the calculation of EBITDA of the Surviving Corporation during the Earnout Period
(it being understood that any salary or other compensation (other than
Transaction Bonuses) of any employee or consultant relating to the time and
attention such employee or consultant devoted to the transactions contemplated
hereby shall not be considered a transaction expense), (vi) all Prepayment
Penalties (as defined in Section 11.9 below) shall not be included in the
calculation of EBITDA of the Surviving Corporation during the Earnout Period,
(vii) all management fees, consulting fees, closing fees and similar fees paid
or payable to any shareholder of Acquisition shall not be included in the
calculation of EBITDA of the Surviving Corporation during the Earnout Period and
(viii) all extraordinary gains and extraordinary losses, in each case as
determined in conformity with generally accepted accounting principles, shall
not be included in the calculation of EBITDA of the Surviving Corporation during
the Earnout Period.
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all common law concerning public health and safety,
worker health and safety, and pollution or protection of the environment,
including without limitation all those relating to the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, each as amended prior to the Effective Time.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"GAAP" shall mean United States generally accepted accounting
principles, as in effect from time to time.
"Government Licenses" shall mean all permits, licenses, franchises,
orders, registrations, certificates, variances, approvals and other
authorizations obtained from foreign, federal, state or local governments or
governmental agencies or other similar rights, including, without limitation,
those listed on the attached Licenses Schedule as Governmental Licenses, and all
data and records pertaining thereto, but excluding any such permits or licenses
which are specifically identified on the Licenses Schedule as not transferable.
"Guarantee" shall mean any agreement, undertaking or arrangement by
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon the debt, obligation or other liability of any other Person (other
than by endorsements of instruments in the ordinary
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<PAGE>
course of collection), or guarantees of the payment of dividends or other
distributions upon the shares of any other Person.
"GTE" shall mean GTE California Inc.
"Hart-Scott-Rodino Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Indebtedness" shall mean, with respect to any Person at any date,
without duplication: (i) all obligations of such Person for borrowed money or in
respect of loans or advances, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, including, without
limitation, notes payable to the Shareholders, (iii) all obligations in respect
of letters of credit, whether or not drawn, and bankers' acceptances issued for
the account of such Person, (iv) all obligations arising from cash/book
overdrafts, (v) all obligations arising from deferred compensation arrangements
as reflected on the Company's financial statements (vi) all interest rate
protection agreements of such Person (valued on a market quotation basis), (vii)
all obligations of such Person secured by a contractual lien, (viii) all
Guarantees of such Person in connection with any of the foregoing, (ix) any
accrued interest, prepayment premiums or penalties related to any of the
foregoing, (x) any deferred rent, (xi) all capital lease obligations, (xii) all
dividends payable to the Shareholders and (xiii) any other liabilities
classified as non-current liabilities in accordance with GAAP, as of the Closing
Date.
"Intellectual Property Rights" shall mean all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and information),
(vii) other intellectual property rights and (viii) copies and tangible
embodiments thereof (in whatever form or medium).
"Investment" as applied to any Person shall mean (i) any direct or
indirect purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including limited
liability company interests, partnership interests and joint venture interests)
of any other Person and (ii) any capital contribution by such Person to any
other Person.
-4-
<PAGE>
"Key Customer" shall mean the top ten (10) customers set forth on the
Customers and Suppliers Schedule referred to in Section 8.26 hereof for the
three-months ended December 31, 1997.
"Key Employee" shall mean any of the following individuals: John K. La
Rue, Dennis V. Meyer, Jeffrey Webster, Joel Effron, Jason Mills and Greg Joksch.
"Key Supplier" shall mean the top five (5) suppliers set forth on the
Customers and Suppliers Schedule referred to in Section 8.26 for the fiscal year
ended December 31, 1997.
"Lien" shall mean any mortgage, pledge, hypothecation, lien (statutory
or otherwise), preference, priority, security agreement, easement, covenant,
restriction or other encumbrance of any kind or nature whatsoever (including any
conditional sale or other title retention agreement and any lease having
substantially the same effect as any of the foregoing and any assignment or
deposit arrangement in the nature of a security device).
"PacBell" shall mean Pacific Bell.
"Permitted Liens" shall mean (i) Liens that are set forth on the
Permitted Liens Schedule attached hereto, (ii) Liens for Taxes not delinquent or
the validity of which is being contested in good faith by appropriate
proceedings and as to which adequate reserves have been established on the
Company's financial statements in accordance with GAAP, (iii) statutory
landlord's, mechanic's, carrier's, workmen's, repairmen's or other similar Liens
arising or incurred in the ordinary course of business and (iv) Liens arising
from zoning ordinances.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated association, corporation, limited liability
company, entity or governmental entity (whether federal, state, county, city or
otherwise and including, without limitation, any instrumentality, division,
agency or department thereof).
"Preferred Stock" shall mean the Surviving Corporation's Class A
Preferred Stock, par value $.01 per share.
"Pro Rata Share" shall mean the number of shares of Company Common
Stock held by a Shareholder as of the Effective Time divided by 10,000.
"Repaid Compensation" shall mean all amounts previously received from
PacBell or GTE which are required to be repaid by the Surviving Corporation to
PacBell or GTE relating to the dispute currently pending before the California
Public Utility Commission.
"Subsidiary" shall mean, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (irrespective of whether, at the time, stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the
-5-
<PAGE>
happening of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, limited liability company,
association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled, directly
or indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof.
"Statutory Liens" shall mean clauses (ii), (iii) and (iv) of the
definition of Permitted Liens.
"Tax" shall mean any federal, state, local or foreign income,
withholding, gross receipts, franchise, estimated, alternative minimum, add-on
minimum, sales, use, transfer, real property gains, registration, value added,
excise, natural resources, severance, stamp, occupation, premium, windfall
profit, environmental, customs, duties, real property, personal property,
capital stock, social security, unemployment, disability, payroll, license,
employee or other withholding, or other tax, of any kind whatsoever, including
any interest, penalties or additions to tax or additional amounts in respect of
the foregoing; the foregoing shall include any transferee or secondary liability
for a Tax and any liability assumed by agreement or arising as a result of being
(or ceasing to be) a member of any Affiliated Group (or being included (or
required to be included) in any Tax Return relating thereto).
"Tax Return" shall mean any return, declaration, report, claim for
refund, information return or other document (including any related or
supporting schedule, statement or information) filed or required to be filed in
connection with the determination, assessment or collection of any Tax of any
party or the administration of any laws, regulations or administrative
requirements relating to any Tax.
"Telecommunications Law" shall mean the Communications Act of 1934 as
amended and the rules, regulations, orders, and decisions of the Federal
Communications Commission (the "FCC") issued pursuant thereto, and the laws of
the several states regulating the telephone and other telecommunications
industries and the rules, regulations, orders, and decisions of the state public
utility commissions or similar state regulatory bodies (each a "PUC") issued
pursuant thereto.
"Transaction Bonuses" shall mean those bonuses to be paid at the
Closing to the employees and consultants of the Company set forth on the
Transaction Bonuses Schedule attached hereto as payment for the services
rendered by such employees and consultants to the Company prior to the Closing.
"Unpaid Compensation" shall mean all amounts owed to the Company or
the Surviving Corporation by PacBell or GTE pursuant to the Company's
interconnection arrangements with such parties (whether pursuant to an
interconnection agreement or otherwise) which have not been paid to the Company
or the Surviving Corporation.
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<PAGE>
1.2 Other Definitions. For purposes of this Agreement, the following
terms are defined in the following sections of this Agreement:
1997 Balance Sheet...................................... 85(a)
Acquisition.......................................... Recitals
Acquisition Indemnified Parties.................... 11.2(a)(i)
Agreement............................................ Recitals
Agreement of Merger........................................2.2
Board.................................................. 5.3(c)
Business Sale....................................... 7.2(a)(v)
Cap.............................................. 11.2(a)(iii)
Closing....................................................2.4
Closing Date...............................................2.4
Company Common Stock................................. Recitals
Company.............................................. Recitals
Company Indemnified Parties........................... 11.2(b)
Constituent Corporations............................. Recitals
CGCL................................................. Recitals
Deductible............................................ 11.2(b)
Disputes............................................. 11.11(a)
Disputing Person..................................... 11.11(b)
Dissenting Shares...................................... 4.1(b)
Earnout Payment........................................ 5.3(a)
Earnout Period......................................... 5.3(a)
Effective Time............................................ 2.2
Estimated Share Price.................................. 5.1(b)
Final Determination.................................. 11.11(e)
Final Share Price...................................... 5.1(a)
Governing Instruments................................. 11.4(a)
Indemnification Agreements............................ 11.4(a)
Indemnitee............................................ 11.2(d)
Indemnitor............................................ 11.2(d)
Independent Auditor.................................... 5.3(b)
Latest Balance Sheet................................... 8.5(a)
Leased Realty.......................................... 8.9(b)
Losses............................................. 11.2(a)(i)
Material Adverse Change................................ 6.2(h)
Material Adverse Effect............................ 7.2(a)(ii)
Merger............................................... Recitals
Noncompete Payments.................................... 5.1(c)
Noncompete Period..................................... 11.6(a)
Notice of Arbitration................................ 11.11(b)
Other Plans........................................... 8.17(e)
PBGC.................................................. 8.17(g)
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Pension Plans...................................... 8.17(c)
Plans.............................................. 8.17(g)
Prepaid Creditors................................... 7.1(n)
Prepayment Penalties.................................. 11.9
Profit Sharing Plans............................... 8.17(d)
Realty Leases....................................... 8.9(b)
Registration Agreement.............................. 6.1(e)
Restricted Territories............................. 11.6(b)
Securities............................................ 12.1
Shareholders...................................... Recitals
Shareholders Agreement................................ 3.3
Survival Date.................................. 11.2(a)(ii)
Surviving Corporation............................. Recitals
Transaction Expenses.................................. 11.9
Valuation Opinion................................... 6.1(i)
Welfare Plans...................................... 8.17(b)
ARTICLE 2
THE MERGER
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2.1 The Merger. Subject to the terms and conditions hereof, at the
Effective Time (as defined in Section 2.2 below), Acquisition shall be merged
with and into the Company and the separate existence of Acquisition shall
thereupon cease, and the Company shall be the surviving corporation in the
Merger.
2.2 Effective Time of the Merger. The Merger shall become effective as
of the time and date of the filing of the Agreement of Merger attached hereto as
Exhibit A (the "Agreement of Merger") with the Secretary of State of the State
of California in accordance with the provisions of the CGCL, or at the time
specified in the Agreement of Merger, if later than the time of filing. The
Agreement of Merger shall be filed no later than the Closing Date. The date and
time when the Merger shall become effective is herein referred to as the
"Effective Time."
2.3 Effect of Merger. At the Effective Time, the Constituent
Corporations shall become a single corporation which shall be the Surviving
Corporation. At such time, the separate existence of the Constituent
Corporations shall cease and the Surviving Corporation shall succeed, without
other transfer, to all the rights and property of the Constituent Corporations
and shall be subject to all the debts and liabilities of the Constituent
Corporations and trust obligations upon the property of the Constituent
Corporations in the same manner as if the Surviving Corporation had itself
incurred them. All rights of creditors and all liens and trusts upon or arising
from the property of each of the Constituent Corporations shall be preserved
unimpaired, provided that such liens and trust obligations upon property of the
Constituent Corporations shall be limited to the property affected thereby
immediately prior to the time the merger is effective. Any action or proceeding
pending by or against the Constituent Corporations may be prosecuted to
judgment, which shall bind
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the Surviving Corporation, or the Surviving Corporation may be proceeded against
or substituted in their place.
2.4 Closing. The parties hereto mutually agree to use their reasonable
best efforts to cause all conditions to each party's obligations hereunder (as
set forth in Article 6 hereof) to be satisfied and to cause the closing of the
transactions contemplated hereby (the "Closing") to occur as soon as reasonably
practicable after the date hereof. Subject to the conditions contained in this
Agreement, the Closing will occur at the offices of counsel to the Surviving
Corporation's senior lenders, at 10:00 a.m. on a business day within five
business days following the date as of which the conditions to each party's
obligations (as set forth in Article 6 hereof) have been satisfied or at such
other time and on such other date as the parties hereto mutually agree (the
"Closing Date"), but not later than December 31, 1998 unless otherwise agreed to
by the parties hereto.
ARTICLE 3
THE SURVIVING CORPORATION
-------------------------
3.1 Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation shall be amended and restated as set forth in the
Agreement of Merger, and shall be the Articles of Incorporation of Acquisition
as in effect at the Effective Time.
3.2 By-Laws. The by-laws of Acquisition, as in effect at the Effective
Time, shall be the by-laws of the Surviving Corporation immediately after the
consummation of the Merger.
3.3 Directors. The directors of Acquisition, as in effect at the
Effective Time, shall be the initial directors of the Surviving Corporation
immediately after the consummation of the Merger; provided that a representative
designated by each of the Shareholders shall be elected to the board of
directors of the Surviving Corporation immediately thereafter in compliance with
the terms of the Shareholders Agreement attached hereto as Exhibit B (the
"Shareholders Agreement").
3.4 Officers. The officers of the Company, as in effect at the
Effective Time, shall be the officers of the Surviving Corporation immediately
after the consummation of the Merger.
3.5 Capital Stock. The Surviving Corporation's authorized capital
stock shall consist of 175,000 shares of Preferred Stock and 1,500,000 shares of
Common Stock.
ARTICLE 4
CONVERSION OF SHARES
--------------------
4.1 Conversion of Shares. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder:
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(a) Each issued and outstanding share of Acquisition's preferred
stock, par value $.01 per share, shall be converted into one share of Preferred
Stock and each issued and outstanding share of Acquisition's common stock, par
value $.01 per share, shall be converted into one share of Common Stock.
(b) Each issued and outstanding share of Company Common Stock (other
than shares pursuant to which dissenter's rights have been exercised in
accordance with the CGCL ("Dissenting Shares"), if any), excluding any such
shares held in the treasury of the Company, shall be converted into the right to
receive an amount equal to the Final Share Price (as defined below). Upon
surrender of any shares of Common Stock, such shares shall forthwith be
canceled.
(c) Each share of Company Common Stock which is held in the Company's
treasury shall be canceled, and no payment shall be made in respect thereof.
4.2 No Further Transfers. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Company Common Stock
shall thereafter be made.
4.3 Dissenter's Rights. The Shareholders hereby waive all dissenter's
rights under the CGCL.
ARTICLE 5
PAYMENT OF PURCHASE PRICE
5.1 Purchase Price Per Share.
(a) The "Final Share Price" shall be the quotient determined by
dividing (i) an amount equal to (A) $77,541,000 in cash, plus the amount of any
Earnout Payment (as defined below), minus the amount of Transaction Bonuses and
the Noncompete Payments, plus (B) the issuance of 36,553.70 shares of Preferred
Stock, plus (C) the issuance of 347,260 shares of Common Stock, by (ii) 10,000.
(b) The "Estimated Share Price" shall be the quotient determined by
dividing (i) an amount equal to (A) $77,541,000 in cash, minus the amount of
Transaction Bonuses and the Noncompete Payments, plus (B) the issuance of
36,553.70 shares of Preferred Stock, plus (C) the issuance of 347,260 shares of
Common Stock, by (ii) 10,000.
(c) The "Noncompete Payments" shall be equal to (i) $300,000 in the
case of John La Rue and (ii) 100,000 in the case of Bay Alarm Company.
5.2 Surrender of Shares for Payment; Payment of Transaction Bonuses.
At the Closing (as defined in Section 2.4 hereof), each holder of shares of
Company Common Stock (other than holders of Dissenting Shares, if any) shall
receive payment by the Surviving Corporation of an amount, in cash, Preferred
Stock and Common Stock equal to the product of (i) the Estimated Share
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Price times (ii) the number of shares of Company Common Stock held by such
holder as of the Effective Time and as set forth on the attached Shareholders
Distribution Schedule upon delivery to the Surviving Corporation of such
holder's shares of Company Common Stock. Payment at the Closing for the Company
Common Stock shall be made by: (i) wire transfer of immediately available funds
to an account specified by each holder of Company Common Stock at least two days
prior to the Closing, (ii) delivery of the Preferred Stock, and (iii) delivery
of the Common Stock. At the Closing the Surviving Corporation shall pay a
Transaction Bonus of $1,625,000 to John La Rue as set forth on the Transaction
Bonuses Schedule attached hereto by wire transfer to an account designated by
John La Rue and at the Closing or promptly thereafter, the Surviving Corporation
shall pay an aggregate of $1,520,000 of the other Transaction Bonuses to each of
the other individuals set forth on the Transaction Bonuses Schedule attached
hereto by check payable to the order of such individual and shall pay the
remainder by wire transfer into an escrow account to be dispersed to such
individuals in accordance with the Shareholders' instructions; provided that the
amount of any such Transaction Bonuses paid by the Surviving Corporation
hereunder shall be subject to the withholding of such amounts as is required by
applicable law. At the Closing, the Surviving Corporation shall pay the amount
of the respective Noncompete Payments to each of the Shareholders by wire
transfer to an account designated by each such Shareholder; provided that the
amount of any such Noncompete Payments paid by the Surviving Corporation
hereunder shall be subject to the withholding of such amounts as is required by
applicable law.
5.3 Additional Contingent Purchase Price Payment.
(a) The Surviving Corporation shall pay the Shareholders as an
additional portion of the Final Share Price for the Company Common Stock an
amount (the "Earnout Payment") (i) based upon the EBITDA of the Surviving
Corporation for the period from January 1, 1998 through December 31, 1998 (the
"Earnout Period") and (ii) based upon the amount of Unpaid Compensation for the
Earnout Period received by the Surviving Corporation after December 31, 1999 (if
any). The Earnout Payment shall be calculated (i) at the time the final audited
financial statements of the Surviving Corporation are delivered for the fiscal
year ending December 31, 1998 and (ii) at any time thereafter when any Unpaid
Compensation is paid to the Surviving Corporation with respect to the Earnout
Period or at any time thereafter when the Surviving Corporation is required to
repay any Repaid Compensation with respect to the Earnout Period; provided that
any Earnout Payment shall take into account any prior Earnout Payment made
hereunder. The Earnout Payment shall be equal to (i) $2.50 for every $1.00 that
the Surviving Corporation's EBITDA for the fiscal year ending December 31, 1998
(including, without limitation, any Unpaid Compensation with respect to the
Earnout Period received on or prior to December 31, 1999 as provided in the
definition of EBITDA) exceeds $17,000,000, plus (ii) the amount by which the sum
of (A) the amount of any Unpaid Compensation received after December 31, 1999 by
the Surviving Corporation with respect to the Earnout Period plus (B) the amount
of the Surviving Corporation's EBITDA during the Earnout Period, exceeds
$17,000,000; provided that in no event will the amount of the Earnout Payment
exceed $20,000,000. To the extent the Surviving Corporation is required to repay
any Repaid Compensation with respect to the Earnout Period and any Earnout
Payment has previously been made to the Shareholders hereunder, each of the
Shareholders hereby agrees to pay to the
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Surviving Corporation the amount of any Earnout Payment received by such
Shareholder in excess of the amount such Shareholder is entitled to receive
pursuant hereto after taking into account such repayment of the Repaid
Compensation.
(b) The Earnout Payment will be determined in good faith by the
Surviving Corporation within 15 days after the delivery of the financial
statements for the Earnout Period and thereafter will be determined again by the
Surviving Corporation within 15 days after the date any Unpaid Compensation with
respect to the Earnout Period is received by the Surviving Corporation or any
Repaid Compensation with respect to the Earnout Period is paid by the Surviving
Corporation. Within 15 days after the Surviving Corporation's delivery to the
Shareholders of written notice of such determination of any Earnout Payment, the
Shareholders will deliver a detailed statement describing their objections (if
any) made in good faith to the Surviving Corporation's determination of such
Earnout Payment. The Surviving Corporation will allow the Shareholders, their
attorneys, accountants and representatives and the Independent Auditor (as
defined below) reasonable access to its books, records and personnel in order to
determine EBITDA for the Earnout Period and the amount of the Earnout Payment.
The Surviving Corporation and the Shareholders will use reasonable efforts to
resolve any disputes regarding the determination of any Earnout Payment, but if
a final resolution is not obtained within 30 days after the Shareholders have
submitted their objections, any remaining disputes will be resolved by Deloitte
& Touche LLP (the "Independent Auditor"). The determination of any Earnout
Payment by the Independent Auditor will be conclusive and binding upon the
parties. The Independent Auditor will determine the allocation of its costs and
expenses in determining the Earnout Payment based upon the percentage which the
portion of the contested amount not awarded to each party bears to the amount
actually contested by such party. For example, if the Shareholders in good faith
claim the Earnout Payment is $1,000 more than the amount determined by the
Surviving Corporation, and after the 30-day resolution period described above,
only $500 of the amount claimed by the Shareholders remains in dispute, and if
the Independent Auditor ultimately resolves the dispute by awarding the
Shareholders $300 of the $500 contested, then the costs and expenses of
arbitration will be allocated 60% (i.e., 300 / 500) to the Surviving Corporation
and 40% (i.e., 200 / 500) to the Shareholders according to their Pro Rata Share.
(c) The board of directors of the Surviving Corporation (the "Board")
and the Shareholders agree to discuss in good faith appropriate revisions, if
any, to this Section 5.3 as a result of any material acquisition, divestiture or
other material transaction outside of the ordinary course of business during the
Earnout Period. Notwithstanding anything herein to the contrary, the Surviving
Corporation shall not take any action or fail to take action which has as its
primary purpose the diminution of the Earnout Payment. Notwithstanding the
potential effect of the Board's powers and rights on the Surviving Corporation's
EBITDA during the Earnout Period, the Shareholders agree that the Board may
operate the Surviving Corporation as it deems in the best overall interests of
the shareholders of the Surviving Corporation and the Surviving Corporation as a
whole taking into account their respective conditions and prospects from time to
time, and that, in the absence of fraud or gross negligence on the part of the
Board or a breach of the immediately preceding sentence, the Shareholders shall
have no right to contest the exercise of such powers and rights or the effect
thereof on the Surviving Corporation's EBITDA for the Earnout Period.
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(d) Any Earnout Payment payable hereunder shall be paid to the
Shareholders according to their Pro Rata Share of such Earnout Payment by wire
transfer of immediately available funds to an account designated by the
Shareholders to the Surviving Corporation within five days after any final
determination of an Earnout Payment hereunder. The parties hereto acknowledge
and agree that the Earnout Payment shall constitute an additional portion of the
Final Share Price.
ARTICLE 6
CONDITIONS TO CLOSING
6.1 Conditions to the Company's Obligations. Except as otherwise
expressly provided herein, the obligation of the Shareholders and the Company to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions on or before the Closing Date:
(a) the representations and warranties set forth in Article 9 hereof
will be true and correct in all material respects at and as of the Closing as
though then made and as though the Closing Date were substituted for the date of
this Agreement (without taking into account any disclosures made by Acquisition
pursuant to Section 9.10 hereof);
(b) Acquisition will have performed in all material respects all the
covenants and agreements required to be performed by it under this Agreement on
or prior to the Closing;
(c) no action or proceeding before any court or government body will
be pending or threatened which, in the reasonable judgment of the Company, makes
it inadvisable or undesirable to consummate the transactions contemplated by
this Agreement by reason of the probability that the action or proceeding will
result in a judgment, decree or order that would prevent the carrying out of
this Agreement or any of the transactions contemplated hereby, declare unlawful
the transactions contemplated hereby or cause such transactions to be rescinded;
(d) Each of the shareholders of Acquisition will have executed and
delivered the Shareholders Agreement;
(e) Each of the shareholders of Acquisition will have executed and
delivered a registration agreement substantially in the form of Exhibit C
attached hereto (the "Registration Agreement");
(f) on the Closing Date, Acquisition will have delivered to the
Company each of the following:
(i) a certificate from an officer of Acquisition, in the form of
Exhibit D attached hereto, dated the Closing Date, stating that the
applicable preconditions specified in subsections (a), (b) and (d) through
(e) hereof, inclusive, have been satisfied;
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(ii) certified copies of the resolutions duly adopted by
Acquisition's board of directors and shareholders authorizing the
execution, delivery and performance of this Agreement and the other
agreements contemplated hereby, and the consummation of all transactions
contemplated hereby and thereby;
(iii) copies of all necessary governmental and/or regulatory
approvals required in order for Acquisition to effect the transactions
contemplated by this Agreement and the other agreements contemplated
hereby; and
(iv) such other documents or instruments as the Company or the
Shareholders reasonably request to effect the transactions contemplated
hereby.
(g) the authorization of each of the FCC, the California Public
Utilities Commission and the Nevada Public Utility Commission to the
consummation of the transactions contemplated hereby shall have been obtained;
(h) Acquisition will have filed the Agreement of Merger in accordance
with the CGCL; and
(i) the Company will have received an opinion from Houlihan Lokey
Howard & Zukin or such other recognized financial advisor reasonably
satisfactory to Acquisition and the Shareholders to the effect that, immediately
following the Closing and after giving effect to the transactions contemplated
hereby, the Surviving Corporation shall be solvent and the fair value of the
Surviving Corporation's assets shall be greater than the fair value of the
Surviving Corporation's liabilities (the "Valuation Opinion").
All proceedings to be taken by Acquisition in connection with the consummation
of the Closing and the other transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to effect the
transactions contemplated hereby reasonably requested by the Company will be
reasonably satisfactory in form and substance to the Company and its counsel.
Any condition specified in this Section 6.1 may be waived by the Company;
provided that no such waiver will be effective unless it is set forth in a
writing executed by the Company.
6.2 Conditions to Acquisition's Obligation. Except as otherwise
expressly provided herein, the obligation of Acquisition to consummate the
transactions contemplated by this Agreement is subject to the satisfaction of
the following conditions on or before the Closing Date:
(a) the representations and warranties set forth in Article 8 hereof
will be true and correct in all material respects at and as of the Closing as
though then made and as though the Closing Date were substituted for the date of
this Agreement (without taking into account any disclosures made by the Company
pursuant to Section 8.28 hereof);
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(b) the Company and the Shareholders will have performed in all
material respects all of the covenants and agreements required to be performed
by them under this Agreement on or prior to the Closing;
(c) the Company will have obtained (i) all consents and approvals by
governmental agencies that are required for the consummation of the transactions
contemplated hereby or the other agreements contemplated hereby (including the
authorization of each of the FCC, the California Public Utilities Commission and
the Nevada Public Utility Commission to the transactions contemplated hereby)
and (ii) all consents and approvals by third parties that are required in order
to prevent a breach of, or a default under or a termination, change in the terms
or conditions or modification of, any instrument, contract, lease, license or
other agreement to which the Company is a party listed on the Required Contract
Consents Schedule attached hereto, each on terms and conditions reasonably
satisfactory to Acquisition;
(d) all Government Licenses that are required to be transferred or
obtained by the Surviving Corporation as a result of the change of ownership of
the Company contemplated hereby and that are required to own and operate the
Surviving Corporation and to carry on the business as now conducted will have
been transferred to or obtained by the Surviving Corporation on terms and
conditions, in the reasonable judgment of Acquisition, no less favorable to the
Surviving Corporation than they are to the Company;
(e) no action or proceeding before any court or government body will
be pending or threatened which, in the reasonable judgment of Acquisition, makes
it inadvisable or undesirable to consummate the transactions contemplated by
this Agreement by reason of the probability that the action or proceeding will
result in a judgment, decree or order that would prevent the carrying out of
this Agreement or any of the transactions contemplated hereby, declare unlawful
the transactions contemplated hereby or cause such transactions to be rescinded;
(f) the Shareholders will have executed and delivered the Shareholders
Agreement;
(g) the Shareholders will have executed and delivered the Registration
Agreement;
(h) absence of any material adverse change in the Company's business
(including, without limitation, after giving appropriate consideration to the
impact of the loss of any Key Customer, Key Employee or Key Supplier), assets,
financial condition, operating results, cash flow or net worth (a "Material
Adverse Change");
(i) the Company shall have obtained payoff letters with respect to all
Indebtedness in form and substance reasonably satisfactory to Acquisition and
releases of all Liens relating to any asset (other than Statutory Liens);
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(j) on the Closing Date, the Company will have delivered to
Acquisition each of the following:
(i) a certificate from an officer of the Company, in the form of
Exhibit E attached hereto, dated the Closing Date, stating that the
applicable preconditions specified in subsections (a) through (i) hereof,
inclusive, have been satisfied;
(ii) certified copies of the resolutions duly adopted by the
Company's board of directors and shareholders authorizing the execution,
delivery and performance of this Agreement and the other agreements
contemplated hereby, and the consummation of all transactions contemplated
hereby and thereby;
(iii) copies of all necessary governmental and/or regulatory
approvals and third party consents, approvals, releases and filings
required in order for the Company to effect the transactions contemplated
by this Agreement and the other agreements contemplated hereby;
(iv) with respect to each of the real property leases listed on
the Leased Real Property Schedule attached hereto, (A) an estoppel letter
from the landlords of those properties indicated on the Leased Real
Property Schedule, in form and content satisfactory to Acquisition and
containing such matters as Acquisition may reasonably request and (B) such
title insurance commitments, policies and riders and current surveys of
such real property as Acquisition is required to deliver to the financing
sources in connection with the financing of the transactions contemplated
hereby;
(v) the Company shall have obtained a non-disturbance agreement
in form and substance satisfactory to Acquisition from each lender
encumbering the leasehold estates for those parcels of leased property
indicated on the Leased Real Property Schedule;
(vi) certified copies, of a recent date prior to the Closing
Date, of the articles of incorporation and by-laws, together with all
amendments thereto, and foreign qualifications of the Company and
appropriate certificates or telegrams, of a recent date prior to the
Closing Date, of the secretary of state of the state under the laws of
which the Company is organized and each state in which the Company is
required to be qualified to do business as to the continued good standing
of the Company;
(vii) such other documents or instruments as Acquisition
reasonably requests to effect the transactions contemplated hereby;
(k) the Company will have filed the Agreement of Merger in accordance
with the CGCL;
(l) the Company will have received the Valuation Opinion; and
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(m) Acquisition will have received (i) from Orrick, Herrington &
Sutcliffe, LLP, counsel for the Company, an opinion with respect to the matters
set forth in Exhibit F-1 attached hereto, (ii) from Neumiller & Beardslee,
regular corporate counsel for the Company, an opinion with respect to the
matters set forth in Exhibit F-2 attached hereto, (iii) from Cooley Godward LLP,
corporate counsel for the Company and the Surviving Corporation, an opinion with
respect to the matters set forth in Exhibit F-3 attached hereto, and (iv) from
Goodin, MacBride, Squeri, Schlotz & Ritchie, LLP, regulatory counsel for the
Company, an opinion with respect to the matters set forth in Exhibit F-4
attached hereto, addressed to Acquisition and any third party lending
institution designated by Acquisition and dated the Closing Date, in form and
substance reasonably satisfactory to Acquisition.
All proceedings to be taken by the Company in connection with the consummation
of the Closing and the other transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to effect the
transactions contemplated hereby reasonably requested by Acquisition will be
reasonably satisfactory in form and substance to Acquisition and its counsel.
Any condition specified in this Section 6.2 may be waived by Acquisition;
provided, that no such waiver will be effective unless it is set forth in a
writing executed by Acquisition.
ARTICLE 7
COVENANTS PRIOR TO CLOSING
7.1 Affirmative Covenants. Between the date hereof and the Closing
Date, except as otherwise expressly provided herein or as expressly authorized
by Acquisition, the parties agree that:
(a) the Company will conduct its business, including without
limitation, its cash management customs and practices (including the collection
of receivables, payment of payables and incurrence of capital expenditures) only
in the usual and ordinary course of business in accordance with past custom and
practice;
(b) the Company will carry on its business in the same manner as
presently conducted and use reasonable best efforts to keep its organization and
properties intact, including its present business operations, physical
facilities, working conditions and employees and its present relationships with
lessors, licensors, suppliers and customers and others having business relations
with it;
(c) the Company will permit Acquisition and its employees, agents,
potential lenders, environmental consultants and accounting and legal
representatives to have reasonable access, upon reasonable notice, to its books,
records, invoices, contracts, leases, key personnel, independent accountants,
legal counsel, property, facilities, equipment and other things reasonably
related to its business, including Key Customers selected by Acquisition for
such purposes;
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(d) the Company will use reasonable best efforts to maintain its
physical facilities and equipment in good operating condition and repair,
ordinary wear and tear excepted, and in a manner consistent with past practices,
incur capital expenditures in a manner consistent with past practices, maintain
insurance reasonably comparable to that in effect on the date hereof, maintain
inventory, supplies and spare parts at customary operating levels consistent
with past practices, replace in accordance with past practice any inoperable,
worn out or obsolete assets with assets of comparable quality and, in the event
of a casualty, loss or damage to any of the assets prior to the Closing Date for
which the Company is insured, either repair or replace such assets;
(e) the Company will maintain its books, accounts (including working
capital) and records in accordance with past custom and practice as used in the
preparation of the 1997 Balance Sheet (as defined below) and the Latest Balance
Sheet (as defined below);
(f) the Company will maintain the existence of all Intellectual
Property Rights in a manner consistent with past practices;
(g) the Company will encourage, and not act to dissuade or discourage,
employees to continue their employment with the Company and its Subsidiaries
after the Closing;
(h) the Company will keep in full force and effect its corporate
existence and all Government Licenses relating to or pertaining to its business
and use best efforts to obtain all consents, permits, licenses, approvals and
other authorizations necessary to consummate the transactions contemplated
hereby, and to cause the other conditions to Acquisition's obligation to close
to be satisfied;
(i) the Company will promptly inform Acquisition in writing of any
variances from the representations and warranties contained in Article 8 hereof
or any breach of any covenant hereunder by the Company;
(j) the Company, the Shareholders and Acquisition will file any forms
and related material that they may be required to file with the FCC, the
California Public Utility Commission and the Nevada Public Utility Commission,
to the extent practicable, no later than ten business days after the date
hereof, and use their reasonable best efforts to obtain the authorization of the
FCC, the California Public Utility Commission and the Nevada Public Utility
Commission to the transactions contemplated hereby as expeditiously as
practicable, and will make any further filings pursuant thereto that may be
necessary in connection therewith;
(k) the Company shall notify Acquisition of any litigation,
arbitration, or administrative proceeding pending or, to the Company's
knowledge, threatened against the Company or the Shareholders which challenges
the transactions contemplated hereby, including, without limitation, any
challenges to any governmental authorization, and the Company shall use its
reasonable best efforts to take such steps as may be necessary to remove any
such impediment to the transactions contemplated by this Agreement;
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(l) Acquisition shall notify the Company of any litigation,
arbitration or administrative proceeding pending or, to Acquisition's knowledge,
threatened against Acquisition or its shareholders which challenges the
transactions contemplated hereby, including, without limitation, any challenges
to any governmental authorization, and Acquisition shall use its reasonable best
efforts to take such steps as may be necessary to remove any such impediment to
the transactions contemplated by this Agreement;
(m) the Company, the Shareholders and Acquisition shall use their
respective reasonable best efforts to obtain the Valuation Opinion;
(n) the Company shall pay and discharge in full all trade payables and
other amounts due as of the Closing to the Persons listed on the Prepaid
Creditors Schedule attached hereto (the "Prepaid Creditors"); provided that any
payment to any Prepaid Creditor (including all Prepayment Penalties and similar
amounts) shall not exceed the amount estimated with respect to such Prepaid
Creditor on the Prepaid Creditors Schedule by greater than 10% without the
consent of Acquisition; and provided further that the Prepaid Creditor Schedule
shall not be amended or modified prior to the Closing without the consent of
Acquisition;
(o) the Company shall obtain a waiver relating to the transaction
contemplated hereby in form and substance reasonably satisfactory to the
Shareholders and Acquisition from each creditor of the Company for which such
waiver is reasonably requested by the Shareholders and approved by Acquisition
(such approval not to be unreasonably withheld);
(p) the Company shall allow a representative of Acquisition to attend
and to participate in all significant discussions and negotiations between the
Company and PacBell or GTE relating to the dispute presently pending before the
California PUC or relating to the interconnection arrangements between the
Company and such parties; and
(q) the Company (upon the satisfaction of its conditions to Closing)
and Acquisition (upon the satisfaction of its conditions to Closing) shall cause
the Agreement of Merger to be filed in accordance with the CGCL, and shall take
any and all other lawful actions, and do any and all lawful other things
necessary to effect the Merger and to enable the Merger to become effective.
7.2 Negative Covenants.
(a) Between the date hereof and the Closing Date, except as otherwise
provided herein or as expressly authorized by Acquisition, the Company will not:
(i) except as disclosed on the attached Future Developments
Schedule or permitted under Section 7.2(a)(iii) below, take any action that
would require disclosure under Section 8.8 hereof; provided that the Future
Developments Schedule shall not be amended or modified prior to Closing
without the consent of Acquisition;
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(ii) take any action that or omit to take any action the omission
of which, would reasonably be anticipated to result in a Material Adverse
Change (a "Material Adverse Effect");
(iii) without the prior written approval of Acquisition, (A)
enter into any contract (1) out of the ordinary course of business, or (2)
restricting in any way the conduct of its business, (B) make any loans, (C)
increase any officer's compensation, incentive arrangements or other
benefits or increase any non-executive employee's compensation, incentive
arrangements or other benefits except as disclosed on the Future
Developments Schedule, (D) pay any dividends, redeem, purchase or otherwise
acquire directly or indirectly the Company's issued and outstanding capital
stock, or any outstanding rights or securities exercisable or exchangeable
for or convertible into capital stock of the Company, (E) amend its charter
or by-laws or issue or agree to issue any capital stock or any rights to
acquire, or securities convertible into or exchangeable for, any of its
capital stock, (F) directly or indirectly engage in any transaction,
arrangement or contract with any officer, director, partner, shareholder or
other insider or Affiliate of the Company which is not at arm's length, (G)
execute any Guarantee, issue any debt or borrow any money, except from
suppliers or under existing credit facilities in the ordinary course of
business, or buy or sell any assets out of the ordinary course of business,
(H) settle or compromise any litigation, claim, administrative or
regulatory proceeding or (I) except as set forth elsewhere herein, enter
into any other transaction which is material to the Company taken as a
whole; or
(iv) enter into any transaction, arrangement or contract
(including, without limitation, any transfer of any material portion of the
Company's assets or placing a Lien on any material portion of the Company's
assets) except on an arm's length basis in the ordinary course of business
consistent with past custom and practice; or
(v) until consummation of the transactions contemplated hereby or
termination of this Agreement pursuant to Section 10.1 hereof, neither the
Company, the Shareholders nor any of their Affiliates or representatives
or, as applicable, their respective officers, employees, directors, or
agents will, directly or indirectly, (A) submit, solicit, initiate,
encourage or discuss any proposal or offer from any Person or enter into
any agreement or accept any offer relating to any (1) reorganization,
liquidation, dissolution or recapitalization of the Company or any
Subsidiary, (2) additional borrowings or increased indebtedness of the
Company or any Subsidiary, other than to generate working capital in the
ordinary course of business, under currently existing credit facilities,
(3) merger or consolidation involving the Company or any Subsidiary, (4)
purchase or sale of any material assets or capital stock other than as set
forth in the Company's capital expenditure budget previously delivered to
Acquisition, or (5) similar transaction or business combination involving
the Company or any Subsidiary, or their assets (the foregoing items (1)
through (5) collectively referred to herein as a "Business Sale"), or (B)
furnish any information with respect to, assist or participate in or
facilitate in any other manner any effort or attempt by any Person to do or
seek to do any of the foregoing. The Company shall notify Acquisition
immediately if any Person makes any proposal, offer, inquiry or contact
with respect to any
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of the foregoing. In the event that any of the Company or the Shareholders
breaches the provisions of this Section 7.2(a)(v) and the transactions
contemplated hereby are not consummated for any reason related to such
breach, the Company and/or the Shareholders shall promptly reimburse
Acquisition and its shareholders for all out-of-pocket fees and expenses
incurred before or after the date of this Agreement by Acquisition and its
shareholders related to the transactions contemplated hereby, including
fees and expenses of legal counsel, accountants and other consultants and
advisors retained by Acquisition in connection with the transactions
contemplated hereby. The foregoing provisions are in addition to, and not
in derogation of, any statutory or other remedy that Acquisition and its
shareholders may have for a breach of this Section 7.2(a)(v).
7.3 Consent of Acquisition. For purposes of obtaining any consent or
other approval of Acquisition required by this Article 7, the Company shall be
entitled to conclusively rely upon any such consent or approval given by Wallace
W. Griffin on behalf of Acquisition or such other representative of Acquisition
as Acquisition shall designate in writing to the Company.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
As an inducement to Acquisition to enter into this Agreement, the
Company hereby represents and warrants to Acquisition that (it being understood
that any disclosure contained in a schedule in response to this Article 8 shall
be deemed disclosed only in connection with the specific representation or
warranty to which it is explicitly referenced):
8.1 Organization, Corporate Power and Licenses. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and is qualified to do business in every jurisdiction
in which its ownership of property or conduct of business requires it to
qualify. The Company possesses all requisite corporate power and authority and
all licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently proposed
to be conducted and to carry out the transactions contemplated by this
Agreement. The copies of the Company's charter documents and by-laws which have
been furnished to Acquisition's special counsel reflect all amendments made
thereto at any time prior to or contemporaneously at the date of this Agreement
and are correct and complete.
8.2 Capitalization.
(a) The attached Company Capitalization Schedule accurately sets forth
the authorized capital stock of the Company and the name of each Person holding
any equity securities of the Company. The Company does not have outstanding any
stock or securities convertible or exchangeable for any shares of its capital
stock or containing any profit participation features, nor shall it have
outstanding any rights or options to subscribe for or to purchase its capital
stock or any stock or securities convertible into or exchangeable for its
capital stock or any stock appreciation
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rights or phantom stock plan. Except as set forth on the attached Company
Capitalization Schedule, the Company is not subject to any option or obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any warrants, options or other rights to acquire
its capital stock. The Company has not violated any applicable federal or state
securities laws in connection with the offer, sale or issuance of its capital
stock. All of the outstanding shares of the Company's capital stock have been
validly issued, fully paid and nonassessable.
(b) There are no agreements between the Company's shareholders with
respect to the voting or transfer of the Company's capital stock or with respect
to any other aspect of the Company's affairs.
(c) The Company is not a party to or bound by any agreement with
respect to a Business Sale other than this Agreement, and the Company has
terminated all discussions with third parties regarding any Business Sale.
8.3 Authorization; No Breach. The execution, delivery and performance
of this Agreement and all other agreements contemplated hereby to which the
Company is a party have been duly authorized by the Company and no other
corporate act or proceeding on the part of the Company, its board of directors
or stockholders is necessary to authorize the execution, delivery or performance
of this Agreement or the other agreements contemplated hereby and the
consummation of the transactions contemplated hereby or thereby. This Agreement
has been duly executed and delivered by the Company and this Agreement and each
other agreement contemplated hereby to which the Company is a party constitutes
a valid and binding obligation of the Company, enforceable in accordance with
its terms, subject to the effects of (a) bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other laws now or hereafter in effect
relating to creditors' rights generally and (b) general principles of equity.
Except as set forth in the attached Consents Schedule, the execution and
delivery by the Company of this Agreement and all other agreements contemplated
hereby to which the Company is a party and the fulfillment of and compliance
with the respective terms hereof and thereof by the Company do not and shall not
(a) conflict with or result in a breach of the terms, conditions or provisions
of, (b) constitute a default under, (c) result in the creation of any lien,
security interest, charge or encumbrance upon the Company's capital stock or
assets pursuant to, (d) give any third party the right to modify, terminate or
accelerate any obligation under, (e) result in a violation of, or (f) require
any authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency pursuant to, the charter or by-laws of the Company, any agreement to
which the Company is a party, or any law, statute, rule or regulation,
instrument, license, permit, order, judgment or decree to which the Company is
subject.
8.4 Subsidiaries. The Company has no Subsidiaries and does not own or
hold the right to acquire any shares of stock or any other security or interest
in any other Person.
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8.5 Financial Statements.
(a) Each of (i) the audited balance sheets of the Company as of
December 31, 1997 (the "1997 Balance Sheet") and 1996 and the related statements
of income and changes in stockholders' equity and cash flows (or the equivalent)
and (ii) the unaudited balance sheet of the Company (on a consolidated basis) as
of May 31, 1998 (the "Latest Balance Sheet"), and the related statements of
earnings and retained earnings and cash flows (or the equivalent) for the five-
month period then ended (including in all cases the notes thereto, if any), each
attached hereto as the Financial Statements Schedule, is accurate and complete,
is consistent with the books and records of the Company (which, in turn, are
accurate and complete) and fairly presents the consolidated financial position
of the Company in conformity with GAAP, consistently applied, subject in the
case of the Latest Balance Sheet and the related statements of earnings and
changes in stockholders' equity and cash flow (or equivalent) to the absence of
footnote disclosure and changes resulting from normal year end audit adjustments
(which will not be material individually or in the aggregate).
(b) Except as set forth on the Disputed Accounts Receivable Schedule,
all accounts receivable of the Company's business, (i) are (or will be) bona
fide receivables incurred in the ordinary course of business, (ii) are (or to
the Company's knowledge will be) current and collectible, and shall be collected
within 120 days after the Closing Date, at the aggregate recorded amount thereof
as shown on the Latest Balance Sheet, (iii) are (or will be) properly reflected
on the Company's books and records in accordance with GAAP as of the Latest
Balance Sheet or the Closing Balance Sheet, as the case may be, as detailed on
the Financial Statements Schedule, and (iv) are not currently (nor to the
Company's knowledge will be) the subject of any counterclaim, or a claim for a
chargeback, deduction, preference payment, credit, return allowance, set-off or
other offset, other than as reflected by the reserve for bad debts on the
Company's financial statements and as disclosed on the Disputed Accounts
Receivable Schedule. Except as disclosed on the Disputed Accounts Receivable
Schedule, as of the Closing Date, no Person will have any Lien on any accounts
receivable or any part thereof, and no agreement for deduction, free goods or
services, discount or other deferred price or quantity adjustment will have been
made by the Company with respect to any accounts receivable other than in the
ordinary course of business. The Disputed Accounts Receivable Schedule attached
hereto sets forth the amount and a description of any current counterclaim,
claim for a chargeback, deduction, preference payment, credit, return allowance,
set-off or other set-off relating to all accounts receivable of the Company's
business other than any of the foregoing in amounts which are less than $15,000
individually and less than 100,000 in the aggregate. Without limiting the
foregoing, the Disputed Accounts Receivable Schedule also shows the amount of
all Unpaid Compensation and any other payments owed to the Company by PacBell,
GTE or any other incumbent local exchange carrier for fiscal year 1997 and from
January 1, 1998 to April 30, 1998 which have not been paid to the Company as of
the date hereof.
(c) Substantially all of the Company's inventory shown on the Latest
Balance Sheet and the inventory of the Company and its Subsidiaries as of the
Closing Date, in each case net of the reserves applicable thereto determined in
accordance with GAAP, consists (or to the Company's knowledge will consist) of a
quantity and quality usable and saleable in the ordinary course of the Company's
business, as applicable, is not (nor to the Company's knowledge will be)
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slow-moving (i.e., unsaleable within twelve months from the Closing Date),
obsolete or damaged, is (or to the Company's knowledge will be) merchantable and
fit for its intended use, and is not (nor will be) defective.
8.6 Absence of Undisclosed Liabilities. Except as set forth on the
attached Liabilities Schedule, the Company does not have any obligation or
liability (whether accrued, absolute, contingent, unliquidated or otherwise,
whether or not known to the Company or any of its Subsidiaries, whether due or
to become due and regardless of when asserted) arising out of transactions
entered into at or prior to the Closing, or any action or inaction at or prior
to the Closing, or any state of facts existing at or prior to the Closing other
than: (a) liabilities reflected on the Latest Balance Sheet (including any notes
thereto), (b) liabilities and obligations which have arisen after the date of
the Latest Balance Sheet in the ordinary course of business (none of which is a
liability resulting from breach of contract, breach of warranty, tort,
infringement, claim or lawsuit), (c) obligations to the Company's suppliers that
have arisen under purchase orders incurred in the ordinary course of business,
(d) other liabilities and obligations expressly disclosed in the other schedules
referred to in this Article 8 and (e) liabilities and obligations incurred at
the Closing related to the transactions contemplated hereby (other than any
liabilities or obligations related to the transactions contemplated hereby
created or incurred at the Closing as a result of any actions taken by the
Company or any of the Shareholders).
8.7 No Material Adverse Effect. Except as set forth on the attached
Developments Schedule, since the date of the 1997 Balance Sheet, there has been
no Material Adverse Effect.
8.8 Absence of Certain Developments.
(a) Except as set forth in the attached Developments Schedule, since
the date of the 1997 Balance Sheet, the Company has not:
(i) issued any notes, bonds or other debt securities or any
capital stock or other equity securities or any securities convertible,
exchangeable or exercisable into any capital stock or other equity
securities;
(ii) borrowed any amount or incurred or become subject to any
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities incurred in the ordinary course of business;
(iii) discharged or satisfied any material Lien or paid any
obligation or liability, other than current liabilities paid in the
ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to its shareholders with respect to its capital stock or
other equity securities or purchased or redeemed any shares of its capital
stock or other equity securities (including, without limitation, any
warrants, options or other rights to acquire its capital stock or other
equity
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securities) or declared or made any salary payment or other payment to any
of the Shareholders or their Affiliates or to any third party on their
behalf out of the ordinary course of business;
(v) mortgaged or pledged any of its properties or assets or
subjected them to any material Lien, except Permitted Liens;
(vi) sold, assigned or transferred any of its tangible assets,
except in the ordinary course of business, or canceled any material debts
or claims;
(vii) suffered any extraordinary losses or waived any rights of
material value, whether or not in the ordinary course of business or
consistent with past practice;
(viii) made capital expenditures or commitments that aggregate in
excess of the total amount (as determined by the Company's board of
directors) budgeted for capital expenditures and commitments for fiscal
year 1998, as set forth on the attached Capital Expenditures Budget
Schedule;
(ix) made any loans or advances to, Guarantees for the benefit
of, or any Investments in, any Persons in excess of $100,000 in the
aggregate;
(x) made any charitable contributions or pledges;
(xi) suffered any damage, destruction or casualty loss exceeding
in the aggregate $100,000, whether or not covered by insurance;
(xii) made any Investment in or taken steps to incorporate any
Subsidiary;
(xiii) entered into any other material transaction outside the
ordinary course of business;
(xiv) sold, assigned, transferred, abandoned or permitted to
lapse any Government Licenses which, individually or in the aggregate, are
material to the Company's business or any portion thereof, or any of the
Intellectual Property Rights or other intangible assets, or disclosed any
material proprietary confidential information to any Person, except in the
ordinary course of business consistent with past custom and practice, or
granted any license or sublicense of any rights under or with respect to
any Intellectual Property Rights; or
(xv) made or granted any increase in, or amended or terminated,
any existing plan, program, policy or arrangement, including without
limitation, any Plan (as defined in Section 8.17(g)), employee benefit plan
or arrangement or adopted any new employee benefit plan or arrangement, or
amended or renegotiated any existing collective
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bargaining agreement or entered into any new collective bargaining
agreement or multiemployer plan.
(b) The Company has not made any illegal payments of political
contributions or made any bribes, kickback payments or other illegal payments.
(c) No party (including the Company) has accelerated, terminated,
materially modified, or canceled any contract, lease, sublease, license,
sublicense or other agreement set forth on the attached Contracts Schedule or
Leased Real Property Schedule.
8.9 Assets.
(a) Except as set forth on the attached Assets Schedule, the Company
has good and marketable title to, or a valid leasehold interest in, the personal
properties and assets used by it, located on its premises or shown on the Latest
Balance Sheet or acquired thereafter, free and clear of all Liens, except for
properties and assets disposed of in the ordinary course of business since the
date of the Latest Balance Sheet and except for Liens disclosed on the Latest
Balance Sheet (including any notes thereto) and Liens for current property taxes
not yet due and payable and Permitted Liens.
(b) The Leased Real Property Schedule contains a complete list of all
real property leased or subleased by the Company (the "Leased Realty"). The
Company does not own any real property. The Company has a valid leasehold
interest in each Leased Realty, subject only to Liens contemplated by this
Agreement or the transactions contemplated hereby and Permitted Liens. The
Company has previously delivered to Acquisition's special counsel complete and
accurate copies of each of the leases for the Leased Realty (the "Realty
Leases"). With respect to each Realty Lease listed on the Leased Real Property
Schedule: (i) the Realty Lease is legal, valid, binding, enforceable and in full
force and effect; (ii) neither the Company nor to the Company's knowledge any
other party to the Realty Lease is in breach or default, and no event has
occurred which, with notice or lapse of time, would constitute such a breach or
default by the Company or permit termination, modification or acceleration under
the Realty Lease or to the Company's knowledge constitute a breach or default by
any other party to such Realty Lease; (iii) no party to the Realty Lease has
repudiated any provision thereof; (iv) there are no disputes, oral agreements,
or forbearance programs in effect as to the Realty Lease; (v) the Realty Lease
has not been modified in any material respect, except to the extent that such
modifications are disclosed by the documents delivered to Acquisition; and (vi)
the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust
or encumbered any interest in the Realty Lease.
(c) Except as described on the Assets Schedule, the Company's
buildings, equipment and other tangible assets are in good operating condition
in all material respects and are fit for use in the ordinary course of business.
The Company owns or uses pursuant to a valid lease or license all buildings,
improvements, machinery, equipment and other tangible personal property and all
intangible property necessary for the conduct of the Company's business as
currently conducted.
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8.10 Contracts and Commitments.
(a) Except as expressly contemplated by this Agreement or as set forth
on the attached Contracts Schedule, the Company is not a party to or bound by
any written or oral:
(i) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to employees, former employees or consultants, or any other
employee benefit plan or arrangement, or any collective bargaining
agreement or any other contract with any labor union, or severance
agreements, programs, policies or arrangements;
(ii) contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or other
basis providing annual compensation in excess of $100,000 or contract
relating to loans to officers, directors or Affiliates;
(iii) contract under which the Company has advanced or loaned any
other Person amounts in the aggregate exceeding $75,000;
(iv) agreement or indenture relating to borrowed money or other
indebtedness or the mortgaging, pledging or otherwise placing a Lien on any
material asset or material group of assets of the Company;
(v) Guarantee;
(vi) lease or agreement under which the Company is lessee of or
holds or operates any property, real or personal, owned by any other party,
except for any lease of real or personal property under which the aggregate
annual rental payments do not exceed $100,000;
(vii) lease or agreement under which the Company is lessor of or
permits any third party to hold or operate any property, real or personal,
owned or controlled by the Company, except for any lease of real or
personal property under which the aggregate annual rental payments do not
exceed 100,000;
(viii) contract or group of related contracts with the same party
or group of affiliated parties the performance of which involves
consideration in excess of $100,000 annually, other than purchase and sales
orders incurred in the ordinary course of business;
(ix) contract or other arrangement pursuant to which the Company
has agreed to pay any portion of the Unpaid Compensation to any other
Person;
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(x) assignment, license, indemnification or agreement with
respect to any intangible property (including, without limitation, any
Intellectual Property);
(xi) warranty agreement with respect to its services rendered or
its products sold or leased;
(xii) agreement under which it has granted any Person any
registration rights (including, without limitation, demand and piggyback
registration rights);
(xiii) sales, distribution or franchise agreement;
(xiv) agreement with a term of more than six months which is not
terminable by the Company upon less than 60 days' notice without penalty
and involves a consideration in excess of $100,000 annually;
(xv) contract or agreement prohibiting it from freely engaging in
any business or competing anywhere in the world; or
(xvi) any other agreement which is material to its operations and
business prospects or involves a consideration in excess of $100,000
annually.
(b) All of the contracts, leases, agreements and instruments set forth
on the Contracts Schedule are valid, binding and enforceable in accordance with
their respective terms subject to the effects of (i) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other laws now or hereafter
in effect relating to creditors' rights generally or (ii) general principles of
equity. Except as set forth on the Contracts Schedule, (i) the Company has
performed all obligations required to be performed by it and is not in default
under or in breach of nor in receipt of any claim of default or breach under any
contract, lease, agreement or instrument to which the Company is subject; (ii)
no event has occurred which with the passage of time or the giving of notice or
both would result in a default, breach or event of noncompliance by the Company
under any contract, lease, agreement or instrument to which the Company is
subject; (iii) the Company does not have any present expectation or intention of
not fully performing all such obligations; and (iv) to the Company's knowledge,
there has been no breach or anticipated breach by the other parties to any
contract, lease, agreement, instrument or commitment to which the Company is a
party.
8.11 Intellectual Property Rights.
(a) The attached Intellectual Property Schedule contains a complete
and accurate list of all (i) patented or registered Intellectual Property Rights
owned or used by the Company, (ii) pending patent applications and applications
for registrations of other Intellectual Property Rights filed by the Company and
(iii) material unregistered trademarks, service marks, copyrights, mask works
and computer software owned or used by the Company. The Intellectual Property
Schedule also contains a complete and accurate list of all material licenses and
other rights granted by the
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Company to any third party with respect to any Intellectual Property Rights and
all licenses and other rights granted by any third party to the Company with
respect to any Intellectual Property Rights, in each case identifying the
subject Intellectual Property Rights, except for any licenses relating to any
"off-the-shelf" or other non-customized computer software. The Company owns all
right, title and interest to, or has the right to use pursuant to a valid
license, all Intellectual Property Rights reasonably necessary for the operation
of the businesses of the Company as presently conducted, free and clear of all
Liens (except Permitted Liens). To the Company's knowledge, except as set forth
on the Intellectual Property Schedule, the loss or expiration of any
Intellectual Property Right or related group of Intellectual Property Rights
owned or used by the Company has not had and would not reasonably be expected to
have a Material Adverse Effect. The Company has taken all commercially
reasonable action to maintain and protect the Intellectual Property Rights which
it owns. To the Company's knowledge, the owners of any Intellectual Property
Rights licensed to the Company have taken commercially reasonable actions to
maintain and protect the Intellectual Property Rights which are subject to such
licenses.
(b) Except as set forth on the Intellectual Property Schedule, (i) the
Company owns all right, title and interest in and to all of the Intellectual
Property Rights listed on such schedule, free and clear of all Liens (except
Permitted Liens), (ii) there have been no claims made against the Company
asserting the invalidity, misuse or unenforceability of any of such Intellectual
Property Rights, and, to the Company's knowledge, there are no grounds for the
same, (iii) the Company has not received any notices of, and is not aware of any
facts which indicate a reasonable likelihood of, any infringement or
misappropriation by, or conflict with, any third party with respect to any
Intellectual Property Rights (including, without limitation, any demand or
request that the Company license any rights from a third party), (iv) the
conduct of the Company's business has not infringed, misappropriated or
conflicted with and the conduct of the Company's business do not infringe,
misappropriate or conflict with any Intellectual Property Rights of other
Persons and (v) to the Company's knowledge, the Intellectual Property Rights
owned by or licensed to the Company has not been infringed, misappropriated or
conflicted by other Persons. The transactions contemplated by this Agreement
shall have no Material Adverse Effect on the Company's right, title or interest
in and to the Intellectual Property Rights listed on the Intellectual Property
Schedule.
(c) Except as disclosed on the Intellectual Property Schedule, to the
Company's knowledge, none of the computer software, computer firmware, computer
hardware (whether general or special purpose) or other similar or related
computer systems or software that are used or relied on by Company in the
conduct of its business will malfunction, will cease to function, will generate
incorrect data or will produce incorrect results when processing, providing or
receiving (i) date-related data from, into and between the twentieth and twenty-
first centuries or (ii) date-related data in connection with any valid date in
the twentieth and twenty-first centuries.
8.12 Government Licenses and Permits. The attached Licenses Schedule
contains a complete listing and summary description of all Government Licenses
used by the Company in the conduct of its business. Except as indicated on the
Licenses Schedule, the Company owns or possesses all right, title and interest
in and to (a) all of the Government Licenses (other than any qualifications or
licenses to transact business in any city or county (each a "Local Business
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License")) that are necessary to own and operate its business as presently
conducted and (b) all Local Business Licenses that are necessary to own and
operate its business as presently conducted, except the failure to own or
possess any Local Business License which individually or in the aggregate would
not reasonably be expected to have a Material Adverse Effect, including, without
limitation, all Government Licenses required under any federal, state or local
law relating to public health and safety, employee health and safety or
pollution or protection of the environment. The Company is in compliance with
the terms and conditions of such Government Licenses and has received no notices
that it is in violation of any of the terms or conditions of such Government
Licenses. The Company has taken all necessary action to maintain such
Government Licenses. No loss or expiration of any such Government License is
pending or to the Company's knowledge, threatened or reasonably foreseeable
other than expiration in accordance with the terms thereof. Except as expressly
set forth on the Licenses Schedule, all of the Government Licenses will be
available for use by the Surviving Corporation after the Closing on the same
terms such Governmental Licenses were available for use by the Company prior to
the Closing and the transactions contemplated hereby shall have no adverse
effect on such Government Licenses.
8.13 Litigation; Proceedings. Except as set forth on the attached
Litigation Schedule, (i) there are no actions, suits, proceedings, orders,
investigations or claims pending or, to the Company's knowledge, threatened
against the Company or materially affecting the Company in a materially
different manner than it affects other companies in the industry (or to the
Company's knowledge, pending or threatened against any of the officers,
directors or employees of the Company with respect to its business or proposed
business activities or materially affecting any of the officers, directors or
employees of the Company with respect to its business or proposed business
activities in a materially different manner than it affects other similarly
situated individuals in the industry), or pending or threatened by the Company
against any third party, at law or in equity, or before or by any governmental
department, commission, board, bureau, agency or instrumentality (including,
without limitation, any actions, suits, proceedings or investigations with
respect to the transactions contemplated by this Agreement); (ii) the Company is
not subject to any pending or, to Company's knowledge, threatened arbitration
proceedings under collective bargaining agreements or otherwise or, to the
Company's knowledge, any governmental investigations or inquiries; and (iii) to
the Company's knowledge, there is no basis for any of the foregoing. The Company
is not subject to any judgment, order or decree of any court or other
governmental agency.
8.14 Compliance with Laws and Regulations.
(a) Except as set forth on the attached Compliance Schedule, the
Company has not violated any law or any governmental regulation or requirement,
and the Company has not received notice of any such violation.
(b) Without limiting the generality of Section 8.14(a), except as
disclosed on the Compliance Schedule, (i) the Company has all of the
certificates, licenses, consents, approvals, and authorizations required under
Telecommunications Law for the operation of its business as presently conducted;
(ii) no notices, reports, or other filings are required to be made by the
Company to or with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained
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by it from, the FCC or any PUC in connection with the execution and delivery of
this Agreement by it and the consummation by it of the transactions contemplated
hereby, and such execution, delivery, and consummation will not violate
applicable provisions of Telecommunications Law. Except as disclosed on the
Compliance Schedule, there are no unsatisfied complaints against the Company
pending before the FCC or any PUC, and neither the FCC nor any PUC has entered
any order or decision finding the Company to be in violation of any provision of
Telecommunications Law or given the Company notice of any proceeding that may
result in the entry of such an order or decision. The Company has filed all
required reports with and paid all fees, contributions, and assessments required
by the FCC and any PUC.
8.15 Environmental and Safety Requirements. Except as set forth on
the attached Environmental Schedule, the Company has complied and is in
compliance with all Environmental, Health, and Safety Requirements (including
without limitation all permits and licenses required thereunder). Except as set
forth on the attached Environmental Schedule, the Company has received no oral
or written notice of any violation of, or any liability (contingent or
otherwise) or obligation under, any Environmental, Health, and Safety
Requirements or related common law. No facts or circumstances with respect to
the past or current operations or facilities of the Company or any predecessor
or affiliate thereof (including without limitation any onsite or offsite
disposal or release of hazardous materials, substances or wastes) would give
rise to any liability or obligation of the Company or the Surviving Corporation
under any Environmental, Health, and Safety Requirements or related common law.
8.16 Employees. The attached Employees Schedule correctly sets forth
the name and current annual salary of each of the Company's employees receiving
more than $100,000 in annual compensation and whether any employees are absent
from active employment, including, but not limited to, leave of absence or
disability. Except as set forth on the attached Employees Schedule, (a) the
Company is not aware that any executive or Key Employee of the Company or any
group of employees of the Company has any plans to terminate employment with the
Company; (b) the Company has complied with all laws relating to the employment
of labor (including, without limitation, provisions thereof relating to wages,
hours, equal opportunity, collective bargaining and the payment of social
security and other Taxes), and the Company is not aware that it has any labor
relations problems (including, without limitation, any union organization
activities, threatened or actual strikes or work stoppages or material
grievances); and (c) to the Company's knowledge, none of its employees is
subject to any noncompete, nondisclosure, confidentiality, employment,
consulting or similar agreements relating to or in conflict with the present
business activities of the Company, except for agreements between the Company
and its present and former employees.
8.17 Employee Benefit Plans.
(a) The Company does not have any obligation to contribute to (or any
other liability, including current or potential withdrawal liability, with
respect to) any "multiemployer plan" (as defined in Section 3(37) of ERISA).
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(b) Except with respect to the plans set forth on the attached
Employee Benefits Schedule under the heading "Welfare Plans" (the "Welfare
Plans") or as otherwise required by law, the Company does not maintain or have
any obligation to contribute to (or any other liability with respect to) any
plan or arrangement whether or not terminated, which provides medical, health,
life insurance or other welfare-type benefits including, but not limited to,
"employee welfare benefit plans" (as defined in Section 3(1) of ERISA. No
Welfare Plans provide medical or life insurance benefits to current or future
retired or terminated employees (except for limited continued medical benefit
coverage required to be provided under Section 4980B of the Code or as required
under applicable state law).
(c) Except with respect to the plans set forth on the attached
Employee Benefits Schedule under the heading "Pension Plans" (the "Pension
Plans"), the Company does not maintain, contribute to or have any liability
under (or with respect to) any employee plan which is a "defined benefit plan"
(as defined in Section 3(35) of ERISA), whether or not terminated.
(d) Except with respect to the plans set forth on the Employee
Benefits Schedule under the heading "Profit Sharing Plans" (the "Profit Sharing
Plans"), the Company does not maintain, contribute to or have any liability
under (or with respect to) any employee plan which is a "defined contribution
plan" (as defined in Section 3(34) of ERISA), whether or not terminated.
(e) Except with respect to the plans set forth on the Employee
Benefits Schedule under the heading "Other Plans" (the "Other Plans"), the
Company does not maintain, contribute to or have any liability under (or with
respect to) any plan or arrangement providing benefits to current or former
employees, including any bonus plan, plan for deferred compensation, retirement,
severance, sick leave, employee health or other welfare benefit plan or other
arrangement, whether or not terminated.
(f) For purposes of this Section 8.17, the term "Company" includes all
organizations under common control with the Company pursuant to Section 414 of
the Code.
(g) With respect to the Welfare Plans, Pension Plans, the Profit
Sharing Plans and the Other Plans set forth on the Employee Benefits Schedule
(the "Plans"), all required or recommended (in accordance with historical
practices) payments, premiums, contributions, reimbursements or accruals for all
periods ending prior to or as of the Closing shall have been made or properly
accrued on the Latest Balance Sheet. None of the Plans has any material
unfunded liabilities which are not reflected on the Latest Balance Sheet. As of
the Closing, the fair market value of the assets of each Pension Plan shall
equal or exceed the present value of all vested and nonvested liabilities
thereunder determined in accordance with Pension Benefit Guaranty Corporation
("PBGC") methods, factors and assumptions applicable to a defined benefit
pension plan terminating on such date.
(h) Except as set forth on the Employee Benefits Schedule, the Plans
and all related trusts, insurance contracts and funds have been maintained,
funded and administered in compliance in all material respects with the
applicable provisions of ERISA, the Code and other
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applicable laws. Neither the Company nor any trustee or administrator of any
Plan has engaged in any transaction with respect to the Plans which would
subject the Company or any trustee or administrator or the Plans, or any party
dealing with any such Plan, nor do the transactions contemplated by this
Agreement constitute transactions which would subject any such party, to either
a civil penalty assessed pursuant to part 502(i) of ERISA or the tax or penalty
on prohibited transactions imposed by Section 4975 of the Code. No actions,
suits or claims with respect to the assets of the Plans (other than routine
claims for benefits) are pending or to the Company's knowledge threatened which
could result in or subject the Company to any liability and there are no
circumstances which would give rise to or be expected to give rise to any such
actions, suits or claims. No Pension Plan has incurred any "accumulated funding
deficiency" as such term is defined in Section 302 of ERISA or Code Section 412,
whether or not waived. No liability to the PBGC (except for payment of premiums)
or otherwise under Title IV of ERISA has been incurred by the Company with
respect to the Pension Plans, no reportable event within the meaning of Section
4043 of ERISA has occurred with respect to the Pension Plans, and the PBGC has
not threatened the termination of the Pension Plans.
(i) Each of the Pension Plans and the Profit Sharing Plans which is
intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service, that such plan
is qualified under Code Section 401(a), and to the Company's knowledge there are
no circumstances which would cause the Pension Plans or the Profit Sharing Plans
to fail to remain so qualified.
(j) The Company has provided Acquisition with true and complete copies
of all documents pursuant to which the Plans are maintained and administered and
the most recent annual reports (Form 5500 and attachments) for the Plans.
8.18 Insurance. The attached Insurance Schedule contains a
description of each insurance policy maintained by the Company with respect to
its properties, assets and businesses, and each such policy is in full force and
effect as of the Closing. The Company is not in default with respect to its
obligations under any insurance policy maintained by it, and the Company has not
been denied insurance coverage. The insurance coverage of the Company is of a
kind and type routinely carried by corporations of similar size engaged in
similar lines of business. Except as set forth on the Insurance Schedule, the
Company does not have any self-insurance or co-insurance programs, and the
reserves set forth on the Latest Balance Sheet are adequate to cover all
anticipated liabilities with respect to any such self-insurance or co-insurance
programs.
8.19 Tax Matters.
(a) Except as set forth on the attached Taxes Schedule:
(i) the Company has filed all Tax Returns which it is required to
file under applicable laws and regulations, and all such Tax Returns are
complete and correct and have been prepared in compliance with all
applicable laws and regulations;
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(ii) the Company has paid all Taxes due and owing by it (whether
or not such Taxes are required to be shown on a Tax Return) and have
withheld and paid over to the appropriate taxing authority all Taxes which
it is required to withhold from amounts paid or owing to any employee,
shareholder, creditor or other third party;
(iii) the Company has not waived any statute of limitations with
respect to any Taxes or agreed to any extension of time with respect to any
Tax assessment or deficiency;
(iv) the accrual for Taxes on the Latest Balance Sheet would be
adequate to pay all Tax liabilities of the Company if its current tax year
were treated as ending on the date of the Latest Balance Sheet (excluding
any amount recorded which is attributable solely to timing differences
between book and Tax income);
(v) since the date of the Latest Balance Sheet, the Company has
not incurred any liability for Taxes other than in the ordinary course of
business;
(vi) no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted with
respect to the Company;
(vii) no deficiency or proposed adjustment which has not been
settled or otherwise resolved for any amount of Tax has been proposed,
asserted, or assessed by any taxing authority against the Company;
(viii) the Company has not received from any foreign, federal,
state or local taxing authority any (A) written notice indicating an intent
to open an audit or other review or (B) request for information related to
Tax matters; and
(ix) to the Company's knowledge, there are no material unresolved
questions or claims concerning the Company's Tax liability.
(b) The Company (i) has not made an election under Section 341(f) of
the Code, (ii) is not liable for the Taxes of another Person (A) under Treas.
Reg. Section 1.1502-6 (or comparable provisions of state, local or foreign law),
(B) as a transferee or successor, (C) by contract or indemnity or (D) otherwise,
(iii) is not a party to any tax sharing agreement and (iv) has not made any
payments, is not obligated to make any payments or is not a party to an
agreement that could obligate it to make any payments that would not be
deductible under Code Section 280G.
(c) Except as set forth on the attached Taxes Schedule, the Company
has not been a member of an Affiliated Group.
(d) Except as set forth on the attached Taxes Schedule, the Company
will not be required to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date as a result of (A) any change
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in method of accounting for a taxable period ending on or prior to the Closing
Date, (B) any closing agreement described in Section 7121 of the Code (or any
corresponding provision of state, local or foreign income Tax law), or (C) any
installment sale made prior to the Closing Date.
8.20 Brokerage; Transaction Bonuses. Except as set forth on the
attached Brokerage Schedule or Transaction Bonuses Schedule, there are no (a)
claims for brokerage commis sions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement binding upon the Company or (b) special bonus or other
similar compensation payable to any employee of the Company in connection with
the transactions contemplated by this Agreement based upon any actions of the
Company or any Shareholder. The Shareholders shall pay, and hold the Company
and the shareholders of Acquisition harmless against, any liability, loss or
expense (including, without limitation, reasonable attorneys' fees and out-of-
pocket expenses) arising in connection with any such claim which is not set
forth on the Brokerage Schedule or Transaction Bonuses Schedule, as the case may
be.
8.21 Bank Accounts. The Bank Account Schedule attached hereto lists
all of the Company's bank accounts (designating each authorized signatory and
the level of each signatory's authorization).
8.22 Names and Locations. Excepts as set forth on the attached Names
and Locations Schedule, during the five-year period prior to the execution and
delivery of this Agreement, neither the Company nor any of its predecessors has
used any name or names under which it has invoiced account debtors, maintained
records concerning its assets or otherwise conducted business. All of the
tangible assets and properties of the Company are located at the locations set
forth on the Names and Locations Schedule.
8.23 Affiliate Transactions. Except as set forth on the attached
Affiliated Transactions Schedule, no officer, director, employee, shareholder or
Affiliate of the Company or any individual related by blood, marriage or
adoption to any such individual or any entity in which any such Person or
individual owns any beneficial interest, is a party to any agreement, contract,
commitment or transaction with the Company or has any material interest in any
material property used by the Company.
8.24 Warranties. Except as disclosed on the Warranty Schedule, (a)
all products and services designed, serviced, distributed, sold or delivered by
the Company at any time prior to the Closing Date have been in conformity with
all applicable contractual commitments and all express or implied warranties,
(b) except as adequately reserved on the Latest Balance Sheet, no liability
exists for replacement thereof or other damages in connection with such sales or
deliveries at any time prior to the Closing Date in excess of $25,000
individually or $100,000 in aggregate, and (c) no products or services
heretofore sold by the Company are now subject to any guarantee or warranty
other than the Company's standard terms and conditions of sale, lease or service
(including as a result of any course of conduct between the Company and any
Person or as a result of any statements in any of the Company's product or
promotional literature). The Company has not been notified in writing of any
claims in an individual amount exceeding $25,000 or in an aggregate
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amount exceeding $100,000 for (and the Company has no knowledge of any
threatened claims for) any extraordinary product returns, warranty obligations
or product services relating to any of its products or services.
8.25 Consents and Approvals. Except as set forth on the attached
Consents Schedule, no permit, consent, approval or authorization of, or
declaration to or filing with, any governmental authority is required in
connection with the execution, delivery and performance by the Company of this
Agreement or the other agreements contemplated hereby, or the consummation by
the Company of any other transactions contemplated hereby or thereby, and no
consent or approval of any other third party is required in connection with the
execution, delivery and performance by the Company of this Agreement or the
other agreements contemplated hereby, or the consummation by the Company of any
other transactions contemplated hereby or thereby, in order to prevent a breach
of, or a default under or a termination, change in the terms or conditions or
modification of, any instrument, contract, lease, license or other agreement to
which the Company is a party.
8.26 Customers and Suppliers. The Customers and Suppliers Schedule
attached hereto accurately sets forth (a) a list of the top twenty customers of
the Company (on a consolidated basis) (by volume of sales to such customers) for
the three-month period ended December 31, 1997 and a list of the top ten
customers of the Company for the three-month period ended December 31, 1996 and
(b) a list of the top ten suppliers of the Company (by volume of purchases from
such suppliers), for the fiscal year ended December 31, 1997 and the three-month
period ended December 31, 1996. Except as set forth on the Customers and
Suppliers Schedule, there exist no actual or, to the Company's knowledge,
threatened termination or cancellation of, or any material adverse modification
or change in: (a) the business relationship of the Company with any customer or
group of customers whose purchases during each of the three-month periods ended
December 31, 1997 and December 31, 1996 caused them to rank among the twenty
largest customers by volume of sales or (b) the business relationship of the
Company with any supplier material to its operations.
8.27 Disclosure. Neither this Article 8, the schedules hereto nor
any document delivered by the Company to Acquisition in connection with the
transactions contemplated hereby contain any untrue statement of a material fact
or omits a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they were made, not misleading.
To the Company's knowledge, there is no material fact which has not been
disclosed to Acquisition which materially adversely affects or could reasonably
be anticipated to materially adversely affect the Company.
8.28 Closing Date. All of the representations and warranties of the
Company contained in this Article 8 and elsewhere in this Agreement and all
information delivered in any schedule, attachment or exhibit hereto or in any
certificate delivered by the Company to Acquisition will be true and correct on
the Closing Date, except to the extent (a) of any changes expressly contemplated
by this Agreement and (b) that the Company has advised Acquisition otherwise in
writing prior to the Closing solely with respect to any facts, events or
circumstances arising or existing for the first time after the date hereof.
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8.29 No Implied Representations or Warranties. Acquisition hereby
acknowledges and agrees that the Company is not making any representation or
warranty whatsoever, express or implied, except those representations and
warranties of the Company explicitly set forth in this Agreement or in the
schedules hereto or in any certificate contemplated hereby and delivered by the
Company or the Shareholders in connection herewith. In any event, except as
explicitly set forth herein, none of the Shareholders, the Company or any of
their respective officers, directors, partners, employees, affiliates or
representatives, as the case may be, has made or is making any representation,
express or implied, as to the value of any asset or business being so acquired,
or any warranty of merchantability, suitability or fitness for a particular
purpose or quality, with respect to any of the tangible assets being so
acquired, or as to the condition or workmanship thereof, or as to the absence of
any defects therein, whether latent or patent.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES
OF ACQUISITION
As an inducement to the Company and the Shareholders to enter into
this Agreement, Acquisition represents and warrants to the Company that:
9.1 Organization and Power. Acquisition is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Acquisition has all requisite corporate power and authority to
execute and deliver this Agreement and the other agreements contemplated hereby
and to perform its obligations hereunder and thereunder.
9.2 Authorization. The execution, delivery and performance by
Acquisition of this Agreement and the other agreements contemplated hereby to
which Acquisition is a party and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
requisite corporate action, and no other corporate act or proceeding on the part
of Acquisition, its boards of directors or shareholders is necessary to
authorize the execution, delivery or performance of this Agreement or the other
agreements contemplated hereby and the consummation of the transactions
contemplated hereby or thereby. This Agreement has been duly executed and
delivered by Acquisition and this Agreement constitutes, and the other
agreements contemplated hereby upon execution and delivery by Acquisition will
each constitute, a valid and binding obligation of Acquisition, enforceable in
accordance with its terms, subject to the effects of (a) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other laws now or hereafter
in effect relating to creditors' rights generally and (b) general principles of
equity.
9.3 No Violation. Acquisition is not subject to nor obligated under
its articles of incorporation or by-laws, any applicable law, rule or regulation
of any governmental authority, or any agreement, instrument, license or permit,
or subject to any order, writ, injunction or decree, which would be breached or
violated by its execution, delivery or performance of this Agreement or the
other agreements contemplated hereby.
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9.4 Governmental Authorities and Consents. Except as set forth in
the Acquisition Consents Schedule attached hereto, no permit, consent, approval
or authorization of, or declaration to or filing with, any governmental or
regulatory authority or any other party or person is required in connection with
the execution, delivery or performance of this Agreement by Acquisition, or the
consummation by Acquisition of the transactions contemplated hereby and thereby.
9.5 Litigation. There are no actions, suits, proceedings, orders or
investigations pending or, to the best of Acquisition's knowledge, threatened
against or affecting Acquisition, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign.
9.6 Brokerage. Except as set forth on the Acquisition Brokerage
Schedule, there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of
Acquisition. The shareholders of Acquisition shall pay, and hold the Surviving
Corporation and the Shareholders harmless against, any liability, loss or
expense (including, without limitation, reasonable attorneys' fees and out-of-
pocket expenses) arising in connection with any such claim which is not set
forth on the Acquisition Brokerage Schedule.
9.7 Financing. Acquisition and the shareholders of Acquisition will
have available and will have arranged for the Surviving Corporation to have
available sufficient immediately available funds to enable Acquisition and the
Surviving Corporation to effect the consummation of the transactions described
in this Agreement. Evidence of the availability of any third-party lending
source necessary to consummate the transactions contemplated hereby shall have
previously been delivered to the Shareholders.
9.8 Hart-Scott-Rodino Matters. Pursuant to the Hart-Scott-Rodino Act
and the rules and definitions thereunder, (a) Acquisition is its own ultimate
parent entity and does not have total assets equal to or in excess of
$10,000,000 and (b) as a result of the transactions contemplated hereby, no
shareholder of Acquisition will hold voting securities of the Surviving
Corporation or Acquisition (i) with a value in excess of $15,000,000 or (ii)
representing 50% or more of the voting securities of the Surviving Corporation
or Acquisition.
9.9 Capitalization. The attached Surviving Corporation
Capitalization Schedule accurately sets forth in all material respects the
number of shares of Common Stock and Preferred Stock of the Surviving
Corporation authorized, outstanding and subject to options, respectively, the
names of the holders of such shares and the percentage ownership of each of the
shareholders thereof as of the Closing Date after taking into account the
consummation of all of the transactions contemplated by this Agreement or
related hereto.
9.10 Closing Date. All of the representations and warranties
contained in this Article 9 and elsewhere in this Agreement are true and correct
on the date of this Agreement and will
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be true and correct on the Closing Date, except to the extent (a) of changes
expressly contemplated by this Agreement and (b) that Acquisition has expressly
advised the Company otherwise in writing prior to the Closing solely with
respect to any facts, events or circumstances arising or existing for the first
time after the date hereof.
ARTICLE 10
TERMINATION
10.1 Termination. This Agreement may be terminated at any time prior
to the Closing only as follows:
(a) by mutual consent of Acquisition, on the one hand, and the
Company, on the other hand;
(b) by either Acquisition, on the one hand, or the Company, on the
other hand, if there has been a material misrepresentation or breach of warranty
or breach of covenant on the part of the other party in the representations and
warranties or covenants set forth in this Agreement or if events have occurred
which have made it impossible to satisfy a condition precedent to the
terminating party's obligation to consummate the transactions contemplated
hereby, unless such terminating party's breach of this Agreement has caused the
condition to be unsatisfied; or
(c) by either Acquisition, on the one hand, or the Company, on the
other hand, if the transactions contemplated hereby have not been consummated by
December 31, 1998; provided, that a party will not be entitled to terminate this
Agreement pursuant to this subsection (c) if (i) that party's breach of this
Agreement has prevented the consummation of the transactions contemplated hereby
at or prior to such time, or (ii) that party has failed to satisfy any condition
set forth in Article 6 hereof that such party was required to satisfy.
10.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 10.1 hereof, this Agreement will forthwith
become void and there will be no liability or obligation hereunder on the part
of Acquisition, the Company or the Shareholders, except for the provisions of
Sections 11.9 [Expenses], 11.10 [Specific Performance], 11.11 [Arbitration
Procedure] or 11.16 [Confidentiality] hereof and except for liability for any
breach of this Agreement prior to the time of such termination.
10.3 Waiver of Right to Terminate. Acquisition, the Shareholders and
the Company shall be deemed to have waived their respective rights to terminate
this Agreement upon consummation of the Closing. No such waiver shall
constitute a waiver of any other rights arising from the non-fulfillment of any
condition precedent set forth in Article 6 hereof or any misrepresentation or
breach of any warranty, covenant or agreement contained herein unless such
waiver is made in writing and then any such written waiver shall only constitute
a waiver of the specific matters set forth therein.
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ARTICLE 11
ADDITIONAL AGREEMENTS; COVENANTS AFTER CLOSING
11.1 Survival. Subject to survival date limitations set forth in
Section 11.2(a)(ii), all representations, warranties, covenants and agreements
(subject to the limitations set forth below) contained herein or made in writing
by any party to this Agreement in connection herewith shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, regardless of any investigation made by any
such party or on its behalf, the knowledge of any such party's officers,
directors, shareholders, employees or agents, or the acceptance of any
certificate or opinion; provided, however, that the covenants and agreement set
forth in Article 7 of this Agreement shall terminate as of the Closing.
11.2 Indemnification.
(a) Indemnification of the Surviving Corporation and Acquisition.
(i) Obligation. The Shareholders, severally in proportion to
their Pro Rata Share, and not jointly, agree to indemnify the Surviving
Corporation and Acquisition and their respective Affiliates, shareholders,
officers, directors, employees, agents, partners, members, representatives,
successors and permitted assigns (other than in each case the Shareholders)
(collectively, the "Acquisition Indemnified Parties"), and save and hold
each of them harmless against and pay on behalf of or reimburse such
Acquisition Indemnified Parties as and when incurred for any loss,
liability, damage or expense, whether or not arising out of third party
claims (including, without limitation, interest, penalties, reasonable
attorneys' fees and expenses and all amounts paid in investigation, defense
or settlement of any of the foregoing) (collectively, "Losses") which any
such Acquisition Indemnified Party may suffer, sustain or become subject
to, as a result of, in connection with, relating or inci dental to or by
virtue of (1) a breach by the Company of any representation, warranty,
covenant or agreement made by the Company in this Agreement or in any
schedule or exhibit to this Agreement or in any certificate or other
document delivered pursuant to the terms of this Agreement, (2) any claims
of any brokers or finders claiming by, through or under the Company or any
Shareholder or any claim for any special bonus or other compensation of any
employee or consultant of the Company relating to the transactions
contemplated hereby, in each case which are not set forth on the Brokerage
Schedule attached hereto or the Transaction Bonuses Schedule attached
hereto or (3) any claim by any Person (other than Acquisition or its
Affiliates) with respect to, or arising as a result of, any Business Sale
proposed prior to the Closing Date.
(ii) Survival Date. The Shareholders will not be liable with
respect to any claim for the breach of any representation or warranty
contained in Article 8 (except for Sections 8.1 [Organization, Corporate
Power and Licenses], 8.2 [Capitalization], 8.3 [Authorization; No Breach],
8.4 [Subsidiaries] and 8.20 [Brokerage; Transaction Bonuses] under which a
claim can be made at any time) unless written notice of a possible claim
for
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indemnification with respect to such breach is given by an Acquisition
Indemnified Party to the Shareholders on or before (each a "Survival
Date"), (1) the expiration of the applicable statute of limitations with
respect to claims arising under Section 8.19 [Tax Matters], or (2) thirty
days after the date of the Company's receipt of its final audited financial
statements for the fiscal year ended December 31, 1999, but in no event
later than March 31, 2000, with respect to all other claims arising under
Article 8, it being understood that so long as such written notice is given
on or prior to the Survival Date with respect to such claim, the
representations and warranties with respect to such breach shall continue
to survive until such matter is resolved. Notwithstanding the foregoing,
any other breach of any post-closing covenant or agreement contained
herein, including, without limitation, any breach of any covenant or
agreement contained in this Section 11, will not be subject to any time
limitations.
(iii) Limitations. With respect to any claim for the breach of
any representation or warranty contained in Article 8 (except for Sections
8.1 [Organization, Corporate Power and Licenses], 8.2 [Capitalization], 8.3
[Authorization, No Breach], 8.4 [Subsidiaries], 8.19 [Tax Matters] and 8.20
[Brokerage; Transaction Bonuses] as to which there shall be no limitations
on the amount of indemnification which may be claimed hereunder), the
Shareholders shall not have any obligation to indemnify any Acquisition
Party from and against any Losses by reason of any such breach (or alleged
breach) until the Acquisition Indemnified Parties collectively shall have
suffered Losses by reason of all such breaches (or alleged breaches) in
excess of $500,000 (the "Deductible") and then the Shareholders shall have
an obligation to indemnify the Acquisition Indemnified Parties for all
Losses suffered by Acquisition in excess of the Deductible; provided,
however, that the Shareholders shall not have any obligation to indemnify
the Acquisition Indemnified Parties from and against aggregate Losses with
respect to any breach of any representation and warranty in excess of
$15,000,000 (the "Cap"). Notwithstanding the foregoing, any other breach
of any post-closing covenant or agreement contained herein, including,
without limitation, any breach of any covenant or agreement contained in
this Section 11, will not be subject to the Deductible or the Cap.
(b) Indemnification of the Company and the Shareholders. Acquisition
and the Surviving Corporation, jointly and severally, shall indemnify the
Shareholders, and their respective Affiliates, shareholders, officers,
directors, employees, agents, representatives, successors and permitted assigns
(collectively, the "Company Indemnified Parties") and hold them harmless against
any Losses which the Company Indemnified Parties may suffer, sustain or become
subject to, as the result of, in connection with, relating or incidental to or
by virtue of (i) the breach by Acquisition of any representation, warranty,
covenant or agreement made by Acquisition contained in this Agreement or (ii)
any claims of any brokers or finders claiming by, through or under Acquisition
which are not set forth on the Acquisition Brokerage Schedule.
(c) Payment. The Acquisition Indemnified Parties shall be entitled
to, but shall not be required to, set-off any amounts due or payable to the
Acquisition Indemnified Parties from any Shareholder pursuant to this Section
11.2 against any amounts otherwise due and payable by the
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Company to such Shareholder (including, but not limited to, any Earnout Payments
and any amounts payable by the Company under the Preferred Stock or Common
Stock). Any indemnification of the Acquisition Indemnified Parties or the
Company Indemnified Parties pursuant to this Section 11.2 shall be effected by
wire transfer of immediately available funds from the Shareholders or
Acquisition and the Surviving Corporation, as the case may be, to an account
designated by the Surviving Corporation or the Shareholders, as the case may be,
within ten days after the determination thereof. All indemnification payments
under this Section 11.2 shall be deemed adjustments to the Final Share Price as
set forth in Section 5.1 above.
(d) Defense of Third Party Claims. Any party making a claim for
indemnification under this Section 11.2 (an "Indemnitee") shall notify the
indemnifying party (an "Indemnitor") of the claim in writing promptly after
receiving written notice of any action, lawsuit, proceeding, investigation or
other claim against it (if by a third party) or discovering the liability,
obligation or facts giving rise to such claim for indemnification, describing
the claim, the amount thereof (if known and quantifiable) and the basis thereof;
provided that the failure to so notify an Indemnitor shall not relieve the
Indemnitor of its obligations hereunder except to the extent that (and only to
the extent that) such failure shall have caused the damages for which the
Indemnitor is obligated to be greater than such damages would have been had the
Indemnitee given the Indemnitor prompt notice hereunder or the Indemnitor is
otherwise prejudiced by such failure. Any Indemnitor at its option shall be
entitled to control (subject to the limitations set forth below) the defense of
such action, lawsuit, proceeding, investigation or other claim giving rise to an
Indemnitee's claim for indemnification at such Indemnitor's expense, and shall
be entitled to appoint a recognized and reputable counsel reasonably acceptable
to the Indemnitee to be the lead counsel in connection with such defense;
provided that prior to the Indemnitor assuming control of such defense, it shall
first (i) verify to the Indemnitee in writing that such Indemnitor shall be
fully responsible (with no reservation of any rights) for all liabilities and
obligations relating to such claim for indemnification and that it shall provide
full indemnification (whether or not otherwise required hereunder) to the
Indemnitee with respect to such action, lawsuit, proceeding, investigation or
other claim giving rise to such claim for indemnification hereunder and (ii)
enter into an agreement with the Indemnitee in form and substance satisfactory
to the Indemnitee which agreement unconditionally guarantees the payment and
performance of any liability or obligation which may arise with respect to such
action, lawsuit, proceeding, investigation or facts giving rise to such claim
for indemnification hereunder; and provided, further, that:
(i) the Indemnitee shall be entitled to participate in the
defense of such claim and to employ counsel of its choice for such purpose;
provided that the fees and expenses of such separate counsel shall be borne
by the Indemnitee (other than any reasonable fees and expenses of such
separate counsel that are incurred prior to the date the Indemnitor
effectively assumes control of such defense which, notwithstanding the
foregoing, shall be borne by the Indemnitor except as otherwise limited
herein);
(ii) the Indemnitor shall not be entitled to assume control of
such defense and shall pay the fees and expenses of counsel retained by the
Indemnitee and reasonably acceptable to Indemnitor if (A) the claim for
indemnification relates to or arises in
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connection with any criminal proceeding, action, indictment, allegation or
investigation; (B) the claim seeks an injunction or equitable relief
against the Indemnitee; or (C) upon petition by the Indemnitee, the
appropriate court rules that the Indemnitor failed or is failing to
vigorously prosecute or defend such claim;
(iii) the Indemnitor and the Indemnitee shall jointly control,
through counsel reasonably acceptable to the Indemnitor and the Indemnitee
and at the expense of Indemnitor, the defense of such claim (subject to the
provisions of Section 11.2(d)(ii) hereof) if such claim would have a
continuing effect in any material respect on the Indemnitee;
(iv) if the Indemnitor shall control the defense of any such
claim, the Indemnitor shall obtain the prior written consent of the
Indemnitee (which shall not be unreasonably withheld) before entering into
any settlement of a claim or ceasing to defend such claim if, pursuant to
or as a result of such settlement or cessation, injunctive or other
equitable relief shall be imposed against the Indemnitee or if such
settlement does not expressly and unconditionally release the Indemnitee
from all liabilities and obligations with respect to such claim, without
prejudice;
(v) if the Indemnitor and the Indemnitee jointly control the
defense of such claim, neither the Indemnitor nor the Indemnitee shall
enter into any settlement of such claim without the consent of the other
party (such consent not to be unreasonably withheld) obtained before
entering into any such settlement; and
(vi) if the Indemnitor elects not to control the defense of any
such claim (other than pursuant to Section 11.2(d)(ii) hereof) the
Indemnitee shall obtain the prior written consent of the Indemnitor (which
shall not be unreasonably withheld) before entering into any settlement of
a claim or ceasing to defend such claim.
Any dispute regarding the provisions of this Section 11.2(d) (including any
decision or action relating to the joint defense of any claim) shall be resolved
pursuant to the arbitration provisions of Section 11.12 hereof.
(e) Certain Waivers; etc. Each Shareholder hereby agrees that such
Shareholder shall not make any claim for indemnification hereunder against the
Surviving Corporation by reason of the fact that such Shareholder is or was a
shareholder, director, officer, employee or agent of the Company or the
Surviving Corporation or is or was serving at the request of the Company or the
Surviving Corporation as a partner, trustee, director, officer, employee or
agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses or
otherwise) with respect to any action, suit, proceeding, complaint, claim or
demand brought by any of the Acquisition Indemnified Parties against such
Shareholder pursuant to this Agreement and such Shareholder hereby acknowledges
and agrees that such Shareholder shall have no claims or right to contribution
or indemnity from the Company or the Surviving Corporation with respect to any
amounts paid by the Shareholders pursuant to this Section 11.2. Nothing in this
Section 11.2(e), however, shall prohibit, restrict or modify any right of the
Shareholders to receive
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indemnification from the Company or the Surviving Corporation to the extent such
Shareholder is otherwise entitled to indemnification pursuant to the Articles of
Incorporation, By-laws and applicable law and any other contract with respect to
any claim which does not give rise to or evidence the existence of a breach of
any of the representations, warranties, covenants or agreements of the Company
contained in this Agreement and which does not give rise to or evidence the
existence of an indemnification obligation by the Shareholders pursuant to this
Section 11.2.
11.3 Scope of the Shareholders' Liability. Acquisition and the
Surviving Corporation acknowledge and agree that their sole remedy against the
Shareholders for any breach of any representations and warranties of the Company
in this Agreement is set forth in Section 11.2 hereto and that, except to the
extent Acquisition or the Surviving Corporation has asserted a claim for
indemnification prior to the applicable Survival Date with respect to any breach
of any representations and warranties of the Company in this Agreement, neither
Acquisition nor the Surviving Corporation shall have any remedy against the
Shareholders for any breach of any representations and warranties of the Company
in this Agreement.
11.4 Indemnification and Insurance.
(a) The Company and the Surviving Corporation agree that all rights to
indemnification or exculpation now existing in favor of the Company Indemnified
Parties as provided in the Articles of Incorporation or Bylaws of the Company or
the Surviving Corporation or other comparable governing documents (the
"Governing Instruments"), or as provided in any agreements between a Company
Indemnified Party and the Company or the Surviving Corporation (the
"Indemnification Agreements") shall continue in full force and effect for a
period of not less than seven years from the Closing Date to the extent
permitted by applicable law; provided, however, that, in the event any claim or
claims are asserted or made within such seven-year period, all rights to
indemnification in respect of any such claim or claims shall continue until
disposition of any and all such claims. Any determination required to be made
with respect to whether a Company Indemnified Party's conduct complies with the
standards set forth in the Governing Instruments or the Indemnification
Agreements shall be made by independent counsel selected by the Company
Indemnified Party reasonably satisfactory to the Board (whose fees and expenses
shall be paid by the Surviving Corporation). The Company and the Surviving
Corporation agree to fully perform all obligations to be performed by the
Surviving Corporation under the Governing Instruments and the Indemnification
Agreements. The Company further agrees that, for seven years after the Closing,
the Company shall maintain officers' and directors' liability insurance policies
similar to those officers' and directors' liability insurance policies
maintained by the Company during the year period prior to the date hereof and on
terms no less advantageous to the Company Indemnified Parties than the terms of
such policies in effect as of the date hereof; provided that in the event any
claim is asserted or made within such seven-year period, coverage under such
insurance shall be continued in respect thereof until final disposition of such
claim; and provided further that such officer's and director's liability
insurance shall only be maintained to the extent the annual cost thereof is less
than $50,000. In the event the foregoing indemnities or insurance policies
become unavailable or unenforceable for any reason, the Company and the
Surviving Corporation agree to indemnify and
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hold harmless the Company Indemnified Parties to the same extent as if such
indemnities and insurance were available and in full force and effect.
(b) In the event the Surviving Corporation or any or its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers all or substantially all of its properties, assets or
stock to any person, then and in each such case, proper provision shall be made
so that the successors and assigns of the Surviving Corporation (or their
successors and assigns) shall assume the obligations set forth in this Section
11.4.
11.5 Mutual Assistance and Records. Acquisition, the Company and the
Shareholders agree that they will mutually cooperate in the expeditious filing
of all notices, reports and other filings with any governmental authority
required to be submitted jointly by the Company and Acquisition in connection
with the execution and delivery of this Agreement, the other agreements
contemplated hereby and the consummation of the transactions contemplated hereby
or thereby. Unless otherwise consented to in writing by the Board, the
Surviving Corporation and the Shareholders will not, for a period of seven (7)
years following the date hereof, destroy, alter or otherwise dispose of any of
the books and records of any of the Company or the Surviving Corporation
hereunder or retained by the Company or the Surviving Corporation or the
Shareholders without first offering to surrender to the shareholders of
Acquisition such books and records or any portion thereof of which the Company
may intend to destroy, alter or dispose.
11.6 Non-Competition; Non-Solicitation.
(a) Each Shareholder acknowledges that such Shareholder is familiar
with the trade secrets of the Company and with other confidential information
concerning the Company, including all (a) inventions, technology and research
and development of the Company, (b) customers and clients and customer and
client lists of the Company, (c) products and services (including products and
services under development) of the Company and related costs and pricing
structures and marketing techniques, (d) accounting and business methods and
practices of the Company and (e) similar and related confidential information
and trade secrets of the Company and that such Shareholder is and will become
familiar with the foregoing confidential information regarding the Surviving
Corporation after the Effective Time; provided, however, that such confidential
information does not include information that is (i) generally available to the
public at or prior to the Effective Time or (ii) becomes generally available to
the public other than as a result of a disclosure by any Shareholder in
violation of this Agreement. Each Shareholder further acknowledges that such
Shareholder's services have been and shall be of special, unique and
extraordinary value to the Company and the Surviving Corporation, that such
Shareholder (in the case of John La Rue) is one of the founders of the Company
and that such Shareholder has been substantially responsible for the growth and
development of the Company and the creation and preservation of the Company's
and the Surviving Corporation's goodwill. Each Shareholder acknowledges and
agrees that the Company and the Surviving Corporation would be irreparably
damaged if such Shareholder were to provide services to any person or entity
competing with the Surviving Corporation and that such competition by such
Shareholder would result in a significant
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loss of goodwill by the Surviving Corporation. Each Shareholder further
acknowledges and agrees that the covenants and agreements set forth in this
Section 11.6 were a material inducement to Acquisition to enter into this
Agreement and to perform its obligations hereunder, and that Acquisition and its
shareholders would not obtain the benefit of the bargain set forth in this
Agreement as specifically negotiated by the parties hereto if such Shareholder
breached the provisions of this Section 11.6. Therefore, in consideration of the
Noncompete Payments and in further consideration of the Final Share Price to be
paid to the Shareholders hereunder for the Company Common Stock and the goodwill
of the Company and the Surviving Corporation sold by the Shareholders, except
for those activities set forth on the Current Activities Schedule attached
hereto, each of the Shareholders shall not, and shall not permit any Affiliate,
for a period of two (2) years after the Closing Date (the "Noncompete Period"),
for himself or itself or on behalf of any other person, firm, partnership,
corporation, or other entity, engage, directly or indirectly, either as an
officer, director, employee, partner, consultant, individual proprietor, agent,
or otherwise (including, but not limited to, as an owner or shareholder), in any
business which (A) provides telecommunication services of the type provided as
of the Closing Date by the Surviving Corporation (including, without limitation,
(i) switched local service, (ii) switched long-distance service, (iii) dedicated
transport services, (iv) co-locate and interconnect services and (v) data
switched services and including, without limitation, telecommunication services
of the type provided by the Surviving Corporation to information service
providers) or (B) provides services of the type which the Surviving Corporation
has taken significant actions as of the Closing Date to begin providing or of
the type the Company has indicated that it plans to begin providing in any
business plan or similar document delivered to Acquisition or its shareholders
prior to the Closing Date, in each case within any of the Restricted Territories
(as defined below); provided that the restrictions set forth in this Section
11.6 shall not prohibit any Shareholder 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 restrictions set forth in this Section
11.6 shall not restrict the activities of any Shareholder to the extent such
Shareholder has received the consent of the board of directors of the Surviving
Corporation to such activities.
(b) For purposes of this Agreement, "Restricted Territories" shall
mean (i) the California counties of Alameda, Alpine, Amador, Butte, Calaveras,
Colusa, Contra Costa, Del Norte, El Dorado, Fresno, Glenn, Humboldt, Imperial,
Inyo, Kern, Kings, Lake, Lassen, Los Angeles, Madera, Marin, Mariposa,
Mendocino, Merced, Modoc, Mono, Monterey, Napa, Nevada, Orange, Placer, Plumas,
Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San
Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz,
Shasta, Sierra, Siskiyou, Solano, Sonoma, Stanislaus, Sutter, Tehama, Trinity,
Tulare, Tuolumne, Ventura, Yolo and Yuba, (ii) the Nevada counties of Carson
City, Churchill, Clark, Douglas, Elko, Esmeralda, Eureka, Humboldt, Lander,
Lincoln, Lyon, Mineral, Nye, Pershing, Storey, Washoe, and White Pine and (iii)
the counties (or similar jurisdictions) in the states of Arizona, Colorado,
Idaho, New Mexico, Oregon, Texas, Utah and Washington, the province of British
Columbia, Canada and the territories and jurisdictions of Mexico. Each
Shareholder acknowledges that the business of the Surviving Corporation is
contemplated to be conducted in the jurisdictions set forth in Section
11.6(b)(iii) (including as the same relates to the production, promotion,
marketing and sale of its products and services), and that the geographic
restrictions set forth above are reasonable and
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necessary to protect the goodwill of the Company's and the Surviving
Corporation's business being sold by the Shareholders pursuant to this
Agreement.
(c) Except as otherwise agreed to by the Board, during the Noncompete
Period, neither the Shareholders nor any of their Affiliates shall directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Surviving Corporation to leave the employ of the Surviving Corporation,
or in any way interfere with the relationship between the Surviving Corporation
and any employee thereof, (ii) hire any person who was an employee of the
Surviving Corporation at any time during the six month period immediately prior
to the date on which such hiring would take place, or (iii) induce or attempt to
induce any customer, supplier, licensee, licensor or other business relationship
of the Surviving Corporation to cease doing business with the Surviving
Corporation, or in any way interfere with the relationship between any such
customer, supplier, licensee, licensor or business relation and the Surviving
Corporation (including making any negative statements or communications about
the Surviving Corporation).
(d) If, at the time of enforcement of this Section 11.6 of this
Agreement, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, the parties hereto agree that the maximum
period, scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area. The Shareholders agree that
money damages would not be an adequate remedy for any breach of this Section
11.6. Therefore, in the event a breach or threatened breach of this Section
11.6, the Surviving Corporation or its successors or assigns may, in addition to
other rights and remedies existing in its favor, apply to any court of competent
jurisdiction for specific performance and/or injunctive or other relief in order
to enforce, or prevent any violations of, the provisions hereof (without posting
a bond or other security). In addition, in the event it is finally determined
by a court of competent jurisdiction (or any arbitrator or arbitrators agreed
upon by such parties to resolve any dispute relating to this Section 11.6) that
any of the Shareholders has breached or violated the provisions of this Section
11.6, such court (or arbitrator(s)) may determine in granting any remedy
provided hereunder that the Noncompete Period shall be deemed to have been
tolled with respect to such Shareholder for the period of time of such breach or
violation shall have occurred as finally determined by such court (or
arbitrator(s)). Each Shareholder has consulted with legal counsel regarding the
provisions of this Section 11.6. Each Shareholder hereby acknowledges that the
provisions of this Section 11.6 are reasonable in terms of duration, scope and
area restrictions and are necessary to protect the goodwill of the Company's and
the Surviving Corporation's business and the substantial investment in the
Surviving Corporation made by Acquisition hereunder. Each Shareholder further
acknowledges and agrees that the provisions of this Section 11.6 are being
entered into by such Shareholder solely in connection with the sale by such
Shareholder of the goodwill of the Company's and the Surviving Corporation's
business and not directly or indirectly in connection with such Shareholder's
employment or other relationship with the Company or Surviving Corporation.
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11.7 Tax Matters.
(a) The Shareholders, severally in proportion to their Pro Rata Share,
and not jointly, shall indemnify the Acquisition Indemnified Parties from,
against, and in respect of any Taxes imposed on the Surviving Corporation with
respect to any taxable period (or portion thereof) ending on or prior to the
Closing Date within five (5) days after being notified by any Acquisition
Indemnified Party during the applicable statue of limitation of the Surviving
Corporation's obligation to the extent such Taxes (i) have not been paid on or
prior to the Closing Date and (ii) were not included as liabilities on the
Latest Balance Sheet or incurred thereafter in the ordinary course of business;
provided, however, that the Surviving Corporation shall not have the right to be
indemnified for a Tax obligation under both Section 11.2 and this Section
11.7(a); and provided further that the Surviving Corporation shall not have the
right to be indemnified for any Tax obligations as a result of the inclusion of
any Unpaid Compensation in the taxable income of the Company or the Surviving
Corporation. For purposes of this section, in the case of taxable periods
beginning before and ending after the Closing Date, the Taxes attributable to
the portion of such taxable periods ending on the Closing Date shall be (i) in
the case of any Taxes other than Taxes based upon or related to income, the
amount of such Tax for the entire taxable period multiplied by a fraction the
numerator of which is the number of days in the taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
taxable period, and (ii) in the case of any Tax based upon or related to income,
the amount of such Tax which would have been payable if the relevant taxable
period ended on the Closing Date.
(b) The Surviving Corporation shall promptly notify the Shareholders
of the commencement of any demand, claim, audit, examination, action or other
proposed change or adjustment by any Tax authority concerning any Tax which is
the responsibility of the Shareholders pursuant to this Section 11.7 (each a
"Tax Claim"). Such notice shall contain factual information describing the
asserted Tax Claim in reasonable detail and shall include copies of any notice
or other document received from any Tax authority in respect of any such
asserted Tax Claim.
(c) The Shareholders, at their own expense, shall have the right to
represent the Surviving Corporation's interests in any Tax Claim relating to any
taxable period of the Company ending on or prior to the Closing Date and to
employ counsel of its choice; provided that such right of representation shall
arise only if the Shareholders acknowledge and agree to indemnify the Surviving
Corporation from, against, and in respect of any Taxes resulting from such Tax
Claim. The Surviving Corporation shall have the right to participate in such
action at its own expense. The Shareholders shall not consent to any settlement
without the consent of the Surviving Corporation, which consent shall not be
unreasonably withheld, other than a settlement involving only monetary amounts
affecting or resulting in a Tax subject to indemnification under Section
11.7(a). If the Shareholders elect to control the defense, compromise or
settlement of any Tax Claim, the Shareholders shall keep the Surviving
Corporation informed of the progress and disposition of such Tax Claim. The
Surviving Corporation shall handle any Tax matters of the Company (i) for
periods ending on or prior to the Closing Date which the Shareholders elect in
writing not to control and (ii) for all other periods.
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(d) The Shareholders shall have the right to all refunds of Taxes
(including interest thereon paid to the Surviving Corporation by the applicable
governmental entity) which relate to Taxes of the Company for taxable periods
ending on or before the Closing Date except to the extent (i) such refund is
attributable to a carryback from any taxable period beginning on or after the
Closing Date or (ii) such refund is accrued as an asset on the Latest Balance
Sheet or arises thereafter in the ordinary course of business. The Surviving
Corporation shall pay over to the Shareholders any such refunds promptly upon
receipt thereof, net of any Taxes imposed on the Surviving Corporation by reason
of the receipt of such refund. The Surviving Corporation shall pay to the
Shareholders an amount equal to the Surviving Corporation's after-tax benefit of
any benefit actually realized by the Surviving Corporation after the Closing
Date resulting from a timing difference adjustment of an item of income, gain,
loss or deduction for any period prior to the Closing Date if and only if such
adjustment was subject to indemnification actually paid by the Shareholders
pursuant to Section 11.2(a) or this Section 11.7. Payment shall be made to the
Shareholders within 10 days after the later of (i) the filing of a Tax Return
which contains such Tax benefit or (ii) when such benefit is actually realized
by the Surviving Corporation through the reduction of Taxes otherwise due or the
receipt of a refund.
(e) The Surviving Corporation and the Shareholders agree to consult
and resolve in good faith any issues arising in connection with the calculation
of any Tax or Tax benefit or detriment described in this Section 11.7 pursuant
to the arbitration provision set forth in Section 11.11.
11.8 Press Release and Announcements. Unless required by law (in
which case each of Acquisition and the Shareholders (on behalf of the Company)
hereby agree to use reasonable efforts to consult with the other party prior to
any such disclosure as to the form and content of such disclosure), after the
date hereof, through and including the Closing Date, no press releases,
announcements to the employees, customers or suppliers of the Company or other
releases of information related to this Agreement or the transactions
contemplated hereby will be issued or released without the consent of each of
Acquisition and the Shareholders. After the Closing, the Surviving Corporation
may issue any such releases of information without the consent of any other
party hereto.
11.9 Expenses. Acquisition, on the one hand, and the Company and the
Shareholders, on the other hand, will each pay all of their own respective
transaction fees and expenses (including, without limitation, all reasonable
fees and expenses of legal counsel, accountants, investment bankers, brokers,
finders or other representatives and consultants (including, without limitation,
those set forth on the Brokerage Schedule and Acquisition Brokerage Schedule and
all expenses and other amounts paid in connection with the services rendered by
Wallace Griffin)) in connection with this Agreement (collectively, the
"Transaction Expenses") and the Company will pay all prepayment penalties in
connection with any Indebtedness of the Company prepaid in connection with the
transactions contemplated hereby ("Prepayment Penalties") in the event the
transactions contemplated hereby are not consummated and, upon the consummation
of the transactions contemplated hereby, the Surviving Corporation shall pay all
Transaction Expenses
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of such parties and all Prepayment Penalties. The Company shall also pay all
Transaction Expenses of Acquisition in the event of any breach of the provisions
of Section 7.2(a)(v) as provided therein.
11.10 Specific Performance. Each of the Company (and the Surviving
Corporation), the Shareholders and Acquisition acknowledges and agrees that the
other parties would be damaged irreparably in the event any of the provisions of
this Agreement are not performed in accordance with their specific terms or are
otherwise breached. Accordingly, the Company (and the Surviving Corporation),
the Shareholders and Acquisition agree that the other parties shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court in the United States or
in any state having jurisdiction over the parties and the matter in addition to
any other remedy to which they may be entitled pursuant hereto.
11.11 Arbitration Procedure.
(a) Acquisition, the Company (and the Surviving Corporation), and the
Shareholders agree that the arbitration procedure set forth below shall be the
sole and exclusive method for resolving and remedying claims for money damages
arising out of the provisions of Article 11 (the "Disputes"). Nothing in this
Section 11.11 shall prohibit a party hereto from instituting litigation to
enforce any Final Determination (as defined below). The parties hereby
acknowledge and agree that, except as otherwise provided in this Section 11.11
or in the Commercial Arbitration Rules of the American Arbitration Association
as in effect from time to time, the arbitration procedures and any Final
Determination hereunder shall be governed by, and shall be enforced pursuant to
the California Arbitration Act.
(b) In the event that any party asserts that there exists a Dispute,
such party shall deliver a written notice to each other party involved therein
specifying the nature of the asserted Dispute and requesting a meeting to
attempt to resolve the same. If no such resolution is reached within ten
business days after such delivery of such notice, the party delivering such
notice of Dispute (the "Disputing Person") may, within 45 business days after
delivery of such notice, commence arbitration hereunder by delivering to each
other party involved therein a notice of arbitration (a "Notice of
Arbitration"). Such Notice of Arbitration shall specify the matters as to which
arbitration is sought, the nature of any Dispute, the claims of each party to
the arbitration and shall specify the amount and nature of any damages, if any,
sought to be recovered as a result of any alleged claim, and any other matters
required by the Commercial Arbitration Rules of the American Arbitration
Association as in effect from time to time to be included therein, if any.
(c) Acquisition, prior to the Effective Time, and the Board, after the
Effective Time, and the Shareholders shall mutually agree upon one arbitrator to
resolve any Dispute pursuant to the procedures set forth in this Section 11.11.
In the event such parties are unable to mutually agree upon an arbitrator within
20 days from the delivery of a Notice of Arbitration, then each of such parties
shall prepare a list of three independent arbitrators. Each of such parties
shall have the opportunity to designate as objectionable and eliminate one
arbitrator from the other's list within
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seven days after submission thereof, and the sole arbitrator shall then be
selected by lot from the arbitrators remaining on the lists submitted by such
parties.
(d) The arbitrator selected pursuant to Section 11.11(c) will
determine the allocation of the costs and expenses of arbitration based upon the
percentage which the portion of the contested amount not awarded to each party
bears to the amount actually contested by such party. For example, if
Acquisition or the Surviving Corporation submits a claim for $1,000 and if the
Shareholders contest only $500 of the amount claimed by Acquisition or the
Surviving Corporation, and if the arbitrator ultimately resolves the dispute by
awarding Acquisition or the Surviving Corporation $300 of the $500 contested,
then the costs and expenses of arbitration will be allocated 60% (i.e., 300 /
500) to the Shareholders and 40% (i.e., 200 / 500) to Acquisition or the
Surviving Corporation.
(e) The arbitration shall be conducted in San Francisco, California
under the Commercial Arbitration Rules of the American Arbitration Association
as in effect from time to time, except as modified by the agreement of all of
the parties to this Agreement. The arbitrator shall conduct the arbitration so
that a final result, determination, finding, judgment and/or award (the "Final
Determination") is made or rendered as soon as practicable, but in no event
later than 90 business days after the delivery of the Notice of Arbitration nor
later than 10 days following completion of the arbitration. The Final
Determination must be agreed upon and signed by the sole arbitrator. The Final
Determination shall be final and binding on all parties and there shall be no
appeal from or reexamination of the Final Determination, except for fraud,
perjury, evident partiality or misconduct by an arbitrator prejudicing the
rights of any party and to correct manifest clerical errors.
(f) Acquisition or the Surviving Corporation may enforce any Final
Determination in any state or federal court located in San Francisco,
California. For the purpose of any action or proceeding instituted with respect
to any Final Determination, each party hereto hereby irrevocably submits to the
jurisdiction of such courts, irrevocably consents to the service of process by
registered mail or personal service and hereby irrevocably waives, to the
fullest extent permitted by law, any objection which it may have or hereafter
have as to personal jurisdiction, the laying of the venue of any such action or
proceeding brought in any such court and any claim that any such action or
proceeding brought in any court has been brought in an inconvenient forum.
(g) Any party required to make a payment pursuant to this Section
11.11 shall pay the party entitled to receive such payment within three days of
the delivery of the Final Determination to such responsible party. If any party
shall fail to pay the amount of damages, if any, assessed against it within ten
(10) days of the delivery to such party of such award, the unpaid amount shall
bear interest from the date of such delivery at the rate of twelve (12) percent
per annum or, if lower, the maximum rate permitted by applicable usury laws.
Interest on any such unpaid amount shall be compounded monthly, computed on the
basis of a 365-day year and shall be payable on demand. In addition, such party
shall reimburse the other party for any and all costs or expenses of any nature
or kind whatsoever (including but not limited to all attorneys' fees) incurred
in seeking to collect such damages or to enforce any such award.
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11.12 Further Transfers. The Company and the Surviving Corporation,
the Shareholders and Acquisition will, and will cause their Affiliates to,
execute and deliver such further instruments of conveyance and transfer and take
such additional action as the Surviving Corporation may reasonably request to
effect, consummate, confirm or evidence the Merger, including the transfer to
the Surviving Corporation of all of the shares of Company Common Stock.
11.13 Transition Assistance. Neither the Company nor any Shareholder
will in any manner take any action which is designed or intended to have the
effect of discouraging customers, suppliers, lessors, licensors and other
business associates from maintaining the same business relationships with the
Surviving Corporation and its Affiliates after the date of this Agreement as
were maintained with the Company and its Affiliates prior to the date of this
Agreement.
11.14 Communications. All mail and other communications received by
the Company or the Shareholders relating to the business of the Surviving
Corporation at any time after the Closing Date shall be promptly turned over to
the Surviving Corporation by the Company and the Shareholders.
11.15 Reasonable Best Efforts To Consummate Closing Transactions. On
the terms and subject to the conditions contained in this Agreement, the
Company, the Shareholders and Acquisition agree to use reasonable best efforts
to take, or to cause to be taken, all reasonable actions, and to do, or to cause
to be done, all things, necessary, proper or advisable under applicable laws and
regulations to consummate, as soon as reasonably practicable, the Closing,
including but not limited to the satisfaction of all conditions thereto set
forth herein.
11.16 Confidentiality. After the Effective Time, the Shareholders
shall continue to maintain the confidentiality of all information, documents and
materials relating to the Company and the Surviving Corporation including all
such materials which remain in the possession of the Shareholders, except to the
extent disclosure of any such information is required by law or authorized by
the Board or reasonably occurs in connection with disputes over the terms of
this Agreement, and, prior to the Effective Time, Acquisition shall maintain the
confidentiality of all information, documents and materials relating to the
Company (other than that relating to the Company's business which Acquisition
for good business reasons is required to disclose upon approval of the board of
directors of the Company) which Acquisition has obtained in connection with this
Agreement or with the transactions contemplated herein, except to the extent
disclosure of any such information is required by law or authorized by the
Company or reasonably occurs in connection with disputes over the terms of this
Agreement. Any confidentiality agreement among Acquisition or its shareholders
and the Company shall automatically be terminated as of the Effective Time. In
the event that any party reasonably believes after consultation with counsel
that it is required by law to disclose any confidential information described in
this Section 11.16 the disclosing party will (a) provide the other party with
prompt notice before such disclosure in order that any party may attempt to
obtain a protective order or other assurance that confidential treatment will be
accorded such confidential information, and (b) cooperate with the other party
in attempting to obtain such order or assurance. The provisions of this Section
11.16 shall not apply to any
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information, documents or materials which are, as shown by appropriate written
evidence, in the public domain or, as shown by appropriate written evidence,
shall come into the public domain, other than by reason of breach by the
applicable party bound hereunder or its Affiliates.
11.17 Schedules. The mere listing (or inclusion of a copy) of a
document or other item in a schedule shall not be adequate to disclose an
exception to a representation or warranty made in this Agreement, unless the
representation or warranty has to do with the existence of the document or other
item itself. No exceptions to any representations or warranties disclosed on
one schedule shall constitute an exception to any other representations or
warranties made in this Agreement unless the exception is disclosed as provided
herein on each such other applicable schedule or an appropriate cross-reference
to a specific section of each applicable schedule is provided on such schedule.
11.18 Settlement of Reciprocal Compensation Disputes. The Surviving
Corporation shall not compromise, settle or take any other significant action
with respect to any claims by or against PacBell or GTE which could (i) affect
the amount of, or the timing of receipt or payment of, the Unpaid Compensation
or Repaid Compensation with respect to the Earnout Period or (ii) otherwise
affect the Earnout Payment payable to the Shareholders, without the prior
consent of each Shareholder to such compromise, settlement or other action;
provided that each such Shareholder shall not unreasonably withhold such consent
based (A) primarily on the best interest of the Surviving Corporation as a whole
(without taking into account the affect of such compromise, settlement or other
action on the Earnout Payment) and (B) secondarily on the best interests of such
Shareholder (including, without limitation, the affect of such compromise,
settlement or other action on the Earnout Payment); and provided further that no
such consent of the Shareholders shall be required in the event the aggregate
amount of the Earnout Payment hereunder prior to such compromise, settlement or
other action or after giving effect to such compromise, settlement or other
action is equal to $20,000,000.
11.19 Additional Sale of Common Stock. Immediately following the
Closing and in connection with the transaction contemplated hereby, the
Surviving Corporation shall sell to the shareholders of Acquisition up to
700,000 shares of Common Stock pursuant to a stock purchase agreement to be
mutually agreed upon by the Surviving Corporation and the shareholders of
Acquisition. Immediately after giving effect to such stock purchase, the
Surviving Corporation's equity capitalization shall in all material respects be
as set forth in the Surviving Corporation Capitalization Schedule attached
hereto.
11.20 Memorandum; Disclaimer of Projections. The Company and the
Shareholders make no representation or warranty to Acquisition except as
specifically made in this Agreement. In particular, the Company and the
Shareholders make no representation or warranty to Acquisition with respect to
(a) the information set forth in the Confidential Memorandum distributed by
Furman Selz Incorporated in connection with the transaction contemplated hereby
or (b) any financial projection or forecast relating to the Company. With
respect to any such projection or forecast delivered by or on behalf of the
Company and the Shareholders to Acquisition, Acquisition acknowledges that (i)
there are uncertainties inherent in attempting to make such projections and
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forecasts, (ii) it is familiar with such uncertainties, (iii) it is taking full
responsibility for making its own evaluation of the adequacy and accuracy of all
such projections and forecasts so furnished to it and (iv) it shall have no
claim against the Company and the Shareholders with respect thereto.
ARTICLE 12
SECURITIES
----------
12.1 Investment Representations of the Shareholders. In connection
with the issuance of the Preferred Stock and the Common Stock (collectively, the
"Securities") to the Shareholders and the shareholders of Acquisition hereunder,
the Shareholders and the shareholders of Acquisition hereby represent and
warrant to the Surviving Corporation that:
(a) Each of the Shareholders and the shareholders of Acquisition has
had an opportunity to ask questions and receive answers concerning the terms and
conditions of the offering of the Securities, has had full access to such other
information concerning the Surviving Corporation as each Shareholder or
shareholder of Acquisition has requested and possesses substantial information
about, and familiarity with, the Surviving Corporation as a result of the
information provided to the each Shareholder and the shareholders of
Acquisition.
(b) Each Shareholder and shareholder of Acquisition is able to bear
the economic risk of a complete loss of the investment in the Securities for an
indefinite period of time.
(c) Each Shareholder and shareholder of Acquisition is acquiring the
Securities hereunder for its own account with the present intention of holding
such securities for investment purposes and has no intention of selling such
security in a public distribution in violation of federal or state securities
laws.
12.2 Legend. The Securities will be imprinted with a legend in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY WERE ORIGINALLY ISSUED ON
[____________], 1998, AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. IN
ADDITION, THESE SECURITIES ARE SUBJECT TO CERTAIN TRANSFER
RESTRICTIONS CONTAINED IN AN AGREEMENT AND PLAN OF MERGER DATED AS OF
[__________], 1998 BETWEEN THE COMPANY AND CERTAIN PARTIES,
SIGNATORIES THERETO. PRIOR TO ANY SALE OR TRANSFER OF THESE
SECURITIES, EXCEPT PURSUANT TO
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AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SALE
OR TRANSFER, THE HOLDER HEREOF SHALL HAVE DELIVERED TO THE ISSUER
HEREOF (THE "COMPANY") AND OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY TO THE EFFECT THAT SUCH SALE OR TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE ACT.
ARTICLE 13
MISCELLANEOUS
-------------
13.1 Amendment and Waiver. This Agreement may be amended, and any
provision of this Agreement may be waived; provided that any such amendment or
waiver will be binding on the Company, prior to the Effective Time, and the
Shareholders only if such amendment or waiver is set forth in a writing executed
by the Company and the Shareholders, and that any such amendment or waiver will
be binding upon Acquisition, prior to the Effective Time, and the Surviving
Corporation, after the Effective Time, only if such amendment or waiver is set
forth in a writing executed by Acquisition and the Surviving Corporation. No
course of dealing between or among any persons having any interest in this
Agreement will be deemed effective to modify, amend or discharge any part of
this Agreement or any rights or obligations of any person under or by reason of
this Agreement. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute, a waiver of any other provisions, whether or not
similar, nor shall any waiver constitute a continuing waiver.
13.2 Notices. All notices, demands and other communications to be
given or delivered to Acquisition, the Company, the Surviving Corporation or the
Shareholders under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when personally delivered, sent by
reputable overnight courier or transmitted by facsimile or telecopy, to the
addresses indicated below (unless another address is so specified in writing):
Notices to the Company, prior to the Effective Time, and the
Shareholders:
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, CA 95204
Attention: President
Telephone: (209) 926-3222
Facsimile: (209) 926-3205
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Bay Alarm Company
925 Ygnacio Valley Road
Walnut Creek, CA 94596
Telephone: (510) 935-1100
Facsimile: (510) 947-1020
John K. La Rue
1548 El Camino Avenue
Stockton, CA 95209
Telephone: (209) 926-3222
with copies to (which shall not constitute notice):
--------------------------------------------------
Orrick, Herrington & Sutcliffe, LLP
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, CA 94111-3143
Attention: John F. Seegal, Esq.
Telephone: (415) 773-5797
Facsimile: (415) 773-5759
and
Neumiller & Beardslee
509 West Weber Avenue, 5th Floor
Stockton, CA 95203
Attention: Robert C. Morrison, Esq.
Telephone: (209) 948-8200
Facsimile: (209) 948-4910
Notices to Acquisition:
----------------------
c/o William Blair Capital Partners, LLC
227 West Monroe Street
Suite 3400
Chicago, Illinois 60606
Attention: David G. Chandler
Telephone: (312) 236-1600
Facsimile: (312) 236-1042
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<PAGE>
with a copies to (which shall not constitute notice):
----------------------------------------------------
SCP Private Equity Partners
800 Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Attention: Samuel A. Plum
Thomas G. Rebar
Telephone: (610) 995-2900
Facsimile: (610) 975-9543
and
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: James L. Learner
Telephone: (312) 861-2129
Facsimile: (312) 861-2200
Notices to the Surviving Corporation:
------------------------------------
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, CA 95204
Attention: President
Telephone: (209) 926-3222
Facsimile: (209) 926-3205
with a copy to (which shall not constitute notice):
--------------------------------------------------
c/o William Blair Capital Partners, LLC
227 West Monroe Street
Suite 3400
Chicago, Illinois 60606
Attention: David G. Chandler
Telephone: (312) 236-1600
Facsimile: (312) 236-1042
and
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<PAGE>
SCP Private Equity Partners
800 Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Attention: Samuel A. Plum
Thomas G. Rebar
Telephone: (610) 995-2900
Facsimile: (610) 975-9543
and
TL Ventures
800 Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Attention: Chief Financial Officer
Telephone: (610) 293-0600
Facsimile: (610) 293-0601
and
Safeguard Scientifics, Inc.
800 Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Attention: Chief Financial Officer
Telephone: (610) 293-0600
Facsimile: (610) 293-0601
and
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: James L. Learner
Telephone: (312) 861-2129
Facsimile: (312) 861-2200
13.3 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of Acquisition, the Company, the
Shareholders, the Surviving Corporation and their respective successors and
permitted assigns. Neither this Agreement nor any rights, benefits or
obligations set forth herein may be assigned by Acquisition, the Company, the
Surviving Corporation or the Shareholders, except that Acquisition may assign
this Agreement and any of the provisions hereof without the written consent of
the other parties hereto (a) to any Affiliate
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of Acquisition, or (b) for collateral security purposes to any lenders providing
financing to the Surviving Corporation or the Company (or its permitted
assignees).
13.4 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
13.5 No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
person. The use of the word "including" in this Agreement or in any of the
agreements contemplated hereby shall be by way of example rather than by
limitation.
13.6 Captions. The captions used in this Agreement are for
convenience of reference only and do not constitute a part of this Agreement and
shall not be deemed to limit, characterize or in any way affect any provision of
this Agreement, and all provisions of this Agreement shall be enforced and
construed as if no caption had been used in this Agreement.
13.7 No Third Party Beneficiaries. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give to any person,
firm or corporation, other than the parties hereto and their respective
permitted successors and assigns and other than the investors of Acquisition,
any rights or remedies under or by reason of this Agreement, such third parties
specifically including, without limitation, employees or creditors of the
Company.
13.8 Complete Agreement. This document and the documents referred
to herein contain the complete agreement between the parties and supersede any
prior understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any way.
13.9 Counterparts. This Agreement may be executed in one or more
counterparts (including by means of telecopied signature pages), all of which
taken together shall constitute one and the same instrument.
13.10 Delivery by Facsimile. This Agreement and any signed agreement
or instrument entered into in connection with this Agreement, and any amendments
hereto or thereto, to the extent signed and delivered by means of a facsimile
machine, shall be treated in all manner and respects as an original agreement or
instrument and shall be considered to have the same binding legal effect as if
it were the original signed version thereof delivered in person. At the request
of any Party hereto or to any such agreement or instrument, each other Party
hereto or thereto shall re-execute original forms thereof and deliver them to
all other Parties. No Party hereto or to any such agreement or instrument shall
raise the use of a facsimile machine to deliver a signature or the fact that any
signature or agreement or instrument was transmitted or communicated through the
use of
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a facsimile machine as a defense to the formation of a contract and each such
Party forever waives any such defense.
13.11 Governing Law. The corporation laws of the State of California
shall govern all issues concerning the relative rights of the Company and its
Shareholders and any issues arising out of or relating to the Merger. All other
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal law of the State of
California, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of California or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of California.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
PWT ACQUISITION CORP.
By: /s/ David G. Chandler
----------------------------------------
Its: President
By: /s/ Lawrence I. Shagrin
----------------------------------------
Its: Secretary
PAC-WEST TELECOMM, INC.
By: /s/ John K. La Rue
----------------------------------------
Its: President
By: /s/ Roger Westphal
----------------------------------------
Its: Secretary
BAY ALARM COMPANY
By: /s/ Bruce A. Westphal
----------------------------------------
Its: Chairman
/s/ John K. La Rue
--------------------------------------------
John K. La Rue
[SIGNATURE PAGE TO MERGER AGREEMENT]
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AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
-----------------------------------------------
This AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (this "Amendment"),
dated as of September 16, 1998, is by and among Pac-West Telecomm, Inc., a
California corporation (the "Company"), PWT Acquisition Corp., a California
corporation ("Acquisition"), Bay Alarm Company ("Bay Alarm") and John K. La Rue
("La Rue").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, Acquisition, Bay Alarm, and La Rue are parties to
that certain Agreement and Plan of Merger, dated as of June 30, 1998 (the
"Merger Agreement");
WHEREAS, the Company, Acquisition, Bay Alarm, and La Rue desire to amend
the Merger Agreement as provided herein; and
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in the Merger Agreement.
NOW, THEREFORE, in consideration of the premises and covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Subsections 5.1(a) and 5.1(b) of the Merger Agreement are hereby amended
by:
(a) deleting the following phrase in each such subsection:
"(B) the issuance of 36,553.70 shares of Preferred Stock, plus (C)
the issuance of 347,260 shares of Common Stock, by (ii) 10,000";
and
(b) inserting in lieu thereof the following phrase in each such
subsection:
"(B) the issuance of 36,543.30 shares of Preferred Stock, plus (C)
the issuance of 347,170 shares of Common Stock, by (ii) 10,000;
provided that the aggregate number of shares of Preferred Stock so
issuable to each Shareholder shall be rounded to the nearest 0.1
of a share and the aggregate number of shares of Common Stock so
issuable to each Shareholder shall be rounded to the nearest 10
shares."
2. Subsection 5.3(a) of the Merger Agreement is hereby amended by inserting
as the last two sentences thereof the following:
"It is the intention of the parties hereto that the Earnout Payment
shall be calculated and paid as provided herein after delivery of the
final audited financial statements for the Earnout Period and on each
separate occasion that the Surviving Corporation receives any Unpaid
Compensation or is required to repay any Repaid Compensation with
respect to the Earnout Period, including in the event such amounts are
paid or
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required to be repaid in multiple disbursements rather than as a lump
sum. Each payment of the Earnout Payment shall take into account any
prior Earnout Payment made hereunder (it being understood that whether
or not there are multiple payments of the Earnout Payment, the
Existing Shareholders shall not be entitled to be paid twice for the
same amount by which EBITDA for the Earnout Period exceeds the
threshold set forth above)."
3. The Acquisition Brokerage Schedule and the Surviving Corporation
Capitalization Schedule are hereby replaced by the Schedules of the same title
attached hereto.
4. Each of the Company and Acquisition hereby represent and warrant that
this Amendment has been duly authorized, executed and delivered by such party
and constitutes the valid and binding obligation of such party, enforceable in
accordance with its terms. Each of Bay Alarm and La Rue hereby represent and
warrant that this Amendment constitutes a valid and binding obligation of such
party, enforceable in accordance with its terms.
5. This Amendment may be executed in one or more counterparts (including by
means of telecopied signature pages), all of which shall be considered one and
the same agreement, and shall become effective when one or more of such
counterparts have been signed by each of the parties and delivered to the other
parties.
6. Except as expressly set forth in this Amendment, no other amendment or
modification is made to any other provision of the Merger Agreement, and the
Merger Agreement shall remain in full force and effect, as amended hereby. The
Company, Acquisition, Bay Alarm and La Rue hereby reaffirm all of their
respective rights and obligations thereunder.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
date first written above.
PWT ACQUISITION CORP.
By: /s/ David G. Chandler
-----------------------------------------
David G. Chandler, President
By: /s/ Lawrence I. Shagrin
----------------------------------------
Lawrence I. Shagrin, Assistant Secretary
PAC-WEST TELECOMM, INC.
By: /s/ John K. La Rue
----------------------------------------
Name: John K. La Rue
---------------------------------------
Its: President
---------------------------------------
By: /s/ Roger L. Westphal
----------------------------------------
Name: Roger Westphal
--------------------------------------
Its: Secretary
---------------------------------------
BAY ALARM COMPANY
By: /s/ Bruce A. Westphal
-----------------------------------------
Name: Bruce A. Westphal
--------------------------------------
Its: Chairman
---------------------------------------
/s/ John K. La Rue
--------------------------------------------
John K. La Rue
[SIGNATURE PAGE TO AMENDMENT TO MERGER AGREEMENT]
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EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PAC-WEST TELECOMM, INC.
-----------------------
ARTICLE I
---------
The name of this Corporation is Pac-West Telecomm, Inc.
ARTICLE II
----------
The purpose of this Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
-----------
A. AUTHORIZED SHARES
The total number of shares of capital stock which the Corporation has
authority to issue is 1,675,000 shares, consisting of:
(1) 175,000 shares of Class A Participating Preferred Stock, par value
$.01 per share (the "Class A Preferred"); and
(2) 1,500,000 shares of Common Stock, par value $.01 per share (the
"Common Stock").
-1-
<PAGE>
B. CAPITAL STOCK
Section 1. Liquidation. Upon any liquidation, dissolution or winding
up of the Corporation (whether voluntary or involuntary), each holder of a share
of Class A Preferred (a "Share") shall be entitled to be paid, before any
Distribution or other payment is made upon any Junior Securities, an amount in
cash equal to the amount which the holders of Class A Preferred are entitled to
be paid pursuant to Section 3 hereof. Not less than 30 days prior to the
payment date stated therein, the Corporation shall mail written notice of any
such liquidation, dissolution or winding up to each record holder of Class A
Preferred, setting forth in reasonable detail the amount of proceeds to be paid
with respect to each Share in connection with such liquidation, dissolution or
winding up. The consolidation or merger of the Corporation with or into any
other entity or entities in which the Corporation is not the surviving entity,
or any other form of recapitalization or reorganization affecting the
Corporation in which the Corporation is not the surviving entity, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this Section 1, except for any such merger, consolidation,
recapitalization or reorganization which is effected solely to change the state
of incorporation of the Corporation.
Section 2. Priority of Class A Preferred on Distributions. So long
as there is any Unpaid Yield or Unreturned Original Cost outstanding, without
the prior written consent of the holders of a majority of the outstanding shares
of Class A Preferred, the Corporation shall not, nor shall it permit any
Subsidiary to, make any Distribution, directly or indirectly, with respect to
any Class A Preferred or Junior Securities other than in accordance with the
provisions of Section 3 below, except for (i) repurchases of Common Stock from
present or former employees or consultants of the Corporation and its
Subsidiaries upon termination of employment or consultancy in accordance with
arrangements approved by the Corporation's board of directors and so long as no
Event of Noncompliance is in existence immediately prior to or is otherwise
caused by any such repurchase, (ii) any redemption or repurchase of Class A
Preferred or Common Stock pursuant to any right of first refusal, first offer or
similar right in favor of the Corporation approved by the Corporation's board of
directors so long as no Event of Noncompliance is in existence immediately prior
to or is otherwise caused by any such repurchase, and (iii) dividends payable in
shares of Common Stock issued upon the outstanding shares of Common Stock in
compliance with the provisions of Section 8 below.
Section 3. Distributions. At the time of each Distribution, such
Distribution shall be made to the holders of Class A Preferred and Common Stock
in the following priority:
3A. Distribution of Unpaid Yield. The holders of Class A Preferred
shall be entitled to receive all or a portion of such Distribution (ratably
among such holders based upon the aggregate Unpaid Yield of the Shares of Class
A Preferred held by each such holder as of the time of such Distribution) equal
to the aggregate Unpaid Yield on the outstanding shares of Class A Preferred as
of the time of such Distribution, and no Distribution or any portion thereof
shall be made under paragraphs 3B or 3C below until the entire amount of the
Unpaid Yield on the outstanding Shares of Class A Preferred as of the time of
such Distribution has been paid in full.
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The Distributions made pursuant to this paragraph 3A to holders of Class A
Preferred shall constitute a payment of Yield on the Class A Preferred.
3B. Distribution of Unreturned Original Cost. After the required
amount of a Distribution has been made in full pursuant to paragraph 3A above,
the holders of Class A Preferred shall be entitled to receive all or a portion
of such Distribution (ratably among such holders based upon the aggregate
Unreturned Original Cost of the Shares of Class A Preferred held by each such
holder as of the time of such Distribution) equal to the aggregate Unreturned
Original Cost of the outstanding shares of Class A Preferred as of the time of
such Distribution, and no Distribution or any portion thereof shall be made
under paragraph 3C below until the entire amount of the Unreturned Original Cost
of the outstanding Shares of Class A Preferred as of the time of such
Distribution has been paid in full. The Distributions made pursuant to this
paragraph 3B to holders of Class A Preferred shall constitute a return of
Original Cost of the Class A Preferred.
3C. Remaining Distributions. After the required amount of a
Distribution has been made pursuant to paragraphs 3A and 3B above, the holders
of Class A Preferred and Common Stock as a group, shall be entitled to receive
the remaining portion of such Distribution (ratably among such holders based
upon the aggregate number of shares of Class A Preferred and Common Stock held
by each such holder as of the time of such Distribution).
Section 4. Redemptions at the Option of the Holders of Class A
Preferred.
4A. Redemption with Proceeds of Public Offerings.
(i) Upon the request of any holder of Class A Preferred delivered
at least 30 days prior to the expected consummation of any Public Offering as
set forth in the notice delivered by the Corporation pursuant to subparagraph
4A(iii) below, the Corporation shall apply the net cash proceeds from any Public
Offering remaining after deduction of all discounts, underwriters' commissions
and other reasonable expenses to redeem the Shares of Class A Preferred
requested to be redeemed by such holder at a price per Share determined pursuant
to paragraph 4C below; provided that the Corporation shall not be required to
redeem any Class A Preferred pursuant to this subparagraph 4A(i) in the event
the Corporation receives a Conversion Notice (as defined below) prior to the
consummation of such Public Offering from the holders of a majority of the
outstanding Class A Preferred pursuant to subparagraph 5A(ii) below.
(ii) Upon the request of the holders of a majority of the
outstanding Class A Preferred delivered at least 15 days prior to the expected
consummation of any Public Offering as set forth in the notice delivered by the
Corporation pursuant to subparagraph 4A(iii) below, the Corporation shall apply
the net cash proceeds from any Public Offering remaining after deduction of all
discounts, underwriters' commissions and other reasonable expenses to redeem all
outstanding Shares of Class A Preferred at a price per Share determined pursuant
to paragraph 4C below.
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(iii) The Corporation shall send written notice of any proposed
Public Offering and the expected date of the consummation of such Public
Offering by reputable overnight courier service (charges prepaid) to each record
holder of Class A Preferred not less than 60 days prior to the Corporation's
expected date of the consummation of such Public Offering. The Corporation shall
provide written notice of any redemption of Shares of Class A Preferred pursuant
to paragraph 4A to all holders of Class A Preferred within 3 days after the
receipt of any redemption notice delivered pursuant to this paragraph 4A. Any
redemption pursuant to this paragraph 4A shall take place on a date fixed by the
Corporation, which date shall not be more than three days after the
Corporation's receipt of the proceeds of any Public Offering. Except as to the
Shares so redeemed, redemptions of Shares pursuant to this paragraph 4A shall
not relieve the Corporation of its obligation to redeem Shares pursuant to
paragraph 4B below.
4B. Optional Redemptions by Holders. At any time and from time to
time after December 31, 2003, the holders of a majority of the outstanding Class
A Preferred may request redemption of all or any portion of their Shares of
Class A Preferred by delivering written notice of such request to the
Corporation. Within five days after receipt of such request, the Corporation
shall give written notice of such request to all other holders of Class A
Preferred, and such other holders may request redemption of all or any portion
of their Shares of Class A Preferred by delivering written notice to the
Corporation within ten days after receipt of the Corporation's notice. The
Corporation shall be required to redeem all Shares with respect to which such
redemption requests have been made at a price per Share determined pursuant to
paragraph 4C below within 60 days after receipt of the initial redemption
request therefor. Except as to the Shares so redeemed, redemptions pursuant to
this paragraph 4B shall not relieve the Corporation of its obligation to redeem
Shares pursuant to paragraph 4A above.
4C. Redemption Payments. For each Share which is to be redeemed
hereunder, the Corporation shall be obligated on the Redemption Date to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Share) an amount in immediately
available funds equal to the Unreturned Original Cost plus Unpaid Yield with
respect to such Share. Notwithstanding anything herein to the contrary, if the
funds of the Corporation (i) legally available pursuant to the General
Corporation Law of California for the redemption of Shares on any Redemption
Date or (ii) permitted to be used for the redemption of Shares pursuant to any
debt financing agreement of the Corporation on any Redemption Date are in either
case insufficient to redeem the total number of Shares to be redeemed on such
date, those funds which are available pursuant to the California General
Corporation Law and permitted to be used pursuant to any such debt financing
agreement of the Corporation shall be used to redeem the maximum possible number
of Shares pro rata among the holders of the Shares to be redeemed based upon the
aggregate Unreturned Original Cost plus Unpaid Yield of the Shares held by each
such holder. At any time thereafter when additional funds of the Corporation
are available pursuant to the foregoing sentence for the redemption of Shares,
such funds shall immediately be used to redeem the balance of the Shares which
the Corporation has become obligated to redeem on any Redemption Date but which
it has not redeemed.
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4D. Partial Redemptions. In case fewer than the total number of
Shares represented by any certificate are redeemed, a new certificate
representing the number of unredeemed Shares shall be issued to the holder
thereof without cost to such holder within three business days after surrender
of the certificate representing the redeemed Shares.
4E. Dividends After Redemption Date. No Share shall be entitled to
any dividends accruing after the date on which the amount determined pursuant to
paragraph 4C above is paid to the holder of such Share. On such date, all
rights of the holder of such Share shall cease, and such Share shall no longer
be deemed to be issued and outstanding.
4F. Redeemed or Otherwise Acquired Shares. Any Shares which are
redeemed or otherwise acquired by the Corporation shall be canceled and retired
and shall not be reissued, sold or transferred.
4G. Other Redemptions or Acquisitions. The Corporation shall not,
nor shall it permit any Subsidiary to, redeem or otherwise acquire any Shares of
Class A Preferred, except as expressly authorized herein or except pursuant to a
purchase offer made pro-rata to all holders of Class A Preferred on the basis of
the number of Shares owned by each such holder.
Section 5. Conversion at the Option of the Holders of Class A
Preferred.
5A. Conversion Obligations.
(i) In connection with the consummation of a Public Offering, any
holder of Class A Preferred may cause all Shares of Class A Preferred held by
such holder to be converted to Conversion Stock upon the consummation of such
Public Offering by delivering written notice to the Corporation (a "Conversion
Notice") at least 30 days prior to the expected consummation of such Public
Offering as set forth in the notice delivered by the Corporation pursuant to
subparagraph 4A(iii) above; provided that the Corporation shall not be required
to convert any Class A Preferred pursuant to this subparagraph 5A(i) in the
event the Corporation receives a redemption notice from the holders of a
majority of the outstanding Class A Preferred pursuant to subparagraph 4A(ii)
above.
(ii) In connection with the consummation of a Public Offering,
the holders of a majority of the outstanding Shares of Class A Preferred may
cause all outstanding Shares of Class A Preferred to be converted to Conversion
Stock upon the consummation of such Public Offering by delivering written notice
to the Corporation (also a "Conversion Notice") at least 15 days prior to the
expected consummation of such Public Offering as set forth in the notice
delivered by the Corporation pursuant to subparagraph 4A(iii) above.
(iii) The Corporation shall provide written notice of the
Conversion of any Shares of Class A Preferred to all holders of Class A
Preferred at least five days prior to such conversion.
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<PAGE>
5B. Conversion Procedure.
(i) Upon delivery of a Conversion Notice, each Share of Class A
Preferred (including any fraction of a Share) to which such conversion notice
relates shall convert into a number of shares of Conversion Stock computed by
dividing the Unreturned Original Cost plus Unpaid Yield with respect to such
Share by the price per share of Conversion Stock to the public in such Public
Offering (the "Offering Price").
(ii) Each conversion of Class A Preferred shall be deemed to have
been effected upon the consummation of such Public Offering. At such time, the
rights of the holder of such Class A Preferred as a holder of Class A Preferred
shall cease and the Person or Persons in whose name or names any certificate or
certificates for shares of Conversion Stock are to be issued upon such
conversion shall be deemed to have become the holder or holders of record of the
shares of Conversion Stock represented thereby.
(iii) As soon as possible after a conversion has been effected
(but in any event within five (5) business days after such conversion), the
Corporation shall deliver to the converting holder, upon surrender to the
Corporation at its principal office by the converting holder of its certificate
for the converted Class A Preferred, a certificate or certificates representing
the number of shares of Conversion Stock issuable by reason of such conversion
in the name or names and in such denominations as such converting holder has
specified.
(iv) The issuance of certificates for shares of Conversion Stock
upon conversion of Class A Preferred shall be made without charge to the holders
of such Class A Preferred for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of shares of Conversion Stock. Upon conversion of each Share of Class A
Preferred, the Corporation shall take all such actions as are necessary in order
to insure that the Conversion Stock issuable with respect to such conversion
shall be validly issued, fully paid and nonassessable and free and clear of all
liens, charges and encumbrances.
(v) The Corporation shall not close its books against the
transfer of Class A Preferred or of Conversion Stock issued or issuable upon
conversion of Class A Preferred in any manner which interferes with the timely
conversion of such Shares.
(vi) If any fractional interest in a share of Conversion Stock
would, except for the provisions of this subparagraph 5B(vi), be deliverable
upon any conversion of the Class A Preferred, the Corporation, in lieu of
delivering the fractional share therefor, may elect to pay an amount to the
holder thereof equal to the Offering Price of such fractional interest as of the
date of conversion.
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(vii) The Corporation shall take all such actions as may be
necessary to assure that all such shares of Conversion Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Conversion
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Corporation upon each such issuance).
(viii) In connection with any conversion pursuant to this
Section 5, the Corporation shall take all actions necessary to make available
out of its authorized but unissued shares of Conversion Stock, solely for the
purpose of issuance upon the conversion of the Class A Preferred, such number of
shares of Conversion Stock issuable upon the conversion of all outstanding Class
A Preferred.
Section 6. Voting Rights. Except as otherwise provided by applicable
law, the Class A Preferred shall have no voting rights. Notwithstanding the
foregoing, each holder of Class A Preferred shall be entitled to notice of all
shareholders meetings at the same time and in the same manner as notice is given
to all shareholders entitled to vote at such meetings. The holders of the Common
Stock shall be entitled to notice of all shareholders meetings in accordance
with the Corporation's bylaws, and the holders of the Common Stock shall be
entitled to one vote per share on all matters submitted to the shareholders of
the Corporation for a vote.
Section 7. Events of Noncompliance.
7A. Definition. An Event of Noncompliance shall have occurred if:
(i) the Corporation fails to make any redemption payment with
respect to the Class A Preferred which it is required to make hereunder (after
giving effect to the second sentence of paragraph 4C hereof);
(ii) the Corporation or any material Subsidiary makes an
assignment for the benefit of creditors or admits in writing its inability to
pay its debts generally as they become due; or an order, judgment or decree is
entered adjudicating the Corporation or any material Subsidiary bankrupt or
insolvent; or any order for relief with respect to the Corporation or any
material Subsidiary is entered under the Federal Bankruptcy Code; or the
Corporation or any material Subsidiary petitions or applies to any tribunal for
the appointment of a custodian, trustee, receiver or liquidator of the
Corporation or any material Subsidiary or of any substantial part of the assets
of the Corporation or any material Subsidiary, or commences any proceeding
(other than a proceeding for the voluntary liquidation and dissolution of a
material Subsidiary) relating to the Corporation or any Subsidiary under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction; or any such petition or
application is filed, or any such proceeding is commenced, against the
Corporation or any material Subsidiary and either (a) the Corporation or any
such material Subsidiary by any act indicates its approval thereof, consent
thereto or acquiescence therein or (b) such petition, application or proceeding
is not dismissed within 60 days; or
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(iii) the Corporation or any Subsidiary defaults in the
performance of any obligation or agreement or there shall otherwise occur an
event of default under any agreement to which the Corporation or any Subsidiary
is a party if the effect of such default or event of default is to cause an
amount exceeding $500,000 to become due prior to its stated maturity.
7B. Consequences of Events of Noncompliance.
(i) If an Event of Noncompliance has occurred (other than an
Event of Noncompliance of the type described in subparagraph 7A(ii)), the holder
or holders of a majority of the Class A Preferred then outstanding may demand
(by written notice delivered to the Corporation) immediate redemption of all or
any portion of the Class A Preferred owned by such holder or holders at a price
per Share equal to the Unreturned Original Cost plus Unpaid Yield with respect
to such Share. The Corporation shall give prompt written notice of such election
to the other holders of Class A Preferred (but in any event within five days
after receipt of the initial demand for redemption from the holder or holders of
a majority of the Class A Preferred then outstanding), and each such other
holder may demand immediate redemption of all or any portion of such holder's
Class A Preferred by giving written notice thereof to the Corporation within
seven days after receipt of the Corporation's notice. The Corporation shall
redeem all Class A Preferred as to which rights under this paragraph 7B have
been exercised within 30 days after receipt of the initial demand for redemption
from the holder or holders of a majority of the Class A Preferred then
outstanding.
(ii) If an Event of Noncompliance of the type described in
subparagraph 7A(ii) has occurred, all of the Class A Preferred then outstanding
shall be subject to immediate redemption by the Corporation (without any action
on the part of the holders of the Class A Preferred) at a price per Share equal
to the amount which the holders of Class A Preferred are entitled to be paid
with respect to each Share pursuant to Section 3 above. The Corporation shall
immediately redeem all Class A Preferred upon the occurrence of such Event of
Noncompliance.
(iii) If any Event of Noncompliance exists, each holder of Class
A Preferred shall also have any other rights which such holder is entitled to
under any contract or agreement at any time and any other rights which such
holder may have pursuant to applicable law.
Section 8. Stock Splits and Stock Dividends. The Corporation shall
not in any manner subdivide (by stock split, stock dividend or otherwise) or
combine (by stock split, stock dividend or otherwise) the outstanding shares of
Class A Preferred or Common Stock, as the case may be, unless the outstanding
shares of the other class shall be proportionately subdivided or combined. All
such subdivisions and combinations shall be payable only in Class A Preferred to
the holders of Class A Preferred and in Common Stock to the holders of Common
Stock. In no event shall a stock split or stock dividend constitute a payment of
Yield or a return of Original Cost.
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Section 9. Registration of Transfer. The Corporation shall keep at
its principal office a register for the registration of Class A Preferred. Upon
the surrender of any certificate representing Class A Preferred at such place,
the Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
Shares represented by the surrendered certificate. Each such new certificate
shall be registered in such name and shall represent such number of Shares as is
requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Class A Preferred represented by such new certificate from
the date to which dividends have been fully paid on such Class A Preferred
represented by the surrendered certificate.
Section 10. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing Shares of Class A Preferred, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation or, in the case of any such mutilation upon
surrender of such certificate, the Corporation shall (at its expense) execute
and deliver in lieu of such certificate a new certificate of like kind
representing the number of Shares of such class represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such lost,
stolen, destroyed or mutilated certificate, and dividends shall accrue on the
Class A Preferred represented by such new certificate from the date to which
dividends have been fully paid on such lost, stolen, destroyed or mutilated
certificate.
Section 11. Definitions.
"Common Stock" means the Corporation's Common Stock and any other
capital stock of any class of the Corporation hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Corporation.
"Conversion Stock" means shares of the Common Stock; provided that if
there is a change such that the securities issuable upon conversion of the Class
A Preferred are issued by an entity other than the Corporation or there is a
change in the class of securities so issuable, then the term "Conversion Stock"
shall mean shares of the security issuable upon conversion of the Class A
Preferred if such security is issuable in shares, or shall mean the units in
which such security is issuable if such security is not issuable in shares.
"Distribution" means each distribution made by the Corporation to
holders of Class A Preferred or Common Stock, whether in cash, property, or
securities of the Corporation and whether by dividend, liquidating distributions
or otherwise; provided that none of the following shall be a Distribution: (a)
any redemption or repurchase by the Corporation of any Class A Preferred
pursuant to Section 4 above, (b) any conversion of any Class A Preferred
pursuant to Section 5 above, (c) any redemption or repurchase of Class A
Preferred or Common Stock pursuant to any right of first refusal, first offer or
similar right in favor of the Corporation approved by the Corporation's Board
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of Directors so long as no Event of Noncompliance is in existence immediately
prior to or is otherwise caused by any such repurchase, (d) repurchases of
Common Stock from present or former employees or consultants of the Corporation
and its Subsidiaries upon termination of employment or consultancy in accordance
with arrangements approved by the Corporation's board of directors and so long
as no Event of Noncompliance is in existence immediately prior to or is
otherwise caused by any such repurchase or (e) any recapitalization or exchange
of any Class A Preferred or Common Stock in compliance with the provisions of
Section 8 above or any subdivision (by stock split, stock dividend or otherwise)
or any combination (by stock split, stock dividend or otherwise) of any
outstanding Class A Preferred or Common Stock in compliance with the provisions
of Section 8 above.
"Junior Securities" means any capital stock or other equity securities
of the Corporation, except for the Class A Preferred.
"Original Cost" of each share of Class A Preferred shall be equal to
$360.00 per share (as proportionally adjusted for all stock splits, stock
dividends and other recapitalizations affecting the Class A Preferred).
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" means any offering by the Corporation of its equity
or debt securities or any rights to acquire any of its equity or debt securities
to the public pursuant to an effective registration statement under the
Securities Act of 1933, as then in effect, or any comparable statement under any
similar federal statute then in force.
"Redemption Date" as to any Share means the date specified in the
notice of any redemption at the Corporation's option or the applicable date
specified herein with respect to any other redemption; provided that no such
date shall be a Redemption Date unless the Unreturned Original Cost plus Unpaid
Yield with respect to such Share is actually paid in full on such date, and if
not so paid in full, the Redemption Date shall be the date on which such amount
is fully paid.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other
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business entity gains or losses or shall be or control the managing general
partner of such limited liability company, partnership, association or other
business entity.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of which all of the issued and outstanding capital stock or other
ownership interests are owned by such Person or another Wholly-Owned Subsidiary
of such Person.
"Unpaid Yield" of any Share of Class A Preferred means an amount equal
to the excess, if any, of (a) the aggregate Yield accrued on such Share, over
(b) the aggregate amount of Distributions made by the Corporation that
constitute payment of Yield on such Share.
"Unreturned Original Cost" of any Share of Class A Preferred means an
amount equal to the excess, if any, of (a) the Original Cost of such Share, over
(b) the aggregate amount of Distributions made by the Corporation that
constitute a return of Original Cost of such Share.
"Yield" means, with respect to each Share of Class A Preferred for
each calendar quarter, the amount accruing on such Share each day during such
quarter at the rate of 10% per annum of the sum of (a) such share's Unreturned
Original Cost, plus (b) Unpaid Yield thereon for all prior quarters. In
calculating the amount of any Distribution to be made during a calendar quarter,
the portion of a Class A Preferred share's Yield for such portion of such
quarter elapsing before such Distribution is made shall be taken into account.
Section 12. Amendment and Waiver. No amendment, modification or
waiver shall be binding or effective with respect to any provision of Sections 1
to 11 of this Subdivision B without the prior written consent of the holders of
85% of the Class A Preferred outstanding at the time such action is taken;
provided that no change in the terms hereof may be accomplished by merger or
consolidation of the Corporation with another corporation or entity unless the
Corporation has obtained the prior written consent of the holders of 85% of the
Class A Preferred then outstanding.
Section 13. Notices. All notices, demands or other communications to
be given or delivered hereunder shall be in writing and shall be deemed to have
been given when delivered personally to the recipient or one (1) business day
after being sent to the recipient by reputable overnight courier service
(charges prepaid) or five (5) business days after being mailed to the recipient
by certified or registered mail, return receipt requested and postage prepaid.
Such notices, demands and other communications shall be sent (i) to the
Corporation, at its principal executive offices and (ii) to any stockholder, at
such holder's address as it appears in the stock records of the Corporation
(unless otherwise indicated by any such holder).
ARTICLE IV
----------
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Section 1. Elimination of Director Liability. The liability of
directors of the Corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
Section 2. Indemnification. The Corporation is authorized to provide
indemnification of agents (as defined in Section 317 of the California
Corporations Code) through Bylaw provisions, agreements with agents, vote of
shareholders or disinterested directors, or otherwise, to the fullest extent
permissible under California law.
Section 3. Effect of Amendment. Any amendment, repeal or
modification of any provision of this Article IV shall not adversely affect any
right or protection of an agent of this Corporation existing at the time of such
amendment, repeal or modification.
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CERTIFICATE OF AMENDMENT
------------------------
OF
--
ARTICLES OF INCORPORATION
-------------------------
The undersigned certify that:
1. They are the president and chief financial officer, respectively, of PAC-
WEST TELECOMM, INC., a California corporation.
2. Subdivision A of Article III of the Articles of Incorporation of this
corporation is amended to read as follows:
AUTHORIZED SHARES: The total number of shares of capital stock
which the Corporation has authority to issue is 16,750,000 shares
consisting of:
(1) 1,750,000 shares of Class A Participating Preferred
Stock, par value $.01 per share (the "Class A Preferred"); and
(2) 15,000,000 shares of Common Stock, par value $.01 per
share (the "Common Stock").
Upon the amendment of this Article to read as herein set forth, each
outstanding share of Common and Class A Preferred Stock is divided
into 10 shares of the same class of stock.
3. The definition of "Original Cost" in Section 11 of Subdivision B of Article
III is amended to read as follows:
"Original Cost" of each share of Class A Preferred shall be equal
to $36.00 per share (as proportionately adjusted for all subsequent
stock splits, stock dividends and other recapitalizations affecting
Class A Preferred).
4. The foregoing amendments of Articles of Incorporation have been duly
approved by the board of directors.
5. The foregoing amendments of Articles of Incorporation have been duly
approved by the required vote of common shareholders in accordance with
Section 902, California Corporations Code. The total number of outstanding
common shares of the corporation is 1,256,247. The number of common shares
voting in favor of the amendment equaled or exceeded the vote required.
The percentage vote required was more than 50%.
<PAGE>
6. The foregoing amendments of Articles of Incorporation have been duly
approved by the required vote of Class A preferred shareholders in
accordance with Sections 902 and 903, California Corporations Code. The
total number of outstanding Class A preferred shares of the corporation is
125,000. The number of Class A preferred shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote
required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Dated: March 19, 1999.
/s/ Wallace W. Griffin
----------------------
WALLACE W. GRIFFIN, President
/s/ Richard E. Bryson
---------------------
RICHARD E. BRYSON,
Chief Financial Officer
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
PAC-WEST TELECOMM, INC.
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
The Board of Directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside California and
the corporation has one or more business offices in California, then the Board
of Directors shall fix and designate a principal business office in California.
1.2 OTHER OFFICES
The Board of Directors may at any time establish branch or subordinate
offices at any place or places.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS
Meetings of shareholders shall be held at any place within or outside the
State of California designated by the Board of Directors. In the absence of any
such designation, shareholders' meetings shall be held at the principal
executive office of the corporation or at any place consented to in writing by
all persons entitled to vote at such meeting, given before or after the meeting
and filed with the Secretary of the corporation.
2.2 ANNUAL MEETING
An annual meeting of shareholders shall be held each year on a date and at
a time designated by the Board of Directors. At that meeting, directors shall be
elected. Any other proper business may be transacted at the annual meeting of
shareholders.
<PAGE>
2.3 SPECIAL MEETINGS
Special meetings of the shareholders may be called at any time for any
purpose (including, without limitation, the filling of board vacancies and newly
created directorships), subject to the provisions of Sections 2.4 and 2.5 of
these Bylaws, by the Board of Directors, the Chairman of the Board, the
President or the holders of shares entitled to cast not less than fifteen
percent (15%) of the votes at that meeting or by the written request of the
holders of not less than fifteen percent (15%) of the outstanding shares of any
series or class of the corporation's stock. If a special meeting is called by
anyone other than the Board of Directors or the President or the Chairman of the
Board, then the request shall be in writing, specifying the time of such meeting
and the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by other written
communication to the Chairman of the Board, the President, any Vice President or
the Secretary of the corporation. The officer receiving the request forthwith
shall cause notice to be given to the shareholders entitled to vote, in
accordance with the provisions of Sections 2.4 and 2.5 of these Bylaws, that a
meeting will be held at the time requested by the person or persons calling the
meeting, so long as that time is not less than thirty-five (35) nor more than
sixty (60) days after the receipt of the request. If the notice is not given
within twenty (20) days after receipt of the request, then the person or persons
requesting the meeting may give the notice. Nothing contained in this paragraph
of this Section 2.3 shall be construed as limiting, fixing or affecting the time
when a meeting of shareholders called by action of the Board of Directors may be
held.
A special meeting, in any event, shall be held within 10 days of the
creation of a board vacancy or new directorship.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be sent or otherwise given in
accordance with Section 2.5 of these Bylaws not less than ten (10) (or, if sent
by third-class mail pursuant to Section 2.5 of these Bylaws, not less than
thirty (30)) nor more than sixty (60) days before the date of the meeting to
each shareholder entitled to vote thereat. Such notice shall state the place,
date, and hour of the meeting and (i) in the case of a special meeting, the
general nature of the business to be transacted, and no business other than that
specified in the notice may be transacted, or (ii) in the case of the annual
meeting, those matters which the Board of Directors, at the time of the mailing
of the notice, intends to present for action by the shareholders, but, subject
to the provisions of the next paragraph of this Section 2.4, any proper matter
may be presented at the meeting for such action. The notice of any meeting at
which Directors are to be elected shall include the names of nominees intended
at the time of the notice to be presented by the Board for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the California Corporations Code (the
"Code"), (ii) an amendment of the Articles of Incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the
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Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900
of the Code, or (v) a distribution in dissolution other than in accordance with
the rights of any outstanding preferred shares, pursuant to Section 2007 of the
Code, then the notice shall also state the general nature of that proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Notice of a shareholders' meeting shall be given either personally or by
first-class mail, or, if the corporation has outstanding shares held of record
by five hundred (500) or more persons (determined as provided in Section 605 of
the Code) on the record date for the shareholders' meeting, notice may be sent
by third-class mail, or other means of written communication, addressed to the
shareholder at the address of the shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice; or if no such address appears or is given, at the place where the
principal executive office of the corporation is located or by publication at
least once in a newspaper of general circulation in the county in which the
principal executive office is located. The notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
other means of written communication.
If any notice (or any report referenced in Article VII of these Bylaws)
addressed to a shareholder at the address of such shareholder appearing on the
books of the corporation is returned to the corporation by the United States
Postal Service marked to indicate that the United States Postal Service is
unable to deliver the notice to the shareholder at that address, all future
notices or reports shall be deemed to have been duly given without further
mailing if the same shall be available to the shareholder upon written demand of
the shareholder at the principal executive office of the corporation for a
period of one (1) year from the date of the giving of the notice.
An affidavit of mailing of any notice or report in accordance with the
provisions of this Section 2.5, executed by the Secretary, Assistant Secretary
or any transfer agent, shall be prima facie evidence of the giving of the notice
or report.
2.6 QUORUM
Unless otherwise provided in the Articles of Incorporation of the
corporation, a majority of the shares entitled to vote, represented in person or
by proxy, shall constitute a quorum at a meeting of the shareholders. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to transact business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
In the absence of a quorum, any meeting of shareholders may be adjourned
from time to time by the vote of a majority of the shares represented either in
person or by proxy, but no other business may be transacted, except as provided
in the last sentence of the preceding paragraph.
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2.7 ADJOURNED MEETING; NOTICE
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if its
time and place are announced at the meeting at which the adjournment is taken.
However, if the adjournment is for more than forty-five (45) days from the date
set for the original meeting or if a new record date for the adjourned meeting
is fixed, a notice of the adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.4 and 2.5 of these Bylaws. At any adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting.
2.8 VOTING
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 2.11 of these Bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation, or in joint
ownership).
Elections for directors and voting on any other matter at a shareholders'
meeting need not be by ballot unless a shareholder demands election by ballot at
the meeting and before the voting begins.
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the Articles of Incorporation, each outstanding share of
common stock shall be entitled to one vote on each matter submitted to a vote of
the shareholders. Any holder of shares entitled to vote on any matter may vote
part of the shares in favor of the proposal and refrain from voting the
remaining shares or may vote them against the proposal other than elections to
office, but, if the shareholder fails to specify the number of shares such
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares which the shareholder
is entitled to vote.
The affirmative vote of the majority of the shares represented and voting
at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or voting by
classes is required by the Code or by the Articles of Incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
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normally entitled or (ii) by distributing the shareholder's votes on the same
principle among as many candidates as the shareholder thinks fit, if the
candidate or candidates' names have been placed in nomination prior to the
voting and the shareholder has given notice prior to the voting of the
shareholder's intention to cumulate the shareholder's votes. If any one
shareholder has given such a notice, then every shareholder entitled to vote may
cumulate votes for candidates in nomination. The candidates receiving the
highest number of affirmative votes, up to the number of directors to be
elected, shall be elected; votes against any candidate and votes withheld shall
have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, are as valid as though they had
been taken at a meeting duly held after regular call and notice, if a quorum be
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. Neither the business to be
transacted at nor the purpose of any annual or special meeting of shareholders
need be specified in any written waiver of notice or consent to the holding of
the meeting or approval of the minutes thereof, except that if action is taken
or proposed to be taken for approval of any of those matters specified in the
second paragraph of Section 2.4 of these Bylaws, the waiver of notice or consent
or approval shall state the general nature of the proposal. All such waivers,
consents, and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice of
and presence at that meeting, except when the person objects, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by the
Code to be included in the notice of such meeting but not so included, if such
objection is expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.
Directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors. However, a
director may be elected at any time to fill any vacancy on the Board of
Directors by the written consent of the holders of a majority of the outstanding
shares entitled to vote for the election of directors.
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All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the Secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, the Secretary shall give prompt notice of any corporate
action approved by the shareholders without a meeting by less than unanimous
written consent to those shareholders entitled to vote who have not consented in
writing. Such notice shall be given in the manner specified in Section 2.5 of
these Bylaws. In the case of approval of (i) a contract or transaction in which
a director has a direct or indirect financial interest, pursuant to Section 310
of the Code, (ii) indemnification of a corporate officer or agent, pursuant to
Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to
Section 1201 of the Code, and (iv) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval, unless the consents of
all shareholders entitled to vote have been solicited in writing.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the shareholders entitled to
notice of any meeting or to vote, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty (60) days nor less than ten (10)
days prior to the date of such meeting nor more than sixty (60) days before any
other action. Shareholders at the close of business on the record date are
entitled to notice and to vote, as the case may be, notwithstanding any transfer
of any shares on the books of the corporation after the record date, except as
otherwise provided in the Articles of Incorporation or the Code.
A determination of shareholders of record entitled to notice of or to vote
at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than forty-five (45) days from the date set for the original
meeting.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the Board has been taken,
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shall be the day on which the first written consent is given, or (ii) when prior
action by the Board has been taken, shall be at the close of business on the day
on which the Board adopts the resolution relating thereto, or the sixtieth
(60th) day prior to the date of such other action, whichever is later.
The record date for any other purpose shall be as provided in Section 8.1
of these Bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the Secretary of the
corporation. A proxy shall be deemed signed if the shareholder's name or other
authorization is placed on the proxy (whether by manual signature, typewriting,
telegraphic or electronic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i) the
person who executed the proxy revokes it prior to the time of voting by
delivering a writing to the corporation stating that the proxy is revoked or by
executing a subsequent proxy and presenting it to the meeting or by attendance
at such meeting and voting in person, or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of eleven (11) months from the date thereof,
unless otherwise provided in the proxy. The dates contained on the forms of
proxy presumptively determine the order of execution, regardless of the postmark
dates on the envelopes in which they are mailed. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION
In advance of any meeting of shareholders, the Board of Directors may
appoint inspectors of election to act at the meeting and any adjournment
thereof. If inspectors of election are not so appointed or designated or if any
persons so appointed fail to appear or refuse to act, then the Chairman of the
meeting may, and on the request of any shareholder or a shareholder's proxy
shall, appoint inspectors of election (or persons to replace those who so fail
to appear) at the meeting. The number of inspectors shall be either one (1) or
three (3). If appointed at a meeting on the request of one (1) or more
shareholders or proxies, the majority of shares represented in person or by
proxy shall determine whether one (1) or three (3) inspectors are to be
appointed.
The inspectors of election shall determine the number of shares outstanding
and the voting power of each, the shares represented at the meeting, the
existence of a quorum, and the authenticity, validity, and effect of proxies,
receive votes, ballots or consents, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result and do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
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ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the Code and any limitations in the Articles
of Incorporation and these Bylaws relating to action required to be approved by
the shareholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the Board of Directors. The Board may delegate the
management of the day-to-day operation of the business of the corporation to a
management company or other person provided that the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised under
the ultimate direction of the Board.
3.2 NUMBER OF DIRECTORS
Subject to the provisions of the Shareholders Agreement by and among the
corporation and its shareholders, dated September 16, 1998, as the same may be
amended and modified from time to time in accordance with its terms (the
"Shareholders Agreement"), the authorized number of directors of the corporation
shall be one (1), and, thereafter, the number of directors shall be established
from time to time by resolution of the shareholders. No reduction of the
authorized number of directors shall have the effect of removing any director
before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
At each annual meeting of shareholders, directors shall be elected to hold
office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified, except
in the case of the death, resignation, or removal of such a director.
3.4 REMOVAL
Subject to the provisions of the Shareholders Agreement, the entire Board
of Directors or any individual director may be removed from office without cause
by the affirmative vote of a majority of the outstanding shares entitled to vote
on such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election at which the same total
number of votes cast were cast (or, if such action is taken by written consent,
all shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
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3.5 RESIGNATION AND VACANCIES
Any director may resign effective upon giving oral or written notice to the
Chairman of the Board, the President, the Secretary or the Board of Directors,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation of a director is effective at a future time, the
Board of Directors may elect a successor to take office when the resignation
becomes effective.
Subject to the provisions of the Shareholders Agreement and the Articles of
Incorporation of the corporation or any amendments thereto, vacancies on the
Board of Directors and newly created directorships resulting from any increase
in the authorized number of directors shall be filled by a majority vote of the
holders of the corporation's outstanding stock entitled to vote thereon and each
director so chosen shall hold office until the next annual meeting of the
stockholders and until a successor is duly elected and qualified or until his or
her earlier death, resignation or removal as hereinafter provided.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the Board of Directors may be held at any place within
or outside the State of California that has been designated from time to time by
resolution of the Board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the Board may be held at any place within or outside the State of
California that has been designated in the notice of the meeting or, if not
stated in the notice or if there is no notice, at the principal executive office
of the corporation.
Members of the Board may participate in a meeting through the use of
conference telephone or similar communications equipment, so long as all
directors participating in such meeting can hear one another. Participation in a
meeting pursuant to this paragraph constitutes presence in person at such
meeting.
3.7 REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without notice if
the time and place of such meetings are fixed by the Board of Directors.
3.8 SPECIAL MEETINGS; NOTICE
Subject to the provisions of the following paragraph, special meetings of
the Board of Directors for any purpose or purposes may be called at any time by
the Chairman of the Board, the President, any Vice President, the Secretary or
any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telegram, charges prepaid, or by telecopier, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice
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is mailed, it shall be deposited in the United States mail at least four (4)
days before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or by telecopier or telegram, it shall be delivered
personally or by telephone or by telecopier or to the telegraph company at least
forty-eight (48) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose of the meeting.
3.9 QUORUM
A majority of the number of directors then in office shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.11 of these Bylaws. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present is the act
of the Board of Directors, subject to the provisions of Section 310 of the Code
(as to approval of contracts or transactions in which a director has a direct or
indirect material financial interest), Section 311 of the Code (as to
appointment of committees), Section 317(e) of the Code (as to indemnification of
directors), the Articles of Incorporation, and other applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for such meeting.
3.10 WAIVER OF NOTICE
Notice of a meeting need not be given to any director who signs a waiver of
notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director. All such waivers, consents, and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. A waiver of
notice need not specify the purpose of any regular or special meeting of the
Board of Directors.
3.11 ADJOURNMENT
A majority of the directors present, whether or not a quorum is present,
may adjourn any meeting to another time and place.
3.12 NOTICE OF ADJOURNMENT
If the meeting is adjourned for more than twenty-four (24) hours, notice of
any adjournment to another time and place shall be given prior to the time of
the adjourned meeting to the directors who were not present at the time of the
adjournment.
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3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the Board of Directors may
be taken without a meeting, if all members of the Board individually or
collectively consent in writing to such action. Such written consent or consents
shall be filed with the minutes of the proceedings of the Board. Such action by
written consent shall have the same force and effect as a unanimous vote of the
Board of Directors.
3.14 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the Board of Directors. This Section 3.14 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.15 APPROVAL OF LOANS TO OFFICERS
If these Bylaws have been approved by the corporation's shareholders in
accordance with the Code, the corporation may, upon the approval of the Board of
Directors alone, make loans of money or property to, or guarantee the
obligations of, any officer of the corporation or of its parent, if any, whether
or not a director, or adopt an employee benefit plan or plans authorizing such
loans or guaranties provided that (i) the Board of Directors determines that
such a loan or guaranty or plan may reasonably be expected to benefit the
corporation, (ii) the corporation has outstanding shares held of record by 100
or more persons (determined as provided in Section 605 of the Code) on the date
of approval by the Board of Directors, and (iii) the approval of the Board of
Directors is by a vote sufficient without counting the vote of any interested
director or directors. Notwithstanding the foregoing, the corporation shall have
the power to make loans permitted by the Code.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
Subject to the provisions of the Shareholders Agreement, the Board of
Directors may, by resolution adopted by a majority of the authorized number of
directors, designate one or more committees, each consisting of two (2) or more
directors, to serve at the pleasure of the Board. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. The appointment of members or alternate
members of a committee requires the vote of a majority of the authorized number
of directors. Any such committee shall have authority to act in the manner and
to the extent provided in the resolution of the Board and may have all the
authority of the Board, except with respect to:
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(a) The approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares.
(b) The filling of vacancies on the Board of Directors or in any
committee.
(c) The fixing of compensation of the directors for serving on the
Board or on any committee.
(d) The amendment or repeal of these Bylaws or the adoption of new
Bylaws.
(e) The amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable.
(f) A distribution to the shareholders of the corporation, except at
a rate, in a periodic amount or within a price range set forth in the Articles
of Incorporation or determined by the Board of Directors.
(g) The appointment of any other committees of the Board of Directors
or the members thereof.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these Bylaws, Section 3.6
(place of meetings), Section 3.7 (regular meetings), Section 3.8 (special
meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice),
Section 3.11 (adjournment), Section 3.12 (notice of adjournment), and Section
3.13 (action without meeting), with such changes in the context of those Bylaws
as are necessary to substitute the committee and its members for the Board of
Directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the Board of Directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the Board of Directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a President, a Secretary, and a
Chief Financial Officer. The corporation may also have, at the discretion of the
Board of Directors, a Chairman of
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the Board, a Chief Executive Officer, one or more Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
as may be appointed in accordance with the provisions of Section 5.3 of these
Bylaws. Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these Bylaws,
shall be chosen by the Board and serve at the pleasure of the Board, subject to
the rights, if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The Board of Directors may appoint, or may empower the Chairman of the
Board or the President to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these Bylaws or as
the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, all officers serve at the pleasure of the Board of Directors and any
officer may be removed, either with or without cause, by the Board of Directors
at any regular or special meeting of the Board or, except in case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The Chairman of the Board, if such an officer be elected, shall, if
present, preside at meetings of the Board of Directors and exercise and perform
such other powers and duties as may from time to time be assigned by the Board
of Directors or as may be prescribed by these Bylaws. If there is
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no Chief Executive Officer or President, then the Chairman of the Board shall
also be the chief executive officer of the corporation and shall have the powers
and duties prescribed in Section 5.7 of these Bylaws.
5.7 CHIEF EXECUTIVE OFFICER
The Chief Executive Officer, if such an officer be elected, shall, if
present, preside at all meetings of the shareholders and, in the absence or
nonexistence of a Chairman of the Board, at all meetings of the Board of
Directors and have general supervision, direction, and control of the business
and the officers of the corporation and such other powers and duties as may from
time to time be assigned by the Board of Directors or as may be prescribed by
these Bylaws. If there is no Chief Executive Officer, then the President shall
also be the chief executive officer of the corporation and shall have the powers
and duties prescribed in Section 5.8 of these Bylaws.
5.8 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the Board of
Directors to the Chairman of the Board and the Chief Executive Officer, if there
be such an officer, the President shall have the general powers and duties of
management usually vested in the office of President of a corporation, and shall
have such other powers and duties as may be prescribed by the Board of Directors
or these Bylaws.
5.9 VICE PRESIDENTS AND EXECUTIVE VICE PRESIDENTS
In the absence or disability of the Chief Executive Officer and the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a Vice President designated by the Board
of Directors, shall perform all the duties of the President and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the President or the Chairman of the Board.
Any Executive Vice President shall have the same powers and duties as a Vice
President.
5.10 SECRETARY
The Secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of Directors, committees
of directors and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
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The Secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the Board of Directors required to be given by law or by
these Bylaws. The Secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
5.11 CHIEF FINANCIAL OFFICER
The Chief Financial Officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The Chief Financial Officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the Board of Directors. The Chief Financial Officer shall disburse
the funds of the corporation as may be ordered by the Board of Directors, shall
render to the President and directors, whenever they request it, an account of
all of his or her transactions as Chief Financial Officer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or these Bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS
The corporation shall, to the maximum extent and in the manner permitted by
the Code, indemnify each of its directors against expenses (as defined in
Section 317(a) of the Code), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding (as defined
in Section 317(a) of the Code), arising by reason of the fact that such person
is or was a director of the corporation. For purposes of this Article VI, a
director of the corporation includes any person (i) who is or was a director of
the corporation, (ii) who is or was serving at the request of the corporation as
a director of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director of a corporation
which
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was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees, officers, and agents
(other than directors) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an employee,
officer, or agent of the corporation. For purposes of this Article VI, an
employee or officer or agent of the corporation (other than a director) includes
any person (i) who is or was an employee, officer, or agent of the corporation,
(ii) who is or was serving at the request of the corporation as an employee,
officer, or agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee, officer, or
agent of a corporation which was a predecessor corporation of the corporation or
of another enterprise at the request of such predecessor corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
Expenses and attorneys' fees incurred in defending any civil or criminal
action or proceeding for which indemnification is required pursuant to Section
6.1, or if otherwise authorized by the Board of Directors, shall be paid by the
corporation in advance of the final disposition of such action or proceeding
upon receipt of an undertaking by or on behalf of the indemnified party to repay
such amount if it shall ultimately be determined that the indemnified party is
not entitled to be indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any Bylaw, agreement, vote of shareholders or directors or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. The rights to indemnity hereunder shall
continue as to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of the person.
6.5 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation against any liability asserted against or incurred by such person in
such capacity or arising out of that person's status as such, whether or not the
corporation would have the power to indemnify that person against such liability
under the provisions of this Article VI.
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6.6 CONFLICTS
No indemnification or advance shall be made under this Article VI, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(1) That it would be inconsistent with a provision of the Articles of
Incorporation, these Bylaws, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of the action asserted in
the proceeding in which the expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
6.7 RIGHT TO BRING SUIT
If a claim under this Article is not paid in full by the corporation within
90 days after a written claim has been received by the corporation (either
because the claim is denied or because no determination is made), the claimant
may at any time thereafter bring suit against the corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall also be entitled to be paid the expenses of prosecuting such claim. The
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Code for the corporation to indemnify the claimant for the claim. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel, or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is permissible
in the circumstances because he or she has met the applicable standard of
conduct, if any, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel, or its shareholders) that the
claimant has not met the applicable standard of conduct, shall be a defense to
such action or create a presumption for the purposes of such action that the
claimant has not met the applicable standard of conduct.
6.8 INDEMNITY AGREEMENTS
The Board of Directors is authorized to enter into a contract with any
director, officer, employee or agent of the corporation, or any person who is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, or any person who was a director,
officer, employee or agent of a corporation which was a predecessor corporation
of the corporation or of another enterprise at the request of such predecessor
corporation, providing for indemnification rights equivalent to or, if the Board
of Directors so determines and to the extent permitted by applicable law,
greater than, those provided for in this Article VI.
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6.9 AMENDMENT, REPEAL OR MODIFICATION
Any amendment, repeal or modification of any provision of this Article VI
shall not adversely affect any right or protection of a director or agent of the
corporation existing at the time of such amendment, repeal or modification.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
The corporation shall keep either at its principal executive office or at
the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the Board of Directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who hold at least one percent (1%) of such voting shares and have
filed a Schedule 14B with the United States Securities and Exchange Commission
relating to the election of directors, shall have an absolute right to do either
or both of the following (i) inspect and copy the record of shareholders' names,
addresses, and shareholdings during usual business hours upon five (5) days'
prior written demand upon the corporation, or (ii) obtain from the transfer
agent for the corporation, upon written demand and upon the tender of such
transfer agent's usual charges for such list (the amount of which charges shall
be stated to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors, and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand. The list shall be made available on or before the later of
five (5) business days after the demand is received or the date specified
therein as the date as of which the list is to be compiled.
The record of shareholders shall also be open to inspection and copying by
any shareholder or holder of a voting trust certificate at any time during usual
business hours upon written demand on the corporation, for a purpose reasonably
related to the holder's interests as a shareholder or holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in person or
by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California, the original or a copy
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of these Bylaws as amended to date, which shall be open to inspection by the
shareholders at all reasonable times during office hours. If the principal
executive office of the corporation is outside the State of California and the
corporation has no principal business office in such state, then it shall, upon
the written request of any shareholder, furnish to such shareholder a copy of
these Bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
The accounting books and records and the minutes of proceedings of the
shareholders and the Board of Directors, and committees of the Board of
Directors shall be kept at such place or places as are designated by the Board
of Directors or, in absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form, and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand on the corporation of any shareholder or holder of a
voting trust certificate at any reasonable time during usual business hours, for
a purpose reasonably related to such holder's interests as a shareholder or as
the holder of a voting trust certificate. Such inspection by a shareholder or
holder of a voting trust certificate may be made in person or by an agent or
attorney and the right of inspection includes the right to copy and make
extracts. Such rights of inspection shall extend to the records of each
subsidiary corporation of the corporation.
7.4 INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records, and documents of every kind and to inspect
the physical properties of the corporation and each of its subsidiary
corporations, domestic or foreign. Such inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts.
7.5 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The Chairman of the Board, the Chief Executive Officer, the President, any
Vice President, the Chief Financial Officer, the Secretary or Assistant
Secretary of this corporation, or any other person authorized by the Board of
Directors or the President or a Vice President, is authorized to vote,
represent, and exercise on behalf of this corporation all rights incident to any
and all shares of any other corporation or corporations standing in the name of
this corporation. The authority herein granted may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
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ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than with
respect to notice or voting at a shareholders meeting or action by shareholders
by written consent without a meeting), the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) days prior to
any such action. Only shareholders of record at the close of business on the
record date are entitled to receive the dividend, distribution or allotment of
rights, or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date,
except as otherwise provided in the Articles of Incorporation or the Code.
If the Board of Directors does not so fix a record date, then the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto or
the sixtieth (60th) day prior to the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the Board of Directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The Board of Directors, except as otherwise provided in these Bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
A certificate or certificates for shares of the corporation shall be issued
to each shareholder when any of such shares are fully paid. The Board of
Directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
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consideration to be paid for them and the amount actually paid. All certificates
shall be signed in the name of the corporation by the Chairman of the Board or
the Vice Chairman of the Board or the Chief Executive Officer or the President
or a Vice President and by the Chief Financial Officer or an Assistant Treasurer
or the Secretary or an Assistant Secretary, certifying the number of shares and
the class or series of shares owned by the shareholder. Any or all of the
signatures on the certificate may be by facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate has ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation or its transfer agent or registrar and cancelled
at the same time. The Board of Directors may, in case any share certificate or
certificate for any other security is lost, stolen or destroyed (as evidenced by
a written affidavit or affirmation of such fact), authorize the issuance of
replacement certificates on such terms and conditions as the Board may require;
the Board may require indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
Bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
person includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
----------
9.1 AMENDMENT BY SHAREHOLDERS
New Bylaws may be adopted or these Bylaws may be amended or repealed by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the Articles of Incorporation of
the corporation set forth the number of authorized Directors of the corporation,
then the authorized number of Directors may be changed only by an amendment of
the Articles of Incorporation.
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9.2 AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 9.1 of
these Bylaws, Bylaws, other than a Bylaw or an amendment of a Bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a Bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the Board of Directors.
9.3 RECORD OF AMENDMENTS
Whenever an amendment or new Bylaw is adopted, it shall be copied in the
book of minutes with the original Bylaws. If any Bylaw is repealed, the fact of
repeal, with the date of the meeting at which the repeal was enacted or written
consent was filed, shall be stated in said book.
ARTICLE X
INTERPRETATION
--------------
Reference in these Bylaws to any provision of the California Corporations
Code shall be deemed to include all amendments thereof.
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EXHIBIT 4.1
Pac-West Telecomm, Inc.
$ 150,000,000
13 1/2% Senior Notes due 2009
Purchase Agreement
dated January 27, 1999
NationsBanc Montgomery Securities LLC
CIBC Oppenheimer Corp.
First Union Capital Markets
<PAGE>
Table of Contents
Section 1. Representations and Warranties.................................... 2
No Registration Required..................................................... 2
No Integration of Offerings or General Solicitation.......................... 2
Eligibility for Resale under Rule 144A....................................... 3
The Offering Memorandum...................................................... 3
The Purchase Agreement....................................................... 3
The Registration Rights Agreement, the Pledge Agreement and DTC Agreement.... 3
Authorization of the Securities and the Exchange Securities.................. 4
Authorization of the Indenture............................................... 4
Description of the Securities and the Indenture.............................. 4
No Material Adverse Change................................................... 4
Independent Accountants...................................................... 4
Preparation of the Financial Statements...................................... 5
Incorporation and Good Standing of the Company............................... 5
Capitalization and Other Capital Stock Matters............................... 5
Non-Contravention of Existing Instruments; No Further Authorizations or
Approvals Required...................................................... 6
No Material Actions or Proceedings........................................... 6
Intellectual Property Rights................................................. 6
All Necessary Permits, etc................................................... 7
Title to Properties.......................................................... 7
Tax Law Compliance........................................................... 7
Company Not an Investment Company............................................ 7
Insurance.................................................................... 7
No Price Stabilization or Manipulation....................................... 8
Solvency..................................................................... 8
Related Party Transactions................................................... 8
Section 2. Purchase, Sale and Delivery of Securities......................... 8
The Securities............................................................... 8
The Closing Date............................................................. 8
Delivery of the Securities................................................... 9
Delivery of Offering Memorandum to the Initial Purchasers.................... 9
Initial Purchasers as Qualified Institutional Buyers......................... 9
Section 3. Additional Covenants.............................................. 9
Initial Purchasers' Review of Proposed Amendments and Supplements............ 9
Amendments and Supplements to the Offering Memorandum and Other
Securities Act Matters.................................................. 9
Copies of the Offering Memorandum............................................ 10
Blue Sky Compliance.......................................................... 10
Use of Proceeds.............................................................. 10
The Depositary............................................................... 11
Additional Issuer Information................................................ 11
Future Reports to the Initial Purchasers..................................... 11
No Integration............................................................... 11
Legended Securities.......................................................... 11
PORTAL....................................................................... 11
Usury........................................................................ 11
Pledged Securities........................................................... 11
Subsequent Financial Statements.............................................. 11
Due Diligence................................................................ 12
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Section 4. Payment of Expenses.............................................. 12
Section 5. Conditions of the Obligations of the Initial Purchasers.......... 12
Accountants' Comfort Letter................................................. 13
No Material Adverse Change or Ratings Agency Change......................... 13
Opinion of Counsel for the Company.......................................... 13
Opinion of Counsel for the Initial Purchasers............................... 13
Officers' Certificate....................................................... 13
Bring-down Comfort Letter................................................... 14
PORTAL Listing.............................................................. 14
Additional Agreements....................................................... 14
Additional Documents........................................................ 14
Section 6. Reimbursement of Initial Purchasers' Expenses.................... 14
Section 7. Offer, Sale and Resale Procedures................................ 14
Offers and Sales only to Qualified Institutional Buyers..................... 14
No General Solicitation..................................................... 15
Purchases by Non-Bank Fiduciaries........................................... 15
Restrictions on Transfer.................................................... 15
Delivery of Offering Memorandum............................................. 16
Section 8. Indemnification.................................................. 16
Indemnification of the Initial Purchasers................................... 16
Indemnification of the Company, its Directors and Officers.................. 17
Notifications and Other Indemnification Procedures.......................... 17
Settlements................................................................. 18
Section 9. Contribution..................................................... 19
Section 10. Termination of this Agreement................................... 20
Section 11. Representations and Indemnities to Survive Delivery............. 20
Section 12. Notices......................................................... 20
Section 13. Successors...................................................... 21
Section 14. Partial Unenforceability........................................ 21
Section 15. Governing Law Provisions........................................ 21
Section 16. Default of One or More of the Several Initial Purchasers........ 21
Section 17. General Provisions.............................................. 22
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Purchase Agreement
January 27, 1999
NATIONSBANC MONTGOMERY SECURITIES LLC
CIBC Oppenheimer Corp.
First Union Capital Markets, a division of Wheat First Securities, Inc.
As Initial Purchasers
c/o NATIONSBANC MONTGOMERY SECURITIES LLC
231 South LaSalle Street
Chicago, Illinois 60697
Ladies and Gentlemen:
Introductory. Pac-West Telecomm, Inc., a California corporation (the
"Company"), proposes to issue and sell to the several Initial Purchasers named
in Schedule A (the "Initial Purchasers"), acting severally and not jointly, the
respective amounts set forth in such Schedule A of an $150,000,000 aggregate
principal amount of the Company's 13 1/2% Senior Notes due 2009 (the
"Securities"). NationsBanc Montgomery Securities LLC, CIBC Oppenheimer Corp. and
First Union Capital Markets, a division of Wheat First Securities, Inc., have
agreed to act as the several Initial Purchasers in connection with the offering
and sale of the Securities.
The Securities will be issued pursuant to an indenture dated as of
January 29, 1999 (the "Indenture") between the Company and Norwest Bank
Minnesota, N.A., as trustee (the "Trustee"). Securities issued in book-entry
form will be issued in the name of Cede & Co., as nominee of The Depository
Trust Company (the "Depositary") pursuant to a DTC Agreement, to be dated as of
the Closing Date (as defined in Section 2) (the "DTC Agreement"), among the
Company, the Trustee and the Depositary.
The holders of the Securities will be entitled to the benefits of a
registration rights agreement to be dated as of January 29, 1999 (the
"Registration Rights Agreement"), among the Company and the Initial Purchasers,
pursuant to which the Company will agree to file, within 90 days of the Closing
Date, a registration statement with the Commission (as defined herein)
registering the Exchange Securities (as defined herein) under the Securities Act
(as defined herein).
The Company understands that the Initial Purchasers propose to make an
offering of the Securities on the terms and in the manner set forth herein and
in the Offering Memorandum (as defined below) and agrees that the Initial
Purchasers may resell, subject to the conditions set forth herein, all or a
portion of the Securities to purchasers (the "Subsequent Purchasers") at any
time after the date of this Agreement. The Securities are to be offered and sold
to or through the Initial Purchasers without being registered with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933 (the "Securities Act", which term, as used herein, includes the rules
and regulations of the Commission promulgated thereunder), in reliance upon
exemptions therefrom. The terms of the Securities and the Indenture will require
that investors that acquire Securities expressly agree that Securities may only
be resold or otherwise transferred, after the date hereof, if such Securities
are registered for
<PAGE>
sale under the Securities Act or if an exemption from the registration
requirements of the Securities Act is available (including the exemptions
afforded by Rule 144A ("Rule 144A") or Regulation S ("Regulation S").
The Company has prepared and delivered to each Initial Purchaser
copies of a Preliminary Offering Memorandum "subject to completion" dated
January 5, 1999 (the "Preliminary Offering Memorandum") and has prepared and
will deliver to each Initial Purchaser, on the date hereof or the next
succeeding day, copies of the Offering Memorandum dated January 27, 1999
describing the terms of the Securities, each for use by such Initial Purchaser
in connection with its solicitation of offers to purchase the Securities. As
used herein, the "Offering Memorandum" shall mean, with respect to any date or
time referred to herein this Agreement, the Company's Offering Memorandum dated
January 27, 1999, including amendments or supplements thereto, any exhibits
thereto, in the most recent form that has been prepared and delivered by the
Company to the Initial Purchasers in connection with their solicitation of
offers to purchase Securities. Further, any reference to the Preliminary
Offering Memorandum or the Offering Memorandum shall be deemed to refer to and
include any Additional Issuer Information (as defined in Section 3(g)) furnished
by the Company prior to the completion of the distribution of the Securities.
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Offering Memorandum (or other references of like import) shall be deemed to mean
and include all such financial statements and schedules and other information
which are incorporated by reference in the Offering Memorandum.
The Company hereby confirms its agreements with the Initial Purchasers
as follows:
Section 1. Representations and Warranties. The Company hereby represents,
warrants and covenants to each Initial Purchaser as follows:
(a) No Registration Required. Subject to compliance by the Initial
Purchasers with the representations and warranties set forth in Section
2(e) hereof and with the procedures set forth in Section 7 hereof, it is
not necessary in connection with the offer, sale and delivery of the
Securities to the Initial Purchasers and to each Subsequent Purchaser in
the manner contemplated by this Agreement and the Offering Memorandum to
register the Securities under the Securities Act or, until such time as the
Exchange Securities are issued, pursuant to an effective registration
statement, to qualify the Indenture under the Trust Indenture Act of 1939
(the "Trust Indenture Act", which term, as used herein, includes the rules
and regulations of the Commission promulgated thereunder).
(b) No Integration of Offerings or General Solicitation. The Company
has not, directly or indirectly, solicited any offer to buy or offered to
sell, and will not, directly or indirectly, solicit any offer to buy or
offer to sell, in the United States or to any United States citizen or
resident, any security which is or would be integrated with the sale of the
Securities in a manner that would require the Securities to be registered
under the Securities Act. None of the Company, its affiliates (as such term
is defined in Rule 501(b) under the Securities Act) (each, an "Affiliate"),
or any person authorized to act on its or any of their behalf (other than
the Initial Purchasers, as to whom the Company makes no representation or
warranty) has engaged or will engage, in connection with the offering of
the Securities, in any form of general solicitation or general advertising
within the meaning of Rule 502(c) under the Securities Act. With respect to
those Securities sold in
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reliance upon Regulation S, (i) none of the Company, its Affiliates or any
person authorized to act on its or their behalf (other than the Initial
Purchasers, as to whom the Company makes no representation or warranty) has
engaged or will engage in any directed selling efforts within the meaning
of Regulation S and (ii) each of the Company and its Affiliates and any
person authorized to act on its or their behalf (other than the Initial
Purchasers, as to whom the Company makes no representation or warranty) has
complied and will comply with the offering restrictions set forth in
Regulation S.
(c) Eligibility for Resale under Rule 144A. The Securities are
eligible for resale pursuant to Rule 144A and will not be, at the Closing
Date, of the same class as securities listed on a national securities
exchange registered under Section 6 of the Exchange Act or quoted in a U.S.
automated interdealer quotation system.
(d) The Offering Memorandum. The Offering Memorandum does not, and
at the Closing Date will not, include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that this representation, warranty and
agreement shall not apply to statements in or omissions from the Offering
Memorandum made in reliance upon and in conformity with information
furnished to the Company in writing by any Initial Purchaser through
NationsBanc Montgomery Securities LLC expressly for use in the Offering
Memorandum. Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date, contains all the information specified in, and
meeting the requirements of, Rule 144A(d)(4). The Company has not
distributed and will not distribute, prior to the later of the Closing Date
and the completion of the Initial Purchasers' distribution of the
Securities, any offering material in connection with the offering and sale
of the Securities other than a preliminary Offering Memorandum or the
Offering Memorandum.
(e) The Purchase Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles and
except as rights to indemnification under the Registration Rights Agreement
may be limited by applicable law
(f) The Registration Rights Agreement, the Pledge Agreement and DTC
Agreement. At the Closing Date, each of the Registration Rights Agreement,
the Pledge Agreement (as defined in the Offering Memorandum) and the DTC
Agreement will be duly authorized, executed and delivered by, and will be a
valid and binding agreement of, the Company, enforceable in accordance with
its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles and except as rights to indemnification under the Registration
Rights Agreement may be limited by applicable law. Pursuant to the
Registration Rights Agreement, the Company will agree to file with the
Commission, under the circumstances set forth therein, (i) a registration
statement under the Securities Act relating to another series of debt
securities of the Company with terms substantially identical to the
Securities (the "Exchange Securities") to be offered in exchange for the
Securities (the "Exchange Offer") and (ii) to the extent required by the
Registration Rights Agreement, a shelf registration statement pursuant to
Rule 415 of the Securities Act
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relating to the resale by certain holders of the Notes, and in each case,
to use its reasonable best efforts to cause such registration statements to
be declared effective.
(g) Authorization of the Securities and the Exchange Securities. The
Securities to be purchased by the Initial Purchasers from the Company are
in the form contemplated by the Indenture, have been duly authorized for
issuance and sale pursuant to this Agreement and the Indenture and, at the
Closing Date, will have been duly executed by the Company and, when
authenticated in the manner provided for in the Indenture and delivered
against payment of the purchase price therefor, will constitute valid and
binding agreements of the Company, enforceable in accordance with their
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles and will be entitled to the benefits of the Indenture. The
Exchange Securities have been duly and validly authorized for issuance by
the Company, and when issued and authenticated in accordance with the terms
of the Indenture, the Registration Rights Agreement and the Exchange Offer,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, or similar laws relating to or affecting
enforcement of the rights and remedies of creditors or by general
principles of equity and will be entitled to the benefits of the Indenture.
(h) Authorization of the Indenture. The Indenture has been duly
authorized by the Company and, at the Closing Date, will have been duly
executed and delivered by the Company and will constitute a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles.
(i) Description of the Securities and the Indenture. The Notes, the
Exchange Securities and the Indenture will conform in all material respects
to the respective statements relating thereto contained in the Offering
Memorandum and will be in substantially the respective forms previously
delivered to the Initial Purchasers.
(j) No Material Adverse Change. Except as otherwise disclosed in the
Offering Memorandum, subsequent to the respective dates as of which
information is given in the Offering Memorandum: (i) there has been no
material adverse change, or any development that could reasonably be
expected to result in a material adverse change, in the condition,
financial or otherwise, or in the earnings, business, operations or
prospects, whether or not arising from transactions in the ordinary course
of business, of the Company (any such change is called a "Material Adverse
Change"); (ii) the Company has not incurred any material liability or
obligation, indirect, direct or contingent, not in the ordinary course of
business nor entered into any material transaction or agreement not in the
ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class
of capital stock or repurchase or redemption by the Company of any class of
capital stock.
(k) Independent Accountants. Arthur Andersen, LLP, who have
expressed their opinion with respect to the financial statements (which
term as used in this Agreement includes the related notes thereto) and
supporting schedules included in the
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Offering Memorandum are independent public or certified public accountants
within the meaning of Regulation S-X under the Securities Act and the
Exchange Act.
(l) Preparation of the Financial Statements. The financial
statements, together with the related schedules and notes, included in the
Offering Memorandum present fairly the financial position of the Company as
of and at the dates indicated and the results of their operations and cash
flows for the periods specified. Such financial statements have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved, except as
may be expressly stated in the related notes thereto. The financial data
set forth in the Offering Memorandum under the captions "Offering
Memorandum Summary--Summary Financial Data," "Selected Financial Data" and
"Capitalization" fairly present the information set forth therein on a
basis consistent with that of the audited financial statements contained in
the Offering Memorandum. The pro forma financial statements of the Company
and the related notes thereto included under the caption, "Unaudited Pro
Forma Financial Data" and elsewhere in the Offering Memorandum present
fairly the information contained therein, have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma
financial statements and have been properly presented on the bases
described therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein. The Company's
ratio of earnings to fixed charges set forth in the Offering Memorandum
under the caption "Selected Financial Data" has been calculated in
compliance with Item 503(d) of Regulation S-K under the Securities Act.
(m) Incorporation and Good Standing of the Company. The Company has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of California and has corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Offering Memorandum and to enter into and perform its
obligations under each of this Agreement, the Registration Rights
Agreement, the DTC Agreement, the Pledge Agreement, the Securities, the
Exchange Securities and the Indenture. The Company is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except for
such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a Material
Adverse Change. The Company has no subsidiaries and does not own or
control, directly or indirectly, any corporation, association or other
entity.
(n) Capitalization and Other Capital Stock Matters. At January 27,
1999, the Company had an authorized and outstanding capitalization as set
forth in the Offering Memorandum under the caption "Capitalization" (other
than for subsequent issuances of capital stock, if any, pursuant to
employee benefit plans described in the Offering Memorandum). The Company's
common stock and preferred stock (collectively, the "Stock") conforms in
all material respects to the description thereof set forth in the Offering
Memorandum. All of the outstanding shares of Stock have been duly
authorized and validly issued, are fully paid and nonassessable and have
been issued in compliance with federal and state securities laws. There are
no authorized or outstanding options, warrants, preemptive rights, rights
of first refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock of
the Company other than those accurately described in the Offering
Memorandum.
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(o) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. The Company is not in violation of
its charter or by-laws or is in default (or, with the giving of notice or
lapse of time, would be in default) ("Default") under any indenture,
mortgage, loan or credit agreement, note, contract, franchise, lease or
other instrument to which it is a party or by which it may be bound or to
which any of the property or assets of the Company is subject (each, an
"Existing Instrument"), except for such Defaults as would not, individually
or in the aggregate, reasonably be expected to result in a Material Adverse
Change. The Company's execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Pledge Agreement, the DTC
Agreement and the Indenture, and the issuance and delivery of the
Securities or the Exchange Securities, and consummation of the transactions
contemplated hereby and thereby and by the Offering Memorandum (i) have
been duly authorized by all necessary corporate action and will not result
in any violation of the provisions of the charter or by-laws of the
Company, (ii) will not conflict with or constitute a breach of, or Default
or a Debt Repayment Triggering Event (as defined below) under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to, or require the consent of
any other party to, any Existing Instrument, except for such conflicts,
breaches, Defaults, liens, charges or encumbrances as would not,
individually or in the aggregate, reasonable be expected to result in a
Material Adverse Change and (iii) will not result in any violation of any
law, administrative regulation or administrative or court decree applicable
to the Company except for such violation as would not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse
Change. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental or regulatory
authority or agency, is required for the Company's execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the
Pledge Agreement, the DTC Agreement or the Indenture, or the issuance and
delivery of the Securities or the Exchange Securities, or consummation of
the transactions contemplated hereby and thereby and by the Offering
Memorandum, except such as have been obtained or made by the Company and
are in full force and effect, applicable state securities or blue sky laws
and except such as may be required by federal and state securities laws
with respect to the Company's obligations under the Registration Rights
Agreement. As used herein, a "Debt Repayment Triggering Event" means any
event or condition which gives, or with the giving of notice or lapse of
time would give, the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right to
require the repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company.
(p) No Material Actions or Proceedings. Except as otherwise
disclosed in the Offering Memorandum, there are no legal or governmental
actions, suits or proceedings pending or, to the best of the Company's
knowledge, threatened (i) against or affecting the Company, (ii) which has
as the subject thereof any officer or director of, or property owned or
leased by, the Company or (iii) relating to environmental or discrimination
matters, where in any such case (A) there is a reasonable possibility that
such action, suit or proceeding might be determined adversely to the
Company and (B) any such action, suit or proceeding, if so determined
adversely, would reasonably be expected to result in a Material Adverse
Change or adversely affect the consummation of the transactions
contemplated by this Agreement. No material labor dispute with the
employees of the Company exists or, to the best of the Company's knowledge,
is threatened or imminent.
(q) Intellectual Property Rights. The Company owns or possesses
sufficient trademarks, trade names, patent rights, copyrights, licenses,
approvals, trade secrets and
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other similar rights (collectively, "Intellectual Property Rights")
reasonably necessary to conduct its businesses as now conducted; and the
expected expiration of any of such Intellectual Property Rights would not
result in a Material Adverse Change. The Company has not received any
notice of infringement or conflict with asserted Intellectual Property
Rights of others, which infringement or conflict, if the subject of an
unfavorable decision, would result in a Material Adverse Change.
(r) All Necessary Permits, etc. The Company possesses such valid and
current certificates, authorizations or permits issued by the appropriate
state, federal or foreign regulatory agencies or bodies necessary to
conduct its business, and the Company has received no notice of proceedings
relating to the revocation or modification of, or non-compliance with, any
such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
could reasonably be expected to result in a Material Adverse Change.
(s) Title to Properties. The Company has good and marketable title
to all the properties and assets reflected as owned in the financial
statements referred to in Section 1(l) above, in each case free and clear
of any security interests, mortgages, liens, encumbrances, equities, claims
and other defects, except as described in the Offering Memorandum or such
as do not materially and adversely affect the value of such property and do
not materially interfere with the use made or proposed to be made of such
property by the Company. The real property, improvements, equipment and
personal property held under lease by the Company are held under valid and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such real
property, improvements, equipment or personal property by the Company.
(t) Tax Law Compliance. The Company has filed all necessary federal,
state and foreign income and franchise tax returns and has paid all taxes
required to be paid by it and, if due and payable, any related or similar
assessment, fine or penalty levied against it. The Company has made
adequate charges, accruals and reserves in the applicable financial
statements referred to in Section 1(l) above in respect of all federal,
state and foreign income and franchise taxes for all periods as to which
the tax liability of the Company has not been finally determined.
(u) Company Not an "Investment Company." The Company is not, and
after receipt of payment for the Securities will not be, an "investment
company" within the meaning of Investment Company Act of 1940, as amended
(the "Investment Company Act") and will conduct its business in a manner so
that it will not become subject to the Investment Company Act.
(v) Insurance. The Company maintains insurance policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for its businesses including, but not limited
to, policies covering real and personal property owned or leased by the
Company against theft, damage, destruction, acts of vandalism and
earthquakes. The Company has no reason to believe that it will not be able
(i) to renew its existing insurance coverage as and when such policies
expire or (ii) to obtain comparable coverage from similar institutions as
may be necessary or appropriate to conduct its business as now conducted
and at a cost that would not result in a Material Adverse Change. The
Company has not been denied any insurance coverage which it has sought or
for which it has applied.
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(w) No Price Stabilization or Manipulation. The Company has not
taken and will not take, directly or indirectly, any action designed to or
that might be reasonably expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities.
(x) Solvency. The Company is, and immediately after the Closing Date
will be, Solvent. As used herein, the term "Solvent" means, with respect to
the Company on a particular date, that on such date (i) the fair market
value of the assets of the Company is greater than the total amount of
liabilities (including contingent liabilities) of the Company, (ii) the
present fair salable value of the assets of the Company is greater than the
amount that will be required to pay the probable liabilities of the Company
on its debts as they become absolute and matured, (iii) the Company is able
to realize upon its assets and pay its debts and other liabilities,
including contingent obligations, as they mature and (iv) the Company does
not have unreasonably small capital.
(y) Related Party Transactions. There are no business relationships
or related-party transactions involving the Company or any other person
that would be required to be described in the Offering Memorandum were it
to be filed as a part of a Registration Statement on Form S-1 under the
Securities Act, which have not been described as would have been so
required.
(z) The Company and its affiliates and all persons authorized to act
on their behalf (other than the Initial Purchasers, as to whom the Company
makes no representation) have complied with and will comply with the
offering restrictions requirements of Regulation S in connection with the
offering of the Securities outside the United States and, in connection
therewith, the Offering Memorandum will contain the disclosure required by
Rule 902(g).
(aa) The Securities sold in reliance on Regulation S will be
represented upon issuance by a temporary global security that may not be
exchanged for definitive securities until the expiration of the 40-day
restricted period referred to in Rule 903(b)(3) of the Securities Act and
only upon certification of beneficial ownership of such Securities by non-
U.S. persons or U.S. persons who purchased such Securities in transactions
that were exempt from the registration requirements of the Securities Act.
Any certificate signed by an officer of the Company and delivered
to the Initial Purchases or to counsel for the Initial Purchasers shall be
deemed to be a representation and warranty by the Company to each Initial
Purchaser as to the matters set forth therein.
Section 2. Purchase, Sale and Delivery of the Securities.
(a) The Securities. On the basis of the representations, warranties
and agreements herein contained, and upon the terms but subject to the
conditions herein set forth, the Company agrees to issue and sell to the
several Initial Purchasers, severally and not jointly, all of the
Securities and the Initial Purchasers agree, severally and not jointly, to
purchase from the Company the aggregate principal amount of Securities set
forth opposite their names on Schedule A, at a discounted purchase price of
13 1/2% of the principal amount thereof payable on the Closing Date.
(b) The Closing Date. Delivery of certificates for the Securities in
definitive form to be purchased by the Initial Purchasers and payment
therefor shall be made at the
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offices of Latham & Watkins, Chicago, Illinois (or such other place as may
be agreed to by the Company and the Initial Purchasers) at 9:00 a.m.
Chicago time, on January 29, 1999, or such other time and date not later
than 12:00 p.m., Chicago time, on February 2, 1999 as the Initial
Purchasers shall designate by notice to the Company (the time and date of
such closing are called the "Closing Date"). The Company hereby
acknowledges that circumstances under which the Initial Purchasers may
provide notice to postpone the Closing Date as originally scheduled
include, but are in no way limited to, any determination by the Company or
the Initial Purchasers to recirculate to investors copies of an amended or
supplemented Offering Memorandum or a delay as contemplated by the
provisions of Section 16.
(c) Delivery of the Securities. The Company shall deliver, or cause
to be delivered, to NationsBanc Montgomery Securities LLC for the accounts
of the several Initial Purchasers certificates for the Securities at the
Closing Date against the irrevocable release of a wire transfer of
immediately available funds for the amount of the purchase price therefor.
The certificates for the Securities shall be in such denominations and
registered in the name of Cede & Co., as nominee of the Depository,
pursuant to the DTC Agreement and shall be made available for inspection on
the business day preceding the Closing Date at a location in New York City
as the Initial Purchasers may designate. Time shall be of the essence, and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Initial Purchasers.
(d) Delivery of Offering Memorandum to the Initial Purchasers. Not
later than 12:00 p.m. on the second business day following the date of this
Agreement, the Company shall delivery or cause to be delivered copies of
the Offering Memorandum in such quantities and at such places as the
Initial Purchasers shall reasonably request.
(e) Initial Purchasers as Qualified Institutional Buyers. Each
Initial Purchaser severally and not jointly represents and warrants to, and
agrees with, the Company that it is a "qualified institutional buyer"
within the meaning of Rule 144A (a "Qualified Institutional Buyer") and an
"accredited investor" within the meaning of Rule 501(a) under the
Securities Act (an "Accredited Investor").
Section 3. Additional Covenants. The Company further covenants and agrees
with each Initial Purchaser as follows:
(a) Initial Purchasers' Review of Proposed Amendments and
Supplements. Prior to amending or supplementing the Offering Memorandum,
the Company shall furnish to the Initial Purchasers for review a copy of
each such proposed amendment or supplement, and the Company shall not file
any such proposed amendment or supplement to which the Initial Purchasers
reasonably object.
(b) Amendments and Supplements to the Offering Memorandum and Other
Securities Act Matters. If, prior to the completion of the placement of
the Securities by the Initial Purchasers with the Subsequent Purchasers,
any event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Offering Memorandum in order to make
the statements therein, in the light of the circumstances when the Offering
Memorandum is delivered to a purchaser, not misleading, or if in the
written opinion of the Initial Purchasers or counsel for the Initial
Purchasers it is otherwise necessary to amend or supplement the Offering
Memorandum to comply with law, the Company agrees to promptly prepare
(subject to Section 3(a) hereof), and furnish at its own expense to the
Initial Purchasers, amendments or supplements to the Offering Memorandum so
that the statements in the Offering Memorandum as so amended or
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supplemented will not, in the light of the circumstances when the Offering
Memorandum is delivered to a purchaser, be misleading or so that the
Offering Memorandum, as amended or supplemented, will comply with law.
Following the consummation of the Exchange Offer or the effectiveness
of an applicable shelf registration statement and for so long as the
Securities are outstanding if, in the reasonable judgment of the Initial
Purchasers, the Initial Purchasers or any of their affiliates (as such term
is defined in the rules and regulations under the Securities Act) are
required to deliver a prospectus in connection with sales of, or market-
making activities with respect to, such securities, (A) to periodically
amend the applicable registration statement so that the information
contained therein complies with the requirements of Section 10(a) of the
Securities Act, (B) to amend the applicable registration statement or
supplement the related prospectus or the documents incorporated therein
when necessary to reflect any material changes in the information provided
therein so that the registration statement and the prospectus will not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances existing as of the date the prospectus is so
delivered, not misleading and (C) to provide the Initial Purchasers with
copies of each amendment or supplement filed and such other documents as
the Initial Purchasers may reasonably request.
The Company hereby expressly acknowledges that the indemnification and
contribution provisions of Sections 8 and 9 hereof are specifically
applicable and relate to each offering memorandum, registration statement,
prospectus, amendment or supplement referred to in this Section 3(b).
(c) Copies of the Offering Memorandum. The Company agrees to furnish
the Initial Purchasers, without charge, as many copies of the Offering
Memorandum and any amendments and supplements thereto as they shall have
reasonably requested provided, that such request is made or can be
satisfied out of, the original printing of the Offering Memorandum, or the
applicable amendment or supplement.
(d) Blue Sky Compliance. The Company shall cooperate with the
Initial Purchasers and counsel for the Initial Purchasers to qualify or
register the Securities for sale under (or obtain exemptions from the
application of) the Blue Sky or state securities laws of those
jurisdictions designated by the Initial Purchasers, shall comply with such
laws and shall continue such qualifications, registrations and exemptions
in effect so long as required for the distribution of the Securities. The
Company shall not be required to qualify as a foreign corporation or to
take any action that would subject it to general service of process in any
such jurisdiction where it is not presently qualified or where it would be
subject to taxation as a foreign corporation. The Company will advise the
Initial Purchasers promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Securities for
offering, sale or trading in any jurisdiction or any initiation or threat
of any proceeding for any such purpose, and in the event of the issuance of
any order suspending such qualification, registration or exemption, the
Company shall use its reasonable best efforts to obtain the withdrawal
thereof at the earliest possible moment.
(e) Use of Proceeds. The Company shall apply the net proceeds from
the sale of the Securities sold by it in the manner described under the
caption "Use of Proceeds" in the Offering Memorandum.
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(f) The Depositary. The Company will cooperate with the Initial
Purchasers and use its best efforts to permit the Securities to be eligible
for clearance and settlement through the facilities of the Depositary.
(g) Additional Issuer Information. At any time when the Company is not
subject to Section 13 or 15(d) of the Exchange Act, for the benefit of
holders and beneficial owners from time to time of Securities, the Company
shall furnish, as promptly as practicable, at its expense, upon written
request, to holders and beneficial owners of Securities and prospective
purchasers of Securities information ("Additional Issuer Information")
satisfying the requirements of subsection (d)(4) of Rule 144A.
(h) Future Reports to the Initial Purchasers. For so long as any
Securities or Exchange Securities remain outstanding, the Company will
furnish to each of the Initial Purchasers (i) as soon as reasonably
practicable after the end of each fiscal year, copies of the Annual Report
of the Company containing the balance sheet of the Company as of the close
of such fiscal year and statements of income, stockholders' equity and cash
flows for the year then ended and the opinion thereon of the Company's
independent public or certified public accountants; (ii) as soon as
reasonably practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Current Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its capital stock or debt securities (including the
holders of the Securities).
(i) No Integration. The Company agrees that it will not and will cause
its Affiliates not to make any offer or sale of securities of the Company
of any class if, as a result of the doctrine of "integration" referred to
in Rule 502 under the Securities Act, such offer or sale would render
invalid (for the purpose of (i) the sale of the Securities by the Company
to the Initial Purchasers, (ii) the resale of the Securities by the Initial
Purchasers to Subsequent Purchasers or (iii) the resale of the Securities
by such Subsequent Purchasers to others) the exemption from the
registration requirements of the Securities Act provided by Section 4(2)
thereof or by Rule 144A or by Regulation S thereunder or otherwise.
(j) Legended Securities. Each certificate for a Security will bear the
legend contained in "Transfer Restrictions" in the Offering Memorandum for
the time period and upon the other terms stated in the Offering Memorandum.
(k) PORTAL. The Company will use its best efforts to cause such
Securities to be eligible for the National Association of Securities
Dealers, Inc. PORTAL market (the "PORTAL market").
(l) Usury. Not to voluntarily claim, and to resist actively any
attempts to claim the benefits of any usury laws against the holders of any
Securities.
(m) Pledged Securities. To pledge at closing $ of Pledged Securities
(as defined in the Offering Memorandum) to the Trustee for the benefit of
the holders of the Securities in accordance with the terms and conditions
of the Pledge and Security Agreement.
(n) Subsequent Financial Statements. Prior to January 29, 1999, to
furnish to each of the Initial Purchasers, as soon as they have been
prepared in the ordinary course by the Company, copies of all available
financial statements or any unaudited interim
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financial statements of the Company for any period subsequent to the
periods covered by the financial statements appearing in the Offering
Memorandum.
(o) Due Diligence. In connection with the original distribution of the
Securities, the Company agrees that, prior to any offer or resale of the
Securities by the Initial Purchasers, the Initial Purchasers and counsel
for the Initial Purchasers shall have the right to make reasonable
inquiries into the business of the Company. The Company also agrees to
provide answers to each prospective Subsequent Purchaser of Securities who
so requests concerning the Company (to the extent that such information is
available or can be acquired and made available to prospective Subsequent
Purchasers without unreasonable effort or expense and to the extent the
provision thereof is not prohibited by applicable law) and the terms and
conditions of the offering of the Securities, as provided in the Offering
Memorandum.
NationsBanc Montgomery Securities LLC, on behalf of the several
Initial Purchasers, may, in its sole discretion, waive in writing the
performance by the Company of any one or more of the foregoing covenants or
extend the time for their performance.
Section 4. Payment of Expenses. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Securities (including all printing and engraving costs), (ii) all necessary
issue, transfer and other stamp taxes in connection with the issuance and sale
of the Securities to the Initial Purchasers, (iii) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (iv) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of each Preliminary
Offering Memorandum and the Offering Memorandum (including financial statements
and exhibits), and all amendments and supplements thereto, this Agreement, the
Registration Rights Agreement, the Pledge Agreement, the Indenture, the DTC
Agreement, and the Securities, (v) all filing fees, attorneys' fees (which shall
not exceed $10,000) and expenses incurred by the Company or the Initial
Purchasers in connection with qualifying or registering (or obtaining exemptions
from the qualification or registration of) all or any part of the Securities for
offer and sale under the Blue Sky laws and, if requested by the Initial
Purchasers, preparing and printing a "Blue Sky Survey" or memorandum, and any
supplements thereto, advising the Initial Purchasers of such qualifications,
registrations and exemptions, (vi) the fees and expenses of the Trustee,
including the fees and disbursements of counsel for the Trustee in connection
with the Indenture, the Securities and the Exchange Securities, (vii) any fees
payable in connection with the rating of the Securities or the Exchange
Securities with the ratings agencies and the listing of the Securities with the
PORTAL market, (viii) any filing fees incident to the review by the National
Association of Securities Dealers, Inc., if any, of the terms of the sale of the
Securities or the Exchange Securities, (ix) all fees and expenses (including
reasonable fees and expenses of counsel) of the Company in connection with
approval of the Securities by DTC for "book-entry" transfer, and (x) the
performance by the Company of its other obligations under this Agreement. Except
as provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Initial Purchasers shall pay their own expenses, including the fees and
disbursements of their counsel.
Section 5. Conditions of the Obligations of the Initial Purchasers . The
obligations of the several Initial Purchasers to purchase and pay for the
Securities as provided herein on the Closing Date shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the Closing Date as
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though then made and to the timely performance by the Company of its covenants
and other obligations hereunder, and to each of the following additional
conditions:
(a) Accountants' Comfort Letter. On the date hereof, the Initial
Purchasers shall have received from Arthur Andersen, LLP, independent
public or certified public accountants for the Company, a letter dated the
date hereof addressed to the Initial Purchasers, in form and substance
reasonably satisfactory to the Initial Purchasers, containing statements
and information of the type ordinarily included in accountant's "comfort
letters" to Initial Purchasers, delivered according to Statement of
Auditing Standards Nos. 72 and 76 (or any successor bulletins), with
respect to the audited and unaudited financial statements and certain
financial information contained in the Offering Memorandum.
(b) No Material Adverse Change. For the period from and after the date
of this Agreement and prior to the Closing Date: (i) in the judgment of the
Initial Purchasers, there shall not have occurred any Material Adverse
Change (including, without limitation, any ruling by the Federal
Communications Commission) the effect of which in the sole judgment of the
Initial Purchasers makes it impractical or inadvisable to proceed with the
Offering or the delivery of the Securities on the terms and in the manner
contemplated by the Offering Memorandum and this Agreement; and (ii) there
shall not have occurred any downgrading, nor shall any notice have been
given of any intended or potential downgrading or of any review for a
possible change that does not indicate the direction of the possible
change, in the rating accorded any securities of the Company (including the
Securities) by any "nationally recognized statistical rating organization"
as such term is defined for purposes of Rule 436(g)(2) under the Securities
Act.
(c) Opinion of Counsel for the Company. On the Closing Date the
Initial Purchasers shall have received the opinion of Kirkland & Ellis,
counsel for the Company, dated as of such Closing Date, substantially in
the form attached as Exhibit A-1 and (ii) the opinion of Goodin, MacBride,
Squeri, Scholtz & Ritchie, LLP, regulatory counsel for the Company, dated
as of the Closing Date, substantially in the form attached as Exhibit A-2.
(d) Opinion of Counsel for the Initial Purchasers. On the Closing
Date the Initial Purchasers shall have received the opinion of Latham &
Watkins, counsel for the Initial Purchasers, dated as of such Closing Date,
with respect to such matters as may be reasonably requested by the Initial
Purchasers.
(e) Officers' Certificate. On the Closing Date the Initial
Purchasers shall have received a written certificate executed by the
Chairman of the Board, Chief Executive Officer or President of the Company
and the Chief Financial Officer or Chief Accounting Officer of the Company,
dated as of the Closing Date, to the effect set forth in subsection
(b)(ii) of this Section 5, and further to the effect that:
(i) for the period from and after the date of this Agreement and
prior to the Closing Date there has not occurred any Material Adverse
Change;
(ii) the representations, warranties and covenants of the Company
set forth in Section 1 of this Agreement are true and correct with the same
force and effect as though expressly made on and as of the Closing Date;
and
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(iii) the Company has complied in all material respects with all
the agreements and satisfied all the conditions on its part to be performed
or satisfied at or prior to the Closing Date.
(f) Bring-down Comfort Letter. On the Closing Date, the Initial
Purchasers shall have received from Arthur Andersen, LLP, independent
public or certified public accountants for the Company, a letter dated such
date, in form and substance reasonably satisfactory to the Initial
Purchasers, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5,
except that the specified date referred to therein for the carrying out of
procedures shall be no more than three business days prior to the Closing
Date.
(g) PORTAL Listing. At the Closing Date the Notes shall have been
designated for trading on the PORTAL market.
(h) Additional Agreements. The Company shall have entered into the
Registration Rights Agreement, and the Pledge Agreement and the Initial
Purchasers shall have received executed counterparts thereof.
(j) Additional Documents. On or before the Closing Date, the Initial
Purchasers and counsel for the Initial Purchasers shall have received such
information, documents and opinions as they may reasonably require for the
purposes of enabling them to pass upon the issuance and sale of the
Securities as contemplated herein, or in order to evidence the accuracy of
any of the representations and warranties, or the satisfaction of any of
the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the Initial
Purchasers by notice to the Company at any time on or prior to the Closing Date,
which termination shall be without liability on the part of any party to any
other party, except that Section 4, Section 6, Section 8 and Section 9 shall at
all times be effective and shall survive such termination.
Section 6. Reimbursement of Initial Purchasers' Expenses. If this
Agreement is terminated by the Initial Purchasers pursuant to Section 5 or
Section 6, or if the sale to the Initial Purchasers of the Securities on the
Closing Date is not consummated because of any refusal, inability or failure on
the part of the Company to perform any agreement herein or to comply with any
provision hereof, the Company agrees to reimburse the Initial Purchasers (or
such Initial Purchasers as have terminated this Agreement with respect to
themselves), severally, upon demand for all out-of-pocket expenses that shall
have been reasonably incurred by the Initial Purchasers in connection with the
proposed purchase and the offering and sale of the Securities, including but not
limited to fees and disbursements of counsel, printing expenses, travel
expenses, postage, facsimile and telephone charges.
Section 7. Offer, Sale and Resale Procedures. Each of the Initial
Purchasers and the Company hereby establish and agree to observe the following
procedures in connection with the offer and sale of the Securities:
(i) Offers and Sales only to Qualified Institutional Buyers.
Offers and sales of the Securities will be made only by the Initial
Purchasers or Affiliates thereof qualified to do so in the
jurisdictions in which such offers or sales are made. Each such offer
or sale shall only be made (A) to persons whom the offeror or seller
reasonably believes to be qualified institutional buyers (as defined
in Rule 144A under the Securities Act) or (B) non-U.S. persons outside
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the United States to whom the offeror or seller reasonably believes
offers and sales of the Securities may be made in reliance upon
Regulation S under the Securities Act, upon the terms and conditions
set forth in Annex I hereto, which Annex I is hereby expressly made a
part hereof.
(ii) No General Solicitation. The Securities will be offered by
approaching prospective Subsequent Purchasers on an individual basis.
No general solicitation or general advertising (within the meaning of
Rule 502(c) under the Securities Act) will be used in the United
States in connection with the offering of the Securities.
(iii) Purchases by Non-Bank Fiduciaries. In the case of a non-
bank Subsequent Purchaser of a Note acting as a fiduciary for one or
more third parties, in connection with an offer and sale to such
purchaser pursuant to clause (i) above, each third party shall, in the
judgment of the applicable Initial Purchaser, be a Qualified
Institutional Buyer or a non-U.S. person outside the United States.
(iv) Restrictions on Transfer. Upon original issuance by the
Company, and until such time as the same is no longer required under
the applicable requirements of the Securities Act, the Securities (and
all securities issued in exchange therefor or in substitution thereof,
other than the Exchange Securities) shall bear the following legend:
"THE NOTE (OR ITS PREDECESSORS) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE NOTE
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
EACH PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT
THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR
ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE NOTE
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH
NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) (a) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), PURCHASING
FOR ITS OWN ACCOUNT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A UNDER THE SECURITIES ACT, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 OF THE SECURITIES ACT, (c) OUTSIDE THE UNITED
STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 904 OF REGULATION S UNDER THE SECURITIES ACT OR (d) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT PROVIDED THAT IN THE CASE OF A TRANSFER PURSUANT
TO CLAUSE (d) SUCH TRANSFER IS EFFECTED BY THE DELIVERY TO THE
TRANSFEREE OF DEFINITIVE SECURITIES REGISTERED IN ITS NAME (OR ITS
NOMINEES NAME) IN THE BOOKS MAINTAINED BY THE REGISTRAR, AND IS
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SUBJECT TO THE RECEIPT BY THE REGISTRAR (AND THE COMPANY, IF IT SO
REQUESTS) OF A CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF
COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (ii) TO THE COMPANY OR (iii) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
FROM IT OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET
FORTH IN (A) ABOVE."
Following the sale of the Securities by the Initial Purchasers to
Subsequent Purchasers pursuant to the terms hereof, the Initial
Purchasers shall not be liable or responsible to the Company for any
losses, damages or liabilities suffered or incurred by the Company,
including any losses, damages or liabilities under the Securities Act,
arising from or relating to any resale or transfer of any Security.
(v) Delivery of Offering Memorandum. Each Initial Purchaser will
deliver to each purchaser of the Securities from such Initial
Purchaser, in connection with its original distribution of the
Securities, a copy of the Offering Memorandum, as amended and
supplemented at the date of such delivery.
Section 8. Indemnification.
(a) Indemnification of the Initial Purchasers. The Company agrees to
indemnify and hold harmless each Initial Purchaser, its officers and
employees, and each person, if any, who controls any Initial Purchaser
within the meaning of the Securities Act and the Exchange Act against any
loss, claim, damage, liability or expense, as incurred, to which such
Initial Purchaser or such controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Preliminary Offering Memorandum or the Offering Memorandum
or any information provided by the Company to any Holder or prospective
purchaser of Securities pursuant to Section 3(h) (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and
to reimburse each Initial Purchaser and each such controlling person for
any and all expenses (including the reasonable fees and disbursements of
counsel chosen by NationsBanc Montgomery Securities LLC) as such expenses
are reasonably incurred by such Initial Purchaser or such controlling
person in connection with investigating, defending, settling, compromising
or paying any such loss, claim, damage, liability, expense or action;
provided, however, that the foregoing indemnity agreement shall not apply
to any loss, claim, damage, liability or expense to the extent, but only to
the extent, arising out of or based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and
in conformity with written information furnished to the Company by the
Initial Purchasers expressly for use in any Preliminary Offering Memorandum
or the Offering Memorandum (or any amendment or
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<PAGE>
supplement thereto) and provided further, that the Company will not be
liable to the Initial Purchasers or any person controlling the Initial
Purchasers or any of their respective affiliates, directors, officers,
agents, representatives or employees with respect to any such untrue
statement or omission made in the Preliminary Offering Memorandum that is
corrected in the final Offering Memorandum (or any amendment or supplement
thereto) if (i) the person asserting any such loss, claim, damage or
liability purchased Securities from the Initial Purchasers in reliance upon
the Preliminary Offering Memorandum but was not delivered or sent a copy of
the final Offering Memorandum (as amended or supplemented) at or prior to
the written confirmation of the sale of such Securities to such person,
unless such failure to deliver or send the final Offering Memorandum (as
amended or supplemented) was a result of noncompliance by the Company with
Section 3(c) of this Agreement and (ii) it shall have been determined that
the Initial Purchasers, and each such controlling person, if any, would not
have incurred such losses, claims, damages or liabilities had the final
Offering Memorandum been delivered or sent. The indemnity agreement set
forth in this Section 8(a) shall be in addition to any liabilities that the
Company may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Initial Purchaser agrees, severally and not jointly, to indemnify and hold
harmless the Company and each of its directors and each person, if any, who
controls the Company within the meaning of the Securities Act or the
Exchange Act, against any loss, claim, damage, liability or expense, as
incurred, to which the Company or any such director, or controlling person
may become subject, under the Securities Act, the Exchange Act, or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected
with the written consent of such Initial Purchaser), insofar as such loss,
claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged
untrue statement of a material fact contained in any Preliminary Offering
Memorandum or the Offering Memorandum (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any
Preliminary Offering Memorandum or the Offering Memorandum (or any
amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Company by the Initial Purchasers
expressly for use therein; and to reimburse the Company, or any such
director or controlling person for any legal and other expenses reasonably
incurred by the Company, or any such director or controlling person in
connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action. The Company
hereby acknowledges that the only information that the Initial Purchasers
have furnished to the Company expressly for use in any Preliminary Offering
Memorandum or the Offering Memorandum (or any amendment or supplement
thereto) are the statements set forth (A) as the paragraph preceding the
"Notice to New Hampshire Residents" on the inside front cover page of the
Offering Memorandum concerning stabilization by the Initial Purchasers and
(B) in the third, fourth, seventh and eighth paragraphs under the caption
"Plan of Distribution" in the Offering Memorandum; and the Initial
Purchasers confirm that such statements are correct. The indemnity
agreement set forth in this Section 8(b) shall be in addition to any
liabilities that each Initial Purchaser may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly
after receipt by an indemnified party under this Section 8 of notice of the
commencement of any
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action, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party under this Section 8, notify the
indemnifying party in writing of the commencement thereof, but the omission
to so notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party under the indemnity agreement
contained in this Section 8 except to the extent it is prejudiced as a
proximate result of such failure. In case any such action is brought
against any indemnified party and such indemnified party seeks or intends
to seek indemnity from an indemnifying party, the indemnifying party will
be entitled to participate in and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party; provided,
however, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that a conflict may arise between the positions of the
indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and
to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel (together with local
counsel), approved by the indemnifying party (NationsBanc Montgomery
Securities LLC in the case of Section 8(b) and Section 9), representing the
indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases the
fees and expenses of counsel shall be at the expense of the indemnifying
party.
(d) Settlements. The indemnifying party under this Section 8 shall
not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
nonappealable judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party against any loss, claim, damage, liability
or expense by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified party for fees
and expenses of counsel as contemplated by Section 8(c) hereof, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of
the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to
the date of such settlement or delivered notice to the indemnified party of
its good faith objection to such claim of indemnification. No indemnifying
party shall, without the prior written consent of the indemnified party,
effect any settlement, compromise or consent to the entry of judgment in
any pending or threatened action, suit or proceeding in respect of which
any indemnified party is or could have been a party and indemnity was or
could have been
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sought hereunder by such indemnified party, unless such settlement,
compromise or consent includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
action, suit or proceeding.
Section 9. Contribution.
If the indemnification provided for in Section 8 is for any reason
held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Initial Purchasers,
on the other hand, from the offering of the Securities pursuant to this
Agreement or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, on the one hand, and the Initial Purchasers, on the other
hand, in connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Initial Purchasers, on the other hand, in connection with the offering
of the Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company, and the total discount received by the Initial Purchasers bear to
the aggregate initial offering price of the Securities. The relative fault of
the Company, on the one hand, and the Initial Purchasers, on the other hand,
shall be determined by reference to, among other things, whether any such untrue
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact or any such inaccurate or alleged inaccurate
representation or warranty relates to information supplied by the Company, on
the one hand, or the Initial Purchasers, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company and the Initial Purchasers agree that it would not be just
and equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation (even if the Initial Purchasers were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Initial Purchaser
shall be required to contribute any amount in excess of the discount received by
such Initial Purchaser in connection with the Securities distributed by it. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Initial Purchasers'
obligations to contribute pursuant to this Section 9 are several, and not joint,
in proportion to their respective commitments as set forth opposite their names
in Schedule A. For purposes of this
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Section 9, each officer and employee of an Initial Purchaser and each person, if
any, who controls an Initial Purchaser within the meaning of the Securities Act
and the Exchange Act shall have the same rights to contribution as such Initial
Purchaser, and each director of the Company, and each person, if any, who
controls the Company with the meaning of the Securities Act and the Exchange Act
shall have the same rights to contribution as the Company.
Section 10. Termination of this Agreement. Prior to the Closing Date, this
Agreement maybe terminated by the Initial Purchasers by notice given to the
Company if at any time (i) trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal or New York
authorities; or (iii) there shall have occurred any outbreak or escalation of
national or international hostilities or any crisis or calamity, or any change
in the United States or international financial markets, or any substantial
change or development involving a prospective substantial change in United
States' or international political, financial or economic conditions, as in the
judgment of the Initial Purchasers is material and adverse and makes it
impracticable to market the Securities in the manner and on the terms described
in the Offering Memorandum or to enforce contracts for the sale of securities.
Any termination pursuant to this Section 10 shall be without liability on the
part of (a) the Company to any Initial Purchaser, except that the Company shall
be obligated to reimburse the expenses of the Initial Purchasers pursuant to
Sections 4 and 6 hereof, (b) any Initial Purchaser to the Company, or (c) of any
party hereto to any other party except that the provisions of Section 8 and
Section 9 shall at all times be effective and shall survive such termination.
Section 11. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Initial Purchasers
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Initial
Purchaser or the Company or any of its or their partners, officers or directors
or any controlling person, as the case may be, and will survive delivery of and
payment for the Securities sold hereunder and any termination of this Agreement.
Section 12. Notices. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Initial Purchasers:
NationsBanc Montgomery Securities LLC
231 South LaSalle Street
Chicago, IL 60697
Facsimile: (312) 974-0140
Attention: Stephen Sleigh
with a copy to:
Latham & Watkins
233 South Wacker Drive, Suite 5800
Chicago, IL 60606
Facsimile: 312/993-9767
Attention: Christopher Lueking
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If to the Company:
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, CA 95204
Facsimile: (209) 926-3218
Attention: Chief Financial Officer
with a copy to:
Kirkland & Ellis
200 East Randolph Street
Chicago, IL 60601
Facsimile: (312) 861-2200
Attention: Dennis Myers
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
Section 13. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Initial Purchasers
pursuant to Section 16 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Securities as such from any of the Initial Purchasers merely by reason of
such purchase.
Section 14. Partial Unenforceability. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
Section 15. Governing Law Provisions. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
Section 16. Default of One or More of the Several Initial Purchasers. If
any one or more of the several Initial Purchasers shall fail or refuse to
purchase Securities that it or they have agreed to purchase hereunder on the
Closing Date, and the aggregate number of Securities which such defaulting
Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase
does not exceed 10% of the aggregate number of the Securities to be purchased on
such date, the other Initial Purchasers shall be obligated, severally, in the
proportions that the number of Securities set forth opposite their respective
names on Schedule A bears to the aggregate number of Securities set forth
opposite the names of all such non-defaulting Initial Purchasers, or in such
other proportions as may be specified by the Initial Purchasers with the consent
of the non-defaulting Initial Purchasers, to purchase the Securities which such
defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused
to purchase on such date. If any one or more of the Initial Purchasers shall
fail or refuse to purchase Securities and the aggregate number of Securities
with respect to which such default occurs exceeds 10% of the aggregate number of
Securities to be purchased on the Closing Date, and arrangements satisfactory to
the Initial Purchasers and the Company for the purchase of such Securities are
not made within 48 hours
21
<PAGE>
after such default, this Agreement shall terminate without liability of any
party to any other party except that the provisions of Section 4, Section 6,
Section 8 and Section 9 shall at all times be effective and shall survive such
termination. In any such case either the Initial Purchasers or the Company shall
have the right to postpone the Closing Date, as the case may be, but in no event
for longer than seven days in order that the required changes, if any, to the
Offering Memorandum or any other documents or arrangements may be effected.
As used in this Agreement, the term "Initial Purchaser" shall be
deemed to include any person substituted for a defaulting Initial Purchaser
under this Section 10. Any action taken under this Section 16 shall not relieve
any defaulting Initial Purchaser from liability in respect of any default of
such Initial Purchaser under this Agreement.
Section 17. General Provisions. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
22
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
PAC-WEST TELECOMM, INC.
By: /s/ Richard E. Bryson
__________________________
[Title]
The foregoing Purchase Agreement is hereby confirmed and accepted by
the Initial Purchasers in Chicago, Illinois as of the date first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
CIBC OPPENHEIMER CORP.
FIRST UNION CAPITAL MARKETS, A DIVISION OF WHEAT FIRST
SECURITIES, INC. As the several Initial Purchasers
By NATIONSBANC MONTGOMERY SECURITIES LLC
By:__________________________
[Title]
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
PAC-WEST TELECOMM, INC.
By: __________________________
[Title]
The foregoing Purchase Agreement is hereby confirmed and accepted by
the Initial Purchasers in Chicago, Illinois as of the date first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
CIBC OPPENHEIMER CORP.
FIRST UNION CAPITAL MARKETS, A DIVISION OF WHEAT FIRST
SECURITIES, INC. As the several Initial Purchasers
By NATIONSBANC MONTGOMERY SECURITIES LLC
By:/s/ Thomas J. McGrath
__________________________
[Title] Thomas J. McGrath
Managing Director
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Aggregate
Principal Amount
Initial Purchasers of Securities to
be Purchased
<S> <C>
NationsBanc Montgomery Securities LLC........... $ 90,000,000
CIBC Oppenheimer Corp........................... 30,000,000
First Union Capital Markets..................... 30,000,000
Total........................................ $150,000,000
</TABLE>
<PAGE>
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to Section
5(c) of the Purchase Agreement.
References to the Offering Memorandum in this Exhibit A include any
supplements thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of California.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the Offering
Memorandum and to enter into and perform its obligations under the Purchase
Agreement, the Registration Rights Agreement, the Pledge Agreement, the
Indenture, the Securities, the Exchange Securities and the DTC Agreement.
(iii) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions [(other than
the State of California)] where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a Material
Adverse Change.
(iv) The authorized, issued and outstanding capital stock of the Company
conform in all material respects to the descriptions thereof set forth in the
Offering Memorandum. All of the outstanding shares of Common Stock and
Preferred Stock have been duly authorized and validly issued, are fully paid and
nonassessable and, to the best of such counsel's knowledge, have been issued in
compliance with the registration and qualification requirements of federal and
state securities laws. The description of the Company's stock option, stock
bonus and other stock plans or arrangements, and the options or other rights
granted and exercised thereunder, set forth in the Offering Memorandum
accurately and fairly describes such plans, arrangements, options and rights.
(v) No stockholder of the Company or any other person has any preemptive
right, right of first refusal or other similar right to subscribe for or
purchase securities of the Company arising (i) by operation of the charter or
by-laws of the Company or the General Corporation Law of the State of California
or (ii) to the best knowledge of such counsel, otherwise.
(vi) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(vii) Each of the Registration Rights Agreement, the Pledge Agreement and
the DTC Agreement has been duly authorized, executed and delivered by, and is a
valid and binding agreement of, the Company, enforceable in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles.
A-1
<PAGE>
(viii) The Indenture has been duly authorized, executed and delivered by
the Company and (assuming the due authorization, execution and delivery thereof
by the Trustee) constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general principles of equity.
(ix) The Notes are in the form contemplated by the Indenture, have been
duly authorized by the Company for issuance and sale pursuant to this Agreement
and the Indenture and, when executed by the Company and authenticated by the
Trustee in the manner provided in the Indenture (assuming the due authorization,
execution and delivery of the Indenture by the Trustee) and delivered against
payment of the purchase price therefor, will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws relating to or affecting
enforcement of the rights and remedies of creditors or by general principles of
equity and will be entitled to the benefits of the Indenture.
(x) The Exchange Securities have been duly and validly authorized for
issuance by the Company, and when issued and authenticated in accordance with
the terms of the Indenture, the Registration Rights Agreement and the Exchange
Offer, will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, or
similar laws relating to or affecting enforcement of the rights and remedies of
creditors or by general principles of equity and will be entitled to the
benefits of the Indenture.
(xi) The Securities and the Indenture conform in all material respects to
the descriptions thereof contained in the Offering Memorandum.
(xii) The statements in the Offering Memorandum under the captions
"Description of the Notes," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,"
"Business--Intellectual Property," "Certain Relationships and Related
Transactions," "Certain United States Federal Tax Considerations" and "Notice to
Investors," insofar as such statements constitute matters of law, summaries of
legal matters, the Company's charter or by-law provisions, documents or legal
proceedings, or legal conclusions, have been reviewed by such counsel and fairly
present and summarize, in all material respects, the matters referred to
therein.
(xiii) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance of the
Purchase Agreement, the Registration Rights Agreement, the Pledge Agreement, the
DTC Agreement, the Securities, the Exchange Securities or the Indenture, or the
issuance and delivery of the Securities or the Exchange Securities, or
consummation of the transactions contemplated hereby and thereby and by the
Offering Memorandum, except such as have been obtained or made by the Company
and are in full force and effect under the Securities Act, applicable state
securities or blue sky laws and except such as may be required by federal and
state securities laws with respect to the Company's obligations under the
Registration Rights Agreement.
A-2
<PAGE>
(xiv) The execution and delivery of the Purchase Agreement, the
Registration Rights Agreement, the Pledge Agreement, the DTC Agreement, the
Securities, the Exchange Securities and the Indenture by the Company and the
performance by the Company of its obligations thereunder (other than performance
by the Company of its obligations under the indemnification section of the
Purchase Agreement, as to which no opinion need be rendered) (i) have been duly
authorized by all necessary corporate action on the part of the Company; (ii)
will not result in any violation of the provisions of the charter or by-laws of
the Company or any subsidiary; (iii) will not constitute a breach of, or Default
[or a Debt Repayment Triggering Event] under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company pursuant to the best knowledge of such counsel, any material Existing
Instrument; or (iv) to the best knowledge of such counsel, will not result in
any violation of any law, administrative regulation or administrative or court
decree applicable to the Company or any subsidiary.
(xv) The Company is not, and after receipt of payment for the Securities
will not be, an "investment company" within the meaning of Investment Company
Act.
(xvi) To the best knowledge of such counsel, the Company is not in
violation of its charter or by-laws or any law, administrative regulation or
administrative or court decree applicable to it or is in Default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any material Existing Instrument, except in each such case for such
violations or Defaults as would not, individually or in the aggregate, result in
a Material Adverse Change.
(xvii) Assuming the accuracy of the representations, warranties and
covenants of the Company and the Initial Purchasers contained herein, no
registration of the Notes under the Securities Act, and no qualification of an
indenture under the Trust Indenture Act with respect thereto, is required for in
connection with the purchase of the Initial Securities by the Initial Purchasers
or the initial resale of the Initial Securities by the Initial Purchasers to
Qualified Institutional Buyers or Institutional Accredited Investors in the
manner contemplated by this Agreement and the Offering Memorandum other than any
registration or qualification that may be required in connection with the
Exchange Offer contemplated by the Offering Memorandum or in connection with the
Registration Rights Agreement. Such counsel need express no opinion, however,
as to when or under what circumstances any Initial Notes initially sold by the
Initial Purchasers may be reoffered or resold.
(xviii) Each of the Preliminary Offering and the Offering Memorandum, as
of its date, and each amendment or supplement thereto, as of its date (except
for the financial statements included or incorporated by reference therein, as
to which no opinion need be expressed), contained all of the information
required under Rule 144A(d)(A) of the Securities Act.
(xix) The provisions of the Pledge Agreement are effective to create in
favor of the Collateral Agent (as defined in the Pledge Agreement) as agent of
and securities intermediary for the Trustee, for the benefit of the holders of
the Notes, a valid security interest in that portion of the Collateral (as
defined in the Pledge Agreement) that is subject to Article 9 of the Uniform
Commercial Code of the State of New York (the "New York UCC") as security for
the payment of the Obligations (as defined in the Pledge Agreement) to the
extent set forth in the Pledge Agreement.
A-3
<PAGE>
(xx) With respect to that portion of the Collateral which is Government
Securities (as defined in the Pledge Agreement) consisting of obligations of the
United States Treasury which constitute Book-Entry Securities (as defined below)
issued by the Federal Reserve Bank of New York ("FRBNY"), the Pledge Agreement,
together with (i) the crediting by book entry on the records of the FRBNY
transferring such Government Securities to the Collateral Agent's Account at the
FRBNY and (ii) the crediting by book entry of such Government Securities to the
Pledge Account (as defined in the Pledge Agreement) by the Collateral Agent, in
the manner contemplated by the Pledge Agreement, are effective to create in
favor of the Collateral Agent as agent of and securities intermediary for the
Trustee (for the benefit of the holders of the Notes), a perfected security
interest in the rights and property interest of the Company in and to such
Government Securities in accordance with the terms of the Pledge Agreement. As
used herein, "Book-Entry Securities" means securities, including bills, notes or
bonds (each as defined in 31. C.F.R. (S)357.2) or qualifying components of
securities eligible for the Separate Trading of Registered Interest and
Principal of Securities ("STRIPS") program or the Coupons Under Book-Entry
Safekeeping Program ("CUBES") of the U.S. Treasury referred to in 31 C.F.R.
(S)357.2, which security is issued by the United States of America or an agency
or instrumentality thereof in the form of an entry on the records of a Federal
Reserve Bank and is maintained through registration on the books of the FRBNY
pursuant to 31 C.F.R. (S)357.12(c)(2) or to other applicable Federal book-entry
regulations identical to such regulation in all material respects.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Initial Purchasers at which the
contents of the Offering Memorandum, and any supplements or amendments thereto,
and related matters were discussed and, although such counsel is not passing
upon and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Offering Memorandum (other than as
specified above), and any supplements or amendments thereto, on the basis of the
foregoing, nothing has come to their attention which would lead them to believe
that either the Offering Memorandum, as of its date or at the Closing Date,
contained or contains an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading (it
being understood that such counsel need express no belief as to the financial
statements or other financial data derived therefrom, included in the Offering
Memorandum or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the laws of the State of New York or
the federal law of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion (which shall be dated the Closing
Date shall be satisfactory in form and substance to the Initial Purchasers,
shall expressly state that the Initial Purchasers may rely on such opinion as if
it were addressed to them and shall be furnished to the Initial Purchasers) of
other counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Initial Purchasers; provided, however, that such
counsel shall further state that they believe that they and the Initial
Purchasers are justified in relying upon such opinion of other counsel, and (B)
as to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company and public officials.
A-4
<PAGE>
ANNEX I
Resale Pursuant to Regulation S or Rule 144A. Each Initial Purchaser
understands that:
(a) Such Initial Purchaser agrees that it has not offered or sold and
will not offer or sell the Securities in the United States or to, or for
the benefit or account of, a U.S. Person (other than a distributor), in
each case, as defined in Rule 902 under the Securities Act (i) as part of
its distribution at any time and (ii) otherwise until 40 days after the
later of the commencement of the offering of the Securities pursuant hereto
and the Closing Date, other than in accordance with Regulation S of the
Securities Act or another exemption from the registration requirements of
the Securities Act. Such Initial Purchaser agrees that, during such 40-day
restricted period, it will not cause any advertisement with respect to the
Securities (including any "tombstone" advertisement) to be published in any
newspaper or periodical or posted in any public place and will not issue
any circular relating to the Securities, except such advertisements as
permitted by and include the statements required by Regulation S.
(b) Such Initial Purchaser agrees that, at or prior to confirmation
of a sale of Securities by it to any distributor, dealer or person
receiving a selling concession, fee or other remuneration during the 40-day
restricted period referred to in Rule 903(c)(3) under the Securities Act,
it will send to such distributor, dealer or person receiving a selling
concession, fee or other remuneration a confirmation or notice to
substantially the following effect:
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and may not
be offered and sold within the United States or to, or for the account
or benefit of, U.S. persons (i) as part of your distribution at any
time or (ii) otherwise until 40 days after the later of the
commencement of the Offering and the Closing Date, except in either
case in accordance with Regulation S under the Securities Act (or Rule
144A or to Accredited Institutions in transactions that are exempt
from the registration requirements of the Securities Act), and in
connection with any subsequent sale by you of the Notes covered hereby
in reliance on Regulation S during the period referred to above to any
distributor, dealer or person receiving a selling concession, fee or
other remuneration, you must deliver a notice to substantially the
foregoing effect. Terms used above have the meanings assigned to them
in Regulation S."
(c) Such Initial Purchaser agrees that the Securities offered and sold
in reliance on Regulation S will be represented upon issuance by a global
security that may not be exchanged for definitive securities until the
expiration of the 40-day restricted period referred to in Rule 903(c)(3) of
the Securities Act and only upon certification of beneficial ownership of
such Securities by non-U.S. persons or U.S. persons who purchased such
Securities in transactions that were exempt from the registration
requirements of the Securities Act.]
Annex I-1
<PAGE>
Exhibit 4.2
- --------------------------------------------------------------------------------
Pac-West Telecomm, Inc.
SERIES A AND SERIES B
13 1/2% SENIOR NOTES DUE 2009
-------------------
INDENTURE
Dated as of January 29, 1999
-------------------
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Trustee
-------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310(a)(1)...................................................... 7.10
(a)(2)...................................................... 7.10
(a)(3)...................................................... N.A.
(a)(4)...................................................... N.A.
(a)(5)...................................................... 7.10
(b)......................................................... 7.10
(c)......................................................... N.A.
311(a)......................................................... 7.11
(b)......................................................... 7.11
(c)......................................................... N.A.
312(a)......................................................... 2.05
(b)......................................................... 11.03
(c)......................................................... 11.03
313(a)......................................................... 7.06
(b)(1)...................................................... 10.03
(b)(2)...................................................... 7.07
(c)......................................................... 7.06;11.02
(d)......................................................... 7.06
314(a)......................................................... 4.03;11.02
(b)......................................................... 10.02
(c)(1)...................................................... 11.04
(c)(2)...................................................... 11.04
(c)(3)...................................................... N.A.
(d)......................................................... N.A.
(e)......................................................... 11.05
(f)......................................................... N.A.
315(a)......................................................... 7.01
(b)......................................................... 7.05,11.02
(c)......................................................... 7.01
(d)......................................................... 7.01
(e)......................................................... 6.11
316(a) (last sentence)......................................... 2.09
(a)(1)(A)................................................... 6.05
(a)(1)(B)................................................... 6.04
(a)(2)...................................................... N.A.
(b)......................................................... 6.07
(c)......................................................... 2.12
317(a)(1)...................................................... 6.08
(a)(2)...................................................... 6.09
(b)......................................................... 2.04
318(a)......................................................... 11.01
(b)......................................................... N.A.
(c)......................................................... 11.01
N.A. means not applicable.
* This Cross Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.................................................... 1
Section 1.02. Other Definitions.............................................. 17
Section 1.03. Incorporation by Reference of Trust Indenture Act.............. 17
Section 1.04. Rules of Construction.......................................... 18
ARTICLE 2 THE NOTES
Section 2.01. Form and Dating................................................ 18
Section 2.02. Execution and Authentication................................... 19
Section 2.03. Registrar and Paying Agent..................................... 20
Section 2.04. Paying Agent to Hold Money in Trust............................ 20
Section 2.05. Holder Lists................................................... 20
Section 2.06. Transfer and Exchange.......................................... 21
Section 2.07. Replacement Notes.............................................. 33
Section 2.08. Outstanding Notes.............................................. 33
Section 2.09. Treasury Notes................................................. 34
Section 2.10. Temporary Notes................................................ 34
Section 2.11. Cancellation................................................... 34
Section 2.12. Defaulted Interest............................................. 34
ARTICLE 3 REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee............................................. 35
Section 3.02. Selection of Notes to Be Redeemed.............................. 35
Section 3.03. Notice of Redemption........................................... 35
Section 3.04. Effect of Notice of Redemption................................. 36
Section 3.05. Deposit of Redemption Price.................................... 36
Section 3.06. Notes Redeemed in Part......................................... 37
Section 3.07. Optional Redemption............................................ 37
Section 3.08. Mandatory Redemption........................................... 37
Section 3.09. Offer to Purchase by Application of Excess Proceeds............ 38
ARTICLE 4 COVENANTS
Section 4.01. Payment of Notes............................................... 39
Section 4.02. Maintenance of Office or Agency................................ 40
Section 4.03. Reports........................................................ 40
Section 4.04. Compliance Certificate......................................... 41
Section 4.05. Taxes.......................................................... 41
Section 4.06. Stay, Extension and Usury Laws................................. 42
Section 4.07. Restricted Payments............................................ 42
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries. 44
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock..... 45
Section 4.10. Asset Sales.................................................... 48
Section 4.11. Transactions with Affiliates................................... 49
Section 4.12. Liens.......................................................... 50
Section 4.13. Line of Business............................................... 50
Section 4.14. Corporate Existence............................................ 50
Section 4.15. Offer to Repurchase Upon Change of Control..................... 50
i
<PAGE>
Section 4.16. Limitation on Sale and Leaseback Transactions.................. 51
Section 4.17. Limitation on Issuances and Sales of Capital Stock of
Wholly Owned Subsidiaries..................................... 51
Section 4.18. Issuances of Guarantees by Restricted Subsidiaries............. 52
Section 4.19. Designation of Restricted and Unrestricted Subsidiaries........ 52
Section 4.20. Payments for Consent........................................... 53
ARTICLE 5 SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets....................... 53
Section 5.02. Successor Corporation Substituted.............................. 53
ARTICLE 6 DEFAULTS AND REMEDIES
Section 6.01. Events of Default.............................................. 54
Section 6.02. Acceleration................................................... 55
Section 6.03. Other Remedies................................................. 56
Section 6.04. Waiver of Past Defaults........................................ 56
Section 6.05. Control by Majority............................................ 57
Section 6.06. Limitation on Suits............................................ 57
Section 6.07. Rights of Holders of Notes to Receive Payment.................. 57
Section 6.08. Collection Suit by Trustee..................................... 57
Section 6.09. Trustee May File Proofs of Claim............................... 58
Section 6.10. Priorities..................................................... 58
Section 6.11. Undertaking for Costs.......................................... 59
ARTICLE 7 TRUSTEE
Section 7.01. Duties of Trustee.............................................. 59
Section 7.02. Rights of Trustee.............................................. 60
Section 7.03. Individual Rights of Trustee................................... 60
Section 7.04. Trustee's Disclaimer........................................... 61
Section 7.05. Notice of Defaults............................................. 61
Section 7.06. Reports by Trustee to Holders of the Notes..................... 61
Section 7.07. Compensation and Indemnity..................................... 61
Section 7.08. Replacement of Trustee......................................... 62
Section 7.09. Successor Trustee by Merger, etc............................... 63
Section 7.10. Eligibility; Disqualification.................................. 63
Section 7.11. Preferential Collection of Claims Against Company.............. 63
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance....... 64
Section 8.02. Legal Defeasance and Discharge................................. 64
Section 8.03. Covenant Defeasance............................................ 64
Section 8.04. Conditions to Legal or Covenant Defeasance..................... 65
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions................................ 66
Section 8.06. Repayment to Company........................................... 67
Section 8.07. Reinstatement.................................................. 67
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes............................ 67
Section 9.02. With Consent of Holders of Notes............................... 68
Section 9.03. Compliance with Trust Indenture Act............................ 69
ii
<PAGE>
Section 9.04. Revocation and Effect of Consents............................. 69
Section 9.05. Notation on or Exchange of Notes.............................. 70
Section 9.06. Trustee to Sign Amendments, etc............................... 70
ARTICLE 10 MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls................................. 70
Section 10.02. Notices...................................................... 70
Section 10.03. Communication by Holders of Notes with
Other Holders of Notes...................................... 71
Section 10.04. Certificate and Opinion as to Conditions Precedent........... 72
Section 10.05. Statements Required in Certificate or Opinion................ 72
Section 10.06. Rules by Trustee and Agents.................................. 72
Section 10.07. No Personal Liability of Directors, Officers, Employees
and Stockholders............................................ 72
Section 10.08. Governing Law................................................ 73
Section 10.09. No Adverse Interpretation of Other Agreements................ 73
Section 10.10. Successors................................................... 73
Section 10.11. Severability................................................. 73
Section 10.12. Counterpart Originals........................................ 73
Section 10.13. Table of Contents, Headings, etc............................. 73
EXHIBITS
Exhibit A1 FORM OF NOTE
Exhibit A2 FORM OF REGULATION S TEMPORARY GLOBAL NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Exhibit E FORM OF PLEDGE AGREEMENT
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INDENTURE dated as of January 29, 1999 between Pac-West Telecomm, Inc., a
California corporation (the "Company"), and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the 13 1/2% Senior Notes
due 2009 (the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"144A Global Note" means a global note substantially in the form of Exhibit
A1 hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.
"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.
Notwithstanding the preceding, the following Indebtedness shall not be deemed to
be Acquired Indebtedness: (i) 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 (ii) Indebtedness
extinguished, retired or repaid in connection with such other Person merging
with or into or becoming a Subsidiary of such specified Person.
"Additional Interest" means all additional interest then owing pursuant to
Section 5 of the Registration Rights Agreement.
"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, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange of
or for beneficial interests in any Global Note, the rules and procedures of the
Depositary, Euroclear and Cedel that apply to such transfer or exchange.
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"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback), other than sales of 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 the Company and its
Restricted Subsidiaries taken as a whole will be governed by Section 4.15 hereof
and/or Section 5.01 hereof and not by Section 4.10 hereof; and (ii) the issuance
of Equity Interests by any of the Company's Restricted Subsidiaries or the sale
of Equity Interests in any of the Company's Subsidiaries. Notwithstanding the
preceding, the following items shall 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 the Company and its Restricted Subsidiaries of less than $1.0
million; (2) a transfer of assets between or among the Company and its Wholly
Owned Restricted Subsidiaries; (3) an issuance of Equity Interests by a Wholly
Owned Restricted Subsidiary to the Company 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 Section 4.07 hereof.
"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 shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, 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" shall 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.
"Board of Directors" means the Board of Directors of the Company, or any
authorized committee of the Board of Directors.
"Broker-Dealer" has the meaning set forth in the Registration Rights
Agreement.
"Business Day" means any day other than a Legal Holiday.
"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 (i) in the case of a corporation, corporate stock;
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock; (iii) in the case of a partnership or limited liability
company,
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partnership or membership interests (whether general or limited); and (iv) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.
"Cash Equivalents" means (i) United States dollars; (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition; (iii) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case, with any domestic commercial bank
having capital and surplus in excess of $500 million and a Thompson Bank Watch
Rating of "B" or better; (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (ii)
and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above; (v) commercial paper having the
highest rating obtainable from Moody's Investors Service, Inc. or Standard &
Poor's Corporation and in each case maturing within six months after the date of
acquisition; and (vi) money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (i) through (v) of
this definition.
"Cedel" means Cedel Bank, SA.
"Change of Control" means the occurrence of any of the following: (i) 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 the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than a Principal or a Related Party of a Principal; (ii) the adoption
of a plan relating to the liquidation or dissolution of the Company; (iii) the
consummation of any transaction (including, without limitation, 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, directly or indirectly, of more than 35% of the Voting Stock of the
Company, measured by voting power rather than number of shares; (iv) the first
day on which a majority of the members of the Board of Directors of the Company
are not Continuing Directors; or (v) the Company consolidates with, or merges
with or into, any Person, or any Person consolidates with, or merges with or
into, the Company, in any such event pursuant to a transaction in which any of
the outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where the
Voting Stock of the Company 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.
"Collateral Agent" shall have the meaning set forth in the Pledge
Agreement.
"Company" means Pac-West Telecomm, Inc., and any and all successors
thereto.
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"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus: (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale, to the extent such losses were deducted in computing such
Consolidated Net Income; plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was deducted in computing such Consolidated
Net Income; plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, 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, pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income; plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Restricted Subsidiaries for such
period to the extent that such depreciation, amortization and other non-cash
expenses were deducted in computing such Consolidated Net Income; minus (v) non-
cash items increasing such Consolidated Net Income for such period, other than
items that were accrued in the ordinary course of business, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
preceding, 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 the Company shall be added to Consolidated Net Income to compute
Consolidated Cash Flow of the Company only to the extent that a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Restricted Subsidiary without prior approval (that has not been
obtained), pursuant to 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 (i) the total amount of
Indebtedness of such Person and its Restricted Subsidiaries, plus (ii) the total
amount of Indebtedness of any other Person, to the extent that such Indebtedness
has been Guaranteed by the referent Person or one or more of its Restricted
Subsidiaries, plus (iii) the aggregate liquidation value of all preferred stock
of Restricted Subsidiaries of such Person, in each case, determined on a
consolidated basis in accordance with GAAP.
"Consolidated 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: (i) the Net Income (but not loss) of any Person that
is not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Wholly Owned Restricted
Subsidiary thereof; (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by 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, directly or indirectly,
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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; (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded; (iv) the Net Income (but not loss) of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
specified Person or one of its Subsidiaries, except for purposes of Section 4.07
hereof, in which case the Net Income of any Unrestricted Subsidiary will be
included to the extent provided under clause (i) of this definition; (v) the
portion of Net Income of any Person attributable to the receipt of Unpaid
Reciprocal Compensation; and (vi) the cumulative effect of a change in
accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the difference between (i) the sum of (A) the consolidated equity of the common
stockholders of such Person and its consolidated Subsidiaries as of such date;
plus (B) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of preferred stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock; and (ii) the sum
of (A) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business made
within 12 months after the acquisition of such business) subsequent to the date
of the Indenture in the book value of any asset owned by such Person or a
consolidated Restricted Subsidiary of such Person, (B) all investments as of
such date in unconsolidated Restricted Subsidiaries and in Persons that are not
Restricted Subsidiaries (except, in each case, Permitted Investments), and (C)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 10.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Credit Facilities" means, with respect to the Company 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 (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) 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.
"Custodian" means the Trustee, as custodian with respect to the Notes in
global form, or any successor entity thereto.
"Debt to Cash Flow Ratio" means, as of any date of determination, the ratio
of (i) the Consolidated Indebtedness of the Company as of such date to (ii) the
Consolidated Cash Flow of the
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Company 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 the Company and its Restricted Subsidiaries from the beginning of
such four-quarter period through and including such date of determination
(including any related financing transactions 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 the Company or any of
its Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date (as defined herein) shall be deemed to have occurred on the first day of
the four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income; and (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, shall be excluded.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Definitive Note" means a certificated Note registered in the name of the
Holder thereof and issued in accordance with Section 2.06 hereof, substantially
in the form of Exhibit A1 hereto except that such Note shall not bear the Global
Note Legend and shall not have the "Schedule of Exchanges of Interests in the
Global Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in whole
or in part in global form, the Person specified in Section 2.03 hereof as the
Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"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, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such Capital
Stock upon the occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Company may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with Section 4.07
hereof.
"Earnout Payments" means all earnout payments made after the date of the
Indenture to former shareholders and employees of the Company pursuant to 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).
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"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the Notes issued in the Exchange Offer pursuant to
Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"Existing Indebtedness" means the Indebtedness of the Company 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 this Indenture.
"Global Notes" means, individually and collectively, each of the Restricted
Global Notes and the Unrestricted Global Notes, substantially in the form of
Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.
"Global Note Legend" means the legend set forth in Section 2.06(g)(ii),
which is required to be placed on all Global Notes issued under this Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Holder" means a Person in whose name a Note is registered.
"IAI Global Note" means the global Note substantially in the form of
Exhibit A1 hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of
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and registered in the name of the Depositary or its nominee that will be issued
in a denomination equal to the outstanding principal amount of the Notes sold to
Institutional Accredited Investors.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of: (i)
borrowed money; (ii) evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof); (iii) banker's acceptances; (iv) representing Capital Lease
Obligations; (v) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or trade
payable; or (vi) representing any Hedging Obligations, if and to the extent any
of the preceding items (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of the specified Person
prepared in accordance with GAAP. In addition, the term "Indebtedness" includes
all Indebtedness of others secured by a Lien on any asset of the specified
Person (whether or not such Indebtedness is assumed by the specified Person)
and, to the extent not otherwise included, the Guarantee by such Person of any
indebtedness of any other Person. The amount of any Indebtedness outstanding as
of any date shall be (i) the accreted value thereof, in the case of any
Indebtedness issued with original issue discount and (ii) the principal amount
thereof, together with any interest thereon that is more than 30 days past due,
in the case of any other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Indirect Participant" means a Person who holds a beneficial interest in a
Global Note through a Participant.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of Section 4.07 hereof.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.
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"Letter of Transmittal" means the letter of transmittal to be prepared by
the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
"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, the
Company, Bay Alarm Company, a California corporation, and John K. La Rue.
"Net Income" means, with respect to any Person, the net income (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, (i) 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 (ii) 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 the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, 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.
"Non-Recourse Debt" means Indebtedness: (i) as to which neither the
Company nor any of its Restricted Subsidiaries (A) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (B) is directly or indirectly liable as a guarantor or
otherwise, or (C) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit upon notice, lapse of
time or both any holder of any other Indebtedness (other than the Notes) of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
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"Notes" has the meaning assigned to it in the preamble to this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the Company
by at least two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 10.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Section 10.05 hereof.
The counsel may be an employee of or counsel to the Company, any Subsidiary of
the Company or the Trustee.
"Participant" means, with respect to the Depositary, Euroclear or Cedel, a
Person who has an account with the Depositary, Euroclear or Cedel, respectively
(and, with respect to DTC, shall include Euroclear and Cedel).
"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, without limitation, 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 shall be made in good faith by the Board of Directors of the
Company.
"Permitted Investments" means: (i) any Investment in the Company or in a
wholly owned Restricted Subsidiary of the Company; (ii) any Investment in Cash
Equivalents; (iii) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment: (a) such Person
becomes a wholly owned Restricted Subsidiary of the Company, or (b) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
wholly owned Restricted Subsidiary of the Company; (iv) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with Section 4.10 hereof; (v) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company; (vi) loans and advances for business-related
travel, moving or similar expenses to employees and officers of the Company and
its Restricted Subsidiaries in the ordinary course of business; (vii)
investments in securities of trade creditors or customers received pursuant to
any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of such trade creditors or customers; (viii) Investments in prepaid
expenses, negotiable instruments held for collection, and lease, utility,
workers'
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compensation, performance and other similar deposits; and (ix) 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 pursuant to this
clause (ix) since the date of the Indenture, not to exceed $5.0 million;
provided, however, that the transfer from the Company 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 the Company's
operations in California is not a Permitted Investment.
"Permitted Liens" means: (i) Liens on the assets of the Company and any
Restricted Subsidiary securing Indebtedness and other Obligations under Credit
Facilities that were permitted by the terms of the Indenture to be incurred;
(ii) Liens on the property or assets of one or more Restricted Subsidiaries of
the Company securing Indebtedness of one or more Restricted Subsidiaries of the
Company that was permitted by the terms of the Indenture to be incurred; (iii)
Liens in favor of the Company or its Restricted Subsidiaries; (iv) Liens on
property of a Person existing at the time such Person is merged with or into or
consolidated with the Company or any Restricted Subsidiary of the Company;
provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company or the Restricted
Subsidiary; (v) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (vi)
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; (vii) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clause (v) of Section 4.09 hereof
covering only the assets acquired with such Indebtedness; (viii) Liens existing
on the date of the Indenture; (ix) 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 shall be required in conformity with GAAP shall have been made therefor; (x)
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 shall be
required by GAAP shall have been made in respect thereof; (xi) 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); (xii) judgment Liens not
giving rise to an Event of Default; (xiii) 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 the Company or any of its Restricted
Subsidiaries; (xiv) Liens incurred in the ordinary course of business of the
Company or any Restricted Subsidiary of the Company with respect to obligations
that do not exceed $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
the Company or such Restricted Subsidiary; (xv) Liens upon specific items
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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; (xvi) 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;
(xvii) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company or
any of its Restricted Subsidiaries, including rights of offset and set-off;
(xviii) leases or subleases granted to others that do not materially interfere
with the ordinary course of business of the Company and its Restricted
Subsidiaries; and (xix) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
"Pledge Agreement" means the Pledge Agreement, substantially in the form
attached as Exhibit E hereto, dated as of the date of the Indenture between the
Company and the Trustee, as amended from time to time.
"Pledged Securities" means the securities, which shall be direct
obligations of or obligations guaranteed by the U.S. government, purchased by
the Company with a portion of proceeds from the Notes and pledged pursuant to
the Pledge Agreement to the Trustee for the benefit of the holders of the Notes.
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"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.
"Private Placement Legend" means the legend set forth in Section 2.06(g)(i)
to be placed on all Notes issued under this Indenture except where otherwise
permitted by the provisions of this Indenture.
"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 shall be calculated on a basis consistent with
Article 11 of Regulation S-X, as such Regulation is in effect on the date
hereof.
"Public Equity Offering" means any underwritten public offering of common
stock of the Company in which the gross proceeds to the Company are at least
$20.0 million.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date of the Indenture, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Note" means a Regulation S Temporary Global Note or a
Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global Note in the
form of Exhibit A1 hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global Note in the
form of Exhibit A2 hereto bearing the Global Note Legend, the Private Placement
Legend and the Temporary Regulation S Legend and deposited with or on behalf of
and registered in the name of the Depositary or its nominee, issued in a
denomination equal to the outstanding principal amount of the Notes initially
sold in reliance on Rule 903 of Regulation S.
"Regulation S-X" means Regulation S-X promulgated under the Securities Act.
"Related Party" with respect to any Principal means (i) any controlling
stockholder, 80% or more owned Subsidiary, or spouse or immediate family member
(in the case of an individual) of such Principal or (ii) 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 (i).
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"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the Private
Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private Placement
Legend.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Period" means the 40-day restricted period as defined in
Regulation S.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 102 of Regulation SX, as such
Regulation is in effect on the date of this Indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Indebtedness" means any Indebtedness of the Company 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, without limitation, at
the option of the holder thereof (other than pursuant to an offer to repurchase
such
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Subordinated Indebtedness following a change of control, which offer may not be
completed until 45 days after completion of the Offer described in Section 4.15
hereto) are required to be made by the Company and its Restricted Subsidiaries
at any time prior to the Stated Maturity of the Notes.
"Subsidiary" means, with respect to any Person (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Temporary Regulation S Legend" means the legend set forth in Section
2.06(h) hereof, which is required to placed on the Regulation S Temporary Global
Note.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb)
as in effect on the date on which this Indenture is qualified under the TIA.
"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"Unpaid Reciprocal Compensation" means all amounts owing but not paid to
the Company as of December 31, 1998 by Pacific Bell or GTE California pursuant
to the Company's interconnection agreements with such parties.
"Unrestricted Definitive Note" means one or more Definitive Notes that do
not bear and are not required to bear the Private Placement Legend.
"Unrestricted Global Note" means a permanent global Note substantially in
the form of Exhibit A1 attached hereto that bears the Global Note Legend and
that has the "Schedule of Exchanges of Interests in the Global Note" attached
thereto, and that is deposited with or on behalf of and registered in the name
of the Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary: (i) has no
Indebtedness other than Non-Recourse Debt; (ii) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (iii) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (a) to subscribe for additional Equity Interests or (b) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; (iv) has not guaranteed or
otherwise
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directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries; and (v) has at least one director
on its board of directors that is not a director or executive officer of the
Company or any of its Restricted Subsidiaries and has at least one executive
officer that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries. Any designation of a Subsidiary of the Company as an
Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the preceding conditions and was permitted by the covenant
described in Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary
would fail to meet the preceding requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Company as of such date and, if such
Indebtedness is not permitted to be incurred as of such date under Section 4.09
hereof, the Company shall be in default of such covenant. The Board of Directors
of the Company may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of the Company of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (1) such Indebtedness is permitted under Section 4.09
hereof, 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.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"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 (a) the sum of the
products obtained by multiplying (x) 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 (y) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person and/or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
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Section 1.02. Other Definitions.
Defined in
Term Section
---- -------
"Affiliate Transaction"........................................ 4.11
"Asset Sale Offer"............................................. 3.09
"Authentication Order"......................................... 2.02
"Change of Control Offer"...................................... 4.15
"Change of Control Payment".................................... 4.15
"Change of Control Payment Date"............................... 4.15
"Covenant Defeasance".......................................... 8.03
"Event of Default"............................................. 6.01
"Excess Proceeds".............................................. 4.10
"incur"........................................................ 4.09
"Legal Defeasance"............................................. 8.02
"Offer Amount"................................................. 3.09
"Offer Period"................................................. 3.09
"Payment Default".............................................. 6.01
"Paying Agent"................................................. 2.03
"Permitted Debt"............................................... 4.09
"Purchase Date"................................................ 3.09
"Registrar".................................................... 2.03
"Restricted Payments".......................................... 4.07
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes means the Company and any successor obligor upon
the Notes.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them.
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Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural include
the singular;
(e) provisions apply to successive events and transactions; and
(f) references to sections of or rules under the Securities Act shall be
deemed to include substitute, replacement of successor sections or rules adopted
by the SEC from time to time.
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating.
(a) General. The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A1 hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and are
hereby expressly made, a part of this Indenture and the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby. However, to the extent any provision of
any Note conflicts with the express provisions of this Indenture, the provisions
of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form shall be substantially in
the form of Exhibit A1 or A2 attached hereto (including the Global Note Legend
thereon and the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Notes issued in definitive form shall be substantially in the form of
Exhibit A1 attached hereto (but without the Global Note Legend thereon and
without the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate principal amount of outstanding Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee or the
Custodian, at the direction of
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the Trustee, in accordance with instructions given by the Holder thereof as
required by Section 2.06 hereof.
(c) Temporary Global Notes. Notes offered and sold in reliance on
Regulation S shall be issued initially in the form of the Regulation S Temporary
Global Note, which shall be deposited on behalf of the purchasers of the Notes
represented thereby with the Trustee, as custodian for the Depositary, and
registered in the name of the Depositary or the nominee of the Depositary for
the accounts of designated agents holding on behalf of Euroclear or Cedel Bank,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The Restricted Period shall be terminated upon the receipt by the
Trustee of (i) a written certificate from Euroclear and Cedel Bank certifying
that they have received certification of non-United States beneficial ownership
of 100% of the aggregate principal amount of the Regulation S Temporary Global
Note (except to the extent of any beneficial owners thereof who acquired an
interest therein during the Restricted Period pursuant to another exemption from
registration under the Securities Act and who will take delivery of a beneficial
ownership interest in a 144A Global Note or an IAI Global Note bearing a Private
Placement Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (ii)
an Officers' Certificate from the Company. Following the termination of the
Restricted Period, beneficial interests in the Regulation S Temporary Global
Note shall be exchanged for beneficial interests in Regulation S Permanent
Global Notes pursuant to the Applicable Procedures. Simultaneously with the
authentication of Regulation S Permanent Global Notes, the Trustee shall cancel
the Regulation S Temporary Global Note. The aggregate principal amount of the
Regulation S Temporary Global Note and the Regulation S Permanent Global Notes
may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee, as the case may be, in
connection with transfers of interest as hereinafter provided.
(d) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in the Regulation S Temporary Global Note and the
Regulation S Permanent Global Notes that are held by Participants through
Euroclear or Cedel Bank.
Section 2.02. Execution and Authentication.
One Officer shall sign the Notes for the Company by manual or facsimile
signature. The Company's seal shall be reproduced on the Notes and may be in
facsimile form.
If an Officer whose signature is on a Note no longer holds that office at
the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by one
Officer (an "Authentication Order"), authenticate Notes for original issue up to
the aggregate principal amount
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stated in paragraph 4 of the Notes. The aggregate principal amount of Notes
outstanding at any time may not exceed such amount except as provided in Section
2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. An authenticating agent may authenticate Notes whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with Holders or an Affiliate of the Company.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be presented
for registration of transfer or for exchange ("Registrar") and an office or
agency where Notes may be presented for payment ("Paying Agent"). The Registrar
shall keep a register of the Notes and of their transfer and exchange. The
Company may appoint one or more co-registrars and one or more additional paying
agents. The term "Registrar" includes any co-registrar and the term "Paying
Agent" includes any additional paying agent. The Company may change any Paying
Agent or Registrar without notice to any Holder. The Company shall notify the
Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to act
as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Custodian with respect to the Global Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Additional Interest, if any, or interest on the Notes, and
will notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a).
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If the Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of the
Holders of Notes and the Company shall otherwise comply with TIA (S) 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. All Global Notes will be exchanged by
the Company for Definitive Notes if (i) the Company delivers to the Trustee
notice from the Depositary that it is unwilling or unable to continue to act as
Depositary or that it is no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by the
Company within 120 days after the date of such notice from the Depositary or
(ii) the Company in its sole discretion determines that the Global Notes (in
whole but not in part) should be exchanged for Definitive Notes and delivers a
written notice to such effect to the Trustee; provided that in no event shall
the Regulation S Temporary Global Note be exchanged by the Company for
Definitive Notes prior to (x) the expiration of the Restricted Period and (y)
the receipt by the Registrar of any certificates required pursuant to Rule
903(b)(3)(ii)(B) under the Securities Act. Upon the occurrence of either of the
preceding events in (i) or (ii) above, Definitive Notes shall be issued in such
names as the Depositary shall instruct the Trustee. Global Notes also may be
exchanged or replaced, in whole or in part, as provided in Sections 2.07 and
2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu
of, a Global Note or any portion thereof, pursuant to this Section 2.06 or
Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form
of, and shall be, a Global Note. A Global Note may not be exchanged for another
Note other than as provided in this Section 2.06(a), however, beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes. The
transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer comparable to those
set forth herein to the extent required by the Securities Act. Transfers of
beneficial interests in the Global Notes also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in the
same Restricted Global Note in accordance with the transfer restrictions set
forth in the Private Placement Legend; provided, however, that prior to the
expiration of the Restricted Period, transfers of beneficial interests in the
Temporary Regulation S Global Note may not be made to a U.S. Person or for
the account or benefit of a U.S. Person (other than an Initial Purchaser).
Beneficial interests in any Unrestricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note. No written
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orders or instructions shall be required to be delivered to the Registrar
to effect the transfers described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of beneficial
interests that are not subject to Section 2.06(b)(i) above, the transferor
of such beneficial interest must deliver to the Registrar either (A) (1) a
written order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to credit or cause to be credited a beneficial interest in
another Global Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given in accordance with the
Applicable Procedures containing information regarding the Participant
account to be credited with such increase or (B) (1) a written order from a
Participant or an Indirect Participant given to the Depositary in
accordance with the Applicable Procedures directing the Depositary to cause
to be issued a Definitive Note in an amount equal to the beneficial
interest to be transferred or exchanged and (2) instructions given by the
Depositary to the Registrar containing information regarding the Person in
whose name such Definitive Note shall be registered to effect the transfer
or exchange referred to in (1) above; provided that in no event shall
Definitive Notes be issued upon the transfer or exchange of beneficial
interests in the Regulation S Temporary Global Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar of
any certificates required pursuant to Rule 903 under the Securities Act.
Upon consummation of an Exchange Offer by the Company in accordance with
Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall
be deemed to have been satisfied upon receipt by the Registrar of the
instructions contained in the Letter of Transmittal delivered by the Holder
of such beneficial interests in the Restricted Global Notes. Upon
satisfaction of all of the requirements for transfer or exchange of
beneficial interests in Global Notes contained in this Indenture and the
Notes or otherwise applicable under the Securities Act, the Trustee shall
adjust the principal amount of the relevant Global Note(s) pursuant to
Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global
Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note or
Regulation S Global Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof; and
(C) if the transferee will take delivery in the form of a
beneficial interest in the IAI Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto,
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including the certifications and certificates and Opinion of Counsel
required by item (3) thereof, if applicable.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in an Unrestricted Global Note or
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note if the exchange or
transfer complies with the requirements of Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of the beneficial interest to be transferred, in the
case of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate (as defined in Rule
144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a beneficial interest in an Unrestricted Global Note,
a certificate from such holder in the form of Exhibit C hereto,
including the certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of a beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or
(D) above at a time when an Unrestricted Global Note has not yet been
issued, the Company shall issue and, upon receipt of an Authentication
Order in accordance with Section 2.02 hereof, the Trustee shall
authenticate one
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or more Unrestricted Global Notes in an aggregate principal amount equal to
the aggregate principal amount of beneficial interests transferred pursuant
to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the
form of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive
Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Restricted Definitive Note, then,
upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note, a certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications in item
(1) thereof;
(C) if such beneficial interest is being transferred to a Non-
U.S. Person in an offshore transaction in accordance with Rule 903 or Rule
904 under the Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant
to an exemption from the registration requirements of the Securities Act in
accordance with Rule 144 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications in item
(3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from the
registration requirements of the Securities Act other than those listed in
subparagraphs (B) through (D) above, a certificate to the effect set forth
in Exhibit B hereto, including the certifications, certificates and Opinion
of Counsel required by item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set forth
in Exhibit B hereto, including the certifications in item (3)(b) thereof;
or
(G) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(c) thereof,
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the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof,
and the Company shall execute and the Trustee shall authenticate and
deliver to the Person designated in the instructions a Definitive Note in
the appropriate principal amount. Any Definitive Note issued in exchange
for a beneficial interest in a Restricted Global Note pursuant to this
Section 2.06(c) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions from the
Depositary and the Participant or Indirect Participant. The Trustee shall
deliver such Definitive Notes to the Persons in whose names such Notes are
so registered. Any Definitive Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section 2.06(c)(i)
shall bear the Private Placement Legend and shall be subject to all
restrictions on transfer contained therein.
(ii) Beneficial Interests in Regulation S Temporary Global Note to
Definitive Notes. Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not be
exchanged for a Definitive Note or transferred to a Person who takes
delivery thereof in the form of a Definitive Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar of
any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the
Securities Act, except in the case of a transfer pursuant to an exemption
from the registration requirements of the Securities Act other than Rule
903 or Rule 904.
(iii) Beneficial Interests in Restricted Global Notes to Unrestricted
Definitive Notes. A holder of a beneficial interest in a Restricted Global
Note may exchange such beneficial interest for an Unrestricted Definitive
Note or may transfer such beneficial interest to a Person who takes
delivery thereof in the form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of such beneficial interest, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in
the applicable Letter of Transmittal that it is not (1) a broker-
dealer, (2) a Person participating in the distribution of the Exchange
Notes or (3) a Person who is an affiliate (as defined in Rule 144) of
the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in the form of
Exhibit C hereto, including the certifications in item (1)(b)
thereof; or
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(2) if the holder of such beneficial interest in a Restricted
Global Note proposes to transfer such beneficial interest to a Person
who shall take delivery thereof in the form of a Definitive Note that
does not bear the Private Placement Legend, a certificate from such
holder in the form of Exhibit B hereto, including the certifications in
item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to the
effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein and
in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
(iv) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any holder of a beneficial interest in an
Unrestricted Global Note proposes to exchange such beneficial interest for
a Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Definitive Note, then, upon
satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the
Trustee shall cause the aggregate principal amount of the applicable Global
Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the
Company shall execute and the Trustee shall authenticate and deliver to the
Person designated in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(iv) shall be registered in such
name or names and in such authorized denomination or denominations as the
holder of such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Notes to the Persons
in whose names such Notes are so registered. Any Definitive Note issued in
exchange for a beneficial interest pursuant to this Section 2.06(c)(iv)
shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(i) Restricted Definitive Notes to Beneficial Interests in Restricted
Global Notes. If any Holder of a Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note or
to transfer such Restricted Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in a Restricted Global Note,
then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global
Note, a certificate from such Holder in the form of Exhibit C hereto,
including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule 903
or Rule 904 under the Securities Act, a
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certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred to
an Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the
effect set forth in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof, if
applicable;
(F) if such Restricted Definitive Note is being transferred to
the Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof; or
(G) if such Restricted Definitive Note is being transferred
pursuant to an effective registration statement under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or cause
to be increased the aggregate principal amount of, in the case of clause
(A) above, the appropriate Restricted Global Note, in the case of clause
(B) above, the 144A Global Note, in the case of clause (C) above, the
Regulation S Global Note, and in all other cases, the IAI Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note
or transfer such Restricted Definitive Note to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global Note
only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an affiliate
(as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the
Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
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(1) if the Holder of such Definitive Notes proposes to exchange
such Notes for a beneficial interest in the Unrestricted Global Note,
a certificate from such Holder in the form of Exhibit C hereto,
including the certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to transfer
such Notes to a Person who shall take delivery thereof in the form of
a beneficial interest in the Unrestricted Global Note, a certificate
from such Holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar
so requests or if the Applicable Procedures so require, an Opinion of
Counsel in form reasonably acceptable to the Registrar to the effect that
such exchange or transfer is in compliance with the Securities Act and that
the restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the
Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in
this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note or
transfer such Definitive Notes to a Person who takes delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note at any time. Upon
receipt of a request for such an exchange or transfer, the Trustee shall
cancel the applicable Unrestricted Definitive Note and increase or cause to be
increased the aggregate principal amount of one of the Unrestricted Global
Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been
issued, the Company shall issue and, upon receipt of an Authentication Order
in accordance with Section 2.02 hereof, the Trustee shall authenticate one or
more Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon
request by a Holder of Definitive Notes and such Holder's compliance with the
provisions of this Section 2.06(e), the Registrar shall register the transfer or
exchange of Definitive Notes. Prior to such registration of transfer or
exchange, the requesting Holder shall present or surrender to the Registrar the
Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).
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(i) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the name of
Persons who take delivery thereof in the form of a Restricted Definitive Note
if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under the
Securities Act, then the transferor must deliver a certificate in the form
of Exhibit B hereto, including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form of Exhibit
B hereto, including the certifications in item (2) thereof; and
(C) if the transfer will be made pursuant to any other exemption
from the registration requirements of the Securities Act, then the
transferor must deliver a certificate in the form of Exhibit B hereto,
including the certifications, certificates and Opinion of Counsel required
by item (3) thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes.
Any Restricted Definitive Note may be exchanged by the Holder thereof for an
Unrestricted Definitive Note or transferred to a Person or Persons who take
delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement and the
Holder, in the case of an exchange, or the transferee, in the case of a
transfer, certifies in the applicable Letter of Transmittal that it is not
(1) a broker-dealer, (2) a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144)
of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit C hereto,
including the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take delivery
thereof in the form of an Unrestricted Definitive Note, a certificate
from such Holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
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<PAGE>
and, in each such case set forth in this subparagraph (D), if the Registrar
so requests, an Opinion of Counsel in form reasonably acceptable to the
Company to the effect that such exchange or transfer is in compliance with
the Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive
Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a
Person who takes delivery thereof in the form of an Unrestricted Definitive
Note. Upon receipt of a request to register such a transfer, the Registrar
shall register the Unrestricted Definitive Notes pursuant to the instructions
from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) they are not broker-
dealers, (y) they are not participating in a distribution of the Exchange Notes
and (z) they are not affiliates (as defined in Rule 144) of the Company, and
accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an
aggregate principal amount equal to the principal amount of the Restricted
Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with
the issuance of such Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced accordingly, and
the Company shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of all Global
Notes and Definitive Notes issued under this Indenture unless specifically
stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global
Note and each Definitive Note (and all Notes issued in exchange therefor or
substitution thereof) shall bear the legend in substantially the following
form:
"THE NOTE (OR ITS PREDECESSORS) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED, AND THE NOTE EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTE EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER
OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE NOTE EVIDENCED
HEREBY AGREES FOR THE
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BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (i) (a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT), PURCHASING FOR ITS OWN ACCOUNT IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A UNDER THE SECURITIES ACT, (b) AN INSTITUTIONAL ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS
ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE), (c) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 OF THE SECURITIES ACT, (d) OUTSIDE THE UNITED STATES TO A FOREIGN
PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 OF REGULATION S
UNDER THE SECURITIES ACT OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PROVIDED THAT IN THE CASE OF A
TRANSFER PURSUANT TO CLAUSE (e) SUCH TRANSFER IS EFFECTED BY THE DELIVERY TO THE
TRANSFEREE OF DEFINITIVE SECURITIES REGISTERED IN ITS NAME (OR ITS NOMINEES
NAME) IN THE BOOKS MAINTAINED BY THE REGISTRAR, AND IS SUBJECT TO THE RECEIPT BY
THE REGISTRAR (AND THE COMPANY, IF IT SO REQUESTS) OF A CERTIFICATION OF THE
TRANSFEROR AND AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (ii) TO THE COMPANY OR (iii) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTE
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
(B) Notwithstanding the foregoing, any Global Note or Definitive
Note issued pursuant to subparagraphs (b)(iv), (c)(iii), (c)(iv), (d)(ii),
(d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and all Notes
issued in exchange therefor or substitution thereof) shall not bear the
Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY."
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(h) Regulation S Temporary Global Note Legend. The Regulation S Temporary
Global Note shall bear a legend in substantially the following form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON."
(i) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(j) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge
payable in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer pursuant to Sections
2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Global Notes or
Definitive Notes surrendered upon such registration of transfer or exchange.
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(v) The Company shall not be required (A) to issue, to register
the transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business on
the day of selection, (B) to register the transfer of or to exchange any Note
so selected for redemption in whole or in part, except the unredeemed portion
of any Note being redeemed in part or (C) to register the transfer of or to
exchange a Note between a record date and the next succeeding Interest Payment
Date.
(vi) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the Person
in whose name any Note is registered as the absolute owner of such Note for
the purpose of receiving payment of principal of and interest on such Notes
and for all other purposes, and none of the Trustee, any Agent or the Company
shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by facsimile.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the Company and the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Note, the Company shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and shall
be entitled to all of the benefits of this Indenture equally and proportionately
with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those canceled by it, those delivered to it for cancellation,
those reductions in the interest in a Global Note effected by the Trustee in
accordance with the provisions hereof, and those described in this Section as
not outstanding. Except as set forth in Section 2.09 hereof, a Note does not
cease to be outstanding because the Company or an Affiliate of the Company holds
the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
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If the principal amount of any Note is considered paid under Section 4.01
hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate
of any thereof) holds, on a redemption date or maturity date, money sufficient
to pay Notes payable on that date, then on and after that date such Notes shall
be deemed to be no longer outstanding and shall cease to accrue interest.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that the Trustee knows are so owned shall be so disregarded.
Section 2.10. Temporary Notes.
Until certificates representing Notes are ready for delivery, the Company
may prepare and the Trustee, upon receipt of an Authentication Order, shall
authenticate temporary Notes. Temporary Notes shall be substantially in the form
of certificated Notes but may have variations that the Company considers
appropriate for temporary Notes and as shall be reasonably acceptable to the
Trustee. Without unreasonable delay, the Company shall prepare and the Trustee
shall authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of this
Indenture.
Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it shall pay
the defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. The Company shall notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Note and the date
of the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such
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special record date shall be less than 10 days prior to the related payment date
for such defaulted interest. At least 15 days before the special record date,
the Company (or, upon the written request of the Company, the Trustee in the
name and at the expense of the Company) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such interest to be paid.
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45
days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the clause of this Indenture pursuant to which the
redemption shall occur, (ii) the redemption date, (iii) the principal amount of
Notes to be redeemed and (iv) the redemption price.
Section 3.02. Selection of Notes to Be Redeemed.
If less than all of the Notes are to be redeemed or purchased in an offer
to purchase at any time, the Trustee shall select the Notes to be redeemed or
purchased among the Holders of the Notes in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a pro rata basis, by lot or in
accordance with any other method the Trustee considers fair and appropriate. In
the event of partial redemption by lot, the particular Notes to be redeemed
shall be selected, unless otherwise provided herein, not less than 30 nor more
than 60 days prior to the redemption date by the Trustee from the outstanding
Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.09 hereof, at least 30 days but not
more than 60 days before a redemption date, the Company shall mail or cause to
be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
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(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption payment,
interest on Notes called for redemption ceases to accrue on and after the
redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture pursuant
to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; provided, however, that the Company
shall have delivered to the Trustee, at least 45 days prior to the redemption
date, an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03 hereof,
Notes called for redemption become irrevocably due and payable on the redemption
date at the redemption price. A notice of redemption may not be conditional.
Section 3.05. Deposit of Redemption Price.
One Business Day prior to the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent money sufficient to pay the redemption
price of and accrued interest on all Notes to be redeemed on that date. The
Trustee or the Paying Agent shall promptly return to the Company any money
deposited with the Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the redemption price of, and accrued interest on, all
Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph, on
and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the
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preceding paragraph, interest shall be paid on the unpaid principal, from the
redemption date until such principal is paid, and to the extent lawful on any
interest not paid on such unpaid principal, in each case at the rate provided in
the Notes and in Section 4.01 hereof.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company shall issue
and the Trustee shall authenticate for the Holder at the expense of the Company
a new Note equal in principal amount to the unredeemed portion of the Note
surrendered.
Section 3.07. Optional Redemption.
(a) Except as set forth in clause (b) of this Section 3.07, the Company
shall not have the option to redeem the Notes pursuant to this Section 3.07
prior to February 1, 2004. Thereafter, the Company shall have the option to
redeem the Notes upon not less than 30 nor more than 60 days' Notice, in whole
or in part, at the redemption prices (expressed as percentages of principal
amount) 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:
<TABLE>
<CAPTION>
Year Percentage
- ---- ----------
<S> <C>
2004............................................................ 106.75%
2005............................................................ 104.50%
2006............................................................ 102.25%
2007 and thereafter............................................. 100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this Section 3.07, at
any time prior to February 1, 2002, the Company 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 aggregate principal amount thereof, plus
accrued and unpaid interest to the redemption date, with the net cash proceeds
of one or more Public Equity Offerings; provided that at least $97.5 million in
aggregate principal amount of Notes remains outstanding immediately after the
occurrence of such redemption (excluding Notes held by the Company and its
Subsidiaries) and the redemption occurs within 45 days of the date of the
closing of such Public Equity Offering.
(c) Any redemption pursuant to this Section 3.07 shall be made pursuant to
the provisions of Section 3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption.
The Company shall not be required to make mandatory redemption payments
with respect to the Notes.
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Section 3.09. Offer to Purchase by Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company shall be
required to commence an offer to all Holders to purchase Notes (an "Asset Sale
Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than five
Business Days after the termination of the Offer Period (the "Purchase Date"),
the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send, by
first class mail, a notice to the Trustee and each of the Holders, with a copy
to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section 3.09
and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain
open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue to
accrete or accrue interest;
(d) that, unless the Company defaults in making such payment, any Note (or
portion thereof) accepted for payment pursuant to the Asset Sale Offer shall
cease to accrete or accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an Asset
Sale Offer may elect to have Notes purchased in integral multiples of $1,000
only;
(f) that Holders electing to have a Note purchased pursuant to any Asset
Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, or
transfer by book-entry transfer, to the Company, a depositary, if appointed by
the Company, or a Paying Agent at the address specified in the notice at least
three days before the Purchase Date;
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(g) that Holders shall be entitled to withdraw their election if the
Company, the depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Offer
Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer,
or if less than the Offer Amount has been tendered, all Notes tendered, and
shall deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as
the case may be, shall promptly (but in any case not later than five days after
the Purchase Date) mail or deliver to each tendering Holder an amount equal to
the purchase price of the Notes tendered by such Holder and accepted by the
Company for purchase, and the Company shall promptly issue a new Note, and the
Trustee, upon written request from the Company shall authenticate and mail or
deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall publicly announce the results of the Asset Sale Offer on the Purchase
Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. The Company shall pay all
Additional Interest, if any, in the same manner on the dates and in the amounts
set forth in the Registration Rights Agreement.
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The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest, and
Additional Interest (without regard to any applicable grace period) at the same
rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an agent of
the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
the City of New York for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.03.
Section 4.03. Reports.
(a) Whether or not required by the rules and regulations of the SEC, so
long as any Notes are outstanding, the Company shall furnish to the Holders of
Notes, within the time periods specified in the SEC's rules and regulations (i)
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 the Company 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 thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the SEC on Form 8-K if the Company were required to file such reports, in each
case, within the time periods specified in the SEC's rules and regulations. If
the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries,
then the quarterly and annual financial information required by the preceding
paragraph shall 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 the Company and its Restricted
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries of the Company. In addition, following
consummation of the Exchange Offer, whether or not required by the rules and
regulations of the SEC, the Company shall file a copy of
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all such information and reports 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. The Company shall at all times
comply with TIA (S) 314(a).
(b) For so long as any Notes remain outstanding, the Company shall furnish
to the Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
Section 4.04. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture and the Pledge Agreement, and further stating,
as to each such Officer signing such certificate, that to the best of his or her
knowledge the Company has kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and the Pledge Agreement and is not in
default in the performance or observance of any of the terms, provisions and
conditions of this Indenture or the Pledge Agreement (or, if a Default or Event
of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
Section 4.05. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and
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by appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
Section 4.06. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company and each of the Guarantors
(to the extent that it may lawfully do so) hereby expressly waives all benefit
or advantage of any such law, and covenants that it shall not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power as
though no such law has been enacted.
Section 4.07. Restricted Payments.
The Company shall not, and shall 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 the Company's or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the Company or
any of its Restricted Subsidiaries) or to the direct or indirect holders of the
Company's or any of its Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or to the Company or a
Restricted Subsidiary of the Company); (2) purchase, redeem or otherwise acquire
or retire for value (including, without limitation, in connection with any
merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company or any Restricted
Subsidiary of the Company (other than any such Equity Interests owned by the
Company or any Restricted Subsidiary of the Company); (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 shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company shall, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Debt to Cash
Flow Ratio test set forth in the first paragraph of Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv) and (v) of the next succeeding paragraph), is less
than the sum, without duplication, of (i) 50% of the Consolidated Net Income of
the Company for the
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period (taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the Indenture to the end of the Company'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 (ii) 100%
of the aggregate net cash proceeds received by the Company since the date of the
Indenture as a contribution to its common equity capital or from the issue or
sale of Equity Interests of the Company (other than Disqualified Stock) or from
the issue or sale of convertible or exchangeable Disqualified Stock or
convertible or exchangeable debt securities of the Company that have been
converted into or exchanged for such Equity Interests (other than Equity
Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the
Company), except to the extent such net cash proceeds are used to incur
Indebtedness pursuant to clause (vi) of Section 4.09 hereof or to make a
Restricted Payment pursuant to clause (ii) or (viii) of the next succeeding
paragraph of this Section 4.07, plus (iii) to the extent that any Restricted
Investment that was made after the date of the Indenture is sold for cash or
otherwise liquidated or repaid for cash, the lesser of (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 (iv) 50% of any cash dividends received by the Company 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 the Company for such period, plus (v) to the extent that any Unrestricted
Subsidiary of the Company is designated as a Restricted Subsidiary after the
date of the Indenture, the lesser of (x) the fair market value of the Company'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 the
Company'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 the Company or any Restricted Subsidiary, plus (vi)
$2.0 million.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit: (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Subordinated Indebtedness of the Company or any Restricted
Subsidiary or of any Equity Interests of the Company 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 the Company) of, Equity Interests
of the Company (other than Disqualified Stock), except to the extent such Net
Cash Proceeds are used to incur Indebtedness pursuant to clause (vi) under
Section 4.09 hereof or to make Restricted Payments pursuant to clause (c)(ii) of
the first paragraph, or clause (viii) of this paragraph of this Section 4.07;
(iii) the defeasance, redemption, repurchase or other acquisition of
Subordinated Indebtedness of the Company or any Restricted Subsidiary with the
net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv)
the payment of any dividend by a Restricted Subsidiary of the Company to the
holders of its common Equity Interests on a pro rata basis; (v) the making of
any Earnout Payments in an amount not to exceed $20.0 million in the aggregate;
(vi) the making of payments or distributions to dissenting stockholders pursuant
to applicable law in connection with a consolidation, merger or transfer of
assets permitted under Section 5.01 hereof; (vii) payments made to retire
Capital Stock of the Company to the extent necessary (as determined in good
faith by a majority of the Company's board of directors) to prevent the loss of,
or to secure the renewal or reinstatement of, any governmental license or
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authorization held by the Company or any Restricted Subsidiary; (viii)
Investments in any Person the primary business of which is related, ancillary or
complementary to the business of the Company and its Restricted Subsidiaries on
the date of such Investments; provided that the aggregate amount of Investments
made pursuant to this clause (viii) does not exceed the sum of (a) $20 million
and (b) the amount of Net Cash Proceeds received by the Company 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 the Company, except
to the extent such Net Cash Proceeds are used to incur Indebtedness pursuant to
clause (vi) under Section 4.09 hereof or to make Restricted Payments pursuant to
clause (c)(ii) of the first paragraph, or clause (ii) of this paragraph, of this
Section 4.07, plus (z) the net reduction in Investments made pursuant to this
clause (viii) 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 shall not
exceed the amount of such Investment; and (ix) the repurchase, redemption or
other acquisition or retirement for value of any Equity Interests of the Company
or any Restricted Subsidiary of the Company held by any member of the Company's
(or any of its Subsidiaries') management pursuant to 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 the Company or any Restricted Subsidiary of a manager or officer,
and the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $5.0 million in the aggregate.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors whose resolution with
respect thereto shall be delivered to the Trustee. 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, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this Section 4.07 were
computed, together with a copy of any fairness opinion or appraisal required by
the Indenture.
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock to the Company 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 the Company or any of its Restricted Subsidiaries, (ii)
make loans or advances to the Company or any of its Restricted Subsidiaries, or
(iii) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries. However, the preceding restrictions will not apply to
encumbrances or restrictions existing under or by reason of: (a) the Indenture
and the Notes, (b) applicable law, (c) any instrument governing Indebtedness
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or Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (d) customary non-assignment provisions in leases entered into in
the ordinary course of business and consistent with past practices, (e) 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 (iii) of the preceding sentence, (f) 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, (g) 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, (h) Liens securing Indebtedness otherwise
permitted to be incurred pursuant to the provisions of Section 4.12 hereof that
limit the right of the Company or any of its Restricted Subsidiaries to dispose
of the assets subject to such Lien, (i) 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 (j) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business.
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and the Company shall not issue any Disqualified Stock and shall not
permit any of its Restricted Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company may incur Indebtedness (including
Acquired Debt) and may issue Disqualified Stock, if the Debt to Cash Flow Ratio
for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been greater than zero and less than 6.0 to 1, determined on a
pro forma basis (including a pro forma 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 shall have occurred and be continuing or would be
caused thereby, the first paragraph of this Section 4.09 will not prohibit the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and any Restricted Subsidiary of
term Indebtedness under any Credit Facility; provided that the aggregate
principal amount of all term Indebtedness of the Company 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 the Company or any of its Restricted
Subsidiaries since the date of the Indenture;
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(ii) the incurrence by the Company and its Restricted Subsidiaries of
Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by
the Notes and the Exchange Notes;
(iv) the incurrence by the Company and its Restricted Subsidiaries of
Subordinated Indebtedness in an aggregate principal amount outstanding at any
one time not to exceed $100.0 million;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness to finance the cost (including the cost of design,
development, acquisition, construction, installation, improvement,
transportation or integration) to acquire equipment, inventory or network assets
(including acquisitions of the Capital Stock of a Person that is or becomes a
Restricted Subsidiary of the Company) 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;
(vi) the incurrence by the Company 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 the Company 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 the Company and (2) 80% of the fair market value of property
(other than cash and cash equivalents) received by the Company 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 the Company, and (B) the sum of (1) the amount of any capital contribution
used pursuant to clause (c)(ii) of the first paragraph, or clauses (ii), or
(viii) of the second paragraph, of Section 4.07 hereof to make a Restricted
Payment, and (2) the amount of any capital contribution or net cash proceeds
used to consummate a transaction pursuant to which the Company incurs Acquired
Debt in an amount equal to at least 2 times (or, in the case of the receipt of
property, 2.5 times of the fair market value thereof) the amount of such capital
contribution;
(vii) the incurrence by the Company or any Restricted Subsidiary of
Acquired Debt;
(viii) the incurrence by the Company 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 this Section 4.09 or clauses (ii), (iii), (iv), (v), (vi) or (xiv)
of this paragraph;
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and any
of its Wholly Owned Restricted Subsidiaries; provided, however, that: (a) if the
Company is the obligor on such Indebtedness, such Indebtedness must be expressly
subordinated to the prior payment in full in cash
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of all Obligations with respect to the Notes and (b) (i) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness being held
by a Person other than the Company or a Wholly Owned Restricted Subsidiary
thereof and (ii) any sale or other transfer of any such Indebtedness to a Person
that is not either the Company or a Wholly Owned Restricted Subsidiary thereof
shall be deemed, in each case, to constitute an incurrence of such Indebtedness
by the Company or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (ix);
(x) the incurrence by the Company 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 the Company and its Restricted Subsidiaries against changes in
currency exchange rates;
(xi) the guarantee by the Company or any of the Restricted
Subsidiaries of Indebtedness of the Company or a Restricted Subsidiary of the
Company that was permitted to be incurred by another provision of this covenant;
(xii) the incurrence by the Company 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;
(xiii) the incurrence of Indebtedness by the Company 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 the Company, 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 the Company or any Restricted Subsidiary and (b) the maximum assumable
liability in respect of all such Indebtedness never exceeds the gross proceeds
actually received by the Company and its Restricted Subsidiaries in connection
with such disposition;
(xiv) the incurrence by the Company 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 pursuant to this clause (xiv), not to exceed $10.0
million; and
(xv) the incurrence by the Company'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 shall be deemed
to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company that was not permitted by this clause (xv).
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The Company will not incur any Indebtedness (including Permitted Debt)
that is contractually subordinated in right of payment to any other Indebtedness
of the Company unless such Indebtedness is also contractually subordinated in
right of payment to the Notes on substantially identical terms; provided,
however, that no Indebtedness of the Company shall be deemed to be contractually
subordinated in right of payment to any other Indebtedness of the Company solely
by virtue of being unsecured.
For purposes of determining compliance with this Section 4.09, in the
event that an item of proposed Indebtedness meets the criteria of more than one
of the categories of Permitted Debt described in clauses (i) through (xv) above,
or is entitled to be incurred pursuant to the first paragraph of this covenant,
the Company will be permitted to classify such item of Indebtedness on the date
of its incurrence in any manner that complies with this covenant.
Section 4.10. Asset Sales.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless: (i) the Company 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; (ii) such fair market value
is determined by the Company'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 (iii) at least 75% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents. For purposes of this provision, each of the following shall be
deemed to be cash: (A) any liabilities (as shown on the Company's or such
Restricted Subsidiary's most recent balance sheet) of the Company 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 pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability; and (B) any
securities, notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are contemporaneously (subject
to ordinary settlement periods) converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received in that conversion).
Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the
Company shall apply such Net Proceeds at its option: (i) to permanently reduce
Indebtedness of the Company or a Restricted Subsidiary (other than Subordinated
Indebtedness or intercompany Indebtedness); (ii) to acquire all or substantially
all of the assets of, or a majority of the Voting Stock of, another Person;
(iii) to make capital expenditures; or (iv) to acquire other long-term assets in
the case of (ii), (iii) or (iv), in or used or useful in a Permitted Business.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
preceding paragraph will constitute "Excess Proceeds." When the aggregate amount
of Excess Proceeds exceeds $5.0 million, the Company will make an Asset Sale
Offer to all Holders of Notes and all holders of other Indebtedness that is pari
passu 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
pari passu Indebtedness that may be purchased out of the Excess Proceeds. The
offer price in any Asset Sale
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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, the Company
may use such Excess Proceeds for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of Notes and such other pari passu
Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes and such other pari passu
Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
Section 4.11. Transactions with Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless (a) such Affiliate
Transaction is on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (b) the Company delivers to the Trustee (i) 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 (ii) 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 shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph: (i)
any employment, noncompetition, confidentiality, indemnification or similar
agreement or arrangement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Restricted Subsidiary; (ii) transactions between
or among the Company and/or its Restricted Subsidiaries; (iii) payment of
reasonable directors fees to Persons who are not otherwise Affiliates of the
Company; (iv) any sale or other issuance of Equity Interests (other than
Disqualified Stock) of the Company; (v) the sale of telecommunications services
to any Affiliate on an arm's length basis which is undertaken in the ordinary
course of the Company's business; (vi) transactions pursuant to the Merger
Agreement or any agreement executed prior to the date of the Indenture in
connection therewith (including without limitation 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; (vii) payments to Bay
Alarm Company pursuant to the existing lease between the Company and the Bay
Alarm Company for the Company's Oakland facility and for security monitoring
services offered at Bay Alarm Company's prevailing commercial rates; and (viii)
Restricted Payments that are permitted by Section 4.07 hereof.
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Section 4.12. Liens.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist
any Lien on any asset now owned or hereafter acquired, or any income or profits
therefrom or assign or convey any right to receive income therefrom, except
Permitted Liens.
Section 4.13. Line of Business.
The Company shall not, and shall not permit any of its Subsidiaries to,
engage in any business other than Permitted Businesses.
Section 4.14. Corporate Existence.
Subject to Article 5 hereof, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect (i) its corporate
existence, and the corporate, partnership or other existence of each of its
Subsidiaries, in accordance with the respective organizational documents (as the
same may be amended from time to time) of the Company or any such Subsidiary and
(ii) the rights (charter and statutory), licenses and franchises of the Company
and its Subsidiaries; provided, however, that the Company shall not be required
to preserve any such right, license or franchise, or the corporate, partnership
or other existence of any of its Subsidiaries, if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Subsidiaries, taken as a whole, and that the
loss thereof is not adverse in any material respect to the Holders of the Notes.
Section 4.15. Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, the Company shall make an
offer (a "Change of Control Offer") to each Holder to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a
purchase price equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Additional Interest thereon, if any, to the date
of purchase (the "Change of Control Payment"). Within 10 days following any
Change of Control, the Company shall mail a notice to each Holder stating: (i)
that the Change of Control Offer is being made pursuant to this Section 4.15 and
that all Notes tendered will be accepted for payment; (ii) the purchase price
and the purchase date, which shall be no later than 30 business days from the
date such notice is mailed (the "Change of Control Payment Date"); (iii) that
any Note not tendered will continue to accrue interest; (iv) that, unless the
Company defaults in the payment of the Change of Control Payment, all Notes
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Payment Date; (v) that Holders
electing to have any Notes purchased pursuant to a Change of Control Offer will
be required to surrender the Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at
the address specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date; (vi) that Holders
will be entitled to withdraw their election if the Paying Agent receives, not
later than the close of business on the second Business Day preceding the Change
of Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the
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Holder, the principal amount of Notes delivered for purchase, and a statement
that such Holder is withdrawing his election to have the Notes purchased; and
(vii) that Holders whose Notes are being purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof. The Company shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of Notes in connection with a
Change of Control.
(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (iii) deliver or cause to be delivered to
the Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent shall promptly mail to each Holder of Notes so
tendered payment in an amount equal to the purchase price for the Notes, and the
Trustee shall 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 by such Holder, if any; provided, that each
such new Note shall be in a principal amount of $1,000 or an integral multiple
thereof. The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
Section 4.16. Limitation on Sale and Leaseback Transactions.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company or any Restricted Subsidiary of the Company may enter into a sale
and leaseback transaction if (i) the Company 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 Section 4.09 hereof and (b)
incurred a Lien to secure such Indebtedness pursuant to Section 4.12 hereof,
(ii) 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
(iii) the transfer of assets in that sale and leaseback transaction is permitted
by, and the Company applies the proceeds of such transaction in compliance with
Section 4.10 hereof.
Section 4.17. Limitation on Issuances and Sales of Capital Stock of Wholly
Owned Subsidiaries.
The Company shall not, and shall 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 the Company to any
Person (other than the Company or a Wholly Owned Restricted Subsidiary of the
Company), unless (i) such transfer, conveyance, sale, lease or other disposition
is of all the Equity Interests in such Wholly Owned Restricted Subsidiary and
(ii) the cash Net Proceeds from such transfer, conveyance, sale, lease or other
disposition are applied in accordance with Section 4.10 hereof. In addition,
the Company will not permit any Wholly Owned Restricted Subsidiary of the
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Company to issue any of its Equity Interests (other than, if necessary, shares
of its Capital Stock constituting directors' qualifying shares) to any Person
other than to the Company or a Wholly Owned Restricted Subsidiary of the
Company.
Section 4.18. Issuances of Guarantees by Restricted Subsidiaries.
The Company shall not permit any Restricted Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company which is pari passu (other than any
Indebtedness incurred under a Credit Facility) with or subordinate in right of
payment to the Notes ("Guaranteed Indebtedness"), unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Indenture providing for a guarantee (a "Subsidiary Guarantee") of payment of the
Notes by such Restricted Subsidiary and (ii) 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 the Company or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Subsidiary Guarantee; provided
that this paragraph shall 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) pari
passu with the Notes, then the guarantee of such Guaranteed Indebtedness shall
be pari passu with, or subordinated to, the Subsidiary Guarantee or (b)
subordinated to the Notes, then the guarantee of such Guaranteed Indebtedness
shall be subordinated to the Subsidiary Guarantee at least to the extent that
the Guaranteed Indebtedness is subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person that is not an Affiliate of the Company, of all of the Company'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 (ii) 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 (ii), such Restricted Subsidiary has no
Indebtedness.
Section 4.19. 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 the Company 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 Section 4.07 hereof 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 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.
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Section 4.20. Payments for Consent.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, 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.
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.
The Company shall not, directly or indirectly, consolidate or merge with
or into another Person (whether or not the Company is the surviving
corporation), or sell, assign, transfer, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions to, another Person unless (i) the Company is the surviving
corporation or the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment, transfer,
conveyance or other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia, (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which such
sale, assignment, transfer, conveyance or other disposition shall have been made
assumes all the obligations of the Company under the Registration Rights
Agreement, the Notes and this Indenture pursuant to a supplemental indenture in
a form reasonably satisfactory to the Trustee, (iii) immediately after such
transaction, no Default or Event of Default exists and (iv) except in the case
of the merger of the Company with or into a Wholly Owned Restricted Subsidiary
or a merger entered into solely for the purpose of reincorporating the Company
in another jurisdiction, the Company or the Person formed by or surviving any
such consolidation or merger (if other than the Company) 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 pursuant to the Debt to Cash Flow Ratio test set forth in the first
paragraph of Section 4.09 hereof. In addition, the Company shall not, directly
or indirectly, lease all or substantially all of its properties or assets, in
one or more related transactions, to any other Person. The provisions of this
Section 5.01 shall not be applicable to a sale, assignment, transfer, conveyance
or other disposition of assets between or among the Company and its Wholly Owned
Subsidiaries.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale,
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lease, conveyance or other disposition, the provisions of this Indenture
referring to the "Company" shall refer instead to the successor corporation and
not to the Company), and may exercise every right and power of the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein; provided, however, that the predecessor Company shall not
be relieved from the obligation to pay the principal of and interest on the
Notes except in the case of a sale of all of the Company's assets that meets the
requirements of Section 5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(a) the Company defaults for 30 days in the payment when due of interest
on the Notes;
(b) the Company defaults in the payment when due of principal of or
premium, if any, on the Notes;
(c) the Company fails to comply or any of the Company's Subsidiaries fail
to comply with any of the provisions of Section 4.10 or 5.01 hereof;
(d) the Company fails or any of the Company's Restricted Subsidiaries fail
to observe or perform any other covenant, representation, warranty or other
agreement in this Indenture or the Notes for 60 days after notice to the Company
by the Trustee or the Holders of at least 25% in aggregate principal amount of
the Notes then outstanding voting as a single class;
(e) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or
is created after the date of this Indenture, if that default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity, and, in each case, the
principal amount of any such Indebtedness, together with the principal amount of
any other such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $5.0 million or more;
(f) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the Company or
any of its Restricted Subsidiaries and such judgment or judgments remain
undischarged for a period (during which execution shall not be effectively
stayed) of 60 days, provided that the aggregate of all such undischarged
judgments exceeds $5 million;
(g) the Company or any of its Restricted Subsidiaries pursuant to or
within the meaning of Bankruptcy Law:
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(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an
involuntary case,
(iii) consents to the appointment of a custodian of it or for all or
substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors, or
(v) generally is not paying its debts as they become due;
(h) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(i) is for relief against the Company or any of its Restricted
Subsidiaries that are Significant Subsidiaries or any group of Restricted
Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary in an involuntary case;
(ii) appoints a custodian of the Company or any of its Restricted
Subsidiaries that are Significant Subsidiaries or any group of Restricted
Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary or for all or substantially all of the property of the Company or
any of its Restricted Subsidiaries that are Significant Subsidiaries or any
group of Restricted Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary; or
(iii) orders the liquidation of the Company or any of its Significant
Subsidiaries or any group of Restricted Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive days;
or
(i) the Company shall assert in writing that the Pledge Agreement ceases
to be in full force and effect before payment in full of the obligations
thereunder.
Section 6.02. Acceleration.
If any Event of Default (other than an Event of Default specified in clause
(g) or (h) of Section 6.01 hereof with respect to the Company, any Restricted
Subsidiary that is a Significant Subsidiary or any group of Restricted
Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary)
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately. Upon any such declaration, the Notes shall become
due and payable immediately. Notwithstanding the foregoing, if an Event of
Default specified in clause (g) or (h) of Section 6.01 hereof occurs with
respect to the Company, any of its Restricted Subsidiaries that are Significant
Subsidiaries or any group of Restricted Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary, all outstanding Notes shall be due
and payable immediately without further action or notice. The Holders of a
majority in aggregate principal amount of the then outstanding Notes by written
notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or
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decree and if all existing Events of Default (except nonpayment of principal,
interest or premium that has become due solely because of the acceleration) have
been cured or waived.
If an Event of Default occurs on or after February 1, 2004 by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding payment of the premium that the Company would
have had to pay if the Company then had elected to redeem the Notes pursuant to
Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium
shall also become and be immediately due and payable, to the extent permitted by
law, anything in this Indenture or in the Notes to the contrary notwithstanding.
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 the Company with
the intention of avoiding the prohibition on redemption of the Notes prior to
such date, then, upon acceleration of the Notes, an additional premium shall
also become and be immediately due and payable in an amount, for each of the
years beginning on February 1 of the years set forth below, as set forth below
(expressed as a percentage of the principal amount of the Notes on the date of
payment that would otherwise be due but for the provisions of this sentence):
Year Percentage
---- ----------
1999........................................... 118.00%
2000........................................... 115.75%
2001........................................... 113.50%
2002........................................... 111.25%
2003........................................... 109.00%
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder of a Note in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of the
then outstanding Notes by notice to the Trustee may on behalf of the Holders of
all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium and Additional Interest, if any, or
interest on, the Notes (including in connection with an offer to purchase)
(provided, however, that the Holders of a majority in aggregate principal amount
of the then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been
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cured for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereon.
Section 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding Notes may
direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee or exercising any trust or power conferred
on it. However, the Trustee may refuse to follow any direction that conflicts
with law or this Indenture that the Trustee determines may be unduly prejudicial
to the rights of other Holders of Notes or that may involve the Trustee in
personal liability.
Section 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium and Additional
Interest, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal of, premium and Additional Interest, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further
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amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium and Additional Interest, if any, and interest,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium and Additional Interest,
if any and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
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Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to
Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount
of the then outstanding Notes.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only those duties that
are specifically set forth in this Indenture and no others, and no implied
covenants or obligations shall be read into this Indenture against the Trustee;
and
(ii) in the absence of bad faith on its part, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However, the Trustee shall
examine the certificates and opinions to determine whether or not they conform
to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in good
faith by a Responsible Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it takes
or omits to take in good faith in accordance with a direction received by it
pursuant to Section 6.05 hereof.
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(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that might be
incurred by it in compliance with such request or direction.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company or any Affiliate of the
Company with the same rights it would have if it were not Trustee. However, in
the event that the Trustee acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the SEC for permission to continue as
trustee or
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resign. Any Agent may do the same with like rights and duties. The Trustee is
also subject to Sections 7.10 and 7.11 hereof.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, premium, if any, or
interest on any Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the Notes a brief report dated as of such reporting
date that complies with TIA (S) 313(a) (but if no event described in TIA (S)
313(a) has occurred within the twelve months preceding the reporting date, no
report need be transmitted). The Trustee also shall comply with TIA (S)
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA (S) 313(c).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the SEC and each stock exchange on
which the Notes are listed in accordance with TIA (S) 313(d). The Company shall
promptly notify the Trustee when the Notes are listed on any stock exchange.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
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The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the Trustee
shall have a Lien prior to the Notes on all money or property held or collected
by the Trustee, except that held in trust to pay principal and interest on
particular Notes. Such Lien shall survive the satisfaction and discharge of this
Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to the
extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of a majority in
principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Company in writing. The Company may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
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If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder who has been a Holder
for at least six months, fails to comply with Section 7.10, such Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders. The retiring Trustee shall promptly transfer all property held by it as
Trustee to the successor Trustee, provided all sums owing to the Trustee
hereunder have been paid and subject to the Lien provided for in Section 7.07
hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA (S) 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
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ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article Eight.
Section 8.02. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any, and interest on such Notes when such payments
are due, (b) the Company's obligations with respect to such Notes under Article
2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities
of the Trustee hereunder and the Company's obligations in connection therewith
and (d) this Article Eight. Subject to compliance with this Article Eight, the
Company may exercise its option under this Section 8.02 notwithstanding the
prior exercise of its option under Section 8.03 hereof.
Section 8.03. Covenant Defeasance.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19 and 4.20 hereof and clause (iv)
of Section 5.01 hereof with respect to the outstanding Notes on and after the
date the conditions set forth in Section 8.04 are satisfied (hereinafter,
"Covenant Defeasance"), and the Notes shall thereafter be deemed not
"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Notes shall not be deemed outstanding
for accounting purposes). For this purpose, Covenant Defeasance means that, with
respect to the outstanding Notes, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other
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provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon the Company's exercise under Section
8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(c) through 6.01(f) hereof shall not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in United States 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 and Additional Interest, if any,
and interest on the outstanding Notes on the stated date for payment thereof or
on the applicable redemption date, as the case may be;
(b) in the case of an election under Section 8.02 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the incurrence of Indebtedness all or a portion of the proceeds
of which will be used to defease the Notes pursuant to this Article Eight
concurrently with such incurrence) or insofar as Sections 6.01(g) or 6.01(h)
hereof is concerned, at any time in the period ending on the 91st day after the
date of deposit;
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(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel (which may be subject to customary exceptions) to the effect that on 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;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
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Section 8.06. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes or to alter the provisions of Article 2 hereof (including the
related definitions) in a manner that does not materially adversely affect any
Holder;
(c) to provide for the assumption of the Company's obligations to the
Holders of the Notes by a successor to the Company pursuant to Article 5 hereof;
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(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights hereunder of any Holder of the Note;
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Company in the execution of any
amended or supplemental Indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations that
may be therein contained, but the Trustee shall not be obligated to enter into
such amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture (including Section 3.09, 4.10 and
4.15 hereof) and the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the Notes then
outstanding voting as a single class (including consents obtained in connection
with a tender offer or exchange offer for, or purchase of, the Notes), and,
subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of
Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture or the Notes may be waived with the consent
of the Holders of a majority in principal amount of the then outstanding Notes
voting as a single class (including consents obtained in connection with a
tender offer or exchange offer for, or purchase of, the Notes).
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with the Company in the execution of such amended or supplemental Indenture
unless such amended or supplemental Indenture directly affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise, in which case
the Trustee may in its discretion, but shall not be obligated to, enter into
such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or
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waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in
aggregate principal amount of the Notes then outstanding voting as a single
class may waive compliance in a particular instance by the Company with any
provision of this Indenture or the Notes. However, without the consent of each
Holder affected, an amendment or waiver under this Section 9.02 may not (with
respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note
or alter or waive any of the provisions with respect to the redemption of the
Notes except as provided above with respect to Sections 3.09, 4.10 and 4.15
hereof;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the then outstanding Notes and a waiver of the payment
default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or interest on the Notes; or
(g) make any change in Section 6.04 or 6.07 hereof or in the foregoing
amendment and waiver provisions.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental Indenture that complies with the TIA as
then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
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Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Nine if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon, in addition to the documents required
by Section 10.04 hereof, an Officer's Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
ARTICLE 10
MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA (S)318(c), the imposed duties shall control.
Section 10.02. Notices.
Any notice or communication by the Company or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company:
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, California 95204
Telecopier No.: (209) 926-4444
Attention: Chief Financial Officer
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With a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telecopier No.: (312) 861-2200
Attention: Dennis M. Myers
If to the Trustee:
Norwest Bank Minnesota, National Association
Norwest Center
6th and Marquette
Minneapolis, MN 55479-0069
Telecopier No.: (612) 667-9825
Attention: Corporate Trust Services
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA (S) 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
Section 10.03. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA (S) 312(b) with other Holders with
respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA (S)
312(c).
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Section 10.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 10.05
hereof) stating that, in the opinion of the signers, all conditions precedent
and covenants, if any, provided for in this Indenture relating to the proposed
action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee (which shall include the statements set forth in Section 10.05
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
Section 10.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA (S)
314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been satisfied.
Section 10.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 10.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No past, present or future director, officer, employee, incorporator or
stockholder of the Company or any Subsidiary, as such, shall have any liability
for any obligations of the Company or the Subsidiaries under the Notes or this
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.
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Section 10.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Section 10.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 10.10. Successors.
All agreements of the Company in this Indenture and the Notes shall bind
its successors. All agreements of the Trustee in this Indenture shall bind its
successors.
Section 10.11. Severability.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 10.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
Section 10.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
Dated as of January 29, 1999
Pac-West Telecomm, Inc.
By: /s/ Richard E. Bryson
------------------------------
Name: Richard E. Bryson
Title: Chief Financial Officer
Attest:
/s/ Jennifer Lewis
- ----------------------------
Name: Jennifer Lewis
Title: Notary Public
- --------------------------------------- Norwest Bank Minnesota, National
JENNIFER LEWIS Association
[Notary] Comm. # 1127538
[Public] NOTARY PUBLIC--CALIFORNIA By: /s/ Timothy P. Mowdy
[ Seal ] San Joaquin County ------------------------------
My Comm. Expires March 2, 2001 Name: Timothy P. Mowdy
- --------------------------------------- Title: Designated Signer
Attest:
- ----------------------------
Authorized Signatory
Date:
Signature Page to Indenture
<PAGE>
EXHIBIT A1
[Face of Note]
- --------------------------------------------------------------------------------
CUSIP/CINS ___________
___% [Series A] [Series B] Senior Notes due 2009
No. __ $___________
Pac-West Telecomm, Inc.
promises to pay to______________________________________________________________
or registered assigns,
the principal sum of____________________________________________________________
Dollars on _____________, 200__.
Interest Payment Dates: ____________ and ____________
Record Dates: ____________ and ____________
Dated: January 29, 1998
Pac-West Telecomm, Inc.
By:____________________________________________
Name:
Title:
By:____________________________________________
Name:
Title:
This is one of the Notes referred to
in the within-mentioned Indenture:
Norwest Bank Minnesota, NATIONAL ASSOCIATION,
as Trustee
By: __________________________________
Authorized Signatory
- --------------------------------------------------------------------------------
A1-1
<PAGE>
[Back of Note]
13 1/2% [Series A] [Series B] Senior Notes due 2009
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY."
THE NOTE (OR ITS PREDECESSORS) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED, AND THE NOTE EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTE EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER
OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE NOTE EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) (a) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT), PURCHASING FOR ITS OWN ACCOUNT IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (b) AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM
OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (c) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 OF THE SECURITIES ACT, (d) OUTSIDE THE UNITED
STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904
OF REGULATION S UNDER THE SECURITIES ACT OR (e) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PROVIDED THAT
IN THE CASE OF A TRANSFER PURSUANT TO CLAUSE (e) SUCH TRANSFER IS EFFECTED BY
THE DELIVERY TO THE TRANSFEREE OF DEFINITIVE SECURITIES REGISTERED IN ITS NAME
(OR ITS NOMINEES NAME) IN THE BOOKS MAINTAINED BY THE REGISTRAR, AND IS SUBJECT
TO THE RECEIPT BY THE REGISTRAR (AND THE COMPANY, IF IT SO REQUESTS) OF A
CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF COUNSEL TO THE EFFECT THAT
SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (ii) TO THE COMPANY OR
(iii) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
A1-2
<PAGE>
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTE EVIDENCED HEREBY OF THE
RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Interest. Pac-West Telecomm, Inc., a California corporation (the
"Company"), promises to pay interest on the principal amount of this Note at 13
1/2% per annum from January 29, 1999 until maturity and shall pay the Additional
Interest payable pursuant to Section 5 of the Registration Rights Agreement
referred to below. The Company will pay interest and Additional Interest semi-
annually in arrears on February 1 and August 1 of each year, or if any such day
is not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"). Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be August 1, 1999. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Additional Interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Notes (except
defaulted interest) and Additional Interest to the Persons who are registered
Holders of Notes at the close of business on the January 15 or July 15 next
preceding the Interest Payment Date, even if such Notes are canceled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The Notes will
be payable as to principal, premium and Additional Interest, if any, and
interest at the office or agency of the Company maintained for such purpose
within or without the City and State of New York, or, at the option of the
Company, payment of interest and Additional Interest may be made by check mailed
to the Holders at their addresses set forth in the register of Holders, and
provided that payment by wire transfer of immediately available funds will be
required with respect to principal of and interest, premium and Additional
Interest on, all Global Notes and all other Notes the Holders of which shall
have provided wire transfer instructions to the Company or the Paying Agent.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
3. Paying Agent and Registrar. Initially, Norwest Bank Minnesota,
National Association, the Trustee under the Indenture, will act as Paying Agent
and Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. Indenture and Pledge Agreement. The Company issued the Notes under an
Indenture dated as of January 29, 1999 ("Indenture") between the Company and the
Trustee. 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, as
amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such
A1-3
<PAGE>
terms, and Holders are referred to the Indenture and such Act for a statement of
such terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the indenture shall govern and be
controlling. Except as provided by the Pledge Agreement, the Notes are general
obligations of the Company limited to $150 million in aggregate principal
amount.
5. Optional Redemption.
(a) Except as set forth in subparagraph (b) of this Paragraph 5, the
Company shall not have the option to redeem the Notes prior to February 1, 2004.
Thereafter, the Company shall have the option to redeem the Notes, in whole or
in part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Additional Interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
February 1 of the years indicated below:
Year Percentage
- ---- ----------
2004....................................................... 106.75%
2005....................................................... 104.50%
2006....................................................... 102.50%
2007 and thereafter........................................ 100.00%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph
5, at any time prior to February 1, 2002, the Company 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 aggregate principal amount thereof, plus
accrued and unpaid interest to the redemption date, with the net cash proceeds
of one or more Public Equity Offerings; provided that at least $97.5 million in
aggregate principal amount of Notes remains outstanding immediately after the
occurrence of such redemption (excluding Notes held by the Company and its
Subsidiaries) and the redemption occurs within 45 days of the date of the
closing of such Public Equity Offering.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.
7. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Company shall be required to make
an offer (a "Change of Control Offer") to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Additional Interest thereon, if any, to the date of purchase
(the "Change of Control Payment"). Within 10 days following any Change of
Control, the Company shall mail a notice to each Holder setting forth the
procedures governing the Change of Control Offer as required by the Indenture.
(b) When the aggregate amount of Excess Proceeds from one or more Asset
Sales exceeds $5.0 million, the Company shall commence an offer to all Holders
of Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to
purchase the maximum principal amount of Notes that may be purchased out of the
Excess Proceeds at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Additional
Interest thereon, if any, to the
A1-4
<PAGE>
date fixed for the closing of such offer in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company (or such Subsidiary) may use such deficiency for general corporate
purposes. If the aggregate principal amount of Notes surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes to be purchased on a pro rata basis. Holders of Notes that are the subject
of an offer to purchase will receive an Asset Sale Offer from the Company prior
to any related purchase date and may elect to have such Notes purchased by
completing the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Notes.
8. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding Notes
voting as a single class, and any existing default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes voting
as a single class. Without the consent of any Holder of a Note, the Indenture or
the Notes may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's obligations
to Holders of the Notes in case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of the Notes
or that does not adversely affect the legal rights under the Indenture of any
such Holder, to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
12. Defaults and Remedies. Events of Default include: (i) default for 30
days in the payment when due of interest or Additional Interest on the Notes;
(ii) default in payment when due of principal of or premium, if any, on the
Notes when the same becomes due and payable at maturity, upon redemption
(including in connection with an offer to purchase) or otherwise, (iii) failure
by the Company or the Company's Subsidiaries to comply with Section 4.10 or 5.01
of the Indenture; (iv) failure by the Company or the Company's Restricted
Subsidiaries for 60 days after notice to the Company by the
A1-5
<PAGE>
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding voting as a single class to comply with certain other
agreements in the Indenture, the Notes or the Pledge Agreement; (v) default
under certain other agreements relating to Indebtedness of the Company which
default results in the acceleration of such Indebtedness prior to its express
maturity; (vi) certain final judgments for the payment of money that remain
undischarged for a period of 60 days; (vii) certain events of bankruptcy or
insolvency with respect to the Company or any of its Material Subsidiaries; and
(viii) assertion in writing by the Company that the Pledge Agreement ceases to
be in full force and effect before payment in full of the obligations
thereunder. If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable. Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. The Holders of a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest on,
or the principal of, the Notes. The Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
13. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, of the Company or any Subsidiary, as such, shall
not have any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
17. Additional Rights of Holders of Restricted Global Notes and
Restricted Definitive Notes. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the A/B Exchange
Registration Rights Agreement dated as of January 29, 1999, between the Company
and the parties named on the signature pages thereof (the "Registration Rights
Agreement").
A1-6
<PAGE>
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, California 95204
Attention: Chief Financial Officer
A1-7
<PAGE>
Assignment Form
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:
-----------------------------------
(Insert assignee's legal name)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
--------------------------------------------------------
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date:
---------------------
Your Signature:
----------------------------------
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee*:
------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A1-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant
to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$
------------------
Date:
---------------------
Your Signature:
----------------------------------
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee*:
------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A1-9
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an interest in
another Global Note or for a Definitive Note, or exchanges of a part of another
Global Note or Definitive Note for an interest in this Global Note, have been
made:
<TABLE>
<CAPTION>
Principal Amount
of this Global Note Signature of
Amount of decrease Amount of increase following such authorized officer
in Principal Amount in Principal Amount decrease (or of Trustee or
Date of Exchange of this Global Note of this Global Note increase) Note Custodian
- ------------------- -------------------- -------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
</TABLE>
A1-10
<PAGE>
[Exhibit A2]
CUSIP/CINS __________
____% [Series A] [Series B] Senior Notes due 2009
No. ___ $__________
PAC-WEST TELECOMM, INC.
promises to pay to_____________________________________________________________
or registered assigns,
the principal sum of___________________________________________________________
Dollars on _______________, 200__.
Interest Payment Dates: ____________, and ____________
Record Dates: ____________, and ____________
Dated: January 29, 1999
PAC-WEST TELECOMM, INC.
By:___________________________________________
Name:
Title:
By:___________________________________________
Name:
Title:
This is one of the Notes referred to
in the within-mentioned Indenture:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
By: __________________________________
Authorized Signatory
- --------------------------------------------------------------------------------
A2-1
CORPORATE DEPARTMENT FORM NO. 4031 COPYRIGHT /C/ 1997 BY LATHAM & WATKI
<PAGE>
[Back of Regulation S Temporary Global Note]
13 1/2% [Series A] [Series B] Senior Notes due 2009
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY."
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.
THE NOTE (OR ITS PREDECESSORS) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED, AND THE NOTE EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTE EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER
OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE NOTE EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) (a) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT), PURCHASING FOR ITS OWN ACCOUNT IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (b) AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM
OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (c) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 OF THE SECURITIES ACT, (d) OUTSIDE THE UNITED
STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904
OF REGULATION S UNDER THE SECURITIES ACT OR (e) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PROVIDED THAT
IN THE CASE OF A TRANSFER PURSUANT TO CLAUSE (e) SUCH TRANSFER IS EFFECTED BY
THE DELIVERY TO THE TRANSFEREE OF DEFINITIVE SECURITIES REGISTERED IN ITS NAME
(OR ITS NOMINEES NAME) IN THE BOOKS MAINTAINED BY THE REGISTRAR, AND IS SUBJECT
TO THE RECEIPT BY THE REGISTRAR (AND THE COMPANY, IF IT SO REQUESTS) OF A
CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF COUNSEL TO THE
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<PAGE>
EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (ii) TO THE
COMPANY OR (iii) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND
(B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET
FORTH IN (A) ABOVE."
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Interest. Pac-West Telecomm, Inc., a California corporation (the
"Company"), promises to pay interest on the principal amount of this Note at
___% per annum from January 29, 1999 until maturity and shall pay the Additional
Interest payable pursuant to Section 5 of the Registration Rights Agreement
referred to below. The Company will pay interest and Additional Interest semi-
annually on February 1 and August 1 of each year, or if any such day is not a
Business Day, on the next succeeding Business Day (each an "Interest Payment
Date"). Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be August 1, 1999. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Additional Interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
Until this Regulation S Temporary Global Note is exchanged for one or more
Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to
receive payments of interest hereon; until so exchanged in full, this Regulation
S Temporary Global Note shall in all other respects be entitled to the same
benefits as other Senior Subordinated Notes under the Indenture.
2. Method of Payment. The Company will pay interest on the Notes (except
defaulted interest) and Additional Interest to the Persons who are registered
Holders of Notes at the close of business on the January 15 or July 15 next
preceding the Interest Payment Date, even if such Notes are canceled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The Notes will
be payable as to principal, premium, interest and Additional Interest at the
office or agency of the Company maintained for such purpose within or without
the City and State of New York, or, at the option of the Company, payment of
interest and Additional Interest may be made by check mailed to the Holders at
their addresses set forth in the register of Holders, and provided that payment
by wire transfer of immediately available funds will be required with respect to
principal of and interest, premium and Additional Interest on, all Global Notes
and all other Notes the Holders of which shall have provided wire transfer
instructions to the Company or the Paying Agent. Such payment shall be in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts.
A2-3
<PAGE>
3. Paying Agent and Registrar. Initially, Norwest Bank Minnesota,
National Association, the Trustee under the Indenture, will act as Paying Agent
and Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. Indenture and Pledge Agreement. The Company issued the Notes under an
Indenture dated as of January 29, 1999 ("Indenture") between the Company and the
Trustee. 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, as
amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such
terms, and Holders are referred to the Indenture and such Act for a statement of
such terms. Except as provided by the Pledge Agreement, the Notes are general
obligations of the Company limited to $150 million in aggregate principal
amount.
5. Optional Redemption.
(a) Except as set forth in subparagraph (b) of this Paragraph 5, the
Company shall not have the option to redeem the Notes prior to February 1, 2004.
Thereafter, the Company shall have the option to redeem the Notes, in whole or
in part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on February 1 of the years
indicated below:
Year Percentage
- ---- ----------
2004............................................................... 106.75%
2005............................................................... 104.50%
2006............................................................... 102.25%
2007 and thereafter................................................ 100.00%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph
5, at any time prior to February 1, 2002, the Company 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 aggregate principal amount thereof, plus
accrued and unpaid interest to the redemption date, with the net cash proceeds
of one or more Public Equity Offerings; provided that at least $97.5 million in
aggregate principal amount of Notes remains outstanding immediately after the
occurrence of such redemption (excluding Notes held by the Company and its
Subsidiaries) the redemption occurs within 45 days of the date of the closing of
such Public Equity Offering.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.
7. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Company shall be required to make
an offer (a "Change of Control Offer") to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase (the "Change of Control
Payment"). Within
A2-4
<PAGE>
10 days following any Change of Control, the Company shall mail a notice to each
Holder setting forth the procedures governing the Change of Control Offer as
required by the Indenture.
(b) When the aggregate amount of Excess Proceeds from one or more Asset
Sales exceeds $5.0 million, the Company shall commence an offer to all Holders
of Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to
purchase the maximum principal amount of Notes that may be purchased out of the
Excess Proceeds at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
fixed for the closing of such offer, in accordance with the procedures set forth
in the Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
(or such Subsidiary) may use such deficiency for general corporate purposes. If
the aggregate principal amount of Notes surrendered by Holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Holders of Notes that are the subject of an offer
to purchase will receive an Asset Sale Offer from the Company prior to any
related purchase date and may elect to have such Notes purchased by completing
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Notes.
8. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date and
the corresponding Interest Payment Date.
This Regulation S Temporary Global Note is exchangeable in whole or in
part for one or more Global Notes only (i) on or after the termination of the
40-day restricted period (as defined in Regulation S) and (ii) upon presentation
of certificates (accompanied by an Opinion of Counsel, if applicable) required
by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary
Global Note for one or more Global Notes, the Trustee shall cancel this
Regulation S Temporary Global Note.
10. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency,
A2-5
<PAGE>
to provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
the Notes in case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, or to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
12. Defaults and Remedies. Events of Default include: (i) default for 30
days in the payment when due of interest or Additional Interest on the Notes;
(ii) default in payment when due of principal of or premium, if any, on the
Notes when the same becomes due and payable at maturity, upon redemption
(including in connection with an offer to purchase) or otherwise, (iii) failure
by the Company and the Company's Subsidiaries to comply with Section 4.10 or
5.01 of the Indenture, which failure remains uncured for 30 days; (iv) failure
by the Company and the Company's Restricted Subsidiaries for 60 days after
notice to the Company by the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding to comply with certain other
agreements in the Indenture, the Notes or the Pledge Agreement; (v) default
under certain other agreements relating to Indebtedness of the Company which
default results in the acceleration of such Indebtedness prior to its express
maturity; (vi) certain final judgments for the payment of money that remain
undischarged for a period of 60 days; (vii) certain events of bankruptcy or
insolvency with respect to the Company or any of its Material Subsidiaries; and
(viii) assertion in writing by the Company that the Pledge Agreement ceases to
be in full force and effect before payment in full of the obligations
thereunder. If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable. Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. The Holders of a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest on,
or the principal of, the Notes. The Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
13. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, of the Company or any Subsidiary, as such, shall
not have any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
A2-6
<PAGE>
15. Authentication. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. Additional Rights of Holders of Restricted Global Notes and Restricted
Definitive Notes. In addition to the rights provided to Holders of Notes under
the Indenture, Holders of Restricted Global Notes and Restricted Definitive
Notes shall have all the rights set forth in the A/B Exchange Registration
Rights Agreement dated as of January 29, 1999, between the Company and the
parties named on the signature pages thereof (the "The Registration Rights
Agreement").
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, California 95204
Attention: Chief Financial Officer
A2-7
<PAGE>
Assignment Form
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:
-----------------------------------
(Insert assignee's legal name)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
--------------------------------------------------------
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date:
---------------------
Your Signature:
----------------------------------
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee*:
------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A2-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant
to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$
------------------
Date:
---------------------
Your Signature:
----------------------------------
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee*:
------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A2-9
<PAGE>
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S Temporary Global
Note for an interest in another Global Note, or of other Restricted Global Notes
for an interest in this Regulation S Temporary Global Note, have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease Amount of increase of this Signature of
in Principal Amount in Principal Amount Global Note authorized officer of
of of following such decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
- ---------------- ------------------- ------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
A2-10
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, California 95204
[Registrar address block]
Re: ___% Senior Notes due 2009
Reference is hereby made to the Indenture, dated as of _________________
(the "Indenture"), between Pac-West Telecomm, Inc., as issuer (the "Company"),
and Norwest Bank Minnesota, NATIONAL ASSOCIATION, as trustee. Capitalized terms
used but not defined herein shall have the meanings given to them in the
Indenture.
___________________, (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to ___________________________ (the "Transferee"), as further specified in Annex
A hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] Check if Transferee will take delivery of a beneficial interest in
the 144A Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
2. [ ] Check if Transferee will take delivery of a beneficial interest in
the Temporary Regulation S Global Note, the Regulation S Global Note or a
Definitive Note pursuant to Regulation S. The Transfer is being effected
pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act
and, accordingly, the Transferor hereby further certifies that (i) the Transfer
is not being made to a person in the United States and (x) at the time the buy
order was originated, the Transferee was outside the United States or such
Transferor and any Person acting on its behalf reasonably believed and believes
that the Transferee was outside the United States or (y) the transaction was
executed in, on or through the facilities of a designated offshore securities
market and neither such Transferor nor any Person acting on its behalf knows
that the transaction was prearranged with a buyer in the United States, (ii) no
directed selling efforts have been made in contravention of the requirements of
Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the
transaction is not part of a
B-1
<PAGE>
plan or scheme to evade the registration requirements of the Securities Act and
(iv) if the proposed transfer is being made prior to the expiration of the
Restricted Period, the transfer is not being made to a U.S. Person or for the
account or benefit of a U.S. Person (other than an Initial Purchaser). Upon
consummation of the proposed transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on Transfer enumerated in the Private Placement
Legend printed on the Regulation S Global Note, the Temporary Regulation S
Global Note and/or the Definitive Note and in the Indenture and the Securities
Act.
3. [ ] Check and complete if Transferee will take delivery of a
beneficial interest in the IAI Global Note or a Definitive Note pursuant to any
provision of the Securities Act other than Rule 144A or Regulation S. The
Transfer is being effected in compliance with the transfer restrictions
applicable to beneficial interests in Restricted Global Notes and Restricted
Definitive Notes and pursuant to and in accordance with the Securities Act and
any applicable blue sky securities laws of any state of the United States, and
accordingly the Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in accordance
with Rule 144 under the Securities Act;
or
(b) [ ] such Transfer is being effected to the Company or a subsidiary
thereof;
or
(c) [ ] such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;
or
(d) [ ] such Transfer is being effected to an Institutional Accredited
Investor and pursuant to an exemption from the registration requirements of
the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the
Transferor hereby further certifies that it has not engaged in any general
solicitation within the meaning of Regulation D under the Securities Act and
the Transfer complies with the transfer restrictions applicable to beneficial
interests in a Restricted Global Note or Restricted Definitive Notes and the
requirements of the exemption claimed, which certification is supported by
(1) a certificate executed by the Transferee in the form of Exhibit D to the
Indenture and (2) an Opinion of Counsel provided by the Transferor or the
Transferee (a copy of which the Transferor has attached to this
certification), to the effect that such Transfer is in compliance with the
Securities Act. Upon consummation of the proposed transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the IAI Global Note and/or the Definitive
Notes and in the Indenture and the Securities Act.
B-2
<PAGE>
4. [_] Check if Transferee will take delivery of a beneficial interest in
an Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) [_] Check if Transfer is pursuant to Rule 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act. Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will no longer be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the Restricted Global Notes, on Restricted
Definitive Notes and in the Indenture.
(b) [_] Check if Transfer is Pursuant to Regulation S. (i) The Transfer is
being effected pursuant to and in accordance with Rule 903 or Rule 904 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(c) [_] Check if Transfer is Pursuant to Other Exemption. (i) The Transfer
is being effected pursuant to and in compliance with an exemption from the
registration requirements of the Securities Act other than Rule 144, Rule 903 or
Rule 904 and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any State of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will not be subject to the restrictions on transfer enumerated
in the Private Placement Legend printed on the Restricted Global Notes or
Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
-------------------------------------------------
[Insert Name of Transferor]
By:
----------------------------------------------
Name:
Title:
Dated:
-------------------
B-3
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [_] a beneficial interest in the:
(i) [_] 144A Global Note (CUSIP _____________), or
(ii) [_] Regulation S Global Note (CUSIP_________), or
(iii) [_] IAI Global Note (CUSIP ______________); or
(b) [_] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [_] a beneficial interest in the:
(i) [_] 144A Global Note (CUSIP __________), or
(ii) [_] Regulation S Global Note (CUSIP _________), or
(iii) [_] IAI Global Note (CUSIP ___________); or
(iv) [_] Unrestricted Global Note (CUSIP_________); or
(b) [_] a Restricted Definitive Note; or
(c) [_] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B-4
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, California 95204
[Registrar address block]
Re: ___% Senior Notes due 2009
(CUSIP ____________)
Reference is hereby made to the Indenture, dated as of _________________
(the "Indenture"), between Pac-West Telecomm, Inc., as issuer (the "Company"),
and Norwest Bank Minnesota, NATIONAL ASSOCIATION, as trustee. Capitalized terms
used but not defined herein shall have the meanings given to them in the
Indenture.
__________________________, (the "Owner") owns and proposes to exchange
the Note[s] or interest in such Note[s] specified herein, in the principal
amount of $____________ in such Note[s] or interests (the "Exchange"). In
connection with the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Notes or Beneficial Interests in a
Restricted Global Note for Unrestricted Definitive Notes or Beneficial Interests
in an Unrestricted Global Note
(a) [_] Check if Exchange is from beneficial interest in a Restricted
Global Note to beneficial interest in an Unrestricted Global Note. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with the United States Securities Act of
1933, as amended (the "Securities Act"), (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the beneficial
interest in an Unrestricted Global Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(b) [_] Check if Exchange is from beneficial interest in a Restricted
Global Note to Unrestricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Definitive Note is being acquired in compliance
with any applicable blue sky securities laws of any state of the United States.
(c) [_] Check if Exchange is from Restricted Definitive Note to beneficial
interest in an Unrestricted Global Note. In connection with the Owner's Exchange
of a Restricted Definitive
C-1
<PAGE>
EXHIBIT C
Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby
certifies (i) the beneficial interest is being acquired for the Owner's own
account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest is being acquired in compliance with any applicable blue sky
securities laws of any state of the United States.
(d) [_] Check if Exchange is from Restricted Definitive Note to
Unrestricted Definitive Note. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial Interests in
Restricted Global Notes for Restricted Definitive Notes or Beneficial Interests
in Restricted Global Notes
(a) [_] Check if Exchange is from beneficial interest in a Restricted
Global Note to Restricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.
(b) Check if Exchange is from Restricted Definitive Note to beneficial
interest in a Restricted Global Note. In connection with the Exchange of the
Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE]
[_] 144A Global Note, [_] Regulation S Global Note, [_] IAI Global Note with an
equal principal amount, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer and (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, and in compliance with any applicable blue sky securities
laws of any state of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial interest
issued will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.
C-2
<PAGE>
EXHIBIT C
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
-------------------------------------------------
[Insert Name of Transferor]
By:
----------------------------------------------
Name:
Title:
Dated:
-----------------
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EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, California 95204
[Registrar address block]
Re: ___% Senior Notes due 2009
Reference is hereby made to the Indenture, dated as of _________________
(the "Indenture"), between Pac-West Telecomm, Inc., as issuer (the "Company"),
and Norwest Bank Minnesota, NATIONAL ASSOCIATION, as trustee. Capitalized terms
used but not defined herein shall have the meanings given to them in the
Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of:
(a) [_] a beneficial interest in a Global Note, or
(b) [_] a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any interest
therein is subject to certain restrictions and conditions set forth in the
Indenture and the undersigned agrees to be bound by, and not to resell, pledge
or otherwise transfer the Notes or any interest therein except in compliance
with, such restrictions and conditions and the United States Securities Act of
1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
we will do so only (A) to the Company or any subsidiary thereof, (B) in
accordance with Rule 144A under the Securities Act to a "qualified institutional
buyer" (as defined therein), (C) to an institutional "accredited investor" (as
defined below) that, prior to such transfer, furnishes (or has furnished on its
behalf by a U.S. broker-dealer) to you and to the Company a signed letter
substantially in the form of this letter and an Opinion of Counsel in form
reasonably acceptable to the Company to the effect that such transfer is in
compliance with the Securities Act, (D) outside the United States in accordance
with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the
provisions of Rule 144(k) under the Securities Act or (F) pursuant to an
effective registration statement under the Securities Act, and we further agree
to provide to any person purchasing the Definitive Note or beneficial interest
in a Global Note from us in a transaction meeting the requirements of clauses
(A) through (E) of this paragraph a notice advising such purchaser that resales
thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or beneficial
interest therein, we will be required to furnish to you and the Company such
certifications, legal opinions and other
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information as you and the Company may reasonably require to confirm that the
proposed sale complies with the foregoing restrictions. We further understand
that the Notes purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes or beneficial interest therein purchased by
us for our own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we exercise sole
investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
------------------------------------------------
[Insert Name of Accredited Investor]
By:
---------------------------------------------
Name:
Title:
Dated:
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EXHIBIT E
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT, dated as of January 29, 1999 (the "Pledge
Agreement") by and among Pac-West Telecomm, Inc., a California corporation (the
"Pledgor"), the Trustee (as defined below) and Norwest Bank Minnesota, National
Association, as collateral agent (the "Collateral Agent"), for the Trustee on
behalf of the holders of the Notes (as defined herein).
RECITALS
A. The Pledgor and Norwest Bank Minnesota, National Association, as
Trustee (the "Trustee") have entered into that certain Indenture dated as of
January 29, 1999 (as amended, restated, supplemented or otherwise modified from
time to time, the "Indenture"), pursuant to which the Pledgor issued
$150,000,000 in aggregate principal amount of 13 1/2% Senior Notes due 2009 (the
"Notes").
B. The Pledgor has agreed, pursuant to a Purchase Agreement dated January
27, 1999 by and among the Pledgor, NationsBanc Montgomery Securities LLC, CIBC
Oppenheimer Corp. and First Union Capital Markets, a division of Wheat First
Securities, Inc., to (i) purchase a portfolio of securities consisting of
Government Securities (as defined herein) (collectively, the "Pledged
Securities") in an amount sufficient, in the opinion of a nationally recognized
firm of independent certified public accountants selected by the Pledgor, upon
receipt of the scheduled interest and principal payments in respect of the
Pledged Securities, to provide for payment of the first two (2) scheduled
interest payments due on the Notes, and (ii) place such Pledged Securities in
the Pledge Account (as defined herein) held by the Collateral Agent for the
benefit of the holders of the Notes.
C. The Pledgor is the sole legal and beneficial owner of the Pledged
Securities.
D. To secure the payment and performance by the Pledgor of its obligations
under the Indenture and the Notes (collectively, the "Obligations"), the Pledgor
has agreed to (i) pledge to the Collateral Agent for the benefit of the Trustee
and the ratable benefit of the holders of the Notes a security interest in the
Pledged Securities and the Pledge Account, and (ii) execute and deliver this
Pledge Agreement.
AGREEMENT
NOW, THEREFORE, in order to induce the holders of Notes to purchase the
Notes, and for good and valuable consideration, the receipt of which is hereby
acknowledged, the Pledgor hereby agrees with the Collateral Agent for the
benefit of the Trustee and for the ratable benefit of the holders of Notes as
follows:
1. Defined Terms. All capitalized terms used but not defined herein shall
have the meanings ascribed to them in the Indenture. In addition to any other
defined terms used herein, the following terms shall constitute defined terms
for purposes of this Pledge Agreement and shall have the meanings set forth
below:
"Collateral" has the meaning given in Section 2 hereof.
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"Government Securities" means direct obligations of, or obligations fully
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"UCC" means, with respect to the validity and perfection and the effect of
perfection or non-perfection of the security interest, the Uniform Commercial
Code as in effect on the date hereof in the State of New York.
2. Pledge and Grant of Security Interest
(a) The Pledgor hereby pledges and grants to the Trustee, for the ratable
benefit of the holders of the Notes, a continuing first priority security
interest in and to (i) all of the Pledgor's right, title and interest in the
Pledged Securities and the Pledge Account, (ii) all certificates or other
evidence of ownership representing the Pledged Securities and the Pledge
Account, and (iii) all products and proceeds of any of the Pledged Securities,
including, without limitation, all dividends, interest, principal payments,
cash, options, warrants, rights, instruments, subscriptions and other property
or proceeds from time to time received, receivable or otherwise distributed or
distributable in respect of or in exchange for any or all of the Pledged
Securities (collectively, the "Collateral").
(b) The Pledgor shall have no right to remove or withdraw from the Pledge
Account any financial asset, cash or other property now or hereafter credited to
the Pledge Account without the prior written consent of the Trustee, except as
provided in Section 5(b) herein. If at any time the Collateral Agent shall
receive any entitlement order from the Trustee (including, without limitation,
any order directing the sale, transfer or redemption of any financial asset
relating to, or cash or other item credited to, the Pledge Account), the
Collateral Agent shall comply with such entitlement order, without further
consent by the Pledgor or any other Person.
(c) The Trustee appoints the Collateral Agent as its agent and securities
intermediary hereunder, and the Collateral Agent accepts such appointment and
agrees to act as agent and securities intermediary for the Trustee with respect
to the Pledged Securities, without cost or expense to the Trustee. The
Collateral Agent will, no later than the Business Day immediately following the
date hereof, completely and accurately identify on its books and records the
Pledged Securities being held in the Pledge Account. In addition, the Collateral
Agent will, upon the Trustee's written request given at any time to the
Collateral Agent, either (a) deliver to the Trustee possession of duly issued
certificates evidencing the Pledged Securities registered in the name of the
Trustee or its nominee or designee, or (b) transfer the Pledged Securities to an
account at the Collateral Agent or to another financial intermediary designated
by the Trustee in the name of the Trustee. In the event that the Pledgor shall
be entitled to receive or acquire any distribution, in any form whatsoever,
including, without limitation, cash and non-cash dividends and interest, in
respect of the Pledged Securities, the Collateral Agent agrees that it shall
hold the same as agent and securities intermediary for the Trustee subject to
the terms hereof and the written instructions of the Trustee.
3. Security for Obligations. This Pledge Agreement and the Collateral
secure the prompt and complete payment and performance when due (whether at
stated maturity, by acceleration or otherwise) of all of the Obligations.
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4. Delivery of Collateral; Pledge Account; Interest; Substitution of
Collateral
(a) If and to the extent the Pledged Securities comprise "certificated
securities," as defined in Section 8-102 of the UCC, such securities shall be
registered in the name of the Collateral Agent or its nominee for the benefit of
the holders of the Notes and delivered to the Collateral Agent or its custodian
in the State of New York, and possession thereof shall be maintained by the
Collateral Agent within the State of New York.
(b) All Government Securities included in the Collateral shall be
registered in the name of the Collateral Agent or its nominee for the benefit of
the holders of the Notes on the records of the Federal Reserve Bank of New York
and credited in the books and records of the Collateral Agent to the Pledge
Account. All other uncertificated securities, if any, included in the Collateral
shall be registered on the books of the issuer of such uncertificated securities
in the name of the Collateral Agent or its nominee for the benefit of the
holders of the Notes, and credited in the books and records of the Collateral
Agent to the Pledge Account.
(c) Concurrently with the execution and delivery of this Pledge Agreement,
the Collateral Agent shall establish an account entitled the "PLEDGE ACCOUNT FOR
THE BENEFIT OF HOLDERS OF __% NOTES DUE 2009 OF PAC-WEST TELECOMM, INC." for the
deposit of the Pledged Securities (the "Pledge Account") at its office at
Norwest Center, 6th and Marquette, Minneapolis, MN 55479-0069. The Pledge
Account is and shall be maintained as a "securities account" within the meaning
of Article 8 of the UCC, and the Collateral Agent will treat all property held
by it in the Pledge Account as "financial assets" under Article 8-501(a) of the
UCC. Subject to the other terms and conditions of this Pledge Agreement, all
funds or other property accepted by the Collateral Agent pursuant to this Pledge
Agreement shall be held in the Pledge Account for the ratable benefit of the
holders of the Notes. All proceeds of the Pledged Securities shall remain on
deposit in the Pledge Account until withdrawn in accordance with this Pledge
Agreement.
(d) All proceeds of, interest earned on and other distributions or amounts
paid with respect to, any Collateral shall be credited to and retained in the
Pledge Account, and the Collateral Agent shall invest and reinvest the same as
directed from time to time in writing by the Pledgor; provided, however, that
such proceeds and other amounts must be invested in Government Securities. In
all events, any monies so invested or reinvested and any securities acquired
thereby shall be (i) held as Collateral in the Pledge Account, (ii) subject in
all respects to the security interest created hereby and shall be and remain
under the control of the Collateral Agent, and (iii) otherwise subject to the
terms hereof.
(e) The parties acknowledge that the Collateral Agent shall not be
responsible for any diminution in the Pledge Account due to losses resulting
from investments. The Collateral Agent may use its own Investment Department in
executing purchases and sales of permissible investments.
5. Disbursements
(a) The Collateral Agent shall transfer, on each date when one of the first
two (2) scheduled interest payments is due on the Notes and without notice from
the Pledgor, from the Pledge Account to the Paying Agent under the Indenture,
funds necessary to provide for payment in full or of any portion of
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the next scheduled interest payment on the Notes and the Paying Agent shall
apply the proceeds to such interest payment.
(b) If at any time the amount of Collateral exceeds the amount sufficient,
in the opinion of a nationally recognized firm of independent certified public
accountants selected by the Pledgor, to provide for payment in full of the first
two (2) scheduled interest payments due on the Notes then outstanding (or, in
the event any of the first two (2) interest payments have been made on the
Notes, an amount sufficient to provide for payment in full of all interest
payments then remaining up to and including the second scheduled interest
payment on the Notes then outstanding), the Pledgor may direct the Collateral
Agent in writing to release to the Pledgor, or as the Pledgor directs, an amount
less than or equal to such excess. Upon receipt of such written direction from
the Pledgor, together with the opinion of a nationally recognized firm of
independent certified public accountants with respect to the value of the
Pledged Securities, the Collateral Agent shall take such action as is necessary
to provide for the payment to the Pledgor of the amount requested from the
Pledge Account.
(c) Immediately following the earlier of (i) the payment in full of the
first two (2) scheduled interest payments on the Notes, and (ii) the day on
which all of the Notes have been repurchased, redeemed or defeased, if no
Default or Event of Default is continuing, the security interest in the
Collateral evidenced by this Pledge Agreement shall terminate and be of no
further force and effect, and any and all Collateral in the Pledge Account shall
be released and transferred by the Collateral Agent to the Pledgor in accordance
with the Pledgor's written instructions. Furthermore, upon release of any
Collateral from the Pledge Account in accordance with the terms of this Pledge
Agreement, whether upon release of Collateral to the Paying Agent, to the
Pledgor or otherwise, the security interest evidenced by this Pledge Agreement
in the Collateral so released shall terminate and be of no further force and
effect.
6. Representations and Warranties. The Pledgor hereby represents and
warrants that:
(a) The execution, delivery and performance by the Pledgor of this Pledge
Agreement has been duly authorized by all necessary corporate action and does
not contravene or constitute a default under any provision of applicable law,
regulation or the certificate of incorporation or the bylaws of the Pledgor, or
of any judgment, injunction, order, decree or any material agreement or
instrument binding upon the Pledgor, and does not result in the creation or
imposition of any Lien on any asset of the Pledgor, except for the security
interests granted under this Pledge Agreement.
(b) This Pledge Agreement has been duly executed and delivered by the
Pledgor and constitutes a valid and binding obligation of the Pledgor,
enforceable against the Pledgor in accordance with its terms, except as such
enforceability may be limited by the effect of any applicable bankruptcy,
insolvency, reorganization, fraudulent conveyances, moratorium or other similar
laws affecting creditors' rights generally or general principles of equity .
(c) The Pledgor is the record and beneficial owner of the Collateral, free
and clear of any Lien or claims of any Person (except for the security interest
granted under this Pledge Agreement). No financing statement covering the
Pledged Securities is on file in any public office, other than financing
statements filed pursuant to this Pledge Agreement.
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(d) Upon the delivery to the Collateral Agent of the certificates, if any,
representing the Pledged Securities, any filing of financing statements required
by the UCC and notation on the records of the Collateral Agent that it holds the
Pledged Securities as pledgee, the pledge of the Collateral pursuant to this
Pledge Agreement creates a valid and perfected first priority security interest
in and to the Collateral, securing the payment and performance of the
Obligations for the ratable benefit of the holders of the Notes, enforceable as
such against all creditors of the Pledgor and any Persons purporting to purchase
any of the Collateral from the Pledgor.
(e) No consent of any other Person and no consent, authorization, approval,
or other action by, and no notice to or filing with, any governmental authority
or regulatory body, is required either (i) for the pledge by the Pledgor of the
Collateral pursuant to this Pledge Agreement or for the execution, delivery or
performance of this Pledge Agreement by the Pledgor (except for any filings and
notations necessary to perfect the security interest created hereby in the
Collateral) or (ii) for the exercise by the Collateral Agent of the rights
provided for in this Pledge Agreement or the remedies in respect of the
Collateral pursuant to this Pledge Agreement.
(f) No litigation, proceeding or investigation of or before any arbitrator
or governmental authority is pending or, to the knowledge of the Pledgor,
threatened by or against the Pledgor with respect to this Pledge Agreement or
any of the transactions contemplated hereby.
(g) The pledge of the Collateral pursuant to this Pledge Agreement is not
prohibited by any applicable law or government regulation, release,
interpretation or opinion of the Board of Governors of the Federal Reserve
System or other regulatory agency (including, without limitation, Regulations T,
U and X of the Board of Governors of the Federal Reserve System).
7. Further Assurances. The Pledgor agrees promptly to take such actions and
to execute and deliver or cause to be executed and delivered, or use its best
efforts to procure, such stock or bond powers, proxies, assignments, instruments
and such other or different writings as the Collateral Agent may reasonably
request, all in form and substance satisfactory to the Collateral Agent, deliver
any instruments to the Collateral Agent and take any other actions that are
necessary to perfect, continue the perfection of, confirm and assure the first
priority of the Collateral Agent's security interest in the Collateral, to
protect the Collateral against the rights, claims or interests of third persons,
or to otherwise effect the purposes of this Pledge Agreement. The Pledgor also
hereby authorizes the Collateral Agent to file any financing or continuation
statements with respect to the Collateral without the signature of the Pledgor
(to the extent permitted by applicable law). The Pledgor will pay all costs
incurred by the Collateral Agent in connection with any of the foregoing.
8. Covenants. The Pledgor covenants and agrees with the Collateral Agent
and the holders of the Notes from and after the date of this Pledge Agreement
until the earlier of payment in full in cash of (A) each of the first two (2)
scheduled interest payments due on the Notes under the terms of the Indenture or
(B) all Obligations due and owing under the Indenture and the Notes in the event
such Obligations become due and payable prior to the payment of the first two
(2) scheduled interest payments on the Notes, as follows:
(a) The Pledgor agrees that it (i) will not sell or otherwise dispose of,
or grant any option or other interest with respect to, any of the Collateral,
(ii) will not create or permit to exist any Lien upon or
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with respect to any of the Collateral, except for the Liens created pursuant to
this Pledge Agreement, and (iii) will at all times be the sole beneficial owner
of the Collateral.
(b) The Pledgor agrees that it will not (i) enter into any agreement or
understanding that purports to or may restrict or inhibit the Collateral Agent's
rights or remedies hereunder, including, without limitation, the Collateral
Agent's right to sell or otherwise dispose of the Collateral, or (ii) with
regard to the Collateral, fail to pay or discharge any tax, assessment or levy
of any nature due with respect thereto later than five days prior to the date of
any proposed sale under any judgment, writ or warrant of attachment.
9. Power of Attorney
(a) The Pledgor hereby appoints and constitutes the Collateral Agent as the
Pledgor's attorney-in-fact with full power of substitution to exercise to the
fullest extent permitted by law all of the following powers upon and at any time
after the occurrence and during the continuance of an Event of Default :
(i) collection of proceeds of any Collateral;
(ii) conveyance of any item of Collateral to any purchaser thereof as
specified herein;
(iii) giving of any notices or recording of any Liens pursuant to Section 7
hereof;
(iv) making any payments or taking any acts pursuant to Section 10 hereof;
(v) paying or discharging taxes or Liens levied or placed upon the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by the Collateral Agent in its sole
discretion, and any such payments made by the Collateral Agent shall become
Obligations of the Pledgor to the Collateral Agent, due and payable immediately
upon demand; and
(vi) taking any acts pursuant to Section 13 hereof.
(b) The Collateral Agent's authority under this Section 9 shall include,
without limitation, the authority to endorse and negotiate any checks or
instruments representing proceeds of Collateral in the name of the Pledgor,
execute and give receipt for any certificate of ownership or any document
constituting Collateral, transfer title to any item of Collateral, to the extent
permitted by applicable law, sign the Pledgor's names on all financing
statements or any other documents deemed necessary or appropriate by the
Collateral Agent to preserve, process or perfect the security interest in the
Collateral, and to file the same, and to prepare, sign the Pledgor's name and
file any notice of Lien, and to take any other actions arising from or incident
to the powers granted to the Collateral Agent in this Pledge Agreement. This
power of attorney is coupled with an interest and shall be irrevocable by the
Pledgor.
(c) The Pledgor acknowledges that the rights and responsibilities of the
Collateral Agent under this Pledge Agreement with respect to any action taken by
the Collateral Agent or the exercise or non-exercise by the Collateral Agent of
any option, right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Pledge Agreement shall, as between
the Collateral
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Agent and the holders of the Notes, be governed by this Pledge Agreement, but,
as between the Collateral Agent and the Pledgor, the Collateral Agent shall be
conclusively presumed to be acting as agent for the holders of the Notes with
full and valid authority so to act or refrain from acting, and the Pledgor shall
not be obligated or entitled to make any inquiry respecting such authority.
(d) The Collateral Agent undertakes to perform such duties and only such
duties as are specifically set forth in this Pledge Agreement and no implied
covenants or obligations shall be read into this Pledge Agreement against the
Collateral Agent. The Collateral Agent shall not be deemed to have knowledge of
an Event of Default under the Indenture unless informed in writing by the
Pledgor or the holder of any Note.
(e) The Collateral Agent shall not be required to exercise any remedies
hereunder unless requested in writing to do so by the holders of a majority in
principal amount of the outstanding Notes and only if furnished with indemnity
reasonably satisfactory to the Collateral Agent. The Collateral Agent may
consult with counsel and shall not be liable for any action taken in good faith
in reliance upon advice of counsel except for gross negligence or willful
misconduct. The Collateral Agent makes no representation or warranty and shall
have not responsibility concerning the value or validity of the Collateral or
the validity or perfection of the pledge thereof or any security interest
therein. The provisions of Section 7.02(a)(i) of the Indenture are incorporated
herein by reference.
(f) The Collateral Agent may at any time on 30 days notice to the Pledgor
and the holders of the Notes resign hereunder. Upon any such resignation the
Pledgor shall promptly appoint another financial institution reasonably
satisfactory to the holders of a majority in principal amount or the outstanding
Notes to act as Collateral Agent hereunder and such resignation shall become
effective upon the acceptance of the appointment by the successor.
(g) The Collateral Agent shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which a prudent
financial institution similarly situated would accord its own property, it being
understood that neither the Collateral Agent nor the holders of the Notes shall
have responsibility for (i) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not any such Person has or is deemed to have knowledge of
such matters, or (ii) taking any necessary steps to preserve rights against any
parties with respect to any Collateral.
10. Collateral Agent May Perform. If the Pledgor fails to perform any
agreement contained herein, the Collateral Agent may, but shall not be obligated
to, itself perform or cause performance of such agreement, and the expenses
incurred by or on behalf of the Collateral Agent in connection therewith shall
be payable by the Pledgor under Section 14 hereof.
11. No Assumption of Duties. The rights and powers granted to the
Collateral Agent hereunder are being granted in order to preserve and protect
the security interest of the Collateral Agent and the holders of Notes in and to
the Collateral granted hereby and shall not be interpreted to, and shall not,
impose any duties on the Collateral Agent in connection therewith other than
those imposed under applicable law.
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12. Indemnity. The Pledgor shall indemnify, defend and hold harmless the
Collateral Agent and its directors, officers, agents and employees from and
against all claims, actions, obligations, losses, liabilities and expenses,
including reasonable costs, fees and disbursements of counsel, the costs of
investigations, and claims for damages, arising from the Collateral Agent's
performance under this Pledge Agreement, except insofar as the same may have
been caused by the gross negligence or willful misconduct of such indemnified
Person. The obligations of the Pledgor under this Section 12 shall survive the
resignation or removal of the Collateral Agent or the termination of this Pledge
Agreement.
13. Remedies upon Event of Default. If an Event of Default shall have
occurred:
(a) Upon the acceleration of the Notes in accordance with the terms of the
Indenture, the Collateral Agent shall have and may exercise with reference to
the Collateral any or all of the rights and remedies of a secured party under
the UCC, and as otherwise granted herein or under any other applicable law or
under any other agreement executed by Pledgor, including, without limitation,
the right and power to sell, at public or private sale or sales, or otherwise
dispose of, or otherwise utilize the Collateral and any part or parts thereof,
in any manner authorized or permitted under the UCC after default by a debtor,
and to apply the proceeds thereof toward payment of any costs and expenses and
attorneys' fees and expenses thereby incurred by the Collateral Agent and toward
payment of the Obligations in such order or manner as the Collateral Agent may
elect. The purchaser of any or all Collateral so sold shall thereafter hold the
same absolutely, free from any claim, encumbrance or right of any kind
whatsoever created by or through the Pledgor. Unless any of the Collateral
threatens, in the reasonable judgment of the Collateral Agent, to decline
speedily in value or is or becomes of a type sold on a recognized market, the
Collateral Agent shall give the Pledgor reasonable notice of the time and place
of any public sale thereof, or of the time after which any private sale or other
intended disposition is to be made. Any sale of the Collateral conducted in
conformity with reasonable commercial practices of banks, insurance companies,
commercial finance companies, or other financial institutions disposing of
property similar to the Collateral shall be deemed to be commercially
reasonable. Any requirements of reasonable notice shall be met if such notice is
mailed to the Pledgor as provided in Section 17 herein, at least fifteen (15)
days before the time of the sale or disposition. The Collateral Agent or any
holder of Notes may, in its own name or in the name of a designee or nominee,
buy any of the Collateral at any public sale and, if permitted by applicable
law, at any private sale. All expenses (including court costs and reasonable
attorneys' fees, expenses and disbursements) of, or incident to, the enforcement
of any of the provisions hereof shall be recoverable from the proceeds of the
sale or other disposition of the Collateral.
(b) The Pledgor further agrees to use its best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Collateral pursuant to this Section 13 valid and binding
and in compliance with any and all other applicable requirements of law. The
Pledgor further agrees that a breach of any of the covenants contained in this
Section 13 will cause irreparable injury to the Collateral Agent and the holders
of Notes, that the Collateral Agent and the holders of Notes have no adequate
remedy at law in respect of such breach and, as a consequence, that each and
every covenant contained in this Section 13 shall be specifically enforceable
against the Pledgor, and the Pledgor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants, except
for a defense that no Event of Default has occurred.
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(c) All rights to marshaling of assets of the Pledgor, including any such
right with respect to the Collateral, are hereby waived by the Pledgor. The
Pledgor shall not contest or support any other Person in contesting the validity
or priority of the security interests created under this Pledge Agreement.
14. Fees and Expenses. The Pledgor shall, upon demand, pay to the
Collateral Agent the amount of its fees (which shall be in an amount previously
agreed by the Pledgor and the Collateral Agent) and any and all expenses
(including, without limitation, the reasonable fees, expenses and disbursements
of counsel, experts and agents retained by the Collateral Agent) that the
Collateral Agent may incur in connection with (i) the administration of this
Pledge Agreement, (ii) the custody or preservation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Collateral Agent and the
holders of the Notes hereunder, or (iv) the failure by the Pledgor to perform or
observe any of the provisions hereof.
15. Security Interest Absolute. All rights of the Collateral Agent and
the holders of the Notes, and the security interests created hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Indenture or any other
agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations, or any other amendment or waiver of or
any consent to any departure from the Indenture;
(c) any exchange, surrender, release or non-perfection of any Liens on any
other Collateral for all or any of the Obligations; or
(d) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Pledgor in respect of the Obligations or of
this Pledge Agreement.
16. Authority of the Collateral Agent. The Collateral Agent shall have and
be entitled to exercise all powers hereunder that are specifically granted to
the Collateral Agent by the terms hereof, together with such powers as are
incident thereto. The Collateral Agent may perform any of its duties hereunder
or in connection with the Collateral by or through agents or employees and shall
be entitled to retain counsel and to act in reliance upon the advice of counsel
concerning all such matters. None of the Collateral Agent, any director,
officer, employee, attorney or agent of the Collateral Agent nor any holder of
the Notes shall be liable to the Pledgor for any action taken or omitted to be
taken by it or them hereunder, except for its own bad faith, gross negligence or
willful misconduct, nor shall the Collateral Agent be responsible for the
legality, validity, effectiveness or sufficiency hereof or of any document or
security furnished pursuant hereto. The Collateral Agent and its directors,
officers, employees, attorneys and agents shall be entitled to rely on any
communication, instrument or document believed by it or them to be genuine and
correct and to have been signed or sent by the proper Person or Persons. The
Collateral Agent and its directors, officers, employees, attorneys and agents
shall be entitled to rely on the opinion of a nationally recognized firm of
independent certified public accountants with respect to the dollar amount of
the Pledged Securities.
E-9
<PAGE>
17. Notices. Any communication, notice or demand to be given hereunder
shall be duly given hereunder if given in the form and manner, and delivered to
the address set forth in the Indenture, or in such other form and manner or to
such other address as shall be designated by any party hereto to each other
party hereto in a written notice delivered in accordance with the terms of the
Indenture.
18. No Waiver; Cumulative Rights. No failure on the part of the Collateral
Agent to exercise, and no delay in exercising, any right, remedy or power
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise by the Collateral Agent of any right, remedy or power hereunder
preclude any other or future exercise of any other right, remedy or power. Each
and every right, remedy and power hereby granted to the Collateral Agent or
allowed it by law or other agreement shall be cumulative and not exclusive the
one of any other, and may be exercised by the Collateral Agent from time to
time.
19. Benefits of Pledge Agreement. Nothing in this Pledge Agreement, whether
express or implied, shall give to any Person other than the parties hereto and
their successors hereunder, and the holders of the Notes, any benefit or any
legal or equitable right, remedy or claim under this Pledge Agreement.
20. Applicable Law; Consent to Jurisdiction; Waiver of Jury Trial. (a) THIS
PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK. THE PLEDGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE
VENUE OF ANY LITIGATION BETWEEN THE PLEDGOR AND THE COLLATERAL AGENT IN
ACCORDANCE WITH THIS PARAGRAPH. EACH OF THE PLEDGOR AND THE COLLATERAL AGENT
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING THAT IN ANY MANNER ARISES OUT OF OR IN CONNECTION
WITH OR IS IN ANY WAY RELATED TO THIS PLEDGE AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREIN.
(b) THE PROVISIONS OF THIS SECTION 20 ARE A MATERIAL INDUCEMENT FOR THE
COLLATERAL AGENT ENTERING INTO THIS PLEDGE AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY. THE PLEDGOR HEREBY ACKNOWLEDGES THAT IT HAS REVIEWED THE
PROVISIONS OF THIS SECTION 20 WITH INDEPENDENT COUNSEL.
21. Calculation of Interest. For purposes of this Pledge Agreement, all
calculations of the first two (2) scheduled interest payments on the Notes shall
be calculated on the basis that interest will accrue on the Notes at the rate of
13.5% per annum and will be payable semi-annually in arrears on August 1, 1999
and February 1, 2000. Interest on the Notes will be computed on the basis of a
360-day year comprised of twelve 30-day months.
22. Execution in Counterparts. This Pledge Agreement may be executed in any
number of counterparts, each of which shall be an original, but such
counterparts shall together constitute one and the same instrument.
E-10
<PAGE>
23. Settlement. Amounts, if any, held in the Pledge Account pending
settlement of purchase of the Pledged Securities shall constitute Collateral
hereunder, shall be held by the Collateral Agent for the benefit of the holders
of the Notes and a portion thereof equal to the aggregate price paid for such
Pledged Securities shall be released by the Collateral Agent (without further
direction or instruction required from any other party hereto) against delivery
of such Pledged Securities, and any excess funds remaining in the Pledge Account
after giving effect to such settlement shall be promptly forwarded pursuant to
written instructions of the Company.
Signature page follows
E-11
<PAGE>
Exhibit 4.4
A/B EXCHANGE
REGISTRATION RIGHTS AGREEMENT
Dated as of January 29, 1999
by and among
Pac-West Telecomm, Inc.
and
Nationsbanc Montgomery Securities, LLC
CIBC Oppenheimer Corp.
First Union Capital Markets
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of "Agreement") January 29, 1999, by and among Pac-West
Telecomm, Inc., a California corporation (the "Company"), and Nationsbanc
Montgomery Securities LLC, CIBC Oppenheimer Corp. and First Union Capital
Markets, a division of Wheat First Securities, Inc. (each an "Initial Purchaser"
and, collectively, the "Initial Purchasers"), each of whom has agreed to
purchase the Company's 13.5% Senior Notes due 2009 (the "Series A Notes")
pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
January 27, 1999 (the "Purchase Agreement"), by and among the Company and the
Initial Purchasers. In order to induce the Initial Purchasers to purchase the
Series A Notes, the Company has agreed to provide the registration rights set
forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers set forth in Section 5 of
the Purchase Agreement. Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to them the Indenture, dated the date hereof
among the Company and Norwest Bank Minnesota, National Assocation, as Trustee,
relating to the Series A Notes and the Series B Notes (the "Indenture").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Affiliate: As defined in Rule 144 of the Act.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Certificated Securities: Definitive Notes, as defined in the
Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Series B Notes in the same aggregate
principal amount as the aggregate principal amount of Series A Notes tendered by
Holders thereof pursuant to the Exchange Offer.
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<PAGE>
Consummation Deadline: As defined in Section 3(b) hereof.
Effectiveness Deadline: As defined in Section 3(a) and 4(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The exchange and issuance by the Company of a
principal amount of Series B Notes (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal amount
of Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Series A Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act, and pursuant to Regulation S
under the Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
Holders: As defined in Section 2 hereof.
Prospectus: The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
relating to (a) an offering of Series B Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case (i) that is filed pursuant to the
provisions of this Agreement and (ii) including the Prospectus included therein,
all amendments and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.
Regulation S: Regulation S promulgated under the Act.
Rule 144: Rule 144 promulgated under the Act.
Series B Notes: The Company's 13.5% Series B Senior Notes due 2009 to
be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii) as
contemplated by Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
3
<PAGE>
Suspension Notice: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Securities: (i) Each Series A Note, until the
earliest to occur of (a) the date on which such Series A Note is exchanged in
the Exchange Offer for a Series B Note which is entitled to be resold to the
public by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (b) the date on which such Series A Note has been
disposed of in accordance with a Shelf Registration Statement, or (c) the date
on which such Series A Note is distributed to the public pursuant to Rule 144
under the Act and (ii) each Series B Note acquired by a Broker-Dealer in
exchange for a Series A Note acquired for its own account as a result of market
making activities or other trading activities until the date on which such
Series B Note is disposed of by a Broker-Dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration Statement
(including the delivery of the Prospectus contained therein).
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company shall (i) cause the Exchange Offer Registration
Statement to be filed with the Commission as soon as reasonably practicable
after the Closing Date, but in no event later 90 days after the Closing Date
(such 90th day being the "Filing Deadline"), (ii) use its reasonable best
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest possible time, but in no event later than 180 days after the
Closing Date (such 180th day being the "Effectiveness Deadline"), (iii) in
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting (i) registration of the Series B Notes to be offered
in exchange for the Series A Notes that are Transfer Restricted Securities and
(ii) resales of Series B Notes by Broker-Dealers that tendered into the Exchange
Offer Series A Notes that such Broker-Dealer acquired for its own account as a
result of market making activities or other trading activities (other than
Series A Notes acquired directly from the Company or any of its Affiliates) as
contemplated by Section 3(c) below.
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<PAGE>
(b) The Company shall use its reasonable best efforts to cause the
Exchange Offer Registration Statement to be effective continuously, and shall
keep the Exchange Offer open for a period of not less than the minimum period
required under applicable federal and state securities laws to Consummate the
Exchange Offer; provided, however, that in no event shall such period be less
than 20 business days. The Company shall cause the Exchange Offer to comply
with all applicable federal and state securities laws. No securities other than
the Series B Notes shall be included in the Exchange Offer Registration
Statement. The Company shall use its reasonable best efforts to cause the
Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 30 business days thereafter (such 30th business day being the
"Consummation Deadline").
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any Affiliate of the Company), may exchange such
Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales by such Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy, rules or regulations after the
date of this Agreement.
Because such Broker-Dealer may be deemed to be an "underwriter" within
the meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer, the Company shall
permit the use of the Prospectus contained in the Exchange Offer Registration
Statement by such Broker-Dealer to satisfy such prospectus delivery requirement.
To the extent necessary to ensure that the Prospectus contained in the Exchange
Offer Registration Statement is available for sales of Series B Notes by Broker-
Dealers, the Company agrees to use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented, amended and current
as required by and subject to the provisions of Section 6(a) and (c) hereof and
in conformity with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of one year from the date on which the Exchange Offer is Consummated or
such shorter period as will terminate when all Transfer Restricted Securities
covered by such Registration Statement have been sold pursuant thereto. The
Company shall provide sufficient copies of the latest version of such Prospectus
to such Broker-Dealers, promptly upon request, and in no event later than one
day after such request, at any time during such period.
5
<PAGE>
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted
by applicable law (after the Company has complied with the procedures set forth
in Section 6(a)(i) below) or (ii) if any Holder of Transfer Restricted
Securities shall notify the Company within 20 business days following the
Consummation of the Exchange Offer that (A) such Holder was prohibited by law or
Commission policy from participating in the Exchange Offer or (B) such Holder
may not resell the Series B Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds Series A
Notes acquired directly from the Company or any of its Affiliates, then the
Company shall:
(x) cause to be filed, on or prior to 30 days after the earlier of
(i) the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above and
(ii) the date on which the Company receives the notice specified in clause
(a)(ii) above (such earlier date, the "Filing Deadline"), a shelf registration
statement pursuant to Rule 415 under the Act (which may be an amendment to the
Exchange Offer Registration Statement (the "Shelf Registration Statement")),
relating to all Transfer Restricted Securities (provided, that nothing in this
Section 4(a)(x) shall be interpreted as requiring the filing of the Shelf
Registration Statement prior to the Filing Deadline for the Exchange Offer
Regulation Statement), and
(y) shall use its reasonable best efforts to cause such Shelf
Registration Statement to become effective on or prior to 90 days after the
Filing Deadline for the Shelf Registration Statement (such 90th day the
"Effectiveness Deadline").
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law (i.e.,
clause (a)(i) above), then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above;
provided that, in such event, the Company shall remain obligated to meet the
Effectiveness Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration
Statement is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a) and the other
securities required to be registered therein pursuant to Section 6(b)(ii)
hereof, the Company shall use its best efforts to keep any Shelf Registration
Statement required by this Section 4(a) continuously effective, supplemented,
amended and current as required by and subject to the provisions of Sections
6(b) and (c) hereof and in conformity with the requirements of this Agreement,
the Act and the policies, rules and regulations of the Commission as announced
from time to time, for a period of at least two years (as extended pursuant to
Section 6(c)(i)) following the Closing Date, or such shorter period as will
terminate
6
<PAGE>
when all Transfer Restricted Securities covered by such Shelf Registration
Statement have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. By its acceptance of Transfer Restricted Securities, each Holder
agrees to promptly furnish additional information required to be disclosed in
order to make the information previously furnished to the Company by such Holder
not materially misleading. The Company shall not be obligated to supplement
such Shelf Registration Statement after it has been declared effectively by the
Commission more than one time per quarterly period to reflect additional
Holders.
SECTION 5. ADDITIONAL INTEREST
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation Deadline
or (iv) any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded within five business
days by a post-effective amendment to such Registration Statement that cures
such failure and that is itself declared effective within ten business days of
filing such post-effective amendment to such Registration Statement (each such
event referred to in clauses (i) through (iv), a "Registration Default"), then
the Company hereby agrees to pay to each Holder of Transfer Restricted
Securities affected thereby (subject to Section 4(b)) additional interest in an
amount equal to $.05 per week per $1,000 in principal amount of Transfer
Restricted Securities held by such Holder for each week or portion thereof that
the Registration Default continues for the first 90-day period immediately
following the occurrence of such Registration Default. The amount of the
liquidated damages shall increase by an additional $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of additional interest of $.50 per week per $1,000 in principal
amount of Transfer Restricted Securities; provided that the Company shall in no
event be required to pay liquidated damages for more than one Registration
Default at any given time. Notwithstanding anything to the contrary set forth
herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (i) above, (2)
upon the effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the
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<PAGE>
Registration Statement or an additional Registration Statement that causes the
Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement) to again be declared effective or made usable in the
case of (iv) above, the additional interest payable with respect to the Transfer
Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as
applicable, shall cease.
All accrued additional interest shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which additional
interest is due cease to be Transfer Restricted Securities, all obligations of
the Company to pay additional interest with respect to securities shall survive
until such time as such obligations with respect to such securities shall have
been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall (x) comply with all applicable provisions of
Section 6(c) below, (y) use its reasonable best efforts to effect such exchange
and to permit the resale of Series B Notes by any Broker-Dealer that tendered
Series A Notes in the Exchange Offer that such Broker-Dealer acquired for its
own account as a result of its market making activities or other trading
activities (other than Series A Notes acquired directly from the Company or any
of its Affiliates) being sold in accordance with the intended method or methods
of distribution thereof, and (z) comply with all of the following provisions:
(i) If, following the date hereof there has been announced a change
in Commission policy with respect to exchange offers such as the Exchange
Offer, that in the reasonable opinion of counsel to the Company raises a
substantial question as to whether the Exchange Offer is permitted by
applicable federal law, the Company hereby agrees to seek a no-action letter
or other favorable decision from the Commission allowing the Company to
Consummate an Exchange Offer for such Transfer Restricted Securities. The
Company hereby agrees to pursue the issuance of such a decision to the
Commission staff level. In connection with the foregoing, the Company hereby
agrees to take all such other reasonable actions as may be requested by the
Commission or otherwise required in connection with the issuance of such
decision, including without limitation (A) participating in telephonic
conferences with the Commission staff, (B) delivering to the Commission
staff an analysis prepared by counsel to the Company setting forth the legal
bases, if any, upon which such counsel has concluded that such an Exchange
Offer should be permitted and (C) diligently pursuing a resolution (which
need not be favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange Offer, each
Holder of Transfer Restricted Securities (including, without limitation, any
Holder who is a Broker Dealer) shall furnish, upon the request of the
Company, prior to the Consummation of the Exchange Offer, a written
representation to the Company (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement) to
the
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<PAGE>
effect that (A) it is not an Affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the
Series B Notes to be issued in the Exchange Offer and (C) it is acquiring
the Series B Notes in its ordinary course of business. Each Holder using
the Exchange Offer to participate in a distribution of the Series B Notes
will be required to acknowledge and agree that, if the resales are of
Series B Notes obtained by such Holder in exchange for Series A Notes
acquired directly from the Company or an Affiliate thereof, it (1) could
not, under Commission policy as in effect on the date of this Agreement,
rely on the position of the Commission enunciated in Morgan Stanley and
Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation
(available May 13, 1988), as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and similar no-action letters
(including, if applicable, any no-action letter obtained pursuant to clause
(i) above), and (2) must comply with the registration and prospectus
delivery requirements of the Act in connection with a secondary resale
transaction and that such a secondary resale transaction must be covered by
an effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the Commission
(A) stating that the Company is registering the Exchange Offer in reliance
on the position of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and, if applicable, any no-action
letter obtained pursuant to clause (i) above, (B) including a representation
that the Company has not entered into any arrangement or understanding with
any Person to distribute the Series B Notes to be received in the Exchange
Offer and that, to the best of the Company's information and belief, each
Holder participating in the Exchange Offer is acquiring the Series B Notes
in its ordinary course of business and has no arrangement or understanding
with any Person to participate in the distribution of the Series B Notes
received in the Exchange Offer and (C) any other undertaking or
representation required by the Commission as set forth in any no-action
letter obtained pursuant to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall:
(i) comply with all the provisions of Section 6(c) and 6(d) below and
use its reasonable best efforts to effect such registration to permit the
sale of the Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof (as indicated in the
information furnished to the Company pursuant to Section 4(b) hereof), and
pursuant thereto the Company will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted
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<PAGE>
Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in accordance
with the provisions hereof; and
(ii) issue, upon the request of any Holder or purchaser of Series A
Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to the
aggregate principal amount of Series A Notes sold pursuant to the Shelf
Registration Statement and surrendered to the Company for cancellation; the
Company shall register Series B Notes on the Shelf Registration Statement
for this purpose and issue the Series B Notes to the purchaser(s) of
securities subject to the Shelf Registration Statement in the names as such
purchaser(s) shall designate.
(c) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement, the Company
shall:
(i) use its reasonable best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement, as
applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain
an untrue statement of material fact or omit to state any material fact
necessary to make the statements therein not misleading or (B) not to be
effective and usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Company shall file promptly an
appropriate amendment to such Registration Statement curing such defect,
and, if Commission review is required, use its reasonable best efforts to
cause such amendment to be declared effective as soon as reasonably
practicable; if at any time the Commission shall issue any stop order
suspending the effectiveness of any Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the
Transfer Restricted Securities under state securities or Blue Sky laws, the
Company shall use its reasonable best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time;
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the applicable Registration Statement as may be
necessary to keep such Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as the case may be; cause the
Prospectus to be supplemented by any required Prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the Act, and to
comply fully with Rules 424, 430A and 462, as applicable, under the Act in
a timely manner; and comply with the provisions of the Act with respect to
the disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the
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Holders to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and to register such Transfer Restricted Securities in
such denominations and such names as the selling Holders may request at
least two business days prior to such sale of Transfer Restricted
Securities (provided that such Holders give the Company notice of such sale
at least 5 business days prior to such sale);
(iv) use its reasonable best efforts after receipt of appropriate
notice from a seller or sellers to cause the disposition of the Transfer
Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Transfer Restricted Securities;
provided, however, that the Company shall not be required to register or
qualify as a foreign corporation where it is not now so qualified or to
take any action that would subject it to the service of process in suits or
to taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so subject;
(v) provide a CUSIP number for all Transfer Restricted Securities not
later than the effective date of a Registration Statement covering such
Transfer Restricted Securities and provide the Trustee under the Indenture
with certificates for the Transfer Restricted Securities which are in a
form eligible for deposit with The Depository Trust Company and Euroclear
and Cedel;
(vi) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as reasonably practicable, a consolidated
earnings statement meeting the requirements of Rule 158 (which need not be
audited) covering a twelve-month period beginning after the effective date
of the Registration Statement (as such term is defined in paragraph (c) of
Rule 158 under the Act); and
(vii) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee and
the Holders to effect such changes to the Indenture as may be required for
such Indenture to be so qualified in accordance with the terms of the TIA;
and execute and use its reasonable best efforts to cause the Trustee to
execute, all documents that may be required to effect such changes and all
other forms and documents required to be filed with the Commission to
enable such Indenture to be so qualified in a timely manner.
(d) Additional provisions applicable to Shelf Registration Statements
and Certain Exchange Offer Prospectuses. In connection with each Shelf
Registration Statement, and each Exchange Offer Registration Statement if and to
the extent that an Initial Purchaser has notified the Company that it is a
holder of Series B Notes that are Transfer Restricted Securities
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(for so long as such Series B Notes are Transfer Restricted Securities or for
the period provided in Section 3, whichever is shorter), the Company shall:
(i) advise each Holder known to the Company promptly and, if
requested by such Holder, confirm such advice in writing, (A) when the
applicable Registration Statement or any post-effective amendment thereto,
has become effective under the Act, (B) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement under the Act or of the suspension by any state securities
commission of the qualification of the Transfer Restricted Securities for
offering or sale in any jurisdiction, or the initiation of any proceeding
for any of the preceding purposes, (C) of the existence of any fact or the
happening of any event that makes any statement of a material fact made in
the Registration Statement, the Prospectus, any amendment or supplement
thereto or any document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the Registration
Statement in order to make the statements therein not misleading, or that
requires the making of any additions to or changes in the Prospectus in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) if any fact or event contemplated by Section 6(d)(i)(C) above
shall exist or have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(iii) furnish to each Holder known to the Company in connection with
such exchange or sale, if any, before filing with the Commission, copies of
any Registration Statement or any Prospectus included therein (except the
Prospectus included in the Exchange Offer Registration Statement at the
time it was declared effective) as is proposed to be filed with the
Commission, which documents will be subject to the review and comment of
such Holders in connection with such sale, if any, for a period of at least
five business days, and the Company will not file any such Registration
Statement or Prospectus to which such Holders shall reasonably object
within five business days after the receipt thereof, A Holder shall be
deemed to have reasonably objected to such filing if such Registration
Statement, or Prospectus as applicable, as proposed to be filed, contains
an untrue statement of a material fact or omits to state any material fact
necessary to make the statements therein not misleading or fails to comply
with the applicable requirements of the Act;
(iv) make available, at reasonable times, for inspection by each
Holder and any attorney or accountant retained by such Holders, all
financial and other records, pertinent corporate documents of the Company
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Holder, attorney or accountant
in connection with such Registration Statement or any post-effective
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amendment thereto subsequent to the filing thereof and prior to its
effectiveness (subject to the execution by such Holder of a confidentiality
agreement);
(v) if requested by any Holders in writing in connection with such
exchange or sale, promptly include in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such Holders may reasonably request to have
included therein, including, without limitation, information relating to
the "Plan of Distribution" of the Transfer Restricted Securities; and make
all required filings of such Prospectus supplement or post-effective
amendment as soon as reasonably practicable after the Company is notified
of the matters to be included in such Prospectus supplement or post-
effective amendment (provided that nothing in this Section 6(d)(v) shall be
interpreted to acquire the Company to file a supplement or post-effective
amendment more than one time per quarter);
(vi) furnish to each Holder known to the Company in connection with
such exchange or sale without charge, at least one copy of the Registration
Statement, as first filed with the Commission, and of each amendment
thereto, including all documents incorporated by reference therein and all
exhibits (including exhibits incorporated therein by reference);
(vii) deliver to each Holder known to the Company without charge, as
many copies of the Prospectus (including each preliminary prospectus) and
any amendment or supplement thereto as such Holder reasonably may request;
the Company hereby consents to the use (in accordance with law) of the
Prospectus and any amendment or supplement thereto by each selling Holder
in connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement
thereto;
(viii) upon the written request of any Holder or Holders who
collectively hold an aggregate principal amount of Series A Notes in excess
of $15.0 million (the "Requesting Holders") (on one occasion), enter into
an underwriting agreement and make such representations and warranties and
take all such other actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities pursuant
to any applicable Registration Statement contemplated by this Agreement as
may be reasonably requested by any Requesting Holder in connection with any
sale or resale pursuant to any applicable Registration Statement and as are
reasonably customary in underwritten offerings. In such connection, the
Company shall:
(A) upon request of the Requesting Holders, furnish (or in the
case of paragraphs (2) and (3), use its reasonable best efforts to
cause to be furnished) to each Requesting Holder, upon Consummation of
the Exchange Offer or upon the effectiveness of the Shelf Registration
Statement, as the case may be in connection with any underwriting
agreement:
(1) a certificate, dated such date, signed on behalf of the
Company by (x) the President or any Vice President and (y) a
principal financial or
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accounting officer of the Company, confirming, as of the date thereof,
the matters set forth in Sections 1(d) and 5(e) of the Purchase
Agreement and such other similar matters as such Requesting Holders
may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company covering matters similar to those set forth in Section
5(c) of the Purchase Agreement and such other matters as such
Holder may reasonably request, and in any event including a
statement to the effect that such counsel has participated in
conferences with officers and other representatives of the
Company, representatives of the independent public accountants
for the Company and has considered the matters required to be
stated therein and the statements contained therein, although
such counsel has not independently verified the accuracy,
completeness or fairness of such statements; and that such
counsel advises that, on the basis of the foregoing, no facts
came to such counsel's attention that caused such counsel to
believe that the applicable Registration Statement, at the time
such Registration Statement or any post-effective amendment
thereto became effective and, in the case of the Exchange Offer
Registration Statement, as of the date of Consummation of the
Exchange Offer, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or
that the Prospectus contained in such Registration Statement as
of its date and, in the case of the opinion dated the date of
Consummation of the Exchange Offer, as of the date of
Consummation, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading. Without limiting the foregoing,
such counsel may state further that such counsel assumes no
responsibility for, and has not independently verified, the
accuracy, completeness or fairness of the financial statements,
notes and schedules and other financial data included in any
Registration Statement contemplated by this Agreement or the
related Prospectus; and
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters to underwriters in connection with
underwritten offerings, and affirming the matters set forth in
the comfort letters delivered pursuant to Section 5(a) of the
Purchase Agreement; and
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(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance
with the matters covered in clause (A) above and with any customary
conditions contained in any agreement entered into by the Company
pursuant to this clause (ix);
(ix) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders and their counsel in connection with the
registration and qualification of the Transfer Restricted Securities under
the securities or Blue Sky laws of such jurisdictions as the selling
Holders may request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Transfer
Restricted Securities covered by the applicable Registration Statement;
provided, however, that the Company shall not be required to register or
qualify as a foreign corporation where it is not now so qualified or to
take any action that would subject it to the service of process in suits or
to taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so subject;
and
(e) Restrictions on Holders. Each Holder's acquisition of a Transfer
Restricted Security constitutes such Holder's agreement that, upon receipt of
the notice referred to in Section 6(d)(i)(B) or any notice from the Company of
the existence of any fact of the kind described in Section 6(d)(i)(C) hereof (in
each case, a "Suspension Notice"), such Holder will forthwith discontinue
disposition of Transfer Restricted Securities pursuant to the applicable
Registration Statement until (i) such Holder has received copies of the
supplemented or amended Prospectus contemplated by Section 6(d)(ii) hereof, or
(ii) such Holder is advised in writing by the Company that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus (in
each case, the "Recommencement Date"). Each Holder receiving a Suspension
Notice shall be required to either (i) destroy any Prospectuses, other than
permanent file copies, then in such Holder's possession which have been replaced
by the Company with more recently dated Prospectuses or (ii) deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such Holder's possession of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of the Suspension
Notice. The time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by a number of days equal to the number of days in the period from and including
the date of delivery of the Suspension Notice to the date of delivery of the
Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses; (ii) all fees and
expenses of compliance with federal securities and state Blue Sky or securities
laws; (iii) all expenses of printing (including certificates for the Series B
Notes to be issued in the Exchange Offer and printing of Prospectuses, messenger
and delivery services and telephone; (iv) all fees and disbursements of counsel
for the Company, and one counsel for the Holders of
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Transfer Restricted Securities in connection with an underwritten offering which
shall be Latham & Watkins or such other counsel as may be selected by a majority
of such Holders; (v) all application and filing fees in connection with listing
the Series B Notes on a national securities exchange or automated quotation
system pursuant to the requirements hereof (provided that this clause (v) shall
in no event be interpreted as requiring such listing of the Series B Notes); and
(vi) all fees and disbursements of independent certified public accountants of
the Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Securities who are
tendering Series A Notes into in the Exchange Offer and/or selling or reselling
Series A Notes or Series B Notes pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, who shall be Latham & Watkins unless another firm shall be
chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration Statement is being
prepared.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each Holder,
its directors, officers and each Person, if any, who controls such Holder
(within the meaning of Section 15 of the Act or Section 20 of the Exchange Act),
from and against any and all losses, claims, damages, liabilities, judgments,
(including without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action that
could give rise to any such losses, claims, damages, liabilities or judgments)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary prospectus or Prospectus
(or any amendment or supplement thereto) provided by the Company to any Holder
for use in connection with the resale of Series B Notes or registered Series A
Notes, or caused by any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by an untrue statement or omission or alleged untrue
statement or omission that is based upon information relating to any of the
Holders furnished in writing to the Company by any of the Holders.
(b) By its acquisition of Transfer Restricted Securities, each Holder
of Transfer Restricted Securities agrees to indemnify and hold harmless the
Company and its directors and
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officers, and each person, if any, who controls (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act) the Company to the same extent
as the foregoing indemnity from the Company set forth in section (a) above, but
only with reference to information relating to such Holder furnished in writing
to the Company by such Holder expressly for use in any Registration Statement.
In no event shall any Holder, its directors, officers or any Person who controls
such Holder be liable or responsible for any amount in excess of the amount by
which the total amount received by such Holder with respect to its sale of
Transfer Restricted Securities pursuant to a Registration Statement exceeds (i)
the amount paid by such Holder for such Transfer Restricted Securities and (ii)
the amount of any damages that such Holder, its directors, officers or any
Person who controls such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying person") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all reasonable fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be required
to assume the defense of such action pursuant to this Section 8(c), but may
employ separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Holder). Any failure to promptly notify the indemnifying person will not
relieve the indemnifying person from any liability it may have to any
indemnified party under this Section 8, except to the extent such failure
prejudices the indemnifying person. Any indemnified party shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party within a
reasonable period of time after notification by the indemnified party or (iii)
the named parties to any such action (including any impleaded parties) include
both the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all indemnified parties
and all such fees and expenses shall be reimbursed as they are incurred. Such
firm shall be designated in writing by a majority of the Holders, in the case of
the parties indemnified pursuant to Section 8(a), and by the Company, in the
case of parties indemnified pursuant to Section 8(b). The indemnifying party
shall indemnify and hold harmless the indemnified party from and against any and
all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i)
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effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than twenty business days after the
indemnifying party shall have received a request from the indemnified party for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of the indemnifying party) and, prior to the
date of such settlement, the indemnifying party shall have failed to comply with
such reimbursement request or given if good faith objection to such
indemnification request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the Indemnified party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company, on
the one hand, and the Holders, on the other hand, from their initial sale of
Transfer Restricted Securities (or in the case of Series B Notes that are
Transfer Restricted Securities, the sale of the Series A Notes for which such
Series B Notes were exchanged) or (ii) if the allocation provided by clause
8(d)(i) is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause 8(d)(i) above
but also the relative fault of the Company, on the one hand, and of the Holder,
on the other hand, in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative fault of the Company, on the
one hand, and of the Holder, on the other hand, shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or by the
Holder, on the other hand, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and judgments referred to above shall be deemed to include,
subject to the limitations set forth in the second paragraph of Section 8(a),
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
The Company and, by its acquisition of Transfer Restricted Securities,
each Holder agree that it would not be just and equitable if contribution
pursuant to this Section 8(d) were determined by pro rata allocation (even if
the Holders were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or judgments
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referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any matter, including any action that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 8, no Holder, its directors, its officers or any
Person, if any, who controls such Holder shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the total received by
such Holder with respect to the sale of Transfer Restricted Securities pursuant
to a Registration Statement exceeds (i) the amount paid by such Holder for such
Transfer Restricted Securities and (ii) the amount of any damages which such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 8(d) are several in proportion to the respective principal amount of
Transfer Restricted Securities held by each Holder hereunder and not joint.
SECTION 9. RULE 144A AND RULE 144
The Company agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make
available within a reasonable period of time, upon written request of any
Holder, to such Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities designated by such Holder or beneficial owner, the
information required by Rule 144A(d)(4) under the Act in order to permit resales
of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is
subject to Section 13 or 15(d) of the Exchange Act, to make all filings required
thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company acknowledges and agrees that any failure
by it to comply with its obligations under Sections 3 and 4 hereof may result in
material irreparable injury to the Initial Purchasers or the Holders for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
the Initial Purchasers or any Holder may obtain such relief as may be required
to specifically enforce the Company's obligations under Sections 3 and 4 hereof.
The Company further agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof The Company has not
previously entered into any agreement granting any registration rights with
respect to its securities to any Person that would require such securities to be
included
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in any Registration Statement filed hereunder. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's securities under any agreement in
effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer, and that does not affect directly or indirectly the rights
of other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities subject to
such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent they may deem such enforcement
necessary or advisable to protect their rights hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company:
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, CA 95204
Facsimile:
Attention: CFO
All such notices and communications shall be deemed to have been duly
given at the time delivered by hand, when receipt acknowledged, if telecopied;
and on the next business day, if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
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(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders; provided, that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Transfer Restricted
Securities in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Transfer Restricted
Securities in any manner, whether by operation of law or otherwise, such
Transfer Restricted Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Transfer Restricted Securities such
Person shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement, including the restrictions on
resale set forth in this Agreement and, if applicable, the Purchase Agreement,
and such Person shall be entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
21
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PAC-WEST TELECOMM, INC.
By: /s/ Richard E. Bryson
------------------------------
Name: Richard E. Bryson
Title: Chief Financial Officer
By: /s/ Wallace W. Griffin
------------------------------
Name: Wallace W. Griffin
Title: President/CEO
NATIONSBANC MONTGOMERY SECURITIES LLC
CIBC OPPENHEIMER CORP.
FIRST UNION CAPITAL MARKETS, A DIVISION
OF WHEAT FIRST SECURITIES, INC., as the Initial
Purchasers
By NATIONSBANC MONTGOMERY SECURITIES LLC
By:
---------------------------------
Name:
Title:
[Signature Page to Registration Rights Agreement]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PAC-WEST TELECOMM, INC.
By: /s/ Richard E. Bryson
------------------------------
Name: Richard E. Bryson
Title: Chief Financial Officer
By:
------------------------------
Name:
Title:
NATIONSBANC MONTGOMERY SECURITIES LLC
CIBC OPPENHEIMER CORP.
FIRST UNION CAPITAL MARKETS, A DIVISION
OF WHEAT FIRST SECURITIES, INC., as the Initial
Purchasers
By NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ Stephen Sleigh
-------------------------------
Name: Stephen Sleigh
Title: Vice President
[Signature Page to Registration Rights Agreement]
<PAGE>
EXHIBIT 10.1
Execution Copy
SHAREHOLDERS AGREEMENT
----------------------
THIS SHAREHOLDERS AGREEMENT (this "Agreement") is made as of September
16, 1998, by and among Pac-West Telecomm, Inc., a California corporation (the
"Company"), John K. La Rue ("La Rue"), Bay Alarm Company, a California
corporation ("Bay Alarm," and collectively with La Rue, the "Existing
Shareholders"), each of the Persons listed on the Schedule of New Investors
attached hereto (the "New Investors") and each of the individuals listed on the
Schedule of Executives attached hereto (the "Executives"). The Existing
Shareholders, the New Investors and the Executives are collectively referred to
herein as the "Shareholders" and individually as a "Shareholder." Unless
otherwise indicated herein, capitalized terms used herein are defined in
paragraph 9 hereof.
WHEREAS, the Existing Shareholders hold shares of the Company's Class
A Participating Preferred Stock, par value $.01 per share (the "Preferred
Stock"), and shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock");
WHEREAS, the New Investors received shares of the Company's Preferred
Stock and Common Stock pursuant to a merger agreement among the Company, the
Existing Shareholders and PWT Acquisition Corp., dated as of June 30, 1998 (as
the same may be amended and modified from time to time in accordance with its
terms, the "Merger Agreement") and shares of the Company's Common Stock pursuant
to a Stock Purchase Agreement, dated as of the date hereof, between the Company
and certain of the New Investors (as the same may be amended and modified from
time to time in accordance with its terms, the "Purchase Agreement");
WHEREAS, the Company and certain of the Executives are parties to
executive agreements, stock purchase agreements and/or stock option agreements,
pursuant to which such Executives purchased shares of the Company's Common Stock
or received stock options to purchase shares of the Company's Common Stock;
WHEREAS, the Company and the Shareholders desire to enter into this
Agreement for the purposes, among others, of (i) establishing the composition of
the Company's Board of Directors (the "Board"), (ii) assuring continuity in the
management and ownership of the Company and (iii) limiting the manner and terms
by which the Shareholders' stock may be transferred; and
WHEREAS, the execution and delivery of this Agreement is a condition
to the merger contemplated by the Merger Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
<PAGE>
1. Voting Agreement.
(a) From and after the Closing (as defined in the Merger Agreement)
and until the provisions of this paragraph 1 cease to be effective, each holder
of Shares shall vote all of such holder's Shares and any other voting securities
of the Company over which such holder has voting control and shall take all
other necessary or desirable actions within such holder's control (whether in
such holder's capacity as a shareholder, director, member of a board committee
or officer of the Company or otherwise, and including, without limitation,
attendance at meetings in person or by proxy for purposes of obtaining a quorum
and execution of written consents in lieu of meetings), and the Company shall
take all necessary and desirable actions within its control (including, without
limitation, calling special board and shareholder meetings), so that:
(i) subject to paragraph l(c) below, the authorized number of
directors on the Board shall be established at seven (7) directors;
(ii) the following persons shall be elected to the Board:
(A) one (1) representative designated by La Rue; provided that La
Rue shall initially serve as such representative;
(B) one (1) representative designated by Bay Alarm; provided that
Bruce A. Westphal shall initially serve as the representative
designated by Bay Alarm;
(C) one (1) representative designated by the Blair Holders (the
"Blair Director"); provided that David G. Chandler shall initially
serve as the Blair Director;
(D) one (1) representative designated by the SCP Holders (the
"SCP Director"); provided that Samuel A. Plum shall initially serve as
the SCP Director;
(E) one (1) representative designated by the Safeguard Holders
(the "Safeguard Director"); provided that Jerry L. Johnson shall
initially serve as the Safeguard Director;
(F) one representative designated by TL Ventures III, L.P. for so
long as it holds any Shares (the "TL Director" and collectively with
the Blair Director, the SCP Director and the Safeguard Director, the
"Investor Directors"); provided that initially Mark J. DeNino shall
serve as the TL Director; and
(G) the Company's chief executive officer;
(iii) the removal from the Board (without cause) of any representative
designated hereunder shall be solely upon the written request of the
persons entitled to designate such representative pursuant to subparagraph
1(a)(ii), but only upon such written request and
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<PAGE>
under no other circumstances; provided that if any director elected
pursuant to subparagraph 1(a)(ii)(G) above ceases to be chief executive
officer of the Company and its Subsidiaries, such director shall be removed
as a director promptly after such director ceases to be the Company's chief
executive officer and shall be replaced by such director's successor (if
any); and provided further that any director may be removed for cause in
accordance with applicable law;
(iv) in the event that any representative designated hereunder ceases
to serve as a member of the Board during such representative's term of
office, the resulting vacancy on the Board shall be filled by a
representative designated by persons entitled to designate such
representative pursuant to subparagraph 1(a)(ii);
(v) if any party fails to designate a representative to fill a
directorship pursuant to the terms of this paragraph 1, the individual
previously holding such directorship shall be elected to such position, or
if such individual fails or declines to serve, the election of an
individual to such directorship shall be accomplished in accordance with
the Company's Articles of Incorporation and bylaws and applicable law;
provided that the holders of Shares shall vote to remove such individual if
the party or parties which failed to designate such directorship so directs
and shall elect any individual designated by such party or parties;
(vi) except as required by applicable law or any rule or regulation of
any governmental entity, the composition of the board of directors of each
of the Company's Subsidiaries (a "Sub Board") shall be the same as the
composition of the Board as it exists from time to time; and
(vii) the Board shall hold at least one meeting during each fiscal
quarter.
(b) The Company shall pay the reasonable out-of-pocket expenses
incurred by each director in connection with attending the meetings of the Board
or a Sub Board and any committees thereof. So long as any Investor Director or
representative designated by La Rue or Bay Alarm serves on the Board or a Sub
Board, the Company's Articles of Incorporation and bylaws shall provide for
indemnification and exculpation of directors to the fullest extent permitted
under applicable law.
(c) The rights of an Existing Shareholder under this paragraph 1 shall
terminate at such time as such Existing Shareholder and such Existing
Shareholder's Permitted Transferees shall hold less than 50% of the Shares held
by such Existing Shareholder immediately following the Closing. In such event,
at the written request of a majority of the Investor Directors, each holder of
Shares shall vote all of his, her or its Shares which are voting shares and any
other voting securities of the Company over which such holder has voting control
and shall take all other necessary or desirable action within his, her or its
control to remove the director designated by such Existing Shareholder from the
Board and any Sub Board at the time specified in such written request and to
reduce the number of directors on the Board by one representative.
(d) The provisions of this paragraph 1 shall terminate automatically
and shall be of no further force and effect upon the consummation of a Qualified
Public Offering or a Sale of the Company.
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<PAGE>
2. Restrictions on Transfer of Shares.
(a) Transfer of Shares. No holder of Shares shall sell, transfer,
assign, pledge or otherwise dispose of (whether with or without consideration
and whether voluntarily or involuntarily or by operation of law) any interest in
any Shares (a "Transfer") except pursuant to the provisions of this paragraph 2
or pursuant to an Exempt Transfer.
(b) Notice of Proposed Transfer. At least 90 days prior to making any
Transfer of any Shares (other than an Exempt Transfer), the transferring holder
of Shares (the "Transferring Shareholder") shall deliver a written notice (the
"Sale Notice") to the Company and the Other Shareholders. The Sale Notice shall
disclose in reasonable detail the proposed number and class of Shares to be
transferred (the "Offered Shares") and the proposed terms and conditions of the
Transfer, which shall be in the form of a sale of such Offered Shares solely for
cash (payable at closing or in specified installments).
(c) First Offer Right. The Company may elect to purchase all or any
portion of the Offered Shares at the price and on the terms specified in the
Sale Notice by delivering written notice of such election to the Transferring
Shareholder and the Other Shareholders as soon as practicable but in any event
within 30 days after the delivery of the Sale Notice. If the Company has not
elected to purchase all of the Offered Shares within such 30-day period, each
Other Shareholder (other than the Transferring Shareholder) may elect to
purchase up to such Person's Pro Rata Share (as defined below) of the Offered
Shares at the price and on the terms specified in the Sale Notice by delivering
written notice of such election to the Transferring Shareholder and all Other
Shareholders as soon as practicable but in any event within 45 days after
delivery of the Sale Notice. Any Offered Shares not elected to be purchased by
the end of such 45-day period shall be reoffered for an additional 15-day period
by the Transferring Shareholder on a pro rata basis to the Other Shareholders
who have elected to purchase their Pro Rata Share. If the Company or any Other
Shareholder has elected to purchase Offered Shares from the Transferring
Shareholder, the transfer of such shares shall be consummated as soon as
practicable after the delivery of the election notices, but in any event within
90 days after delivery of the Sale Notice. To the extent that the Company and
the Other Shareholders have not elected to purchase all of the Offered Shares,
the Transferring Shareholder may, within 120 days after the end of the 60-day
notice period, transfer the balance of such Offered Shares to one or more third
parties at a price no less than the price per share specified in the Sale Notice
and on other terms no more favorable to the transferees than offered to the
Company and the Shareholders in the Sale Notice. Each Other Shareholder's "Pro
Rata Share" shall be based upon such holder's percentage ownership of the Shares
of such class being Transferred held by the Other Shareholders (other than the
Transferring Shareholder) on a fully-diluted basis. The Transferring
Shareholder's ability to effect any Transfer pursuant to this Section 2(c),
whether to the Company, the Other Shareholders Shares or any third party, shall
in all cases be subject to the participation rights of other Shareholders
pursuant to Section 2(d) below.
(d) Participation Rights. Each Other Shareholder (other than the
Transferring Shareholder) may elect to participate in the contemplated Transfer
by delivering written notice to the Transferring Shareholder within 30 days
after delivery of the Sale Notice. If any Other Shareholders have elected to
participate in such Transfer, the Transferring Shareholder and such Other
Shareholders shall be entitled to include in the contemplated Transfer, at the
same price and on the same terms, a number of such class or classes of Shares
(the "Included Shares") equal to the
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<PAGE>
product of (i) the quotient determined by dividing the percentage of such class
of the Shares owned by such person by the aggregate percentage of such class of
the Shares owned by the Transferring Shareholder and all Other Shareholders
electing to participate in such Transfer and (ii) the number of such class of
Offered Shares.
For example, if the contemplated Transfer involves 100 Offered Shares of a
certain class and if the Transferring Shareholder at such time owns 30% of
all Shares of such class and if one other holder elects to participate and
owns 20% of all Shares of such class, the Transferring Shareholder would be
entitled to sell 60 shares of such class ((30% / 50%) x 100 shares) and the
other holder would be entitled to sell 40 shares of such class ((20% / 50%)
x 100 shares).
Each Transferring Shareholder shall use reasonable best efforts to obtain the
agreement of the prospective transferee(s) to the participation of the Other
Shareholders in any contemplated Transfer, and each Transferring Shareholder
shall not transfer any of its Shares to the prospective transferee(s) unless (i)
simultaneously with such transfer, the prospective transferee or transferees
purchase from the Other Shareholders the Shares which the Other Shareholders are
entitled to sell to such prospective transferee(s) pursuant to this paragraph
2(d) or (ii) simultaneously with such Transfer, the Transferring Shareholders
purchase (on the same terms and conditions on which such Shares were sold to the
transferee(s)) the number of Shares from the Other Shareholders which the Other
Shareholders would have been entitled to sell pursuant to this paragraph 2(d).
Each holder of Shares transferring Shares pursuant to this paragraph 2(d) shall
pay its pro rata share (based on the proceeds received in such Transfer) of the
expenses incurred by the holders of Shares in connection with such transfer and
shall be obligated to join on a pro rata basis (based on the proceeds received
in such Transfer) in any indemnification or other obligations that the
Transferring Shareholder agrees to provide in connection with such transfer
(other than any such obligation that relate specifically to a particular holder
of Shares such as indemnification with respect to representations and warranties
given by a holder regarding such holder's title to and ownership of Shares;
provided that no holder shall be obligated in connection with such Transfer to
agree to indemnify or hold harmless the transferees with respect to an amount in
excess of the net cash proceeds paid to such holder in connection with such
Transfer).
(e) Classes of Capital Stock. Notwithstanding anything herein to the
contrary, the provisions of this paragraph 2 shall be applied on a class by
class basis to the Shares; provided that in the event any Transferring
Shareholder is Transferring Shares of more than one class, each Other
Shareholder electing to exercise any right granted to such Other Shareholder
pursuant to this paragraph 2 shall exercise such right with respect to each
class of Shares being so Transferred.
(f) Permitted Transfers. The restrictions set forth in this paragraph
2 shall not apply with respect to any Transfer of Shares (i) pursuant to a
Public Sale, (ii) pursuant to Employee Repurchases or (iii) by any holder (A) in
the case of an individual, pursuant to applicable laws of descent and
distribution or among such individual's Family Group or (B) in the case of any
Person which is not an individual, among its Affiliates (such transferees
pursuant to this clause (iii) collectively referred to herein as "Permitted
Transferees"); provided that the restrictions contained in this paragraph 2
shall continue to be applicable to the Shares after any such Transfer pursuant
to clause (iii) and provided further that the transferees of such Shares
Transferred pursuant to clause (iii) shall have agreed in writing to be bound by
the provisions of this Agreement affecting
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<PAGE>
the Shares so transferred. The restrictions set forth in paragraph 2(c) shall
not apply with respect to any Transfer of Shares pursuant to a Sale of the
Company. Notwithstanding the foregoing, no party hereto shall avoid the
provisions of this Agreement by making one or more transfers to one or more
Permitted Transferees and then disposing of all or any portion of such party's
interest in any such Permitted Transferee.
(g) Termination of Restrictions. The restrictions set forth in this
paragraph 2 shall continue with respect to each Share until the earlier of (i)
the date on which such Share has been transferred in a Public Sale, (ii) the
consummation of a Sale of the Company or (iii) the consummation of a Qualified
Public Offering.
3. Sale of the Company.
(a) Upon the approval by the Board of a Sale of the Company (an
"Approved Sale"), each holder of the Shares will consent to and raise no
objections to the Approved Sale of the Company. If the Approved Sale of the
Company is structured as a (i) merger or consolidation, each of the holders of
Shares will waive any dissenter rights, appraisal rights or similar rights in
connection with such merger or consolidation or (ii) sale of stock (whether by
merger, consolidation, reorganization or otherwise), each of the holders of
Shares will agree to sell all of their Shares and rights to acquire Shares on
the terms and conditions approved by the Board. Each of the holders of the
Shares will use their best efforts to cooperate in the Approved Sale of the
Company and will take all necessary or desirable actions in connection with the
consummation of the Approved Sale as are reasonably requested by the Board.
(b) Notwithstanding any provision to the contrary contained herein,
after the fourth anniversary of the Closing, the holders of at least 60% of the
Investor Shares (the "Sale Shareholders"), may require that the Company enter
into a Sale of the Company. Upon the request of the Sale Shareholders, the
Board will determine in its reasonable judgment the form and manner in which the
Sale of the Company is to be accomplished with a view to accomplishing such Sale
of the Company as soon as is reasonably practicable (but in any event within
twelve months of the request of the Sale Shareholders to enter into a Sale of
the Company), including, without limitation, (i) whether the Sale of the Company
should be pursuant to a merger, sale of stock, sale of assets, or otherwise,
(ii) whether to conduct a public auction or privately negotiated sale, and (iii)
whether to employ one or more professional firms to assist the Board in
accomplishing a Sale of the Company. Each holder of Shares will take such
actions (i) as are necessary or desirable in order to cause the Board to effect
a Sale of the Company, including, without limitation, electing directors who
will effect a Sale of the Company or (ii) as are requested by the Board in order
to further the Sale of the Company, in each case with a view to accomplishing
such Sale of the Company as soon as is reasonably practicable (but in any event
within twelve months of the request of the Sale Shareholders to enter into a
Sale of the Company). In the event that the Board is unable to accomplish a
Sale of the Company within twelve months as described above, the Sale
Shareholders will be entitled to take all actions to accomplish a Sale of the
Company and each holder of Shares shall (x) use commercially reasonable efforts
to cause the Board to approve such Sale of the Company and (y) cooperate with
the Sale Shareholders in the Sale of the Company and take all necessary or
desirable actions in connection with the consummation of the Sale of the Company
as are reasonably requested by the Sale Shareholders, including, without
limitation, delivering to the Sale Shareholders the stock
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<PAGE>
certificates representing the Shares owned by such holder, with duly executed
blank stock powers attached thereto.
(c) The obligations of the holders of Shares with respect to any Sale
of the Company (including an Approved Sale) pursuant to this paragraph 3 are
subject to the satisfaction of the following conditions: (i) upon the
consummation of a Sale of the Company, each holder of Shares will receive the
same form of consideration and the same portion of the aggregate consideration
that such holder of Shares would have received if such aggregate consideration
had been distributed by the Company in complete liquidation pursuant to the
rights and preferences set forth in the Company's Articles of Incorporation as
in effect immediately prior to such Sale of the Company; (ii) each holder of any
class of Shares will be given the same consideration with respect to each share
of such class, and if any holders of a class of Shares are given an option as to
the form and amount of consideration to be received, each holder of such class
of Shares will be given the same option with respect to each share of such
class; and (iii) all holders of then currently exercisable rights to acquire,
directly or indirectly, shares of any class of Common Stock will be given an
opportunity either to (A) exercise such rights prior to the consummation of the
Sale of the Company and participate in such sale as holders of such class of
Common Stock or (B) upon the consummation of the Sale of the Company, receive in
exchange for such rights consideration equal to the amount determined by
multiplying (1) the same amount of consideration per share of such class of
Common Stock receivable by the holders of such class of Common Stock in
connection with the Approved Sale less the exercise price or conversion price
per share of such class of Common Stock of such right to acquire, directly or
indirectly, such class of Common Stock by (2) the number of shares of such class
of Common Stock represented by such rights.
(d) If the Company or the Sale Shareholders enter into any negotiation
or transaction for which Rule 506 promulgated under the Securities Act (or any
similar rule then in effect) may be available with respect to such negotiation
or transaction (including a merger, consolidation or other reorganization), the
holders of Shares will, at the request of the Board, appoint a purchaser
representative (as such term is defined in Rule 501 promulgated under the
Securities Act) reasonably acceptable to the Board. If any holder of Shares
appoints the purchaser representative designated by the Board, the Company will
pay the fees of such purchaser representative, but if any holder of Shares
declines to appoint the purchaser representative designated by the Board, such
holder will appoint another purchaser representative (reasonably acceptable to
the Board), and such holder will be responsible for the fees of the purchaser
representative so appointed.
(e) Each holder of Shares will bear its pro rata share (based upon the
aggregate proceeds received by such Shareholder) of the costs of any sale of
Shares pursuant to any Sale of the Company to the extent such costs are incurred
for the benefit of all holders of Common Stock and are not otherwise paid by the
Company or the acquiring party. Costs incurred by any holder of Shares on its
own behalf will not be considered costs of the transaction hereunder. Each
holder of shares shall also be obligated to join on a pro rata basis (based on
the proceeds received in such Sale of the Company) in any indemnification or
other obligations that the Shareholders agree to provide in connection with such
Sale of the Company (other than any such obligation that relate specifically to
a particular holder of Shares such as indemnification with respect to
representations and warranties given by a holder regarding such holder's title
to and ownership of Shares; provided that no holder shall be obligated in
connection with such Sale of the Company to agree to indemnify or
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<PAGE>
hold harmless the transferees with respect to an amount in excess of the net
cash proceeds paid to such holder in connection with such Sale of the Company).
(f) The provisions of this Section 3 will terminate upon the
completion of a Qualified Public Offering or a Sale of the Company.
4. Preemptive Rights.
(a) Except for issuances of Common Stock (i) to the Company's or any
of its Subsidiaries' employees approved by the Board or any compensation
committee of the Board (including pursuant to options or other rights to acquire
Common Stock approved by the Board or any compensation committee of the Board),
(ii) in connection with the acquisition of another company or business approved
by the Board, (iii) pursuant to any stock dividend or stock split, (iv) pursuant
to a Public Offering or (v) pursuant to the purchase agreement referred to in
Section 11.19 of the Merger Agreement, if the Company authorizes the issuance or
sale of any shares of Common Stock or any securities (including debt securities)
containing options or rights to acquire any shares of Common Stock or any
securities exchangeable for or convertible into Common Stock or such securities
exchangeable for or convertible into Common Stock, the Company shall first offer
to sell to each Other Shareholder, a portion of such shares or securities equal
to the quotient determined by dividing (1) the number of shares of Common Stock
held by such Person on a fully diluted basis by (2) the total number of shares
of Common Stock then outstanding on a fully diluted basis. In addition, if the
Company authorizes the issuance or sale of any debt securities or preferred
shares (other than any preferred shares convertible into or otherwise containing
any rights to acquire shares of Common Stock), in each case to any holders of
Investor Shares or any of their Affiliates (other than as a dividend on the
outstanding Common Stock) (any such issuance or sale, a "Preemptive Sale"), the
Company shall first offer each Other Shareholder the right to purchase a portion
of such securities equal to the product determined by multiplying (x) the total
number of securities to be issued or sold in a Preemptive Sale by (y) the
quotient determined by dividing (1) the number of outstanding shares of Common
Stock held by such Other Shareholder by (2) the total number of shares of
outstanding Common Stock held by all Other Shareholders on a fully diluted
basis. Each Other Shareholder shall be entitled to purchase such shares or
securities at the most favorable price and on the most favorable terms as such
shares or securities are to be offered or sold to any other Persons; provided
that if all Persons entitled to purchase or receive such stock or securities are
required to also purchase other securities of the Company, each Other
Shareholder exercising their rights pursuant to this paragraph shall also be
required to purchase the same strip of securities (on the same terms and
conditions) that such other Persons are required to purchase. The purchase
price for all shares and securities offered to the Other Shareholders shall be
payable in cash or, to the extent otherwise consistent with the terms offered to
any other Persons, installments over time.
(b) In order to exercise its purchase rights hereunder, an Other
Shareholder must within 20 days after receipt of written notice from the Company
describing in reasonable detail the shares or securities being offered, the
purchase price therefor, the payment terms and such Other Shareholder's
percentage allotment, deliver a written notice to the Company describing its
election hereunder. If all of the shares and securities offered to the Other
Shareholders are not fully subscribed by the Other Shareholders, the remaining
stock and securities shall be reoffered by the
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<PAGE>
Company to any of the Other Shareholders purchasing such Person's full allotment
upon the terms set forth in this paragraph, except that such holders must
exercise their purchase rights within 10 days after receipt of such reoffer.
(c) Upon the expiration of the offering periods described above, the
Company shall be entitled to sell such shares or securities which the Other
Shareholders have not elected to purchase during the 60 days following such
expiration on terms and conditions no more favorable to the purchasers thereof
than those offered to the Other Shareholders. Any shares or securities offered
or sold by the Company after such 60-day period must be reoffered to the Other
Shareholders pursuant to the terms of this paragraph 4.
(d) The rights of the Other Shareholders under this paragraph 4 shall
terminate upon the consummation of a Qualified Public Offering or a Sale of the
Company.
5. Initial Public Offering. In the event that the Board approves an
initial Public Offering, the Shareholders will take all necessary and desirable
actions in consummation of the Public Offering. In the event that such Public
Offering is an underwritten offering and the managing underwriters advise the
Company in writing that in their opinion the capital stock structure will
adversely affect the marketability of the offering, the Shareholders will vote
for a recapitalization and/or exchange of the Shares into securities the
managing underwriters and the Board find acceptable; provided that the resulting
securities provide each Shareholder with the same relative economic interest as
such Shareholder had prior to such recapitalization and/or exchange and is
consistent with the rights and preferences set forth in the Articles of
Incorporation as in effect immediately prior to such Public Offering.
6. Covenants.
(a) Financial Statements and Other Information. The Company shall
deliver to each Qualified Holder:
(i) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period
from the beginning of the fiscal year to the end of such month, and
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each
case comparisons to the annual budget and to the corresponding period in
the preceding fiscal year, and all such statements shall be prepared in
accordance with generally accepted accounting principles, consistently
applied, subject to the absence of footnote disclosures and to normal year-
end adjustments;
(ii) as soon as available but in any event within 30 days after
the end of each quarterly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such quarterly period and for the period
from the beginning of the fiscal year to the end of such quarter, and
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such quarterly period, setting forth in each
case comparisons to
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<PAGE>
the annual budget and to the corresponding period in the preceding fiscal
year, and all such statements shall be prepared in accordance with
generally accepted accounting principles, consistently applied, subject to
the absence of footnote disclosures and to normal year-end adjustments;
(iii) within 90 days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the
end of such fiscal year, setting forth in each case comparisons to the
annual budget and to the preceding fiscal year, all prepared in accordance
with generally accepted accounting principles, consistently applied, and
accompanied by (A) with respect to the consolidated portions of such
statements, an opinion of an independent accounting firm of national
recognized standing and (B) a copy of such firm's annual management letter
to the board of directors;
(iv) promptly upon receipt thereof, any additional reports,
management letters or other information concerning significant aspects of
the Company's operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials
provided hereunder); and
(v) at least 30 days prior to the beginning of each fiscal year,
a preliminary budget prepared on a monthly basis for the Company and its
Subsidiaries for such fiscal year (displaying anticipated statements of
income and cash flows and balance sheets), and promptly upon preparation
thereof any other budgets prepared by the Company and any revisions of such
annual or other budgets.
Except as otherwise required by law or judicial order or decree or by
any governmental agency or authority, each Shareholder entitled to receive
information regarding the Company and its Subsidiaries under paragraph 6(a)
shall use commercially reasonable efforts to maintain the confidentiality of all
nonpublic information obtained by it hereunder which the Company has reasonably
designated as proprietary or confidential in nature; provided that each such
Shareholder may disclose such information in connection with the sale or
transfer of any Shares if such Shareholder's transferee agrees in writing to be
bound by the provisions of this paragraph; and provided further that each such
Shareholder may disclose such information to its attorneys, accountants and
other advisors, provided that such Persons are informed of, and agree to be
bound by, the confidentiality provisions of this paragraph 6(a).
(b) Inspection of Property. The Company shall permit any
representatives designated by any Qualified Holder upon reasonable notice and
during normal business hours and such other times as any such holder may
reasonably request, to (i) visit and inspect any of the properties of the
Company and its Subsidiaries, (ii) examine the corporate and financial records
of the Company and its Subsidiaries and make copies thereof or extracts
therefrom and (iii) discuss the affairs, finances and accounts of any such
entities with the directors, officers, key employees and independent accountants
of the Company and its Subsidiaries. The presentation of an executed copy of
this Agreement by any Qualified Holder to the Company's independent accountants
shall constitute the Company's permission to its independent accountants to
participate in such discussions.
-10-
<PAGE>
(c) Venture Capital Operating Company Compliance.
If and for so long as any VCOC does not have a representative on the
Board ("Unrepresented Party") and holds any Shares, such VCOC shall be permitted
to select one representative ("Representative") to:
(i) consult with and advise management of the Company on
significant business issues, including management's proposed annual
operating plans, and management will meet with that Representative
regularly during each year at the Company's facilities at mutually
agreeable times for such consultation and advice and to review progress in
achieving said plans;
(ii) examine the books and records of the Company and inspect its
facilities and request information at reasonable times and intervals
concerning the general status of the Company's financial condition and
operations, provided that access to highly confidential proprietary
information and facilities need not be provided; and
(iii) invite the Representative to attend in a nonvoting observer
capacity all meetings of its Board and, in this respect, shall give such
Representative copies of all notices, minutes, consents, and other material
that it provides to its Directors; provided, that the Company reserves the
right to exclude such Representative from access to any material or meeting
or portion thereof if the Company believes upon advice of counsel that such
exclusion is reasonably necessary to preserve the attorney-client
privilege, to protect highly confidential proprietary information or for
other similar reasons. Such Representative may participate in discussions
of matters brought to the Board.
The rights described in this paragraph 6(c) shall terminate and be of
no further force or effect upon the earliest to occur of (i) the occurrence of a
Public offering, or (ii) such time as the Company becomes required to file
reports with the Securities and Exchange Commission under Sections 12(g) or
15(d) of the Securities Exchange Act of 1934, as amended.
(d) Regulatory Compliance Cooperation.
(i) Before the Company redeems, purchases or otherwise acquires,
directly or indirectly, or converts or takes any action with respect to the
voting rights of, any shares of any class of its capital stock or any
securities convertible into or exchangeable for any shares of any class of
its capital stock (other than a redemption of the Preferred Stock), the
Company shall give written notice of such pending action to BankAmerica and
MIG. Upon the written request of either BankAmerica or MIG made within 10
days after its receipt of any such notice stating that after giving effect
to such action such Shareholder would have a Regulatory Problem, the
Company shall defer taking such action for such period (not to extend
beyond 45 days after such Shareholder 's receipt of the Company's original
notice) as such Shareholder requests to permit it and its Affiliates to
reduce the quantity of the Company's securities they own in order to avoid
the Regulatory Problem. In addition, the Company shall not be a party to
any merger, consolidation, recapitalization or other transaction pursuant
to which any such Shareholder would be required to take any voting
securities, or any securities convertible into voting securities, which
might reasonably be
-11-
<PAGE>
expected to cause such Purchaser to have a Regulatory Problem. For purposes
of this paragraph, a Person shall be deemed to have a "Regulatory Problem"
when such Person and such Person's Affiliates would own, control or have
power over a greater quantity of securities of any kind issued by the
Company or any other entity than are permitted under any requirement of any
governmental authority.
(ii) The Company shall grant to any subsequent holder of
Restricted Securities, upon such holder's request, the same rights granted
to BankAmerica and MIG pursuant to this paragraph.
7. Additional Restrictions on Transfer.
(a) Restricted Shares Legend. The Shares have not been registered
under the Securities Act and, therefore, in addition to the other restrictions
on Transfer contained in this Agreement, cannot be sold unless subsequently
registered under the Securities Act or an exemption from such registration is
then available. Each certificate evidencing Shares and each certificate issued
in exchange for or upon the Transfer of any Shares (if such securities remain
Shares as defined herein after such Transfer) shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
[DATE OF ISSUE] AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER
SPECIFIED IN THE SHAREHOLDERS AGREEMENT, DATED AS OF SEPTEMBER 16, 1998, AS
AMENDED AND MODIFIED FROM TIME TO TIME, AMONG THE ISSUER (THE "COMPANY"),
AND CERTAIN INVESTORS. THE COMPANY RESERVES THE RIGHT TO REFUSE THE
TRANSFER OF SUCH SHARES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH
RESPECT TO ANY TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY
THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE."
The Company shall imprint such legend on certificates evidencing the
Shares. The legend set forth above shall be removed from the certificates
evidencing any Shares which cease to be Shares in accordance with the definition
thereof.
(b) Opinion of Counsel. No holder of Shares may Transfer any Shares
(except pursuant to an effective registration statement under the Securities
Act) without first delivering to the Company an opinion of counsel (reasonably
acceptable in form and substance to the Board) that
-12-
<PAGE>
neither registration nor qualification under the Securities Act and applicable
state securities laws is required in connection with such Transfer.
8. Transfer.
(a) Prior to transferring any Shares (other than pursuant to a Public
Sale or pursuant to an Employee Repurchase) to any Person, the transferring
holders of Shares shall cause the prospective transferee to be bound by this
Agreement and to execute and deliver to the Company and the other parties to
this Agreement a counterpart of this Agreement and such transferee shall be a
"Shareholder" for purposes of this Agreement.
(b) After the date of this Agreement, all shares of capital stock
issued by the Company (other than pursuant to a Public Sale) and all options or
other rights to acquire Common Stock or any securities convertible or
exchangeable into Common Stock shall be subject to the terms of this Agreement,
and the Company shall cause each holder thereof which is not a party to this
Agreement to execute and deliver to the Company and the other parties to this
Agreement a counterpart of this Agreement and such holder shall be a
"Shareholder" for purposes of this Agreement.
9. Definitions.
"Affiliate" of a Shareholder means any other Person controlling,
controlled by or under common control with the Shareholder and, in the case of
an Person which is a partnership, any partner of such Person and any members or
partners of such partner. For purposes of paragraph 2 hereof, BankAmerica
Investment Corporation and MIG Partners VII shall be deemed to be Affiliates.
"Articles of Incorporation" means the Company's articles of
incorporation in effect at the time as of which any determination is being made.
"BankAmerica" means BankAmerica Investment Corporation and its
Permitted Transferees.
"Blair" means William Blair Capital Partners VI, L.P.
"Blair Holders" means the holders of a majority of the Blair Shares.
"Blair Shares" means (i) any Common Stock held by Blair and its
Permitted Transferees acquired pursuant to the Merger Agreement or the Purchase
Agreement, (ii) any shares of Common Stock otherwise acquired by Blair and its
Permitted Transferees and (iii) any equity securities issued or issuable
directly or indirectly with respect to the Common Stock referred to in clauses
(i) or (ii) by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular shares constituting Blair Shares, such
shares will cease to be Blair Shares only when they have been (x) effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, or (y) sold to the public through a
broker, dealer or market maker pursuant to Rule 144 (or by similar provision
then in force) under the Securities Act.
-13-
<PAGE>
"Closing" has the meaning set forth in the Merger Agreement.
"Employee Repurchase" means repurchases from employees of the Company
and its Subsidiaries upon termination of employment pursuant to arrangements
approved by the Board.
"Exempt Transfer" means any Transfer permitted by Section 2(f).
"Family Group" means a shareholder's spouse and descendants (whether
natural or adopted) and any trust solely for the benefit of the Shareholder
and/or the Shareholder's spouse and/or descendants.
"Independent Third Party" means any person who, immediately prior to
the contemplated transaction, does not own in excess of 5% of the Company's
Common Stock on a fully-diluted basis (a "5% Owner"), who is not controlling,
controlled by or under common control with any such 5% Owner and who is not the
spouse or descendent (by birth or adoption) of any such 5% Owner or a trust for
the benefit of such 5% Owner and/or such other person.
"Investor Shares" means, collectively, the Blair Shares, the SCP
Shares, the Safeguard Shares and the TL Shares.
"MIG" means MIG Partners VII and its Permitted Transferees.
"Other Shareholders" means any holder of Blair Shares, any holder of
SCP Shares, any holder of Safeguard Shares, any holder of TL Shares, La Rue and
his Permitted Transferees, Bay Alarm and its Permitted Transferees, Wallace
Griffin and his Permitted Transferees, BankAmerica, MIG and Segal; provided that
BankAmerica, MIG and Segal shall not be considered Other Shareholders for
purposes of paragraph 2(c) hereof.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Public Offering" means any offering by the Company of its Common
Stock or rights to purchase it Common Stock to the public pursuant to an
effective registration statement under the Securities Act, as then in effect, or
any comparable statement under any similar federal statute then in force.
"Public Sale" means any sale of Shares to the public pursuant to an
offering registered under the Securities Act or to the public through a broker,
dealer or market maker pursuant to the provisions of Rule 144 adopted under the
Securities Act.
"Qualified Holder" means any holder (or group of affiliated holders)
of Shares representing 5% or more of the outstanding Shares and any VCOC and for
purposes of paragraph 6(a), BankAmerica, MIG and Segal.
"Qualified Public Offering" means the sale in an underwritten public
offering registered under the Securities Act of shares or rights to purchase
shares of the Company's Common
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<PAGE>
Stock having an aggregate value of at least $15 million and which results in an
equity valuation of the Company immediately prior to such Public Offering (based
upon the offering price of the Common Stock to the public in such Public
Offering) of at least $100 million.
"Sale of the Company" means the sale of the Company to an Independent
Third Party or group of Independent Third Parties pursuant to which such party
or parties acquire (i) all or substantially all of the capital stock of the
Company (whether by merger, consolidation, sale, transfer or exchange of the
Company's capital stock) or (ii) all or substantially all of the Company's
assets determined on a consolidated basis.
"SCP" means SCP Private Equity Partners, L.P.
"SCP Holders" means the holders of a majority of the SCP Shares.
"SCP Shares" means (i) any Common Stock held by SCP and its Permitted
Transferees acquired pursuant to the Merger Agreement or the Purchase Agreement,
(ii) any shares of Common Stock otherwise acquired by SCP and its Permitted
Transferees and (iii) any equity securities issued or issuable directly or
indirectly with respect to the Common Stock referred to in clauses (i) or (ii)
by way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular shares constituting SCP Shares, such shares will cease to be SCP
Shares only when they have been (x) effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them,
or (y) sold to the public through a broker, dealer or market maker pursuant to
Rule 144 (or by similar provision then in force) under the Securities Act.
"Safeguard" means Safeguard 98 Capital, L.P.
"Safeguard Holders" means the holders of a majority of the Safeguard
Shares.
"Safeguard Shares" means (i) any Common Stock held by Safeguard and
its Permitted Transferees acquired pursuant to the Merger Agreement or the
Purchase Agreement, (ii) any shares of Common Stock otherwise acquired by
Safeguard and its Permitted Transferees and (iii) any equity securities issued
or issuable directly or indirectly with respect to the Common Stock referred to
in clauses (i) or (ii) by way of stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular shares constituting Safeguard Shares, such
shares will cease to be Safeguard Shares only when they have been (x)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, or (y) sold to the public through
a broker, dealer or market maker pursuant to Rule 144 (or by similar provision
then in force) under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Segal" means Segal Holdings, Inc. and its Permitted Transferees.
"Shares" means (i) any Preferred Stock or Common Stock purchased or
otherwise acquired by any Shareholder and any options, warrants or similar
rights to acquired Preferred Stock or Common Stock held by any Shareholder, (ii)
any capital stock or other equity securities issued
-15-
<PAGE>
or issuable directly or indirectly with respect to the Preferred Stock or Common
Stock referred to in clause (i) above by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization, and (iii) any other shares of any class
or series of capital stock of the Company held by a Shareholder; provided that
Shares shall not include nonvoting Shares for purposes of paragraph 1 hereof or
paragraph 11 hereof. As to any particular shares constituting Shares, such
shares shall cease to be Shares when they have been (x) effectively registered
under the Securities Act and disposed of in accordance with the registration
statement covering them or (y) sold to the public through a broker, dealer or
market maker pursuant to Rule 144 (or any similar provision then in force) under
the Securities Act.
"Subsidiary" means any corporation of which the securities having a
majority of the ordinary voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by the Company
either directly or through one or more Subsidiaries.
"TL" means, collectively, TL Ventures III L.P., TL Ventures III
Offshore L.P., TL Ventures III Interfund L.P. and EnerTech Capital Partners,
L.P.
"TL Holders" means the holders of a majority of the TL Shares.
"TL Shares" means (i) any Common Stock held by TL and its Permitted
Transferees acquired pursuant to the Merger Agreement or the Purchase Agreement,
(ii) any shares of Common Stock otherwise acquired by TL and its Permitted
Transferees and (iii) any equity securities issued or issuable directly or
indirectly with respect to the Common Stock referred to in clauses (i) or (ii)
by way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular shares constituting TL Shares, such shares will cease to be TL
Shares only when they have been (x) effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them,
or (y) sold to the public through a broker, dealer or market maker pursuant to
Rule 144 (or by similar provision then in force) under the Securities Act.
"VCOC" means any holder of Preferred Stock or Common Stock which is a
"venture capital operating company" for purposes of Department of Labor
Regulation (S) 2510.3-100 or any similar regulation.
10. Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Shares in violation of any provision of this Agreement shall be
void, and the Company shall not record such Transfer on its books or treat any
purported transferee of such Shares as the owner of such shares for any purpose.
11. Amendment and Waiver. Except as otherwise provided herein, (i)
no modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company unless such modification, amendment or waiver is
approved in writing by the Company, (ii) no modification, amendment or waiver of
any provision of this Agreement shall be effective against the Blair Holders
unless such modification, amendment or waiver is approved in writing by the
Blair Holders, (iii) no modification, amendment or waiver of any provision of
this Agreement
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<PAGE>
shall be effective against the SCP Holders unless such modification, amendment
or waiver is approved in writing by the SCP Holders, (iv) no modification,
amendment or waiver of any provision of this Agreement shall be effective
against the Safeguard Holders unless such modification, amendment or waiver is
approved in writing by the Safeguard Holders, (v) no modification, amendment or
waiver of any provision of this Agreement shall be effective against the TL
Holders unless such modification, amendment or waiver is approved in writing by
the TL Holders, (vi) no modification, amendment or waiver of any provision of
this Agreement shall be effective against the Existing Shareholders and their
respective Permitted Transferees unless such modification, amendment or waiver
is approved in writing by the holders of a majority of the Shares held by the
Existing Shareholders and their respective Permitted Transferees, and (vii) no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Executives, any other party hereto and their respective
Permitted Transferees unless such modification, amendment or waiver is approved
in writing by the holders of a majority of the Shares held by the Executives,
such other parties hereto and their respective Permitted Transferees; provided
that no modification, amendment or waiver of any provision of this Agreement
which adversely affects the rights or obligations of any New Investor hereunder
in a manner which is different than the affect on the other New Investors and
their Permitted Transferees shall be effective against such affected New
Investor unless such modification, amendment or waiver is approved in writing by
such New Investor. The failure of any party to enforce any of the provisions of
this Agreement shall in no way be construed as a waiver of such provisions and
shall not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
12. Severability; Certain Waivers. Whenever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision or the effectiveness or validity of any provision
in any other jurisdiction, and this Agreement shall be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein. The Shareholders acknowledge and
agree that the covenants and agreements set forth in this agreement were a
material inducement to the New Investors to consummate the transactions
contemplated by the Merger Agreement, and the New Investors would not obtain the
benefit of their bargain as set forth herein and in the Merger Agreement and the
other agreements contemplated thereby as specifically negotiated by the
Shareholders if any Shareholder breached or challenged any of the provisions of
this Agreement. Therefore, notwithstanding anything to the contrary expressed or
implied in this paragraph 12 or elsewhere in this Agreement, each of the
Shareholders unconditionally covenants and agrees that such Shareholder will not
directly or indirectly challenge the validity, legality or enforceability of any
provision of this Agreement and will cooperate with the Company (at the
Company's cost and expense, except in connection with a breach by such
Shareholder) to enforce the provisions of this Agreement.
13. Entire Agreement. Except as otherwise expressly set forth
herein, this Agreement and the Registration Agreement between the Company and
the Shareholders embody the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
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<PAGE>
14. Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Shareholders and any subsequent
holders of Shares and the respective successors and assigns of each of them, so
long as they hold Shares; provided that the rights of the Existing Shareholders
hereunder shall not be assignable without the written consent of a majority of
the Shares held by the New Investors.
15. Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
16. Remedies. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that the Company and any Shareholder shall have the right to
injunctive relief, in addition to all of its rights and remedies at law or in
equity, to enforce the provisions of this Agreement. Nothing contained in this
Agreement shall be construed to confer upon any Person who is not a signatory
hereto any rights or benefits, as a third party beneficiary or otherwise.
17. Arbitration.
(a) Arbitration. In the event of disputes between the parties with
respect to the terms and conditions of this Agreement, such disputes shall be
resolved by and through an arbitration proceeding to be conducted under the
auspices of the American Arbitration Association (or any like organization
successor thereto) at San Francisco, California. Such arbitration proceeding
shall be conducted in as expedited a manner as is then permitted by the
commercial arbitration rules (formal or informal) of the American Arbitration
Association, and the arbitrator or arbitrators in any such arbitration shall be
persons who are expert in the subject matter of the dispute. Both the foregoing
agreement of the parties to arbitrate any and all such claims, and the results,
determination, finding, judgment and/or award rendered through such Arbitration,
shall be final and binding on the parties hereto and may be specifically
enforced by legal proceedings. The parties agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party may, in his or its sole discretion, ask for
specific performance and/or injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(b) Procedure. Such arbitration may be initiated by written notice
from either party to the other which shall be a compulsory and binding
proceeding on each party. The arbitration shall be conducted before a panel of
arbitrators selected in accordance with the rules of the American Arbitration
Association. The costs of said arbitrators and the arbitration shall be borne
equally by the parties hereto. Each party shall bear separately the cost of
their respective attorneys, witnesses and experts in connection with such
arbitration. Time is of the essence of this arbitration procedure, and the
arbitrators shall be instructed and required to render their decision within ten
(10) days following completion of the arbitration.
(c) Venue and Jurisdiction. Any and all legal proceedings to enforce
this Agreement, (including any action to compel arbitration hereunder or to
enforce any award or judgment rendered thereby), shall be governed in accordance
with this paragraph 17 hereunder.
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<PAGE>
18. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or received by certified mail,
return receipt requested, or sent by reputable overnight courier service
(charges prepaid) or by facsimile (with an additional copy by U.S. mail) to the
Company at the address set forth below and to any other recipient at the address
indicated on the schedules hereto or on the books and records of the Company and
to any subsequent holder of Shares subject to this Agreement at such address as
indicated by the Company's records, or at such address or to the attention of
such other person as the recipient party has specified by prior written notice
to the sending party. Notices will be deemed to have been given hereunder when
delivered personally, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service. The Company's address
is:
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, CA 95204
Attention: President
Telephone: (209) 926-3222
Facsimile: (209) 926-3205
19. Governing Law. All issues concerning this Agreement shall be
governed by and construed in accordance with the laws of the State of
California, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of California or any other jurisdiction)
that would cause the application of the law of any jurisdiction other than the
State of California.
20. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
21. Representations and Warranties. Each Shareholder represents and
warrants that (i) this Agreement has been duly authorized, executed and
delivered by such Shareholder and constitutes the valid and binding obligation
of such Shareholder, enforceable in accordance with its terms, and (ii) such
Shareholder has not granted and is not a party to any proxy, voting trust or
other agreement which is inconsistent with, conflicts with or violates any
provision of this Agreement. No holder of Shares shall grant any proxy or become
party to any voting trust or other agreement which is inconsistent with,
conflicts with or violates any provision of this Agreement.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
PAC-WEST TELECOMM, INC.
By: /s/ John K. La Rue
-----------------------------
Name: John K. La Rue
-----------------------------
Its: President
-----------------------------
By: /s/ Roger L. Westphal
-----------------------------
Name: Roger L. Westphal
-----------------------------
Its: Secretary
-----------------------------
/s/ John K. La Rue
-----------------------------------
JOHN K. LA RUE
BAY ALARM COMPANY
By: /s/ Bruce A. Westphal
-----------------------------
Name: Bruce A. Westphal
-----------------------------
Its: Chairman
-----------------------------
[SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT]
<PAGE>
WILLIAM BLAIR CAPITAL PARTNERS VI, L.P.
By: William Blair Capital Partners VI,
L.L.C., its General Partner
By: /s/ David G. Chandler
-----------------------------
Name: David G. Chandler
Its Managing Director
SCP PRIVATE EQUITY PARTNERS, L.P.
By: SCP Private Equity Management,
L.P., its General Partner
By: /s/ Samuel A. Plum
-----------------------------
Name: Samuel A. Plum
-----------------------------
Its General Partner
SAFEGUARD 98 CAPITAL, L.P.
By: Safeguard Delaware, Inc.
its General Partner
By: /s/ Jerry L. Johnson
-----------------------------
Name: Jerry L. Johnson
-----------------------------
Title: Senior Vice President
-----------------------------
[SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT]
<PAGE>
TL VENTURES III L.P.
By: TL Ventures III Management L.P.,
its General Partner
By: TL Ventures III LLC,
its General Partner
By: /s/ Mark J. DeNino
-----------------------------
Name: Mark J. DeNino
-----------------------------
Title: Managing Director
TL VENTURES III OFFSHORE L.P.
By: TL Ventures III Offshore Partners
L.P., its General Partner
By: TL Ventures III Offshore Ltd.,
its General Partner
By: /s/ Mark J. DeNino
-----------------------------
Name: Mark J. DeNino
-----------------------------
Title: Managing Director
-----------------------------
TL VENTURES III INTERFUND L.P.
By: TL Ventures III LLC,
its General Partner
By: /s/ Mark J. DeNino
-----------------------------
Name: Mark J. DeNino
-----------------------------
Title: Managing Director
[SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT]
<PAGE>
ENERTECH CAPITAL PARTNERS, L.P.
By: EnerTech Management, L.P.
its General Partner
By: EnerTech Management Company,
L.L.C., its General Partner
By: /s/ Scott Ungerer
-----------------------------
Name: Scott Ungerer
-----------------------------
Title: Managing Director
SEGAL HOLDINGS, INC.
By: /s/ Robert B. Segal
-----------------------------
Name: Robert B. Segal
-----------------------------
Title: President
-----------------------------
BANKAMERICA INVESTMENT CORPORATION
By: /s/ M. Ann O'Brien
-----------------------------
Name: M. Ann O'Brien
-----------------------------
Title: Managing Director
-----------------------------
MIG PARTNERS VII
By: /s/ M. Ann O'Brien
-----------------------------
Name: M. Ann O'Brien
-----------------------------
Title: General Partner
-----------------------------
[SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT]
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/s/ Wallace W. Griffin
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WALLACE W. GRIFFIN
SKIBO FAMILY LIMITED PARTNERSHIP
By: /s/ Charles M. Skibo
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Name: Charles M. Skibo
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Title: General Partner
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[SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT]
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SCHEDULE OF NEW INVESTORS
SCP Private Equity Partners, L.P.
800 The Safeguard Bldg.
435 Devon Park Drive
Wayne, PA 19087
Safeguard 98 Capital, L.P.
c/o Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
TL Ventures III L.P.
c/o TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1515
Attention: Chief Financial Officer
Telephone: (610) 971-1515
Telecopier: (610) 975-9330
TL Ventures III Offshore L.P.
c/o Trident Trust Company (Cayman) Limited
P.O. Box 847
One Capital Place, Fourth Floor
Grand Cayman, Cayman Islands
with a copy to:
TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1515
Attention: Chief Financial Officer
Telephone: (610) 971-1515
Telecopier: (610) 975-9330
-25-
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TL Ventures III Interfund L.P.
c/o TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1515
Attention: Chief Financial Officer
Telephone: (610) 971-1515
Telecopier: (610) 975-9330
EnerTech Capital Partners
435 Devon Park Drive, Suite 410
Wayne, PA 19087
William Blair Capital Partners VI, L.P.
227 West Monroe Street
Chicago, IL 60606
Segal Holdings, Inc.
c/o Segal & Co. Inc.
1350 Avenue of the Americas, Suite 1802
New York, NY 10019
BankAmerica Investment Corporation
c\o Bank of America Mezzanine Investments Group
231 South LaSalle Street, 12/th/ Floor
Chicago, IL 60697
MIG Partners VII
c\o Bank of America Mezzanine Investments Group
231 South LaSalle Street, 12/th/ Floor
Chicago, IL 60697
Skibo Family Limited Partnership
9045 Holly Leaf Lane
Bethesda, PA 20817
-26-
<PAGE>
EXHIBIT 10.2
A/B EXCHANGE
REGISTRATION RIGHTS AGREEMENT
Dated as of January 29, 1999 by and among
Pac-West Telecomm, Inc.
and
Nationsbanc Montgomery Securities, LLC
CIBC Oppenheimer Corp.
First Union Capital Markets
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This Registration Rights Agreement (this "Agreement") is made
and entered into as of "Agreement") January 29, 1999, by and among Pac-West
Telecomm, Inc., a California corporation (the "Company"), and Nationsbanc
Montgomery Securities LLC, CIBC Oppenheimer Corp. and First Union Capital
Markets, a division of Wheat First Securities, Inc. (each an "Initial Purchaser"
and, collectively, the "Initial Purchasers"), each of whom has agreed to
purchase the Company's 13.5% Senior Notes due 2009 (the "Series A Notes")
pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement,
dated January 27, 1999 (the "Purchase Agreement"), by and among the Company and
the Initial Purchasers. In order to induce the Initial Purchasers to purchase
the Series A Notes, the Company has agreed to provide the registration rights
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers set forth in Section 5 of
the Purchase Agreement. Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to them the Indenture, dated the date hereof
among the Company and Norwest Bank Minnesota, National Assocation, as Trustee,
relating to the Series A Notes and the Series B Notes (the "Indenture").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms
shall have the following meanings:
Act: The Securities Act of 1933, as amended.
Affiliate: As defined in Rule 144 of the Act.
Broker-Dealer: Any broker or dealer registered under the
Exchange Act.
Certificated Securities: Definitive Notes, as defined in the
Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Series B Notes in the same aggregate
principal amount as the aggregate principal amount of Series
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A Notes tendered by Holders thereof pursuant to the Exchange Offer.
Consummation Deadline: As defined in Section 3(b) hereof.
Effectiveness Deadline: As defined in Section 3(a) and 4(a)
hereof.
Exchange Act: The Securities Exchange Act of 1934, as
amended.
Exchange Offer: The exchange and issuance by the Company of a
principal amount of Series B Notes (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal amount
of Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
Exchange Offer Registration Statement: The Registration
Statement relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial
Purchasers propose to sell the Series A Notes to certain "qualified
institutional buyers," as such term is defined in Rule 144A under the Act, and
pursuant to Regulation S under the Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
Holders: As defined in Section 2 hereof.
Prospectus: The prospectus included in a Registration
Statement at the time such Registration Statement is declared effective, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the
Company relating to (a) an offering of Series B Notes pursuant to an Exchange
Offer or (b) the registration for resale of Transfer Restricted Securities
pursuant to the Shelf Registration Statement, in each case (i) that is filed
pursuant to the provisions of this Agreement and (ii) including the Prospectus
included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
Regulation S: Regulation S promulgated under the Act.
Rule 144: Rule 144 promulgated under the Act.
Series B Notes: The Company's 13.5% Series B Senior Notes due
2009 to be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii)
as contemplated by Section 4 hereof.
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Shelf Registration Statement: As defined in Section 4 hereof.
Suspension Notice: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date --- of the Indenture.
Transfer Restricted Securities: (i) Each Series A Note, until
the earliest to occur of (a) the date on which such Series A Note is exchanged
in the Exchange Offer for a Series B Note which is entitled to be resold to the
public by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (b) the date on which such Series A Note has been
disposed of in accordance with a Shelf Registration Statement, or (c) the date
on which such Series A Note is distributed to the public pursuant to Rule 144
under the Act and (ii) each Series B Note acquired by a Broker-Dealer in
exchange for a Series A Note acquired for its own account as a result of market
making activities or other trading activities until the date on which such
Series B Note is disposed of by a Broker-Dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration Statement
(including the delivery of the Prospectus contained therein).
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted
Securities (each, a "Holder") whenever such Person owns Transfer Restricted
Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by
applicable federal law (after the procedures set forth in Section 6(a)(i) below
have been complied with), the Company shall (i) cause the Exchange Offer
Registration Statement to be filed with the Commission as soon as reasonably
practicable after the Closing Date, but in no event later 90 days after the
Closing Date (such 90th day being the "Filing Deadline"), (ii) use its
reasonable best efforts to cause such Exchange Offer Registration Statement to
become effective at the earliest possible time, but in no event later than 180
days after the Closing Date (such 180th day being the "Effectiveness Deadline"),
(iii) in connection with the foregoing, (A) file all pre-effective amendments to
such Exchange Offer Registration Statement as may be necessary in order to cause
it to become effective, (B) file, if applicable, a post-effective amendment to
such Exchange Offer Registration Statement pursuant to Rule 430A under the Act
and (C) cause all necessary filings, if any, in connection with the registration
and qualification of the Series B Notes to be made under the Blue Sky laws of
such jurisdictions as are necessary to permit Consummation of the Exchange
Offer, and (iv) upon the effectiveness of such Exchange Offer Registration
Statement, commence and Consummate the Exchange Offer. The Exchange Offer shall
be on the appropriate form permitting (i) registration of the Series B Notes to
be offered in exchange for the Series A Notes that are Transfer Restricted
Securities and (ii) resales of Series B Notes by Broker-Dealers that tendered
into the Exchange Offer Series A Notes that such Broker-Dealer acquired for its
own account as a result of market making activities or other trading activities
(other than Series A Notes acquired directly from the Company or any of its
Affiliates) as contemplated by Section 3(c) below.
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(b) The Company shall use its reasonable best efforts to
cause the Exchange Offer Registration Statement to be effective continuously,
and shall keep the Exchange Offer open for a period of not less than the minimum
period required under applicable federal and state securities laws to Consummate
the Exchange Offer; provided, however, that in no event shall such period be
less than 20 business days. The Company shall cause the Exchange Offer to comply
with all applicable federal and state securities laws. No securities other than
the Series B Notes shall be included in the Exchange Offer Registration
Statement. The Company shall use its reasonable best efforts to cause the
Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 30 business days thereafter (such 30th business day being the
"Consummation Deadline").
(c) The Company shall include a "Plan of Distribution"
section in the Prospectus contained in the Exchange Offer Registration Statement
and indicate therein that any Broker-Dealer who holds Transfer Restricted
Securities that were acquired for the account of such Broker-Dealer as a result
of market-making activities or other trading activities (other than Series A
Notes acquired directly from the Company or any Affiliate of the Company), may
exchange such Transfer Restricted Securities pursuant to the Exchange Offer.
Such "Plan of Distribution" section shall also contain all other information
with respect to such sales by such Broker-Dealers that the Commission may
require in order to permit such sales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the amount of
Transfer Restricted Securities held by any such Broker-Dealer, except to the
extent required by the Commission as a result of a change in policy, rules or
regulations after the date of this Agreement.
Because such Broker-Dealer may be deemed to be an
"underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with its initial
sale of any Series B Notes received by such Broker-Dealer in the Exchange Offer,
the Company shall permit the use of the Prospectus contained in the Exchange
Offer Registration Statement by such Broker-Dealer to satisfy such prospectus
delivery requirement. To the extent necessary to ensure that the Prospectus
contained in the Exchange Offer Registration Statement is available for sales of
Series B Notes by Broker-Dealers, the Company agrees to use its best efforts to
keep the Exchange Offer Registration Statement continuously effective,
supplemented, amended and current as required by and subject to the provisions
of Section 6(a) and (c) hereof and in conformity with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of one year from the date on which the
Exchange Offer is Consummated or such shorter period as will terminate when all
Transfer Restricted Securities covered by such Registration Statement have been
sold pursuant thereto. The Company shall provide sufficient copies of the latest
version of such Prospectus to such Broker-Dealers, promptly upon request, and in
no event later than one day after such request, at any time during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not
permitted by applicable law
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(after the Company has complied with the procedures set forth in Section 6(a)(i)
below) or (ii) if any Holder of Transfer Restricted Securities shall notify the
Company within 20 business days following the Consummation of the Exchange Offer
that (A) such Holder was prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such Holder may not resell the Series
B Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder or (C)
such Holder is a Broker-Dealer and holds Series A Notes acquired directly from
the Company or any of its Affiliates, then the Company shall:
(x) cause to be filed, on or prior to 30 days after the
earlier of (i) the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above and
(ii) the date on which the Company receives the notice specified in clause
(a)(ii) above (such earlier date, the "Filing Deadline"), a shelf registration
statement pursuant to Rule 415 under the Act (which may be an amendment to the
Exchange Offer Registration Statement (the "Shelf Registration Statement")),
relating to all Transfer Restricted Securities (provided, that nothing in this
Section 4(a)(x) shall be interpreted as requiring the filing of the Shelf
Registration Statement prior to the Filing Deadline for the Exchange Offer
Regulation Statement), and
(y) shall use its reasonable best efforts to cause such Shelf
Registration Statement to become effective on or prior to 90 days after the
Filing Deadline for the Shelf Registration Statement (such 90th day the
"Effectiveness Deadline").
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law (i.e.,
clause (a)(i) above), then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above;
provided that, in such event, the Company shall remain obligated to meet the
Effectiveness Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration
Statement is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a) and the other
securities required to be registered therein pursuant to Section 6(b)(ii)
hereof, the Company shall use its best efforts to keep any Shelf Registration
Statement required by this Section 4(a) continuously effective, supplemented,
amended and current as required by and subject to the provisions of Sections
6(b) and (c) hereof and in conformity with the requirements of this Agreement,
the Act and the policies, rules and regulations of the Commission as announced
from time to time, for a period of at least two years (as extended pursuant to
Section 6(c)(i)) following the Closing Date, or such shorter period as will
terminate when all Transfer Restricted Securities covered by such Shelf
Registration Statement have been sold pursuant thereto.
(b). Provision by Holders of Certain Information in
Connection with the Shelf Registration Statement. No Holder of Transfer
Restricted Securities may include any of its Transfer Restricted Securities in
any Shelf Registration Statement pursuant to this Agreement unless and until
such Holder furnishes to the Company in writing, within 20 days after receipt of
a request therefor,
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<PAGE>
the information specified in Item 507 or 508 of Regulation S-K, as applicable,
of the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. By its acceptance of Transfer Restricted Securities, each Holder
agrees to promptly furnish additional information required to be disclosed in
order to make the information previously furnished to the Company by such Holder
not materially misleading. The Company shall not be obligated to supplement such
Shelf Registration Statement after it has been declared effectively by the
Commission more than one time per quarterly period to reflect additional
Holders.
SECTION 5. ADDITIONAL INTEREST
If (i) any Registration Statement required by this Agreement
is not filed with the Commission on or prior to the applicable Filing Deadline,
(ii) any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation Deadline
or (iv) any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded within five business
days by a post-effective amendment to such Registration Statement that cures
such failure and that is itself declared effective within ten business days of
filing such post-effective amendment to such Registration Statement (each such
event referred to in clauses (i) through (iv), a "Registration Default"), then
the Company hereby agrees to pay to each Holder of Transfer Restricted
Securities affected thereby (subject to Section 4(b)) additional interest in an
amount equal to $.05 per week per $1,000 in principal amount of Transfer
Restricted Securities held by such Holder for each week or portion thereof that
the Registration Default continues for the first 90-day period immediately
following the occurrence of such Registration Default. The amount of the
liquidated damages shall increase by an additional $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of additional interest of $.50 per week per $1,000 in principal
amount of Transfer Restricted Securities; provided that the Company shall in no
event be required to pay liquidated damages for more than one Registration
Default at any given time. Notwithstanding anything to the contrary set forth
herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (i) above, (2)
upon the effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the additional
interest payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued additional interest shall be paid to the Holders
entitled thereto, in the manner provided for the payment of interest in the
Indenture, on each Interest Payment Date, as more
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fully set forth in the Indenture and the Notes. Notwithstanding the fact that
any securities for which additional interest is due cease to be Transfer
Restricted Securities, all obligations of the Company to pay additional interest
with respect to securities shall survive until such time as such obligations
with respect to such securities shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with
the Exchange Offer, the Company shall (x) comply with all applicable provisions
of Section 6(c) below, (y) use its reasonable best efforts to effect such
exchange and to permit the resale of Series B Notes by any Broker-Dealer that
tendered Series A Notes in the Exchange Offer that such Broker-Dealer acquired
for its own account as a result of its market making activities or other trading
activities (other than Series A Notes acquired directly from the Company or any
of its Affiliates) being sold in accordance with the intended method or methods
of distribution thereof, and (z) comply with all of the following provisions:
(i) If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, that in the reasonable opinion of counsel to the Company
raises a substantial question as to whether the Exchange Offer is
permitted by applicable federal law, the Company hereby agrees to seek a
no-action letter or other favorable decision from the Commission
allowing the Company to Consummate an Exchange Offer for such Transfer
Restricted Securities. The Company hereby agrees to pursue the issuance
of such a decision to the Commission staff level. In connection with the
foregoing, the Company hereby agrees to take all such other reasonable
actions as may be requested by the Commission or otherwise required in
connection with the issuance of such decision, including without
limitation (A) participating in telephonic conferences with the
Commission staff, (B) delivering to the Commission staff an analysis
prepared by counsel to the Company setting forth the legal bases, if
any, upon which such counsel has concluded that such an Exchange Offer
should be permitted and (C) diligently pursuing a resolution (which need
not be favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange
Offer, each Holder of Transfer Restricted Securities (including, without
limitation, any Holder who is a Broker Dealer) shall furnish, upon the
request of the Company, prior to the Consummation of the Exchange Offer,
a written representation to the Company (which may be contained in the
letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an Affiliate of the Company,
(B) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Series B Notes to be issued in the Exchange Offer
and (C) it is acquiring the Series B Notes in its ordinary course of
business. Each Holder using the Exchange Offer to participate in a
distribution of the Series B Notes will be required to acknowledge and
agree that, if the resales are of Series B Notes obtained by such Holder
in exchange for Series A Notes acquired directly from the Company or an
Affiliate thereof, it (1) could not, under Commission policy as in
effect on the date of this Agreement, rely on the position of the
Commission enunciated in Morgan Stanley and Co., Inc. (available June 5,
1991) and Exxon
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Capital Holdings Corporation (available May 13, 1988), as interpreted in
the Commission's letter to Shearman & Sterling dated July 2, 1993, and
similar no-action letters (including, if applicable, any no-action
letter obtained pursuant to clause (i) above), and (2) must comply with
the registration and prospectus delivery requirements of the Act in
connection with a secondary resale transaction and that such a secondary
resale transaction must be covered by an effective registration
statement containing the selling security holder information required by
Item 507 or 508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company shall provide a supplemental letter
to the Commission (A) stating that the Company is registering the
Exchange Offer in reliance on the position of the Commission enunciated
in Exxon Capital Holdings Corporation (available May 13, 1988), Morgan
Stanley and Co., Inc. (available June 5, 1991) as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and, if
applicable, any no-action letter obtained pursuant to clause (i) above,
(B) including a representation that the Company has not entered into any
arrangement or understanding with any Person to distribute the Series B
Notes to be received in the Exchange Offer and that, to the best of the
Company's information and belief, each Holder participating in the
Exchange Offer is acquiring the Series B Notes in its ordinary course of
business and has no arrangement or understanding with any Person to
participate in the distribution of the Series B Notes received in the
Exchange Offer and (C) any other undertaking or representation required
by the Commission as set forth in any no-action letter obtained pursuant
to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the
Shelf Registration Statement, the Company shall:
(i) comply with all the provisions of Section 6(c) and 6(d)
below and use its reasonable best efforts to effect such registration to
permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof
(as indicated in the information furnished to the Company pursuant to
Section 4(b) hereof), and pursuant thereto the Company will prepare and
file with the Commission a Registration Statement relating to the
registration on any appropriate form under the Act, which form shall be
available for the sale of the Transfer Restricted Securities in
accordance with the intended method or methods of distribution thereof
within the time periods and otherwise in accordance with the provisions
hereof; and
(ii) issue, upon the request of any Holder or purchaser of
Series A Notes covered by any Shelf Registration Statement contemplated
by this Agreement, Series B Notes having an aggregate principal amount
equal to the aggregate principal amount of Series A Notes sold pursuant
to the Shelf Registration Statement and surrendered to the Company for
cancellation; the Company shall register Series B Notes on the Shelf
Registration Statement for this purpose and issue the Series B Notes to
the purchaser(s) of securities subject to the Shelf Registration
Statement in the names as such purchaser(s) shall designate.
(c) General Provisions. In connection with any Registration
Statement and any
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related Prospectus required by this Agreement, the Company shall:
(i) use its reasonable best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement,
as applicable. Upon the occurrence of any event that would cause any
such Registration Statement or the Prospectus contained therein (A) to
contain an untrue statement of material fact or omit to state any
material fact necessary to make the statements therein not misleading or
(B) not to be effective and usable for resale of Transfer Restricted
Securities during the period required by this Agreement, the Company
shall file promptly an appropriate amendment to such Registration
Statement curing such defect, and, if Commission review is required, use
its reasonable best efforts to cause such amendment to be declared
effective as soon as reasonably practicable; if at any time the
Commission shall issue any stop order suspending the effectiveness of
any Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification
or exemption from qualification of the Transfer Restricted Securities
under state securities or Blue Sky laws, the Company shall use its
reasonable best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as
may be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may
be; cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply fully with Rules 424, 430A and 462, as
applicable, under the Act in a timely manner; and comply with the
provisions of the Act with respect to the disposition of all securities
covered by such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement
to the Prospectus;
(iii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any restrictive
legends; and to register such Transfer Restricted Securities in such
denominations and such names as the selling Holders may request at least
two business days prior to such sale of Transfer Restricted Securities
(provided that such Holders give the Company notice of such sale at
least 5 business days prior to such sale);
(iv) use its reasonable best efforts after receipt of
appropriate notice from a seller or sellers to cause the disposition of
the Transfer Restricted Securities covered by the Registration Statement
to be registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof
to consummate the disposition of such Transfer Restricted Securities;
provided, however, that the Company shall not be required to register or
qualify as a foreign corporation where it is not now so qualified or to
take any action that would subject it to the service of process in suits
or to taxation, other
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than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(v) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration Statement
covering such Transfer Restricted Securities and provide the Trustee
under the Indenture with certificates for the Transfer Restricted
Securities which are in a form eligible for deposit with The Depository
Trust Company and Euroclear and Cedel;
(vi) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission, and make
generally available to its security holders with regard to any
applicable Registration Statement, as soon as reasonably practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term is
defined in paragraph (c) of Rule 158 under the Act); and
(vii) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required by this Agreement and, in connection therewith, cooperate with
the Trustee and the Holders to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in accordance with
the terms of the TIA; and execute and use its reasonable best efforts to
cause the Trustee to execute, all documents that may be required to
effect such changes and all other forms and documents required to be
filed with the Commission to enable such Indenture to be so qualified in
a timely manner.
(d) Additional provisions applicable to Shelf Registration
Statements and Certain Exchange Offer Prospectuses. In connection with each
Shelf Registration Statement, and each Exchange Offer Registration Statement if
and to the extent that an Initial Purchaser has notified the Company that it is
a holder of Series B Notes that are Transfer Restricted Securities (for so long
as such Series B Notes are Transfer Restricted Securities or for the period
provided in Section 3, whichever is shorter), the Company shall:
(i) advise each Holder known to the Company promptly and, if
requested by such Holder, confirm such advice in writing, (A) when the
applicable Registration Statement or any post-effective amendment
thereto, has become effective under the Act, (B) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation
of any proceeding for any of the preceding purposes, (C) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement in order to
make the statements therein not misleading, or that requires the making
of any additions to or changes in the Prospectus in order to make the
statements therein, in the light of the circumstances under which they
11
<PAGE>
were made, not misleading;
(ii) if any fact or event contemplated by Section 6(d)(i)(C)
above shall exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(iii) furnish to each Holder known to the Company in
connection with such exchange or sale, if any, before filing with the
Commission, copies of any Registration Statement or any Prospectus
included therein (except the Prospectus included in the Exchange Offer
Registration Statement at the time it was declared effective) as is
proposed to be filed with the Commission, which documents will be
subject to the review and comment of such Holders in connection with
such sale, if any, for a period of at least five business days, and the
Company will not file any such Registration Statement or Prospectus to
which such Holders shall reasonably object within five business days
after the receipt thereof, A Holder shall be deemed to have reasonably
objected to such filing if such Registration Statement, or Prospectus as
applicable, as proposed to be filed, contains an untrue statement of a
material fact or omits to state any material fact necessary to make the
statements therein not misleading or fails to comply with the applicable
requirements of the Act;
(iv) make available, at reasonable times, for inspection by
each Holder and any attorney or accountant retained by such Holders, all
financial and other records, pertinent corporate documents of the
Company and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such Holder, attorney
or accountant in connection with such Registration Statement or any
post-effective amendment thereto subsequent to the filing thereof and
prior to its effectiveness (subject to the execution by such Holder of a
confidentiality agreement);
(v) if requested by any Holders in writing in connection with
such exchange or sale, promptly include in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such Holders may reasonably request to
have included therein, including, without limitation, information
relating to the "Plan of Distribution" of the Transfer Restricted
Securities; and make all required filings of such Prospectus supplement
or post-effective amendment as soon as reasonably practicable after the
Company is notified of the matters to be included in such Prospectus
supplement or post-effective amendment (provided that nothing in this
Section 6(d)(v) shall be interpreted to acquire the Company to file a
supplement or post-effective amendment more than one time per quarter);
(vi) furnish to each Holder known to the Company in
connection with such exchange or sale without charge, at least one copy
of the Registration Statement, as first filed with the Commission, and
of each amendment thereto, including all documents incorporated
12
<PAGE>
by reference therein and all exhibits (including exhibits incorporated
therein by reference);
(vii) deliver to each Holder known to the Company without
charge, as many copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto as such Holder
reasonably may request; the Company hereby consents to the use (in
accordance with law) of the Prospectus and any amendment or supplement
thereto by each selling Holder in connection with the offering and the
sale of the Transfer Restricted Securities covered by the Prospectus or
any amendment or supplement thereto;
(viii) upon the written request of any Holder or Holders who
collectively hold an aggregate principal amount of Series A Notes in
excess of $15.0 million (the "Requesting Holders") (on one occasion),
enter into an underwriting agreement and make such representations and
warranties and take all such other actions in connection therewith in
order to expedite or facilitate the disposition of the Transfer
Restricted Securities pursuant to any applicable Registration Statement
contemplated by this Agreement as may be reasonably requested by any
Requesting Holder in connection with any sale or resale pursuant to any
applicable Registration Statement and as are reasonably customary in
underwritten offerings. In such connection, the Company shall:
(A) upon request of the Requesting Holders, furnish (or
in the case of paragraphs (2) and (3), use its reasonable best
efforts to cause to be furnished) to each Requesting Holder,
upon Consummation of the Exchange Offer or upon the
effectiveness of the Shelf Registration Statement, as the case
may be in connection with any underwriting agreement:
(1) a certificate, dated such date, signed on
behalf of the Company by (x) the President or any Vice
President and (y) a principal financial or accounting
officer of the Company, confirming, as of the date
thereof, the matters set forth in Sections 1(d) and
5(e) of the Purchase Agreement and such other similar
matters as such Requesting Holders may reasonably
request;
(2) an opinion, dated the date of Consummation of
the Exchange Offer or the date of effectiveness of the
Shelf Registration Statement, as the case may be, of
counsel for the Company covering matters similar to
those set forth in Section 5(c) of the Purchase
Agreement and such other matters as such Holder may
reasonably request, and in any event including a
statement to the effect that such counsel has
participated in conferences with officers and other
representatives of the Company, representatives of the
independent public accountants for the Company and has
considered the matters required to be stated therein
and the statements contained therein, although such
counsel has not independently verified the accuracy,
completeness or fairness of such statements; and that
such counsel advises that, on the basis of the
foregoing, no facts came to such counsel's attention
that caused such counsel to believe that the applicable
Registration Statement, at the time such Registration
Statement
13
<PAGE>
or any post-effective amendment thereto became
effective and, in the case of the Exchange Offer
Registration Statement, as of the date of Consummation
of the Exchange Offer, contained an untrue statement of
a material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, or that the
Prospectus contained in such Registration Statement as
of its date and, in the case of the opinion dated the
date of Consummation of the Exchange Offer, as of the
date of Consummation, contained an untrue statement of
a material fact or omitted to state a material fact
necessary in order to make the statements therein, in
the light of the circumstances under which they were
made, not misleading. Without limiting the foregoing,
such counsel may state further that such counsel
assumes no responsibility for, and has not
independently verified, the accuracy, completeness or
fairness of the financial statements, notes and
schedules and other financial data included in any
Registration Statement contemplated by this Agreement
or the related Prospectus; and
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date
of effectiveness of the Shelf Registration Statement,
as the case may be, from the Company's independent
accountants, in the customary form and covering matters
of the type customarily covered in comfort letters to
underwriters in connection with underwritten offerings,
and affirming the matters set forth in the comfort
letters delivered pursuant to Section 5(a) of the
Purchase Agreement; and
(B) deliver such other documents and certificates as
may be reasonably requested by the selling Holders to evidence
compliance with the matters covered in clause (A) above and
with any customary conditions contained in any agreement
entered into by the Company pursuant to this clause (ix);
(ix) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may request and do any and all
other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however, that the Company
shall not be required to register or qualify as a foreign corporation
where it is not now so qualified or to take any action that would
subject it to the service of process in suits or to taxation, other than
as to matters and transactions relating to the Registration Statement,
in any jurisdiction where it is not now so subject; and
(e) Restrictions on Holders. Each Holder's acquisition of a
Transfer Restricted Security constitutes such Holder's agreement that, upon
receipt of the notice referred to in Section 6(d)(i)(B) or any notice from the
Company of the existence of any fact of the kind described in Section 6(d)(i)(C)
hereof (in each case, a "Suspension Notice"), such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration
14
<PAGE>
Statement until (i) such Holder has received copies of the supplemented or
amended Prospectus contemplated by Section 6(d)(ii) hereof, or (ii) such Holder
is advised in writing by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or supplemental filings that
are incorporated by reference in the Prospectus (in each case, the
"Recommencement Date"). Each Holder receiving a Suspension Notice shall be
required to either (i) destroy any Prospectuses, other than permanent file
copies, then in such Holder's possession which have been replaced by the Company
with more recently dated Prospectuses or (ii) deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in such
Holder's possession of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of the Suspension Notice. The
time period regarding the effectiveness of such Registration Statement set forth
in Section 3 or 4 hereof, as applicable, shall be extended by a number of days
equal to the number of days in the period from and including the date of
delivery of the Suspension Notice to the date of delivery of the Recommencement
Date.
SECTION 7. REGISTRATION EXPENSES
(a). All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses; (ii) all fees and
expenses of compliance with federal securities and state Blue Sky or securities
laws; (iii) all expenses of printing (including certificates for the Series B
Notes to be issued in the Exchange Offer and printing of Prospectuses, messenger
and delivery services and telephone; (iv) all fees and disbursements of counsel
for the Company, and one counsel for the Holders of Transfer Restricted
Securities in connection with an underwritten offering which shall be Latham &
Watkins or such other counsel as may be selected by a majority of such Holders;
(v) all application and filing fees in connection with listing the Series B
Notes on a national securities exchange or automated quotation system pursuant
to the requirements hereof (provided that this clause (v) shall in no event be
interpreted as requiring such listing of the Series B Notes); and (vi) all fees
and disbursements of independent certified public accountants of the Company
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
(b). In connection with any Registration Statement required
by this Agreement (including, without limitation, the Exchange Offer
Registration Statement and the Shelf Registration Statement), the Company will
reimburse the Initial Purchasers and the Holders of Transfer Restricted
Securities who are tendering Series A Notes into in the Exchange Offer and/or
selling or reselling Series A Notes or Series B Notes pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or the
Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be Latham & Watkins unless
15
<PAGE>
another firm shall be chosen by the Holders of a majority in principal amount of
the Transfer Restricted Securities for whose benefit such Registration Statement
is being prepared.
SECTION 8. INDEMNIFICATION
(a). The Company agrees to indemnify and hold harmless each
Holder, its directors, officers and each Person, if any, who controls such
Holder (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act), from and against any and all losses, claims, damages,
liabilities, judgments, (including without limitation, any legal or other
expenses incurred in connection with investigating or defending any matter,
including any action that could give rise to any such losses, claims, damages,
liabilities or judgments) caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus (or any amendment or supplement thereto)
provided by the Company to any Holder for use in connection with the resale of
Series B Notes or registered Series A Notes, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by an untrue
statement or omission or alleged untrue statement or omission that is based upon
information relating to any of the Holders furnished in writing to the Company
by any of the Holders.
(b). By its acquisition of Transfer Restricted Securities,
each Holder of Transfer Restricted Securities agrees to indemnify and hold
harmless the Company and its directors and officers, and each person, if any,
who controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) the Company to the same extent as the foregoing indemnity from the
Company set forth in section (a) above, but only with reference to information
relating to such Holder furnished in writing to the Company by such Holder
expressly for use in any Registration Statement. In no event shall any Holder,
its directors, officers or any Person who controls such Holder be liable or
responsible for any amount in excess of the amount by which the total amount
received by such Holder with respect to its sale of Transfer Restricted
Securities pursuant to a Registration Statement exceeds (i) the amount paid by
such Holder for such Transfer Restricted Securities and (ii) the amount of any
damages that such Holder, its directors, officers or any Person who controls
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
(c). In case any action shall be commenced involving any
person in respect of which indemnity may be sought pursuant to Section 8(a) or
8(b) (the "indemnified party"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying person") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all reasonable fees and expenses of such counsel, as
incurred (except that in the case of any action in respect of which indemnity
may be sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be
required to assume the defense of such action pursuant to this Section 8(c), but
may employ separate counsel and participate in the defense thereof, but the fees
and expenses of
16
<PAGE>
such counsel, except as provided below, shall be at the expense of the Holder).
Any failure to promptly notify the indemnifying person will not relieve the
indemnifying person from any liability it may have to any indemnified party
under this Section 8, except to the extent such failure prejudices the
indemnifying person. Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party within a reasonable period of
time after notification by the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by a majority of the Holders, in the case of the parties indemnified
pursuant to Section 8(a), and by the Company, in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than twenty business days after the
indemnifying party shall have received a request from the indemnified party for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of the indemnifying party) and, prior to the
date of such settlement, the indemnifying party shall have failed to comply with
such reimbursement request or given if good faith objection to such
indemnification request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the Indemnified party.
(d). To the extent that the indemnification provided for in
this Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company, on
the one hand, and the Holders, on the other hand, from their initial sale of
Transfer Restricted Securities (or in the case of Series B Notes that are
Transfer Restricted Securities, the sale of the Series A Notes for which such
Series B Notes
17
<PAGE>
were exchanged) or (ii) if the allocation provided by clause 8(d)(i) is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 8(d)(i) above but also the
relative fault of the Company, on the one hand, and of the Holder, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Holder, on the other hand, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, on the one hand, or by the Holder, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and judgments referred to above shall be deemed to include, subject
to the limitations set forth in the second paragraph of Section 8(a), any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Company and, by its acquisition of Transfer Restricted
Securities, each Holder agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any matter, including any action
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, no Holder, its
directors, its officers or any Person, if any, who controls such Holder shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the total received by such Holder with respect to the sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds (i) the
amount paid by such Holder for such Transfer Restricted Securities and (ii) the
amount of any damages which such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(d) are several in
proportion to the respective principal amount of Transfer Restricted Securities
held by each Holder hereunder and not joint.
SECTION 9. RULE 144A and RULE 144
The Company agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding and during any period in which
the Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to
make available within a reasonable period of time, upon written request of any
Holder, to such Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted
18
<PAGE>
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to
Section 13 or 15(d) of the Exchange Act, to make all filings required thereby in
a timely manner in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company acknowledges and agrees that any
failure by it to comply with its obligations under Sections 3 and 4 hereof may
result in material irreparable injury to the Initial Purchasers or the Holders
for which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Initial Purchasers or any Holder may obtain such relief as may be
required to specifically enforce the Company's obligations under Sections 3 and
4 hereof. The Company further agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or
after the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof The Company has not
previously entered into any agreement granting any registration rights with
respect to its securities to any Person that would require such securities to be
included in any Registration Statement filed hereunder. The rights granted to
the Holders hereunder do not in any way conflict with and are not inconsistent
with the rights granted to the holders of the Company's securities under any
agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless (i) in the case of
Section 5 hereof and this Section 10(c)(i), the Company has obtained the written
consent of Holders of all outstanding Transfer Restricted Securities and (ii) in
the case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer, and that does not affect directly or indirectly the rights
of other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities subject to
such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent they may deem such enforcement
necessary or advisable to protect their rights hereunder.
(e) Notices. All notices and other communications provided
for or permitted
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<PAGE>
hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records
of the Registrar under the Indenture, with a copy to the Registrar under
the Indenture; and
(ii) if to the Company:
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, CA 95204
Facsimile:
Attention: CFO
All such notices and communications shall be deemed to have
been duly given at the time delivered by hand, when receipt acknowledged, if
telecopied; and on the next business day, if timely delivered to an air courier
guaranteeing overnight delivery.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee at
the address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders; provided, that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Transfer Restricted
Securities in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Transfer Restricted
Securities in any manner, whether by operation of law or otherwise, such
Transfer Restricted Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Transfer Restricted Securities such
Person shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement, including the restrictions on
resale set forth in this Agreement and, if applicable, the Purchase Agreement,
and such Person shall be entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
20
<PAGE>
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
21
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
PAC-WEST TELECOMM, INC.
By: /s/ Richard E. Bryson
-------------------------------
Name: Richard E. Bryson
Title: Chief Financial Officer
By: /s/ Wallace W. Griffin
-------------------------------
Name: Wallace W. Griffin
Title: President/CEO
NATIONSBANC MONTGOMERY SECURITIES LLC
CIBC OPPENHEIMER CORP.
FIRST UNION CAPITAL MARKETS, A DIVISION
OF WHEAT FIRST SECURITIES, INC., as the Initial
Purchasers
By NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ Stephen Sleigh
-------------------------------------
Name: Stephen Sleigh
Title: Vice President
[Signature Page to Registration Rights Agreement]
<PAGE>
EXHIBIT 10.3
Execution Copy
STOCK PURCHASE AGREEMENT
BY AND AMONG
PWT ACQUISITION CORP.
AND
EACH OF THE NEW INVESTORS NAMED HEREIN
----------------------------------
DATED AS OF SEPTEMBER 16, 1998
----------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. Authorization and Closing........................................... 1
1A. Authorization of the Acquisition Stock....................... 1
1B. Purchase and Sale of the Acquisition Stock................... 1
1C. The Closing.................................................. 2
2. Conditions of Each New Investor's Obligation at the Closing......... 2
2A. Representations and Warranties; Covenants.................... 2
2B. Articles of Incorporation.................................... 2
2C. Sale of the Acquisition Stock to Each New Investor........... 2
2D. Merger Agreement............................................. 2
2E. Litigation................................................... 2
2F. Filings...................................................... 2
2G. Governmental Consents and Approvals.......................... 3
2H. Closing Documents............................................ 3
3. Representations and Warranties of Acquisition....................... 3
3A. Organization, Corporate Power and Licenses................... 3
3B. Capital Stock and Related Matters............................ 3
3C. Authorization; No Breach..................................... 4
3D. Conduct of Business; Liabilities............................. 4
3E. Merger Agreement Representations............................. 4
4. Definitions......................................................... 4
4A. Definitions.................................................. 4
5. Miscellaneous....................................................... 6
5A. New Investor's Investment Representations.................... 6
5B. Consent to Amendments........................................ 6
5C. Survival of Representations and Warranties................... 7
5D. Successors and Assigns....................................... 7
5E. Severability................................................. 7
5F. Entire Agreement............................................. 7
5G. Counterparts................................................. 7
5H. Descriptive Headings; Interpretation......................... 7
5I. Governing Law................................................ 7
5J. Notices...................................................... 8
5K. No Strict Construction....................................... 9
5L. Understanding Among the New Investors........................ 9
Schedules and Exhibit
- ---------------------
Schedule of New Investors
-i-
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT is made as of September 16, 1998, by and
among PWT Acquisition Corp., a California corporation ("Acquisition"), and the
Persons listed on the attached Schedule of New Investors (collectively referred
to herein as the "New Investors" and individually as a "New Investor"). Except
as otherwise indicated herein, capitalized terms used herein are defined in
Section 4 hereof.
WHEREAS, pursuant to this Agreement, Acquisition desires to issue and
sell and the New Investors desire to purchase an aggregate of 88,456.70 shares
of Acquisition's Class A Participating Preferred Stock, par value $.01 per share
(the "Preferred Stock"), and 175,471.66 shares of Acquisition's Common Stock,
par value $.01 per share (the "Common Stock"), for the aggregate consideration
set forth on the Schedule of New Investors (the Preferred Stock and Common Stock
collectively referred to herein as the "Acquisition Stock");
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated
as of June 30, 1998 (as such agreement may be amended and modified from time to
time in accordance with its terms, the "Merger Agreement"), by and among
Acquisition, Pac-West Telecomm, Inc., a California Corporation (the "Company"),
Bay Alarm Company, a California Corporation ("Bay Alarm"), and John K. La Rue
("La Rue") (Bay Alarm and La Rue collectively referred to herein as "Existing
Shareholders" and individually as an "Existing Shareholder"), Acquisition will
merge with and into the Company as set forth in the Merger Agreement (the
"Merger");
WHEREAS, the New Investors are purchasing the Acquisition Stock
hereunder in order to provide a portion of the financing necessary to consummate
the Merger; and
WHEREAS, the purchase and sale of the Acquisition Stock contemplated
by this Agreement will be consummated immediately prior to the consummation of
the Merger pursuant to the terms of the Merger Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and understandings herein contained, the New Investors and Acquisition agree as
follows:
Section 1. Authorization and Closing.
1A. Authorization of the Acquisition Stock. Acquisition shall
authorize the issuance and sale to the New Investors of an aggregate of
88,456.70 shares of Preferred Stock having the rights and preferences set forth
in Exhibit A attached hereto, and 175,471.66 shares of Common Stock.
1B. Purchase and Sale of the Acquisition Stock. At the Closing (as
defined in paragraph 1C), Acquisition shall sell to each New Investor and,
subject to the terms and conditions set forth herein, each New Investor shall
purchase from Acquisition the number of shares of
<PAGE>
Acquisition Stock set forth opposite such New Investor's name on the Schedule of
New Investors attached hereto for the consideration set forth opposite such New
Investor's name on said Schedule. The sale of the Acquisition Stock to each New
Investor shall constitute a separate sale hereunder.
1C. The Closing. The closing of the separate purchases and sales of
the Acquisition Stock (the "Closing") shall take place immediately prior to the
Merger and at the same place as the closing of the Merger or at such other time
and place as may be mutually agreeable to each of the New Investors and
Acquisition. At the Closing, Acquisition shall record on its books and records
the Acquisition Stock to be purchased by such New Investor, upon payment of the
consideration therefor in the aggregate amount set forth opposite such New
Investor's name on the Schedule of New Investors attached hereto.
Section 2. Conditions of Each New Investor's Obligation at the
Closing. The obligation of each New Investor to purchase and pay for the
Acquisition Stock to be purchased by such New Investor at the Closing is subject
to the satisfaction as of the Closing of the following conditions:
2A. Representations and Warranties; Covenants. The representations
and warranties contained in Section 3 hereof shall be true and correct at and as
of the Closing as though then made and Acquisition shall have performed all of
the covenants required to be performed by it hereunder prior to the Closing.
2B. Articles of Incorporation. Acquisition's Articles of
Incorporation (the "Articles of Incorporation") shall be amended and restated to
include the provisions set forth in Exhibit A attached hereto, shall be in full
force and effect under the laws of the State of California as of the Closing and
shall not have been amended or modified.
2C. Sale of the Acquisition Stock to Each New Investor. Acquisition
shall have simultaneously sold to each New Investor the Acquisition Stock to be
purchased by such New Investor hereunder at the Closing and shall have received
payment therefor in full.
2D. Merger Agreement. The Merger Agreement shall be in form and
substance reasonably satisfactory to each New Investor, shall be in full force
and effect as of the Closing and shall not have been amended or modified.
2E. Litigation. No suit, action or other proceeding shall be pending
before any court or governmental or regulatory official, body or authority in
which it is sought to restrain or prohibit the transactions contemplated hereby
and no injunction, judgment, order, decree or ruling with respect thereto shall
be in effect.
2F. Filings. Acquisition shall have made all filings required to be
made by Acquisition and shall have obtained all permits and other authorizations
required to be obtained by Acquisition under all applicable federal and state
securities laws to consummate the transactions contemplated by this Agreement in
compliance with such laws.
- 2 -
<PAGE>
2G. Governmental Consents and Approvals. Acquisition and the New
Investors shall have received or obtained all governmental and regulatory
consents and approvals that are necessary for the consummation of the
transactions contemplated hereby, in each case on terms and conditions
satisfactory to the New Investors.
2H. Closing Documents. At the Closing, Acquisition shall have
delivered to each New Investor such other documents relating to the transactions
contemplated by this Agreement as any New Investor or the New Investors' special
counsel may reasonably request.
Section 3. Representations and Warranties of Acquisition. As a
material inducement to the New Investors to enter into this Agreement and
purchase the Acquisition Stock hereunder, Acquisition hereby represents and
warrants that:
3A. Organization, Corporate Power and Licenses. Acquisition is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and is qualified to do business in every jurisdiction
in which the failure to so qualify would reasonably be expected to have a
material adverse effect on the financial condition, operating results, assets,
operations or business prospects of Acquisition and its Subsidiaries taken as a
whole. Acquisition possesses all requisite corporate power and authority and all
material licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently proposed
to be conducted and to carry out the transactions contemplated by this
Agreement.
3B. Capital Stock and Related Matters.
(i) As of the Closing and after giving effect to the transactions
contemplated by this Agreement, the authorized capital stock of Acquisition
shall consist of (a) 175,000 shares of Preferred Stock, 88,456.70 of which shall
be issued and outstanding and (b) 1,500,000 shares of Common Stock, 175,471.66
of which shall be issued and outstanding. As of the Closing, neither Acquisition
nor any of its subsidiaries shall have outstanding any stock or securities
convertible or exchangeable for any shares of its capital stock or containing
any profit participation features, nor shall it have outstanding any rights or
options to subscribe for or to purchase its capital stock or any stock or
securities convertible into or exchangeable for its capital stock or any stock
appreciation rights or phantom stock plans, except for the Acquisition Stock. As
of the Closing, neither Acquisition nor any of its Subsidiaries shall be subject
to any obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any shares of its capital stock or any warrants, options or other
rights to acquire its capital stock, except as set forth in the Articles of
Incorporation. As of the Closing, all of the outstanding shares of Acquisition's
capital stock shall be validly issued, fully paid and nonassessable and the
Common Stock to be issued upon the conversion of the Preferred Stock in
accordance with the terms of the Articles of Incorporation shall, upon such
issuance, be validly issued, fully paid and nonassessable.
(ii) There are no statutory or contractual stockholders preemptive
rights or rights of refusal with respect to the issuance of the Acquisition
Stock hereunder. Acquisition has not
- 3 -
<PAGE>
violated any applicable federal or state securities laws in connection with the
offer, sale or issuance of any of its capital stock, and the offer, sale and
issuance of the Acquisition Stock hereunder does not require registration under
the Securities Act or any applicable state securities laws. There are no
agreements between Acquisition's stockholders with respect to the voting or
transfer of Acquisition's capital stock or with respect to any other aspect of
Acquisition's affairs.
3C. Authorization; No Breach. The execution, delivery and performance
of this Agreement and all other agreements and instruments contemplated hereby
to which Acquisition is a party, and the offering, sale and issuance of the
Acquisition Stock hereunder have been duly authorized by Acquisition. This
Agreement and all other agreements and instruments contemplated hereby to which
Acquisition is a party each constitutes a valid and binding obligation of
Acquisition, enforceable in accordance with its terms. The execution and
delivery by Acquisition of this Agreement and all other agreements and
instruments contemplated hereby to which Acquisition is a party, the offering,
sale and issuance of the Acquisition Stock hereunder and the fulfillment of and
compliance with the respective terms hereof and thereof by Acquisition, do not
and shall not (i) conflict with or result in a breach of the terms, conditions
or provisions of, (ii) constitute a default under, (iii) result in the creation
of any Lien upon Acquisition's or any of its Subsidiaries' capital stock or
assets pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency pursuant to, the charter or bylaws of Acquisition or any of its
Subsidiaries, or any law, statute, rule or regulation to which Acquisition or
any of its Subsidiaries is subject, or any agreement, instrument, order,
judgment or decree to which Acquisition or any of its Subsidiaries is subject.
3D. Conduct of Business; Liabilities. Except as contemplated by this
Agreement, the Merger Agreement and all other agreements and instruments
contemplated by the Merger Agreement and the consummation of the transactions
contemplated herein and therein, prior to the Closing, Acquisition has not
conducted any business, incurred any expenses, obligations or liabilities or
entered into any contracts or agreements.
3E. Merger Agreement Representations. The representations and
warranties made by Acquisition in the Merger Agreement are true and correct in
all respects as of the Closing.
Section 4. Definitions.
4A. Definitions. For the purposes of this Agreement, the following
terms have the meanings set forth below:
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof), any sale of receivables
with recourse against Acquisition, any filing or agreement to a file a financing
statement as debtor under the Uniform Commercial Code or any similar statute
(other that to reflect ownership by a third party of property leased to
Acquisition under a lease which is not
- 4 -
<PAGE>
in the nature of a conditional sale or title retention agreement), or any
subordination arrangements in favor of another Person.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Restricted Securities" means (i) the Acquisition Stock issued
hereunder and (ii) any securities issued with respect to the securities referred
to in clause (i) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Restricted Securities, such
securities shall cease to be Restricted Securities when they have (a) been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them or (b) been distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act or become eligible for
sale pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
Section 5. Miscellaneous.
5A. New Investor's Investment Representations.
(i) Each New Investor hereby represents that it is acquiring the
Restricted Securities purchased hereunder or acquired pursuant hereto for its
own account with the present intention of holding such securities for purposes
of investment, and that it has no intention of selling such securities in a
public distribution in violation of the federal securities laws or any
applicable state securities laws.
- 5 -
<PAGE>
(ii) Each New Investor has been given full access to all information
regarding Acquisition that it has requested from Acquisition and has had the
opportunity to ask questions and receive answers concerning the terms and
conditions of the Acquisition Stock to be purchased by it hereunder. Each New
Investor is capable of evaluating and has evaluated the merits and risks of its
purchase of the Acquisition Stock hereunder and is able to bear the economic
risk of its investment in the Acquisition Stock.
(iii) Each New Investor is an "accredited investor" as defined in
Rule 501(a) under the Securities Act and has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of its prospective investment in the Acquisition Stock, is
able to bear the economic risk of such investment and, at the present time, is
able to afford a complete loss of such investment.
(iv) Each New Investor recognizes that it must bear the economic
risk of the investment represented by its purchase of the Acquisition Stock for
an indefinite period. Each New Investor understands that the Acquisition Stock
has not been registered under the Securities Act on the basis that the sale
provided for in this Agreement is exempt from the registration provisions
thereof and that Acquisition's reliance on such exemption is predicated upon the
representations of the New Investors set forth herein.
(v) Each New Investor has the requisite power and authority to
purchase the Restricted Securities to be purchased by such New Investor
hereunder. This Agreement is a valid and binding obligation of such New Investor
enforceable in accordance with its terms.
(vi) The representations and warranties in this paragraph 5A are
made severally by each New Investor with respect to such New Investor and not
jointly with respect to all New Investors.
5B. Consent to Amendments. The provisions of this Agreement may be
amended and Acquisition may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if Acquisition has
obtained the written consent of the holders of a majority of the Common Stock
purchased hereunder. No course of dealing between Acquisition and the holder of
any Acquisition Stock or any delay in exercising any rights hereunder or under
the Articles of Incorporation shall operate as a waiver of any rights of any
such holders. For purposes of this Agreement, shares of Common Stock held by
Acquisition or any of its Subsidiaries shall not be deemed to be outstanding.
5C. Survival of Representations and Warranties. All representations
and warranties contained herein or made in writing by any party to this
Agreement in connection herewith shall survive the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by any New Investor or on its behalf.
- 6 -
<PAGE>
5D. Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any New Investor's benefit as a New
Investor or holder of Restricted Securities are also for the benefit of, and
enforceable by, any subsequent holder of such Restricted Securities.
5E. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement or the application of any
such provision to any Person or circumstance shall be held to be prohibited by,
illegal or unenforceable under applicable law in any respect by a court of
competent jurisdiction, such provision shall be ineffective only to the extent
of such prohibition or illegality or unenforceability, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
5F. Entire Agreement. This Agreement and the agreements and
documents referred to herein contain the entire agreement and understanding
between the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, whether written or oral, relating to such
subject matter in any way.
5G. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts (including by means of telecopied signature pages), any
one of which need not contain the signatures of more than one party, but all
such counterparts taken together shall constitute one and the same Agreement.
5H. Descriptive Headings; Interpretation. The descriptive headings
of this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation and shall mean in
each instance "including without limitation."
5I. Governing Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of California, without giving effect to any choice
of law or conflict of law rules or provisions (whether of the State of
California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California.
5J. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
- 7 -
<PAGE>
communications shall be sent to each New Investor at the address indicated on
the Schedule of New Investors and to Acquisition at the address indicated below:
Notices to Acquisition:
c/o William Blair Capital Partners VI, LLC
227 West Monroe Street
Suite 3400
Chicago, Illinois 60606
Attention: David G. Chandler
Telephone: (312) 236-1600
Facsimile: (312) 236-1042
with a copies to (which shall not constitute notice):
SCP Private Equity Partners
800 Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Attention: Samuel A. Plum
Thomas G. Rebar
Telephone: (610) 995-2900
Facsimile: (610) 975-9543
and
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: James L. Learner
Telephone: (312) 861-2129
Facsimile: (312) 861-2200
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
5K. No Strict Construction. The parties have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties, and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
of the provisions of this Agreement.
5L. Understanding Among the New Investors. The determination of
each New Investor to purchase the Acquisition Stock pursuant to this Agreement
has been made by such New
- 8 -
<PAGE>
Investor independent of any other New Investor and independent of any
statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects or condition (financial or otherwise) of
Acquisition and its Subsidiaries which may have been made or given by any other
New Investor or by any agent or employee of any other New Investor. In addition,
it is acknowledged by each of the New Investors that no New Investor has acted
as an agent of any other New Investor in connection with making its investment
hereunder and that no New Investor shall be acting as an agent of any other New
Investor in connection with monitoring its investment hereunder.
* * * * *
- 9 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
PWT ACQUISITION CORP.
By: /s/ David G. Chandler
----------------------------------
Name: David G. Chandler
Its: President
By: /s/ Lawrence I. Shagrin
----------------------------------
Name: Lawrence I. Shagrin
Its: Assistant Secretary
WILLIAM BLAIR CAPITAL PARTNERS VI, L.P.
By: William Blair Capital Partners VI, L.L.C.,
Its: General Partner
By: /s/ David G. Chandler
----------------------------------
Name: David G. Chandler
Its: Managing Director
SCP PRIVATE EQUITY PARTNERS, L.P.
By: SCP Private Equity Management, L.P.
Its: General Partner
By: /s/ Samuel A. Plum
---------------------------
Name: Samuel A. Plum
Its: General Partner
<PAGE>
SAFEGUARD 98 CAPITAL, L.P.
By: Safeguard Delaware, Inc.
Its: General Partner
By: /s/ Jerry L. Johnson
---------------------
Name: Jerry L. Johnson
Title: Senior Vice President
TL VENTURES III L.P.
By: TL Ventures III Management L.P.
Its: General Partner
By: TL Ventures III LLC
Its: General Partner
By: /s/ Mark J. DeNino
-------------------
Name: Mark J. DeNino
Title: Managing Director
TL VENTURES III OFFSHORE L.P.
By: TL Ventures III Offshore Partners L.P.
Its: General Partner
By: TL Ventures III Offshore Ltd.
Its: General Partner
By: /s/ Mark J. DeNino
-------------------
Name: Mark J. DeNino
Title: Managing Director
<PAGE>
TL VENTURES III INTERFUND L.P.
By: TL Ventures III LLC
Its: General Partner
By: /s/ Mark J. DeNino
-------------------
Name: Mark J. DeNino
Title: Managing Director
ENERTECH CAPITAL PARTNERS, L.P.
By: EnerTech Management, L.P.
Its: General Partner
By: EnerTech Management Company, L.L.C.
Its: General Partner
By: /s/ Scott Ungerer
------------------
Name: Scott Ungerer
Title: Managing Director
SEGAL HOLDINGS, INC.
By: /s/ Robert B. Segal
--------------------
Name: Robert B. Segal
Title: President
BANKAMERICA INVESTMENT CORPORATION
By: /s/ M. Ann O'Brien
-------------------
Name: M. Ann O'Brien
Title: Managing Director
<PAGE>
MIG PARTNERS VII
By: /s/ M. Ann O'Brien
-------------------
Name: M. Ann O'Brien
Title: General Partner
SKIBO FAMILY LIMITED PARTNERSHIP
By: /s/ Charles M. Skibo
---------------------
Name: Charles M. Skibo
Title: General Partner
<PAGE>
SCHEDULE OF NEW INVESTORS
<TABLE>
<CAPTION>
Number of Purchase Number of Purchase Total Purchase
Shares of Price Shares of Price Price for
Preferred for Preferred Common for Common Preferred and
Name and Address Stock Stock Stock Stock Common Stock
- -------------------------------------- ---------- -------------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
SCP Private Equity Partners, L.P. 21,317.00 $ 7,674,120.00 33,250.00 $227,380.00 $ 7,901,500.00
800 The Safeguard Bldg.
435 Devon Park Drive
Wayne, PA 19087
William Blair Capital Partners VI, L.P. 21,317.00 $ 7,674,120.00 33,250.00 $227,380.00 $ 7,901,500.00
227 West Monroe Street
Suite 3400
Chicago, IL 60606
Safeguard 98 Capital, L.P. 21,317.00 $ 7,674,120.00 33,250.00 $227,380.00 $ 7,901,500.00
c/o Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
TL Ventures III L.P. 15,313.30 $ 5,512,788.00 23,885.00 $163,337.33 $ 5,676,125.33
c/o TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1515
Attention: Chief Financial Officer
Telephone: (610) 971-1515
Telecopier: (610) 975-9330
TL Ventures III Offshore L.P. 3,205.40 $ 1,153,944.00 5,000.00 $ 34,191.50 $ 1,188,135.50
c/o Trident Trust Company (Cayman)
Limited
P.O. Box 847
One Capital Place, Fourth Floor
Grand Cayman, Cayman Islands
with a copy to:
TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1515
Attention: Chief Financial Officer
Telephone: (610) 971-1515
Telecopier: (610) 975-9330
TL Ventures III Interfund L.P. 500.00 $ 180,000.00 780.00 $ 5,334.00 $ 185,334.00
c/o TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1515
Attention: Chief Financial Officer
Telephone: (610) 971-1515
Telecopier: (610) 975-9330
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number of Purchase Number of Purchase Total Purchase
Shares of Price for Shares of Price Price for
Preferred Preferred Common for Common Preferred and
Name and Address Stock Stock Stock Stock Common Stock
- --------------------------------------- --------- -------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
EnerTech Capital Partners, L.P. 2,298.30 $ 827,388.00 3,585.00 $ 24,517.17 $ 851,905.17
435 Devon Park Drive, Suite 410
Wayne, PA 19087
BankAmerica Investment Corporation 1,886.80 $ 679,248.00 2,941.33 $ 20,125.33 $ 699,373.33
c/o Bank of America Mezzanine
Investments Group
231 South LaSalle Street, 12th Floor
Chicago, IL 60697
MIG Partners VII 471.70 $ 169,812.00 735.33 $ 5,031.33 $ 174,843.33
c/o Bank of America Mezzanine
Investments Group
231 South LaSalle Street, 12th Floor
Chicago, IL 60697
Segal Holdings, Inc. 830.20 $ 298,872.00 1,295.00 $ 8,854.67 $ 307,726.67
1350 Avenue of the Americas (By services (By services (By services
Suite 1802 rendered) rendered) rendered)
New York, NY 10019
Skibo Family Limited Partnership 0 $ 0.00 37,500.00 As As
c\o Strategic Enterprises and consideration consideration
Communications, Inc. for release for release
9045 Hollyleaf Lane
Bethesda, MD 20817
------------------------------------------------------------------------
Totals: 88,456.70 $31,844,412.00 175,471.66 $943,531.33 $32,787,943.33
$ 298,872.00 $ 8,854.67 $ 307,726.67
(By services (By services (By services
rendered) rendered) rendered)
</TABLE>
<PAGE>
EXHIBIT 10.4
Execution Copy
STOCK PURCHASE AGREEMENT
BY AND AMONG
PAC-WEST TELECOMM, INC.
AND
EACH OF THE NEW INVESTORS NAMED HEREIN
------------------------------
DATED AS OF SEPTEMBER 16, 1998
------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
<TABLE>
<S> <C> <C>
1. Authorization and Closing......................................... 1
1A. Authorization of the Common Stock............................ 1
1B. Purchase and Sale of the Common Stock........................ 1
1C. The Closing.................................................. 2
2. Conditions of Each New Investor's Obligation at the Closing....... 2
2A. Representations and Warranties; Covenants.................... 2
2B. Shareholders Agreement....................................... 2
2C. Registration Agreement....................................... 2
2D. Sale of the Common Stock to Each New Investor................ 2
2E. Merger....................................................... 2
2F. Litigation................................................... 2
2G. Filings...................................................... 2
2H. Governmental Consents and Approvals.......................... 3
2I. Closing Documents............................................ 3
3. Representations and Warranties of the Company..................... 3
3A. Authorization; No Breach..................................... 3
3B. Capital Stock and Related Matters............................ 3
3C. Merger Agreement Representations............................. 4
4. Definitions....................................................... 4
4A. Definitions................................................ 4
5. Miscellaneous..................................................... 5
5A. New Investor's Investment Representations.................... 5
5B. Consent to Amendments........................................ 6
5C. Survival of Representations and Warranties................... 6
5D. Successors and Assigns....................................... 6
5E. Severability................................................. 7
5F. Entire Agreement............................................. 7
5G. Counterparts................................................. 7
5H. Descriptive Headings; Interpretation......................... 7
5I. Governing Law................................................ 7
5J. Notices...................................................... 7
5K. No Strict Construction....................................... 8
5L. Understanding Among the New Investors........................ 9
</TABLE>
Schedules and Exhibit
- ---------------------
Schedule of New Investors
-i-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of September 16, 1998, by and
among Pac-West Telecomm, Inc., a California corporation (the "Company"), and the
Persons listed on the attached Schedule of New Investors (collectively referred
to herein as the "New Investors" and individually as a "New Investor"). Except
as otherwise indicated herein, capitalized terms used herein are defined in
Section 4 hereof.
WHEREAS, pursuant to this Agreement, the Company desires to issue and
sell and the New Investors desire to purchase an aggregate of 689,858.34 shares
of the Company's Common Stock, par value $.01 per share (the "Common Stock"),
for the aggregate consideration set forth on the Schedule of New Investors
attached hereto;
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated
as of June 30, 1998 (as such agreement may be amended and modified from time to
time in accordance with its terms, the "Merger Agreement"), by and among the
Company, PWT Acquisition Corp., a California Corporation ("Acquisition"), Bay
Alarm Company, a California Corporation ("Bay Alarm"), and John K. La Rue ("La
Rue") (Bay Alarm and La Rue collectively referred to herein as "Existing
Shareholders" and individually as an "Existing Shareholder"), Acquisition will
merge with and into the Company as set forth in the Merger Agreement (the
"Merger");
WHEREAS, the New Investors are purchasing the Common Stock hereunder
in order to provide a portion of the financing necessary to consummate the
Merger; and
WHEREAS, the purchase and sale of the Common Stock contemplated by
this Agreement will be consummated immediately after the consummation of the
Merger pursuant to the terms of the Merger Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and understandings herein contained, the New Investors and the Company agree as
follows:
Section 1. Authorization and Closing.
1A. Authorization of the Common Stock. The Company shall authorize the
issuance and sale to the New Investors of an aggregate of 689,858.34 shares of
Common Stock.
1B. Purchase and Sale of the Common Stock. At the Closing (as defined
in paragraph 1C), the Company shall sell to each New Investor and, subject to
the terms and conditions set forth herein, each New Investor shall purchase from
the Company the number of shares of Common Stock set forth opposite such New
Investor's name on the Schedule of New Investors attached hereto for the
consideration set forth opposite such New Investor's name on said Schedule. The
sale of the Common Stock to each New Investor shall constitute a separate sale
hereunder.
<PAGE>
1C. The Closing. The closing of the separate purchases and sales of
the Common Stock (the "Closing") shall take place immediately after the Merger
and at the same place as the closing of the Merger or at such other time and
place as may be mutually agreeable to each of the New Investors and the Company.
At the Closing, the Company shall deliver to each New Investor stock
certificates evidencing the Common Stock to be purchased by such New Investor
registered in such New Investor's name, upon payment of the consideration
therefor in the aggregate amount set forth opposite such New Investor's name on
the Schedule of New Investors attached hereto.
Section 2. Conditions of Each New Investor's Obligation at the
Closing. The obligation of each New Investor to purchase and pay for the Common
Stock to be purchased by such New Investor at the Closing is subject to the
satisfaction as of the Closing of the following conditions:
2A. Representations and Warranties; Covenants. The representations and
warranties contained in Section 3 hereof shall be true and correct at and as of
the Closing as though then made and the Company shall have performed all of the
covenants required to be performed by it hereunder prior to the Closing.
2B. Shareholders Agreement. The Company, the Existing Shareholders,
the New Investors and the Executives shall have entered into a shareholders
agreement in the form of Exhibit B to the Merger Agreement (the "Shareholders
Agreement"), and the Shareholders Agreement shall be in full force and effect as
of the Closing and shall not have been amended or modified.
2C. Registration Agreement. The Company, the Existing Shareholders,
the New Investors and the Executives shall have entered into a registration
agreement in the form of Exhibit C to the Merger Agreement (the "Registration
Agreement"), and the Registration Agreement shall be in full force and effect as
of the Closing and shall not have been amended or modified.
2D. Sale of the Common Stock to Each New Investor. The Company shall
have simultaneously sold to each New Investor the Common Stock to be purchased
by such New Investor hereunder at the Closing and shall have received payment
therefor in full.
2E. Merger. The Merger shall have been consummated in accordance with
the terms of the Merger Agreement.
2F. Litigation. No suit, action or other proceeding shall be pending
before any court or governmental or regulatory official, body or authority in
which it is sought to restrain or prohibit the transactions contemplated hereby
and no injunction, judgment, order, decree or ruling with respect thereto shall
be in effect.
2G. Filings. The Company shall have made all filings required to be
made by the Company and shall have obtained all permits and other authorizations
required to be obtained by the
-2-
<PAGE>
Company under all applicable federal and state securities laws to consummate the
transactions contemplated by this Agreement in compliance with such laws.
2H. Governmental Consents and Approvals. The Company and the New
Investors shall have received or obtained all governmental and regulatory
consents and approvals that are necessary for the consummation of the
transactions contemplated hereby, in each case on terms and conditions
satisfactory to the New Investors.
2I. Closing Documents. At the Closing, the Company shall have
delivered to each New Investor such other documents relating to the transactions
contemplated by this Agreement as any New Investor or the New Investors' special
counsel may reasonably request.
Section 3. Representations and Warranties of the Company. As a
material inducement to the New Investors to enter into this Agreement and
purchase the Common Stock hereunder, the Company hereby represents and warrants
that:
3A. Authorization; No Breach. The execution, delivery and performance
of this Agreement and all other agreements and instruments contemplated hereby
to which the Company is a party, and the offering, sale and issuance of the
Common Stock hereunder have been duly authorized by the Company. This Agreement
and all other agreements and instruments contemplated hereby to which the
Company is a party each constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms. The execution and delivery by
the Company of this Agreement and all other agreements and instruments
contemplated hereby to which the Company is a party, the offering, sale and
issuance of the Common Stock hereunder and the fulfillment of and compliance
with the respective terms hereof and thereof by the Company, do not and shall
not (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the creation of
any Lien upon the Company's or any of its Subsidiaries' capital stock or assets
pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency pursuant to, the charter or bylaws of the Company or any of its
Subsidiaries, or any law, statute, rule or regulation to which the Company or
any of its Subsidiaries is subject, or any agreement, instrument, order,
judgment or decree to which the Company or any of its Subsidiaries is subject,
except for any filing, notice or authorization which has been obtained prior to
the date hereof.
3B. Capital Stock and Related Matters.
(i) As of the Closing and after giving effect to the transactions
contemplated by this Agreement, the authorized capital stock of the Company
shall consist of (a) 175,000 shares of Class A Participating Preferred Stock,
par value $.01 per share (the "Preferred Stock"), 125,000 of which shall be
issued and outstanding and (b) 1,500,000 shares of Common Stock, 1,250,000 of
which shall be issued and outstanding. As of the Closing, neither the Company
nor any of its subsidiaries shall have outstanding any stock or securities
convertible or exchangeable for any shares
-3-
<PAGE>
of its capital stock or containing any profit participation features, nor shall
it have outstanding any rights or options to subscribe for or to purchase its
capital stock or any stock or securities convertible into or exchangeable for
its capital stock or any stock appreciation rights or phantom stock plans,
except for the Preferred Stock and the Common Stock. As of the Closing, neither
the Company nor any of its Subsidiaries shall be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any warrants, options or other rights to acquire
its capital stock, except as set forth in the Articles of Incorporation. As of
the Closing, all of the outstanding shares of the Company's capital stock shall
be validly issued, fully paid and nonassessable and the Common Stock to be
issued upon the conversion of the Preferred Stock in accordance with the terms
of the Articles of Incorporation shall, upon such issuance, be validly issued,
fully paid and nonassessable.
(ii) There are no statutory or contractual stockholders preemptive
rights or rights of refusal with respect to the issuance of the Common Stock
hereunder. The Company has not violated any applicable federal or state
securities laws in connection with the offer, sale or issuance of any of its
capital stock, and the offer, sale and issuance of the Common Stock hereunder
does not require registration under the Securities Act or any applicable state
securities laws. There are no agreements between the Company's stockholders with
respect to the voting or transfer of the Company's capital stock or with respect
to any other aspect of the Company's affairs.
3C. Merger Agreement Representations. The representations and
warranties made by the Company in the Merger Agreement are true and correct in
all respects as of the Closing, except for any changes expressly contemplated by
the Merger Agreement and this Agreement.
Section 4. Definitions.
4A. Definitions. For the purposes of this Agreement, the following
terms have the meanings set forth below:
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Restricted Securities" means (i) the Common Stock issued hereunder,
(ii) the Preferred Stock issued upon conversion of the Company Common Stock and
(iii) any securities issued with respect to the securities referred to in
clauses (i) or (ii) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Restricted Securities, such
securities shall cease to be Restricted Securities when they have (a) been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) been distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act or become eligible for
sale pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend set forth in paragraph 5C have been
delivered
-4-
<PAGE>
by the Company in accordance with paragraph 3(b). Whenever any particular
securities cease to be Restricted Securities, the holder thereof shall be
entitled to receive from the Company, without expense, new securities of like
tenor not bearing a Securities Act legend of the character set forth in
paragraph 5C.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
Section 5. Miscellaneous.
5A. New Investor's Investment Representations.
(i) Each New Investor hereby represents that it is acquiring the
Restricted Securities purchased hereunder or acquired pursuant hereto for its
own account with the present intention of holding such securities for purposes
of investment, and that it has no intention of selling such securities in a
public distribution in violation of the federal securities laws or any
applicable state securities laws.
(ii) Each New Investor has been given full access to all information
regarding the Company that it has requested from the Company and has had the
opportunity to ask questions and receive answers concerning the terms and
conditions of the Common Stock to be purchased by it hereunder. Each New
Investor is capable of evaluating and has evaluated the merits and risks of its
purchase of the Common Stock hereunder and is able to bear the economic risk of
its investment in the Common Stock.
(iii) Each New Investor is an "accredited investor" as defined in Rule
501(a) under the Securities Act and has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of its prospective investment in the Common Stock, is able
to bear the economic risk of such investment and, at the present time, is able
to afford a complete loss of such investment.
-5-
<PAGE>
(iv) Each New Investor recognizes that it must bear the economic risk
of the investment represented by its purchase of the Common Stock for an
indefinite period. Each New Investor understands that the Common Stock has not
been registered under the Securities Act on the basis that the sale provided for
in this Agreement is exempt from the registration provisions thereof and that
the Company's reliance on such exemption is predicated upon the representations
of the New Investors set forth herein.
(v) Each New Investor has the requisite power and authority to
purchase the Restricted Securities to be purchased by such New Investor
hereunder. This Agreement is a valid and binding obligation of such New Investor
enforceable in accordance with its terms.
(vi) The representations and warranties in this paragraph 5A are made
severally by each New Investor with respect to such New Investor and not jointly
with respect to all New Investors.
5B. Consent to Amendments. The provisions of this Agreement may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company has
obtained the written consent of the holders of a majority of the Common Stock
purchased hereunder. No course of dealing between the Company and the holder of
any Common Stock or any delay in exercising any rights hereunder or under the
Articles of Incorporation shall operate as a waiver of any rights of any such
holders. For purposes of this Agreement, shares of Common Stock or Underlying
Stock held by the Company or any of its Subsidiaries shall not be deemed to be
outstanding.
5C. Survival of Representations and Warranties. All representations
and warranties contained herein or made in writing by any party to this
Agreement in connection herewith shall survive the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by any New Investor or on its behalf.
5D. Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any New Investor's benefit as a New
Investor or holder of Restricted Securities are also for the benefit of, and
enforceable by, any subsequent holder of such Restricted Securities.
5E. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement or the application of any
such provision to any Person or circumstance shall be held to be prohibited by,
illegal or unenforceable under applicable law in any respect by a court of
competent jurisdiction, such provision shall be ineffective only to the extent
of such prohibition or
-6-
<PAGE>
illegality or unenforceability, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
5F. Entire Agreement. This Agreement and the agreements and documents
referred to herein contain the entire agreement and understanding between the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, whether written or oral, relating to such subject
matter in any way.
5G. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts (including by means of telecopied signature pages), any one
of which need not contain the signatures of more than one party, but all such
counterparts taken together shall constitute one and the same Agreement.
5H. Descriptive Headings; Interpretation. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation and shall mean in
each instance "including without limitation."
5I. Governing Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of California, without giving effect to any choice
of law or conflict of law rules or provisions (whether of the State of
California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California.
5J. Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid) or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each New Investor at the address indicated on
the Schedule of New Investors and to the Company at the address indicated below:
Notices to the Company:
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, CA 95204
Attention: Chief Executive Officer
Telephone: (209) 926-3222
Facsimile: (209) 926-3205
-7-
<PAGE>
with a copies to (which shall not constitute notice):
William Blair Capital Partners VI, LLC
227 West Monroe Street
Suite 3400
Chicago, Illinois 60606
Attention: David G. Chandler
Telephone: (312) 236-1600
Facsimile: (312) 236-1042
and
SCP Private Equity Partners
800 Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Attention: Samuel A. Plum
Thomas G. Rebar
Telephone: (610) 995-2900
Facsimile: (610) 975-9543
and
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: James L. Learner
Telephone: (312) 861-2129
Facsimile: (312) 861-2200
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
5K. No Strict Construction. The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties, and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
of the provisions of this Agreement.
5L. Understanding Among the New Investors. The determination of each
New Investor to purchase the Common Stock pursuant to this Agreement has been
made by such New Investor independent of any other New Investor and independent
of any statements or opinions as to the advisability of such purchase or as to
the properties, business, prospects or condition (financial or otherwise) of the
Company and its Subsidiaries which may have been made or given by any other
-8-
<PAGE>
New Investor or by any agent or employee of any other New Investor. In addition,
it is acknowledged by each of the New Investors that no New Investor has acted
as an agent of any other New Investor in connection with making its investment
hereunder and that no New Investor shall be acting as an agent of any other New
Investor in connection with monitoring its investment hereunder.
* * * * *
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
PAC-WEST TELECOMM, INC.
By: /s/ John K. La Rue
-----------------------
Name: John K. La Rue
-----------------------
Its: President
-----------------------
By: /s/ Roger L. Westphal
-----------------------
Name: Roger L. Westphal
-----------------------
Its: Secretary
-----------------------
WILLIAM BLAIR CAPITAL PARTNERS VI, L.P.
By: William Blair Capital Partners VI,
L.L.C., its General Partner
By: /s/ David G. Chandler
------------------------
Name: David G. Chandler
Its Managing Director
SCP PRIVATE EQUITY PARTNERS, L.P.
By: SCP Private Equity Management, L.P.,
its General Partner
By: /s/ Samuel A. Plum
------------------------
Name: Samuel A. Plum
------------------------
Its General Partner
<PAGE>
SAFEGUARD 98 CAPITAL, L.P.
By: Safeguard Delaware, Inc.
its General Partner
By: /s/ Jerry L. Johnson
------------------------
Name: Jerry L. Johnson
------------------------
Title: Senior Vice President
------------------------
TL VENTURES III L.P.
By: TL Ventures III Management L.P.,
its General Partner
By: TL Ventures III LLC,
its General Partner
By:/s/ Mark J. DeNino
----------------------
Name: Mark J. DeNino
--------------------
Title: Managing Director
TL VENTURES III OFFSHORE L.P.
By: TL Ventures III Offshore Partners
L.P., its General Partner
By: TL Ventures III Offshore Ltd.,
its General Partner
By: /s/ Mark J. DeNino
---------------------
Name: Mark J. DeNino
--------------------
Title: Managing Director
[SIGNATURE PAGE TO PAC-WEST STOCK PURCHASE AGREEMENT]
<PAGE>
TL VENTURES III INTERFUND L.P.
By: TL Ventures III LLC,
its General Partner
By: /s/ Mark J. DeNino
----------------------
Name: Mark J. DeNino
--------------------
Title: Managing Director
ENERTECH CAPITAL PARTNERS, L.P.
By: EnerTech Management, L.P.
its General Partner
By: EnerTech Management Company, L.L.C.,
its General Partner
By:/s/ Scott Ungerer
----------------------
Name: Scott Ungerer
--------------------
Title: Managing Director
SEGAL HOLDINGS, INC.
By: /s/ Robert B. Segal
----------------------
Name: Robert B. Segal
--------------------
Title: President
-------------------
BANKAMERICA INVESTMENT CORPORATION
By: /s/ M. Ann O'Brien
----------------------
Name: M. Ann O'Brien
---------------------
Title: Managing Director
--------------------
[SIGNATURE PAGE TO PAC-WEST STOCK PURCHASE AGREEMENT]
<PAGE>
MIG PARTNERS VII
By: /s/ M. Ann O'Brien
----------------------
Name: M. Ann O'Brien
--------------------
Title: General Partner
-------------------
[SIGNATURE PAGE TO PAC-WEST STOCK PURCHASE AGREEMENT]
<PAGE>
SCHEDULE OF NEW INVESTORS
-------------------------
<TABLE>
<CAPTION>
Number of Shares Purchase Price for
Name and Address of Common Stock Common Stock
- --------------------------------------- ----------------- ------------------
<S> <C> <C>
SCP Private Equity Partners, L.P. 166,250.00 $1,136,900.00
800 The Safeguard Bldg.
435 Devon Park Drive
Wayne, PA 19087
William Blair Capital Partners VI, L.P. 166,250.00 $1,136,900.00
227 West Monroe Street
Suite 3400
Chicago, IL 60606
Safeguard 98 Capital, L.P. 166,250.00 $1,136,900.00
c/o Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
TL Ventures III L.P. 119,425.00 $ 816,686.67
c/o TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1515
Attention: Chief Financial Officer
Telephone: (610) 971-1515
Telecopier: (610) 975-9330
TL Ventures III Offshore L.P. 25,000.00 $ 170,957.50
c/o Trident Trust Company (Cayman)
Limited
P.O. Box 847
One Capital Place, Fourth Floor
Grand Cayman, Cayman Islands
with a copy to:
TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1515
Attention: Chief Financial Officer
Telephone: (610) 971-1515
Telecopier: (610) 975-9330
TL Ventures III Interfund L.P. 3,900.00 $ 26,670.00
c/o TL Ventures LLC
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1515
Attention: Chief Financial Officer
Telephone: (610) 971-1515
Telecopier: (610) 975-9330
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Purchase Price for
Name and Address of Common Stock Common Stock
- --------------------------------------- --------------- ------------------
<S> <C> <C>
EnerTech Capital Partners, L.P. 17,925.00 $ 122,585.83
435 Devon Park Drive, Suite 410
Wayne, PA 19087
BankAmerica Investment Corporation 14,706.67 $ 100,626.67
c/o Bank of America Mezzanine
Investments Group
231 South LaSalle Street, 12/th/ Floor
Chicago, IL 60697
MIG Partners VII 3,676.67 $ 25,156.67
c/o Bank of America Mezzanine
Investments Group
231 South LaSalle Street, 12/th/ Floor
Chicago, IL 60697
Segal Holdings, Inc. 6,475.00 $ 44,273.33
1350 Avenue of the Americas (By services
Suite 1802 rendered)
New York, NY 10019
--------------- -----------------
Totals: 689,858.34 $4,717,656.67
$44,273.33
(By services
rendered)
</TABLE>
<PAGE>
EXHIBIT 10.5
PLEDGE AND SECURITY AGREEMENT
by and among
PAC-WEST TELECOMM, INC.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
as Trustee
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
as Collateral Agent
January 29, 1999
<PAGE>
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT, dated as of January 29, 1999
(the "Pledge Agreement") by and among Pac-West Telecomm, Inc., a California
corporation (the "Pledgor"), the Trustee (as defined below) and Norwest Bank
Minnesota, National Association, as collateral agent (the "Collateral Agent"),
for the Trustee on behalf of the holders of the Notes (as defined herein).
RECITALS
A. The Pledgor and Norwest Bank Minnesota, National
Association, as Trustee (the "Trustee") have entered into that certain Indenture
dated as of January 29, 1999 (as amended, restated, supplemented or otherwise
modified from time to time, the "Indenture"), pursuant to which the Pledgor
issued $150,000,000 in aggregate principal amount of 13.5% Senior Notes due 2009
(the "Notes").
B. The Pledgor has agreed, pursuant to a Purchase Agreement
dated January 27, 1999 by and among the Pledgor, NationsBanc Montgomery
Securities LLC, CIBC Oppenheimer Corp. and First Union Capital Markets, a
division of Wheat First Securities, Inc. to (i) purchase a portfolio of
securities consisting of Government Securities (as defined herein)
(collectively, the "Pledged Securities") in an amount sufficient, in the opinion
of a nationally recognized firm of independent certified public accountants
selected by the Pledgor, upon receipt of the scheduled interest and principal
payments in respect of the Pledged Securities, to provide for payment of the
first two (2) scheduled interest payments due on the Notes, and (ii) place such
Pledged Securities in the Pledge Account (as defined herein) held by the
Collateral Agent for the benefit of the holders of the Notes.
C. The Pledgor is the sole legal and beneficial owner of the
Pledged Securities.
D. To secure the payment and performance by the Pledgor of its
obligations under the Indenture and the Notes (collectively, the "Obligations"),
the Pledgor has agreed to (i) pledge to the Collateral Agent for the benefit of
the Trustee and the ratable benefit of the holders of the Notes a security
interest in the Pledged Securities and the Pledge Account, and (ii) execute and
deliver this Pledge Agreement.
AGREEMENT
NOW, THEREFORE, in order to induce the holders of Notes to
purchase the Notes, and for good and valuable consideration, the receipt of
which is hereby acknowledged, the Pledgor hereby agrees with the Collateral
Agent for the benefit of the Trustee and for the ratable benefit of the holders
of Notes as follows:
1. Defined Terms. All capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Indenture. In addition to
any other defined terms used herein, the following terms shall constitute
defined terms for purposes of this Pledge Agreement and shall have the meanings
set forth below:
"Collateral" has the meaning given in Section 2 hereof.
"Government Securities" means direct obligations of, or
obligations fully guaranteed by, the United States of America for the payment of
which guarantee or obligations the full faith and credit of
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the United States is pledged.
"UCC" means, with respect to the validity and perfection and
the effect of perfection or non-perfection of the security interest, the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
2. Pledge and Grant of Security Interest
(a) The Pledgor hereby pledges and grants to the Trustee, for
the ratable benefit of the holders of the Notes, a continuing first priority
security interest in and to (i) all of the Pledgor's right, title and interest
in the Pledged Securities and the Pledge Account, (ii) all certificates or other
evidence of ownership representing the Pledged Securities and the Pledge
Account, and (iii) all products and proceeds of any of the Pledged Securities,
including, without limitation, all dividends, interest, principal payments,
cash, options, warrants, rights, instruments, subscriptions and other property
or proceeds from time to time received, receivable or otherwise distributed or
distributable in respect of or in exchange for any or all of the Pledged
Securities (collectively, the "Collateral").
(b) The Pledgor shall have no right to remove or withdraw from
the Pledge Account any financial asset, cash or other property now or hereafter
credited to the Pledge Account without the prior written consent of the Trustee,
except as provided in Section 5(b) herein. If at any time the Collateral Agent
shall receive any entitlement order from the Trustee (including, without
limitation, any order directing the sale, transfer or redemption of any
financial asset relating to, or cash or other item credited to, the Pledge
Account), the Collateral Agent shall comply with such entitlement order, without
further consent by the Pledgor or any other Person.
(c) The Trustee appoints the Collateral Agent as its agent and
securities intermediary hereunder, and the Collateral Agent accepts such
appointment and agrees to act as agent and securities intermediary for the
Trustee with respect to the Pledged Securities, without cost or expense to the
Trustee. The Collateral Agent will, no later than the Business Day immediately
following the date hereof, completely and accurately identify on its books and
records the Pledged Securities being held in the Pledge Account. In addition,
the Collateral Agent will, upon the Trustee's written request given at any time
to the Collateral Agent, either (a) deliver to the Trustee possession of duly
issued certificates evidencing the Pledged Securities registered in the name of
the Trustee or its nominee or designee, or (b) transfer the Pledged Securities
to an account at the Collateral Agent or to another financial intermediary
designated by the Trustee in the name of the Trustee. In the event that the
Pledgor shall be entitled to receive or acquire any distribution, in any form
whatsoever, including, without limitation, cash and non-cash dividends and
interest, in respect of the Pledged Securities, the Collateral Agent agrees that
it shall hold the same as agent and securities intermediary for the Trustee
subject to the terms hereof and the written instructions of the Trustee.
3. Security for Obligations. This Pledge Agreement and the
Collateral secure the prompt and complete payment and performance when due
(whether at stated maturity, by acceleration or otherwise) of all of the
Obligations.
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4. Delivery of Collateral; Pledge Account; Interest;
Substitution of Collateral
(a) If and to the extent the Pledged Securities comprise
"certificated securities," as defined in Section 8-102 of the UCC, such
securities shall be registered in the name of the Collateral Agent or its
nominee for the benefit of the holders of the Notes and delivered to the
Collateral Agent or its custodian in the State of New York, and possession
thereof shall be maintained by the Collateral Agent within the State of New
York.
(b) All Government Securities included in the Collateral shall
be registered in the name of the Collateral Agent or its nominee for the benefit
of the holders of the Notes on the records of the Federal Reserve Bank of New
York and credited in the books and records of the Collateral Agent to the Pledge
Account. All other uncertificated securities, if any, included in the Collateral
shall be registered on the books of the issuer of such uncertificated securities
in the name of the Collateral Agent or its nominee for the benefit of the
holders of the Notes, and credited in the books and records of the Collateral
Agent to the Pledge Account.
(c) Concurrently with the execution and delivery of this
Pledge Agreement, the Collateral Agent shall establish an account entitled the
"PLEDGE ACCOUNT FOR THE BENEFIT OF HOLDERS OF 13.5% NOTES DUE 2009 OF PAC-WEST
TELECOMM, INC." for the deposit of the Pledged Securities (the "Pledge Account")
at its office at Norwest Center, 6th and Marquette, Minneapolis, MN 55479-0069.
The Pledge Account is and shall be maintained as a "securities account" within
the meaning of Article 8 of the UCC, and the Collateral Agent will treat all
property held by it in the Pledge Account as "financial assets" under Article
8-501(a) of the UCC. Subject to the other terms and conditions of this Pledge
Agreement, all funds or other property accepted by the Collateral Agent pursuant
to this Pledge Agreement shall be held in the Pledge Account for the ratable
benefit of the holders of the Notes. All proceeds of the Pledged Securities
shall remain on deposit in the Pledge Account until withdrawn in accordance with
this Pledge Agreement.
(d) All proceeds of, interest earned on and other
distributions or amounts paid with respect to, any Collateral shall be credited
to and retained in the Pledge Account, and the Collateral Agent shall invest and
reinvest the same as directed from time to time in writing by the Pledgor;
provided, however, that such proceeds and other amounts must be invested in
Government Securities. In all events, any monies so invested or reinvested and
any securities acquired thereby shall be (i) held as Collateral in the Pledge
Account, (ii) subject in all respects to the security interest created hereby
and shall be and remain under the control of the Collateral Agent, and (iii)
otherwise subject to the terms hereof.
(e) The parties acknowledge that the Collateral Agent shall
not be responsible for any diminution in the Pledge Account due to losses
resulting from investments. The Collateral Agent may use its own Investment
Department in executing purchases and sales of permissible investments.
5. Disbursements
(a) The Collateral Agent shall transfer, on each date when one
of the first two (2) scheduled interest payments is due on the Notes and without
notice from the Pledgor, from the Pledge Account to the Paying Agent under the
Indenture, funds necessary to provide for payment in full or of any portion of
the next scheduled interest payment on the Notes and the Paying Agent shall
apply the proceeds to such interest payment.
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(b) If at any time the amount of Collateral exceeds the amount
sufficient, in the opinion of a nationally recognized firm of independent
certified public accountants selected by the Pledgor, to provide for payment in
full of the first two (2) scheduled interest payments due on the Notes then
outstanding (or, in the event any of the first two (2) interest payments have
been made on the Notes, an amount sufficient to provide for payment in full of
all interest payments then remaining up to and including the second scheduled
interest payment on the Notes then outstanding), the Pledgor may direct the
Collateral Agent in writing to release to the Pledgor, or as the Pledgor
directs, an amount less than or equal to such excess. Upon receipt of such
written direction from the Pledgor, together with the opinion of a nationally
recognized firm of independent certified public accountants with respect to the
value of the Pledged Securities, the Collateral Agent shall take such action as
is necessary to provide for the payment to the Pledgor of the amount requested
from the Pledge Account.
(c) Immediately following the earlier of (i) the payment in
full of the first two (2) scheduled interest payments on the Notes, and (ii) the
day on which all of the Notes have been repurchased, redeemed or defeased, if no
Default or Event of Default is continuing, the security interest in the
Collateral evidenced by this Pledge Agreement shall terminate and be of no
further force and effect, and any and all Collateral in the Pledge Account shall
be released and transferred by the Collateral Agent to the Pledgor in accordance
with the Pledgor's written instructions. Furthermore, upon release of any
Collateral from the Pledge Account in accordance with the terms of this Pledge
Agreement, whether upon release of Collateral to the Paying Agent, to the
Pledgor or otherwise, the security interest evidenced by this Pledge Agreement
in the Collateral so released shall terminate and be of no further force and
effect.
6. Representations and Warranties. The Pledgor hereby
represents and warrants that:
(a) The execution, delivery and performance by the Pledgor of
this Pledge Agreement has been duly authorized by all necessary corporate action
and does not contravene or constitute a default under any provision of
applicable law, regulation or the certificate of incorporation or the bylaws of
the Pledgor, or of any judgment, injunction, order, decree or any material
agreement or instrument binding upon the Pledgor, and does not result in the
creation or imposition of any Lien on any asset of the Pledgor, except for the
security interests granted under this Pledge Agreement.
(b) This Pledge Agreement has been duly executed and delivered
by the Pledgor and constitutes a valid and binding obligation of the Pledgor,
enforceable against the Pledgor in accordance with its terms, except as such
enforceability may be limited by the effect of any applicable bankruptcy,
insolvency, reorganization, fraudulent conveyances, moratorium or other similar
laws affecting creditors' rights generally or general principles of equity.
(c) The Pledgor is the record and beneficial owner of the
Collateral, free and clear of any Lien or claims of any Person (except for the
security interest granted under this Pledge Agreement). No financing statement
covering the Pledged Securities is on file in any public office, other than
financing statements filed pursuant to this Pledge Agreement.
(d) Upon the delivery to the Collateral Agent of the
certificates, if any, representing the Pledged Securities, any filing of
financing statements required by the UCC and notation on the records of the
Collateral Agent that it holds the Pledged Securities as pledgee, the pledge of
the Collateral pursuant to this Pledge Agreement creates a valid and perfected
first priority security interest in and to the Collateral, securing the payment
and performance of the Obligations for the ratable benefit of the holders of the
Notes,
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enforceable as such against all creditors of the Pledgor and any Persons
purporting to purchase any of the Collateral from the Pledgor.
(e) No consent of any other Person and no consent,
authorization, approval, or other action by, and no notice to or filing with,
any governmental authority or regulatory body, is required either (i) for the
pledge by the Pledgor of the Collateral pursuant to this Pledge Agreement or for
the execution, delivery or performance of this Pledge Agreement by the Pledgor
(except for any filings and notations necessary to perfect the security interest
created hereby in the Collateral) or (ii) for the exercise by the Collateral
Agent of the rights provided for in this Pledge Agreement or the remedies in
respect of the Collateral pursuant to this Pledge Agreement.
(f) No litigation, proceeding or investigation of or before
any arbitrator or governmental authority is pending or, to the knowledge of the
Pledgor, threatened by or against the Pledgor with respect to this Pledge
Agreement or any of the transactions contemplated hereby.
(g) The pledge of the Collateral pursuant to this Pledge
Agreement is not prohibited by any applicable law or government regulation,
release, interpretation or opinion of the Board of Governors of the Federal
Reserve System or other regulatory agency (including, without limitation,
Regulations T, U and X of the Board of Governors of the Federal Reserve System).
7. Further Assurances. The Pledgor agrees promptly to take
such actions and to execute and deliver or cause to be executed and delivered,
or use its best efforts to procure, such stock or bond powers, proxies,
assignments, instruments and such other or different writings as the Collateral
Agent may reasonably request, all in form and substance satisfactory to the
Collateral Agent, deliver any instruments to the Collateral Agent and take any
other actions that are necessary to perfect, continue the perfection of, confirm
and assure the first priority of the Collateral Agent's security interest in the
Collateral, to protect the Collateral against the rights, claims or interests of
third persons, or to otherwise effect the purposes of this Pledge Agreement. The
Pledgor also hereby authorizes the Collateral Agent to file any financing or
continuation statements with respect to the Collateral without the signature of
the Pledgor (to the extent permitted by applicable law). The Pledgor will pay
all costs incurred by the Collateral Agent in connection with any of the
foregoing.
8. Covenants. The Pledgor covenants and agrees with the
Collateral Agent and the holders of the Notes from and after the date of this
Pledge Agreement until the earlier of payment in full in cash of (A) each of the
first two (2) scheduled interest payments due on the Notes under the terms of
the Indenture or (B) all Obligations due and owing under the Indenture and the
Notes in the event such Obligations become due and payable prior to the payment
of the first two (2) scheduled interest payments on the Notes, as follows:
(a) The Pledgor agrees that it (i) will not sell or otherwise
dispose of, or grant any option or other interest with respect to, any of the
Collateral, (ii) will not create or permit to exist any Lien upon or with
respect to any of the Collateral, except for the Liens created pursuant to this
Pledge Agreement, and (iii) will at all times be the sole beneficial owner of
the Collateral.
(b) The Pledgor agrees that it will not (i) enter into any
agreement or understanding that purports to or may restrict or inhibit the
Collateral Agent's rights or remedies hereunder, including, without limitation,
the Collateral Agent's right to sell or otherwise dispose of the Collateral, or
(ii) with regard to the Collateral, fail to pay or discharge any tax, assessment
or levy of any nature due with respect
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thereto later than five days prior to the date of any proposed sale under any
judgment, writ or warrant of attachment.
9. Power of Attorney
(a) The Pledgor hereby appoints and constitutes the Collateral
Agent as the Pledgor's attorney-in-fact with full power of substitution to
exercise to the fullest extent permitted by law all of the following powers upon
and at any time after the occurrence and during the continuance of an Event of
Default:
(i) collection of proceeds of any Collateral;
(ii) conveyance of any item of Collateral to any purchaser
thereof as specified herein;
(iii) giving of any notices or recording of any Liens pursuant
to Section 7 hereof;
(iv) making any payments or taking any acts pursuant to
Section 10 hereof;
(v) paying or discharging taxes or Liens levied or placed upon
the Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by the Collateral Agent in its sole
discretion, and any such payments made by the Collateral Agent shall become
Obligations of the Pledgor to the Collateral Agent, due and payable immediately
upon demand; and
(vi) taking any acts pursuant to Section 13 hereof.
(b) The Collateral Agent's authority under this Section 9
shall include, without limitation, the authority to endorse and negotiate any
checks or instruments representing proceeds of Collateral in the name of the
Pledgor, execute and give receipt for any certificate of ownership or any
document constituting Collateral, transfer title to any item of Collateral, to
the extent permitted by applicable law, sign the Pledgor's names on all
financing statements or any other documents deemed necessary or appropriate by
the Collateral Agent to preserve, process or perfect the security interest in
the Collateral, and to file the same, and to prepare, sign the Pledgor's name
and file any notice of Lien, and to take any other actions arising from or
incident to the powers granted to the Collateral Agent in this Pledge Agreement.
This power of attorney is coupled with an interest and shall be irrevocable by
the Pledgor.
(c) The Pledgor acknowledges that the rights and
responsibilities of the Collateral Agent under this Pledge Agreement with
respect to any action taken by the Collateral Agent or the exercise or
non-exercise by the Collateral Agent of any option, right, request, judgment or
other right or remedy provided for herein or resulting or arising out of this
Pledge Agreement shall, as between the Collateral Agent and the holders of the
Notes, be governed by this Pledge Agreement, but, as between the Collateral
Agent and the Pledgor, the Collateral Agent shall be conclusively presumed to be
acting as agent for the holders of the Notes with full and valid authority so to
act or refrain from acting, and the Pledgor shall not be obligated or entitled
to make any inquiry respecting such authority.
(d) The Collateral Agent undertakes to perform such duties and
only such duties as are specifically set forth in this Pledge Agreement and no
implied covenants or obligations shall be read into this Pledge Agreement
against the Collateral Agent. The Collateral Agent shall not be deemed to have
knowledge of an Event of Default under the Indenture unless informed in writing
by the Pledgor or the
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holder of any Note.
(e) The Collateral Agent shall not be required to exercise any
remedies hereunder unless requested in writing to do so by the holders of a
majority in principal amount of the outstanding Notes and only if furnished with
indemnity reasonably satisfactory to the Collateral Agent. The Collateral Agent
may consult with counsel and shall not be liable for any action taken in good
faith in reliance upon advice of counsel except for gross negligence or willful
misconduct. The Collateral Agent makes no representation or warranty and shall
have not responsibility concerning the value or validity of the Collateral or
the validity or perfection of the pledge thereof or any security interest
therein. The provisions of Section 7.02(a)(i) of the Indenture are incorporated
herein by reference.
(f) The Collateral Agent may at any time on 30 days notice to
the Pledgor and the holders of the Notes resign hereunder. Upon any such
resignation the Pledgor shall promptly appoint another financial institution
reasonably satisfactory to the holders of a majority in principal amount or the
outstanding Notes to act as Collateral Agent hereunder and such resignation
shall become effective upon the acceptance of the appointment by the successor.
(g) The Collateral Agent shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which a prudent financial institution similarly situated would accord its own
property, it being understood that neither the Collateral Agent nor the holders
of the Notes shall have responsibility for (i) ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Collateral, whether or not any such Person has or is
deemed to have knowledge of such matters, or (ii) taking any necessary steps to
preserve rights against any parties with respect to any Collateral.
10. Collateral Agent May Perform. If the Pledgor fails to
perform any agreement contained herein, the Collateral Agent may, but shall not
be obligated to, itself perform or cause performance of such agreement, and the
expenses incurred by or on behalf of the Collateral Agent in connection
therewith shall be payable by the Pledgor under Section 14 hereof.
11. No Assumption of Duties. The rights and powers granted to
the Collateral Agent hereunder are being granted in order to preserve and
protect the security interest of the Collateral Agent and the holders of Notes
in and to the Collateral granted hereby and shall not be interpreted to, and
shall not, impose any duties on the Collateral Agent in connection therewith
other than those imposed under applicable law.
12. Indemnity. The Pledgor shall indemnify, defend and hold
harmless the Collateral Agent and its directors, officers, agents and employees
from and against all claims, actions, obligations, losses, liabilities and
expenses, including reasonable costs, fees and disbursements of counsel, the
costs of investigations, and claims for damages, arising from the Collateral
Agent's performance under this Pledge Agreement, except insofar as the same may
have been caused by the gross negligence or willful misconduct of such
indemnified Person. The obligations of the Pledgor under this Section 12 shall
survive the resignation or removal of the Collateral Agent or the termination of
this Pledge Agreement.
13. Remedies upon Event of Default. If an Event of Default
shall have occurred:
(a) Upon the acceleration of the Notes in accordance with the
terms of the Indenture,
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the Collateral Agent shall have and may exercise with reference to the
Collateral any or all of the rights and remedies of a secured party under the
UCC, and as otherwise granted herein or under any other applicable law or under
any other agreement executed by Pledgor, including, without limitation, the
right and power to sell, at public or private sale or sales, or otherwise
dispose of, or otherwise utilize the Collateral and any part or parts thereof,
in any manner authorized or permitted under the UCC after default by a debtor,
and to apply the proceeds thereof toward payment of any costs and expenses and
attorneys' fees and expenses thereby incurred by the Collateral Agent and toward
payment of the Obligations in such order or manner as the Collateral Agent may
elect. The purchaser of any or all Collateral so sold shall thereafter hold the
same absolutely, free from any claim, encumbrance or right of any kind
whatsoever created by or through the Pledgor. Unless any of the Collateral
threatens, in the reasonable judgment of the Collateral Agent, to decline
speedily in value or is or becomes of a type sold on a recognized market, the
Collateral Agent shall give the Pledgor reasonable notice of the time and place
of any public sale thereof, or of the time after which any private sale or other
intended disposition is to be made. Any sale of the Collateral conducted in
conformity with reasonable commercial practices of banks, insurance companies,
commercial finance companies, or other financial institutions disposing of
property similar to the Collateral shall be deemed to be commercially
reasonable. Any requirements of reasonable notice shall be met if such notice is
mailed to the Pledgor as provided in Section 17 herein, at least fifteen (15)
days before the time of the sale or disposition. The Collateral Agent or any
holder of Notes may, in its own name or in the name of a designee or nominee,
buy any of the Collateral at any public sale and, if permitted by applicable
law, at any private sale. All expenses (including court costs and reasonable
attorneys' fees, expenses and disbursements) of, or incident to, the enforcement
of any of the provisions hereof shall be recoverable from the proceeds of the
sale or other disposition of the Collateral.
(b) The Pledgor further agrees to use its best efforts to do
or cause to be done all such other acts as may be necessary to make such sale or
sales of all or any portion of the Collateral pursuant to this Section 13 valid
and binding and in compliance with any and all other applicable requirements of
law. The Pledgor further agrees that a breach of any of the covenants contained
in this Section 13 will cause irreparable injury to the Collateral Agent and the
holders of Notes, that the Collateral Agent and the holders of Notes have no
adequate remedy at law in respect of such breach and, as a consequence, that
each and every covenant contained in this Section 13 shall be specifically
enforceable against the Pledgor, and the Pledgor hereby waives and agrees not to
assert any defenses against an action for specific performance of such
covenants, except for a defense that no Event of Default has occurred.
(c) All rights to marshaling of assets of the Pledgor,
including any such right with respect to the Collateral, are hereby waived by
the Pledgor. The Pledgor shall not contest or support any other Person in
contesting the validity or priority of the security interests created under this
Pledge Agreement.
14. Fees and Expenses. The Pledgor shall, upon demand, pay to
the Collateral Agent the amount of its fees (which shall be in an amount
previously agreed by the Pledgor and the Collateral Agent) and any and all
expenses (including, without limitation, the reasonable fees, expenses and
disbursements of counsel, experts and agents retained by the Collateral Agent)
that the Collateral Agent may incur in connection with (i) the administration of
this Pledge Agreement, (ii) the custody or preservation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Collateral Agent and the
holders of the Notes hereunder, or (iv) the failure by the Pledgor to perform or
observe any of the provisions hereof.
15. Security Interest Absolute. All rights of the Collateral
Agent and the holders of
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the Notes, and the security interests created hereunder, and all obligations of
the Pledgor hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Indenture or
any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Indenture;
(c) any exchange, surrender, release or non-perfection of any
Liens on any other Collateral for all or any of the Obligations; or
(d) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, the Pledgor in respect of the
Obligations or of this Pledge Agreement.
16. Authority of the Collateral Agent. The Collateral Agent
shall have and be entitled to exercise all powers hereunder that are
specifically granted to the Collateral Agent by the terms hereof, together with
such powers as are incident thereto. The Collateral Agent may perform any of its
duties hereunder or in connection with the Collateral by or through agents or
employees and shall be entitled to retain counsel and to act in reliance upon
the advice of counsel concerning all such matters. None of the Collateral Agent,
any director, officer, employee, attorney or agent of the Collateral Agent nor
any holder of the Notes shall be liable to the Pledgor for any action taken or
omitted to be taken by it or them hereunder, except for its own bad faith, gross
negligence or willful misconduct, nor shall the Collateral Agent be responsible
for the legality, validity, effectiveness or sufficiency hereof or of any
document or security furnished pursuant hereto. The Collateral Agent and its
directors, officers, employees, attorneys and agents shall be entitled to rely
on any communication, instrument or document believed by it or them to be
genuine and correct and to have been signed or sent by the proper Person or
Persons. The Collateral Agent and its directors, officers, employees, attorneys
and agents shall be entitled to rely on the opinion of a nationally recognized
firm of independent certified public accountants with respect to the dollar
amount of the Pledged Securities.
17. Notices. Any communication, notice or demand to be given
hereunder shall be duly given hereunder if given in the form and manner, and
delivered to the address set forth in the Indenture, or in such other form and
manner or to such other address as shall be designated by any party hereto to
each other party hereto in a written notice delivered in accordance with the
terms of the Indenture.
18. No Waiver; Cumulative Rights. No failure on the part of
the Collateral Agent to exercise, and no delay in exercising, any right, remedy
or power hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise by the Collateral Agent of any right, remedy or power hereunder
preclude any other or future exercise of any other right, remedy or power. Each
and every right, remedy and power hereby granted to the Collateral Agent or
allowed it by law or other agreement shall be cumulative and not exclusive the
one of any other, and may be exercised by the Collateral Agent from time to
time.
19. Benefits of Pledge Agreement. Nothing in this Pledge
Agreement, whether express or implied, shall give to any Person other than the
parties hereto and their successors hereunder, and the holders of the Notes, any
benefit or any legal or equitable right, remedy or claim under this Pledge
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Agreement.
20. Applicable Law; Waiver of Jury Trial. (a) THIS PLEDGE
AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK. THE PLEDGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE
VENUE OF ANY LITIGATION BETWEEN THE PLEDGOR AND THE COLLATERAL AGENT IN
ACCORDANCE WITH THIS PARAGRAPH. EACH OF THE PLEDGOR AND THE COLLATERAL AGENT
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING THAT IN ANY MANNER ARISES OUT OF OR IN CONNECTION
WITH OR IS IN ANY WAY RELATED TO THIS PLEDGE AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREIN.
(b) THE PROVISIONS OF THIS SECTION 20 ARE A MATERIAL
INDUCEMENT FOR THE COLLATERAL AGENT ENTERING INTO THIS PLEDGE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY. THE PLEDGOR HEREBY ACKNOWLEDGES THAT IT HAS
REVIEWED THE PROVISIONS OF THIS SECTION 20 WITH INDEPENDENT COUNSEL.
21. Calculation of Interest. For purposes of this Pledge
Agreement, all calculations of the first two (2) scheduled interest payments on
the Notes shall be calculated on the basis that interest will accrue on the
Notes at the rate of 13.5% per annum and will be payable semi-annually in
arrears on August 1, 1999 and February 1, 2000. Interest on the Notes will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
22. Execution in Counterparts. This Pledge Agreement may be
executed in any number of counterparts, each of which shall be an original, but
such counterparts shall together constitute one and the same instrument.
23. Settlement. Amounts, if any, held in the Pledge Account
pending settlement of purchase of the Pledged Securities shall constitute
Collateral hereunder, shall be held by the Collateral Agent for the benefit of
the holders of the Notes and a portion thereof equal to the aggregate price paid
for such Pledged Securities shall be released by the Collateral Agent (without
further direction or instruction required from any other party hereto) against
delivery of such Pledged Securities, and any excess funds remaining in the
Pledge Account after giving effect to such settlement shall be promptly
forwarded pursuant to written instructions of the Company.
Signature page follows
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Pledge and Security Agreement as of the day first written above.
PAC-WEST TELECOMM, INC.
as Pledgor
By: /s/ Richard E. Bryson
Name: Richard E. Bryson
Title: Chief Financial Officer
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION
as Trustee and Collateral Agent
By: /s/ Timothy P. Mowdy
Name: Timothy P. Mowdy
Title: Authorized Signer
[Signature Page to Pledge and Security Agreement]
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Exhibit 10.6
PAC-WEST TELECOMM, INC.
1999 STOCK INCENTIVE PLAN
(amended and restated as of January 29, 1999)
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to
attract and retain the best available personnel, to provide additional incentive
to Employees, Directors and Consultants and to promote the success of the
Company's business.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock incentive plans, if any, under applicable provisions of
federal and state securities laws, the corporate laws of California and, to the
extent other than California, the corporate law of the state of the Company's
incorporation, the Code, the rules of any applicable stock exchange or national
market system, and the rules of any foreign jurisdiction applicable to Awards
granted to residents therein.
(c) "Award" means the grant of an Option, Restricted Stock, SAR,
Dividend Equivalent Right, Performance Unit, Performance Share, or other right
or benefit under the Plan.
(d) "Award Agreement" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.
(e) "Board" means the Board of Directors of the Company.
(f) "Cause" means, with respect to the termination by the Company, or
a Related Entity of the Grantee's Continuous Service, that such termination is
for "Cause" as such term is expressly defined in a then-effective written
agreement between the Grantee and the Company or such Related Entity, or in the
absence of such then-effective written agreement and definition, is based on ,
the determination of the Administrator, the Grantee's: (i) refusal or failure to
act in accordance with any specific, lawful direction or order of the Company or
a Related Entity; (ii) unfitness or unavailability for service or unsatisfactory
performance (other than as a result of Disability); (iii) performance of any act
or failure to perform any act in bad faith and to the detriment of the Company
or a Related Entity; (iv) dishonesty, intentional misconduct or material breach
of any agreement with the Company or a Related Entity; or (v) commission of a
crime involving dishonesty, breach of trust, or physical or emotional harm to
any person. At least 30 days prior to the termination of the Grantee's
Continuous Service pursuant to (i) or (ii) above, the Company shall provide the
Grantee with notice of the Company's or such Related Entity's intent to
terminate, the reason therefor, and an opportunity for the Grantee to cure such
defects in his or her service to the Company's or such Related Entity's
satisfaction. During this 30 day (or longer) period, no Award issued to the
Grantee under the Plan may be exercised or purchased.
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(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means any committee appointed by the Board to
administer the Plan.
(i) "Common Stock" means the common stock of the Company.
(j) "Company" means Pac-West Telecomm, Inc.
(k) "Consultant" means any person (other than an Employee or, solely
with respect to rendering services in such person's capacity as a Director) who
is engaged by the Company or any Related Entity to render consulting or advisory
services to the Company or such Related Entity.
(l) "Continuous Service" means that the provision of services to the
Company or a Related Entity in any capacity of Employee, Director or Consultant,
is not interrupted or terminated. Continuous Service shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers
between locations of the Company or among the Company, any Related Entity, or
any successor, in any capacity of Employee, Director or Consultant, or (iii) any
change in status as long as the individual remains in the service of the Company
or a Related Entity in any capacity of Employee, Director or Consultant (except
as otherwise provided in the Award Agreement). An approved leave of absence
shall include sick leave, military leave, or any other authorized personal
leave. For purposes of Incentive Stock Options, no such leave may exceed ninety
(90) days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract.
(m) "Corporate Transaction" means any of the following shareholder-
approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction on the principal purpose of which is
to change the state in which the Company is incorporated;
(ii) the sale, transfer or other dispositio n of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company;
(iii) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger; or
(iv) an acquisition by any person or related group of persons
(other than the Company or by a Company-sponsored employee benefit plan) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities, but
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excluding any such transaction that the Administrator determines shall not be a
Corporate Transaction.
(n) "Director" means a member of the Board or the board of directors
of any Related Entity.
(o) "Disability" means that a Grantee is permanently unable to carry
out the responsibilities and functions of the position held by the Grantee by
reason of any medically determinable physical or mental impairment. A Grantee
will not be considered to have incurred a Disability unless he or she furnishes
proof of such impairment sufficient to satisfy the Administrator in its
discretion.
(p) "Dividend Equivalent Right" means a right entitling the Grantee
to compensation measured by dividends paid with respect to Common Stock.
(q) "Employee" means any person, including an Officer or Director,
who is an employee of the Company or any Related Entity. The payment of a
director's fee by the Company or a related Entity shall not be sufficient to
constitute "employment" by the Company.
(r) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(s) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing price for a Share for the last market
trading day prior to the time of the determination (or, if no closing price was
reported on that date, on the last trading date on which a closing price was
reported) on the stock exchange determined by the Administrator to be the
primary market for the Common Stock or the NASDAQ National Market, whichever is
applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the NASDAQ Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market for the Common Stock
of the type described in (i), above, the Fair Market Value thereof shall be
determined by the Administrator in good faith and in a manner consistent with
Section 260.140.50 of Title 10 of the California Code of Regulations.
(t) "Grantee" means an Employee, Director or Consultant who receives
an Award under the Plan.
(u) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code
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(v) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Option.
(w) "Officer" means a person who is an officer of the Company or a
Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.
(x) "Option" means an option to purchase Shares pursuant to an Award
Agreement granted under the Plan.
(y) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(z) "Performance Shares" means Shares or an Award denominated in
Shares which may be earned in whole or in part upon attainment of performance
criteria established by the Administrator.
(aa) "Performance Units" means an Award which may be earned in whole
or in part upon attainment of performance criteria established by the
Administrator and which may be settled for cash, Shares or other securities or a
combination of cash, Shares or other securities as established by the
Administrator.
(bb) "Plan" means this 1999 Incentive Plan.
(cc) "Post-Termination Exercise Period" means the period specified in
the Award Agreement of not less than three (3) months commencing on the date of
termination (other than termination by the Company or any Related Entity for
Cause) of the Grantee's Continuous Service, or such longer period as may be
applicable upon death or Disability.
(dd) "Registration Date" means the first to occur of (i) the closing
of the first sale to the general public of (A) the Common Stock or (B) the same
class of securities of a successor corporation (or its Parent) issued pursuant
to a Corporate Transaction in exchange for or in Substitution of the Common
Stock, pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended; and (ii) in the event of a Corporate Transaction, the date of the
consummation of the Corporate Transaction if the same class of securities of the
successor corporation (or its Parent) issuable in such Corporate Transaction
shall have been sold to the general public pursuant to a registration statement
filed with and declared effective by, on or prior to the date of consummation of
such Corporate Transaction, the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
(ee) "Related Entity" means any Parent, Subsidiary and any business,
corporation, partnership, limited liability company or other entity in which the
Company, a Parent or a Subsidiary holds a substantial ownership interest,
directly or indirectly.
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(ff) "Restricted Stock" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.
(gg) "SAR" means a stock appreciation right entitling the Grantee to
Shares or cash compensation, as established by the Administrator, measured by
appreciation in the value of Common Stock.
(hh) "Share" means a share of the Common Stock.
(ii) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as a defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 11(a) below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards (including
Incentive Stock Options) is 225,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
(b) Any Shares covered by an Award (or portion of an Award) which is
forfeited or canceled, expires or is settled in cash, shall be deemed not to
have been issued for purposes of determining the maximum aggregate number of
Shares which may be issued under the Plan. If any unissued Shares are retained
by the Company upon exercise of an Award in order to satisfy the exercise price
for such Award or any withholding taxes due with respect to such Award, such
retained Shares subject to such Award shall become available for future issuance
under the Plan (unless the Plan has terminated). Shares that actually have been
issued under the Plan pursuant to an Award shall not be returned to the Plan and
shall not become available for future issuance under the Plan, except that if
unvested Shares are forfeited, or repurchased by the Company at their original
purchase price, such Shares shall become available for future grant under the
Plan.
4. Administration of the Plan.
(a) Plan Administrator. With respect to grants of Awards to
Employees, Directors, or Consultants, the Plan shall be administered by (A) the
Board or (B) a Committee (or a subcommittee of the Committee) designated by the
Board, which Committee shall be constituted in such a manner as to satisfy
Applicable Laws. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board.
(b) Multiple Administrative Bodies. The Plan may be administered by
different bodies with respect to Directors, Officers, Consultants, and Employees
who are neither Directors or Officers.
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(c) Powers of the Administrator. Subject to Applicable Laws and the
provisions of the Plan (including any other powers given to the Administrator
thereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom
Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are granted
hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted thereunder;
(iv) to approve forms of Award Agreements for use under the
Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such rules or laws; provided,
however, that no Award shall be granted under any such additional terms,
conditions, rules or procedures with terms or conditions which are inconsistent
with the provisions of the Plan;
(vii) to amend the terms of any outstanding Award granted under
the Plan, provided that any amendment that would adversely affect the Grantee's
rights under an outstanding Award shall not be made without the Grantee's
written consent;
(viii) to construe and interpret the terms of the Plan and
Awards, including without limitation, any notice of award or Award Agreement,
granted pursuant to the Plan; and
(ix) to take such other action, not inconsistent with the terms
of the Plan, as the Administrator deems appropriate.
(d) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be conclusive and binding on all
persons.
5. Eligibility. Awards other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees, Directors
or Consultants who are residing in foreign jurisdictions as the Administrator
may determine from time to time.
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6. Terms and Conditions of Awards.
(a) Type of Awards. The Administrator is authorized under the Plan to
award any type of arrangement to an Employee, Director Consultant that is not
inconsistent with the provisions of the Plan and that by its terms involves or
might involve the issuance of (i) Shares, (ii) an Option, a SAR or similar right
with a fixed or variable price related to the Fair Market Value of the Shares
and with an exercise or conversion privilege related to the passage of time, the
occurrence of one or more events, or the satisfaction of performance criteria or
other conditions, or (iii) any other security with the value derived from the
value of the Shares. Such awards include, without, limitation, Options, sales or
bonuses of Restricted Stock, SARs, Dividend Equivalent Rights, Performance Units
or Performance Shares, and an Award may consist of one such security or benefit,
or two (2) or more of them in any combination or alternative.
(b) Designation of Award. Each Award shall be designated in the Award
Agreement. In the case of an Option, the Option shall be designated as either an
Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of Shares
subject to Options designated as Incentive Stock Options which become
exercisable for the first time by a Grantee during any calendar year (under all
plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess
Options, to the extent of the Shares covered thereby in excess of the foregoing
limitation, shall be treated as Non-Qualified Stock Options. For this purpose,
Incentive Stock Options shall be taken into account in the order in which they
were granted, and the Fair Market Value of the Shares shall be determined as of
the grant date of the relevant Option.
(c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total shareholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.
(d) Acquisitions and Other Transactions. The Administrator may issue
Awards under the Plan in settlement, assumption or substitution for, outstanding
awards or obligations to grant future awards in connection with the Company or a
Related Entity acquiring another entity, an interest in another entity or an
additional interest in a Related Entity whether by merger, stock purchase, asset
purchase or other form of transaction.
(e) Deferral of Award Payment. The Administrator may establish one or
more programs under the Plan to permit selected Grantees the opportunity to
elect to defer
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receipt of consideration upon exercise of an Award, satisfaction of performance
criteria, or other event that absent the election would entitle the Grantee to
payment or receipt of Shares or other consideration under an Award. The
Administrator may establish the election procedures, the timing of such
elections, the mechanisms for payments of, and accrual of interest or other
earnings, if any, on amounts, Shares, or other consideration so deferred, and
such other terms, conditions, rules and procedures that the Administrator deems
advisable for the administration of any such deferral program.
(f) Award Exchange Programs. The Administrator may establish one or
more programs under the Plan to permit selected Grantees to exchange an Award
under the Plan for one or more other types of Awards under the Plan on such
terms and conditions as determined by the Administrator from time to time.
(g) Separate Programs. The Administrator may establish one or more
separate programs under the Plan for the purpose of issuing particular forms of
Awards or more classes of Grantees on such terms and conditions as determined by
the Administrator from time to time.
(h) Early Exercise. The Award Agreement may, but need not, include a
provision whereby the Grantee may elect at any time while an Employee, Director
or Consultant to exercise any part or all of the Award prior to full vesting of
the Award. Any unvested Shares received pursuant to such exercise may be subject
to a repurchase right in favor of the Company or a Related Entity or to any
other restriction the Administrator determines to be appropriate.
(i) Term of Award. The term of each Award shall be the term stated in
the Award Agreement, provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to a Grantee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant thereof or
such shorter term may be provided in the Award Agreement.
(j) Non-Transferability of Awards. Awards may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Grantee, only by the Grantee.
(k) Time of Granting Awards. The date of grant of an Award shall for
all purposes be the date on which the Administrator makes the determination to
grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.
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7. Award Exercise or Purchase Price, Consideration, Taxes and Reload
Options.
(a) Exercise or Purchase Price. The exercise or purchase price, if
any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option owns stock representing more than ten percent
(10%) of the voting power of all classes of Stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be not less than one hundred
ten percent (110%) of the Fair Market Value per Share on the date of grant; or
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be not
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of the grant.
(ii) In the case of a Non-Qualified Stock Option:
(A) granted to a person who, at the time of the
grant of such Option, owns Stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be not less than one hundred ten percent
(110%) of the Fair Market Value per Share on the date of grant; or
(B) granted to any person other than a person
described in the preceding paragraph, the per Share exercise price shall be not
less than eighty-five percent (85%) of the Fair Market Value per Share of the
date of grant.
(iii) In the case of the sale of Shares:
(A) granted to a person who, at the time of the
grant of such Award, or at the time the purchase is consummated, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per Share purchase price
shall be not less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant; or
(B) granted to any person other than a person
described in the preceding paragraph, the per Share purchase price shall be not
less than eighty-five percent (85%) of the Fair Market Value per Share on the
date of grant.
(iv) In the case of other Awards, such price as is
determined by the Administrator.
(v) Notwithstanding the foregoing provisions of this
Section 7(a), in the case of an Award issued pursuant to Section 6(d) above, the
exercise or purchase price for the Award shall be determined in accordance with
the principles of Section 424(a) of the Code.
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(b) Consideration. Subject to Applicable Laws, the consideration to
be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
under the Plan the Following:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator determines as
appropriate;
(iv) if the exercise or purchase occurs on or after the
Registration Date, surrender of Shares or delivery of a properly executed form
of attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of the
Award) which have a Fair Market Value on the date of surrender or attestation
equal to the aggregate exercise price of the Shares as to which said Award shall
be exercised (but only to the extent that such exercise of the Award would not
result in an accounting compensation charge with respect to the Shares used to
pay the exercise price unless otherwise determined by the Administrator);
(v) with respect to Options, if the exercise occurs on or after
the Registration Date, payment through a broker-dealer sale and remittance
procedure pursuant to which the Grantee (A) shall provide written instructions
to a Company designated brokerage firm to effect the immediate sale of some or
all of the purchased Shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased Shares and (B) shall provide written
directives to the Company to deliver the certificates for the purchased Shares
directly to such brokerage firm in order to complete the sale transaction; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any Grantee
or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Award the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.
(d) Reload Options. In the event the exercise price or tax
withholding of an Option is satisfied by the Company or the Grantee's employer
withholding Shares otherwise deliverable to the Grantee, the Administrator may
issue the Grantee an additional Option, with
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terms identical to the Award Agreement under which the Option was exercised, but
at an exercise price as determines by the Administrator in accordance with the
Plan.
8. Exercise of Award.
(a) Procedure for Exercise; Rights as a Shareholder.
(i) Any Award granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Award Agreement but in the case of an
Option, in no case at a rate of less than twenty percent (20%) per year over
five (5) years from the date the Option is granted, subject to reasonable
conditions such as continued employment. Notwithstanding the foregoing, in the
case of an Option granted to an Officer, Director or Consultant, the Award
Agreement may provide that the Option may become exercisable, subject to
reasonable conditions such as such Officer's, Director's or Consultant's
Continuous Service, at any time or during any period established in the Award
Agreement.
(ii) An Award shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Award by the person entitled to exercise the Award and full payment
of the Shares with respect to which the Award is exercised, including, to the
extent selected, use of the broker-dealer sale and remittance procedure to pay
the purchase price as provided in Section 7(b)(v). Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer Agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to Shares subject to an Award,
notwithstanding the exercise of an Option or other Award. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in the Award Agreement
or Section 11(a), below.
(b) Exercise of Award Following Termination of Continuous Service. In
the event of termination of a Grantee's Continuous Service for any reason other
than Disability or death (but not in the event of a Grantee's change of status
from Employee to Consultant or from Consultant to Employee), such Grantee may,
but only during the Post-Termination Exercise Period (but in no event later than
the expiration date of the term of such Award as set forth in the Award
Agreement), exercise the Award to the extent that the Grantee was entitled to
exercise it at the date of such termination or to such other extent as may be
determined by the Administrator. The Grantee's Award Agreement may provide that
upon the termination of the Grantee's Continuous Service fir Cause, the
Grantee's right to exercise the Award shall terminate concurrently with the
termination of Grantee's Continuous Service. In the event of a Grantee's change
of status from Employee to Consultant, an Employee's Incentive Stock Option
shall convert automatically to a Non-Qualified Stock Option on the day three (3)
months and one day following such change of status. To the extent that the
Grantee is not entitled to exercise the Award at the date of termination, or if
the Grantee does not exercise such Award to the extent so entitled within the
Post-Termination Exercise Period, the Award shall terminate.
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(c) Disability of Grantee. In the event of termination of a Grantee's
Continuous Service as a result of his or her Disability, Grantee may, but only
with the least twelve (12) months from the date of such termination (and in no
event later than the expiration date of the term of such Award as set forth in
the Award Agreement), exercise the Award to the extent that the Grantee was
otherwise entitled to exercise it at the date of such termination; provided,
however, that if such Disability is not a "disability" as such term is defined
in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such
Incentive Stock Option shall automatically convert to a Non-Qualified Stock
Option on the day three (3) months and one day following such termination. To
the extent that the Grantee is not entitled to exercise the Award at the date of
termination, or if Grantee does not exercise such Award to the extent so
entitled within the time specified herein, the Award shall terminate.
(d) Death of Grantee. In the event of a termination of the Grantee's
Continuous Service as a result of his or her death, or in the event of the death
of the Grantee during the Post-Termination Exercise Period, the Grantee's estate
or a person who acquired the right to exercise the Award by request or
inheritance may exercise the Award, but only to the extent that the Grantee was
entitled to exercise the Award as of the date of termination, within at least
twelve (12) months from the date of such termination (but in no event later than
the expiration of the term of such Award as set forth in the Award Agreement).
To the extent that, at the time of death, the Grantee was not entitled to
exercise the Award, or if the Grantee's estate or a person who acquired the
right to exercise the Award by bequest or inheritance does not exercise such
Award to the extent so entitled within the time specified herein, the Award
shall terminate.
(e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Award previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Grantee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery of such Shares
pursuant thereto shall comply with all Applicable Laws, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. Repurchase Rights. If the provisions of an Award Agreement grant to
the Company the right to repurchase Shares upon termination of the Grantee's
Continuous Service, the Award Agreement shall (or may, with respect to Awards
granted or issued to Officers, Directors or Consultants) provide that:
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(a) the right to repurchase must be exercised, if at all, within
ninety (90) days of the termination of the Grantee's Continuous Service (or in
the case of Shares issued upon exercise of Awards after the date of termination
of the Grantee's Continuous Service, within ninety (90) days after the date of
the Award exercise);
(b) the consideration payable for the Shares upon exercise of such
repurchase right shall be made in cash or by cancellation of purchase money
indebtedness within the ninety (90) day periods specified in Section 10(a);
(c) the amount of such consideration shall (i) be equal to the
original purchase price paid by Grantee for each such Share provided, that the
right to repurchase such Shares at the original purchase price shall lapse at
the rate of at least twenty percent (20%) of the Shares subject to the Award per
year over five (5) years from the date the Award is granted (without respect to
the date the Award was exercised or became exercisable), and (ii) with respect
to Shares, other than Shares subject to repurchase at the original purchase
price pursuant to clause (i) above, not less than the Fair Market Value of the
Shares to be repurchased on the date of termination of Grantee's Continuous
Service; and
(d) the right to repurchase Shares, other than the right to
repurchase Shares at the original purchase price pursuant to clause (i) of
Section 10(c), shall terminate on the Registration Date.
11. Adjustments Upon Changes in Capitalization or Corporate Transaction.
(a) Adjustments upon Changes in Capitalization. Subject to any
required action by the shareholders of the Company, the number of Shares covered
by each outstanding Award, and the number of Shares which have been authorized
for issuance under the Plan, but as to which no Awards have yet been granted or
which have been returned to the Plan, the exercise or purchase price of each
such outstanding Award, as well as any other terms that the Administrator
determines require adjustment shall be proportionately adjusted for (i) any
increase or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Shares, (ii) any other increase or decrease in the number of issued Shares
effected without receipt of consideration by the Company, or (iii) as the
Administrator may determine in its discretion, any other transaction with
respect to Common Stock to which Section 424(a) of the Code applies; provided,
however that conversion of any convertible securities of the Company shall not
be deemed to have been effected without receipt of consideration." Such
adjustment shall be made by the Administrator and its determination shall be
final, binding and conclusive. Except as the Administrator determines, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall effect, and no adjustment
by reason hereof shall be made with respect to, the number or price of Shares
subject to an Award.
(b) Corporate Transaction. In the event of a Corporate Transaction
each Award held by the Company's Chief Executive Officer, Chief Financial
Officer, and Executive Vice President of Technology and Network Operations which
is at the time outstanding under the Plan shall automatically become fully
vested and exercisable and be released from any
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restrictions on transfer (other than transfer restrictions applicable to
Options) repurchase or forfeiture rights, immediately prior to the specified
effective date of such Corporate Transaction, for all of the Shares at the time
represented by such Awards. Effective upon the consummation of the Corporate
Transaction, all such Awards under the Plan shall terminate immediately prior to
the specified effective date of the Corporate Transaction unless the Award is
assumed by the successor corporation or Parent thereof in connection with the
Corporate Transaction. Except as provided otherwise in an individual Award
Agreement, in the event of a Corporate Transaction, all other Awards under the
Plan will terminate immediately prior to the specified effective date of the
Corporate Transaction, unless the Award is assumed by the successor corporation
or Parent thereof in connection with the Corporate Transaction.
12. Effective Date and Term of Plan. The Plan shall become effective upon
the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated. Subject to Section 16, below, and Applicable
Laws, Awards may be granted under the Plan upon its becoming effective.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the Plan.
To the extent necessary to comply with Applicable Laws, the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan (including
termination of the Plan under section 12, above) shall not affect Awards already
granted, and such Awards shall remain in full force and effect as if the Plan
had not been amended, suspended or terminated, unless mutually agreed otherwise
between the Grantee and the Administrator, which agreement must be in writing
and signed by the Grantee and the Company.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell Shares as to which such requisite authority shall not have been obtained.
15. No Effect on Terms of Employment/Consulting Relationship. The Plan
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it
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interfere in any way with his or her right or the Company's right to terminate
the Grantee's Continuous Service at any time, with or without cause.
16. No Effect on Retirement and Other Benefit Plans. Except as
specifically provided in a retirement or other benefit plan of the Company or a
Related Entity, Awards shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement plan of the Company or
a Related Entity, and shall not affect any benefits under any other benefit plan
of any kind or any benefit plan subsequently instituted under which the
availability or amount of benefits is related to level of compensation. The Plan
is not a "Retirement-Plan" or "Welfare Plan" under the Employee Retirement
Income Security Act of 1974, as amended.
17. Board and Shareholder Approval. The Plan was adopted by the Board
during January of 1999. On January 29, 1999, the Board adopted an amendment and
restatement of the Plan to revise the provisions of Section 11(b) relating to
the exercisability and termination of Awards under the Plan in the event of a
Corporate Transaction. Continuance of the Plan shall be subject to approval by
the shareholders of the Company within twelve (12) months before or after the
date the plan is adopted. Such shareholder approval shall be obtained in the
degree and manner required under Applicable Laws. Any Award exercised before
shareholder approval is obtained shall be rescinded if shareholder approval is
not obtained within the time prescribed, and Shares issued on the exercise of
any such Award shall not be counted in determining whether shareholder approval
is obtained.
18. Information to Grantees. The Company shall provide to each Grantee,
during the period for which such Grantee has one or more Awards outstanding,
copies of financial statements at least annually.
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Exhibit 10.7
EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of June 30, 1998
and effective as of the date of the closing of the transactions contemplated by
the Merger Agreement (as defined below) (the "Effective Date"), is made by and
between Pac-West Telecomm, Inc., a California corporation (the "Company"), and
John K. LaRue ("Executive"). Capitalized terms used herein and not otherwise
defined herein have the meanings given to such terms in paragraph 14 hereof.
WHEREAS, the Company desires to employ Executive in the capacity and on
the terms and conditions set forth herein, and Executive desires to accept such
employment in such capacity and on such terms and conditions.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive hereby
accepts employment with the Company, upon the terms and conditions set forth in
this Agreement for the period beginning on the Effective Date and ending as
provided in paragraph 4 below (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
"Executive Vice President - Technology and Network Operations" of the Company
and shall have such duties, responsibilities and authority as set forth herein
and as shall be determined by the Company's Chief Executive Officer. Executive
and the Company hereby agree that Executive's duties shall include, but shall
not be limited to, primary operational management authority with respect to the
following:
(i) the architecture and engineering of the Company's
network;
(ii) the installation and procurement of switch equipment and
project management of growth projects;
(iii) central office switching and circuit and network
maintenance;
(iv) the management of the Company's network facilities
including: circuit and network provisioning and coordination with Local
Exchange Carriers, Interchange Carriers and other transport providers
(LEC's, IXC's, CLEC's);
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(v) the management of the Company's network operating and
surveillance center;
(vi) traffic management and routing; and
(vii) cost/utilization performance.
(b) Executive shall report to the Company's Chief Executive Officer,
and Executive shall devote his best efforts and his business time and attention
(on a full-time equivalent basis) to the business and affairs of the Company and
its Subsidiaries. Executive shall perform his duties and responsibilities to the
best of his abilities in a diligent, trustworthy, businesslike and efficient
manner. Executive shall not be required to report to, share authority with or be
supervised by any person who was an employee, consultant or officer of the
Company at or before the time of the merger contemplated by the Merger Agreement
(other than Wallace W. Griffin).
3. Compensation and Benefits.
(a) Base Salary. During the Employment Period, Executive's base salary
shall be $350,000 per annum or such higher rate as the Board in its sole
discretion may designate from time to time (the "Base Salary"), which salary
shall be payable in regular installments in accordance with the Company's
general payroll practices and shall be subject to customary withholding and
other customary deductions.
(b) Bonuses. The Board shall award a bonus (the "Annual Bonus") to
Executive in an amount to be determined prior to each fiscal year by the Board
and Executive. The Annual Bonus may be structured, as agreed upon by Executive
and the Board in good faith, to provide for a portion of the Annual Bonus to be
paid upon the achievement by the Company of certain separate specific objectives
with such objectives generally designed to provide Executive with an Annual
Bonus of 40% of the Base Salary in a normal year. The Annual Bonus may exceed
40% of the Base Salary as determined by the Board in its discretion. Such Annual
Bonus shall be payable within 90 days following the end of each fiscal year
during the Employment Period based upon the Company having achieved such
specific objectives for such fiscal year determined by the Board and the
Executive in good faith prior to such fiscal year and based upon the Executive's
performance during such fiscal year.
(c) Benefits.
(i) During the Employment Period, Executive shall be entitled
to participate in all of the Company's employee benefit plans and programs for
which senior executive employees of the Company are generally eligible (subject
to the Company's right to amend, modify or terminate any such plan or program in
accordance with its terms and applicable law and subject in each case to any
applicable waiting periods or other restrictions contained in such benefit plans
or programs), which shall include, but shall not be limited
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to, health insurance, dental insurance and participation in the Company's 401(k)
plan. The Company shall match any contributions made by Executive to the
Company's 401(k) plan to the extent consistent with the Company's past practice
and the terms of such plan and to the extent consistent with applicable law.
(ii) Due to the fact Executive will be required to be on call
continuously for emergency response and to travel extensively by vehicle on
company business, during the Employment Period, the Company shall provide to
Executive a reasonably priced car consistent with the Company's past practice.
Such company car shall be available for Executive's use in a manner consistent
with past practice. Executive acknowledges and agrees that he Company may report
all or a portion of the cost of such car and its operation as additional
compensation to Executive if the Company reasonably believes the same may be
required by applicable income tax law.
(iii) Executive shall be entitled to four (4) weeks of paid
vacation during each year of the Employment Period, in addition to legal
holidays. Vacation thereunder shall accrue from year to year based upon the
Company's then current policy for all employees as established from time to time
by the Board in its sole discretion.
(iv) The Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his duties under this
Agreement which are consistent with the terms of this Agreement and the
Company's policies in effect from time to time with respect to travel,
entertainment and other business expenses, subject to the Company's general
policies with respect to reporting and reasonable documentation of such
expenses.
(d) Stock Options. Executive shall be eligible to participate in the
Company's employee stock option plans and other employee equity incentive plans
for which other senior executive employees of the Company are eligible. The
amount of any awards under such plans to Executive shall be determined by the
Board in its sole discretion.
(e) Location of the Company. During the Employment Period, the
principal place of employment of Executive shall be within a 50-mile radius of
Stockton, California, although it is understood that in connection with his
duties under this Agreement, Executive will be required to travel to and perform
services at other locations. In the event the Company moves the principal place
of employment of Executive during the Employment Period to a location other than
such 50-mile radius of Stockton, California, Executive may elect to treat such
event as a termination of the Employment Period by the Company without Cause.
4. Term and Termination.
(a) The Employment Period shall be for a term ending on the second
anniversary of the Effective Date (the "Term"); provided that, notwithstanding
anything in this Agreement to
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the contrary, expressed or implied, or Section 2924 of the California Labor Code
or any similar provision of applicable law, the Employment Period shall
terminate prior to the expiration of the Term upon (i) Executive's resignation
for any reason (with such resignation being effective 30 days after notice
thereof is delivered by Executive to the Company), (ii) Executive's death or
Disability or (iii) termination of Executive's employment by the Company with or
without Cause.
5. Severance.
(a) If the Employment Period is terminated by the Company without
Cause, Executive shall be entitled to receive an amount equal to his Base Salary
at the times set forth in this Agreement for the remainder of the Term plus the
one-year period thereafter (for purposes of this Section 5(a), the "Severance
Period"), so long as Executive has not breached and does not breach the
provisions of any paragraphs 6(a), 6(b) or 12 below during the time period set
forth therein or in the agreement referenced thereby.
(b) If the Employment Period is terminated as a result of Executive's
Disability, Executive and/or his estate or beneficiaries, as the case may be,
shall be entitled to receive benefits under the Company's employee benefit
programs as in effect on the date of such termination to the extent permitted
thereunder and, in addition, shall be entitled to receive (i) an amount equal to
Executive's Base Salary at the times set forth in this Agreement for the
one-year period after the termination of the Employment Period and (ii) the
amount of any Annual Bonus otherwise payable to Executive pursuant to paragraph
3(b) above for the fiscal year in which Executive's employment is terminated,
except that the amount of any such Annual Bonus otherwise payable pursuant to
this paragraph 5(b) shall be pro rated on the basis of the number of days during
such fiscal year that Executive was employed by the Company.
(c) If the Employment Period is terminated as a result of Executive's
death, Executive and/or his estate or beneficiaries, as the case may be, shall
be entitled to receive benefits under the Company's employee benefit programs as
in effect on the date of such termination to the extent permitted thereunder
and, in addition, shall be entitled to receive the amount of any Annual Bonus
otherwise payable to Executive pursuant to paragraph 3(b) above for the fiscal
year in which Executive's employment is terminated, except that the amount of
any such Annual Bonus otherwise payable pursuant to this paragraph 5(b) shall be
pro rated on the basis of the number of days during such fiscal year that
Executive was employed by the Company.
(d) If the Employment Period is terminated by the Company for Cause or
if Executive resigns for any reason (other than any resignation deemed to be a
termination without Cause pursuant to paragraph 3(e) hereof), Executive shall be
entitled to receive his Base Salary through the date of termination and the
Company shall have no further liability whatsoever to Executive.
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(e) Except as otherwise expressly provided herein or as expressly
required under Section 4980B of the Internal Revenue Code of 1986, as amended,
all of Executive's rights to fringe benefits and bonuses hereunder shall cease
upon termination of the Employment Period.
6. Confidential Information: Nonsolicitation.
(a) Executive agrees to execute on the Effective Date and to be bound
as of the Effective Date by the terms of the Company's form of confidentiality
agreement attached hereto as Exhibit A.
(b) Executive agrees that until the later of (1) the second anniversary
of the Effective Date or (2) the date which is 180 days after the termination of
the Employment Period, he shall not directly, or indirectly through another
Person, (i) induce or attempt to induce any employee of the Company or any of
its Subsidiaries to leave the employ of the Company or such Subsidiary, or in
any way interfere with the relationship between the Company or any of its
Subsidiaries and any employee thereof, (ii) hire any person who was an employee
of the Company or any of its Subsidiaries at any time during the 180-day period
immediately prior to the date on which such hiring would take place (it being
conclusively presumed by the Company and Executive so as to avoid any disputes
under this paragraph 6(b) that such hiring within such 180-day period is in
violation of clause (i) above), or (iii) call on, solicit or service any
customer, supplier, licensee, licensor or other business relation of the Company
or any of its Subsidiaries in order to induce or attempt to induce such Person
to cease doing business with the Company or such Subsidiary. In addition, during
the Employment Period and thereafter, Executive shall not in any way interfere
with the relationship between any such customer, supplier, licensee or business
relation and the Company or any of its Subsidiaries (including making any
negative statements or communications about the Company or any of its
Subsidiaries).
7. Company's Ownership of Intellectual Property.
(a) Executive acknowledges that all Work Product is the exclusive
property of the Company. Executive hereby assigns all right, title and interest
and to such Work Product to the Company. Any copyrightable work prepared in
whole or in part by Executive will be deemed "a work made for hire" under
Section 201(b) of the 1976 Copyright Act, and the Company shall own all of the
rights comprised in the copyright therein.
(b) The Company and Executive each acknowledge the applicability of
Section 2870 of the California Labor Code. Accordingly, the provisions of
paragraph 7(a) shall not apply to, and the term "Work Product" shall not
include, any invention that Executive developed entirely on his own time without
using the Company's equipment, supplies, facilities, or trade secret information
except for those inventions that either: (i) relate at the time of conception or
reduction to practice of the invention to the Company's or any Subsidiary's
business, or to the actual or demonstrably anticipated research or development
of the Company or any Subsidiary; or (ii) result from any work performed by
Executive for the Company or any Subsidiary. Set forth on the
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attached "Excluded Inventions Schedule" are the inventions Executive believes
meet the criteria for exclusion set forth above. Executive agrees to promptly
advise the Company in writing or any inventions developed after the Effective
Date which Executive believes meet the criteria for exclusion set forth above.
(c) Executive shall promptly and fully disclose all Work Product to the
Company and shall cooperate and perform all actions reasonably requested by the
Company (whether during or after the Employment Period) to establish, confirm
and protect the Company's right, title and interest in such Work Product.
Without limiting the generality of the foregoing, Executive agrees to assist the
Company, at the Company's expense, to secure the Company's rights in the Work
Product in any and all countries, including the execution of all applications
and all other instruments and documents which the Company shall deem necessary
in order to apply for and obtain rights in such Work Product and in order to
assign and convey to the Company the sole and exclusive right, title and
interest in and to such Work Product. If the Company is unable because of
Executive's mental or physical incapacity or for any other reason (including
Executive's refusal to do so after request therefor is made by the Company) to
secure Executive's signature to apply for or to pursue any application for any
United States or foreign patents or copyright registrations covering Work
Product belonging or assigned to the Company pursuant to paragraph 7(a) above,
then Executive hereby irrevocably designates and appoints the Company and its
duly authorized officers and agents as Executive's agent and attorney-in-fact to
act for and in Executive's behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of patents or copyright registrations thereon with the
same legal force and effect as if executed by Executive. Executive agrees not to
apply for or pursue any application for any United States or foreign patents or
copyright registrations covering any Work Product other than pursuant to this
paragraph in circumstances where such patents or copyright registrations are or
have been or are required to be assigned to the Company.
8. Delivery of Materials Upon Termination of Employment. As requested
by the Company upon the termination of Executive's employment with the Company
for nay reason, Executive shall promptly deliver to the Company all copies and
embodiments, in whatever form, of all Confidential information and Work Product
in Executive's possession or within his control irrespective of the location or
form of such material and, if requested by the Company, shall provide the
Company with written confirmation that all such materials have been delivered to
the Company.
9. Subsequent Inventions. Executive understands and agrees that all
Intellectual Property Rights made, conceived, developed, or reduced to practice
by Executive, either alone or jointly with others, shall be disclosed to the
Company by Executive for six (6) months following the termination of the
Employment Period. Employee further agrees that all Intellectual Property Rights
made, conceived, developed or reduced to practice within six (6) months
following such termination shall be presumed to have been conceived during
Executive's employment with the Company and with the use of the Company's
Confidential Information, but such presumption may be overcome by Executive by a
showing that such Intellectual Property Rights were conceived after the
Employment Period and without the use of any such Confidential Information. In
the event
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Executive is not able to rebut such presumption and prove that such Intellectual
Property Rights were conceived after the Employment Period and without the use
of Confidential Information, Executive agrees to assign all right, title and
interest in such Intellectual Property Rights to the Company.
10. Disclosure. Following the termination of the Employment Period,
Executive shall communicate the restrictions contained in this Agreement to any
Person he intends to be employed by, provide consulting services to or otherwise
represent. Executive hereby consents to the Company's communication of the
restrictions contained in this Agreement to any such Person.
11. Enforcement Remedies.
(a) If at the time of enforcement of the covenants contained in
paragraphs 6, 7, 8, 9 or 10 (the "Protective Covenants"), a court shall hold
that the duration or scope stated therein are unreasonable under circumstances
then existing, the parties hereto agree that the maximum duration or scope
reasonable under such circumstances shall be substituted for the stated duration
or scope and that the court shall be allowed to revise the restrictions
contained therein to cover the maximum period or scope permitted by law.
Executive has consulted legal counsel regarding the Protective Covenants and
based on such consultation has determined and hereby acknowledges that the
Protective Covenants are reasonable in terms of duration and scope and are
necessary to protect the goodwill of the Company's business and the Confidential
Information. Executive further agrees that the Protective Covenants were a
material inducement to certain investors of the Company to enter into the Merger
Agreement and consummate the transactions contemplated hereby, and such
investors would not obtain the benefit of the bargain as set forth in the Merger
Agreement and the other agreements contemplated thereby if Executive breached or
challenged the validity of any of the Protective Covenants.
(b) If Executive breaches, or threatens to commit a breach of, any of
the Protective Covenants, the Company shall have the Following rights and
remedies, each of which rights and remedies shall be independent of the others
and severally enforceable, and each which is in addition to, not in lieu of, any
other rights and remedies available to the Company at law or in equity:
(i) the right and remedy to have the Protective Covenants
specifically enforced by any court of competent jurisdiction (without
the need to post a bond or other security), it being agreed that any
breach or threatened breach of the Protective Covenants would cause
irreparable injury to the Company and that money damages would not
provide an adequate remedy to the Company; and
((ii) the right and remedy to require Executive to account for
and pay over the Company any profits, monies, accruals, increments or
other benefits derived or received by Executive as the result of any
transaction(s) constituting a breach of the Protective Covenants.
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(c) In the event of any breach or violation by Executive of any of the
Protective Covenants, the time period of such covenant with respect to Executive
(to the extent such covenant is limited in duration) shall be tolled until such
breach or violation is resolved.
12. Noncompetition. Executive acknowledges and agrees that he is
subject to and bound by the noncompetition provisions of Section 11.6 of the
Merger Agreement as result of Executive's sale of the capital stock and the
goodwill of the Company thereunder. Executive further acknowledges and agrees
that the provisions of such Section 11.6 of the Merger Agreement were entered
into as a result of the sale of the Company's capital stock and goodwill
thereunder and not as a direct or indirect result of Executive's employment
relationship with the Company.
13. Executive's Representattions. Executive hereby represents and
warrants to the Company that (a) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (b) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity, except pursuant to
and as disclosed in Schedules to the Merger Agreement and (c) upon the execution
and delivery of this Agreement by the Company, this Agreement shall be the valid
and binding obligation of Executive, enforceable in accordance with its terms.
Executive hereby acknowledges and represents that he has consulted with
independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
14. Definitions.
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Cause" means (A) Executive's theft or embezzlement, or attempted theft
or embezzlement, of money or property of the Company or any of its Affiliates,
Executive's perpetration or attempted perpetration of fraud, or Executive's
participation in a fraud or attempted fraud, on the Company or any of its
Affiliates or Executive's unauthorized appropriation of, or Executive's attempt
to misappropriate, any tangible or intangible assets or property of the Company
or any of its Affiliates; (B) Executive's conviction for commission of a felony
or conviction for any crime involving acts which tend to insult or offend
community moral standards or public decency or that materially and adversely
affect the reputation or business activities of the Company or its Affiliates;
(C) Executive's substance abuse, including abuse of alcohol or use of illegal
narcotics, or other illegal drugs or substances, for which Executive fails to
undertake and maintain treatment within 15 days after requested by the
Corporation; (D) Executive's refusal to carry out the lawful instructions of the
Board following receipt of written notice of such instructions from the Board;
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or (E) Executive's material breach of any provision of this Agreement which is
incapable of cure or which is not cured within 15 days after written notice
thereof to Executive.
"Confidential Information" means all information of a confidential or
proprietary nature (whether or not specially labeled or identified as
"confidential"), in any form or medium, that is or was disclosed to, or
developed or learned by, Executive in connection with Executive's prior
relationship with the Company or during the Employment Period and that relates
to the business, products, services, research or development of the Company or
its suppliers, distributors or customers. Confidential information includes but
is not limited to the following: (i) internal business information (including
information relating to strategic and staffing plans and practices, business,
training, marketing, promotional and sales plans and practices, cost, rate and
pricing structures and accounting and business methods); (ii) identities of,
individual requirements of, specific contractual arrangements with and
information about, the Company's suppliers, distributors and customers and their
confidential information; (iii) trade secrets, know-how, compilations of data
and analyses, techniques, systems, formulae, research, records, reports,
manuals, documentation, models, data and data bases relating thereto; and (iv)
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable). Confidential Information shall not include information that
Executive can demonstrate: (a) publicly known through no wrongful act or breach
of obligation of confidentiality; (b) was lawfully known to Executive prior to
the time Executive began rendering services to the Company and its predecessors;
or (c) was rightfully received by Executive from a third party without breach of
any obligation of confidentiality by such third party.
"Disability " means the inability, due to illness, accident, injury,
physical or mental incapacity or other disability, of Executive to carry out
effectively his duties and obligations to the Company or to participate
effectively and actively in the management of the Company for a period of at
least 180 consecutive days or of shorter periods aggregating at least 180 days
(whether or not consecutive) during any twelve-month period, as determined in
the reasonable good faith judgment of the Board.
"Intellectual Property Rules" means all inventions, innovations,
improvements, developments, methods, processes, designs, analyses, drawings,
reports and all similar or related information (whether or not patentable or
reduced to practice) and any copyrightable work, trade mark, trade secret or
other intellectual property rights which relate to the Company's or any of its
Subsidiaries actual or anticipated business.
"Merger Agreement" means that certain Agreement and Plan of Merger,
dated as of the date hereof, by and among the Company, Executive and other
parties signatory thereto, as amended and modified from time to time in
accordance with its terms.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
-9-
<PAGE>
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly by that Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
"Work Product" means all inventions, innovations, improvements,
developments, methods, processes, designs, analyses, drawings, reports, research
and development of existing or future products or services which were or are
conceived, reduced to practice, contributed to or developed or made by Executive
(whether alone or jointly with others) while employed (both before and after the
Effective Date) by the Company (or its predecessors, successors or assigns) and
its Subsidiaries and all similar or related information (whether or not
patentable or reduced to practice) and any copyrightable work; trade mark, trade
secret or other intellectual property rights, any of which relate to the
Company's or any of its Subsidiaries' actual or anticipated business.
15. Survival. The provisions set forth in paragraphs 5 through 24 of
this Agreement shall survive and continue in full force and effect in accordance
with their terms notwithstanding any termination of the Employment Period.
16. Notices. Any notice provided for in this Agreement shall be deemed
to have been given when delivered personally to the recipient, sent to the
recipient by reputable express courier (charges prepaid), telecopied (with hard
copy to follow) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notice will be sent to
Executive or to the Company at the address set forth below:
Notices to Executive:
---------------------
John K. LaRue
1548 El Camino Avenue
Stockton, CA 95209
Telephone: (209) 929-2127
Facsimile: (209) 929-2139
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<PAGE>
Notices to the Company
----------------------
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, CA 95204
Attention: President
Telephone: (209) 926-3222
Facsimile: (209) 926-3205
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
17. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein. The
Executive acknowledges and agrees that the covenants and agreements set forth in
this agreement were a material inducement to certain investors of the Company to
enter into the Merger Agreement and consummate the transactions contemplated
thereby, and such investors would not obtain the benefit of their bargain as set
forth in the Merger Agreement and the other agreements contemplated thereby as
specifically negotiated by the investors if Executive breached or challenged any
of the provisions of this Agreement. Therefore, notwithstanding anything to the
contrary expressed or implied in this paragraph 17 or elsewhere in this
Agreement, the Executive unconditionally covenants and agrees that Executive
will not directly or indirectly challenge the validity, legality or
enforceability of any provision of this Agreement.
18. Complete Agreement. This Agreement and the Merger Agreement embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
19. No Strict Construction. The language used in this Agreement shall
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party. The use of the word "including" herein shall mean "including without
limitation."
20. Counterparts. This Agreement may be executed in separate
counterparts including by means of telecopies signature pages), each of which is
deemed to be an original and all of which taken together constitute one and the
same agreement.
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<PAGE>
21. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by Executive, the Company and
their respective heirs, successors and assigns, except that Executive may not
assign his rights or delegate his obligations hereunder without the prior
written consent of the Company.
22. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and any
schedules shall be governed by, and construed in accordance with, the laws of
California, without giving effect to any choice of law or conflict of law rules
or provisions (whether of the State of California or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of California.
23. Consent to Personal Jurisdiction. Executive hereby expressly
consents to the nonexclusive personal jurisdiction and venue of the state and
federal courts located in the federal Northern District of California for any
lawsuit filed against Executive by the Company arising from or relating to this
Agreement.
24. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity., binding effect or
enforceability of this Agreement.
* * * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on the date first written above.
PAC-WEST TELECOMM, INC.
By: /s/ JOHN K. LA RUE
----------------------------------
Name: JOHN K. LA RUE
--------------------------------
Its: President
---------------------------------
By:
----------------------------------
Name:
--------------------------------
Its:
---------------------------------
/s/ JOHN K. LA RUE
----------------------------------
JOHN K. LA RUE
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<PAGE>
EXCLUDED INVENTIONS SCHEDULE
----------------------------
None
-14-
<PAGE>
EXHIBIT 10.8
EXECUTION COPY
EXECUTIVE AGREEMENT
-------------------
THIS EXECUTIVE AGREEMENT (this "Agreement") dated as of
September 16, 1998, and effective as of the date of the closing of the
transactions contemplated by the Merger Agreement (as defined below) (the
"Effective Date"), by and among Pac-West Telecomm, Inc., a California
corporation (the "Company") and Wallace W. Griffin ("Executive"). Certain
definitions are set forth in Section 17 of this Agreement.
WHEREAS, pursuant to the terms of an Agreement and Plan of
Merger, dated as of June 30, 1998, by and among the Company, PWT Acquisition
Corp. and the other parties signatory thereto (as amended and modified from time
to time, the "Merger Agreement"), PWT Acquisition Corp. will merger with and
into the Company;
WHEREAS, as of the Effective Date the Company desires to
secure Executive's services to the Company on the terms described herein and
Executive desires to provide such services to the Company on the terms described
herein;
WHEREAS, the Company and Executive desire to enter into an
agreement pursuant to which the Company shall sell to Executive the number of
shares set forth herein of the Company's Common Stock, par value $.01 per share
(the "Common Stock"), upon the terms set forth herein; and
WHEREAS, certain provisions of this Agreement are intended for
the benefit of, and shall be enforceable by, the investors of the Company set
forth on the signature pages hereto (the "Investors").
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
A. Provisions Relating to Employment.
1. Employment. The Company shall employ Executive, and
Executive hereby accepts employment with the Company, upon the terms and
conditions set forth in this Agreement for the period beginning on the Effective
Date and ending as provided in paragraph 4 below (the "Employment Period").
<PAGE>
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
Chief Executive Officer and President of the Company and shall have the normal
duties, responsibilities and authority of a Chief Executive Officer and
President, subject to the overall direction and authority of the Company's board
of directors (the "Board").
(b) Executive shall report to the Board, and Executive shall
devote his best efforts and his full business time and attention to the business
and affairs of the Company and its Subsidiaries. Executive shall perform his
duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.
3. Compensation and Benefits.
(a) Base Salary. During the Employment Period, Executive's
base salary shall be $350,000 per annum or such higher rate as the Board in its
sole discretion may designate from time to time (the "Base Salary"), which
salary shall be payable in regular installments in accordance with the Company's
general payroll practices and shall be subject to customary withholding and
other customary deductions.
(b) Bonuses. The Board shall award a bonus (the "Annual
Bonus") to Executive during the Employment Period in an amount to be determined
prior to each fiscal year by the Board and Executive. The Annual Bonus may be
structured, as agreed upon by Executive and the Board in good faith, to provide
for all or a portion of the Annual Bonus to be paid upon the achievement by the
Company of certain separate specific objectives with such objectives generally
designed to provide Executive with an Annual Bonus of 40% of the Base Salary in
a normal year. The Annual Bonus may exceed 40% of the Base Salary as determined
by the Board in its discretion. Such Annual Bonus shall be payable within 90
days following the end of each fiscal year during the Employment Period based
upon the Company having achieved such specific objectives for such fiscal year
determined by the Board and the Executive in good faith prior to such fiscal
year and based upon the Executive's performance during such fiscal year.
(c) Benefits.
(i) During the Employment Period, Executive shall be
entitled to participate in all of the Company's employee benefit plans
and programs for which senior executive employees of the Company are
generally eligible (subject to the Company's right to amend, modify or
terminate any such plan or program in accordance with its terms and
applicable law and subject in each case to any applicable waiting
periods or other restrictions contained in such benefit plans or
programs), which shall include, but shall not be limited to, health
insurance, dental insurance and participation in the Company's 401(k)
plan. The Company shall match any contributions made by Executive to
the Company's 401(k) plan to the extent consistent with the Company's
past practice and the terms of such plan and to
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<PAGE>
the extent consistent with applicable law. The Company and Executive
shall work jointly in good faith to provide for life insurance for
Executive on mutually agreeable terms at the expense of the Company.
(ii) Due to the fact that Executive will be required
to be on call continuously for emergency response and to travel
extensively by vehicle on company business, during the Employment
Period the Company shall provide to Executive the use of a reasonably
priced car consistent with the Company's past practice for other senior
executives. Such company car shall be available for Executive's use in
a manner consistent with past practice for other senior executives.
Executive acknowledges and agrees that the Company may report all or a
portion of the cost of such car and its operation as additional
compensation to Executive if the Company reasonably believes the same
may be required by applicable law.
(iii) Executive shall be entitled to four (4) weeks
of paid vacation during each year of the Employment Period, in addition
to legal holidays. Vacation hereunder shall accrue from year to year
based upon the Company's then current policy for all employees as
established from time to time by the Board in its sole discretion.
(iv) The Company shall reimburse Executive for all
reasonable expenses incurred by him in the course of performing his
duties under this Agreement which are consistent with the terms of this
Agreement and the Company's policies in effect from time to time with
respect to travel, entertainment and other business expenses, subject
to the Company's general policies with respect to reporting and
reasonable documentation of such expenses. In addition, the Company
shall reimburse Executive for the reasonable cost (not to exceed a
maximum of $3,000 per year) of membership in a country club of
Executive's choice.
(v) The Company shall reimburse Executive for all
reasonable travel expenses between Denver, Colorado, and Stockton,
California, incurred by Executive or Executive's spouse during the
Employment Period and for the expenses associated with Executive's
relocation to Stockton, California; provided that in no event shall the
aggregate amount of such expenses reimbursed during the Term of this
Agreement exceed $48,000 less the amount previously paid to Executive
prior to the Effective Date with respect to such expenses whether paid
pursuant to Section 6 of the Consulting Agreement or otherwise. All
reimbursements by the Company are subject to the Company's reasonable
requirements with respect to reporting and documentation of expenses
incurred.
(d) Stock Options. The Company hereby agrees to grant to
Executive on or promptly after the Effective Date, stock options to purchase a
number of shares of the Company's Common Stock equal to 2% of the total number
of shares of common stock outstanding on the Effective Date. The grant of such
stock options shall be subject to prior mutual agreement of the parties as to
the terms of such stock options and the vesting schedule for such stock options
shall be
3
<PAGE>
consistent with the vesting schedule set forth in the May 29, 1998 memorandum to
Executive from Jerry Johnson and Samuel Plum. The terms of such stock options
shall be contained in an option agreement issued pursuant to the Company's stock
option plan as in effect as of the time of such grant. Executive shall also be
eligible to further participate in the Company's employee stock option plans and
other employee equity incentive plans for which other senior executive employees
of the Company are eligible. The amount of any additional awards under such
plans to Executive shall be determined by the Board in its sole discretion.
(e) Key-Man Life Insurance. Executive agrees to cooperate at
the request of the Company in any efforts to obtain "key-man" life insurance on
Executive's life.
4. Term and Termination.
(a) The Employment Period pursuant to this Agreement shall be
for a term ending on the third anniversary of the Effective Date (the "Term");
provided that, notwithstanding anything in this Agreement to the contrary,
expressed or implied, or Section 2924 of the California Labor Code or any
similar provision of applicable law, the Employment Period pursuant to this
Agreement shall terminate prior to the expiration of the Term upon (i)
Executive's resignation for any reason (with such resignation being effective 30
days after notice thereof is delivered by Executive to the Company), (ii)
Executive's death or Disability or (iii) termination of Executive's employment
by the Company with or without Cause.
5. Severance.
(a) If the Employment Period is terminated by the Company
without Cause, Executive shall be entitled to receive an amount equal to his
Base Salary at the times set forth in this Agreement for the greater of (i) the
remainder of the Term and (ii) the six-month period after such termination (for
purposes of this Section 5(a), the "Severance Period"), so long as Executive has
not breached and does not breach the provisions of any of paragraphs 6, 7, 8, 9,
10, 12, 15 or 16 below during the time period set forth therein or breached the
provisions of any agreement referenced thereby.
(b) If the Employment Period is terminated as a result of
Executive's Disability, Executive and/or his estate or beneficiaries, as the
case may be, shall be entitled to receive benefits under the Company's employee
benefit programs as in effect on the date of such termination to the extent
permitted thereunder and under applicable law and, in addition, shall be
entitled to receive (i) an amount equal to Executive's Base Salary at the times
set forth in this Agreement for the one-year period after the termination of the
Employment Period and (ii) the amount of any Annual Bonus otherwise payable to
Executive pursuant to paragraph 3(b) above for the fiscal year in which
Executive's employment is terminated, except that the amount of any such Annual
Bonus otherwise payable pursuant to this paragraph 5(b) shall be pro rated on
the basis of the number of days during such fiscal year that Executive was
employed by the Company; provided that in the event the Company establishes and
maintains disability insurance providing to Executive and/or his estate or
4
<PAGE>
beneficiaries, as the case may be, a benefit at least equal to the amount to be
paid to Executive pursuant to clauses (i) and (ii) of this paragraph 5(b), the
Company shall be relieved of its obligation to make such payments pursuant to
this paragraph 5(b).
(c) If the Employment Period is terminated as a result of
Executive's death, Executive and/or his estate or beneficiaries, as the case may
be, shall be entitled to receive benefits under the Company's employee benefit
programs as in effect on the date of such termination to the extent permitted
thereunder and under applicable law and, in addition, shall be entitled to
receive the amount of any Annual Bonus otherwise payable to Executive pursuant
to paragraph 3(b) above for the fiscal year in which Executive's employment is
terminated, except that the amount of any such Annual Bonus otherwise payable
pursuant to this paragraph 5(c) shall be pro rated on the basis of the number of
days during such fiscal year that Executive was employed by the Company;
provided that in the event the Company establishes and maintains life insurance
providing to Executive and/or his estate or beneficiaries, as the case may be, a
benefit at least equal to the amount to be paid to Executive pursuant to this
paragraph 5(c), the Company shall be relieved of its obligation to make such
payments pursuant to this paragraph 5(c).
(d) If the Employment Period is terminated by the Company for
Cause or if Executive resigns for any reason, Executive shall be entitled to
receive only his Base Salary through the date of termination and the Company
shall have no further liability whatsoever to Executive.
(e) Except as otherwise expressly provided herein or as
expressly required by applicable law (including under Section 4980B of the
Internal Revenue Code of 1986, as amended), all of Executive's rights to fringe
benefits and bonuses hereunder shall cease upon termination of the Employment
Period.
6. Confidential Information; Nonsolicitation.
(a) Executive agrees to execute on the Effective Date and to
be bound as of the Effective Date by the terms of the Company's form of
confidentiality agreement attached hereto as Exhibit A. The terms of such
confidentiality agreement shall supersede and preempt all prior confidentiality
agreements in effect between Executive and the Company prior to the Effective
Time.
(b) Executive agrees that until the date which is two years
after the termination of the Employment Period, he shall not directly, or
indirectly through another Person, (i) induce or attempt to induce any employee
of the Company or any of its Subsidiaries to leave the employ of the Company or
such Subsidiary, or in any way interfere with the relationship between the
Company or any of its Subsidiaries and any employee thereof, (ii) hire any
person who was an employee of the Company or any of its Subsidiaries at any time
during the 180-day period immediately prior to the date on which such hiring
would take place (it being conclusively presumed by the Company and Executive so
as to avoid any disputes under this paragraph 6(b) that any such hiring within
such 180-day period is in violation of clause (i) above), or (iii) call on,
solicit or service any customer, supplier, licensee, licensor or other business
relation of the Company or any of its Subsidiaries in
5
<PAGE>
order to induce or attempt to induce such Person to cease doing business, or to
reduce the amount of business conducted, with the Company or such Subsidiary. In
addition, during the Employment Period and for the three-year period thereafter,
Executive shall not in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company or any of its
Subsidiaries (including making any negative statements or communications about
the Company or any of its Subsidiaries).
7. Company's Ownership of Intellectual Property.
(a) Executive acknowledges that all Work Product is the
exclusive property of the Company. Executive hereby assigns all right, title and
interest in and to such Work Product to the Company. Any copyrightable work
prepared in whole or in part by Executive will be deemed "a work made for hire"
under Section 201(b) of the 1976 Copyright Act, and the Company shall own all of
the rights comprised in the copyright therein.
(b) The Company and Executive each acknowledge the
applicability of Section 2870 of the California Labor Code. Accordingly, the
provisions of paragraph 7(a) shall not apply to, and the term "Work Product"
shall not include, any invention that Executive developed entirely on his own
time without using the Company's equipment, supplies, facilities, or trade
secret information except for those inventions that either: (i) relate at the
time of conception or reduction to practice of the invention to the Company's or
any Subsidiary's business, or to the actual or demonstrably anticipated research
or development of the Company or any Subsidiary; or (ii) result from any work
performed by Executive for the Company or any Subsidiary. Set forth on the
attached "Excluded Inventions Schedule" are the inventions Executive believes
meet the criteria for exclusion set forth above. Executive agrees to promptly
advise the Company in writing of any inventions developed after the Effective
Date which Executive believes meet the criteria for exclusion set forth above.
(c) Executive shall promptly and fully disclose all Work
Product to the Company and shall cooperate and perform all actions reasonably
requested by the Company (whether during or after the Employment Period) to
establish, confirm and protect the Company's right, title and interest in such
Work Product. Without limiting the generality of the foregoing, Executive agrees
to assist the Company, at the Company's expense, to secure the Company's rights
in the Work Product in any and all countries, including the execution of all
applications and all other instruments and documents which the Company shall
deem necessary in order to apply for and obtain rights in such Work Product and
in order to assign and convey to the Company the sole and exclusive right, title
and interest in and to such Work Product. If the Company is unable because of
Executive's mental or physical incapacity or for any other reason (including
Executive's refusal to do so after request therefor is made by the Company) to
secure Executive's signature to apply for or to pursue any application for any
United States or foreign patents or copyright registrations covering Work
Product belonging to or assigned to the Company pursuant to paragraph 7(a)
above, then Executive hereby irrevocably designates and appoints the Company and
its duly authorized officers and agents as Executive's agent and
attorney-in-fact to act for and in Executive's behalf and stead to execute and
6
<PAGE>
file any such applications and to do all other lawfully permitted acts to
further the prosecution and issuance of patents or copyright registrations
thereon with the same legal force and effect as if executed by Executive. During
Executive's employment with the Company, Executive agrees not to apply for or
pursue any application for any United States or foreign patents or copyright
registrations covering any Work Product other than pursuant to this paragraph in
circumstances where such patents or copyright registrations are or have been or
are required to be assigned to the Company.
8. Delivery of Materials Upon Termination of Employment. As
requested by the Company upon the termination of Executive's employment with the
Company for any reason, Executive shall promptly deliver to the Company all
copies and embodiments, in whatever form, of all Confidential Information and
Work Product in Executive's possession or within his control irrespective of the
location or form of such material and, if requested by the Company, shall
provide the Company with written confirmation that all such materials have been
delivered to the Company.
9. Subsequent Inventions. Executive understands and agrees
that all Intellectual Property Rights made, conceived, developed, or reduced to
practice by Executive, either alone or jointly with others, shall be disclosed
to the Company by Executive for six (6) months following the termination of
Executive's employment with the Company. Employee further agrees that all
Intellectual Property Rights made, conceived, developed or reduced to practice
within six (6) months following such termination shall be presumed to have been
conceived during Executive's employment with the Company and with the use of the
Company's Confidential Information, but such presumption may be overcome by
Executive by a showing that such Intellectual Property Rights were conceived
after such employment and without the use of any such Confidential Information.
In the event Executive is not able to rebut such presumption and prove that such
Intellectual Property Rights were conceived after such employment and without
the use of Confidential Information, Executive agrees to assign all right, title
and interest in such Intellectual Property Rights to the Company.
10. Disclosure. Following the termination of the Executive's
employment with the Company, Executive shall communicate the restrictions
contained in this Agreement to any Person he intends to be employed by, provide
consulting services to or otherwise represent. Executive hereby consents to the
Company's communication of the restrictions contained in this Agreement to any
such Person.
11. Enforcement; Remedies.
(a) If, at the time of enforcement of the covenants contained
in paragraphs 6, 7, 8, 9 or 10 (the "Protective Covenants"), a court shall hold
that the duration or scope stated therein are unreasonable under circumstances
then existing, the parties hereto agree that the maximum duration or scope
reasonable under such circumstances shall be substituted for the stated duration
or scope and that the court shall be allowed to revise the restrictions
contained therein to cover the maximum period or scope permitted by law;
provided that in no event shall the duration or scope
7
<PAGE>
determined by such court exceed the duration or scope set forth in this
Agreement. Executive has consulted legal counsel regarding the Protective
Covenants and based on such consultation has determined and hereby acknowledges
that the Protective Covenants are reasonable in terms of duration and scope and
are necessary to protect the goodwill of the Company's business and the
Confidential Information. Executive further agrees that the Protective Covenants
were a material inducement to certain investors of the Company to enter into the
Merger Agreement and consummate the transactions contemplated thereby, and such
investors would not obtain the benefit of the bargain as set forth in the Merger
Agreement and the other agreements contemplated thereby if Executive breached or
challenged the validity of any of the Protective Covenants.
(b) If Executive breaches, or threatens to commit a breach of,
any of the Protective Covenants, the Company shall have the following rights and
remedies, each of which rights and remedies shall be independent of the others
and severally enforceable, and each of which is in addition to, and not in lieu
of, any other rights and remedies available to the Company at law or in equity:
(i) the right and remedy to have the Protective
Covenants specifically enforced by any court of competent jurisdiction
(without the need to post a bond or other security), it being agreed
that any breach or threatened breach of the Protective Covenants would
cause irreparable injury to the Company and that money damages would
not provide an adequate remedy to the Company; and
(ii) the right and remedy to require Executive to
account for and pay over to the Company any profits, monies, accruals,
increments or other benefits derived or received by Executive as the
result of any transaction(s) constituting a breach of the Protective
Covenants.
(c) In the event of any breach or violation by Executive of
any of the Protective Covenants, the time period of such covenant with respect
to Executive (to the extent such covenant is limited in duration) shall be
tolled until such breach or violation is resolved.
12. Loss of Severance due to Competition.
(a) The Executive shall not during the Employment Period and
during the period Executive is receiving any Severance Payment pursuant to
paragraph 5(a) (the "Noncompete Period"), for himself or on behalf of any other
person, firm, partnership, corporation, or other entity, engage, directly or
indirectly, either as an officer, director, employee, partner, consultant,
individual proprietor, agent, or otherwise (including, but not limited to, as an
owner or shareholder), in any business which (A) provides telecommunication
services of the type provided during the Employment Period by the Company and
any of its Subsidiaries (including, without limitation, (i) switched local
service, (ii) switched long-distance service, (iii) dedicated transport
services, (iv) co-locate and interconnect services and (v) data switched
services and including, without limitation, telecommunication services of the
type provided by the Company and any of its Subsidiaries to information service
providers) or (B) provides services of the type which the Company and any of its
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Subsidiaries have taken significant actions during the Employment Period to
begin providing or of the type the Company or any of its Subsidiaries have
indicated that they plan to begin providing in any business plan or similar
document delivered to Executive during the Employment Period, in each case
within any of the Restricted Territories (as defined below); provided that the
restrictions set forth in this paragraph 12 shall not prohibit Executive 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
restrictions set forth in this paragraph 12 shall not restrict the activities of
Executive to the extent Executive has received the consent of the Board to such
activities.
(b) For purposes of this Agreement, "Restricted Territories"
shall mean (i) the counties (or similar jurisdictions) in the United States of
America, Canada and Mexico and (ii) any other jurisdictions in which the Company
or its Subsidiaries are engaged in business during the Employment Period or have
taken significant actions to begin engaging in business during the Employment
Period. Executive acknowledges that the business of the Company is contemplated
to be conducted in the jurisdictions set forth in subparagraph 12(b)(i)
(including as the same relates to the production, promotion, marketing and sale
of its products and services), and that the geographic restrictions set forth
above are reasonable and necessary to protect the goodwill of the Company's
business.
(c) If Executive breaches any of the provisions of this
paragraph 12, Executive and the Company acknowledge and agree that the Company's
sole remedy for such breach shall be the termination of the Severance Payments
otherwise payable to Executive pursuant to paragraph 5(a) hereof.
B. Provisions Relating to Executive Stock.
13. Purchase and Sale of Executive Stock.
(a) On the Effective Date, the Company shall sell, and
Executive shall purchase, 37,500 shares of Common Stock of the Company for an
aggregate purchase price of $250,000; provided that the Company shall have no
such obligation to sell such Common Stock, and Executive shall have no such
right to purchase such Common Stock, in the event the transactions contemplated
by the Merger Agreement are not consummated. The Company shall deliver to
Executive a copy of, and a receipt for, the certificate representing such shares
of Common Stock, and Executive shall deliver to the Company a check or wire
transfer of funds in the aggregate amount of $50,000 (the "Cash Amount") and a
promissory note in the form of Exhibit B attached hereto in an aggregate
principal amount of $200,000 (the "Executive Note"). Executive's obligations
under the Executive Note shall be secured by a pledge of all of the shares of
Executive Stock to the Company, and in connection therewith, Executive shall
enter into a pledge agreement in the form of Exhibit C attached hereto (the
"Pledge Agreement").
9
<PAGE>
(b) The Company shall hold each certificate representing
Executive Stock until such time as the Executive Stock represented by such
certificate is released from the pledge to the Company.
14. Representations and Warranties.
(a) Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive
pursuant to this Agreement shall be acquired for Executive's own
account and not with a view to, or intention of, distribution thereof
in violation of the 1933 Act, or any applicable state securities laws,
and the Executive Stock shall not be disposed of in contravention of
the 1933 Act or any applicable state securities laws.
(ii) Executive is sophisticated in financial matters
and is able to evaluate the risks and benefits of the investment in the
Executive Stock.
(iii) Executive is able to bear the economic risk of
his investment in the Executive Stock for an indefinite period of time
because the Executive Stock has not been registered under the 1933 Act
and, therefore, cannot be sold unless subsequently registered under the
1933 Act or an exemption from such registration is available.
(iv) Executive has had an opportunity to ask
questions and receive answers concerning the terms and conditions of
the offering of Executive Stock and has had full access to such other
information concerning the Company as he has reasonably requested.
Executive has reviewed, or has had an opportunity to review, a copy of
the Merger Agreement and Executive is familiar with the transactions
contemplated thereby. Executive has also reviewed, or has had an
opportunity to review the Company's articles of incorporation and
bylaws.
(v) This Agreement constitutes the legal, valid and
binding obligation of Executive, enforceable in accordance with its
terms, and the execution, delivery and performance of this Agreement by
Executive do not and shall not conflict with, violate or cause a breach
of any agreement, contract or instrument to which Executive is a party
or any judgment, order or decree to which Executive is subject.
(vi) Executive is not a party to or bound by any
employment agreement, noncompete agreement or confidentiality agreement
with any other person or entity that conflicts with Executive's duties
to the Company.
(vii) Upon the execution and delivery of this
Agreement by Executive and the other parties hereto, this Agreement
shall be the valid and binding obligation of Executive, enforceable in
accordance with its terms.
10
<PAGE>
(b) As an inducement to the Company to issue the Executive
Stock to Executive, and as a condition thereto, Executive acknowledges and
agrees that:
(i) Neither the issuance of the Executive Stock to
Executive nor any provision contained herein shall entitle Executive to
remain in the employment of the Company and its Subsidiaries or affect
the right of the Company or its Subsidiaries to terminate Executive's
employment at any time.
(ii) Executive has consulted with independent legal
counsel regarding his rights and obligations under this Agreement and
Executive fully understands the terms and conditions contained herein.
15. Repurchase Option.
(a) In the event of the termination of Executive's employment
with the Company for any reason (a "Termination"), the Executive Stock (whether
held by Executive or one or more of Executive's transferees, other than any
Investor or the Company) will be subject to repurchase by the Company and the
Investors pursuant to the terms and conditions set forth in this Section 15 (the
"Repurchase Option").
(b) In the event of a repurchase of the Executive Stock, the
purchase price for each share of Executive Stock will be the Fair Market Value
of such share; provided that in the event Executive's employment with the
Company is terminated with Cause, the purchase price for each share of Executive
Stock shall be the lesser of the Original Cost or the Fair Market Value of such
share.
(c) The Company may elect to purchase all or any portion of
the Executive Stock by delivering written notice (the "Repurchase Notice") to
the holder or holders of the Executive Stock. The Repurchase Notice will set
forth the number of shares of Executive Stock to be acquired from each holder,
the aggregate consideration to be paid for such shares and the time and place
for the closing of the transaction. The number of shares to be repurchased by
the Company shall first be satisfied to the extent possible from the Executive
Stock held by Executive at the time of delivery of the Repurchase Notice. If the
number of shares of Executive Stock then held by Executive is less than the
total number of shares of Executive Stock which the Company has elected to
purchase, the Company shall purchase the remaining shares elected to be
purchased from the other holder(s) of Executive Stock under this Agreement, pro
rata according to the number of shares of Executive Stock held by such other
holder(s) at the time of delivery of such Repurchase Notice (determined as
nearly as practicable to the nearest share).
(d) If for any reason the Company does not elect to purchase
all of the Executive Stock pursuant to the Repurchase Option, the Investors
shall be entitled to exercise the Repurchase Option for the Executive Stock that
the Company has not elected to purchase (the "Available Shares"). As soon as
practicable after the Company has determined that there will be Available
11
<PAGE>
Shares, the Company shall give written notice (the "Option Notice") to the
Investors setting forth the number of Available Shares and the purchase price
for the Available Shares. The Investors may elect to purchase any or all of the
Available Shares by giving written notice to the Company within one month after
the Option Notice has been given by the Company. If more than one Investor
elects to purchase any or all Available Shares and the number of Available
Shares is less than the aggregate number of shares elected to be purchased by
such electing Investors, each Investor shall be entitled to purchase the lesser
of (i) the number of Available Shares such Investor has elected to purchase as
indicated in the Election Notice or (ii) the number of Available Shares obtained
by multiplying the number of shares specified in the Option Notice by a
fraction, the numerator of which is the number of shares of Common Stock (on a
fully-diluted basis) held by such Investor and the denominator of which is the
aggregate number of shares of Common Stock (on a fully-diluted basis) held by
all electing Investors. In the event all Available Shares are not purchased by
the Investors pursuant to the immediately preceding sentence, the Available
Shares remaining to be purchased shall be allocated among the Investors who
elect to purchase more Available Shares (as indicated in their respective
Election Notices) than they are entitled to purchase pursuant to the immediately
preceding sentence as the Investors shall agree in writing. As soon as
practicable, and in any event within ten days, after the expiration of the
one-month period set forth above, the Company shall notify each holder of
Executive Stock as to the number of shares being purchased from such holder by
the Investors (the "Supplemental Repurchase Notice"). At the time the Company
delivers the Supplemental Repurchase Notice to the holder(s) of Executive Stock,
the Company shall also deliver written notice to the Investors setting forth the
number of shares such Investor is entitled to purchase, the aggregate purchase
price and the time and place of the closing of the transaction.
(e) The closing of the purchase of the Executive Stock
pursuant to the Repurchase Option shall take place on the date designated by the
Company in the Repurchase Notice or Supplemental Repurchase Notice, which date
shall not be more than one month nor less than five days after the delivery of
the later of either such notice to be delivered. The Company and/or the
Investors shall pay for the Executive Stock to be purchased pursuant to the
Repurchase Option by delivery of, in the case of any Investor, a check or wire
transfer of funds and, in the case of a purchase by the Company of Executive
Stock, at its option, (A) a check or wire transfer of funds, (B) a subordinate
note or notes payable in up to three equal annual installments (or as otherwise
agreed to by the Company and Executive) beginning on the first anniversary of
the closing of such purchase and bearing interest (payable quarterly) at a rate
per annum equal to the prime rate as published in The Wall Street Journal from
time to time or (C) both (A) and (B), in the aggregate amount of the purchase
price for such shares; provided that the Company shall use reasonable efforts to
make all such repurchases in full with a check or wire transfer of funds. Any
notes issued by the Company pursuant to this Section 15 shall be subject to any
restrictive covenants to which such issuer is subject at the time of such
purchase. In addition, the Company may pay the purchase price for such shares by
offsetting amounts outstanding under the Executive Note issued to the Company
hereunder and any other bona fide debts owed by Executive to the Company. The
Company and the Investors will be entitled to receive customary representations
and warranties from the sellers regarding such sale and to require all sellers'
signatures be guaranteed.
12
<PAGE>
(f) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Executive Stock by the Company shall be subject to
applicable restrictions contained in the California General Corporation Law and
in the Company's and its Subsidiaries' debt and equity financing agreements. If
any such restrictions prohibit the repurchase of Executive Stock hereunder which
the Company is otherwise entitled or required to make, the Company may make such
repurchases as soon as it is permitted to do so under such restrictions.
(g) The right of the Company and the Investors to repurchase
the Executive Stock pursuant to this Section 15 shall terminate upon a Sale of
the Company, a Transfer pursuant to the participation rights set forth in
paragraph 2(d) of the Shareholders Agreement (as defined below) and, with
respect to any Option Shares, upon the consummation of a Public Offering.
16. Restrictions on Transfer.
(a) Until the third anniversary of the Effective Date,
Executive shall not Transfer any interest in any shares of Executive Stock,
except for (i) Transfers to members of Executive's Family Group, (ii) Transfers
upon a Sale of the Company, (iii) Transfers pursuant to the participation rights
set forth in paragraph 2(d) of the Shareholders Agreement (as defined below) and
(iv) Transfers of Option Shares after the consummation of a Public Offering;
provided that prior to any such Transfer to a member of Executive's Family
Group, such member shall agree in writing to be bound by the provisions of this
Agreement with respect to the Executive Stock.
(b) Executive acknowledges and agrees that shares of Executive
Stock are subject to the restrictions on transfer set forth in the Shareholders
Agreement of the Company, dated as of the Effective Date, by and among Executive
and each of the other persons named therein, as the same may be amended and
modified from time to time (the "Shareholders Agreement").
(c) In addition to any other legend required pursuant to the
Stockholders Agreement or otherwise, the certificates representing the Executive
Stock shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
ON SEPTEMBER 16, 1998, AND ARE SUBJECT TO RESTRICTIONS ON TRANSFER SET
FORTH IN A MANAGEMENT AGREEMENT AMONG THE ISSUER AND THE ORIGINAL
HOLDER HEREOF DATED AS OF SEPTEMBER 16, 1998, AS AMENDED AND MODIFIED
FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE ISSUER'S PRINCIPAL PLACE OF BUSINESS WITHOUT
CHARGE."
C. General Provisions
17. Definitions.
13
<PAGE>
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Cause" means (A) Executive's theft or embezzlement, or
attempted theft or embezzlement, of money or property of the Company or any of
its Affiliates, Executive's perpetration or attempted perpetration of fraud, or
Executive's participation in a fraud or attempted fraud, on the Company or any
of its Affiliates or Executive's unauthorized appropriation of, or Executive's
attempt to misappropriate, any tangible or intangible assets or property of the
Company or any of its Affiliates; (B) Executive's conviction or commission of a
felony or conviction for any crime involving acts which tend to insult or offend
community moral standards or public decency or that materially and adversely
affect the reputation or business activities of the Company or its Affiliates;
(C) Executive's substance abuse, including abuse of alcohol or use of illegal
narcotics, or other illegal drugs or substances, for which Executive fails to
undertake and maintain treatment within 15 days after requested by the
Corporation; (D) Executive's refusal to carry out the lawful instructions of the
Board following receipt of written notice of such instructions from the Board;
or (E) Executive's material breach of any provision of this Agreement which is
incapable of cure or which is not cured within 15 days after written notice
thereof to Executive.
"Confidential Information" means all information of a
confidential or proprietary nature (whether or not specifically labeled or
identified as "confidential"), in any form or medium, that is or was disclosed
to, or developed or learned by, Executive in connection with Executive's prior
relationship with the Company or during the Employment Period and that relates
to the business, products, services, research or development of the Company or
its suppliers, distributors or customers. Confidential Information includes but
is not limited to the following: (i) internal business information (including
information relating to strategic and staffing plans and practices, business,
training, marketing, promotional and sales plans and practices, cost, rate and
pricing structures and accounting and business methods); (ii) identities of,
individual requirements of, specific contractual arrangements with, and
information about, the Company's suppliers, distributors and customers and their
confidential information; (iii) trade secrets, know-how, compilations of data
and analyses, techniques, systems, formulae, research, records, reports,
manuals, documentation, models, data and data bases relating thereto; and (iv)
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable). Confidential Information shall not include information that
Executive can demonstrate: (a) is publicly known through no wrongful act or
breach of obligation of confidentiality; (b) was lawfully known to Executive
prior to the time Executive began rendering services to the Company and its
predecessors; or (c) was rightfully received by Executive from a third party
without a breach of any obligation of confidentiality by such third party.
"Consulting Agreement" means that certain consulting agreement
between the Company and Executive dated June 30, 1998.
14
<PAGE>
"Disability" means the inability, due to illness, accident,
injury, physical or mental incapacity or other disability, of Executive to carry
out effectively his duties and obligations to the Company or to participate
effectively and actively in the management of the Company for a period of at
least 180 consecutive days or for shorter periods aggregating at least 180 days
(whether or not consecutive) during any twelve-month period, as determined in
the reasonable good faith judgment of the Board.
"Executive Stock" means all shares of Common Stock purchased
pursuant hereto and all shares of Common Stock hereafter acquired by Executive
(including upon the exercise of any Stock Options or similar rights). Executive
Stock will continue to be Executive Stock in the hands of any holder other than
Executive (except for the Company and the Investors and except for transferees
in a Public Sale or pursuant to paragraph 2(d) of the Shareholders Agreement),
and except as otherwise provided herein, each such other holder of Executive
Stock will succeed to all rights and obligations attributable to Executive as a
holder of Executive Stock hereunder.
"Fair Market Value" of any share of Executive Stock means:
(i) the average of the closing prices of the sales of such
security on all securities exchanges of which such security may at the
time be listed, or, if there have been no sales on any such exchange on
any day, the average of the highest bid and lowest asked prices on all
such exchanges at the end of such day, or if on any day such security
is not listed, the average of the representative bid and asked prices
quoted in the Nasdaq Stock Market as of 4:00 P.M., New York time, or,
if on any day such security is not quoted in the Nasdaq Stock Market,
the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National
Quotation Bureau Incorporated, or any similar successor organization,
in each such case averaged over a period of 21 days consisting of the
day as of which the Fair Market Value is being determined and the 20
consecutive business days prior to such day; or
(ii) if the Executive Stock is not listed on any securities
exchange or quoted in the Nasdaq Stock Market or the over-the-counter
market for the entire 21-day averaging period specified above, then the
fair value of such security determined jointly by the Company and
Executive in good faith. If such parties are unable to reach agreement
within a reasonable period of time, such fair value shall be determined
by an independent appraiser experienced in valuing securities jointly
selected by the Company and Executive. If the parties are unable to
agree on an independent appraiser, a firm shall be selected by lot from
six nationally recognized investment banking firms, three of such firms
to be selected by Executive and three of such firms to be selected by
the Company. The expenses of such appraiser shall be borne by the
Executive unless the appraiser's valuation is more than 10% greater
than the amount determined by the Company, in which case, the costs of
the appraiser shall be borne by the Company. The determination of such
appraiser shall be final and binding upon all parties, except that
after the determination of Fair Market Value, any party that has
offered to purchase shares of capital stock may rescind its offer to
purchase such shares at any time
15
<PAGE>
within ten business days after receiving written notice of such
determination of Fair Market Value. Fair Market Value shall be
determined as of the date the earlier of the Repurchase Notice or
Supplemental Repurchase Notice is delivered.
"Family Group" means Executive's spouse and descendants
(whether natural or adopted) and any trust solely for the benefit of such
Executive and/or Executive's spouse and/or descendants.
"Independent Third Party" means any person who, immediately
prior to the contemplated transaction, does not own in excess of 5% of the
Company's Common Stock on a fully-diluted basis, who is not controlling,
controlled by or under common control with any such 5% owner of the Company's
Common Stock and who is not the spouse or descendent (by birth or adoption) of
any such 5% owner of the Company's Common Stock.
"Intellectual Property Rights" means all inventions,
innovations, improvements, developments, methods, processes, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable or reduced to practice) and any copyrightable work, trade mark, trade
secret or other intellectual property rights which relate to the Company's or
any of its Subsidiaries' actual or anticipated business.
"Original Cost" of (i) each share of Common Stock purchased
hereunder shall be equal to $6.67 and (ii) each Option Share shall be the
exercise price or similar amount paid upon the issuance of such share to
Executive (in each case as proportionately adjusted for all subsequent stock
splits, stock dividends and other recapitalizations).
"Option Shares" shall mean all shares of Common Stock issued
to Executive upon exercise of any stock options or similar rights granted to
Executive by the Company.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" means any offering by the Company of its
Common Stock or rights to purchase it Common Stock to the public pursuant to an
effective registration statement under the Securities Act, as then in effect, or
any comparable statement under any similar federal statute then in force.
"Public Sale" means any sale pursuant to a registered public
offering under the Securities Act or any sale to the public pursuant to Rule 144
(other than Rule 144(k)) promulgated under the Securities Act effected through a
broker, dealer or market maker.
"Sale of the Company" means the sale of the Company to an
Independent Third Party or affiliated group of Independent Third Parties
pursuant to which such party or parties acquire
16
<PAGE>
(i) capital stock of the Company possessing the voting power to elect a majority
of the Company's board of directors (whether by merger, consolidation or sale or
transfer of the Company's capital stock) or (ii) all or substantially all of the
Company's assets determined on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity.
"Transfer" means to sell, transfer, assign, pledge or
otherwise dispose of (whether with or without consideration and whether
voluntarily or involuntarily or by operation of law).
"Work Product" means all inventions, innovations,
improvements, developments, methods, processes, designs, analyses, drawings,
reports, research and development of existing or future products or services
which were or are conceived, reduced to practice, contributed to or developed or
made by Executive (whether alone or jointly with others) while employed (both
before and after the Effective Date) by the Company (or its predecessors,
successors or assigns) and its Subsidiaries and all similar or related
information (whether or not patentable or reduced to practice) and any
copyrightable work, trade mark, trade secret or other intellectual property
rights, any of which relate to the Company's or any of its Subsidiaries' actual
or anticipated business.
18. Survival. The provisions set forth in paragraphs 6 through
32 of this Agreement shall survive and continue in full force and effect in
accordance with their terms notwithstanding any termination of the Employment
Period.
19. Notices. Any notice provided for in this Agreement shall
be deemed to have been given when delivered personally to the recipient, sent to
the recipient by reputable express courier (charges prepaid), telecopied (with
hard copy to follow) or 5 days after mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such notice will
be sent to Executive or to the Company at the address set forth below:
17
<PAGE>
Notices to Executive:
---------------------
6669 Embarcadero Drive #16,
Stockton, CA. 95219
Telephone: (209) 926-3337
Facsimile: (209) 926-3304
Notices to the Company:
-----------------------
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, CA 95204
Attention: Secretary
Telephone: (209) 926-3222
Facsimile: (209) 926-3205
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or 5 days after mailed.
20. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein. The
Executive acknowledges and agrees that the covenants and agreements set forth in
this agreement were a material inducement to certain investors of the Company to
enter into the Merger Agreement and consummate the transactions contemplated
thereby, and such investors would not obtain the benefit of their bargain as set
forth in the Merger Agreement and the other agreements contemplated thereby as
specifically negotiated by the investors if Executive breached or challenged any
of the provisions of this Agreement.
21. No Strict Construction. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction shall be applied
against any party. The use of the word "including" herein shall mean "including
without limitation."
22. Counterparts. This Agreement may be executed in separate
counterparts (including by means of telecopies signature pages), each of which
is deemed to be an original and all of which taken together constitute one and
the same agreement.
18
<PAGE>
23. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and any
schedules shall be governed by, and construed in accordance with, the laws of
the State of California, without giving effect to any choice of law or conflict
of law rules or provisions (whether of the State of California or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of California.
24. Consent to Personal Jurisdiction. Executive hereby
expressly consents to the nonexclusive personal jurisdiction and venue of the
state and federal courts located in the federal Eastern District of California
for any lawsuit filed against Executive by the Company arising from or relating
to this Agreement.
25. Transfers in Violation of Agreement. Any Transfer or
attempted Transfer of any Executive Stock in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Executive Stock as the owner of
such shares for any purpose.
26. Complete Agreement. This Agreement, those documents
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way, including, without limitation, the Consulting Agreement.
27. Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted Transfer of Executive Stock hereunder. The
Investors shall be permitted to assign any and all of their rights pursuant to
this Agreement to any other holder of Common Stock of the Company without
obtaining the consent or approval of any other party hereto.
28. Remedies. Each of the parties to this Agreement (including
the Investors) will be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including attorney's fees) caused by
any breach of any provision of this Agreement and to exercise all other rights
existing in its favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party may in its sole discretion apply to any court of
law or equity of competent jurisdiction (without posting any bond or deposit)
for specific performance and/or other injunctive relief in order to enforce or
prevent any violations of the provisions of this Agreement.
29. Amendment and Waiver. The provisions of this Agreement may
be amended and waived only with the prior written consent of the Company, the
Investors owning a majority of Common Stock held by the Investors and Executive.
19
<PAGE>
30. Business Days. If any time period for giving notice or
taking action hereunder expires on a day which is a Saturday, Sunday or holiday
in the state in which the Company's chief executive office is located, the time
period shall be automatically extended to the business day immediately following
such Saturday, Sunday or holiday.
31. Adjustments of Numbers. All numbers set forth herein which
refer to stock prices or amounts will be appropriately adjusted to reflect stock
splits, stock dividends, combinations of stock and other recapitalizations
affecting the subject class of stock.
32. Third-Party Beneficiaries. Certain provisions of this
Agreement are entered into for the benefit of and shall be enforceable by the
Investors as provided herein.
* * * * *
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above which shall be effective as of the
Closing Date.
PAC-WEST TELECOMM, INC.
By: /s/ John K. La Rue
-------------------------
Name: John K. La Rue
-----------------------
Its: President
------------------------
By: /s/ Roger L. Westphal
-------------------------
Name: Roger L. Westphal
-----------------------
Its: Secretary
------------------------
/s/ Wallace W. Griffin
----------------------------
WALLACE W. GRIFFIN
INVESTORS:
Agreed and Accepted:
WILLIAM BLAIR CAPITAL
PARTNERS VI, LP
By: William Blair Capital Partners VI, L.L.C.,
its General Partner
By: /s/ David G. Chandler
-----------------------------------
Name: David G. Chandler
Its Managing Director
[Signature Page to Executive Agreement]
<PAGE>
SCP PRIVATE EQUITY PARTNERS, L.P.
By: SCP Private Equity Management, L.P., its General
Partner
By: /s/ Samuel A. Plum
------------------------------------
Name: Samuel A. Plum
----------------------------------
Its General Partner
SAFEGUARD 98 CAPITAL, L.P.
By: Safeguard Delaware, Inc.
Its General Partner
By: /s/ Jerry L. Johnson
------------------------------------
Name Jerry L. Johnson
----------------------------------
Title: Senior Vice President
---------------------------------
TL VENTURES III L.P.
By: TL Ventures III Management L.P.,
its General Partner
By: TL Ventures III LLC,
its General Partner
By: /s/ Mark De Nino
------------------------------------
Name: Mark De Nino
----------------------------------
[Signature Page to Executive Agreement]
<PAGE>
Title: Managing Director
---------------------------------
TL VENTURES III OFFSHORE L.P.
By: TL Ventures III Offshore Partners L.P.,
its General Partner
By: TL Ventures Offshore Ltd.,
its General Partner
By: /s/ Mark De Nino
------------------------------------
Name: Mark De Nino
----------------------------------
Title: Managing Director
---------------------------------
TL VENTURES III INTERFUND L.P.
By: TL Ventures III LLC,
its General Partner
By: /s/ Mark De Nino
------------------------------------
Name: Mark De Nino
----------------------------------
Title: Managing Director
---------------------------------
ENERTECH CAPITAL PARTNERS, L.P.
By: EnerTech Management, L.P.
Its General Partner
By: EnerTech Management Company, L.L.C.,
Its General Partner
By: /s/ Scott Ungerer
------------------------------------
Name: Scott Ungerer
----------------------------------
[Signature Page to Executive Agreement]
<PAGE>
Title: Managing Director
---------------------------------
/s/ John K. La Rue
- ---------------------------------------
JOHN K. LA RUE
BAY ALARM COMPANY
By: /s/ Bruce Westphal
------------------------------------
Name: Bruce Westphal
----------------------------------
Its: Chairman
-----------------------------------
[Signature Page to Executive Agreement]
<PAGE>
EXCLUDED INVENTIONS SCHEDULE
----------------------------
None.
<PAGE>
Exhibit A
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement ("Agreement") is made between Pac-West Telecomm,
Inc. ("Company" or "Pac-West") and Wallace W. Griffin ("Executive").
1. Confidential Information
Pac-West Telecomm will disclose certain confidential and proprietary
information ("Confidential Information") to Executive. Confidential
Information shall include any data, materials, products, technology,
computer programs, specifications, manuals, software, marketing plans,
business plans, financial information, customer lists, customer files,
promotional materials, employee information, and other information
disclosed or submitted, orally, in writing, or by any other media, to
Executive by Company. In addition, any analyses, compilations, studies,
data, information, documents or materials (collectively called "Work
Product") prepared by Executive for or on behalf of the Company shall be
deemed to be proprietary and Confidential Information.
2. Executive's Obligations:
A. Executive agrees that the Confidential Information is to be
considered confidential and proprietary to Company, and
Executive shall hold the same in confidence, shall not use the
Confidential Information other than for the purposes of his
business with Company, and shall disclose it only to Company's
officers, directors, employees, customers, suppliers, or other
outside parties with a specific need to know for purposes of
Pac-West business operations and as required for Executive to
perform his assigned responsibilities. With the exception of
the aforementioned, Executive will not disclose, publish or
otherwise reveal any of the Confidential Information received
from Company to any party whatsoever except with the specific
prior written authorization of the Company's chief executive
officer.
B. Confidential Information
furnished in tangible form shall not be duplicated by
Executive except for purposes of this Agreement. Upon the
request of Company, Executive shall return all Confidential
Information, including all Work Product, received or produced
in written or tangible form, including copies, or
reproductions or other media containing such Confidential
Information.
3. Terms:
The obligations of Executive herein shall be effective during Executive's
employment and for three years after the date of separation from the
Company.
4. Governing Law and Equitable Relief:
This Agreement shall be governed and construed in accordance with the
laws of the State of California. Jurisdiction and venue in any action to
enforce the terms of this agreement and the obligations created hereunder
shall be deemed to have been made in and to be fully performed in San
Joaquin County, California. Executive agrees that in the event of any
breach or threatened breach by Executive, Company may obtain, in addition
to any other legal remedies which may be available, restraining orders
and such equitable relief as may be necessary to protect Company against
any such breach or threatened breach.
5. Separations:
All Confidential Information furnished to Executive will be returned to
Company upon separation from the Company.
6. Entire Agreement:
This Agreement may not be modified except by written agreement signed by
both parties.
Executive
By: Date:
------------------------------ --------------------
Pac-West Telecomm
By: Date:
------------------------------ --------------------
Title:
---------------------------
<PAGE>
Exhibit 10.9
EXECUTION COPY
EXECUTIVE AGREEMENT
THIS EXECUTIVE AGREEMENT (this "Agreement") dated as of October 30,
1998, (the "Effective Date"), is made by and between Pac- West Telecomm, Inc., a
Californian corporation (the "Company") and Richard Bryson ("Executive").
Certain terms used herein and not otherwise defined herein have the meanings
given to such terms in Section 17 hereof.
WHEREAS, as of the Effective Date the Company desires to secure Executive's
services to the Company on the terms described herein and Executive desires to
provide such services to the Company on the terms described herein;
WHEREAS, the Company and Executive desire to enter into an agreement pursuant to
which the Company shall sell to Executive the number of shares set forth herein
of the Company's Common Stock, par value $.01 per share (the "Common Stock"),
upon the terms set forth herein; and
WHEREAS, certain provisions of this Agreement are intended for the benefit of,
and shall be enforceable by, the investors of the Company set forth on the
signature pages hereto (the "Investors").
NOW, THEREFORE, in consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency if which are
hereby acknowledged, the parties hereto agree as follows:
A. Provisions Relating to Employment.
1. Employment. The Company shall employ Executive, and Executive hereby
accepts employment with the Company, upon the terms and conditions set forth in
this Agreement for the period beginning on the Effective Date and ending as
provided in paragraph 4 below (the "Employment Period").
2. Positions and Duties.
(a) During the Employment Period, Executive shall serve as the "Chief Financial
Officer" of the Company and shall have such duties, responsibilities and other
authority as shall be determined by the Company's Chief Executive Officer.
(b) Executive shall report to the Company's Chief Executive Officer and the
Company's board of directors (the "Board") and Executive shall devote his best
efforts and his full business time and attention to the business and affairs of
the Company and its Subsidiaries. Executive shall perform his duties and
responsibilities to the best if his abilities in a diligent, trustworthy,
businesslike and efficient manner.
3. Compensation and Benefits.
(a) Base Salary. During the Employment Period, Executive's base salary shall be
$225,000 per annum or such higher rate as the Board determines in its sole
discretion may designate from time to time (the "Base Salary"), which salary
shall be payable in regular installments in accordance with the Company's
general payroll practices and shall be subject to customary withholding and
other customary deductions.
(b) Bonuses. The Board shall award a bonus (the "Annual Bonus") to Executive
during the Employment Period in an amount to be determined prior to each fiscal
year by the Board and Executive. The Annual Bonus may be structured, as agreed
upon by Executive and the Board in good faith, to provide for all or a portion
of the Annual Bonus to be paid upon the achievement by the Company of certain
separate specific objectives with such objectives generally designed to provide
Executive with a an Annual Bonus of 40% of the Base Salary in a normal year.
Such
<PAGE>
objectives sell shall be set at levels that are reasonable and achievable. The
Annual Bonus may exceed 40% of the Base Salary as determined by the Board in its
sole discretion. Such Annual Bonus shall be payable within 90 days following the
end of each fiscal year during the Employment Period based upon the Company
having achieved such specific objectives for such fiscal year determined by the
Board and the Executive in good faith prior to such fiscal year and based upon
the Executive's performance during such fiscal year.
(c) Benefits.
(i) During the Employment Period, Executive shall be entitled to participate
in all of the Company's employee benefit plans and programs for which senior
executive employees of the Company are generally eligible (subject to the
Company's right to amend, modify or terminate any such plan or program in
accordance with its terms and applicable law and subject in each case to any
applicable waiting periods or other restrictions contained in such benefit plans
or programs), which shall include, but shall not be limited to, health
insurance, dental insurance and participation in the Company's 401(k) plan. The
Company shall match any contributions made by Executive to the Company's 401(k)
plan tot he extent consistent with the Company's past practice and the terms of
such plan and to the extent consistent with applicable law.
(ii) Due to the fact the Executive will be required to be on call continuously
for emergency response and to travel extensively by vehicle on company business,
during the Employment Period, the Company shall provide to Executive a
reasonable priced car consistent with the Company's past practice for other
senior executives. Such Company car shall be available for the Executive's use
in a manner consistent with past practice for other senior executives. Executive
acknowledges and agrees that the Company may report all or a portion of the cost
of such car and its operation as additional compensation to Executive if the
Company reasonably believes the same may be required by applicable law.
(iii) Executive shall be entitled to three (3) weeks of paid vacation during
each year of the Employment Period, in addition to legal holidays. Vacation
hereunder shall be accrue from year to year based upon the Company's then
current policy for all employee's as established from time to time by the board
in its sole discretion.
(iv) The Company shall reimburse Executive for all reasonable expenses incurred
by him in the course of performing his duties under this Agreement which are
consistent with the terms of this Agreement and the Company's policies in effect
from time to time with respect to travel, entertainment and other business
expenses, subject to the Company's general policies with respect to reporting
and reasonable documentation of such expenses. The Company shall reimburse
Executive for all reasonable expenses (including reasonable attorney's fees and
other expenses and accountant's fees and expenses) incurred by Executive in
connection with the negotiation and execution of this Agreement.
(v) The Company shall reimburse Executive for the expenses associated with
Executive's relocation to Stockton, California; provided that in no event shall
the aggregate amount of such expenses reimbursed during the Term of this
Agreement exceed $35,000. All reimbursements by the Company are subject to the
Company's reasonable requirements with respect to reporting and documentation of
expenses incurred.
(d) Stock Options. The Company hereby agrees to grant the Executive promptly
after the Effective Date, stock options to purchase a number of shares of the
Company's Common Stock equal to 1.25% of the total number of shares of common
stock outstanding on the Effective Date at an exercise price of $6.67 per share
which reflects the Company's good faith determination of that the outstanding
Common Stock of the Company has a value as of the date hereof approximately $8.3
million. The grant of such stock options shall be subjected to prior mutual
agreement of the parties as to the terms of such stock options and shall vest in
equal amounts on each of the first three anniversaries of the initial date of
grant of such stock options. The terms of such stock options shall be contained
in an option agreement issued pursuant to the Company's stock option plan as in
a effect as of the time of such grant. Such option agreement shall contain terms
and provisions regarding acceleration of vesting, expiration of options and
other terms identical to those contained in Wallace W. Griffin's option
agreement.
<PAGE>
(e) Key-Man Life Insurance. Executive agrees to cooperate at the request of
the Company in any efforts to obtain "key-man" life insurance on Executive's
life.
4. Terms and Termination
(a) The Employment Period pursuant to this Agreement shall be for a term ending
on the second anniversary of the Effective Date (the "Term"); provided that,
notwithstanding anything in this Agreement to the contrary, expressed or
implied, or Section 2924 of the Californian Labor Code or any similar provision
of applicable law, the Employment Period pursuant to this Agreement shall
terminate prior to the expiration of the Term upon (i) Executive's resignation
for any reason (with such resignation being effective 30 days after notice
thereof is delivered by Executive to the Company), (ii) Executive's death or
Disability or (iii) termination of Executive's employment by the Company with or
without Cause. The Employment Period may be extended in increments of one full
year by the mutual agreement of the parties.
5. Severance.
(a) If the Employment Period is terminated by the Company without cause,
Executive shall be entitled to receive (i) an amount equal to his Base Salary
for the one-year period after such termination and (ii) payment by the Company
of all health insurance premiums with respect to Executive's continuation
coverage rights under the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, (i.e., "COBRA" payments), or any similar statute or regulation
then in effect, for the one-year period after such termination or such shorter
period until Executive obtains coverage under the medical plans of any
subsequent employer or otherwise fails to be eligible for continuation coverage
with respect to the Company's medical plans under COBRA (for purposes of this
Agreement, collectively the "Severance Period"), so long as Executive has not
breached and does not breach the provisions of any of paragraphs 6, 7, 8, 9, 10,
12, 15, or 16 below during the time period set forth therein or breached the
provisions of any agreement referenced thereby.
(b) If the Employment Period is terminated as a result of Executive's
Disability, Executive and/or his estate or beneficiaries, as the case may be,
shall be entitled to receive benefits under the Company's employee benefit
programs as in effect on the date of such termination to the extent permitted
thereunder and under applicable law and, in addition, shall be entitled to
receive (i) an amount equal to Executive's Base Salary at the times set forth in
this Agreement for the one-year period after the termination of the Employment
Period and (ii) the amount of any Annual Bonus otherwise payable to Executive
pursuant to paragraph 3(b) above for the fiscal year in which Executive's
employment is terminated, except that the amount of any such Annual Bonus
otherwise payable pursuant to this paragraph 5(b) shall be pro rated on the
basis of the number of days during such fiscal year that Executive was employed
by the Company; provided that in the event the Company establishes and maintains
disability insurance providing to Executive pursuant to clauses (i) and (ii) of
this paragraph 5(b), the Company shall be relieved of its obligation to make
such payments pursuant to this paragraph 5(b).
(c) If the Employment Period is terminated as a result of Executive's death,
Executive and/or his estate or beneficiaries, as the case may be, shall be
entitled to receive benefits under the Company's employee benefit programs as in
effect on the date of such termination to the extent permitted thereunder and
under applicable law and, in addition, shall be entitled to receive the amount
of any Annual Bonus otherwise payable to Executive pursuant to paragraph 3(b)
above for the fiscal year in which Executive's employment is terminated, except
that the amount of any such Annual Bonus otherwise payable pursuant to this
paragraph 5(c) shall be pro rated on the basis of the number of days during such
fiscal year that Executive was employed by the Company; provided that in the
event the Company establishes and maintains life insurance providing to
Executive and/or his estate or beneficiaries, as the case may be, a benefit at
least equal to the amount to be paid to Executive pursuant to this paragraph
5(c), the Company shall be relieved of its obligation to make such payments
pursuant to this paragraph 5(c).
<PAGE>
(d) If the Employment Period is terminated by the Company for Cause or if the
Executive resigns for any reason, Executive shall be entitled to receive only
his Base Salary through the date of termination and the Company shall have no
further liability whatsoever to Executive.
(e) Except as otherwise expressively provided herein or as expressly required
by applicable law (including under Section 4980B of the Internal Revenue Code of
1986, as amended), all of Executive's rights to fringe benefits and bonuses
hereunder shall cease upon termination of the Employment Period.
6. Confidential Information; Nonsolicitation
(a) Executive agrees to execute on the date hereof and to be bound as of the
date hereof by the terms of the Company's form of confidentiality agreement
attached hereto as Exhibit A.
(b) Executive agrees that until the date which is one year after the
termination of the Employment Period, he shall not directly, or indirectly
through another person, (i) induce or attempt to induce any employee of the
Company or any of its Subsidiaries to leave the employ of the Company or any
such Subsidiary, or in any way interfere with the relationship between the
Company or any of its Subsidiaries and any employee thereof, (ii) hire any
person who was an employee of the Company or any of its Subsidiaries at any time
during the 180-day period immediately prior to the date on which such hiring
would take place (it being conclusively presumed by the Company and Executive so
as to avoid any disputes under this paragraph 6(b) that any such hiring within
such 180-day period is in violation of clause (i) above), or (iii) call on,
solicit or service any customer, supplier, licensee, licensor or other business
relation of the Company or any of its Subsidiaries in order to induce or attempt
to induce such Person to cease doing business, or to reduce the amount of
business conducted, with the Company or such Subsidiary. In addition, during the
Employment Period and thereafter, Executive shall not in any way interfere with
the relationship between any such customer, supplier, licensee or business
relation and the Company or any of its Subsidiaries (including making any
negative statements or communications about the Company or any of its
Subsidiaries).
7. Company's Ownership of Intellectual Property
(a) Executive acknowledges that all Work Product is the exclusive property of
the Company. Executive hereby assigns all right, title and interest in and to
such Work Product to the Company. Any copyrightable work prepared in whole or in
part by Executive will be deemed "a work made for hire" under section 201(b) of
the 1976 Copyright Act, and the Company shall own all of the rights comprised in
the copyright therein.
(b) The Company and the Executive each acknowledge the applicability of Section
2870 of the California Labor Code. Accordingly, the provisions of paragraph 7(a)
shall not apply to, and the term "Work Product" shall not include, any invention
that Executive developed entirely on his own time without using the Company's
equipment, supplies, facilities, or trade secret information except for those
inventions that either: (i) relate at the time of conception or reduction to
practice of the invention to the Company's or any Subsidiaries business, or to
the actual or demonstrably anticipated research or development of the Company or
any Subsidiary; or (ii) result from any work performed by Executive for the
Company or any Subsidiary. Set forth on the attached "Excluded Inventions
Schedule" are the inventions Executive believes meet the criteria for the
exclusions set forth above. Executive agrees to promptly advise the Company in
writing of any inventions developed after the Effective Date which Executive
believes meet the criteria for exclusion set forth above.
(c) Executive shall promptly and fully disclose all Work Product to the Company
and shall cooperate and perform all actions reasonably requested by the Company
(whether during or after the Employment Period) to establish, confirm and
protect that Company's right, title and interest in such Work Product. Without
limiting the generality of the foregoing, Executive agrees to assist the
Company, at the Company's expense, to secure the Company's rights in the Work
Product in any and all countries, including the execution of all applications
and all
<PAGE>
other instruments and documents which the Company shall deem necessary in order
to apply for and obtain rights in such Work Product and in order to assign and
convey to the Company the sole and exclusive right, title and interest in and to
such Work Product. If the Company is unable because of Executive's mental or
physical incapacity or for any other reason (including Executive's refusal to do
so after request therefor is made by the Company) to secure Executive's
signature to apply for or to pursue any application for any United States or
foreign patents or copyright registrations covering Work Product belonging to or
assigned to the Company pursuant to paragraph 7(a) above, then Executive hereby
irrevocably designates and appoints the Company and its duly authorized officers
and agents as Executive's agent and attorney-in-fact to act for an in
Executive's behalf and stead to execute and file any such applications and to do
all other lawfully permitted acts to further the prosecution and issuance of
patents or copyright registrations thereon with the same legal force and effect
as if executed by Executive. Executive agrees not to apply for or pursue any
applications for any United States or foreign patents or copyright registrations
covering any Work Product other than pursuant to this paragraph in circumstances
where such patents or copyright registrations are or have been or are required
to be assigned to the Company.
8. Delivery of Materials Upon Termination of Employment. As requested by the
Company upon termination of Executive's employment with the Company for any
reason, Executive shall promptly deliver to the Company all copies and
embodiments, in whatever form, of all Confidential Information and Work Product
in Executive's possession or within his control irrespective of the location or
form of such material and, if requested by the Company , shall provide the
Company with written conformation that all such materials have been delivered to
the Company.
9. Subsequent Inventions. Executive understands and agrees that all
Intellectual Property Rights made, conceived, developed, or reduced to practice
by Executive, either alone or jointly with others, shall be disclosed to the
Company by the Executive for six (6) months following the termination of the
Employment Period. Employee further agrees that all Intellectual Property Rights
made, conceived, developed, or reduced to practice within six (6) months
following such termination shall be presumed to have been conceived during
Executive's employment with the Company and with the use of the Company
Confidential Information, but such presumption may be overcome by Executive by a
showing that such Intellectual Property Rights were conceived after the
Employment Period and without the use of any such Confidential Information. In
the event Executive is not able to rebut such presumption and prove that such
Intellectual Property Rights were conceived after the Employment Period and
without the use of Confidential Information, Executive agrees to assign all
right, title and interest in such Intellectual Property Rights to the Company.
10. Disclosure. Following the termination of Executive's employment with the
Company, Executive shall communicate the restrictions contained in this
Agreement to any Person he intends to be employed by, provide consulting
services to or otherwise represent. Executive hereby consents to the Company's
communication of the restrictions contained in this Agreement to any such
Person.
11. Enforcement; Remedies.
(a) If, at the time of enforcement of the covenants contained in paragraphs 6,
7, 8, 9, or 10 (the "Protective Covenants"), a court shall hold that the
duration or scope stated therein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum duration or scope reasonable
under such circumstances shall be substituted for the stated duration or scope
permitted by law; provided that in no event shall the duration or scope
determined by such court exceed the duration or scope set forth in this
Agreement. Executive has consulted legal counsel regarding the Protective
Covenants and based on such consultation has determined and hereby acknowledges
that the Protective Covenants are reasonable in terms of duration and scope and
are necessary to protect the goodwill of the Company's business and the
Confidential Information.
(b) If Executive breaches, or threatens to commit a breach of, any of the
Protective Covenants, the Company shall have following rights and remedies, each
of which rights and remedies shall be independent of the others
<PAGE>
and severally enforceable, and each of which is in addition to, and not in lieu
of, any other rights and remedies available to the Company at law or in equity:
(i) the right and remedy to have the Protective Covenants specifically enforced
by any court of competent jurisdiction (without the need to post a bond or other
security), it being agreed that any breach or threatened breach of the
Protective Covenants would cause irreparable injury to the Company and that
money damages would not provide an adequate remedy to the Company; and
(ii) the right and remedy to require Executive to account for and pay over to
the Company any profits, monies, accruals, increments or other benefits derived
or received by Executive as the result of any transaction(s) constituting a
breach of the Protective Covenants.
(c) In the event of any breach or violation by Executive of any of the
Protective Covenants, the time period of such covenant with respect to Executive
(to the extent such covenant is limited in duration) shall be tolled until such
breach or violation is resolved.
12. Loss of Severance due to Competition.
(a) The Executive shall not during the Employment Period and during the period
Executive is receiving any Severance Payment pursuant to paragraph 5(a) (the
"Noncompete Period"), for himself or on behalf of any other person, firm,
partnership, corporation, or other entity, engage, directly or indirectly,
either as an officer, director, employee, partner, consultant, individual
proprietor, agent, or otherwise (including, but not limited to, as an owner or
shareholder), in any business which (A) provides telecommunication services of
the type provided during the Employment Period by the Company and any of its
subsidiaries (including, without limitation, (i) switched local service, (ii)
switched long-distance service, (iii) dedicated transport services, (iv)
co-locate and interconnect services and (v) data switched services and
including, without limitation, telecommunication services of the type provided
by the Company and any of its Subsidiaries to information service providers) or
(B) provides services of the type which the Company and any of its Subsidiaries
have taken significant actions during the Employment Period
(b) For purposes of this Agreement, "Restricted Territories" shall mean (i) the
countries (or similar jurisdictions) in the United States of America, Canada and
Mexico and (ii) any other jurisdictions in which the Company or its Subsidiaries
are engaged in business during the Employment Period or have taken significant
actions to begin engaging in business during the Employment Period. Executive
acknowledges that the business of the Company is contemplated to be conducted in
the jurisdictions set forth in subparagraph 12(b)(i) (including as the same
relates to the production, promotion, marketing and sale of its products and
services), and that the geographic restrictions set forth above are reasonable
and necessary to protect the goodwill of the Company's business.
(c) If Executive breaches any of the provisions of this paragraph 12, Executive
and the Company acknowledge and agree that the Company's sole remedy for such
breach shall be the termination of the Severance Payments otherwise payable to
Executive pursuant to paragraph 5(a) hereof.
B. Provisions Relating to Executive Stock.
13. Purchase and Sale of Executive Stock
<PAGE>
(a) On the Effective Date, the Company shall sell, and Executive shall
purchase, 6,247 shares of Common Stock of the Company for an aggregate purchase
price of $41,667. This sale of Common Stock shall be in addition to any other
stock or stock options granted to Executive. The Company shall deliver to
Executive a copy of, and a receipt for, the certificate representing such shares
of Common Stock, and Executive shall deliver to the Company a check or wire
transfer of funds in the aggregate amount of $8,333 (the "Cash Amount") and a
promissory note in the form of Exhibit B attached hereto in an aggregate
principal amount of $33,334 (the "Executive Note"). Executive's obligations
under the Executive Note shall be secured by a pledge of all of the shares of
Executive Stock to the Company, and in connection therewith, Executive shall
enter into a pledge agreement in the form of Exhibit C attached hereto (the
"Pledge Agreement").
(b) The Company shall hold each certificate representing Executive Stock until
such time as the Executive Stock represented by such certificate is released
from the pledge to the Company.
14. Representations and Warranties.
(a) Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant to this Agreement
shall be acquired for Executive's own account and not with a view to, or
intention of, distribution thereof in violation of the 1933 Act, or any
applicable state securities laws, and the Executive Stock shall not be disposed
of in contravention of the 1933 Act or any applicable state securities laws.
(ii) Executive is sophisticated in financial matters and is able to evaluate
the risks and benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of his investment in the
Executive Stock for an indefinite period of time because the Executive Stock has
not been registered under the 1933 Act and, therefore, cannot be sold unless
subsequently registered under the 1933 Act or an exemption from such
registration is available.
(iv) Executive has had an opportunity to ask and receive answers concerning the
terms and conditions of the offering of Executive Stock and has had full access
to such other information concerning the Company as he has reasonably requested.
Executive has reviewed, or has had an opportunity to review, a copy of the
Merger Agreement and Executive is familiar with the transactions contemplated
thereby. Executive has also reviewed, or has had an opportunity to review the
Company's articles of incorporation and bylaws.
(v) This Agreement constitutes the legal, valid and binding obligation of
Executive, enforceable in accordance with its terms, and the execution, delivery
and performance of this Agreement by Executive do not and shall not conflict
with, violate or cause a breach of any agreement, contract or instrument to
which Executive is a party or any judgement, order or decree to which Executive
is subject.
(vi) Executive is not a party to or bound by any employment agreement,
noncompete agreement or confidentiality agreement with any other person or
entity that conflicts with Executive's duties to the Company.
(vii) Upon execution and delivery of this Agreement by Executive and the other
parties hereto, this Agreement shall be the valid and binding obligations of
Executive, enforceable in accordance with its terms.
(b) As an inducement to the Company to issue the Executive Stock to Executive,
and as a condition thereto, Executive acknowledges and agrees that:
(i) Neither the issuance of the Executive Stock to Executive nor any provision
contained herein shall entitle Executive to remain in the employment of the
Company and its Subsidiaries or affect the right of the Company or its
Subsidiaries to terminate Executive's employment at any time.
<PAGE>
(ii) Executive has consulted with independent legal counsel regarding his rights
and obligations under this Agreement and Executive fully understands the terms
and conditions contained herein.
15. Repurchase Option
(a) In the event of the termination of Executive's employment with the Company
for any reason (a "Termination"), the Executive Stock (whether held by Executive
or one or more of Executive's transferees, other than any Investor or the
Company) will be subject to repurchase by the Company and the Investors pursuant
to the terms and conditions set forth in this section 15 (the "Repurchaser
Option").
(b) In the event of a repurchase of the Executive Stock, the purchase price for
each share of Executive stock will be Fair Market Value of such share; provided
that in the event Executive's employment with the Company is terminated with
Cause, the purchase price for each share of Executive Stock shall be lesser of
the Original Cost or the Fair Market Value of such share.
(c) The Company may elect to purchase all or any portion of the Executive Stock
by delivering written notice (the "Repurchaser Notice") to the holder or holders
of the Executive Stock. The Repurchaser Notice will set firth the number of
shares and the time and place for the closing of the transaction. The number of
shares to be repurchased by the Company shall first be satisfied to the extent
possible from the Executive Stock held by the Executive at the time of delivery
of the Repurchaser Notice. If the number of shares of Executive Stock then held
by Executive is less than the total number of shares of Executive Stock which
the Company has elected to purchase, the Company shall purchase the remaining
shares elected to be purchased from the other holder(s) of Executive Stock under
this Agreement, pro rata according to the number of shares of Executive Stock
held by such other holder(s) at the time of delivery of such Repurchase Notice
(determined as nearly as practicable to the nearest share).
(d) If for any reason the Company does not elect to purchase all of the
Executive Stock pursuant to the Repurchase Option, the Investors shall be
entitled to exercise the Repurchase Option for the Executive Stock that the
Company has not elected to purchase (the "Available Shares"). As soon as
practicable after the Company has determined that there will be Available Shares
and the purchase price for the Available Shares. The Investors may elect to
purchase any or all of the Available Shares by giving written notice to the
Company within one month after the Option Notice has been given by the Company.
If more than one Investor elects to purchase any or all Available Shares and the
number of Available Shares is less then the aggregate number of shares elected
to be purchased by such electing Investors, each Investor shall be entitled to
purchase the lessor of (i) the number of Available Shares such Investor has
elected to purchase as indicated in the Election Notice or (ii) the number if
Available Shares obtained by multiplying the number of shares specified in the
Option Notice by a fraction, the numerator of which is the number of shares of
Common Stock (on a fully-diluted basis) held by such Investor and the
denominator of which is the aggregate number of shares in Common Stock (on a
fully-diluted basis) held by all electing Investors. In the event of all
Available Shares are not purchased by the Investors pursuant to the immediately
preceding sentence, the Available Shares remaining to be purchased shall be
allocated among the Investors who elect to purchase more Available Share (as
indicated in their respective Election Notices) then they are entitled to
purchase pursuant to the immediately preceding sentence as the Investors shall
agree in writing. As soon as practicable, and in any event within ten days.
After the expiration of the one-month period set forth above, the Company shall
notify each holder of Executive Stock as to the number if shares being purchased
from such holder by the Investors (the "Supplemental Repurchase Notice"). At the
time the Company delivers the Supplemental Repurchase Notice to the holder(s) of
Executive Stock, the Company shall also deliver written notice to the Investors
setting forth the number of shares such Investor is entitled to purchase, the
aggregate purchase price and the time of the closing of the transaction.
(e) The closing of the purchase of the Executive Stock pursuant to the
Repurchase Option shall take place on the date designated by the Company in the
Repurchase Notice or Supplemental Repurchase Notice, which date shall not be
more one month nor less than five days after the delivery of the later of either
such notice to be
<PAGE>
delivered. The Company and/or the Investors shall pay for the Executive Stock to
be purchased pursuant to the Repurchase Option by delivery of, in case of any
Investor, a check or wire transfer of funds and in the case of a purchase by the
Company of Executive Stock, at its option, (A) a check or wire transfer of
funds, (B) a subordinate note or notes payable in up to three equal annual
installments (or as otherwise agreed by the Company and Executive) beginning on
the first anniversary of the closing of such purchase and bearing interest
(payable quarterly) at a rate per annum equal to the prime rate as published in
The Wall Street Journal from time to time or (c) both (A) and (B), in the
aggregate amount of the purchase price for such shares; provided that the
Company shall use reasonable efforts to make all such repurchases in full with a
check or wire transfer of funds. Any notes issued by the Company pursuant to
this Section 15 shall be subject to any restrictive covenants to which such
issuer is subject at the time of such purchase. In addition, the Company may pay
the purchase price for such shares by offsetting amounts outstanding under the
Executive Note issued to the Company hereunder and any other bona fide debts
owed by the Executive to the Company. The Company and the Investors will be
entitled to receive customary representations and warranties from the sellers
regarding such sale and to require all sellers' signature be guaranteed.
(f) Notwithstanding anything to the contrary contained in this Agreement, all
repurchases of Executive Stock by the Company shall be subject to applicable
restrictions contained in the California General Corporation Law and in the
Company's and its Subsidiaries debt and equality financing agreements. If any
such restrictions prohibit the repurchase of Executive Stock hereunder which the
Company is otherwise entitled or required to make, the Company may make such
repurchases as soon as it is permitted to do so under such restrictions.
(g) The right of the Company and the Investors to repurchase the Executive
Stock pursuant to this Section 15 shall terminate upon a Sale of the Company, a
Transfer pursuant to the participation rights set forth in paragraph 2(d) of the
Shareholders Agreement (as defined below), upon the consummation of a Public
Offering.
16. Restriction on Transfer.
(a) Until the third anniversary of the Effective Date, Executive shall not
Transfer any interest in any shares of Executive Stock, except for (i) Transfers
to members of Executive's Family Group, (ii) Transfers upon a Sale of the
Company, (iii) Transfers pursuant to the participation rights set forth in
paragraph 2(d) of the Shareholders Agreement (as defined below), and (iv)
Transfers of Option Shares after consummation of a Public Offering; provided
that prior to any such Transfer to a member of Executive's Family Member Group,
such member shall agree in writing to be bound by the provisions of this
Agreement with respect to the Executive Stock.
(b) Executive acknowledges and agrees that shares of Executive Stock are
subject to the restrictions on transfer set forth in the Shareholders Agreement
of the Company, dated as of the Effective Date, by and among Executive and each
of the other persons named therein, as the same may be amended and modified from
time to time (the "Shareholders Agreement").
(c) In addition to any other legend required pursuant to the Stockholders
Agreement or otherwise, the certificates representing the Executive Stock shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
OCTOBER 30, 1998, AND ARE SUBJECT TO RESTRICTIONS ON TRANSFER SET FORTH IN A
MANAGEMENT AGREEMENT AMONG THE ISSUER AND THE ORIGINAL HOLDER HEREOF DATED AS OF
OCTOBER 30, 1998, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH
AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE ISSUER'S PRINCIPAL PLACE
OF BUSINESS WITHOUT CHARGE."
<PAGE>
C. General Provisions
17. Definitions.
"Affiliate" of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person, where
"control" means the possession, directly or indirectly, of the power to direct
the management and policies of a Person whether through the ownership of voting
securities, contract or otherwise.
"Cause" means (A) Executive's theft or embezzlement, or attempted theft or
embezzlement, of money or property of the Company or any of its Affiliates,
Executive's perpetration or attempted perpetration of fraud, or Executive's
participation in a fraud or attempted fraud, on the Company or any of its
Affiliates or Executive's unauthorized appropriation of, or Executives attempt
to misappropriate, any tangible or intangible assets or property of the Company
or any of its Affiliates; (B) Executive's conviction or commission of a felony
or conviction for any crime involving acts which tend to insult or offend
community moral standards or public decency or that materially and adversely
affect the reputation of business activities of the Company or its Affiliates;
(C) Executive's substance abuse, including abuse of alcohol or use of illegal
narcotics, or other illegal drugs or substances, for which Executive fails to
undertake and maintain treatment within 15 days after requested by the
Corporation; (D) Executive's refusal to carry out the lawful instructions of the
Company's Chief Executive Officer that are the consistent with a reasonable,
legitimate business purpose following receipt of written notice of such
instructions from the Chief Executive Officer; or (E) Executive's material
breach of any provisions of this Agreement that is reasonable likely to cause
harm to the Company and which is incapable of cure or which is not cured within
15 days after written notice thereof to Executive.
"Confidential Information" means all information of a confidential or
proprietary nature (whether or not specifically labeled or identified as
"confidential"), in any form or medium, that is or was disclosed to, or
developed or learned by, Executive in connection with Executive's prior
relationship with the Company or during Employment Period and that relates to
the business, products, services, research or development of the Company or its
suppliers, distributors or customers. Confidential Information includes but is
not limited to the following: (i) internal business information (including
information relating to strategic and staffing plans and practices, business,
training, marketing, promotional and sales planes and practices, cost, rate and
pricing structures and accounting and business methods); (ii) identities of,
individual requirements of, specific contractual arrangements with, and
information about, the Company's suppliers, distributors and customers and their
confidential information; (iii) trade secrets, know-how, compilations of data
and analyses, techniques, systems, formulae, research, records, reports,
manuals, documentation, models, data and data bases relating thereto; and (iv)
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable). Confidential information shall not include information that
Executive can demonstrate: (a) is publicly known through no wrongful act or
breach of obligation of confidentiality; (b) was lawfully known to Executive
prior to the time Executive began rendering services to the Company and its
predecessors; or (c) was rightfully received by Executive from a third party
without a breach of any obligation of confidentiality by such third party.
"Disability" means the inability, due to illness, accident, injury, physical or
mental incapacity or other disability, of Executive to carry out effectively his
duties and obligations to the Company or to participate effectively and actively
in the management of the Company for a period of at least 60 consecutive days or
for shorter periods aggregating at least 120 days (whether or not consecutive)
during any twelve-month period, as determined in the reasonable good faith
judgement of the Board.
"Executive Stock" means all shares of Common Stock purchased pursuant hereto and
all shares of Common Stock hereafter acquired by Executive (including upon the
exercise of any Stock Options or similar rights). Executive Stock will continue
to be Executive Stock in the hands of any holder other than Executive (except
for the Company and the Investors and except for transferees in a Public Sale or
pursuant to paragraph 2(d) of the Shareholders
<PAGE>
Agreement), and except as otherwise provided herein, each such holder of
Executive Stock will succeed to all rights and obligations attributable to
Executive as a holder of Executive Stock hereunder.
"Fair Market Value" of any share of Executive Stock means:
(i) the average of the closing prices of the sales of such security on all
securities exchanges of which such security may at the time be listed, or, if
there have been no sales on any such exchange on any day, the average of the
highest bid and the lowest asked prices on all such exchanges at the end of such
day, or if on any day such security is not listed, the average of the
representative bid and asked prices quoted in the Nasdaq Stock Market as of 4:00
P.M., New York time, or, if on any day such security is not quoted in the Nasdaq
Stock Market, the average of the highest bid and lowest asked prices on such day
in the domestic over-the-counter market as reported by the National Quotation
Bureau Incorporated, or any similar successor organization, in each such case
averaged over a period of 21 days consisting of the day as of which the Fair
Market Value is being determined and the 20 consecutive days prior to such day;
or
(ii) If the Executive Stock is not listed on any securities exchange or quoted
in the Nasdaq Stock Market or the over-the-counter market for the entire 21-day
averaging period specified above, then the fair value of such security
determined jointly by the Company and Executive in good faith. If such parties
are unable to reach agreement within a reasonable period of time, such fair
value shall be determined by an independent appraiser experienced in valuing
securities jointly selected by the Company and Executive. If the parties are
unable to agree on an independent appraiser, a firm shall be selected bylot from
six nationally recognized investment banking forms, three of such firms are to
be selected by Executive and three such firms to be selected by the Company. The
expenses of such appraiser shall be borne by the Executive unless the appraisers
valuation is more than 10% greater than the amount determined by the Company, in
which case, the costs of the appraiser shall be borne by the Company. The
determination of such appraiser shall be final and binding upon all parties,
except that after the determination of Fair Market Value, any party that has
been offered to purchase shares of capital stock may rescind its offer to
purchase such shares at any time within ten business days after receiving
written notice of such determination of Fair Market Value. Fair Market Value
shall be determined as of the date the earlier of the Repurchase Notice or
Supplemental Repurchase Notice is delivered.
"Family Group" means Executive's spouse and descendants (whether natural or
adopted) and any trust solely for the benefit of such Executive and/or
Executive's spouse and/or descendants.
"Independent Third Party" means any person who, immediately prior to the
contemplated transaction, does not own in excess of 5% of the Company's Common
Stock on a fully-diluted basis, who is not controlling, controlled by or under
common control with any such 5% owner of the Company's Common Stock and who is
not the spouse or descendent (by birth or adoption) of any such 5% owner of the
Company's Common Stock.
"Intellectual Property Rights" means all inventions, innovations, improvements,
developments, methods, processes, designs, analysis, drawings, reports and all
similar or related information (whether or not patentable or reduced to
practice) and any copyrightable work, trade mark, trade secret or other
intellectual property rights which relate to the Company's or any of its
Subsidiaries' actual or anticipated business.
"Original Cost" of (i) each share of Common Stock purchased hereunder shall be
equal to $6.67 and (ii) each Option Share shall be the exercise price or similar
amount paid upon the issuance of such share to Executive (in each case as
proportionally adjusted for all subsequent stock splits, stock dividends and
other recapitalizations).
"Option Shares" shall mean all shares of Common Stock issued to Executive upon
exercise of any stock options or similar rights granted to Executive by the
Company.
<PAGE>
"Person" means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or an department, agency
or political subdivision thereof.
"Public Offering" means any offering by the Company of its Common Stock or
rights to purchase it Common Stock to the public pursuant to an effective
registration statement under the Securities Act, as then in effect, or in any
comparable statement under any similar federal statute then in force.
"Public Sale" means the sale of the Company to an Independent Third Party of
affiliated group of Independent Third Parties pursuant to which such party or
parties acquire (i) capital stock of the Company possessing the voting power to
elect a majority of the Company's board of directors (whether by merger,
consolidation or sale or transfer of the Company's capital stock) or (ii) all or
substantially all of the Company's assets determined on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended from time to time.
"Subsidiary" means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any one contingency) to vote in
the election of directors, mangers, or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly, or indirectly, by that Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity is
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of suck limited
liability company, partnership, association or other business entity.
"Transfer" means to sell, transfer, assign, pledge, or otherwise dispose of
(whether with or without consideration and whether voluntarily or involuntarily
or by operation of law).
"Work Product" means all inventions, innovations, improvements, developments,
methods, processes, designs, analysis, drawings, reports, research and
development of existing or future products or services which were or are
conceived, reduced to practice, contributed to or developed or made by Executive
(whether alone or jointly with others) while employed (both before and after the
Effective Date) by the Company (or its predecessors, successors or assigns) and
its Subsidiaries and all similar or related information (whether or not
patentable or reduced to practice) and any copyrightable work, trade mark, trade
secrets or intellectual property rights, and of which relate to the Company's or
any of its Subsidiary's actual or anticipated business.
18a Survival. The provisions set forth in paragraphs 6 through 32 of this
Agreement shall survive and continue in full force and effect in accordance with
their terms notwithstanding any termination any termination of the employment
period.
19a Notices. Any notice provided for in this Agreement shall be deemed to have
been given when delivered personally to the recipient, send to the recipient by
reputable express courier (charges prepaid), telecopied (with hard copy to
follow) or 5 days after mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notice will be sent to
Executive or to the Company at the address set forth below:
<PAGE>
Notice to Executive:
Richard Bryson
48 Elm Avenue
Larkspur, California 94939
Telephone: ____________
Facsimile: ____________
Notice to the Company:
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, CA 95204
Attention: Secretary
Telephone: (209) 926-3333
Facsimile: (209) 926-3125
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or 5 days after mailed.
20a Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, legal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or enforceability shall not effect any
other provision or any other jurisdiction, but this Agreement shall be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision has never been contained herein.
21a No Strict Construction. The language used in this Agreement shall be deemed
to be the language chosen by the parties hereto to express their mutual intent,
and no rule of strict construction shall be applied against any party. The use
of the word "Including" herein shall mean "Including without limitation."
22a Counterparts. This Agreement may be executed in separate counterparts
(including by means of telecopies signature pages), each of which is deemed to
be an original and all of which taken together constitutes one and the same
agreement.
23a Choice of Law. All issues and questions concerning the construction,
validity, enforcement and interpretation of this Agreement and any schedules
shall be governed by, and construed in accordance with, the laws of the State of
California, without giving effect to any choice of law or conflict of law rules
or provisions (whether of the State of California or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other then the
State of California.
24a Consent to Personal Jurisdiction. Executive hereby expressly consents to
the nonexclusive personal jurisdiction in venue of the state and federal courts
located in the federal Eastern District of California for any law suit filed
against Executive by the Company arising from or relating to this Agreement.
25a Transfers in Validation of Agreement. Any Transfer or attempted Transfer of
any Executive Stock in violation of any provision of this Agreement shall be
void, and the Company shall not record such Transfer on its books or treat any
purported transferee of such Executive Stock as the owner of such shares for any
purpose.
26a Complete Agreement. This Agreement, those documents expressly referred to
herein and other documents of even date herewith embody the complete Agreement
and understanding among the parties and supersede and
<PAGE>
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to subject matter hereof in any
way, including, without limitation, the Consulting Agreement.
27a Successors and Assigns. Except as otherwise provided herein, this Agreement
shall bind and inure to the benefit of and be enforceable by Executive, the
Company, the Investors and their respective successors and assigns (including
subsequent holders of Executive Stock); provided that the rights and obligations
of Executive under this Agreement shall not be assignable except in connection
with a permitted Transfer of Executive Stock hereunder. The Investors shall be
permitted to assign any and all of their rights pursuant of this Agreement to
any other holder of Common Stock of the Company without obtaining the consent or
approval of any other party hereto.
28a Remedies. Each of the parties of this Agreement (including the Investors)
will be entitled to enforce its rights under this Agreement specifically, to
recover damages and costs (including attorney's fees) caused by any breach of
any provision of this Agreement and to exercise all other rights exciting in its
favor. The parties hereto agree and acknowledges money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement. In any action arising under this
Agreement, the prevailing party shall be entitled to recover his/its full
attorney's fees and costs, including any expert's fees.
29a Amendment and Waiver. The provisions of this Agreement may be amended and
waived only with the prior written consent of the Company, the Investors owning
a majority of Common Stock held by the Investors and Executive.
30a Business Days. If any time period for giving notice or taking action
hereunder expires on a day which is a Saturday, Sunday or holiday in the State
in which the Company's chief executive office is located, the time period shall
be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
31a Adjustments of Numbers. All numbers set forth herein which refer to stock
prices or amounts will be appropriately adjusted to reflect stock splits, stock
dividends, combinations of stock and other recapitalizations effecting the
subject class of stock.
32a Third-Party Beneficiaries. Certain provisions of this Agreement are entered
into for the benefit of and shall be enforceable by the Investors as provided
herein.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first written above which shall be effective as of the Closing Date.
PAC-WEST TELECOMM, INC.
By: /s/ Wallace W. Griffin
-------------------------------
Name: Wallace W. Griffin
-----------------------------
Its: President
-----------------------------
/s/ RICHARD BRYSON
- ----------------------------------
RICHARD BRYSON
<PAGE>
EXCLUDED INVENTIONS SCHEDULE
None.
<PAGE>
Exhibit 10.10
EXECUTION COPY
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of October 21,
1998 (the "Effective Date"), is made by and between Pac-West Telecomm, Inc., a
California corporation (the "Company"), and Dennis V. Meyer ("Executive").
Capitalized terms used herein and not otherwise defined herein have the meanings
given to such terms in paragraph 14 hereof.
WHEREAS, the Company desires to employ Executive in the capacity and
on the terms and conditions set forth herein, and Executive desires to accept
such employment in such capacity and on such terms and conditions.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agrees as follow:
1. Employment. The Company shall employ Executive, and Executive
hereby accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning on the Effective Date and
ending as provided in paragraph 4 below (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the Vice
President of Finance and Treasurer of the Company and shall have such duties,
responsibilities and authority as shall be determined by the Company's Chief
Executive Officer and Chief Financial Officer.
(b) Executive shall report to the company's Chief Financial Officer,
and Executive shall devote his best efforts and his business time and attention
(on a full-time equivalent basis) to the business and affairs of the Company and
its Subsidiaries. Executive shall perform his duties and responsibilities to the
best of his abilities in a diligent, trustworthy, businesslike and efficient
manner.
3. Compensation and Benefits.
(a) Base Salary. During the Employment Period, Executive's base
salary shall be $115,000 or such higher rate as the Company's Chief Executive
Officer in his sole discretion may designate from time to time (the "Base
Salary"), which salary shall be payable in regular installments in accordance
with the Company's general payroll practices and shall be subject to customary
withholding and other customary deductions.
<PAGE>
(b) Bonuses. The Company shall award a bonus (the "Annual Bonus") to
Executive in an amount to be determined prior to each fiscal year by the Chief
Executive Officer and Executive. The Annual Bonus may be structured, as agreed
upon by Executive and the Chief Executive Officer in good faith, to provide for
a portion of the Annual Bonus to be paid upon the achievement of the Company of
certain separate specific objectives with such objectives generally designed to
provide Executive with an Annual Bonus of 25% of the Base Salary in a normal
year. The Annual Bonus may exceed 25% of the Base Salary as determined by the
Chief Executive Officer in his discretion. Such Annual Bonus shall be payable
within 90 days following the end of each fiscal year during the Employment
Period based upon the Company having achieved such specific objectives for such
fiscal year determined by the Chief Executive Officer and the Executive in good
faith prior to such fiscal year and based upon the Executive's performance
during such fiscal year.
(c) Benefits.
(i) During the Employment Period, Executive shall be
entitled to participate in all of the Company's employee benefit plans
and programs for which similarly situated executive employees of the
Company are generally eligible (subject to the Company's right to
amend, modify, or terminate any such plan or program in accordance
with its terms and applicable law and subject in each case to any
applicable waiting periods or other restrictions contained in such
benefit plans or programs), which shall include, but shall not be
limited to, health insurance, dental insurance and participation in
the Company's 401(k) plan. The Company shall match any contributions
made by Executive to the Company's 401(k) plan to the extent
consistent with the Company's past practice and the terms of such plan
and to the extent consistent with the applicable law.
(ii) Executive shall be entitled to three (3) weeks of paid
vacation during each year of the Employment Period, in addition to
legal holidays. Vacation hereunder shall accrue from year to year
based upon the Company's then current policy for all employees as
established from time to time by the Board in its sole discretion.
(iii) The Company shall reimburse Executive for all
reasonable expenses incurred by him in the course of performing his
duties under this Agreement which are consistent with the terms of
this Agreement and the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses,
subject to the Company's general policies with respect to reporting
and reasonable documentation of such expenses.
(d) Stock Options. Executive shall be eligible to participate
in the Company's employee stock option plans and other employee equity
incentive plans for which other similarly situated executive employees
of the Company are eligible. The amount of any awards under such plans
to Executive shall be determined by the Board in its sole discretion.
4. Term and Termination.
-2-
<PAGE>
The Employment Period shall be for an initial term ending on the first
anniversary of the Effective Date (the "Initial Term") and shall be
automatically extended for successive one-year periods (each, an "Additional
Term," and the Initial Term as extended by any Additional Term, the "Term")
unless either party gives written notice of the termination of the Employment
Period to the other party at least 60 days prior to the expiration of the
Initial Term or any Additional Term (such notice, a "Termination Notice");
provided that, notwithstanding anything in this Agreement to the contrary,
expressed or implied, or Section 2924 of the California Labor Code or any
similar provision of applicable law, the Employment Period shall terminate prior
to the expiration of the Term upon (i) Executive's resignation for any reason
(with such resignation being effective 30 days after notice thereof is delivered
by Executive to the Company), (ii) Executive's death or Disability or (iii)
termination of Executive's employment by the Company with or without cause.
5. Severance.
(a) If the Employment Period is terminated by the Company without
Cause, Executive shall be entitled to receive an amount equal to his Base Salary
at the times set forth in this Agreement for the remainder of the Term (for
purposes of this Section 5(a), the "Severance Period"), so long as Executive has
not breached and does not breach the provisions of any paragraphs 6, 7, 8, 9,
10, or 12 below during the time period set forth therein or in the agreement
referenced thereby.
(b) If the Employment Period is terminated as a result of Executive's
Disability, Executive and/or his estate or beneficiaries, as the case may be,
shall be entitled to receive benefits under the Company's employee benefit
programs as in effect on the date of such termination to the extent permitted
thereunder and, in addition, shall be entitled to receive (i)an amount equal to
Executive's Base Salary at the times set forth in this Agreement for the
one-year period after the termination of the Employment Period and (ii) the
amount of any Annual Bonus otherwise payable to Executive pursuant to paragraph
3(b) above for the fiscal year in which Executive's employment is terminated,
except that the amount of any such Annual Bonus otherwise payable pursuant to
this paragraph 5(b) shall be pro rated on the basis of the number of days during
such fiscal year that Executive was employed by the Company.
(c) If the Employment Period is terminated as a result of Executive's
death, Executive and/or his estate or beneficiaries, as the case may be, shall
be entitled to receive the benefits under the Company's employee benefit
programs as in effect on the date of such termination to the extent permitted
thereunder and, in addition, shall be entitled to receive the amount of any
Annual Bonus otherwise payable to the Executive pursuant to paragraph 3(b) above
for the fiscal year in which Executive's employment is terminated, except that
the amount of any such Annual Bonus otherwise payable pursuant to this paragraph
5(b) shall be pro rated on the basis of the number of days during such fiscal
year that Executive was employed by the Company.
-3-
<PAGE>
(d) If the Employment Period is terminated by the Company for Cause
or if Executive resigns for any reason, or if the Employment Period is
terminated as a result of a Termination Notice delivered by Executive pursuant
to paragraph 4 above, Executive shall be entitled to receive his Base Salary
through the date of termination and the Company shall have no further liability
whatsoever to Executive.
(e) Except as otherwise expressly provided herein or as expressly
required under Section 498OB of the Internal Revenue Code of 1986, as amended,
all of Executive's rights to fringe benefits and bonuses hereunder shall cease
upon termination of the Employment Period.
6. Confidential Information; Nonsolicitation.
(a) Executive agrees to execute on the date hereof and to be bound as
of the date hereof by the terms of the Company's form of confidentiality
agreement attached hereto as Exhibit A.
(b) Executive agrees that until the date which is one year after the
termination of the Employment Period, he shall not directly, or indirectly
through another person, (i) induce or attempt to induce any employee of the
Company or any of its Subsidiaries to leave the employ of the Company or any
such Subsidiary, or in any way interfere with the relationship between the
Company or any of its Subsidiaries and any employee thereof, (ii) hire any
person who was an employee of the Company or any of its Subsidiaries at any time
during the 180-day period immediately prior to the date on which such hiring
would take place (it being conclusively presumed by the Company and Executive so
as to avoid any disputes under this paragraph 6(b) that any such hiring within
such 180-day period is in violation of clause (i) above), or (iii) call on,
solicit or service any customer, supplier, licensee, licensor or other business
relation of the Company or any of its Subsidiaries in order to induce or attempt
to induce such Person to cease doing business with the Company or such
Subsidiary. In addition, during the Employment Period and thereafter, Executive
shall not in any way interfere with the relationship between any such customer,
supplier, licensee or business relation and the Company or any of its
Subsidiaries (including making any negative statements or communications about
the Company or any of its Subsidiaries).
7. Company's Ownership of Intellectual Property.
(a) Executive acknowledges that all Work Product is the exclusive
property of the Company. Executive hereby assigns all right, title and interest
in and to such Work Product to the Company. Any copyrightable work prepared in
whole or in part by Executive will be deemed "a work made for hire" under
section 201(b) of the 1976 Copyright Act, and the Company shall own all of the
rights comprised in the copyright therein.
(b) The Company and the Executive each acknowledge the applicability
of Section 2870 of the California Labor Code. Accordingly, the provisions of
paragraph 7(a) shall not apply to, and the term "Work Product" shall not
include, any invention that Executive developed
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entirely on his own time without using the Company's equipment, supplies,
facilities, or trade secret information except for those inventions that either:
(i) relate at the time of conception or reduction to practice of the invention
to the Company's or any Subsidiaries business, or to the actual or demonstrably
anticipated research or development of the Company or any Subsidiary; or (ii)
result from any work performed by Executive for the Company or any Subsidiary.
Set forth on the attached "Excluded Inventions Schedule" are the inventions
Executive believes meet the criteria for the exclusions set forth above.
Executive agrees to promptly advise the Company in writing of any inventions
developed after the Effective Date which Executive believes meet the criteria
for exclusion set forth above.
(c) Executive shall promptly and fully disclose all Work Product to
the Company and shall cooperate and perform all actions reasonably requested by
the Company (whether during or after the Employment Period) to establish,
confirm and protect that Company's right, title and interest in such Work
Product. Without limiting the generality of the foregoing, Executive agrees to
assist the Company, at the Company's expense, to secure the Company's rights in
the Work Product in any and all countries, including the execution of all
applications and all other instruments and documents which the Company shall
deem necessary in order to apply for and obtain rights in such Work Product and
in order to assign and convey to the Company the sole and exclusive right, title
and interest in and to such Work Product. If the Company is unable because of
Executive's mental or physical incapacity or for any other reason (including
Executive's refusal to do so after request therefor is made by the Company) to
secure Executive's signature to apply for or to pursue any application for any
United States or foreign patents or copyright registrations covering Work
Product belonging to or assigned to the Company pursuant to paragraph 7(a)
above, then Executive hereby irrevocably designates and appoints the Company and
its duly authorized officers and agents as Executive's agent and attorney-in-
fact to act for an in Executive's behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of patents or copyright registrations thereon with the
same legal force and effect as if executed by Executive. Executive agrees not to
apply for or pursue any applications for any United States or foreign patents or
copyright registrations covering any Work Product other than pursuant to this
paragraph in circumstances where such patents or copyright registrations are or
have been or are required to be assigned to the Company.
8. Delivery of Materials Upon Termination of Employment. As
requested by the Company upon termination of Executive's employment with the
Company for any reason, Executive shall promptly deliver to the Company all
copies and embodiments, in whatever form, of all Confidential Information and
Work Product in Executive's possession or within his control irrespective of the
location or form of such material and, if requested by the Company , shall
provide the Company with written conformation that all such materials have been
delivered to the Company.
9. Subsequent Inventions. Executive understands and agrees that all
Intellectual Property Rights made, conceived, developed, or reduced to practice
by Executive, either alone or jointly with others, shall be disclosed to the
Company by the Executive for six (6) months following the termination of the
Employment Period. Employee further agrees that all Intellectual Property Rights
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<PAGE>
made, conceived, developed, or reduced to practice within six (6) months
following such termination shall be presumed to have been conceived during
Executive's employment with the Company and with the use of the Company
Confidential Information, but such presumption may be overcome by Executive by a
showing that such Intellectual Property Rights were conceived after the
Employment Period and without the use of any such Confidential Information. In
the event Executive is not able to rebut such presumption and prove that such
Intellectual Property Rights were conceived after the Employment Period and
without the use of Confidential Information, Executive agrees to assign all
right, title and interest in such Intellectual Property Rights to the Company.
10. Disclosure. Following the termination of the Employment Period,
Executive shall communicate the restrictions contained in this Agreement to any
Person he intends to be employed by, provide consulting services to or otherwise
represent. Executive hereby consents to the Company's communication of the
restrictions contained in this Agreement to any such Person.
11. Enforcement; Remedies.
(a) If, at the time of enforcement of the covenants contained in
paragraph 6, 7, 8, 9, or 10 (the "Protective Covenants"), a court shall hold
that the duration or scope stated therein are unreasonable under circumstances
then existing, the parties hereto agree that the maximum duration or scope
reasonable under such circumstances shall be substituted for the stated duration
or scope and that the court shall be allowed to revise the restrictions
contained therein to cover the maximum period or scope permitted by law.
Executive has consulted legal consul regarding the Protective Covenants and
based on such consultation has determined and hereby acknowledges that the
Protective Covenants are reasonable in terms of duration and scope and are
necessary to protect the goodwill of the Company's business and the Confidential
Information.
(b) If Executive breaches, or threatens to commit a breach of, any of
the Protective Covenants, the Company shall have following rights and remedies,
each of which rights and remedies shall be independent of the others and
severally enforceable, and each of which is in addition to, and not in lieu of,
any other rights and remedies available to the Company at law or in equity:
(i) the right and remedy to have the Protective Covenants
specifically enforced by any court of competent jurisdiction (without
the need to post a bond or other security), it being agreed that any
breach or threatened breach of the Protective Covenants would cause
irreparable injury to the Company and that money damages would not
provide an adequate remedy to the Company; and
(ii) the right and remedy to require Executive to account for
and pay over to the Company any profits, monies, accruals, increments
or other benefits derived or received by Executive as the result of any
transaction(s) constituting a breach of the Protective Covenants.
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(c) In the event of any breach or violation by Executive of any of
the Protective Covenants, the time period of such covenant with respect to
Executive (to the extent such covenant is limited in duration) shall be tolled
until such breach or violation is resolved.
12. Loss of Severance due to Competition.
(a) The Executive shall not during the Employment Period and during
the period Executive is receiving any Severance Payment pursuant to paragraph
5(a) (the "Noncompete Period"), for himself or on behalf of any other person,
firm, partnership, corporation, or other entity, engage, directly or indirectly,
either as an officer, director, employee, partner, consultant, individual
proprietor, agent, or otherwise (including, but not limited to, as an owner or
shareholder), in any business which (A) provides telecommunication services of
the type provided during the Employment Period by the Company and any of its
subsidiaries (including, without limitation, (i) switched local service, (ii)
switched long-distance service, (iii) dedicated transport services, (iv) co-
locate and interconnect services and (v) data switched services and including,
without limitation, telecommunication services of the type provided by the
Company and any of its Subsidiaries to information service providers) or (B)
provides services of the type which the Company and any of its Subsidiaries have
taken significant actions during the Employment Period to begin providing or of
the type the Company or any of its Subsidiaries have indicated that they plan to
begin providing in any business plan or similar document delivered to Executive
during the Employment Period, in each case within any of the Restricted
Territories (as defined below); provided that the restrictions set forth in this
paragraph 12 shall not prohibit Executive from being a passive owner of not more
than 5% of the outstanding stock of any class corporation which is publicly
traded; and provided further that the restrictions set forth in this paragraph
12 shall not restrict the activities of Executive to the extent Executive has
received the consent of the Board to such activities.
(b) For the purpose of this Agreement, "Restricted Territories" shall
mean (i) the counties (or similar jurisdictions) in the states of 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 and (ii) any other jurisdictions in which the Company or
its Subsidiaries are engaged in business during the Employment Period. Executive
acknowledges that the business of the Company is contemplated to be conducted in
the Jurisdictions set forth in subparagraph 12(b)(i) (including as the same
relates to the production, promotion, marketing and sale of its products and
services), and that the geographic restrictions set forth above are reasonable
and necessary to the protect the goodwill of the Company's business.
(c) If Executive breaches any of the provisions of this paragraph 12,
Executive and Company acknowledge and agree that the Company's sole remedy for
such breach shall be termination of the Severance Payments otherwise payable to
Executive pursuant to paragraph 5(a) hereof.
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13. Executive's Representations. Executive hereby represents and
warrants to the Company that (a) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgement or
decree to which Executive is a party or by which he is bound, (b) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity, and (c) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that he has consulted
with independent legal consul regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
14. Definitions.
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through ownership of
voting securities, contract or otherwise.
"Cause" means (A) Executive's theft or embezzlement, or attempted
theft or embezzlement, of money or property of the Company or any of its
Affiliates, Executive's perpetration or attempted perpetration of fraud, or
Executive's participation in a fraud or attempted fraud, on the Company or any
of its Affiliates or Executive's unauthorized appropriation of, or Executive's
attempt to misappropriate, any tangible or intangible assets or property of the
Company or any of its Affiliates; (B) Executive's conviction for commission of a
felony or conviction for any crime involving acts which tend to insult or offend
community moral standards or public decency or that materially and adversely
affect the reputation of business activities of the Company or its Affiliates;
(C) Executive's substance abuse, including abuse of alcohol or use of illegal
narcotics, or other illegal drugs or substances, for which Executive fails to
undertake and maintain treatment within 15 days after requested by the
Corporation; (D) Executive's refusal to carry out the lawful instructions of the
Company's Chief Executive Officer or Executive Vice President - Technology and
Network Operations following receipt of written notice of such instructions from
the Chief Executive Officer; or (E) Executive's material breach of any
provisions of this Agreement which is incapable of cure or which is not cured
within 15 days after written notice thereof to Executive.
"Confidential Information" means all information of a confidential or
proprietary nature (whether or not specifically labeled or identified as
"confidential"), in any form or medium, that is or was disclosed to, or
developed or learned by, Executive in connection with Executive's prior
relationship with the Company or during Employment Period and that relates to
the business, products, services, research or development of the Company or its
suppliers, distributors or customers. Confidential Information includes but is
not limited to the following: (i) internal business information (including
information relating to strategic and staffing plans and practices, business,
training, marketing, promtional and sales planes and practices, cost, rate and
pricing structures and accounting and business methods); (ii) identities of,
individual requirements of,
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specific contractual arrangements with, and information about, the Company's
suppliers, distributors and customers and their confidential information; (iii)
trade secrets, know-how, compilations of data and analyses, techniques, systems,
formulae, research, records, reports, manuals, documentation, models, data and
data bases relating thereto; and (iv) inventions, innovations, improvements,
developments, methods, designs, analyses, drawings, reports and all similar or
related information (whether or not patentable). Confidential information shall
not include information that Executive can demonstrate: (a) is publicly known
through no wrongful act or breach of obligation of confidentiality; (b) was
lawfully known to Executive prior to the time Executive began rendering services
to the Company and its predecessors; or (c) was rightfully received by Executive
from a third party without a breach of any obligation of confidentiality by such
third party.
"Disability" means the inability, due to illness, accident, injury,
physical or mental incapacity or other disability, of Executive to carry out
effectively his duties and obligations to the Company or to participate
effectively and actively in the management of the Company for a period of at
least 60 consecutive days or for shorter periods aggregating at least 120 days
(whether or not consecutive) during any twelve-month period, as determined in
the reasonable good faith judgement of the Board.
Intellectual Property Rights" means all inventions, innovations,
improvements, developments, methods, processes, designs, analysis, drawings,
reports and all similar or related information (whether or not patentable or
reduced to practice) and any copyright work, trade mark, trade secret or other
intellectual property rights which relate to the Company's or any of its
Subsidiaries' actual or anticipated business.
"Merger Agreement" means that certain Agreement and Plan of Merger,
dated as of the date hereof, by and among the Company, Executive and the other
parties signatory thereto, as amended and modified from time to time in
accordance with its terms.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by the that Person or one or more of the
other Subsidiaries of that Person or a combination there of, or (ii) if a
limited liability company, partnership, association or other business entity, a
majority of the partnership or other similar ownership interest thereof is at
the time owned or controlled, directly or indirectly, by that Person or one or
more Subsidiaries of that Person or a combination thereof. For purposes hereof,
a Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall allocated a majority of limited liability company,
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partnership, association or other business entity gains and losses or shall be
or control any managing director or general partner of such limited liability
company, partnership, association or other business entity.
"Work Product" means all inventions, innovations, improvements,
developments, methods, processes, designs, analysis, drawings, reports, research
and development of existing or future products or service which were or are
conceived, reduced to practice, contributed to or developed or made by Executive
(whether alone or jointly with others) while employed (both before and after the
Effective Date) by the Company (or its predecessors, successors or assigns) and
it's Subsidiaries and all similar or related information (whether or not
patentable or reduced to practice) and any copyrightable work, trade mark, trade
secret or other intellectual property rights, any of which relate to the
Company's or any of its Subsidiaries' actual or anticipated business.
15. Survival". The provisions set forth in paragraph 5 through 24 of
this Agreement shall survive and continue in full force and effect in accordance
with their terms notwithstanding any termination of the Employment Period.
16. "Notices". Any notice provided for in this Agreement shall be
deemed to have been given when delivered personally to the recipient, sent to
the recipient by the reputable express courier (charges prepaid), telecopied
(with hard copy to follow) or mailed to the recipient by certified or registered
mail, return receipt requested and postage prepaid. Such notice will be sent to
Executive or to the Company at the address set forth below:
Notices to Executive:
---------------------
Dennis V. Meyer
6200 Raymond Court
Stockton, CA 95212
Telephone: (209) 931-3066
Facsimile: (209) 926-3218
Notices to the Company:
-----------------------
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, CA 95204
Attention: President
Telephone: (209) 926-3333
Facsimile: (209) 926-3125
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
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17. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not effect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
18. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
19. No Strict Construction. The language used in this Agreement shall
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party. The use of the word "including" herein shall mean "including without
limitation."
20. Counterparts. This Agreement may be executed in separate
counterparts (including by means of telecopies signature pages), each of which
is deemed to be an original and all of which taken together constitute one and
the same agreement.
21. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by Executive, the Company and
their respective heirs, successors and assigns, except that Executive may not
assign his rights or delegate his obligations hereunder without the prior
written consent of the company.
22. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and any
schedules shall be governed by, and construed in accordance with, the laws of
the State of California, without giving effect to any choice of law or conflict
of law rules or provisions (whether of the State of California, or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of California.
23. Consent to Personal Jurisdiction. Executive hereby expressly
consents to the nonexclusive personal jurisdiction and venue of the state and
federal courts located in the federal Northern District of California for any
lawsuit filed against Executive by the Company arising from or relating to this
Agreement.
24. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall effect the validity, binding effect or
enforceability of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on the date first written above.
PAC-WEST TELECOMM, INC.
By: /s/ W. W. Griffin
----------------------------
Name: W. W. Griffin
--------------------------
Its: President
---------------------------
/s/ Dennis V. Meyer
-------------------------------
Dennis V. Meyer
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EXCLUDED INVENTIONS SCHEDULE
----------------------------
None.
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Exhibit 10.11
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of September
14, 1998 and effective as of the date of the closing of the transactions
contemplated by the Merger Agreement (as defined below) (the "Effective Date"),
is made by and between Pac-West Telecom, Inc., a California corporation (the
"Company"), and Jason Mills ("Executive"). Capitalized terms used herein and
otherwise defined herein have the meanings given to such terms in paragraph 14
hereof.
WHEREAS, the Company desires to employ Executive in the capacity and on
the terms and conditions set forth herein, and Executive desires to accept such
employment in such capacity and on such terms and conditions.
NOW, THEREFORE, in consideration of the mutual covenants herein and
other good and valuable consideration and the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employee Executive, and Executive
hereby accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning on the Effective Date and
ending as provided in paragraph 4 below (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the "Vice
President - Network Operations" of the Company and shall have such duties,
responsibilities and authority as set forth herein and as shall be determined by
the Company's Chief Executive Officer and Executive Vice President - Technology
and Network Operations.
(b) Executive shall report to the Company's Executive Vice President
Technology and Network Operations, and Executive shall devote best efforts and
his business time and attention (on a full-time equivalent basis) to the
business and affairs of the Company and its Subsidiaries. Executive shall
perform his duties and responsibilities to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.
<PAGE>
3. Compensation and Benefits.
(a) Base Salary. During the Employment Period, Executive's base salary
shall be $180,000 for the first year after the Effective Date and $200,000 for
the second year after the Effective Date or such higher rate as the Board in its
sole discretion may designate from time to time (the "Base Salary"), which
salary shall be payable in regular installments in accordance with the Company's
general payroll practices and shall be subject to customary withholding and
other customary deductions.
(b) Bonuses. The Board shall award a bonus (the "Annual Bonus") to
Executive in an amount to be determined prior to each fiscal year by the Board
and Executive. The Annual Bonus may be structured, as agreed upon by Executive
and the Board in good faith, to provide for a portion of the Annual Bonus to be
paid upon the achievement by the Company of certain separate specific objectives
with such objectives generally designed to provide Executive with an Annual
Bonus of 25% of the Base Salary in a normal year. The Annual Bonus may exceed
25% of the Base Salary determined by the Board in its discretion. Such Annual
Bonus shall be payable within 90 days following the end of each fiscal year
during the Employment Period based upon the Company having achieved such
specific objectives for each fiscal year determined by the Board and the
Executive in good faith prior to such fiscal year and based upon the Executive's
performance during such fiscal year.
(c) Benefits.
(i) During Employment Period, Executive shall be entitled to
participate in all of the Company's employee benefit plans and programs
for which similarly situated executive employees of the Company are
generally eligible (subject to the Company's right to amend, modify or
terminate any such plan or program in accordance with its terms and
applicable law and subject in each case to any applicable waiting periods
or other restrictions contained in such benefit plans or programs), which
shall include but shall not be limited to, health insurance, dental
insurance and participation in the Company's 401(k) plan. The Company
shall match any contributions made by Executive to the Company's 401(k)
plan to the extent consistent with the Company's past practice and the
terms of such plan and to the extent consistent with applicable law.
(ii) Due to the fact that Executive will be required to be on
call continuously for emergency response and to travel extensively by
vehicle on company business, during the Employment Period, the Company
shall provide to Executive a reasonably priced car consistent with the
Company's past practice. Such company car shall be available for
Executive' use in a manner consistent with past practice. Executive
acknowledges and agrees that the Company may report all or a portion of
the cost of such car and its operation as additional compensation to
Executive if the Company reasonably believes the same may be required by
applicable tax law.
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(iii) Executive shall be entitled to three (3) weeks of paid
vacation during each year of the Employment Period, in addition to legal
holidays. Vacation hereunder shall accrue from year to year based upon the
Company's then current policy for all employees as established from time
to time by the Board in its sole discretion.
(iv) The Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his duties under this
Agreement which are consistent with the terms of this Agreement and the
Company's policies in effect from time to time with respect to travel,
entertainment and other business expenses, subject to the Company's
general policies with respect to reporting and reasonable documentation of
such expenses.
(d) Stock Options. Executive shall be eligible to participate in the
Company's employee stock option plans and other employee equity incentive plans
for which other similarly situated executive employees of the Company are
eligible. The amount of any awards under such plans to Executive shall be
determined by the Board in its sole discretion.
4. Term and Termination.
(a) The Employment Period shall be for term ending on the second
anniversary Effective Date (the "term"); provided that, notwithstanding anything
in this Agreement to the contrary, expressed or implied, or Section 2924 of the
California Labor Code or any similar provision of applicable law, the Employment
Period shall terminate prior to the expiration of the Term upon (i) Executive's
resignation for any reason (with such resignation being effective 30 days after
notice thereof is delivered by Executive to the Company), (ii) Executive's death
or Disability or (iii) termination of Executive's employment by the Company with
or without Cause.
5. Severance.
(a) If the Employment Period is terminated by the Company without
Cause, Executive shall be entitled to receive an amount equal to his Base Salary
at the times set forth in this Agreement for the remainder of the Term (for
purposes of this Section 5(a), the "Severance Period"), so long as Executive has
not breached and does not breach the provisions of any of paragraphs 6, 7, 8, 9,
10 or 12 below during the time period therein or in the agreement referenced
thereby.
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(b) If the Employment Period is terminated as a result of Executive's
Disability, Executive and/or his estate or beneficiaries, as the case may be,
shall be entitled to receive benefits under the Company's employee benefit
programs as in effect on the date of such termination to the extent permitted
thereunder and, in addition, shall be entitled to receive (i) an amount equal to
Executive's Base Salary at the times set forth in this Agreement of the one-year
period after the termination of the Employment Period and (ii) the amount of any
Annual Bonus otherwise payable to Executive pursuant to paragraph 3(b) above for
the fiscal year in which Executive's employment is terminated, except that the
amount of any such Annual Bonus otherwise payable pursuant to this paragraph
5(b) shall be pro rated on the basis of the number of days during such fiscal
year that Executive was employed by the Company.
(c) If the Employment Period is terminated as a result of Executive's
death, Executive and/or his estate or beneficiaries, as the case may be, shall
be entitled to receive benefits under the Company's employee benefit programs as
in effect on the date of as such termination to the extent permitted thereunder
and, in addition, shall be entitled to receive the amount of any Annual Bonus
otherwise payable to Executive pursuant to paragraph 3(b) above for the fiscal
year in which Executive's employment is terminated, except that the amount of
any such Annual Bonus otherwise payable pursuant to this paragraph 5(b) shall be
pro rated on the basis of the number of days during such fiscal year that
Executive was employed by the Company.
(d) If the Employment Period is terminated by the Company for Cause or
if Executive resigns for any reason, Executive shall be entitled to receive his
Base Salary through the date of termination and the Company shall have no
further liability whatsoever to Executive.
(e) Except as otherwise expressly provided herein or as expressly
required under Section 4980B of the Internal Revenue Code of 1986, as amended,
all of Executive's rights to fringe benefits and bonuses hereunder shall cease
upon termination of the Employment Period.
6. Confidential Information; Nonsolicitation.
(a) Executive agrees to execute on the date hereof and to be bound as
of the date hereof by the terms of the Company's form of confidentiality
agreement attached hereto as Exhibit A.
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(b) Executive agrees that until the date which is one year after the
termination of the Employment Period, he shall not directly, or indirectly
through another Person, (i) induce or attempt to induce any employee of the
Company or any of its Subsidiaries to leave the employ of the Company or such
Subsidiary, or in any way interfere with the relationship between the Company or
any of its Subsidiaries and any employee thereof, (ii) hire any person who was
an employee of the Company or any of its Subsidiaries at any time during the
180-day period immediately prior to the date on which such hiring would take
place (it being conclusively presumed by the Company and Executive so as to
avoid any disputes under this paragraph 6(b) that any such hiring within such
180-day period is in violation of clause (i) above), or (iii) call on, solicit
or service any customer, supplier, licensee, licensor or other business relation
of the Company or any of its Subsidiaries in order to induce or attempt to
induce such Person to cease doing business with the Company or such Subsidiary.
In addition, during the Employment Period and thereafter, Executive shall not in
any way interfere with the relationship between any such customer, supplier,
licensee or business relation and the Company or any of its Subsidiaries
(including making any negative statements or communications about the Company or
any of its Subsidiaries).
7. Company's Ownership of Intellectual Property.
(a) Executive acknowledges that all Work Product is the exclusive
property of the Company. Executive hereby assigns all right, total and interest
in and to such Work Product to the Company. Any copyrightable work prepared in
whole or part by Executive will be deemed "a work made for hire" under Section
201(b) of the 1976 Copyright Act, and the Company shall own all of the rights in
the copy right therein.
(b) The Company and Executive each acknowledge the applicability of
Section 2870 of the California Labor Code. Accordingly, the provisions of
paragraph 7(a) shall not apply to, and the term "Work Product" shall not
include, any invention that Executive developed entirely on his own time without
using the Company's equipment, supplies, facilities, or trade secret information
except those inventions that either: (i) relate at the time of conception or
reduction to practice of the invention to the Company's or any Subsidiary's
business, or to the actual or demonstrably anticipated research or development
of the Company or any Subsidiary; or (ii) result from any work performed by
Executive for the Company or any Subsidiary. Set forth on the attached "Excluded
Inventions Schedule" are the inventions Executive believes meet the criteria for
exclusion set forth above. Executive agrees to promptly advise the Company in
writing of any inventions developed after the Effective Date which Executive
believes meet the criteria for exclusion set forth above
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(c) Executive shall promptly and fully disclose all Work Product to the
Company and shall cooperate and perform all actions reasonably requested by the
Company (whether during or after the Employment Period) to establish, conform
and protect the Company's right, title and interest in such Work Product.
without limiting the generality of the foregoing, Executive agrees to assist the
Company, at the Company's expense, to secure the Company's rights in the Work
Product in any and all countries, including the execution of all applications
and all other instruments and documents which the Company shall deem necessary
in order to apply for and obtain rights in such Work Product and in order to
assign and convey to the Company the sole and exclusive right, title and
interest in and to such Work Product. If the Company is unable because of
Executive's mental or physical incapacity or for any other reason (including
Executive's refusal to do so after request therefor is made by the Company) to
secure Executive's signature to apply for or to pursue any application for any
United States or foreign patents or copyright registrations covering Work
Product belonging to or assigned to the Company pursuant to paragraph 7(a)
above, then Executive hereby irrevocably designates and appoints the Company and
its duly authorized officers and agents as Executive's agent and attorney
in-fact to act for and in Executive's behalf and stead to execute and file any
such applications and to do all other lawfully permitted acts to further the
prosecution and issuance of patents or copyright registrations thereon with the
same legal force and effect as if executed by Executive. Executive agrees not to
apply for or pursue any applications of or any United States or of foreign
patents or copyright registrations covering any Work Product other than pursuant
to this paragraph in circumstances where such patents or copyright registrations
are or have been or are required to be assigned to the Company.
8. Delivery of Materials Upon Termination of Employment. As requested
by the Company upon the termination of Executive's employment with the Company
for any reason, Executive shall promptly deliver to the Company all copies and
embodiments, in whatever form, of all Confidential Information and Work Product
in Executive's possession or within his control irrespective of the location or
form of such material and, if requested by the Company, shall provide the
Company with written confirmation that all such materials delivered to the
Company.
9. Subsequent Inventions. Executive understand and agrees that all
Intellectual Property Rights made, conceived, developed, or reduced to practice
by Executive, either alone or jointly with others, shall be disclosed to the
Company by Executive for six (6) months following the termination of the
Employment Period. Employee further agrees that all Intellectual Property Rights
made, conceived, developed or reduced to practice within six (6) months
following such termination shall be presumed to have been conceived during
Executive's employment with the Company and with the use of the Company's
Confidential Information, but such presumption may be overcome by Executive by a
showing that such Intellectual Property Rights were conceived after the
Employment Period and without the use of any such Confidential Information. In
the event Executive is not able to rebut such presumption and prove that such
Intellectual Property Rights were conceived after the Employment Period and
without the use of Confidential Information, Executive agrees to assign all
right, title and interest in such Intellectual Property Rights to the Company.
-6-
<PAGE>
10. Disclosure. Following the termination of the Employment Period,
Executive shall communicate the restrictions contained in this Agreement to any
Person intends to be employed by, provide consulting services to or otherwise
represent. Executive hereby consents to the Company's communication of the
restrictions contained in this Agreement to any such Person.
11. Enforcement; Remedies.
(a) If, at the time of enforcement of the covenants contained in
paragraphs 6, 7, 8, 9 or 10 (the "Protective Covenants"), a court shall hold
that the duration or scope stated therein are unreasonable under circumstances
then existing, the parties hereto agree that the maximum duration or scope
reasonable under such circumstances shall be substituted of the stated duration
or scope and that the court shall be allowed to revise the restrictions therein
to cover the maximum period or scope permitted by law. Executive has consulted
legal counsel regarding the Protective Covenants an based on such consultation
has determined and hereby acknowledges that the Protective Covenants are
reasonable in terms of duration and scope and are necessary to protect the
goodwill of the Company's business and the Confidential Information. Executive
future agrees that the Protective Covenants were a material to certain investors
of the Company to enter into the Merger Agreement and consummate the
transactions contemplated thereby, and such investors would not obtain the
benefit of the bargain as set forth in the Merger Agreement and the other
agreements contemplated thereby if Executive breached or challenged the validity
of any of the Protective Covenants.
(b) If Executive breaches, o threatens to commit a breach of, any of
the Protective Covenants, the Company shall have following rights and remedies,
each of which rights and remedies shall be independent of the others and
severally enforceable, and each of which is in addition to, and not in lieu of,
any other rights and remedies available to the Company at law or in equity:
(i) the right and remedy to have the Protective Covenants
specifically enforced by any court of competent jurisdiction (without
the need to post a bond or other security), it being agreed that breach
or threatened breach of the Protective Covenants would cause
irreparable injury to the Company and that money damages would not
provide an adequate remedy to the Company; and
(ii) the right and remedy to require Executive to account for
and pay over to the Company any profits, monies, accruals, increments
or other benefits derived or received by Executive as the result of any
transaction(s) constituting a breach of the Protective Covenants.
(c) In the event of nay breach or violation or violation by Executive
of any of the Protective Covenants, the time period of such covenant with
respect to Executive (to the extent such covenant is limited in duration) shall
be tolled until such breach or violation is resolved.
-7-
<PAGE>
12. Loss of Severance due to Competition.
(a) The Executive shall not during the Employment Period and during the
period Executive is receiving any Severance Payment pursuant to paragraph 5(a)
(the "Noncompete Period"), for himself or on behalf of any other person, firm,
partnership, corporation, or other entity, engage, directly or indirectly,
either as an officer, employee, partner, consultant, individual proprietor,
agent, or otherwise (including, but not limited to, as an owner or shareholder),
in any business which (A) provides telecommunication services of the type
provided during the Employment Period by the Company and any of its Subsidiaries
(including, without limitation, (i) switched local service, (ii) switched
long-distance service, (iii) dedicated transport services, (iv) co-locate and
interconnect services and (v) data switched services and including, without
limitation, telecommunication services of the type provided by the Company and
any of its Subsidiaries to information service providers) or (B) provides
services of the type which the Company and any of its subsidiaries have taken
significant actions during the Employment Period to begin providing or of the
type the Company or any of its Subsidiaries have indicated that they plan to
begin providing in any business plan or similar document delivered to Executive
during the Employment Period, in each case within any of the Restricted
Territories (as defined below); provided that the restrictions set forth in this
paragraph 12 shall not prohibit Executive 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 restrictions set forth in this paragraph
12 shall not restrict the activities of Executive to the extent Executive has
received the consent of the Board to such activities; and provided further that
the restrictions set forth in this paragraph 12 shall not restrict the
activities of Executive with respect to his passive ownership of Utility
Telephone, Inc. ("UTI") for as long as UTI does not directly compete with the
Company.
(b) For purposes of this Agreement, "Restricted Territories" shall mean
(i) the counties (or similar jurisdictions) in the states of 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 and (ii) any other jurisdictions which the Company or
its Subsidiaries are engaged in business during the Employment Period or have
taken significant actions to begin engaging in business during the Employment
Period. Executive acknowledges that the business of the Company is contemplated
in the jurisdictions set forth in subparagraph 12(b)(i) (including as the same
relates to the production, promotion, marketing and sale of its products and
services), and that the geographic restrictions set forth above are reasonable
and necessary to protect the goodwill of the Company's business.
(c) If Executive breaches any of the provisions of this paragraph 12,
Executive and the Company acknowledge an agree that the Company's sole remedy
for such breach shall be termination of the Severance Payments otherwise payable
to Executive pursuant to paragraph 5(a) hereof.
-8-
<PAGE>
13. Executive's Representations. Executive hereby represents and
warrants to the Company that (a) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order judgment or
decree to which Executive is a party or by which he is bound, (b) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity, and (c) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that he has consulted
with independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
14. Definitions.
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Cause" means (A) Executive's theft or embezzlement, or attempted theft
or embezzlement, of money or property of the Company or any of its Affiliates,
Executive's perpetration or attempted perpetration of fraud, or Executive's
participation in a fraud or attempted fraud, on the Company or nay of its
Affiliates or Executive's appropriation of, or Executive's attempt to
misappropriate, any tangible or intangible assets or property of the Company or
any of its Affiliates; (B) Executive's conviction for commission of a felony or
conviction for any crime involving acts which tend or offend community moral
standards or public decency or that materially and adversely affect the
reputation or business activities of the Company or its Affiliates; (C)
Executive's substance abuse, including abuse of alcohol or use of illegal
narcotics, or other illegal drugs or substances, for which Executive fails to
undertake and maintain treatment within 15 days after requested by the
Corporation; (D) Executive's refusal to carry out the lawful instructions of the
Company's Chief Executive Officer or Executive Vice President Technology and
Network Operations following receipt of written notice of such instructions from
the Chief Executive Officer; or (E) Executive's material breach of any provision
of this Agreement which is incapable of cure or which is not cured within 15
days after written notice thereof to Executive.
"Confidential Information" means all information of a confidential or
proprietary nature (whether or not specifically labeled or identified as
"confidential"), in any form or medium, that is or was disclosed to, or
developed or learned by, Executive in connection with Executive's prior
relationship with the Company or during the Employment Period and that relates
to the business, products, services, research or development of the Company or
its suppliers, distributors or customers. Confidential Information includes but
is not limited to the following: (i) internal business information (including
information relating to strategic and staffing plans and practices, business,
training, marketing, promotional and sales plans and practices, cost, rate and
pricing
-9-
<PAGE>
structures and accounting and business methods); (ii) identifies of, individual
requirements of, specific contractual arrangements with, and information about,
the Company's suppliers, distributors and customers and their confidential
information; (iii) trade secrets, know-how, compilations of data and analyses,
techniques, systems, formulae, research, records, reports, manuals,
documentation, models, data and data bases relating thereto; and (iv)
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and similar or related information (whether or not
patentable). Confidential Information shall not include information that
Executive can demonstrate: (a) is publicly known through no wrongful act or
breach of obligation of confidentiality; (b) was lawfully known to Executive
prior to the time Executive began rendering services to the Company and its
predecessors; or (c) was rightfully received by Executive from a third party
without a breach of any obligation of confidentiality by such third party.
"Disability" means the inability, due to illness, accident, injury,
physical or mental incapacity or other disability, of Executive to carry out
effectively his duties and obligations to the Company or to participate
effectively and actively in the management of the Company for a period of at
least 120 consecutive days or for shorter periods aggregating at least 180 days
(whether or not consecutive) during any twelve-month period, as determined in
the reasonable good faith judgment of the Board.
"Intellectual Property Rights" means all inventions, innovations,
improvements, developments, methods, processes, designs, analyses, drawings,
reports and all similar or related information (whether or not patentable or
reduced to practice) and any copyrightable work, trade mark, trade secret or
other intellectual property rights which relate to the Company's or any of its
Subsidiaries' actual or anticipated business.
"Merger Agreement" means that certain Agreement and Plan of Merger,
dated as of the date therefore, by and among the Company, Executive and other
parties signatory thereto, as amended and modified from time to time in
accordance with its terms.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
trust, a joint venture, an unincorporated organization and a governmental entity
or any department, agency or political subdivision thereof.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof of at the time owned or
controlled, directly or indirectly, by the Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or similar interest thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more Subsidiaries
of that Person or a combination thereof. For purposes hereof, a Person or
Persons shall be deemed to have a majority ownership interest in a limited
liability company, partnership, association or other
-10-
<PAGE>
business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity.
"Work Product" means all inventions, innovations, improvements,
developments, methods, processes, designs, analyses, drawings, reports, research
and development of existing or future products or services which were or are
conceived, reduced to practice, contributed to or developed or made by Executive
(whether alone or jointly with others) while employed (both before and after the
Effective Date) by the Company (or its predecessors, successors or assigns) and
its Subsidiaries and all similar or related information (whether or not
patentable or reduced to practice) and any copyrightable work, trade mark, trade
secret or other intellectual property rights, any of which relate to the
Company's or any of its Subsidiaries' actual or anticipated business.
15. Survival. The provisions set forth in paragraphs 5 through 24 of
this Agreement shall survive and continue in full force and effect in accordance
with their terms notwithstanding any termination of the Employment Period.
16. Notices. Any notice provided for this Agreement shall be deemed to
have been given when delivered personally to the recipient, sent to the
recipient by reputable express courier (charge prepaid), telecopied (with hard
copy to follow) or mailed to the recipient by certified or registered mail,
return mail, return receipt requested and postage prepaid. Such notice will be
sent to Executive or to the Company at the address set forth below:
Notices to Executive:
---------------------
Jason Mills
8120 Heather Drive
Stockton, CA 95209
Telephone: (209) 926-3343 Office
Facsimile: (209) 926-3205
Notices to the Company:
-----------------------
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, CA 95204
Attention: President
Telephone: (209) 926-3222
Facsimile: (209) 926-3205
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<PAGE>
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
-12-
<PAGE>
17. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as is such invalid,
illegal or unenforceable provisions had never been contained herein. The
Executive acknowledges and agrees that the covenants and agreements set forth in
this agreement were a material inducement to certain investors of the Company to
enter into a Merger Agreement and consummate the transactions contemplated
thereby, and such investors would not obtain the benefit of their bargain as set
forth in the Merger Agreement and the other agreements contemplated thereby as
specifically negotiated by the investors if Executive breached or challenged any
of the provisions of this Agreement. Therefore, notwithstanding anything to the
contrary expressed or implied in this paragraph 17 or elsewhere in this
Agreement, the Executive unconditionally covenants and agrees that Executive
will not directly or indirectly challenge the validity, legality or
enforceability of any provision of this Agreement.
18. Complete Agreement. This Agreement and the Merger Agreement embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
19. No Strict Construction. The language use in this Agreement shall
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party. The use of the word "including" herein shall mean "including without
limitation."
20. Counterparts. This Agreement may be executed in separate
counterparts (including by means of telecopies signature pages), each of which
is deemed to be an original and all of which taken together constitute one and
the same agreement.
21. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by Executive, the Company and
their respective heirs, successors and assigns, except that Executive may not
assign his rights or delegate his obligations hereunder without prior written
connect of the Company.
22. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and any
schedules shall be governed by, and construed in accordance with, the laws of
the State of California, without giving effect to any choice of law or conflict
of law rules or provisions (whether of the State of California or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of California.
-13-
<PAGE>
23. Consent to Personal Jurisdiction. Executive hereby expressly
consents to the nonexclusive personal jurisdiction and venue of the state and
federal courts located in the federal Northern District of California for any
lawsuit filed against Executive by the Company arising from or relating to this
Agreement.
24. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
* * * * * *
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on the date first written above.
PAC-WEST TELECOMM, INC.
By: /s/ Wallace W. Griffin
----------------------------
Name: Wallace W. Griffin
--------------------------
Its: President & CEO
---------------------------
By:
----------------------------
Name:
--------------------------
Its:
---------------------------
/s/ JASON MILLS 9/14/98
-------------------------------
JASON MILLS
-15-
<PAGE>
EXCLUDED INVENTIONS SCHEDULE
----------------------------
None.
-16-
<PAGE>
EXHIBIT 10.12
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement ("Agreement") is made between Pac-West Telecomm,
Inc. ("Company") and John K. LaRue ("Employee").
1. Confidential Information
Pac-West Telecomm will disclose certain confidential and proprietary
information ("Confidential Information") to Employee. Confidential
Information shall include any data, materials, products, technology,
computer programs, specifications, manuals, software, marketing plans,
business plans, financial information, customer lists, customer files,
promotional materials, employee information, and other information
disclosed or submitted, orally, in writing, or by any other media, to
Employee by Company. In addition, any analyses, compilations, studies,
data, information, documents or materials (collectively called "Work
Product") prepared by Employee for or on behalf of the Company shall be
deemed to be proprietary and Confidential Information.
2. Employee's Obligations:
A. Employee agrees that the Confidential Information is to be considered
confidential and proprietary to Company, and Employee shall hold the
same in confidence, shall not use the confidential Information other
than for the purposes of his business with the Company, and shall
disclose it only to its officers, directors, employees, customers,
suppliers, or other outside parties with a specific need to know for
purposes of Pac-West business operations and as required for Employee
to perform his assigned responsibilities. With the exception of the
aforementioned, Employee will not disclose, publish or otherwise
reveal any of the Confidential Information received from Company to
any party whatsoever except with the specific prior written
authorization of the Chief Executive Officer of the Company.
B. Confidential Information furnished in tangible form shall not be
duplicated by Employee except for purposes of this Agreement. Upon the
request of Company, Employee shall return all Confidential
Information, including all Work Product, received or produced in
written or tangible form, including copies, or reproductions or other
media containing such confidential Information.
3. Terms:
The obligations of Employee herein shall be effective for the longer of
three years from the Effective Date of Employee's employment agreement with
the Company (as defined therein) or the actual duration of Employee's
employment if such employment extends beyond three years from the Effective
Date.
4. Governing Law and Equitable Relief:
This Agreement shall be governed and construed in accordance with the laws
of the State of California. Jurisdiction and venue in any action to enforce
the terms of this agreement and the obligations created hereunder shall be
deemed to have been made in and to be fully performed in San Joaquin
County, California. Employee agrees that in the event of any breach or
threatened breach by Employee, Company may obtain, in addition to any other
legal remedies which may be available, restraining orders and such
equitable relief as may be necessary to protect Company against any such
breach or threatened breach.
5. Separations:
All Confidential Information furnished to Employee will be returned to
Company upon separation from the Company.
6. Entire Agreement:
This Agreement may not be modified except by written agreement signed by
both parties.
Employee
By: /s/ John K. LaRue Date: 9/16/98
------------------------------- -----------------
Social Security # ###-##-####
-----------------
Pac-West Telecomm, Inc.
By: /s/ W. W. Griffin Date: 9/16/98
------------------------------- -----------------
Title: President
----------------------------
<PAGE>
Exhibit 10.13
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement "("Agreement") is made between Pac-West Telecomm,
Inc. ("Company" or "Pac-West") and Wallace W. Griffin ("Executive").
1. Confidential Information
Pac-West Telecomm will disclose certain confidential and proprietary
information ("Confidential Information") to Executive. Confidential
Information shall include any data, materials, products, technology,
computer programs, specifications, manuals, software, marketing plans,
business plans, financial information, customer lists, customer files,
promotional materials, employee information, and other information
disclosed or submitted, orally, in writing, or by any other media, to
Executive by Company. In addition, any analyses, compilations, studies,
data, information, documents or materials (collectively called "Work
Product") prepared by Executive for or on behalf of the Company shall be
deemed to be proprietary and Confidential Information.
2. Executive's Obligations:
A. Executive agrees that the Confidential Information is to be considered
confidential and proprietary to Company, and Executive shall hold the
same in confidence, shall not use the Confidential Information other
than for the purposes of his business with Company, and shall disclose
it only to Company's officers, directors, employees, customers,
suppliers, or other outside parties with a specific need to know for
purposes of Pac-West business operations and as required for Executive
to perform his assigned responsibilities. With the exception of the
aforementioned, Executive will not disclose publish or otherwise
reveal any of the Confidential Information received from Company to
any party whatsoever except with the specific prior written
authorization of the Company's chief executive officer.
B. Confidential Information furnished in tangible form shall not be
duplicated by Executive except for purposes of this Agreement. Upon
the request of Company, Executive shall return all Confidential
Information, including all Work Product, received or produced in
written or tangible form, including copies, or reproductions or other
media containing such Confidential Information.
3. Terms:
The obligations of Executive herein shall be effective during Executive's
employment and for three years after the date of separation from the
Company.
4. Governing Law and Equitable Relief:
This Agreement shall be governed and construed in accordance with the laws
of the State of California. Jurisdiction and venue in any action to enforce
the terms of this agreement and the obligations created hereunder shall be
deemed to have been made in and to be fully performed in San Joaquin
County, California. Executive agrees that in the event of any breach or
threatened breach by Executive, Company may obtain, in addition to any
other legal remedies which may be available, restraining orders and such
equitable relief as may be necessary to protect Company against any such
breach or threatened breach.
5. Separations:
All Confidential Information furnished to Executive will be returned to
Company upon separation from the Company.
6. Entire Agreement:
This Agreement may not be modified except by written agreement signed by
both parties.
Executive
By: /s/ Wallace W. Griffin Date: September 16, 1998
--------------------------- ---------------------------
Pac-West Telecomm
By: /s/ John K. LaRue Date: September 16, 1998
--------------------------- ---------------------------
Title: EVP
------------------------
<PAGE>
Exhibit 10.14
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement "("Agreement") is made between Pac-West Telecomm,
Inc. ("Company" or "Pac-West") and Richard Bryson ("Executive").
1. Confidential Information
Pac-West Telecomm will disclose certain confidential and proprietary
information ("Confidential Information") to Executive. Confidential
Information shall include any data, materials, products, technology,
computer programs, specifications, manuals, software, marketing plans,
business plans, financial information, customer lists, customer files,
promotional materials, employee information, and other information
disclosed or submitted, orally, in writing, or by any other media, to
Executive by Company. In addition, any analyses, compilations, studies,
data, information, documents or materials (collectively called "Work
Product") prepared by Executive for or on behalf of the Company shall be
deemed to be proprietary and Confidential Information.
2. Executive's Obligations:
A. Executive agrees that the Confidential Information is to be considered
confidential and proprietary to Company, and Executive shall hold the
same in confidence, shall not use the Confidential Information other
than for the purposes of his business with Company, and shall disclose
it only to Company's officers, directors, employees, customers,
suppliers, or other outside parties with a specific need to know for
purposes of Pac-West business operations and as required for Executive
to perform his assigned responsibilities. With the exception of the
aforementioned, Executive will not disclose publish or otherwise
reveal any of the Confidential Information received from Company to
any party whatsoever except with the specific prior written
authorization of the Company's chief executive officer.
B. Confidential Information furnished in tangible form shall not be
duplicated by Executive except for purposes of this Agreement. Upon
the request of Company, Executive shall return all Confidential
Information, including all Work Product, received or produced in
written or tangible form, including copies, or reproductions or other
media containing such Confidential Information.
3. Terms:
The obligations of Executive herein shall be effective during Executive's
employment and for three years after the date of separation from the
Company.
4. Governing Law and Equitable Relief:
This Agreement shall be governed and construed in accordance with the laws
of the State of California. Jurisdiction and venue in any action to enforce
the terms of this agreement and the obligations created hereunder shall be
deemed to have been made in and to be fully performed in San Joaquin
County, California. Executive agrees that in the event of any breach or
threatened breach by Executive, Company may obtain, in addition to any
other legal remedies which may be available, restraining orders and such
equitable relief as may be necessary to protect Company against any such
breach or threatened breach.
5. Separations:
All Confidential Information furnished to Executive will be returned to
Company upon separation from the Company.
6. Entire Agreement:
This Agreement may not be modified except by written agreement signed by
both parties.
Executive
By: /s/ Richard Bryson Date: October 30, 1998
--------------------------- ---------------------------
Pac-West Telecomm
By: /s/ Wallace W. Griffin Date: October 30, 1998
--------------------------- ---------------------------
Title: President and Chief
Executive Officer
------------------------
<PAGE>
Exhibit 10.15
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement "("Agreement") is made between Pac-West Telecomm,
Inc. ("Company" or "Pac-West") and Dennis V. Meyer ("Executive").
1. Confidential Information
Pac-West Telecomm will disclose certain confidential and proprietary
information ("Confidential Information") to Executive. Confidential
Information shall include any data, materials, products, technology,
computer programs, specifications, manuals, software, marketing plans,
business plans, financial information, customer lists, customer files,
promotional materials, employee information, and other information
disclosed or submitted, orally, in writing, or by any other media, to
Executive by Company. In addition, any analyses, compilations, studies,
data, information, documents or materials (collectively called "Work
Product") prepared by Executive for or on behalf of the Company shall
be deemed to be proprietary and Confidential Information.
2. Executive's Obligations:
A. Executive agrees that the Confidential Information is to be
considered confidential and proprietary to Company, and
Executive shall hold the same in confidence, shall not use the
Confidential Information other than for the purposes of his
business with Company, and shall disclose it only to Company's
officers, directors, employees, customers, suppliers, or other
outside parties with a specific need to know for purposes of
Pac-West business operations and as required for Executive to
perform his assigned responsibilities. With the exception of
the aforementioned, Executive will not disclose publish or
otherwise reveal any of the Confidential Information received
from Company to any party whatsoever except with the specific
prior written authorization of the Company's chief executive
officer.
B. Confidential Information furnished in tangible form shall not
be duplicated by Executive except for purposes of this
Agreement. Upon the request of Company, Executive shall return
all Confidential Information, including all Work Product,
received or produced in written or tangible form, including
copies, or reproductions or other media containing such
Confidential Information.
3. Terms:
The obligations of Executive herein shall be effective during
Executive's employment and for three years after the date of separation
from the Company.
4. Governing Law and Equitable Relief:
This Agreement shall be governed and construed in accordance with the
laws of the State of California. Jurisdiction and venue in any action
to enforce the terms of this agreement and the obligations created
hereunder shall be deemed to have been made in and to be fully
performed in San Joaquin County, California. Executive agrees that in
the event of any breach or threatened breach by Executive, Company may
obtain, in addition to any other legal remedies which may be available,
restraining orders and such equitable relief as may be necessary to
protect Company against any such breach or threatened breach.
5. Separations:
All Confidential Information furnished to Executive will be returned to
Company upon separation from the Company.
6. Entire Agreement:
This Agreement may not be modified except by written agreement signed
by both parties.
Executive
By: /s/ Dennis V. Meyer Date: October 22, 1998
--------------------------- ---------------------------
Social Security #: ###-##-####
------------
Pac-West Telecomm
By: /s/ Wallace W. Griffin Date: October 22, 1998
--------------------------- ---------------------------
Title: President and Chief
Executive Officer
------------------------
-1-
<PAGE>
Exhibit 10.16
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement "("Agreement") is made between Pac-West Telecomm,
Inc. ("Company" or "Pac-West") and Jason Mills ("Executive").
1. Confidential Information
Pac-West Telecomm will disclose certain confidential and proprietary
information ("Confidential Information") to Executive. Confidential
Information shall include any data, materials, products, technology,
computer programs, specifications, manuals, software, marketing plans,
business plans, financial information, customer lists, customer files,
promotional materials, employee information, and other information
disclosed or submitted, orally, in writing, or by any other media, to
Executive by Company. In addition, any analyses, compilations, studies,
data, information, documents or materials (collectively called "Work
Product") prepared by Executive for or on behalf of the Company shall
be deemed to be proprietary and Confidential Information.
2. Executive's Obligations:
A. Executive agrees that the Confidential Information is to be
considered confidential and proprietary to Company, and
Executive shall hold the same in confidence, shall not use the
Confidential Information other than for the purposes of his
business with Company, and shall disclose it only to Company's
officers, directors, employees, customers, suppliers, or other
outside parties with a specific need to know for purposes of
Pac-West business operations and as required for Executive to
perform his assigned responsibilities. With the exception of
the aforementioned, Executive will not disclose publish or
otherwise reveal any of the Confidential Information received
from Company to any party whatsoever except with the specific
prior written authorization of the Company's chief executive
officer.
B. Confidential Information furnished in tangible form shall not
be duplicated by Executive except for purposes of this
Agreement. Upon the request of Company, Executive shall return
all Confidential Information, including all Work Product,
received or produced in written or tangible form, including
copies, or reproductions or other media containing such
Confidential Information.
3. Terms:
The obligations of Executive herein shall be effective during
Executive's employment and for three years after the date of separation
from the Company.
4. Governing Law and Equitable Relief:
This Agreement shall be governed and construed in accordance with the
laws of the State of California. Jurisdiction and venue in any action
to enforce the terms of this agreement and the obligations created
hereunder shall be deemed to have been made in and to be fully
performed in San Joaquin County, California. Executive agrees that in
the event of any breach or threatened breach by Executive, Company may
obtain, in addition to any other legal remedies which may be available,
restraining orders and such equitable relief as may be necessary to
protect Company against any such breach or threatened breach.
5. Separations:
All Confidential Information furnished to Executive will be returned to
Company upon separation from the Company.
6. Entire Agreement:
This Agreement may not be modified except by written agreement signed
by both parties.
Executive
By: /s/ Jason W. Mills Date: September 14, 1998
--------------------------- ---------------------------
Social Security #: ###-##-####
------------
Pac-West Telecomm
By: /s/ Wallace W. Griffin Date: September 16, 1998
--------------------------- ---------------------------
Title: President and Chief
Executive Officer
------------------------
-1-
<PAGE>
Exhibit 10.17
STANDARD INDUSTRIAL LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Parties. This Lease, dated for reference purposes only, June 23, 1995, is
made by and between Geremia Brothers (herein called "Lessor") and Pac-West
Telecomm, Inc. a California Corporation (herein called "Lessee").
2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of San Joaquin State of California
commonly known as 4202 and 4210 Coronado Avenue and described as a 6,000 square
foot freestanding office building and a 27,000 square foot multi-tenant Business
Park. Said real property including the land and all improvements therein, is
herein called "the Premises".
3. Term.
3.1 Term. The term of this Lease shall be for See rent schedule
commencing on July 1, 1995 and ending on June 30, 2001 unless sooner terminated
pursuant to any provision hereof.
3.2 Delay in Possession. Notwithstanding said commencement date. If for
any reason Lessor cannot deliver of the Premises to Lessee on said date. Lessor
shall not be subject to any liability therefor, nor shall such failure affect
the validity of this Lease of the obligations of Lessee hereunder of extend the
term hereof, but in such case. Lessee shall not be obligated to pay rent until
possession of the Premises is tendered to Lessee; provided, however, that if
Lessor shall not have delivered possession of the Premises within sixty (60)
days from said commencement date. Lessee may, at Lessee's option, by notice in
writing to Lessor within ten (10) days thereafter, cancel this Lease, in which
event the parties shall be discharged from all obligations hereunder; provided
further, however, that if such written notice of Lessee is not received by
Lessor within said ten (10) day period. Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect.
3.3 Early Possession. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. Rent. Lessee shall pay to Lessor as rent for the Premises, monthly payments
of $ See rent schedule, in advance, on the day of each month of the term hereof.
Lessee shall pay Lessor upon the execution here of $_________ as rent for
____________.
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment. Rent shall be payable in
lawful money of the United States to Lessor at the address stated herein or to
such other persons or at such other places as Lessor may designate in writing.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof $N/A
as security for Lessee's faithful performance of Lessee's obligations hereunder.
If Lessee fails to pay rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this Lease. Lessor may use, apply or
retain all or any portion of said deposit for the payment of any rent or other
charge in default or for the payment of any other sum to which Lessor may become
obligated by reason of Lessee's default, or to compensate Lessor for any loss or
damage which Lessor may suffer thereby. If Lessor so uses or applies all or any
portion of said deposit, Lessee shall within ten (10) days after written demand
therefor deposit cash with Lessor in an amount sufficient to restore said
deposit to the full amount herein above stated and Lessee's failure to do so
shall be a material breach of this Lease. If the monthly rent shall, from time
to time, increase during the term of this Lease, Lessee can thereupon deposit
with Lessor addition security deposit so that the amount of security deposit
held by Lessor shall at all times bear the same proportion to current rent as
the original security deposit bears to the original monthly rent set forth in
paragraph 4 hereof Lessor shall not be required to keep said deposit separate
from its general accounts. If Lessee performs all of Lessee's obligations
hereunder said deposit or so much thereof as has not theretofore been applied by
Lessor, shall be returned, without payment of interest or other increment for
its use to Lessee (or at Lessor's option to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein between
Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for general
office purposes and uses associated with telecommunications, paging service,
storage, repair, sales and rental of electrical equipment or any other use which
is reasonably comparable and for no other purposes.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the date that the Lease term commences but without regard to the use
for which Lessee will use the Premises, does not violate any covenants or
restrictions of record or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly at Lessor's sole cost and
expense rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences. The correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2
(a) shall be of no force or effect if, prior to the date of this Lease, Lessee
was the owner or occupant of the Premises and in such event, Lessee shall
correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at
Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules regulations order's covenants and restrictions of record, and requirements
in effect during the term or any part of the term hereof regulating the use by
Lessee of the Premises. Lessee shall not use nor permit the use of the Premises
in any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant in the building containing the Premises, shall tend to
disturb such other tenants.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free
of debris on Lease commencement date (unless Lessee is already in possession)
and Lessor further warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated then it shall be the obligation
of Lessor, after receipt of written notice from Lessee setting forth with
specificity the nature of the violation to promptly, at Lessor's sole cost,
rectify such violation. Lessee's failure to give such written notice to Lessor
within thirty (30) days after the Lease commencement date shall cause the
conclusive presumption that Lessor has complied with all of Lessor's obligations
hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force
or effect if prior to the date of this Lease, Lessee was the owner or occupant
of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any covenants or restrictions of record and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. Maintenance, Repairs and Alternations.
7.1 Lessor's Obligations. Subject to the provisions of Paragraphs 6,
7.2 and 9 and except for damage caused by any negligent or intentional omission
of Lessee, Lessee's agents, employees, or invitees in which event Lessee shall
repair the damage. Lessor, at Lessor's expense shall keep in good order,
condition and repair the foundations, exterior walls and the exterior roof of
the Premises. Lessor shall not, however, be obligated to paint such exterior,
nor shall Lessor be required to maintain the interior surface of exterior walls,
windows, doors or plate glass. Lessor shall have no obligation to make repairs
under this Paragraph 7.1 until a reasonable time after receipt of written notice
of the need for such repairs. Lessee expressly waives the benefits of any
statute now or hereafter in effect which would otherwise afford Lessee the right
to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep Premises in good order condition and repair.
7.2 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 6, 7.1 and 9
Lessee, at Lessee's expense, shall keep in good order, condition and repair the
Premises and every part thereof (whether or not the damaged portion of the
Premises or the means of repairing the same are reasonably or readily accessible
to Lessee) including, without limiting the generality of the foregoing, all
plumbing, heating, air conditioning. (Lessee shall procure and act or
<PAGE>
maintain, at Lessee's expense, an air conditioning system maintenance contract)
ventilating electrical and lighting facilities and equipment within the
Premises, fixtures, interior walls and interior surface of exterior walls,
ceilings, windows, doors, plate glass, and skylights, located within the
Premises.
(b) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor's
option enter upon the Premises after 10 days prior written notice to Lesser
(except in the case of emergency, in which case no notice shall be required),
perform such obligations on Lessee's behalf and put the Premises in good order,
condition and repair, and the cost thereof together with interest thereon at the
maximum rate then allowable by law shall be due and payable as additional rent
to Lessor together with Lessee's next rental installment.
(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of its trade fixtures, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the premises in good
operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent
made any alterations, improvements, additions, or Utility Installations in, on
or about the Premises, except for nonstructural alterations not exceeding $2,500
in cumulative costs during the term of this Lease. In any event, whether or not
in excess of $2,500 in cumulative cost, Lessee shall made no change or
alteration to the exterior of the Premises nor the exterior of the building(s)
on the Premises without Lessor's prior written consent. As used in this
Paragraph 7.3 the term "Utility Installation" shall mean carpeting, window
coverings, air lines, power panels, electrical distribution systems, lighting
fixtures, space heaters, air conditioning, plumbing and fencing. Lessor may
require that Lessee remove any or all of said alterations, improvements,
additions or Utility Installations at the expiration of the term, and restore
the Premises to their prior condition. Lessor may require Lessee to provide
Lessor, at Lessee's sole cost and expense a lien and completion bond in an
amount equal to one-half times the estimated cost of such improvements to insure
Lessor against any liability for mechanic's and materialmen's liens and to
insure completion of the work. Should Lessee make any alterations, improvements,
additions or Utility Installations without the prior approval of Lessor, Lessor
may require that Lessee remove any or all of the same.
(b) Any alternations, improvements, additions or Utility
Installations in, or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in written
form, with proposed detailed plans. If Lessor shall give its consent, the
consent shall be deemed conditioned upon Lessee acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy thereof to Lessor
prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanics or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien of claim. In addition, Lessor may require Lessee to
pay Lessor's attorneys fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in
Paragraph 7.3(a), all alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall become the
property of Lessor and remain upon and be surrendered with the Premises at the
expiration of the term. Notwithstanding the provisions of this Paragraph 7.3(d),
Lessee's machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the Premises,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of Paragraph 7.2(c).
8. Insurance; Indemnity.
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Combined
Single Limit Bodily Injury and Property Damage Insurance Insuring Lessee and
Lessor against any liability arising out of the user occupancy or maintenance of
the Premises and all other areas appurtenant thereto. Such Insurance shall be in
an amount not less than $500,000 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this Paragraph 8. The
limits of said insurance shall not, however, limit the liability of Lessee
hereunder.
8.2. Liability Insurance - Lessor. Lessor shall obtain and keep in
force during the term of this Lease a policy of Combined Single Limit Bodily
Injury and Property Damage Insurance, insuring Lessor, but not Lessee, against
any liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto in an amount not less than $500,000
per occurrence.
8.3 Property Insurance. Lessor shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Premises, but not Lessee's fixtures, equipment or tenant improvements in
an amount not to exceed the full replacement value thereof, as the same may
exist from time to time, providing protection against all perils included within
the classification of fire, extended coverage , vandalism, malicious mischief,
flood (in the event same is required by a lender having a lien on the Premises)
special extended perils ("all risk", as such term is used in the insurance
industry) but not plate glass insurance.
8.4 [PAYMENT OF PREMIUM INCREASE DELETED]
(A) [DELETED]
(B) [DELETED]
(C) [DELETED]
8.5 Insurance Policies. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide". Lessee shall
deliver to Lessor copies of policies of liability insurance required under
Paragraph 8.1 or certificates evidencing the existence and amounts of such
insurance. No such policy shall be cancelable or subject to reduction of
coverage or other modification except after thirty (30) days' prior written
notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with renewals or "binders" thereof,
or Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee upon demand. Lessee shall not do or permit to
be done anything which shall invalidate the insurance policies referred to in
Paragraph 8.3.
8.6 [DELETED]
8.7 [SIDELINE TEXT CUT OFF]
Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon, and in case any action or proceeding be brought against Lessor by
reason of any such claim. Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that
Lessor's all not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee. Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee.
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam electricity, gas, water or rain or from
the breakage, leakage, obstruction of other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
-2-
<PAGE>
9. Damage of Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is less than
50% of the fair market value of the premises immediately prior to such damage or
destruction. "Premises Building Partial Damage" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is less than 50% of the fair market value of such building as
a whole immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repairs is 50% or
more of the fair market value of the Premises immediately prior to such damage
destruction. "Premises Building Total Destruction" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is 50% or more of the fair market value of such building as a
whole immediately prior to such damage or destruction.
(c) "Insured Loss" shall herein mean damage or destruction
which was caused by an event required to be covered by the insurance described
in paragraph 8.
9.2 Partial Damage - Insured Loss. Subject to the provisions of
paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is an insured Loss and which falls into the classification of
Premises Partial Damage or Premises Building Partial Damage, then Lessor shall,
at Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment
or tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect.
9.3 Partial Damage - Uninsured Loss. Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is not an Insured Loss and which falls within the classification
of Premises Partial Damage or Premises Building Partial Damage, unless caused by
a negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense). Lessor may at Lessor's option either (i) repair
such damage as soon as reasonably possible at Lessor's expense in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease, as of the date
of the occurrence of such damage. In the event Lessor elects to give such notice
of Lessor's intention to cancel and terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possible. If Lessee does not give such notice within such
10-day period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.4 Total Destruction. If at any time during the term of this Lease
there is damage, whether or not an Insured Loss, (including destruction required
by any authorized public authority), which falls into the classification of
Premises Total Destruction or Premises Building Total Destruction, this Lease
shall automatically terminate as of the date of such total destruction.
9.5 Damage Near End of Term.
(a) If at any time during the last six months of the term of
this Lease there is damage, whether or not an Insured Loss, which falls within
the classification of Premises Partial Damage, Lessor may at Lessor's option
cancel and terminate this Lease as of the date of occurrence of such damage by
giving written notice to Lessee of Lessor's election to do so within 30 days
after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than 20 days after the occurrence of
an Insured Loss falling within the classification of Premise Partial Damage
during the last six months of the term of this Lease. If Lessee duly exercises
such option during said 20 day period, Lessor shall, at Lessor's expense, repair
such damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option during said 20 day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said 20 day period by giving written notice to Lessee of
Lessor's election to do so within 10 days after the expiration of said 20 day
period, notwithstanding any term or provision in the grant of option to the
contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in paragraph 9.2 or 9.3,
and Lessor or Lessee repairs or restores the Premises pursuant to the provisions
of this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of rent, if any, and except as provided for in other provisions of this lease,
Lessee shall have no claim against Lessor for any damage suffered by reason of
any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence such
repair or restoration within 30 days after such obligations shall accrue, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate as of the
date of such notice.
9.7 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.8 Waiver. Lessor and Lessee waive the provision of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 [DELETED]
10.2 Additional Improvements. Notwithstanding paragraph 10.1 hereof,
Lessee shall pay to Lessor upon demand therefor the entirety of any increase in
real property tax if assessed solely by reason of additional improvements placed
upon the Premises by Lessee or at Lessee's request.
10.3 [DELETED]
10.4 [DELETED]
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee within 10 days after receipt of a written statement
setting forth the taxes applicable to Lessee's property. 11. Utilities. Lessee
shall pay for all water, gas, heat, light, power, telephone and other utilities
and services supplied to the Premises, together with any taxes thereon. If any
such services are not separately metered to Lessee, Lessee shall pay a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 No Release of Lessee. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of any
provision hereof. Consent to one assignment of subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event of default by
any assignee of Lessee or any successor of Lessee, in the performance of any of
the terms hereof, Lessor may proceed directly against Lessee without the
necessity of exhausting remedies against said assignee. Lessor may consent to
subsequent assignments or subletting of this Lease or amendments or
modifications to this Lease with assignees of Lessee, without notifying Lessee,
or any successor of Lessee, and without obtaining its or their consent thereto
and such action shall not relieve Lessee of liability under this Lease.
12.4 Attorney's Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorney's fees incurred in connection
therewith, such attorney's fees not to exceed $350.00 for each such request.
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13. Defaults; Remedies.
13.1 Defaults. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due where
such failure shall continue for a period of fifteen (15) days after written
notice thereof from Lessor to Lessee in the event that Lessor serves Lessee with
a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice Pay Rent or Quit shall constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee, other than described in paragraph (b) above, where such failure shall
continue for a period of 30 days after written notice thereof from Lessor to
Lessee; provided, however, that if the nature of Lessee's default is such that
more than 30 days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure within said 30-day period
and thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within 60
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within 30
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within 30 days.
Provided, however, in the event that any provision of this paragraph 13.1(d) is
contrary to any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given
to Lessor by Lessee, any assignee or Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 Remedies. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach.
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid, the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect or not Lessee shall have abandoned the Premises.
In such event Lessor shall be entitled to enforce all of Lessor's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate than allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and thereafter
diligently prosecutes the same to completion.
13.4 Late Charges. Lessee acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment or any other sum due from Lessee shall not be received by Lessor or
Lessor's designee with ten (10) days after such amount shall be due, then,
without any requirement for notice to Lessee, Less shall pay to Lessor a late
charge equal to 6% of such over due amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's default with respect to
such overdue amount, nor prevent Lessor from exercising any of the other rights
and remedies granted hereunder in the event that a late charge is payable
hereunder, whether or not collected, for three (3) consecutive installments of
rent, then rent shall automatically become due and payable quarterly in advance,
rather than monthly, notwithstanding paragraph 4 or any other provision of this
Lease to the contrary.
13.5 Impounds. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease. Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provision of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demands, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest in the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the Premises or more than 25% of the land area of the Premises which
is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for dimunition in value of the leasehold or for the taking of the
fee, or as severance damages, provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. Broker's Fee. (a) Upon execution of this Lease by both parties, Lessor shall
pay to N/A Licensed real estate broker(s), a fee as set forth in a separate
agreement between Lessor and said broker(s), or in the event there is no
separate agreement between Lessor and said broker(s), the sum of
$__________________, for brokerage services rendered by said broker(s) to Lessor
in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or if Less acquires any rights to the
Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, then as to any of said transactions,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this Paragraph 15. Said broker shall be a third party
beneficiary of the provisions of this Paragraph 15.
16. Estoppel Certificate.
(a) Lessee shall at any time upon not less than ten (10) days prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be conclusive
upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
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(c) [ENTIRE LINE CUT OFF]
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such tender or purchaser. Such statements shall include
the past three years financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15, in the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
from and after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction, shall in no way affect the validity of any
other portion hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence.
21. Additional Rent. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. Notices. Any noticed required or permitted be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or Lessor at the address noted below the signature of the respective parties, as
the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of any act,
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. Subordination.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgages, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to
execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option.
31. Attorney's Fees. If either party or the broker named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. Lessor's Access. [SIDELINE TEXT CUT OFF] Lessor and Lessor's agents shall
have the right to enter the Premises at reasonable times for the purposes of
inspecting the same, showing the same to prospective purchasers, lenders, or
lessees, and making such alterations, repairs, improvements or additions to the
Premises or to the building of which they are a part as Lessor may deem
necessary or desirable. Lessor may at any time place on or about the Premises
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
sings, all without rebate of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any action upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, a the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraph 33 hereof, wherever in this Lease the consent
of one party is required to an act of the other party, such consent shall not be
unreasonably withheld.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Premises.
39. Options.
39.1 Definition. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extent the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any
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Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options herein
granted to Lessee are not assignable separate and apart from this Lease.
39.3 Multiple Options. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the default
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) continuing until
the obligation is paid, or (iii) at any time after an event of default described
in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to
give notice of such default to Lessee), or (iv) in the event that Lessor has
given to Lessee three or more notices of default under paragraph 13.1(b), where
a late charge becomes payable under paragraph 13.4 for each of such defaults, or
paragraph 13.1(c), whether or not the defaults are cured, during the 12 month
period prior to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option. If after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of 30 days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee) or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(c) within 30 days after
the date that Lessor gives notice to Lessee of such default and/or Lessee fails
thereafter to diligently prosecute said cure to completion, or (iii) Lessee
commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without
any necessity of Lessor to give notice of such default to Lessee), or (iv)
Lessor gives to Lessee three or more notices of default under paragraph 13.1(b),
where a late charge becomes payable under paragraph 13.4 for each such default,
or paragraph 13.1(c), whether or not the defaults are cured.
40. Multiple Tenant Building. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. Easements. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications. Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under Protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suite for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. Authority. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Addendum. Attached hereto is an addendum or addenda containing paragraphs 50
through 56 which constitutes a part of this Lease.
[47-49 DELETED]
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF
THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
Executed at: 1327 65th Street Geremia Brothers
---------------------------- ----------------------------
On Sacramento, CA 95819 By Peter Geremia
-------------------------------------- --------------------------
Address By
-------------------------------- --------------------------
-------------------------------- "LESSOR" (Corporate seal)
Executed at: Stockton, California PacWest Telecomm, Inc.
---------------------------- ----------------------------
On June 23, 1995 By John K. LaRue
---------------------------- --------------------------
Address 4202 Coronado Avenue By
-------------------------------- --------------------------
Stockton, CA 95204 "LESSEE" (Corporate seal)
--------------------------------
-6-
<PAGE>
FIRST ADDENDUM TO LEASE
-----------------------
This is the First Addendum ("Addendum") to that certain Standard
Industrial Lease--Gross ("Lease") dated as of June 23, 1995, between GEREMIA
COMPANIES, LLC ("Lessor") and PAC-WEST TELECOMM, INC., a California corporation
("Lessee"). The Lease as modified in this Addendum shall control. Capitalized
terms not otherwise defined in this Addendum shall have the meanings specified
in the Lease. The Lease and this Addendum shall collectively be referred to as
the "Lease".
50. Previous Lease. This Lease shall supersede and replace all previous leases
of any part of the Premises between Lessee and Lessor and between Strategic
Products Corporation and Lessor.
51. Options to Renew. Lessee shall be given five (5), 2-year options to renew
lease at a rate no greater than 104% of the previous year's lease rate.
52. Operating Expenses. Throughout the course of the lease term and any
subsequent option terms, Lessee shall be responsible for utilities and
janitorial service expenses only. Lessor shall be responsible for all real
property taxes, real property insurance, and ground area maintenance expenses.
Lessor also shall be responsible for maintaining all paving, fences, sidewalks,
foundations, the exterior roof and the structural aspects of the Premises.
53. Installation of Special Roof Protection. Upon Lessee's execution of this
Lease, Lessor shall cause to be installed prior to September 1, 1995, special
roof protection on that portion of the roof over which Lessee's special
telecommunications equipment is kept on the premises. The parties estimate that
the size of the area in which the special roof protection will be installed is
about 1,500 square feet, and that the approximate cost per square foot to
install the special roof protection is $6 to $7 per square foot.
54. Monthly Rent Schedule: July 1, 1995 - June 30, 1996: $12,398.00
July 1, 1996 - June 30, 1997: $14,893.00
July 1, 1997 - June 30, 1998: $15,489.00
July 1, 1998 - June 30, 1999: $16,109.00
July 1, 1999 - June 30, 2000: $16,753.00
July 1, 2000 - June 30, 2001: $17,423.00
55. Free Rent. The foregoing rent schedule includes free rent for spaces 4210-E
and 4210-G during the first lease year. In addition, provided that Lessee is not
in default under the Lease on June 30, 1999, the Lessor shall waive the base
rent that would have been due for the month of July 1999 (which would be
$16,753.00).
56. Lessor grants to Lessee a first right to purchase the premises. Lessee shall
have seven (7) days after Lessor's notice to Lessee of a third party's interest
in the premises to respond in writing to Lessor of its interest in purchasing
the premises.
Lessee: Lessor:
PAC-WEST TELECOMM, INC. GEREMIA COMPANIES, LLC
a California corporation
By: /s/ John K. LaRue By: Peter Geremia
----------------------------- -----------------------------
John K. LaRue, Pres. Peter Geremia, Partner
----------------------------- -----------------------------
[Printed Name & Title] [Printed Name & Title]
<PAGE>
SECOND ADDENDUM TO LEASE
------------------------
This is the Second Addendum ("Addendum") to that certain Standard
Industrial Lease--Gross ("Lease") dated as of June 23, 1995, between GEREMIA
COMPANIES, LLC ("Lessor") and PAC-WEST TELECOMM, INC., a California corporation
("Lessee"). The Lease as modified in this Addendum shall control. Capitalized
terms not otherwise defined in this Addendum shall have the meanings specified
in the Lease. The Lease, the First Addendum shall collectively be referred to as
the "Lease".
57. Lease term extension. The term of the present Lease will be extended for one
year to end on June 30, 2002. As provided in section 51 of the lease, Lessee
shall be given (5) 2-year options to renew lease at a rate no greater than 104%
of the previous year's lease rate.
58. Monthly Rent Schedule. The monthly rent schedule is revised as follows to
reflect one year extension listed above.
July 1, 1995 - June 30, 1996: $12,398.00
July 1, 1996 - June 30, 1997: $14,893.00
July 1, 1997 - June 30, 1998: $15,489.00
July 1, 1998 - June 30, 1999: $16,109.00
July 1, 1999 - June 30, 2000: $16,753.00*
July 1, 2000 - June 30, 2001: $17,423.00
July 1, 2001 - June 30, 2002: $18,199.00
*(month of July 1999 is free)
59. Purchase option. The Lessor hereby grants an option to Lessee or it's
assigns, to purchase the building for $1,500,000.00 (one million, five hundred
thousand dollars). Seller agrees to carry the sale price back on a promissory
note with mutually agreeable terms. This option is valid during the term of the
Lease.
60. New Roof Installation. Lessee shall install a new roof per Lessee's
specifications. Lessee shall install the new roof so that it does not adversely
affect the value or serviceability of the Premises, including the structural
quality of the building. Lessor shall equally share the cost of the new roof,
but Lessor's share of the cost shall not exceed $81,500. Lessor's share of the
cost shall be paid by 100% reduction in rent commencing on the first full month
after the execution of this Addendum until Lessor's share is paid in full.
Lessee assumes all obligations for the installation and maintenance of the new
roof, and Lessor makes no representations or other statements about the
sufficiency of the new roof to meet Lessee's requirements. Therefore, Lessee
hereby assumes Lessor's obligation to maintain the roof in good order, condition
and repair, and releases Lessor from any liability arising from or relating to
the installation or maintenance of the roof. Lessee shall provide to Lessor
copies of all documents concerning the new roof (including contracts,
warranties, plans and specifications) for Lessor's records within ten (10) days
after execution of this Addendum.
61. As Is Lease. Lessee has already occupied the Premises for several years.
Lessee is thoroughly familiar with the Premises. Lessee is relying solely upon
its own analysis of the suitability of the Premises and is not relying in any
way upon any information or material furnished by Lessor, whether oral or
written, express or implied. Lessee acknowledges that it is leasing the Premises
"AS IS," without representation by Lessor or its representatives as to any
matter, including the roof or water resistance of the buildings.
Except as otherwise specifically set forth herein, all terms,
covenants, and conditions of the Lease shall remain unmodified and in full force
and effect.
<PAGE>
In witness whereof, the parties hereto have executed this agreement on
this 10th day of October, 1996.
Lessor: Lessee:
GEREMIA COMPANIES, LLC PAC-WEST TELECOMM, INC.
A California corporation
By: By: /s/ Bruce A. Westphal
------------------------------- ------------------------------
Bruce A. Westphal CEO
------------------------------- ------------------------------
[Printed Name & Title] [Printed Name & Title]
<PAGE>
Exhibit 10.18
PARAMOUNT GROUP, INC.
---------------------
OFFICE LEASE
------------
(California)
THIS LEASE is made as of the 3rd day of July, 1996, between One
Wilshire Arcade Imperial, Ltd., a California Limited Partnership, by Paramount
Group, Inc., a Delaware corporation, its agent (hereinafter called "Landlord"),
and Pac-West Telecomm, Inc., a California corporation (hereinafter called
"Tenant").
SUMMARY OF LEASE TERMS
----------------------
A. Addresses:
1. Tenant's Premises and Notice Address: 624 South Grand Avenue,
Suite 1210, Los Angeles, CA
90017
With copy to: Pac-West Telecomm, Inc.,
4210 Coronado Avenue,
Stockton, CA 95204
2. Landlord's Notice Address: 624 South Grand Avenue,
Suite 1207, Los Angeles,
CA 90017
With copy to: Paramount Group, Inc.,
1633 Broadway, Suite 1801,
New York, NY 10019
3. Landlord's Address for Rent Payments: One Wilshire Arcade
Imperial, Ltd., File
#53077, Los Angeles, CA
90074-3077
B. Approximate Rentable Area of the Premises:
5,000 rentable square feet. The parties agree that such figure is only
a reasonable estimate of the area of the Premises. The figure in Items
E, G, H and J and the other provisions of this Lease shall not be
adjusted due to any difference between the actual area of the Premises
and the estimated area shown above.
C. Lease Term: 10 years, 0 months.
D. 1. Estimated Commencement Date: August 15, 1996.
2. Commencement Date: The later of the following 2 dates:
(a) August 15, 1996; or
(b) The date upon which Landlord tenders possession of
the Premises to Tenant after completion of Landlord's
demolition work and removal of asbestos-containing
construction materials from the Premises pursuant to
Section 34.
<PAGE>
E. Schedule of Monthly Base Rents:
The following schedule of monthly Base Rents shall apply during the
term of the Lease, subject to adjustments pursuant to the Rent Escalation Rider
to the Lease regarding increases in the Consumer Price index:
Monthly Monthly
Period Base Rent Base Credit
------ --------- -----------
From August 15, 1996 to October 14, 1996 $12,500.00 $12,500.00
From October 15, 1996 to August 14, 2006 $12,500.00 None
The Base Rent for the period from October 15, 1996, to November 14,
1996, shall be prepaid by Tenant upon execution of this Lease. If the actual
Commencement Date is before or after the Estimated Commencement Date, then all
dates set forth above shall be correspondingly accelerated or delayed, as the
case may be. Base Rent for any partial calendar month shall be equitably
prorated as calculated by Landlord in its reasonable discretion. In the event of
a default by Tenant under this Lease which is not cured within the applicable
cure period set forth in Section 13.2, Tenant shall be obligated to pay to
Landlord, without any further notice from Landlord, a sum equal to all rent
credits previously credited to Tenant pursuant to the above schedule, and no
further rent credits shall be applicable for the balance of the Lease term.
F. Base Years for Expenses: Real Estate Taxes- - 1996-1997; Operating and
Utility Costs- - 1996.
G. Tenant's "Percentage Share" of Real Estate Taxes, Operating and Utility
Costs: 0.8781%.
H. Security Deposit: $12,500.00
I. Permitted Use: Telecommunications business.
J. Maximum Tenant Improvement Allowance: None. Tenant to take space "as
is" as described in Section 34.
K. Tenant's Parking allotment: 5 parking spaces.
L. Landlord's Brokers: None.
M. Riders:
The following exhibits, riders and addenda are attached to and are part
of this Lease:
Exhibit A - Floor Plan of Premises
Exhibit B - Rules and Regulations
Parking Space Rider
Rent Escalation Rider
Telecommunications Conduit Rider
Emergency Generator Rider
Extension Option Rider
N. Guaranty: Not applicable.
2
<PAGE>
AGREEMENT
---------
1. PREMISES. Landlord hereby leases the Premises to Tenant and Tenant
hereby hires and takes the Premises from Landlord. The Premises are located at
the address set forth in Section A(l) on page 1 and are more particularly shown
on Exhibit "A" attached hereto and incorporated herein by this reference. The
office building in which the Premises are located is referred to herein as the
"Building."
2. TERM.
2.1 The term of this Lease shall commence on the "Commencement Date"
indicated in Section D on Page 1 and shall extend for the period set forth in
Section C on Page 1. In the event that Landlord, for any reason, cannot tender
possession of the Premises to Tenant on or before the "Estimated Commencement
Date" indicated in Section D on Page 1, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant in any way as a result of such
failure to tender possession. In the event that Landlord cannot tender
possession of the Premises to Tenant for any reason other than the acts or
omissions of Tenant, Tenant's obligation to pay rent hereunder shall be deferred
by a period of time equal to the delay in Landlord's delivery of possession not
caused by Tenant. If such inability to tender possession of the Premises for
reasons other than the acts or omissions of Tenant continues for a period in
excess of 90 days after the Estimated Commencement Date, Tenant shall have the
right, exercisable by notice to Landlord, to terminate this Lease, but the
suspension of rent obligations and the right of termination pursuant to this
Section 2.1 shall be Tenant's sole remedies in the circumstances herein
described.
2.2 In the event that Tenant is allowed to enter into possession of the
Premises prior to the Commencement Date, such possession shall be deemed to be
pursuant to, and shall be governed by, the terms, covenants and conditions of
this Lease, including without limitation the covenant to pay rent, as though the
Commencement Date occurred upon the date of taking of possession by Tenant.
2.3 In the event that the Commencement Date falls on other than the
first day of a month, rent for any initial partial month of the term hereof
shall be appropriately prorated; and if the date of commencement of Tenant's
rent obligations is delayed, pursuant to Section 2.1, the end of the term hereof
shall be correspondingly delayed. At the request of either party hereto, both
parties shall execute a memorandum confirming the date of commencement of
Tenant's rent obligations.
3. RENT. Beginning on the Commencement Date (subject to adjustment
pursuant to Section 2.1 above), the base rent ("Base Rent") for the Premises
shall be in accordance with the Schedule of Monthly Base Rents set forth in
Section E on Page 2. Each installment of Base Rent shall be payable in advance
on the first day of each and every month throughout the term of this Lease.
Tenant agrees to pay all rent, without offset, demand or deduction of any kind,
to Landlord by mail to the address set forth in Section A(3) on page 1 or in
such manner, to such other person or at such other place as Landlord may from
time to time designate. Tenant agrees that no payment made to Landlord by check
or other instrument shall contain a restrictive endorsement of any kind; and if
any such instrument should contain a restrictive endorsement in violation of the
foregoing, that endorsement shall have no legal effect whatever, notwithstanding
that such item is processed for payment.
4. RENT ESCALATION.
4.1 Tenant shall pay, as monthly rent hereunder, in addition to the
Base Rent, the sums provided in this Section 4. Tenant shall be advised of any
change, from time to time, in rent escalation payments required hereunder by
written notice from Landlord, which shall include information in such detail as
Landlord may reasonably determine to be necessary in support of such change.
Tenant shall have 30 days after the receipt of any such notice to protest the
change indicated therein, and Tenant's failure to make such protest in a written
notice to Landlord within such 30-day period shall be conclusively deemed to be
Tenant's agreement to such charges. Notwithstanding any such protest all rent
escalation payments falling due after service of such notice shall be made in
accordance with such notice until the protest has been resolved, whereupon any
necessary adjustment shall be made between Landlord and Tenant. Any audit
arising out of such a protest by Tenant shall be done, at Tenant's expense, in
accordance with generally accepted auditing and management standards by a major
public accounting firm selected by Tenant and approved by Landlord in its
reasonable discretion. Such audit shall be performed at the offices of Paramount
Group, Inc. in New York City or at such other location in the United States as
Landlord may select from time to time for the maintenance of its accounting
records for the Building.
4.2 Following the first December 31 during the term of the Lease,
Tenant shall pay Landlord in a single lump sum upon billing therefor, Tenant's
Percentage Share (as defined in Section G on Page 2 of the Lease) of each of the
following amounts: (1) the amount (if any) by which Real Estate Taxes for the
then current tax fiscal year exceed the Real
3
<PAGE>
Estate Taxes for the Base Year for Real Estate Taxes set forth in Section F on
Page 2; (2) the amount (if any) by which Operating Costs for the just completed
calendar year exceed the Operating Costs for the Base Year for Operating Costs
set forth in Section F on Page 2; and (3) the amount (if any) by which Utility
Costs for the just completed calendar year exceed the Utility Costs for the Base
Year for Utility Costs set forth in Section F on Page 2. At the same time Tenant
shall also pay to Landlord one-twelfth of Tenant's Percentage Share of such
amounts for each month that has commenced since December 31, as estimated
payments towards Tenant's share of the Real Estate Taxes, Operating Costs, and
Utility Costs for the following year. Following each succeeding December 31,
Landlord again shall determine in the same fashion the increase or decrease (if
any) in annual Real Estate Taxes, Operating Costs, and Utility Costs over or
under those for the previous year. If there is an increase in one or more of the
three categories, Tenant shall pay to Landlord in a single lump sum upon billing
Tenant's Percentage Share of the increase plus one-twelfth of Tenant's
Percentage Share of such increase for each month that has then commenced in the
new calendar year. If there is a decrease in one or more of the three
categories, Landlord shall refund to Tenant or, at Landlord's option, credit
against the next rent falling due under the Lease the amount of the overpayment
made by Tenant during the preceding calendar year, provided that the amount of
such refund or credit shall in no event exceed the total payments previously
made by Tenant for such calendar year toward Tenant's Percentage Share of excess
charges for the category in question. Thereafter, with each month's Base Rent
until the next adjustment hereunder, Tenant shall pay one-twelfth of Tenant's
Percentage Share of each of the following amounts: (I) the excess (if any) of
annual Real Estate Taxes (based on the then-current fiscal year) over the Base
Year Real Estate Taxes; (II) the excess (if any) of annual Operating Costs
(based on the preceding calendar year) over the Base Year Operating Costs; and
(III) the excess (if any) of annual Utility Costs (based on the preceding
calendar year) over Base Year Utility Costs. The Real Estate Taxes for any
partial fiscal year at the end of the Lease term and the Operating Costs and
Utility Costs for any partial calendar year at the end of the Lease term shall
be appropriately prorated.
For purposes hereof, "Real Estate Taxes" shall include any form of
assessment, license fee, license tax, business license fee, commercial rental
tax, levy, penalty, chare, tax or similar imposition (other than net income,
inheritance or estate taxes), imposed by any authority having the direct or
indirect power to tax, including any city, county, state or federal government,
or any school, agricultural, lighting, drainage, flood control or other special
district thereof, as against any legal or equitable interest of Landlord in the
Premises or in the real property of which the Premises and the Building are a
part, including, but not limited to, the following:
(i) Any tax on Landlord's "right" to rent or "right" to other
income from the Premises or as against Landlord's business of leasing the
Premises;
(ii) Any assessment, tax, fee, levy or charge in substitution,
partially or totally, of any assessment, tax, fee, levy or charge previously
included within the definition of Real Estate Taxes, it being acknowledged by
Tenant and Landlord that Proposition 13 was adopted by the voters of the State
of California in the June, 1978 Election and that assessments, taxes, fees,
levies and charges may be imposed by governmental agencies for such services as
fire protection, street, sidewalk and road maintenance, refuse removal and for
other governmental services formerly provided without charge to property owners
or occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies and charges be included within the
definition of "Real Property Taxes" for the purpose of this Lease;
(iii) Any assessment, tax, fee, levy or charge allocable to or
measured by the area of the Premises or the rent payable hereunder, including,
without limitation, any gross income tax or excise tax levied by the State, City
or Federal government, or any political subdivision thereof, with respect to the
receipt of such rent, or upon or with respect to the possession, leasing,
operating, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises, or any portion thereof;
(iv) Any assessment, tax, fee, levy or charge upon this
transaction or any document to which Tenant is a party, creating or transferring
an interest or an estate in the Premises;
(v) Any assessment, tax, fee, levy or charge by any
governmental agency related to any transportation plan, fund or system
instituted within the geographic area of which the Building is a part; or
(vi) Reasonable legal and other professional fees, costs and
disbursements incurred in connection with proceedings to contest, determine or
reduce real property taxes.
The definition of "Real Estate Taxes," including any additional tax the
nature of which was previously included within the definition of "Real Estate
Taxes," shall include any increases in such taxes, levies, charges or
assessments occasioned by increases in tax rates or increases in assessed
valuations, whether occurring by sale or otherwise.
4
<PAGE>
As used in this Lease, the term "Operating Costs" shall mean all costs
and expenses of management, operation, maintenance, overhaul, improvement or
repair of the Building, the common areas and the site, as determined by standard
accounting practices, including the following costs by way of illustration but
not limitation:
(a) Any and all assessments imposed with respect to the
Building, common areas, and/or the site on which the Building is located,
pursuant to any covenants, conditions and restrictions affecting the site,
common areas or Building;
(b) Any costs, levies or assessments resulting from statutes
or regulations promulgated by any governmental authority in connection with the
use or occupancy of the Building or the Premises;
(c) Costs of all insurance obtained by Landlord;
(d) Wages, salaries and other labor costs (including but not
limited to social security taxes, unemployment taxes, other payroll taxes and
governmental charges and the costs, if any, of providing disability,
hospitalization, medical welfare, pension, retirement or other employee
benefits, whether or not imposed by law) of employees, independent contractors
and other persons engaged in the management, operation, maintenance, overhaul,
improvement or repair of the Building;
(e) Building management office and storage rental;
(f) Management and administrative fees (which Tenant
acknowledges are presently 6 of accrued gross revenues of the Building and
which may be adjusted from time to time);
(g) Supplies, materials, equipment and tools;
(h) Costs of, and appropriate reserves for, repair, painting,
resurfacing, and maintenance of the Building, the common areas, the site and the
parking facilities, and their respective fixtures and equipment systems,
including but not limited to the elevators, the structural portions of the
Building, and the plumbing, heating, ventilation, air-conditioning, telephone
cable riser, and electrical systems installed or furnished by Landlord;
(i) Depreciation on a straight-line basis and rental of
personal property used in maintenance;
(j) Amortization on a straight-line basis over the useful life
(together with interest at the interest rate defined in Subsection 33.9 of this
Lease on the unamortized balance) of all costs of a capital nature (including,
without limitation, capital improvements, capital replacements, capital repairs,
capital equipment and capital tools):
(1) reasonably intended to produce a reduction in
Operating Costs, Utility Costs or energy consumption; or
(2) required under any governmental or
quasi-governmental law, rule, order, ordinance or regulation that was not
applicable to the Building at the time it was originally constructed; or
(3) for repair or replacement of any Building
equipment needed to operate the Building at the same quality levels as prior to
the replacement;
(k) Costs and expenses of gardening and landscaping;
(l) Maintenance of signs (other than signs of tenants of the
Building);
(m) Personal property taxes levied on or attributable to
personal property used in connection with the Building, the common areas, or the
site;
(n) Costs of all service contracts pertaining to the Premises,
the Building or the site;
(o) Reasonable accounting, audit, verification, legal and
other consulting fees;
(p) Costs and expenses of lighting, janitorial service,
cleaning, refuse removal, security and similar items, including appropriate
reserves;
5
<PAGE>
(q) Any costs incurred with respect to a transportation
systems manager, rider share coordinator or any private transportation system
established for the benefit of tenants in the Building, whether or not imposed
by any governmental authority;
(r) If the Building has a helipad, its costs to the extent not
covered by user fees; and
(s) Fees imposed by any federal, state or local government for
fire and police protection, trash removal or other similar services which do not
constitute Real Estate Taxes.
The following shall be excluded from Operating Costs: federal and state
income taxes imposed on Landlord's net income; any and all costs or expenses to
procure tenants for the Building, including but not limited to brokerage
commissions, legal fees, and costs of remodeling suites; mortgage or debt
service; and depreciation, except that amortization of improvements of the type
specified in Subsection (j) above shall in no event be considered
"depreciation."
For purposes hereof, "Utility Costs" shall include all charges,
surcharges and other costs of all utilities paid for by Landlord in connection
with the Premises and/or Building, including without limitation costs of
heating, ventilation and air conditioning for the Premises and/or Building,
costs of furnishing gas, electricity and other fuels or power sources to the
Premises and/or Building, and costs of furnishing water and sewer services to
the Premises and/or Building.
The term "Building" as used in this Section 4.2 shall be deemed to
include not only the Building but also any parking facility owned, leased or
operated by Landlord in order to meet the parking requirements of the Building.
If the average occupancy of the rentable area of the Building during
the Tenant's Base Year for Operating and Utility Costs as set forth in Section F
on page 2 or during any other calendar year of the Lease term is less than 90%
of the total rentable area of the Building, the Operating Costs and Utility
Costs shall be adjusted by Landlord for such calendar year, prior to the
pass-through of Operating Costs and Utility Costs to Tenant pursuant to this
Section 4.2, to reflect what they would have been had 90% of the rentable area
been occupied during that year. In making such calculation, the Landlord's
reasonable opinion of what portion, if any, of each cost was affected by changes
in occupancy shall be binding upon the parties.
5. TAX ON TENANT'S PROPERTY; OTHER TAXES.
5.1 Tenant shall be liable for, and shall pay at least 10 days before
delinquency, and Tenant hereby indemnifies and holds Landlord harmless from and
against any liability in connection with, all taxes levied directly or
indirectly against any personal property, fixtures, machinery, equipment,
apparatus, systems and appurtenances placed by Tenant in or about, or utilized
by Tenant in, upon or in connection with, the Premises ("Equipment Taxes"). If
any Equipment Taxes are levied against Landlord or Landlord's property or if the
assessed value of Landlord's property is increased by the inclusion therein of a
value placed upon such personal property, fixtures, machinery, equipment,
apparatus, systems or appurtenances of Tenant, and if Landlord, after written
notice to Tenant, pays the Equipment Taxes or taxes based upon such an increased
assessment (which Landlord shall have the right to do regardless of the validity
of such levy, but only under proper protest if requested by Tenant prior to such
payment and if payment under protest is permissible), Tenant shall pay to
Landlord upon demand, as additional rent hereunder, the taxes so levied against
Landlord or the proportion of such taxes resulting from such increase in the
assessment; provided, however, that in any such event Tenant shall have the
right, in the name of Landlord and with Landlord's full cooperation, but at no
cost to Landlord, to bring suit in any court of competent jurisdiction to
recover the amount of any such tax so paid under protest, and any amount so
recovered shall belong to Tenant.
5.2 If the tenant improvements in the Premises, whether installed
and/or paid for by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at which tenant improvements
conforming to Landlord's building standards in other space in the Building are
assessed, then the real property taxes and assessments levied against Landlord
or Landlord's property by reason of such excess assessed valuation shall be
deemed to be Equipment Taxes and shall be governed by the provisions of Section
5.1. Any such amounts, and any similar amounts attributable to excess
improvements by other tenants of the Building and recovered by Landlord from
such other tenants under comparable lease provisions, shall not be included in
Real Estate Taxes for purposes of rent escalation under Section 4 of this Lease.
5.3 Tenant shall pay, as additional rent hereunder, upon demand and in
such manner and at such times as Landlord shall direct from time to time by
written notice to Tenant, any excise, sales, privilege or other tax, assessment
or other charge (other than income or franchise taxes) imposed, assessed or
levied by any governmental or quasi-governmental authority or agency upon
Landlord on account of this Lease, the rent or other payments made by Tenant
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hereunder, any other benefit received by Landlord hereunder, Landlord's business
as a lessor hereunder, or otherwise in respect of or as a result of the
agreement or relationship of Landlord and Tenant hereunder.
6. SECURITY DEPOSIT. A deposit (the "Security Deposit") in the amount
set forth in Section H on page 2 shall be paid by Tenant upon execution of this
Lease and shall be held by Landlord without liability for interest and as
security for the performance by Tenant of Tenant's covenants and obligations
under this Lease, it being expressly understood that the Security Deposit shall
not be considered an advance payment of rent or a measure of Landlord's damages
in case of default by Tenant. Upon the occurrence of any breach or default under
this Lease by Tenant, Landlord may, from time to time, without prejudice to any
other remedy, use the Security Deposit or any portion thereof to the extent
necessary to make good any arrearages of rent or any other damage, injury,
expense, or liability caused to Landlord by such breach or default. Following
any application of the Security Deposit, Tenant shall pay to Landlord on demand
an amount to restore the Security Deposit to its original amount. In the event
of bankruptcy or other debtor relief proceedings by or against Tenant, the
Security Deposit shall be deemed to be applied first to the payment of rent and
other charges due Landlord, in the order that such rent or charges became due
and owing, for all periods prior to filing of such proceedings. Landlord shall
not be required to keep the Security Deposit separate from its general funds.
Upon termination of this Lease any remaining balance of the Security Deposit
shall be returned by Landlord to Tenant within 14 days after termination of
Tenant's tenancy.
7. LATE PAYMENTS. All covenants and agreements to be performed by
Tenant under any of the terms of this Lease shall be performed by Tenant at
Tenant's sole cost and expense and without any abatement of rent. Tenant
acknowledges that the late payment by Tenant to Landlord of any sums due under
this Lease will cause Landlord to incur costs not contemplated by this Lease,
the exact amount of such cost being extremely difficult and impractical to fix.
Such costs include, without limitation, processing and accounting charges, and
late charges that may be imposed on Landlord by the terms of any note or other
obligation secured by any encumbrance covering the Premises or the Building of
which the Premises are a part. Therefore, if any monthly installment of rent is
not received by Landlord by the date when due or within five days thereafter, or
if Tenant fails to pay any other sum of money when due hereunder or within five
days thereafter, Tenant shall pay to Landlord, as additional rent, the sum of
ten percent (10%) of the overdue amount as a late charge. Landlord's acceptance
of any late charge, or interest pursuant to Section 33.9, shall not be deemed to
be liquidated damages, nor constitute a waiver of Tenant's default with respect
to the overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies available to Landlord under this Lease or any law now or
hereafter in effect. Further, in the event such late charge is imposed by
Landlord for 2 consecutive months for whatever reason, Landlord shall have the
option to require that, beginning with the first payment of rent due following
the imposition of the second consecutive late charge, rent shall no longer be
paid in monthly installments but shall be payable 3 months in advance.
8. USE OF PREMISES. Tenant, and any permitted subtenant or assignee,
shall use the Premises only for the use described in Section 1 on page 2. Any
other use of the Premises is absolutely prohibited. Tenant shall not use or
occupy the Premises in violation of any recorded covenants, conditions and
restrictions affecting the land on which the Building is located nor of any law,
ordinance, rule and regulation. Tenant shall not do or permit to be done
anything which will invalidate or increase the cost of any fire, extended
coverage or any other insurance policy covering the Building or property located
therein and shall comply with all rules, orders, regulations and requirements of
any applicable fire rating bureau or other organization performing a similar
function. Tenant shall promptly upon demand reimburse Landlord as additional
rent for any additional premium charged for any insurance policy by reason of
Tenant's failure to comply with the provisions of this Section 8. Tenant shall
not do or permit anything to be done in or about the Premises which will in any
way obstruct or interfere with the rights of other tenants or occupants of the
Building, or injure or annoy them, or use or allow the Premises to be used for
any improper, immoral, unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer to be committed any waste in or upon the Premises and
shall keep the Premises in first class repair and appearance. Tenant shall not
place a load upon the Premises exceeding the average pounds of live load per
square foot of floor area specified for the Building by Landlord's architect,
with any partitions to be considered a part of the live load. Landlord reserves
the right to be prescribe the weight and position of all safes, files and heavy
equipment which Tenant desires to place in the Premises so as to distribute
properly the weight thereof. Tenant's business machines and mechanical equipment
which cause vibration or noise that may be transmitted to the Building structure
or to any other space in the Building shall be so installed, maintained and used
by Tenant as to eliminate such vibration or noise. Tenant shall be responsible
for the cost of all structural engineering required to determine structural
load. In any event, unless specifically authorized herein, Tenant shall not
prepare or serve, or authorize the preparation or service of, food or beverages
in the Premises, except only the occasional preparation of coffee, tea, hot
chocolate and other such common refreshments for Tenant and its employees.
Tenant shall not conduct any auction in or about the Premises or the Building
without Landlord's prior written consent.
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9. BUILDING SERVICES.
9.1 Throughout the term of this Lease, subject to shortage and
accidents beyond Landlord's reasonable control, and subject to reimbursement
pursuant to Section 4.2, Landlord shall repair and maintain all structural
elements of the Building and common areas (including, without limitation, the
structural walls, doors, floors, ceilings, roof, elevators, stairwells, lobby,
heating system, air conditioning system, telephone cable riser for
Building-standard service from the Building's main terminal to the terminal box
on the same floor as the Premises [but excluding Tenant's telephone equipment
and the cable and wiring from such equipment to the terminal box], plumbing and
electrical wiring) and maintain the exterior of the Premises, including grounds,
walks, drives and loading area, if any. Tenant shall reimburse Landlord upon
demand, as additional rent hereunder, for the cost of any repairs or
extraordinary maintenance necessitated by acts of Tenant or Tenant's employees,
contractors, agents, licensees or invitees.
9.2 Provided that Tenant is not in default hereunder, subject to
shortages and accidents beyond Landlord's reasonable control, Landlord shall
furnish building standard heating and air conditioning service Monday through
Friday from 8:00 A.M. to 6:00 P.M., and Saturday from 8:00 A.M. to 1:00 P.M.,
except for holidays. No heating or air conditioning will be furnished by
Landlord on Sundays, holidays or during hours other then as set forth above,
except upon prior arrangement with Tenant and at an extra charge as may be
agreed to between Landlord and Tenant. For purposes of this Section 9.2,
"holidays" shall mean and refer to the holidays of Christmas, New Year's Day,
President's Day, Memorial Day, the Fourth of July, Labor Day, Thanksgiving and
the day after Thanksgiving, as those holidays are defined, recognized or
established by governmental authorities or agencies from time to time and such
other days the New York Stock Exchange is closed. Tenant shall install, at its
expense, such additional air conditioning equipment as may be reasonably
determined by Landlord to be necessary in order to maintain building air
conditioning standards resulting from Tenant's installation and operation of
computer equipment or other special equipment or facilities placing a greater
burden on the air conditioning system that would general office use. Landlord
shall furnish electric current to the Premises in amounts reasonably sufficient
for normal business use, including operation of building standard lighting and
operation of typewriters and standard fractional horsepower office machinery.
Tenant agrees that, at all times during the term of this Lease, Tenant's use of
electric current shall never exceed the capacity of the feeders to the Building
or the risers or wiring installation in the Building. Tenant shall not install
or use or permit the installation or use upon or about the Premises of any
computer or electronic data processing or other equipment using current in
excess of 110 volts or requiring power in excess of 500 watts, without the
express prior written consent of Landlord. Tenant shall pay monthly upon billing
as additional rent under this Lease such sums as Landlord's building engineer
may reasonably determine to be necessary in order to reimburse Landlord for the
additional cost of utilities (including, without limitation, electricity, gas
and other fuels or power sources, and water, and Landlord's reasonable costs of
administration) attributable to the operation of additional air conditioning
equipment and any other requirements in excess of those for normal office use by
reason of the operation of computer equipment or other special equipment of
facilities, or attributable to Tenant's conducting business beyond the business
hours described in the first sentence of this Section 9.2. Moreover, at
Landlord's election, Landlord may separately meter at Tenant's expense the
electrical usage of some or all of Tenant's equipment, facilities or Premises.
In such event Tenant shall pay the charges for all such separately metered
electrical usage with 10 days after receipt of a billing therefor. Any such
amounts billed directly to Tenant shall not be included in the Building's
"Utility Costs" for purposes of Section 4 above. Any extra maintenance charges
or service calls attributable to the actions of Tenant (e.g., continual
adjustments of the thermostats or the failure to keep window coverings closed as
necessary) shall be payable by Tenant to Landlord upon demand, as additional
rent hereunder.
9.3 Landlord shall furnish unheated water from mains for drinking,
lavatory and toilet purposes drawn through fixtures installed by Landlord, or by
Tenant with Landlord's express prior written consent, and heated water for
lavatory purposes from regular building supply in such quantities as required in
Landlord's judgment for the comfortable and normal use of the Premises. Tenant
shall pay Landlord for additional water which is furnished for any other
purpose. The amount that Tenant shall pay Landlord for such additional water
shall be the average price per gallon charged to the Landlord for the Building
by the entity providing water, increased by 25% to cover Landlord's
administrative expense.
9.4 Landlord shall furnish janitor service (including washing of
windows with reasonable frequency as determined by Landlord) in and about the
Premises, to the extent necessitated by normal office use of the Premises,
Monday through Friday, holidays excepted. Landlord shall have no obligation to
furnish janitor service for any portion of the Premises which is occupied after
7:00 p.m., is locked or may be used (to the extent permitted under this Lease)
for the preparation, dispensing or consumption of food or beverages or for any
purpose other than general office use, and Tenant shall keep all such portions
of the Premises in a clean and orderly condition at Tenant's sole cost and
expense. In the event that Tenant shall fail to keep such portions of the
Premises in a clean and orderly condition, Landlord may do so and any costs
incurred by Landlord in connection therewith shall be payable by Tenant to
Landlord upon demand, as additional rent hereunder. Tenant shall also pay to
Landlord, as additional rent hereunder, amounts equal to any increase in cost of
janitor service in and about the Premises if such increase in costs is due to
(a) use of the Premises by Tenant during hours other
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than normal business hours, or (b) location in or about the Premises of any
fixtures, improvements, materials or finish items (including without limitation
wall coverings and floor coverings) other than those which are of the standard
type adopted by Landlord for the Building. Only those persons who have been
approved by Landlord may perform janitorial services.
9.5 Landlord shall furnish passenger and freight elevator service in
common with Landlord and other tenants Monday through Friday from 8:00 A.M. to
6:00 P.M. and Saturday from 8:00 A.M. to 1:00 P.M. Landlord shall provide
limited passenger elevator service daily at all times such normal passenger
service is not furnished.
9.6 Landlord does not warrant that any service will be free from
interruptions caused by repairs, renewals, improvements, changes of service,
alterations, strikes, lockouts, labor controversies, accidents, inability to
obtain fuel, steam, water or supplies or other cause, provided the cause is
beyond the reasonable control of Landlord. Landlord agrees to give Tenant notice
of any extended interruptions of which Landlord has prior knowledge. No
interruption of service shall be deemed an eviction or disturbance of Tenant's
use and possession of the Premises or any part thereof, nor relieve Tenant from
performance of Tenant's obligations under this Lease. Landlord shall not be
liable for any failure to make such repairs or furnish such services unless the
failure shall be reasonably curable by Landlord and nonetheless shall persist
for an unreasonable time after written notice from Tenant of the need for such
repairs or the failure to furnish such service. There shall be no abatement of
rent and no liability of Landlord by reason of any injury to or interference
with Tenant's business arising form the making of any repairs, alterations or
improvements, or provision of any service in or to any portion of the Building,
including the Premises, or in or to the fixtures, appurtenances and equipment
therein; provided that in making such repairs, alterations or improvements or
providing such service Landlord shall interfere as little as reasonably
practicable with the conduct of Tenant's business in the Premises, without,
however, being obligated to incur liability for overtime or other premium
payment to its agents, employees or contractors in connection therewith. If
Tenant's beneficial use of all or a substantial portion of the Premises is
prevented for a period in excess of 3 consecutive business days (excluding
Saturdays, Sundays, and holidays), the Base Rent shall be equitably abated
commencing with the fourth business day and continuing until such use is no
longer prevented. Such abatement, to the extent provided above, shall be
Tenant's sole remedy. Except as provided above, Tenant shall not be entitled to
any abatement or reduction of rent or other remedy by reason of Landlord's
failure to furnish any of the services or Building systems called for by this
Lease when such failure is caused by accident, breakage, repairs, strikes,
lockouts or other labor disturbances or labor disputes of any character, or any
other cause. As a material inducement to Landlord's entry into this Lease,
Tenant waives and releases any rights it may have to make repairs at Landlord's
expense under Sections 1941 and 1942 of the California Civil Code.
10. CONDITION OF PREMISES. By occupying the Premises, Tenant shall be
deemed to accept the same and acknowledge that they comply fully with Landlord's
covenants and obligations hereunder, subject to completion of any items which it
is Landlord's responsibility hereunder to furnish and which are listed by
Landlord and Tenant upon inspection of the Premises. Tenant acknowledges that
neither Landlord nor any agent, employee or representative of Landlord has made
any representation or warranty with respect to any matter, including but not
limited to any matter regarding the Building or Premises, the applicable zoning
or the effect of other applicable laws, or the suitability or fitness of the
Building or Premises for the conduct of Tenant's business or any other purpose.
Tenant is relying solely on its own investigations with respect to all such
matters. During the term of this Lease, Tenant shall maintain the Premises in as
good condition as when Tenant took possession, ordinary wear and tear and
repairs which are specifically made the responsibility of Landlord hereunder
excepted, and shall repair all damage or injury to the Building or to fixtures,
appurtenances and equipment of the Building caused by Tenant's installation or
removal of its property or resulting from the negligence or tortuous conduct of
Tenant, its employees, contractors, agents, licensees and invitees. In the event
of failure by Tenant to perform its covenants of maintenance and repair
hereunder, Landlord may perform such maintenance and repair, and any amounts
expended by Landlord in connection therewith shall be payable by Tenant to
Landlord upon demand, as additional rent hereunder.
11. DAMAGE TO PREMISES OR BUILDING.
11.1 In the event that the Building should be totally
destroyed by fire or other casualty, this Lease shall terminate. In the event
the Premises or a substantial portion of the Building should be so damaged or
destroyed that rebuilding or repairs cannot, in Landlord's opinion, be completed
with 180 days after the date of such damage or Landlord will not receive
insurance proceeds sufficient to cover the costs of such repairs, reconstruction
and restoration (including proceeds from Tenant and/or Tenant's insurance which
Tenant is required to deliver to Landlord pursuant to Subsection 11.2 below),
Landlord may at its option terminate this Lease upon notice to Tenant, or
Landlord may proceed to restore the Building. In the event that such rebuilding
or repairs can, in Landlord's opinion, be completed within 180 days after the
date of such damage and Landlord will receive insurance proceeds sufficient to
cover the costs of such repairs, reconstruction and restoration (including
proceeds from Tenant and/or Tenant's insurance which Tenant is required to
deliver to Landlord pursuant to Subsection 11.2 below), Landlord shall restore
the Building. In the event that Landlord is obligated or elects to restore the
Building, Landlord shall commence to rebuild or repair the Building reasonably
promptly after such
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damage or destruction and shall proceed with reasonable diligence to restore it
to substantially the condition in which it was immediately prior to the
casualty, except that Landlord shall not be required to rebuild, repair or
replace any part of the partitions, fixtures, alterations, decorations or other
improvements which may have been constructed by or specifically for Tenant
(except the improvements built by Landlord pursuant to the Landlord's
Improvement Construction Rider, which Landlord shall restore), or by or for
other tenants within the Building. In such event this Lease shall remain in full
force and effect, provided that if Tenant is dispossessed by reason of such
casualty from all or a substantial portion of the Premises for more than 3
consecutive business days, Tenant shall be entitled to a ratable abatement of
the Base Rent during the time and to the extent the Premises are unfit for
occupancy, commencing with the fourth business day; and provided further that
Tenant shall have the right to terminate this Lease upon notice served upon
Landlord prior to actual completion of any necessary restoration of the Premises
if such restoration is not substantially completed within 360 days after the
casualty. Such abatement or termination, to the extent provided above, shall be
Tenant's sole remedy. Notwithstanding the foregoing to the contrary, if the
damage is due to the negligence or willful misconduct of Tenant or any of
Tenant's agents, employees or invitees, there shall be no abatement of rent.
Except for abatement of rent as provided hereinabove, Tenant shall not be
entitled to any compensation or damages for loss of, or interference with,
Tenant's business or use or access of all or any part of the Premises resulting
from any such damage, repair, reconstruction or restoration.
11.2 In the event of any damage or destruction of all or any part of
the Premises, Tenant shall immediately: (a) notify Landlord thereof; and (b)
deliver to Landlord all insurance proceeds received by Tenant with respect to
the Leasehold Improvements and Tenant changes in the Premises to the extent such
items are not covered by Landlord's casualty insurance (excluding proceeds for
Tenant's furniture and other personal property), whether or not this Lease is
terminated as permitted in this Section 11, and Tenant hereby assigns to
Landlord all rights to receive such insurance proceeds. If, for any reason
(including Tenant's failure to obtain insurance for the full replacement cost of
any Tenant changes which Tenant is required to insure pursuant to this Lease),
Tenant fails to receive insurance proceeds covering the full replacement cost of
such Tenant changes which are damaged, Tenant shall be deemed to have
self-insured the replacement cost of such tenant changes, and upon any damage or
destruction thereof, Tenant shall immediately pay to Landlord the full
replacement cost of such items, less any insurance proceeds actually received by
Landlord form Landlord's or Tenant's insurance with respect to such items.
11.3 In the event any holder of a mortgage or deed of trust on the
Building should require that the insurance proceeds payable upon damage or
destruction to the Building by Fire or other casualty be used to retire the debt
secured by such mortgage or deed of trust, or in the event any lessor under any
underlying or ground lease should require that such proceeds be paid to such
lessor, Landlord shall in no event have any obligation to rebuild, and at
Landlord's election this Lease shall terminate.
11.4 With the exception of insurance required to be carried by Tenant
under Section 28 of this Lease, and except as provided in Section 11.2, any
insurance which may be carried by Landlord or Tenant against loss or damage to
the Building or to the Premises shall be for the sole benefit of the party
carrying such insurance and under its sole control. Landlord shall not be
required to carry insurance of any kind on Tenant's property and, except by
reason of the breach by Landlord of any of its obligations hereunder, shall not
be obligated to repair any damage thereto or to replace the same.
11.5 In addition to its termination rights in Subsection 11.1 above,
Landlord shall have the right to terminate this Lease if any damage to the
Building or premises occurs during the last 12 months of the Term of this Lease
and Landlord estimates that the repair, reconstruction or restoration of such
damage cannot be completed within the earlier of (a) the scheduled expiration
date of the Lease Term, or (b) 60 days after the date of such casualty.
11.6 Tenant, as a material inducement to Landlord's entering in to this
Lease, irrevocably waives and releases its rights under the provisions of
Sections 1932(2) and 1933(4) of the California Civil Code (and to any successor
statutes permitting Tenant to terminate this Lease as a result of any damage or
destruction), it being the intention of the parties hereto that the express
terms of this Lease shall control under any circumstances in which those
provisions might otherwise apply.
12. EMINENT DOMAIN.
12.1 In the event that the whole of the Premises, or so much thereof as
to render the balance unusable to Tenant for the purposes leased hereunder, as
reasonably determined by Landlord, shall be lawfully condemned or taken in any
manner for any public or quasi-public use, or conveyed by Landlord in lieu
thereof (a "Taking"), this Lease and the term hereby granted shall forthwith
cease and terminate on the date of the taking of possession by the condemning
authority (the "Date of Taking").
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12.2 In the event of a Taking of a portion of the Premises which does
not result in the termination of this Lease pursuant to Section 12.1, above, the
Base Rent shall be abated in proportion to the part of the Premises so taken.
12.3 In the event that there is a Taking of a portion of the Building
other than the Premises, and if, in the opinion of Landlord, the Taking is so
substantial as to render the remainder of the Building uneconomic to maintain
despite reasonable reconstruction or remodeling, or if it would be necessary to
alter the Building or Premises materially, Landlord may terminate this Lease by
notifying Tenant of such termination within 60 days following the Date of
taking, and this Lease shall end on the date specified in the notice of
termination, which shall not be less than 60 days after the giving of such
notice.
12.4 No temporary Taking of the Building or Premises and/or Tenant's
rights therein or under this Lease shall terminate this Lease or give Tenant any
right to abatement of rent hereunder. Tenant shall be entitled to receive such
portion or portions of any award made for the temporary use with respect to the
period of the taking which is within the term of this Lease, provided that, if
such taking shall remain in force at the expiration or earlier termination of
this Lease, then Tenant shall pay to Landlord a sum equal to the reasonable
costs of performing Tenant's obligations under Section 15 with respect to
Tenant's surrender of the Premises and, upon such payment, shall be excused from
such obligations. For purpose of this Section 12.4, a temporary taking shall be
defined as a taking for a period of 270 days or less.
12.5 Except for the award in the event of a temporary Taking as
contemplated in Section 12.4, above, Tenant hereby releases and shall have no
interest in, or right to participate with respect to the determination of, any
compensation for any Taking, except only that Tenant shall be entitled to the
portion of any award specifically designated by the condemning authority to be
for any personal property of Tenant included in any such taking or for any
relocation expenses or business interruption loss incurred by Tenant.
13. DEFAULT.
13.1 The following events shall be deemed to be events of default by
Tenant under this Lease:
(a) If Tenant shall fail to pay any installment of rent or any
other sum required to be paid by Tenant under this Lease as due.
(b) If Tenant shall fail to comply with any term, provision or
covenant of this Lease, other than provisions pertaining to the payment of
money.
(c) If Tenant shall make an assignment for the benefit of
creditors.
(d) If Tenant shall file a petition under any section or
chapter of the federal Bankruptcy Code, as amended from time to time, or under
any similar law or statute of the United States or any State thereof pertaining
to bankruptcy, insolvency or debtor relief, or Tenant shall have a petition or
other proceedings filed against Tenant under any such law or chapter thereof and
such petition or proceeding shall not be vacated or set aside within 60 days
after such filing.
(e) If a receiver or trustee shall be appointed for all
substantially all of the assets of Tenant and such receivership shall not be
terminated and possession of such assets restored to Tenant within 30 days after
such appointment.
(f) If Tenant shall desert of vacate any substantial portion
of the Premises and the same shall remain unoccupied for more than 14 days
thereafter.
(g) If Tenant shall assign this Lease or sublet the Premises
in violation of the terms hereof.
13.2 Any shorter period for cure provided by law notwithstanding, and
in lieu thereof, including without limitation California Code of Civil Procedure
Section 1161, Tenant may cure any monetary default under Subjection 13.1(a),
above, at any time within 5 days after written notice of default is received by
Tenant from Landlord; and (except as specifically provided otherwise in Section
24) Tenant may cure any non-monetary default within 15 days after written notice
of default is received by Tenant from Landlord, provided that if such
non-monetary default is curable but is of such a nature that the cure cannot be
completed within 15 days, Tenant shall be allowed to cure the default if Tenant
promptly commences the cure upon receipt of the notice and diligently prosecutes
the same to completion, which completion shall occur not later than 60 days from
the date of such notice from Landlord.
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14. REMEDIES UPON DEFAULT.
14.1 Upon the occurrence of any event of default by Tenant, Landlord
shall have, in addition to any other remedies available to Landlord at law or in
equity, the option to pursue any one or more of the following remedies (each and
all of which shall be cumulative and non-exclusive) without any notice or demand
whatsoever:
(a) Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the Premises
and expel or remove Tenant and any other person who may be occupying the
Premises or any part thereof, without being liable for prosecution or any claim
or damages therefor; and Landlord may recover from Tenant the following:
(1) The worth at the time of award of any unpaid rent
which has been earned at the time of such termination; plus
(2) The worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; plus
(3) The worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(4) Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, specifically including but not limited to attorneys'
fees, removal and storage (or disposal) of Tenant's personal property,
unreimbursed leasehold improvement costs (e.g., the amounts Landlord has
expended for leasehold improvements which have not been recovered as of the
termination of the Lease when amortized on a straight-line basis over the
originally scheduled lease term), brokerage commissions and advertising expenses
incurred, expenses of remodeling the Premises or any portion thereof for a new
tenant, whether for the same or a different use, and any special concessions
made to obtain a new tenant; and
(5) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
The term "rent" as used in this Subsection 14.1(a) shall be deemed to be and to
mean all sums of every nature required to be paid by Tenant pursuant to the
terms of this Lease, whether to Landlord or to others. Any such sums which are
based on percentages of income, increased costs or other historical data shall
be reasonable estimates or projections computed by Landlord on the basis of the
amounts thereof accruing during the 24-month period immediately prior to
default, except that if it becomes necessary to compute such sums before a
24-month period has expired, then the computation shall be made on the basis of
the amounts accruing during such shorter period. As used in Subsections
14.1(a)(1) and (2), above, the "worth at the time of award" shall be computed by
allowing interest from the date the sums became due at the lesser of (i) the
Bank of America prime rate on the due date plus 6%, or (ii) the maximum rate
permitted by law. As used in Subsection 14.1(a)(3), above, the "worth at the
time of award" shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus 1%.
(b) In the event of any such default by Tenant, in addition to
any other remedies available to Landlord under this Lease, at law or in equity,
Landlord shall also have the right, with or without terminating this Lease, to
re-enter the Premises and remove all persons and property from the Premises;
such property may be removed, stored and/or disposed of pursuant to any
procedures permitted by applicable law, including but not limited to those
described in Section 15.3. No re-entry or taking possession of the Premises by
Landlord pursuant to this Subsection 14.1(b), and no acceptance of surrender of
the Premises or other action on Landlord's part, shall be construed as an
election to terminate this Lease unless a written notice of such intention be
given to Tenant or unless the termination thereof be decreed by a court of
competent jurisdiction.
(c) In the event of any such default by Tenant, in addition to
any other remedies available to Landlord under this Lease, at law or in equity,
Landlord shall have the right to continue this Lease in full force and effect,
whether or not Tenant shall have abandoned the Premises. The foregoing remedy
shall also be available to Landlord pursuant to California Civil Code Section
1951.4 and any successor statute in the event Tenant has abandoned the Premises.
In the event Landlord elects to continue this Lease in full force and effect
pursuant to this Subsection 14.1(c), then Landlord shall
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be entitled to enforce all of its rights and remedies under this Lease,
including the right to recover rent as it becomes due. Landlord's election not
to terminate this Lease pursuant to this Subsection 14.1(c) or pursuant to any
other provision of this Lease, at law or in equity, shall not preclude Landlord
from subsequently electing to terminate this Lease or pursuing any of its other
remedies.
(d) Whether or not Landlord elects to terminate this Lease on
account of any default by Tenant, Landlord shall have the right to terminate any
and all subleases, licenses, concessions or other consensual arrangements for
possession entered into by Tenant and affecting the Premises or may, in
Landlord's sole discretion, succeed to Tenant's interest in such subleases,
licenses, concessions or arrangements. If Landlord so elects to succeed to
Tenant's interest, Tenant shall, as of the date of notice by Landlord of such
election, have no further right to or interest in the rent or other
consideration receivable thereunder.
14.2 Following the occurrence of an event of default by Tenant,
Landlord shall have the right to require that any or all subsequent amounts paid
by Tenant to Landlord hereunder, whether in cure of the default in question or
otherwise, be paid in the form of cash, money order, cashier's or certified
check drawn on an institution acceptable to Landlord, or by other means approved
by Landlord, notwithstanding any prior practice of accepting payments in any
different form.
14.3 All rights, options and remedies of Landlord contained in this
Section 14 and elsewhere in this Lease shall be construed and held to be
cumulative, and no one of them shall be exclusive of the other, and Landlord
shall have the right to pursue any one or more of such remedies or any other
remedy or relief which may be provided by law or in equity, whether or not
stated in this Lease. Nothing in this Section 14 shall be deemed to limit or
otherwise affect Tenant's indemnification of Landlord pursuant to any provision
of this Lease.
14.4 Landlord shall not be deemed in default in the performance of any
obligation required to be performed by Landlord under this Lease unless Landlord
has failed to perform such obligation within 30 days after the receipt of
written notice from Tenant specifying in detail Landlord's failure to perform;
provided however, that if the nature of Landlord's obligation is such that more
than 30 days are required for its performance, then Landlord shall not be deemed
in default if it commences such performance within 30-day period and thereafter
diligently pursues the same to completion. Upon any such incured default by
Landlord, Tenant shall be entitled, as Tenant's sole and exclusive remedy, to
recover from Landlord Tenant's actual damages (but not lost profits or other
incidental or consequential damages) shown by Tenant to have been directly
caused thereby; provided, however: (a) Tenant shall have no right to offset of
abate rent in the event of any default by Landlord under this Lease, except to
the extent offset rights are specifically provided to Tenant in this Lease; (b)
Tenant shall in no event be entitled to terminate this Lease by reason of
Landlord's default; and (c) Tenant's rights and remedies hereunder shall be
limited to the extent Tenant has expressly waived in this Lease any of such
rights or remedies, including the limitation on Landlord's liability contained
in Section 33.17 hereof.
14.5 No waiver by Landlord or Tenant of any violation or breach of any
of the terms, provisions and covenants herein contained shall be deemed or
construed to constitute a waiver of any other or later violation or breach of
the same or any other of the terms, provisions, and covenants herein contained.
Forbearance by Landlord in enforcement of one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to constitute
a waiver of such default. The acceptance of any rent hereunder by Landlord
following the occurrence of any default, whether or not known to Landlord, shall
not be deemed a waiver of any such default, except only a default I the payment
of the rent so accepted, subject to the provisions of Section 33.1.
15. SURRENDER OF PREMISES; REMOVAL OF PROPERTY.
15.1 No act or thing done by Landlord or any agent or employee of
Landlord during the term hereof shall be deemed to constitute an acceptance by
Landlord of a surrender of the Premises unless such intent is specifically
acknowledged in a writing signed by Landlord. The delivery of keys to the
Premises to Landlord or any agent or employee of Landlord shall not constitute a
surrender of the Premises or effect a termination of this Lease, whether or not
the keys are thereafter retained by Landlord, and notwithstanding such delivery
Tenant shall be entitled to the return of such keys at any reasonable time upon
request until this Lease shall have been properly terminated. The voluntary or
other surrender of this Lease by Tenant, whether accepted by Landlord or not, or
a mutual termination hereof, shall not work a merger, and at the option of
Landlord shall operate as an assignment to Landlord of all subleases or
subtenancies affecting the Premises.
15.2 Upon the expiration of the term of this Lease, or upon any earlier
termination of this Lease, Tenant shall, subject to the provisions of this
Section 15, quit and surrender possession of the Premises to Landlord in as good
order and condition as when Tenant took possession and as thereafter improved by
Landlord and/or Tenant, reasonable wear and tear and repairs which are
specifically made the responsibility of Landlord hereunder excepted. Upon such
expiration or
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termination, Tenant shall, without expense to Landlord, remove or cause to be
removed from the Premises all debris and rubbish, and such items of furniture,
equipment, free-standing cabinet work, movable partitions and other articles of
personal property owned by Tenant or installed or placed by Tenant at its
expense in the Premises, and such similar articles of any other persons claiming
under Tenant, as Landlord may, in its sole discretion, require to be removed,
and Tenant shall repair at its own expense all damage to the Premises and
Building resulting from such removal.
15.3 Whenever Landlord shall re-enter the Premises as provided in this
Lease, any personal property of Tenant not removed by Tenant upon the expiration
of the term of this Lease, or within 48 hours after a termination by reason of
Tenant's default as provided in this Lease, shall be deemed abandoned by Tenant
and may be disposed of by Landlord (without liability to Tenant) in accordance
with Sections 1980 through 1991 of the California Civil Code and Section 1174 of
the California Code of Civil Procedure, or in accordance with any laws or
judicial decisions which may supplement or supplant those provisions from time
to time, or in accordance with any other legally permissible procedure, whether
by public or private sale or otherwise. Landlord shall be entitled to apply any
proceeds of the sale of such items to any sums due to Landlord by Tenant and to
Landlord's costs of removal, storage and sale of such items. Alternatively,
Landlord shall be entitled to treat Tenant's failure to remove such items from
the Premises as either a permitted or unpermitted holdover pursuant to Section
19 of this Lease.
15.4 All fixtures, alterations, additions, repairs, improvements and/or
appurtenances attached to or built into or on or about the Premises prior to or
during the term hereof, whether by Landlord at its expense or at the expense of
Tenant, or by Tenant at its expense, or by previous occupants of the Premises,
shall be and remain part of the Premises and shall not be removed by Tenant at
the end of the term of this Lease. Such fixtures, alterations, additions,
repairs, improvements and/or appurtenances shall include, without limitation,
floor coverings, drapes, paneling, molding, doors, kitchen and dishwashing
fixtures and equipment, plumbing systems, electrical systems, lighting systems,
silencing equipment, communications systems (excluding Tenant's
telecommunications switching equipment, which Tenant may, and shall, remove from
the Premises upon the expiration or termination of the Lease), all fixtures and
outlets for the systems mentioned above and for all telephone, radio, telegraph
and television purposes, and any special flooring or ceiling installations.
Notwithstanding the foregoing, Landlord may, in its sole discretion, require
Tenant, at Tenant's sole cost and expense, to remove any fixtures, alterations,
additions, repairs, improvements and/or appurtenances attached or built into or
on or about the Premises, and to repair any damage to the Building and Premises
occasioned by the installation, construction, operation and/or removal of such
fixtures, equipment, alterations, additions, repairs, improvements and/or
appurtenances, as well as any damage caused by the removal of the
telecommunications switching equipment referred to above. If Tenant shall fail
to complete such removal and repair such damage, Landlord may do so and may
charge the reasonable cost thereof to Tenant.
15.5 Tenant hereby waives all claims for damages or other liability in
connection with Landlord's re-entering and taking possession of the Premises or
removing, retaining, storing or selling the property of Tenant as herein
provided, and Tenant hereby indemnifies and holds Landlord harmless from any
such damages or other liability, and no such re-entry shall be considered or
construed to be a forcible entry.
16. COSTS OF SUIT; ATTORNEYS' FEES; WAIVER OF JURY TRIAL.
16.1 If Tenant or Landlord shall bring any action for any relief,
declaratory or otherwise, against the other arising out of or under this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the losing party shall pay the successful party its costs of suit,
including, without limitation, a reasonable sum for attorneys' and other
professional fees relating to such suit, and such fees shall be deemed to have
accrued on the commencement of such action and shall be paid whether or not such
action is contested or prosecuted to judgment.
16.2 In the event that Landlord shall, without fault of Landlord's
part, be made party to any litigation instituted by Tenant or by any third party
against Tenant, or by or against any person holding under or using the Premises
by license of Tenant, or for the foreclosure of any lien for labor or material
furnished to or for Tenant or of any such other person, Tenant hereby
Indemnifies and holds Landlord harmless from and against all costs and expenses,
including reasonable attorneys' fees, incurred by Landlord in or in connection
with such litigation.
16.3 In order to limit the cost of resolving any disputes between the
parties, and as a material inducement to each party to enter into this Lease,
each party hereby waives the right to a jury trial with respect to any
litigation between the parties arising out of this Lease, Tenant's occupancy of
the Premises, or Landlord's ownership, operation or management of the Building,
irrespective of any rights to a jury trial which either party otherwise then
would have under applicable statutes, constitutions, judicial decisions or other
laws.
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17. ASSIGNMENT AND SUBLETTING.
17.1 Except as hereinafter provided, Tenant shall not sublet all or any
part of the Premises, nor assign this Lease, nor enter any license, "co-location
agreement" or other agreement permitting a third party (other than Tenant's
employees and occasional guests) to use or occupy any portion of the Premises,
without Landlord's express prior written consent, which consent shall not
unreasonably be withheld. (For purposes of the balance of this Section 17.1 and
Sections 17.2 through 17.4, the term "sublease" shall be deemed to include
licenses, co-location agreements, and other agreements for use or occupancy of
the Premises as described in the preceding sentence. The terms "subtenant" and
"sublet" shall be construed accordingly.)
In order to assist Landlord in evaluating any proposed assignment or
sublease, Tenant agrees to provide Landlord with the proposed subtenant or
assignee's current financial statement and financial statements for the
preceding 2 years and such other information concerning the business background
and financial condition of the proposed subtenant or assignee and of Tenant as
Landlord may reasonably request.
Landlord and Tenant hereby agree that Landlord's disapproval of any
proposed sublease or assignment hereunder shall be deemed reasonable if based
upon any reasonable factor, including, without limitation, any or all of the
following factors:
(a) The proposed transfer would result in more than two
subleases of portions of the Premises being in effect at any time during the
term;
(b) The rent payable by the proposed transferee would be less
then the fair market rental value for the space as determined pursuant to the
last paragraph of this Section 17.1 (except as otherwise provided in Section
17.2);
(c) The proposed transferee is an existing tenant or occupant
of the Building or has negotiated with Landlord within the last twelve months
for space in the Building or is another transferee prohibited by the next to
last paragraph of this Section 17.1;
(d) The proposed transferee is a governmental entity;
(e) The transaction calls for new demising walls to be built,
and the portion of the Premises proposed to be sublet or assigned is irregular
in shape and/or has inadequate means of ingress and egress;
(f) The use of the Premises by the proposed transferee (i) is
not permitted by the use provisions of this Lease, or (ii) might, in Landlord's
reasonable opinion, violate any right for an exclusive use granted by Landlord
to another Tenant in the Building;
(g) The transfer would likely result, in Landlord's reasonable
opinion, in a significant increase in the use of the parking areas or common
areas of the building due to the transferee's employees or Visitors, and/or
significant increase in the demand for utilities and services to be provided by
Landlord to the Premises;
(h) The assignee or subtenant does not, in Landlord's
reasonable opinion, have the financial capability to fulfill the obligations
imposed by the transfer, or in the case of an assignment, the assignee does not,
in Landlord's reasonable opinion, have income and net worth at least equal to
that of Tenant;
(i) The transferee is not, in the Landlord's reasonable
opinion, of reputable or good character or consistent with Landlord's desired
tenant mix;
(j) The transferee is a real estate developer or landlord or
is acting directly or indirectly on behalf of a real estate developer or
landlord;
(k) The proposed transferee may, in Landlord's reasonable
opinion, increase the chances of significant hazardous waste contamination
within the Premises or the Building;
(l) In the reasonable judgment of the Landlord, the purpose
for which the transferee intends to use the Premises is not in keeping with the
standards of the Landlord for the Building or is in violation of the terms of
any other lease in the building; or
(m) Landlord has not leased 95% of the rentable area in the
Building.
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Notwithstanding the foregoing, Tenant may, subject to the rest of the
terms hereof, sublet all of the Premises or assign this Lease to any entity
controlling, controlled by or under common control with Tenant, (including
assignment or subletting to any corporation resulting from a merger or
consolidation with Tenant, or to any person or entity which acquires all the
assets of Tenant's business as a going concern) provided that, with regard to
each such assignment or subletting: (A) Landlord receives the financial
statements prescribed above and such other financial and background information
as Landlord may request regarding the assignee or subtenant at least 20 days
prior to such proposed assignment or sublease; (B) the Landlord determines, in
its reasonable discretion, that the income and net worth of the assignee or
subtenant comply with the standards prescribed in item (h) above; (C) the use of
the Premises is not altered; (D) the Landlord determines, in its sole and
absolute discretion, that the transaction is not being entered into as a
subterfuge to avoid the restrictions on assignment and subletting in the Lease;
and (E) the subtenant or assignee expressly assumes the obligations of Tenant
hereunder as prescribed below in this Section 17.1.
Neither this Lease nor the term hereby demised shall be mortgaged by
Tenant, nor shall tenant mortgage, assign, pledge or otherwise transfer the
interest of Tenant in and to any sublease or the rentals payable thereunder or
in the Security Deposit.
Any sublease, assignment, mortgage, pledge, encumbrance, or transfer
made in violation of this Section 17.1 shall be void and at Landlord's election
shall terminate this Lease.
Each subtenant, assignee or transferee of Tenant, other than Landlord,
shall assume all obligations of Tenant under this Lease and shall be and remain
liable jointly and severally with Tenant for the payment of the rent, and for
the due performance of all the terms, covenants, conditions and agreements
herein contained on Tenant's part to be performed for the term of this Lease
(provided that in the case of a sublease, the subtenant's obligations shall be
limited to those obligations relating to the subleased space and the common
areas during the sublease term). No sublease or assignment shall be deemed
approved by Landlord unless such subtenant or assignee and Tenant shall deliver
to Landlord a counterpart of such sublease or assignment and an instrument in a
form acceptable to Landlord, which contains a covenant of assumption by the
subtenant or assignee satisfactory in substance and form to Landlord, consistent
with the requirements of this Section 17.1, but the failure or refusal of the
subtenant or assignee to execute such instrument of assumption shall not release
or discharge the subtenant or assignee from its liability as set forth above.
No subtenant or assignee not complying with the foregoing requirements
shall have any interest in the Security Deposit. Any assignee that does comply
with the foregoing requirements shall automatically succeed to Tenant's position
with respect to the Security Deposit, and Landlord shall have the right to
refund all or any portion of the Security Deposit to the assignee at any time or
under any circumstances with no liability to the assignor.
Landlord may require that the assignee or subtenant remit directly to
Landlord on a monthly basis, all monies due to Tenant by said assignee or
subtenant. In such event Landlord shall apply the sums received to the
obligations of Tenant and its successors under this Lease.
In the event of default by any assignee or subtenant or any successor
of Tenant in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
such assignee, subtenant or successor.
Landlord may consent to subsequent assignments of the Lease or
sublettings or amendments or modifications to the Lease with the assignee or
other successor of Tenant, and without obtaining Tenant's consent thereto, and
any such actions shall not relieve Tenant of liability under this Lease.
Consent by Landlord to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting.
If Tenant is a corporation which, under California law, is not deemed a
publicly-held corporation, or is an unincorporated association or partnership,
the transfer, assignment or hypothecation of any stock or interest controlling
such corporation, association or partnership shall be deemed an assignment
within the meaning and provisions of this Section 17. For purposes hereof,
"control" shall be deemed to refer to any amount, in the aggregate, exceeding
25% of the voting power of such corporation, association of partnership.
Notwithstanding the foregoing, the immediately preceding sentence shall not
apply to any transfer of stock of Tenant if Tenant is a publicly-held
corporation and such stock is transferred publicly over a recognized security
exchange or over-the-counter market.
Subject to Section 17.2, Tenant agrees that all advertising by Tenant
to market the space in the Premises to be sublet or assigned shall require
Landlord's prior written approval, which shall not be unreasonably withheld.
Subject to
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Section 17.2, Tenant further agrees that it shall not, without Landlord's prior
written consent, which may be granted or withheld in Landlord's sole discretion,
market any space in the Premises, assign the lease or sublet any space in the
Premises to existing tenants or occupants of the Building, or to any entity
controlling, controlled by, or under common control with any existing tenant or
occupant of the Building, except for any entity controlling, controlled by or
under common control with Tenant.
Subject to Section 17.2, Tenant agrees that it shall not sublet, nor
assign, nor advertise as available for subletting or assignment, nor list with
brokers for subletting or assignment, all or any portion of the Premises for a
consideration which is equal to less than the fair market rental value, as
determined by Landlord in its reasonable discretion, for comparable space in the
Building for a comparable term commencing concurrently with the assignment or
sublease term, with comparable rent credits and tenant improvement allowances.
Within 10 days after Landlord receives any written request from Tenant for
Landlord's estimate of the fair market rental value for specified space (which
request shall identify the space in question, the proposed term and the proposed
rent credits and improvement allowances), Landlord shall notify Tenant in
writing of the fair market rental value for such space for a comparable term
with comparable rent credits and tenant improvement allowances.
17.2 Landlord acknowledges that Tenant's business to be conducted on
the Premises requires the installation on the Premises of certain communications
equipment by telecommunications customers of Tenant ("Customers") in order for
such Customers to interconnect with Tenant's terminal facilities.
Notwithstanding anything contained elsewhere in this Section 17, Landlord agrees
not to withhold its consent to any license agreement, sublease or "co-location
agreement" between Tenant and such a Customer for the purposes of permitting
such a telecommunications connection, so long as (a) such Customer agrees in
writing (in a form approved by Landlord in advance in writing) to comply with
all obligations imposed on Tenant under this Lease to the extent relating to the
portion of the Premises in question (including but not limited to insurance,
waiver and indemnity requirements); (b) such licenses, subleases or co-location
agreements do not collectively cover more than 50% of the Premises at any one
time; and (c) each such license, sublease or co-location agreement is on a form
for this purpose approved by Landlord in writing in advance. Provided that
Tenant's transactions with Customers comply with items (a), (b) and (c) above,
they need not comply with those requirements of Section 17.1 above regarding
financial statements, advertising, and minimum rental rates. Tenant shall be
liable to Landlord for any violation by its Customers of any provisions of this
Lease.
17.3 In the event that Tenant desires to assign this Lease, or
to enter into a sublease, as to all or any portion of the Premises, except (a)
where the subtenant or assignee is an entity controlling, controlled by or under
common control with Tenant, or (b) as permitted under Section 17.2 herein,
Tenant shall, prior to solicitation of offers therefor, give Landlord notice of
Tenant's desire to assign or sublet and of the portion of the Premises to be
affected by the proposed assignment or sublease. Landlord shall have the right,
exercisable by notice to Tenant within 60 days after Landlord's receipt of
Tenant's notice of desire to assign or sublet, to terminate this Lease as to the
portion of the Premises affected by the proposed assignment or sublease, such
termination to be effective as of the date 60 days after notice by Landlord to
Tenant of such termination.
In the event of a termination of this Lease as to a portion of the
Premises pursuant to this Section 17.3, effective as of such termination, the
Premises shall be deemed to no longer include the portion of the Premises
subject to such termination, Tenant shall surrender possession of that portion
of the Premises in accordance with the provisions of this Lease, and the rent
payable hereunder and Tenant's Percentage Share shall be appropriately adjusted
based upon the rentable area remaining within the Premises.
If Landlord does not elect to terminate pursuant to this Section 17.3,
and if Tenant does not enter into an assignment or sublease as specified in
Tenant's notice of desire to assign or sublet within 6 months after the
expiration of Landlord's 60-day period for election to terminate, then Tenant
shall again comply with the provisions of this Section 17.3 before assigning
this Lease, or entering into a sublease, as to all or any portion of the
Premises.
17.4 In the event that Tenant has sought and received Landlord's
consent to assign this Lease, or to enter into a sublease as to all or any
portion of the Premises, the monthly rent payable by Tenant to Landlord,
pursuant to Section 3, shall be increased by the amount to be received by Tenant
during each month pursuant to the terms of the assignment or sublease, in excess
of Tenant's monthly rental payable to Landlord for the space subject to the
assignment or sublease. The amounts referred to in the previous sentence include
rent, or any other payment in respect of use or occupancy, or in reimbursement
of costs of leasehold improvements installed by Tenant, and whether paid in a
lump sum or periodic payments; provided however, such amounts shall not include
any fees charged by Tenant to its Customers to the extent such fees are based on
Tenant's services (not square footage of space used by the Customers) as
provided under Section 17.2 herein. In no event shall the total sums payable to
the Landlord be less than the monthly rental Landlord would have received but
for such assignment or sublease.
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The additional rent shall be due and payable to Landlord in accordance
with the scheduled specified in the sublease or assignment instrument, and the
failure of any subtenant or assignee to make any payments in accordance with
that schedule shall not affect the obligation of Tenant to pay the additional
rent to Landlord.
The calculation of the amount of rentable space being sublet shall be
made by Landlord in accordance with its usual standards. Landlord may require
acknowledgment by Tenant of Tenant's concurrence on the Landlord's calculation
of the amount of rentable space being sublet as a condition to Landlord's
consent to any sublease.
The provisions of a sublease or assignment instrument consented to by
Landlord cannot be modified, nor the sublease or assignment terminated, other
than in accordance with its terms, without the prior written consent of the
Landlord, which consent shall not be unreasonably withheld. The terms of this
Section 17.4 shall apply to any subleasing or assignment by any subtenant or
assignee.
17.5 Tenant shall pay to Landlord, promptly upon receipt of a billing
from Landlord, the amount of Landlord's reasonable attorney fees incurred in
connection with Landlord's review of approval of any sublease or assignment
transaction requiring Landlord's consent hereunder.
18. TRANSFER OF LANDLORD'S INTEREST. In the event of any transfer of
Landlord's interest in the Building or Premises, other than a transfer for
security purposes only, the transferor shall be automatically relieved of any
and all obligations and liabilities on the part of Landlord accruing from and
after the date of such transfer, including, without limitation, the obligation
of Landlord to return the Security Deposit as provided in this Lease; provided
that the transferor shall, within a reasonable time, transfer any Security
Deposit then held by Landlord, or any portion thereof remaining after proper
deductions therefrom, to the transferee and shall thereafter notify Tenant of
such transfer, of any claims made against the Security Deposit, and of the
transferee's name and address, by written notice delivered personally (in which
case Tenant shall acknowledge receipt of such notice by signing Landlord's copy
of such notice) or by registered or certified mail.
19. HOLDING OVER. If Tenant holds over after the term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for any further term, and in such case, Base Rent shall be payable at a monthly
rate equal to the greater of : (a) two hundred percent (200%) of the Base Rent
applicable to the Premises immediately prior to the date of such expiration or
earlier termination; or (b) one hundred fifty percent (150%) of the prevailing
market rate excluding any rental or other concessions (as reasonably determined
by Landlord) for the Premises in effect on the date of such expiration or
earlier termination. Such month-to-month tenancy shall be subject to every other
term, covenant and agreement contained herein. Nothing contained in this Section
19 shall be construed as consent by Landlord to any holding over by Tenant, and
Landlord expressly reserves the right to require Tenant to surrender possession
of the Premises to Landlord as provided in this Lease upon the expiration or
other termination of this Lease.
20. NOTICES. In every case when, under the provisions of this Lease, it
shall be necessary or desirable for one party hereto to serve any notice,
request or demand on the other, such notice or demand shall be in writing and
shall be served personally or by deposit in the United States mail, postage and
fees fully prepaid, registered or certified mail, with return receipt requested,
addressed to the applicable address for notice set forth in Section A on page 1.
Landlord or Tenant may, from time to time, by notice in writing served upon the
other as aforesaid, designate a different mailing address or a different person
to whom all such notices or demands are thereafter to be addressed. Service of
any such notice or demand if given personally shall be deemed complete upon
delivery, and if made by mail shall be deemed complete on the day of actual
delivery as shown by the addressee's registry or certification receipt or at the
expiration of 2 business days after the date of mailing, whichever is earlier.
Notwithstanding the provisions of this Section 20, any notice of
default as described in Section 13.2 and any pleadings or notices given by
either party to the other with respect to any judicial proceeding between the
parties shall be served in the manner prescribed by applicable California law
without reference to this paragraph, and shall be deemed served at such time as
is provided by such applicable law without reference to this paragraph.
21. QUIET ENJOYMENT. Landlord covenants that Tenant, upon paying the
rent and performing the covenants of this Lease on Tenant's part to be
performed, shall and may peaceably and quietly have, hold and enjoy the Premises
for the term of this Lease.
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22. TENANT'S FURTHER OBLIGATIONS.
22.1 Except for ordinary wear and as otherwise provided in this Lease,
Tenant shall, at Tenant's expense, keep in good order, condition and repair the
interior of the Premises and shall promptly and adequately repair all damage to
the interior of the Premises and replace or repair all glass, fixtures,
equipment and appurtenances therein damaged or broken, under the supervision and
with the approval of Landlord and, if Tenant does not do so, Landlord may, but
need not, make such repairs and replacements. If Landlord does so, Tenant shall
pay Landlord the cost thereof promptly upon demand, as additional rent
hereunder.
22.2 Tenant shall comply with all laws, ordinances, rules, regulations,
orders and directives of governmental and quasi-governmental bodies and
authorities having jurisdiction over Tenant or the Premises from time to time
and shall obtain and keep in effect all licenses, permits (including but not
limited to conditional use permits) and other authorizations required with
respect to the business or businesses conducted by Tenant within or from the
Premises or with respect to any special equipment or facilities of Tenant
permitted under the other provisions of this Lease. Tenant and its employees,
agents, licensees and invitees shall also comply with all reasonable rules and
regulations which Landlord may adopt from time to time for the protection and
welfare of the Building and its tenants and occupants; provided that Tenant
shall not be responsible for compliance with any rule or regulation adopted by
Landlord unless or until Tenant is furnished with a copy thereof. The present
rules and regulations for the Building are attached hereto as Exhibit "B".
Landlord shall have no liability to Tenant for the failure or any other tenant
in the Building to observe the rules and regulations.
23. ESTOPPEL CERTIFICATE BY TENANT. At any time and from time to time,
within (15) days after written request by Landlord, Tenant shall execute,
acknowledge and deliver to Landlord a statement in writing certifying that this
Lease is unmodified and in full force and effect (or if there have been
modifications, that this Lease is in full force and effect as modified and
stating the modifications), that Tenant knows of no default hereunder by
Landlord and has no right of offset or deduction against the rent or any other
charge payable to Landlord (or specifying any claimed), the amount of any
security posted by Tenant, the dates to which the rent and other charges have
been paid in advance, any increases or decreases of rent that are anticipated,
the commencement date of the Lease and such other matters as may be reasonably
requested by Landlord. It is intended that any statement delivered pursuant to
this Section 23 may be relied upon by any purchaser of the fee or mortgages or
beneficiary or assignee of any mortgage or trust deed upon the fee of the
Building or Premises. Tenant's failure to deliver the statement within the
period specified above shall be conclusive and binding upon Tenant that the
Lease is in full force and effect without modification except as may be
represented by Landlord, that there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counterclaim or deduction
against rental, and that no more than one month's rental has been paid in
advance.
24. SUBORDINATION AND ATTORNMENT. This Lease is and at all times shall
be subject and subordinate to any ground or underlying leases, mortgages, trust
deeds or like encumbrances, which may now or hereafter affect the Building or
Premises, and to all renewals, modifications, consolidations, replacements and
extensions of any such lease, mortgage, trust deed or like encumbrance. As a
condition precedent to the effectiveness of any such subordination of this Lease
to any future ground or underlying leases or the lien of any future mortgages,
deeds of trust, or like encumbrances, Landlord shall provide to Tenant a
commercially reasonable non-disturbance and attornment agreement in favor of
Tenant executed by such future ground lessor, master lessor, mortgagee or deed
of trust beneficiary, as the case may be, which shall provide that Tenant's
quiet possession of the Premises shall not be disturbed on account of such
subordination to such future lease or lien so long as Tenant is not in default
under any provisions of this Lease. Notwithstanding the foregoing, Landlord
shall have the right to subordinate or cause to be subordinated any or all
ground or underlying leases or the lien of any or all mortgages, deeds of trust
or like encumbrances to the Lease. In the event that any ground or underlying
lease terminates for any reason or any mortgage, deed of trust or like
encumbrance is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, then at the election of Landlord's successor-in-interest, Tenant shall
attorn to and become the tenant of such successor. Tenant hereby waives its
rights under any current or future law which gives or purports to give Tenant
any right to terminate or otherwise adversely affect this Lease and the
obligations of Tenant hereunder in the event of any such foreclosure proceeding
or sale. Tenant covenants and agrees to execute and deliver to Landlord in the
form reasonably required by Landlord, within 10 days after receipt of written
demand by Landlord, any additional documents evidencing the priority or
subordination of this Lease with respect to any ground or underlying lease or
the lien of any mortgage, deed of trust, or like encumbrance. Should Tenant fail
to sign and return any such documents within said 10-day period, Tenant shall be
in default hereunder without the benefit of any additional notice or cure
periods, except as may be required by statute.
25. RIGHTS RESERVED TO LANDLORD.
25.1 All portions of the Building are reserved to Landlord, including
exterior building walls, core corridor walls and doors and any core corridor
entrance, but excluding the Premises and the inside surfaces of all walls,
windows and
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doors bounding the Premises. Landlord also reserves any space in or adjacent to
the Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts,
electric or other utilities, sinks or other building facilities, and the use
thereof, as well as the right to access thereto through the Premises for the
purposes of operation, maintenance, decoration and repair.
25.2 Landlord shall have the following rights exercisable without
notice and without liability to Tenant for damage or injury to property, person
or business (all claims for damage being hereby released), and without effecting
an eviction or disturbance of Tenant's use or possession or giving rising to any
claim for setoffs or abatement of rent:
(a) To enter the Premises at all reasonable times during the
term of this Lease for the purpose of inspecting the same, supplying janitorial
service, posting notices of non-responsibility, exhibiting the Premises to
prospective tenants, purchasers or others, or making such repairs or
replacements therein as may be required by this Lease or as Landlord may deem
appropriate; provided that Landlord shall use all reasonable efforts not to
disturb Tenant's use and occupancy and shall, when practical, give Tenant prior
notice of such repairs. For each of the foregoing purposes, Tenant shall provide
to Landlord a key with which to unlock at any time all of the doors in, upon and
about the Premises, excluding Tenant's vaults and safes. Landlord may use any
other means which Landlord may deem proper to open such doors in an emergency in
order to obtain entry to the Premises. Any entry to the Premises obtained by
Landlord by any means shall not under any circumstances be construed or deemed
to be a forcible or unlawful entry into, or a detainer of, the Premises, or an
eviction of Tenant from the Premises or any portion thereof, or grounds for any
abatement or reduction of rent. Any damages or losses on account of any such
entry by Landlord shall be Tenant's sole responsibility except as otherwise
expressly provided herein. Nothing in this Section 25 shall be construed as
obligating Landlord to perform any repairs, alterations or decorations, except
as otherwise expressly required in this Lease.
(b) To change the name or street address of the Premises or
Building.
(c) To install and maintain signs on the exterior and interior
of the Building, except within the Premises.
(d) To have pass keys to the Premises.
(e) To decorate, remodel, repair, alter or otherwise prepare
the Premises for reoccupancy during the last 6 months of the term hereof if,
during or prior to such time, Tenant has vacated the Premises, or any time after
Tenant abandons the Premises.
(f) To have access to all mail chutes according to the rules
of the United States Postal Service.
(g) To do or permit to be done any work in or about the
exterior of the Building or any adjacent or nearby building, land, street or
alley.
(h) To grant to anyone the exclusive right to conduct any
business or render any service in the Building, provided such exclusive right
shall not operate to exclude Tenant from the use expressly permitted by this
Lease.
26. FORCE MAJEURE. Whenever there is provided in this Lease a time
limitation for performance by Landlord or Tenant of any construction, repair,
maintenance or service, the time provided for shall be extended for as long as
and to the extent that delay in compliance with such limitation is due to an act
of God, governmental control or other factors beyond the reasonable control of
Landlord or Tenant, respectively.
27. WAIVER OF CLAIMS; INDEMNITY.
27.1 Tenant, as a material part of the consideration to Landlord,
hereby assumes all risk of, and waives all claims it may have against Landlord,
its agents, employees, affiliates and successors in interest for damage to or
loss of property or personal injury or loss of life resulting from the Building
or Premises or any part thereof becoming out of repair, by reason of any repair
or alteration thereof, or resulting from any accident within the Building or
Premises or on or about any space adjoining the Building or Premises, or
resulting directly or indirectly from any act or omission of any person, or due
to any condition, design or defect of the Building or Premises, or any space
adjoining the Building or Premises, or the mechanical systems of the Building or
Premises, which may exist or occur, whether such damage, loss or injury results
from conditions arising upon the Premises or upon other portions of the
Building, or from other sources or places, and regardless of whether the cause
of such damage, loss or injury or the means of repairing the same is accessible
to Tenant; provided such assumption and waiver shall not apply to claims caused
by the gross negligence or willful misconduct of Landlord or its agents.
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27.2 Tenant hereby indemnifies and holds Landlord and Landlord's
agents, employees, affiliates and successors in interest harmless from and
against any and all claims, demands, suits, fines, losses and other liabilities
for or relating to injury or loss of life to persons or damage to or loss of
property arising from Tenant's use of the Building or Premises or from the
conduct of Tenant's business or from any work done, permitted or suffered by
Tenant in or about the Premises or elsewhere, and further indemnifies and holds
Landlord and Landlord's agents, employees, affiliates and successors in interest
harmless from and against any and all claims arising from any breach or default
in the performance of any obligation on part to be performed under the terms of
this Lease, or arising from any negligence or intentional conduct of Tenant or
Tenant's agents, employees, contractors, licensees, invitees, representatives or
successors in interest, and from and against all costs, attorneys' and other
professional fees, expenses and liabilities incurred by Landlord or Landlord's
agents, employees, affiliates and successors in interest in or in connection
with any such claim, demand, suit, fine or proceeding. In the event that any
action or proceeding be brought against Landlord or Landlord's agents,
employees, affiliates or successors in interest by reason of any such claim,
Tenant upon notice from Landlord shall defend such action or proceeding at
Tenant's cost and expense by counsel approved by Landlord, such approval not to
be unreasonably withheld.
28. INSURANCE.
28.1 Tenant shall procure and shall maintain in effect, at Tenant's
sole cost and expense throughout the term of this Lease, including any
extensions and renewals thereof, public liability and property damage insurance
against claims for bodily injury, death or property damage occurring upon or
about the Premises or Building, in each case naming Landlord as additional
insured and, upon request by Landlord, naming the holder of any mortgage, deed
of trust or like encumbrance or the lessor under any underlying lease covering
the Building as additional insured, with a limit of liability of not less than
$2,000,000.00 single limit. If from time to time, the limits of liability set
forth above are, in the reasonable opinion of Landlord, inadequate, Tenant shall
increase such insurance coverage to an amount as shall be designated by
Landlord's notice to Tenant.
Tenant shall also procure and maintain, at Tenant's sole cost and
expense throughout the term of this Lease, casualty insurance on Tenant's
personal property in the Premises and any leasehold improvements which the
Tenant installed at its own cost in an amount at least equal to the full
replacement cost of such property, providing coverage against all perils insured
against by a "fire and extended coverage" policy, as well as sprinkler damage,
vandalism and malicious mischief.
Tenant shall also obtain the following insurance:
(a) Worker's compensation and employer's liability insurance
in form and amount satisfactory to Landlord.
(b) Loss of income and extra expense insurance in such amounts
as will reimburse Tenant for direct or indirect loss of earnings attributable to
all perils commonly insured against by prudent tenants or attributable to
prevention of access to or use of the Premises or the Building as a result of
such perils.
(c) Liquor liability insurance coverage in limits of not less
than Five Hundred Thousand Dollars ($500,000), if at any time during the term
hereof any alcoholic beverages of any nature are served on the Premises.
(d) Any other form or forms of insurance as Landlord or
Landlord's lender or ground or primary lessors may reasonably require from time
to time in form, in amounts, and for insurance risks against which a prudent
tenant of a comparable size and in a comparable business would protect itself.
Such policies of insurance shall be with insurance companies acceptable
to Landlord, shall not have a deductible amount exceeding $5,000.00 in the
aggregate, and shall specifically provide that the insurance afforded by such
policies for the benefit of Landlord and Landlord's mortgagees and ground
lessors shall be primary, and that any insurance carried by Landlord or
Landlord's mortgagees and ground lessors shall be excess and non-contributing.
Such policies shall be evidenced by certificates of insurance delivered to
Landlord from time to time showing such insurance to be at all times prepaid and
in full force and affect and providing that such insurance cannot be cancelled
or modified upon less than 30 days' prior written notice to Landlord. If at any
time Tenant has not provided Landlord with a then currently effective
certificate of insurance acceptable to Landlord as to any insurance required to
be maintained by Tenant, Landlord may, without further inquiry as to whether
such insurance is actually in force, obtain such a policy and Tenant shall
reimburse Landlord, upon demand as additional rent hereunder, for the cost
thereof, together with Landlord's administrative fee equal to 25% of the
premium.
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28.2 Tenant hereby waives its rights against Landlord and its managing
agent and their respective partners, officers, directors, shareholders,
employees, agents, representatives, contractors, affiliates, successors,
licensees, and invitees with respect to any claims or damages or losses
(including any claims for bodily injury to persons and/or damage to property)
which are caused by or result from (a) risks insured against under any insurance
policy carried by Tenant at the time of such claim, damage, loss or injury, or
(b) risks which would have been covered under any insurance required to be
obtained and maintained by Tenant under this lease had such insurance been
obtained and maintained as required. The foregoing waivers shall be in addition
to, and not a limitation of, any other waivers or releases contained in this
Lease.
28.3 Tenant shall cause each insurance policy required to be obtained
by it pursuant to this Section 28 to provide that the insurer waives all rights
of recovery by way of subrogation against Landlord and its managing agent and
their respective partners, officers, directors, shareholders, employees, agents,
representatives, contractors, affiliates, successors, licensees, and invitees in
connection with any claims, losses and damages covered by such policy. If Tenant
fails to maintain insurance required hereunder, Tenant shall be deemed to be
self-insured with a deemed full waiver of subrogation as set forth in the
immediately preceding sentence.
29. FIXTURES: TENANT IMPROVEMENTS AND ALTERATIONS.
29.1 Except as otherwise provided in any rider to this Lease, all
improvements, fixtures and/or equipment which Tenant may install or place in or
about the Premises, and all alternations, repairs or changes to the Premises,
and all signs installed in, on or about the Premises, from time to time, shall
be at the sole cost of Tenant. Landlord shall be without any obligation in
connection therewith. Tenant hereby indemnifies and holds Landlord harmless from
any liability, cost, obligation, expense or claim of lien in any manner relating
to the installation, placement, removal or financing of any such alterations,
repairs, changes, improvements, fixtures, and/or equipment in, on or about the
Premises.
29.2 Notwithstanding any provision in this Section 29 to the contrary,
Tenant is absolutely prohibited from making any alterations, additions,
improvements or decorations which: (i) affect any area outside the Premises;
(ii) affect the Building's structure, equipment, services or systems, or the
proper functioning thereof, or Landlord's access thereto; (iii) affect the
outside appearance, character or use of the Building or the common areas; (iv)
weaken or impair the structural strength of the Building; (v) in the opinion of
Landlord, lessen the value of the Building; (vi) will violate or require a
change in any occupancy certificate applicable to the Premises; or (vii) in the
opinion of Landlord, will increase the Building's Operating Costs or Utility
Costs.
29.3 Before proceeding with any alteration, repair or change which is
not otherwise prohibited in Subsection 29.2 above, Tenant must first obtain
Landlord's written approval of (i) the plans and specifications for all such
work; (ii) with respect to any connecting lines that will be outside the
Premises (if such lines are permitted by Landlord in its sole discretion), a
description of the areas of the Building to which Tenant will require access
both for the initial work and for ongoing maintenance of the improvements or
installations; (iii) the names of all contractors and subcontractors who will
perform such work, all of whom shall be selected from Landlord's then-current
list of approved contractors, which Landlord may compile in Landlord's sole
discretion and will provide to Tenant within ten days following Landlord's
receipt of Tenant's written request; (iv) copies of all liability, casualty and
worker's compensation insurance applicable to the construction, maintenance and
ongoing operation of the improvements and installations; and (v) copies of all
governmental permits required for the work. Landlord's consent to such matters
shall not unreasonably be withheld; provided, however, that with regard to any
such matters which may affect the structural members, the heating, ventilation,
air conditioning or other building systems, exterior walls, windows and doors of
the Building, and with regard to the installation of any signs outside the
Premises, Landlord may grant or withhold its consent in its unlimited
discretion. Landlord may impose, as a condition of its consent to any
alterations, repairs or changes of the Premises, such requirements as Landlord
in its sole discretion may deem desirable, including, but not limited to, the
requirement that Tenant utilize for such purposes only contractors, materials,
mechanics and materialmen previously used and currently approved by Landlord for
work in the Building.
29.4 After Landlord has approved the change, repair or alteration and
the other items listed in Section 29.3, Tenant shall enter into an agreement for
the performance of such change, repair or alteration with the contractors and
subcontractors approved by Landlord, as provided in Section 29.3. Before
proceeding with any change, repair or alteration Tenant shall (i) provide
Landlord with 10 days' prior written notice thereof; and (ii) pay to Landlord,
within 10 days after written demand, the costs of any increased insurance
premiums incurred by Landlord as a result of such changes, repairs or
alterations. In addition, before proceeding with any change, repair or
alteration Tenant's contractors shall obtain, on behalf of Tenant and at
Tenant's sole cost and expense: (A) all necessary governmental permits and
approvals for the commencement and completion of such change, repair or
alteration; and (B) a completion and lien indemnity bond, or other surety,
satisfactory to Landlord for such change, repair or alteration. Landlord's
approval of permits pursuant to Section 29.3 shall not relieve Tenant of the
obligation to obtain any other or supplemental permits required by the preceding
sentence.
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29.5 Tenant shall pay to Landlord, as additional rent, the reasonable
costs of Landlord's engineers and other consultants (but not Landlord's on-site
management personnel) for review of all plans, specifications and working
drawings for the change, repair or alteration within 10 business days after
Tenant's receipt of invoices either from Landlord or such consultants. In
addition to such costs, Tenant shall pay to Landlord, within 10 business days
after completion of any change, repair or alteration, the actual, reasonable
costs incurred by Landlord for services rendered by Landlord's management
personnel and engineers to coordinate and/or supervise any of the change, repair
or alteration to the extent such services are provided in excess of or after the
normal on-site hours of such engineers and management personnel.
29.6 All changes, repairs and alterations shall be performed: (i) in
accordance with the approved plans, specifications and working drawings; (ii)
lien-free and in a first-class and workmanlike manner; (iii) in compliance with
all laws, rules, and regulations of all governmental agencies and authorities;
(iv) in such a manner so as to not to interfere with the occupancy of any other
tenant in the Building, nor impose any additional expense or delay upon Landlord
in the maintenance and operation of the Building; and (v) at such times, in such
manner and subject to rules and regulations as Landlord may from time to time
reasonably designate.
29.7 Throughout the performance of any such change, repair or
alteration Tenant shall obtain, or cause its contractors to obtain, worker's
compensation insurance and general liability insurance covering the work in
compliance with provisions of Section 28 of this Lease, and builder's risk
insurance for the work reasonably acceptable to Landlord.
29.8 In the event Tenant orders any construction, alteration,
decorating or repair work directly from Landlord, or from the contractor
selected by Landlord, the charges for such work, together with Landlord's
administration fee equal to 15% of the contract price, shall be deemed
additional rent under this Lease, payable upon billing therefor, either in
advance of the start of work, or periodically during construction, or upon the
substantial completion of such work, at Landlord's option.
30. MECHANIC'S LIEN. Tenant agrees to give Landlord written notice of
the commencement date of any alterations, improvements or repairs to be made in,
to or upon the Premises not later then fifteen (15) days prior to the
commencement of any such work, in order to give Landlord time to post notices of
nonresponsibility. Tenant will not permit any mechanic's, materialman's or other
lien to be placed upon the Premises or Building or improvements therein during
the term hereof; and in the event that any mechanic's, materialman's or other
lien is filed against the Premises or Building or improvements therein in
connection with any alteration, repair, improvement or change of, or
installation of fixtures or equipment in, the Premises, Tenant shall cause such
lien to be released within 10 days after such filing, either by satisfaction or
such claim or by posting of a bond. Notwithstanding the foregoing, Landlord
shall have the right and privilege at Landlord's option of paying the amount of
any such lien or claim, or any portion thereof, without inquiry as to the
validity thereof, and any amounts so paid, including expenses and interest,
shall be deemed additional rent hereunder due from Tenant to Landlord upon
demand.
31. ALTERNATE SPACE. If the Premises comprise less than a full floor in
the Building, Landlord shall have the privilege of moving Tenant to other space
in the Building comparable to the Premises, and all terms hereof shall apply to
the new space with equal force. In such event Landlord shall give Tenant at
least 60 days' prior notice in writing and shall move Tenant's effects to the
new space at Landlord's sole cost and expense at such time and in such manner as
to inconvenience Tenant as little as practicable.
32. HAZARDOUS MATERIALS.
32.1 In addition to its other obligations under this Lease, Tenant
covenants to comply with all laws relating to Hazardous Materials, as defined
below, with respect to the Premises and the Building. Except for general office
supplies typically used in an office area in the ordinary course of business
(such as copier toner, liquid paper, glue, ink and cleaning solvents), for use
in the manner for which they were designed and only in accordance with all
Hazardous Materials laws and the highest standards prevailing in the industry
for such use, and then only in such amounts as may be normal for the office
business operations conducted by Tenant on the Premises, neither Tenant nor any
of Tenant's agents, employees, contractors, subtenants, assignees, licensees or
invitees ("Tenant's Parties") shall use, handle store or dispose of any
Hazardous Materials in, on, under or about the Premises, the building or the
site on which the Building is located. Tenant shall promptly take all actions,
at its sale cost and expense, as are necessary to return the Premises, Building
and site to the condition existing prior to the introduction of any such
Hazardous Materials by Tenant or any Tenant Parties, provided Landlord's
approval of such actions shall first be obtained. Furthermore, Tenant shall
immediately notify Landlord of any inquiry, test, investigation or enforcement
proceeding by or against Tenant or the Premises concerning the presence of any
Hazardous Material.
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32.2 Tenant shall be solely responsible for and shall indemnify, defend
(with counsel reasonably approved by Landlord) and hold Landlord harmless from
and against any and all claims, demands, judgments, suits, causes of action,
damages, penalties, fines, liabilities, losses and expenses (including, without
limitation, investigation and clean-up costs, attorneys' fees, consultant fees
and court costs) which arise during or after the term of this Lease as a result
of the breach of any of the obligations and covenants set forth in this Section
33, and/or any contamination of the Premises, Building or site directly on
indirectly arising from the activities of Tenant or any Tenant Parties.
32.3 For purposes of this Lease, the term "Hazardous Materials" shall
mean, collectively, asbestos, any petroleum fuel, and any hazardous or toxic
substance, material or waste which is or becomes regulated or defined as
hazardous or toxic by any local governmental authority, the State of California
or the United States Government, including, but not limited to, any material or
substance defined as hazardous or toxic under the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601, et seq.; the
Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq.; the
Toxic Substances Control Act, 15 U.S.C. Sections 2601, et seq.; the Federal
Water Pollution Control Act, 33 U.S.C. Sections 1251, et seq.; the California
Hazardous Substance Account Act, California Health and Safety Code Sections
25330, et seq.; the California Hazardous Waste Control Act, California Health
and Safety Code Sections 25100 et seq.; the California Safe Drinking Water and
Toxic Health Enforcement Act, California Health and Safety Code Sections
25249.5, et seq.; California Health and Safety Code Sections 25280, et seq.
(Underground Storage of Hazardous Substances); the California Hazardous Waste
Treatment Reform Act, California Health and Safety Code Sections 25179.1, et
seq.; California Health and Safety Code Sections 25501, et seq. (Hazardous
Materials Release Response Plans and Inventory); Petroleum Underground Storage
Tank Cleanup, Health and Safety Code Sections 25299.10, et seq.; and the
Porter-Cologne Water Quality Control Act, California Water Code Sections 13000,
et seq., as such laws may be amended from time to time.
32.4 The foregoing covenants and indemnities of Tenant shall survive
the expiration of earlier termination of the Lease.
33. MISCELLANEOUS.
33.1 No receipt of money by Landlord from Tenant after the termination
of this Lease, the service of any notice, the commencement of any suit or final
judgment for possession shall reinstate, continue or extend the term of this
Lease or affect any such notice, demand, suit or judgment. No payment by Tenant
or receipt by Landlord of a lesser amount than the rent payment herein
stipulated shall be deemed to be other than on account of the rent, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy provided in this Lease. Tenant
agrees that each of the foregoing covenants and agreements shall be applicable
to all obligations of Tenant to Landlord, whether expressly contained in this
Lease or imposed by any statute or at common law.
33.2 If any provision of this Lease or its application to any party or
circumstances shall be determined by any court of competent jurisdiction to be
invalid or unenforceable to any extent, the remainder of this Lease or the
application of such provision to such person or circumstances, other than those
as to which it is so determined invalid or unenforceable to any extent, shall
not be affected thereby, and each provision hereof shall be valid and shall be
enforced to the fullest extent permitted by law; and it is the intention of the
parties to this Lease that in lieu of each clause or provision of this Lease
that is illegal, invalid or unenforceable, there be added as a part of this
Lease a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable.
33.3 The covenants and obligations of Tenant pursuant to this Lease
shall be independent of performance by Landlord of the covenants and obligations
of Landlord pursuant to this Lease, and performance by Tenant of each covenant
and obligation of Tenant pursuant to this Lease shall be a condition precedent
to the duty of Landlord to perform the covenants and obligations of Landlord
pursuant to this Lease.
33.4 The headings of Sections of this Lease are for convenience only
and do not define, limit or construe the contents thereof. References made in
this Lease to numbered Sections, Paragraphs and Subparagraphs shall refer to
numbered Section, Paragraphs or Subparagraphs of this Lease unless otherwise
indicated.
33.5 Where appropriate, words in the singular, including without
limitation the words "Landlord" and `Tenant", include the plural, and vice
versa. Words in the neuter gender include the masculine and feminine genders,
and vice versa, and words in the masculine gender include the feminine gender,
and vice versa.
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33.6 If more than one person or entity executes this Lease as Tenant:
(a) each of them is and shall be jointly and severally liable for the covenants,
conditions, provisions and agreements of this Lease to be kept, observed and
performed by Tenant; and (b) the act or signature of, or notice from or to, any
one or more of them with respect to this Lease shall be binding upon each and
all of the persons and entities executing this Lease as Tenant with the same
force and effect as if each and all of them had so acted or signed, or given or
received such notice.
33.7 Time is of the essence of this Lease. Failure of either party to
perform any act strictly within the applicable period specified herein shall
entitle the other to exercise all remedies herein contemplated. All references
in this Lease to "days" shall mean calendar days unless specifically stated
herein to be "business" days.
33.8 This Lease shall be governed by and interpreted in accordance with
the laws of the State of California.
33.9 All monetary obligations of either party hereunder to the other
remaining past due 10 days or more after the date specified herein for payment
shall bear interest until paid at the lesser of (i) the Bank of America prime
rate as of the due date plus 6%, or (ii) the maximum rate permitted by law.
33.10 This instrument, along with any riders, exhibits and attachments
or other documents referred to in Section M on page 2 (all of which riders,
exhibits, attachments and other documents are hereby incorporated into this
instrument by this reference), constitutes the entire and exclusive agreement
between Landlord and Tenant relating to the Premises, and this agreement and
said riders, exhibits and attachments and other documents may be altered,
amended or revoked only by an instrument in writing signed by the party to be
charged thereby. All prior or contemporaneous oral agreements, understandings
and/or practices relative to the leasing of the Premises are merged herein or
revoked hereby. References in this instrument to this "Lease" shall mean, refer
to and include this instrument as well as any riders, exhibits, attachments or
other documents referred to in Section M, and references to any covenant,
condition, obligation and/or undertaking "herein", "hereunder" or "pursuant
hereto" (or language of like import) shall mean, refer to and include the
covenants, conditions, obligations and undertakings existing pursuant to this
instrument and such riders, exhibits, attachments or other documents. All terms
defined in this instrument shall be deemed to have the same meanings in all
riders, exhibits, attachments or other documents referred to in Section M unless
the context thereof clearly requires the contrary.
33.11 Tenant hereby consents to amendment of this Lease as and to the
extent required by any lender which makes a loan to Landlord secured in whole or
in part by the Building, provided that no such change shall decrease the Term or
cancel a renewal term contained herein or increase the rent payable hereunder or
impair Tenant's use of the Premises.
33.12 Unless otherwise agreed in writing, if Tenant has dealt with any
real estate broker or other person or firm with respect to leasing or renting
space in the Building, Tenant shall be solely responsible for the payment of any
fee due said broker, person or firm and Tenant hereby indemnifies and holds
Landlord harmless from and against any liability with respect thereto.
Notwithstanding the foregoing, Landlord agrees to pay, and to hold Tenant
harmless from, the commission owning to the brokers identified in Section L on
page 2, as provided in a separate agreement between Landlord and such brokers.
33.13 Tenant agrees to Pay to Landlord as additional rent hereunder any
taxes required by law to be paid by Tenant and collected from Tenant by
Landlord.
33.14 Submission of this Lease for examination, even though executed by
Tenant, shall not bind Landlord in any manner, and no lease or other obligation
on the part of Landlord shall arise until this Lease is executed and delivered
by Landlord to Tenant. This Lease shall not be binding and in effect until a
counterpart hereof has been executed and delivered by the parties, each to the
other.
33.15 Tenant shall not cause the recordation of this Lease, a short
form memorandum of this Lease or any reference to this Lease.
33.16 Upon 10 days' prior written request from Landlord (which Landlord
may make at anytime during the term but no more often than two times in any
calendar year), Tenant shall deliver to Landlord (a) a current financial
statement of Tenant and any guarantor of this Lease, and (b) financial
statements of Tenant and such guarantor for the two years prior to the current
financial statement year. Such statements shall be prepared in accordance with
generally acceptable accounting principles, and certified as true in all
material respects by Tenant (if Tenant is an individual) or by an authorized
officer or general partner of Tenant (if Tenant is a corporation or partnership,
respectively).
33.17 Notwithstanding anything contained in this lease to the contrary,
the obligations of Landlord under this Lease (including any actual or alleged
breach or default of Landlord) do not constitute personal obligations of the
individual
25
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partners, directors, officers, shareholders, agents of employees of Landlord or
of Landlord's partners or agents, and Tenant shall not seek recourse against any
such persons or entities or any of their personal assets for satisfaction of any
liability with respect to this Lease. In addition, in consideration of the
benefits accruing hereunder to Tenant and notwithstanding anything contained in
this Lease to the contrary, Tenant hereby covenants and agrees for itself and
all of its successors and assigns that the liability of Landlord for its
obligations under this Lease (including any liability as a result of any actual
or alleged failure, breach or default hereunder by Landlord) shall be limited
solely to, and Tenant's and its successors' and assigns' sole and exclusive
remedy shall be against, Landlord's interest in the Building and proceeds
therefrom, and no other assets of Landlord.
33.18 If Tenant is identified herein as a corporation, then the persons
executing this Lease on behalf of Tenant hereby represent that they are duly
authorized to execute and deliver this Lease on behalf of Tenant pursuant to
Tenant's by-laws or a resolution Of its board of directors.
If Tenant is identified herein as a partnership, the undersigned
represents that they are all of the general partners of Tenant, that Tenant has
been formed under the laws of the State of California, and is duly qualified to
do business in the State of California, and that this Lease is being executed on
behalf of Tenant. Each of the partners of Tenant executing this Lease agrees
that he or she and Tenant are irrevocably bound by execution of any amendment to
or modification of this Lease by one or more of the partners of Tenant. Tenant
agrees that each now partner in Tenant shall be obligated under this Lease, in
the same fashion as the existing partners, and that each now partner shall
execute a copy of this Lease and deliver it to Landlord within 60 days after
that partner's admission to the partnership. In the event that such newly
admitted partner is a corporation, the principal or principals for whose benefit
the corporation has been organized shall execute and deliver to Landlord a lease
guaranty in form acceptable to Landlord. Each newly admitted partner in Tenant
shall be jointly and severally liable with the remaining partners for the
performance and satisfaction of all obligations of the Tenant under this Lease
accruing from and after the effective date of the admission of the now partner
to the Partnership. If the provisions of this paragraph we satisfied, the
admission of a now partner shall not be considered an assignment of the lease
for the purposes of Section 17 hereof.
33.19 Subject to the provisions of Section 17 above, and except as
otherwise provided in this Lease, all of the covenants, conditions and
provisions of this Lease shall be binding upon, and shall inure to the benefit
of the parties hereto and their respective heirs, personal representatives and
permitted successors and assigns; provided, however, that no rights shall inure
to the benefit of any transferee of Tenant unless the transfer to such
transferee is made in compliance with the provisions of Section 17, and no
options or other rights which are expressly made personal to the original Tenant
hereunder or in any rider attached hereto shall be assignable to or exercisable
by anyone other than the original Tenant under this Lease.
33.20 The voluntary or other surrender of this Lease by Tenant or
mutual termination thereof shall not work as a merger and shall, at this option
of Landlord, either (a) terminate all and any existing subleases, or (b) operate
as an assignment to Landlord of Tenant's interest under any or all such
subleases.
33.21 Except for Tenant's identity sign on the entry doors of the
Premises and Tenant's elevator lobby identity sign on any full floor of the
Building leased by Tenant (which signs shall be consistent with the Building's
signage program and otherwise subject to Landlord's prior written approval),
Tenant shall have no right to place any sign upon the Premises, the Building or
the site on which the Building is located or which can be seen from outside the
Premises.
33.22 The effectiveness of this Lease and Landlord's obligations
hereunder are subject to and conditional upon Tenant's delivery to Landlord of a
lease guaranty in the form prescribed by Landlord in its sole discretion, fully
executed by the guarantor or guarantors specified in Section N on page 2 of this
Lease.
34. "AS-IS" CONDITION. Tenant is taking the Premises in its "as-is"
condition existing as of the execution date of this Lease, subject however to
Landlord's demolition of existing tenant improvements in the Premises and
Landlord's removal and replacement of certain asbestos-containing construction
materials in the Premises, the scope of both of which shall be determined by
Landlord in its reasonable discretion. Landlord shall have no obligation for the
construction or modification of tenant improvements for Tenant. In constructing
its own tenant improvements to the Premises, Tenant shall comply with the other
applicable provisions of this Lease (including but not limited to Section 29)
and shall utilize only contractors, materials, mechanics, materialmen,
architects and engineers used and currently approved in writing by Landlord for
work in the Building.
35. TENANT'S SUPPLEMENTAL AIR-CONDITIONING. Tenant shall have the right
to install in the Premises its own self-contained 24-hour heating, ventilating
and air-conditioning unit, subject to compliance with the other provisions of
this Lease, including but not limited to obtaining Landlord's prior written
consent to the plans and specifications for the
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work and electrical requirements of the unit. Tenant shall in no event be
permitted to exhaust such system out of the west side of the Building. Tenant
shall pay all costs of electricity for such unit and, at Landlord's election,
the electrical requirements for such unit shall be separately metered to Tenant
at Tenant's expense.
36. CONDITIONS TO EFFECTIVENESS. Tenant acknowledges that the Premises
are currently occupied by another tenant pursuant to such tenant's existing
lease with Landlord. Landlord is currently negotiating with such existing tenant
to relinquish the Premises to Landlord prior to the currently scheduled
expiration of its lease. Although Landlord presently anticipates it will execute
a lease amendment or lease termination with such existing tenant concerning the
Premises, Landlord cannot make any warranty or guarantee in that regard, and
Landlord will only enter such a lease amendment or termination on terms
acceptable to Landlord in its sole discretion. Tenant's sole remedies for the
failure of Landlord to timely deliver possession of the Premises to Tenant for
any reason including, but not limited to, the failure of the existing tenant to
vacate, shall be those remedies prescribed in Section 2.1 of this Lease.
IN WITNESS WHEREOF, this instrument has been duly executed by the
parties hereto, as to the date first above written.
PAC-WEST TELECOMM, INC.
a California corporation
By: /s/ Dennis V. Meyer
------------------------------
Its: Chief Financial Officer
& Treasurer
--------------------------
By:
------------------------------
Its:
--------------------------
ONE WILSHIRE ARCADE IMPERIAL, LTD.,
a California limited partnership
By Paramount Group, Inc. Agent
By:
------------------------------
Its:
--------------------------
By: /s/ Roger S. Newman
------------------------------
Its:
--------------------------
Senior Vice President
Property Management Office
Buildings
27
<PAGE>
ONE WILSHIRE ARCADE IMPERIAL, LTD.
FIRST AMENDMENT TO LEASE
RE TELECOMMUNICATIONS CONDUIT
PARTIES: ONE WILSHIRE ARCADE IMPERIAL, LTD.,
a California Limited Partnership
624 S. Grand Avenue, Suite 1207
Los Angeles, CA 90017
("Landlord")
PAC-WEST TELECOMM, INC.
a California Corporation
624 So. Grand Avenue, Suite 1210
Los Angeles, CA 90017
DATE: December 11, 1996
PLACE: Los Angeles, California
RECITALS
--------
A. Landlord and Tenant have previously entered into a lease, dated July
3, 1996, as amended to date (the "Lease"). The Lease pertains to Suite 1210 (the
"Premises") in Landlord's office building at 624 South Grand Avenue, Los
Angeles, California 90017 (the "Building").
B. Tenant wishes to lease from Landlord certain conduit space outside
the Premises, running from floor P-1 up through 17th floor of the Building, for
use in Tenant's telecommunications business. Landlord is willing to lease Tenant
such conduit space on the terms and conditions set forth below.
NOW, THEREFORE, the parties hereby agree as follows:
AGREEMENT
---------
1. Lease and Use of Conduit. Landlord hereby lease to Tenant, as part
of the Premises for the balance of the Lease term, the conduit space described
below (the "Conduit Space"). Tenant shall use the Conduit Space solely for
telecommunications cable to connect the Premises to other telecommunications
companies that lease space on the floors of the Building through which the
Conduit Space passes. Any such connection shall require the mutual written
agreement of Tenant and the other affected telecommunications company.
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The Conduit Space is contained within one, one-inch conduit running
from P-1 through 17th floor. The location of the Conduit Space is:
In the conduit closet located in the northwest corridor of the
building on each floor and in the parking garage.
The Conduit Space runs through a conduit closet on each floor and then
to the parking level P-1. Access to the conduit closet on each floor shall, at
Landlord's election, be restricted so that no entry to the closet will be
permitted unless Landlord's designated contractor or other representative is
present. Landlord may require any installation of cable in the Conduit Space or
any connection of Tenant's cable to the Premises or cable of other tenants in
the Building to be performed by Landlord's approved contractor. All costs of
such installations and connections (including but not limited to Landlord's
administrative fee) and the ongoing use and maintenance of such items shall be
at Tenant's sole expense. Tenant shall pay Landlord any costs incurred by
Landlord, together with Landlord's administrative fee, within ten days after
Tenant's receipt of a bill for such items. Tenant's use of the Conduit Space and
such cable and connecting lines shall comply with all applicable laws, the other
provisions of the Lease, and such Building Rules as are adopted by Landlord from
time to time, and shall not interfere in any way with the operation of the
Building or with the use by any other tenant of the Building of such tenant's
premises or the common area of the Building. All required cabling and connecting
lines shall be installed out of sight.
Prior to any installation of cable in the Conduit Space or connecting
lines to the Premises or the premises of other tenants, Tenant shall obtain
Landlord's written approval of (i) the plans and specifications for all such
work; (ii) a description of the areas to which Tenant or the contractor will
require access both for the initial work and for ongoing maintenance of the
installations; (iii) the names and credentials of all contractors who will
perform such work (subject to Landlord's right to require the use of Landlord's
approved contractor); (iv) copies of all liability, casualty and worker's
compensation insurance applicable to construction, maintenance and ongoing
operation of the improvements and installations; (v) copies of all governmental
permits required for the work; and (vi) in the case of connecting lines to the
Premises or cable systems of another tenant, the written consent of such other
tenant to the work. Any such connection outside of the conduit closet shall be
subject to Landlord approval and shall be governed by a separate lease
agreement.
2. Conduit Rent. Tenant agrees to pay Landlord additional rent for the
Conduit Space, which initially shall be a one-time payment of $17,500 due and
payable no later than January 30, 1996. Of the $17,500, $12,000 shall be payable
as the Tenant's participation fee for the new conduit shaft and meet me room.
Tenant shall sign a separate agreement relative to the use of the conduit shaft
and meet me room. The monthly charges for the meet me room will be $350 for a
cabinet and $750 for a cage, depending on tenant's selection. The remaining
$5,500 one-time is for the one inch conduit from 17 to P1. The additional rent
for the Conduit Space shall be $50 per month, subject to adjustment as provided
below. Such additional rent shall be due and payable to Landlord on the first
day of each month or portion of a calendar month throughout the balance of the
Lease term, together with Tenant's Base Rent and other monthly charges, with the
first installment of additional rent due on January 1, 1996. Thereafter, the
amount of such monthly conduit rent may be adjusted by Landlord from time to
time in its sole discretion upon prior written notice to Tenant.
3. Indemnity and Waiver. Tenant hereby agrees to indemnify and hold
harmless Landlord and its partners, its agent Paramount Group, Inc. and their
respective officers, directors, shareholders, agents and employees
(collectively, the "Landlord Group") from and against any and all claims
(including but not limited to claims for bodily injury or property damage),
actions, mechanic's liens, losses, liabilities, and expenses (including
reasonable attorney fees and costs of defense by Landlord's legal counsel)
(collectively, "Claims"), which may arise from the installation, operation, use,
maintenance or removal of the cable and connecting lines pursuant to this
Amendment. Similarly, Tenant shall pay upon demand by Landlord the cost to
repair any damage to the Building caused by such installation, operation, use,
maintenance or removal. Tenant hereby waives and releases the Landlord Group
from any Claims Tenant may have at any time (including but not limited to Claims
relating to interruptions in services) arising out of or relating in any way to
the installation, operation, use, maintenance, or removal of the cable and
connecting lines described in this Amendment, whether or not caused by the
negligence of any member of the Landlord Group or Landlord's contractors.
2
<PAGE>
4. Removal of Cable and Connecting Lines. Tenant agrees that, upon the
expiration or termination of the Lease, Tenant (or, at Landlord's election, the
contractor designated by Landlord) shall promptly remove, at Tenant's sole cost
and expense, all cable, connecting lines, and other installations installed
under this Amendment (excepting the 4-inch conduit itself, which shall remain
the property of Landlord), and restore those portions of the Building damaged by
such removal to their condition immediately prior to the installation of such
items. If Tenant fails to promptly remove all such items pursuant to this
Section 4, or if Landlord elects to have such work performed by Landlord's
contractor, Landlord may remove such items installed hereunder, and restore
those portions of the Building damaged by such removal to their condition
immediately prior to the installation, in which case Tenant agrees promptly to
pay Landlord's reasonable costs of removal and restoration, including Landlord's
administrative fee.
5. Applicability of Other Provisions. Except as explicitly provided
otherwise herein, Tenant's obligations under the Lease for the protection of the
Building, Landlord, the Landlord Group, and third parties, including but not
limited to Tenant's obligation regarding maintenance, repairs, mechanic's liens,
insurance, attorneys' fees and cost of suit, shall apply in the same fashion
with respect to Tenant's use of the Conduit Space and the cable and connecting
lines described in this Amendment as they do with respect to Tenant's use of the
Premises.
6. Miscellaneous. This Lease supersedes all prior or contemporaneous
understandings, negotiations, or agreements between the parties, whether written
or oral, with respect to its subject matter. This Lease may be further amended
only in a writing signed by both Landlord and Tenant.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date and at the place first written above.
LANDLORD: ONE WILSHIRE ARCADE IMPERIAL, LTD.
a California Limited Partnership
By: Paramount Group, Inc., Its Agent
By: /s/ Daniel K. Brown
-----------------------------------
Daniel K. Brown
Its: Director - Property Management
-------------------------------
By:
-----------------------------------
Its:
-------------------------------
TENANT: Pac-West Telecomm, Inc.
a California Corporation
By: /s/ Dennis ????????????
-----------------------------------
Its: C.F.O.
-------------------------------
By:
-----------------------------------
Its:
-------------------------------
3
<PAGE>
ONE WILSHIRE ARCADE IMPERIAL, LTD.
SECOND AMENDMENT TO LEAE RE LICENSE
FOR USE OF TELECOMMUNICATIONS CONDUIT
AND SPECIAL CONDUIT INTERCONNECTION ROOM
PARTIES: ONE WILSHIRE ARCADE IMPERIAL, LTD.,
a California Limited Partnership
624 S. Grand Avenue, Suite 1207
Los Angeles, CA 90017
("Landlord")
PAC-WEST TELECOMM, INC.
a California Corporation
624 So. Grand Avenue, Suite 1210
Los Angeles, CA 90017
("Tenant")
DATE: March 20, 1997
PLACE: Los Angeles, California
RECITALS
--------
A. Landlord is the owner of the One Wilshire Building, located at 624
S. Grand Avenue, Los Angeles, California 90017 (the "Building"). Landlord leases
to Tenant Suite 1210 in the Building (the "Premises") pursuant to a written
lease dated July 3, 1996, as amended to date (the "Lease").
B. Landlord has set aside a portion of the fourth floor of the Building
for use as a special conduit room (the "Conduit Room") and has set aside a
portion of the Building's parking elevator shaft for use as a special conduit
shaft (the "Conduit Shaft"). The purpose of the Conduit Room and the Conduit
Shaft will be to facilitate interconnections between various telecommunications
company tenants in the Building who elect to participate.
C. Tenant wishes to obtain a license from Landlord for use of the
Conduit Room, in common with others, and use of certain conduit space (the
"Connecting Conduit") running from the Premises through the Conduit Shaft to the
Conduit Room. Landlord is willing to give Tenant a non-exclusive license,
revocable by Landlord at will under the circumstances described in Section 5
below, for use of the Conduit Room and the Connecting Conduit on the terms and
conditions set forth below.
1
<PAGE>
NOW, THEREFORE, the parties hereby agree as follows:
AGREEMENT
---------
1. License and Use of Conduit. Landlord hereby grants to Tenant a
non-exclusive license, revocable by Landlord at will under the circumstances
described in Section 5 below, for use of the Conduit Room and the Connection
Conduit. Such use shall be on the terms and conditions set forth in this
Amendment. Tenant shall have the right to commence such use on or after the date
Landlord first makes the Conduit Room available for use by Landlord's licensees
following Landlord's construction of the Conduit Room and installation of the
Connecting Conduit (the "Effective Date"). If for any reason the Conduit Room
has not been constructed or the Connecting Conduit has not been installed by the
estimated Effective Date of June 1, 1997, Landlord shall have no liability to
Tenant for such delay. However, in such event, Tenant, as Tenant's sole and
exclusive remedy, shall have no obligation for the monthly license fee described
in Section 2 until the Conduit Room has been constructed, the Connecting Conduit
has been installed, and the Effective Date has occurred.
In connection with Tenant's use of the Conduit Room, Tenant shall be
provided with use of the following items ("Landlord Installations") in the
Conduit Room in the quantities indicated:
_____ 22-inch relay racks
___1_ 2' by 2' lockable cabinets
_____ 4' by 6' lockable cages
The Connecting Conduit shall run from the Premises and through the
Conduit Shaft to one of Tenant's racks, cages or cabinets in the Conduit Room,
as designated by Tenant. Landlord, in its reasonable discretion, shall designate
which conduit in the Conduit Shaft shall be used for the Connecting Conduit. The
Connecting Conduit shall consist of conduit in the following quantities and
sizes:
___1_ 1-inch conduits
_____ 4-inch conduits
Tenant acknowledges that other tenants and licensees in the Building
will also be using similar Landlord Installations in the Conduit Room. Tenant
agrees to use the Conduit Room only for the purpose of facilitating
interconnections between Tenant's telecommunications system and the
telecommunications systems of other tenants and licensees who reserve Landlord
Installations in the Conduit Room and who consent in writing to such an
interconnection. Tenant agrees not to store, install or use any equipment,
conduit, cable, wiring, connecting lines or other property of Tenant in the
Conduit Room for any other purpose. Tenant shall cooperate in keeping the
Conduit Room locked and in restricting access to the Conduit Room to employees,
contractors and other persons who need access in order to facilitate such
interconnections. In no event shall Tenant cause (or permit its employees,
representatives, contractors or invitees to cause) any interference with or
damage to the Landlord Installations, equipment, conduits, cable, wiring or
connecting lines owned or used by other tenants in the Conduit Room. Landlord
shall equip the Conduit Room with security cameras and a 24-hour security access
system. Landlord shall also provide all tenants and licensees of Landlord who
use the Conduit Room with standard specifications for all wiring, cabling and
connecting lines to be installed in the Conduit Room by such tenants or
licensees. Landlord also shall have the right, in Landlord's reasonable
discretion, to enforce such other security measures and installation guidelines
as Landlord deems appropriate. However, Landlord shall have no liability to
Tenant for any damage or interference caused by any person to the Landlord
Installations assigned to Tenant or to the cable, wiring, connecting lines,
equipment or other property of Tenant in the Conduit Room or the Connecting
Conduit.
Landlord's only obligation to Tenant regarding the installation of
facilities pursuant to this Amendment shall be to install the Landlord
Installations assigned to Tenant in the Conduit Room and the Connecting Conduit.
The cost of such work,
2
<PAGE>
together with Landlord's related administrative fee, is included in Tenant's
installation payment to Landlord described in item (b) in Section 2 below.
Tenant's share of Landlord's cost of constructing the Conduit Room and the
Conduit Shaft themselves is included in Tenant's one-time payment described in
item (a) in Section 2.
All installation of wiring or cabling that Tenant wishes installed in
the Connecting Conduit shall be installed by Landlord's designated contractor at
Tenant's expense. Tenant agrees to pay Landlord the cost of such work, together
with Landlord's 10% administrative fee, within 10 days after receipt of a
billing from Landlord. Landlord shall have the right, at Landlord's election, to
require Tenant to pay for the work in advance.
All installation of wiring, cabling and connections for Tenant's use
within the Conduit Room, including but not limited to any wiring, cabling or
connections in or about the Landlord Installations, shall be performed at
Tenant's sole expense by a qualified, duly licensed contractor selected by
Tenant. Landlord shall have no obligation or liability with respect to such work
by Tenant's contractors. Tenant shall cause all such work by Tenant's
contractors to be completed and paid for promptly to prevent any mechanic's
liens being filed. Tenant shall also cause all such work by Tenant's contractors
to comply with Landlord's rules and regulations in effect from time to time for
work in the Building, as well as the requirements in Landlord's Special Conduit
Room Rules in effect from time to time. (The Special Conduit Room Rules
initially shall be as set forth in Exhibit A.) Such requirements include, but
shall not be limited to, the requirements that, prior to starting the work, the
contractor or Tenant must provide to Landlord (i) evidence of insurance coverage
for the work in conformity with the standards in Landlord's rules, (ii) copies
of all legally required permits for the work, and (iii) a copy of the written
consent of any other licensee in the Conduit Room with whose facilities a
connection will be made as part of the work. Tenant shall notify Landlord in
writing before Tenant's contractor commences any such work, so that Landlord
may, if Landlord so elects, past notices of nonresponsibility.
Tenant's ongoing use of the Conduit Room, the Connecting Conduit and
Tenant's cable, wiring, and connecting lines shall comply with all applicable
laws, the other provisions of the Lease, and the Building's rules (including but
not limited to the Special Conduit Room Rules) adopted by Landlord from time to
time. Tenant's use shall not interfere in any way with the operation of the
Building or with the occupancy or activities of any other tenant.
2. License Fees. Tenant agrees to pay Landlord a license fee for use of
the Conduit Room and the connecting Conduit, which initially shall be (a) a
one-time participation fee of $17,500 for use of the Conduit Room, plus (b)
installation costs for the Connecting Conduit and for the Landlord Installations
assigned to Tenant in the conduit Room (not including Tenant's cable, wiring, or
connecting lines in the Connecting Conduit and the Conduit Room). Landlord
acknowledges the prior payment by Tenant of the required participation fee in
part (a) above. The additional installation amounts of section b shall be due
and payable within 30 days of the actual installation date. Landlord shall
provide a final estimate of the installation costs prior to installation. (No
portion of such amounts shall be refundable if the Lease or this license is
terminated for any reason.)
After Tenant's initial payment, the license fee for the Conduit Room
and the Connecting Conduit shall be $350 per month, subject to adjustment as
provided below. Such license fee shall be due and payable to Landlord on the
first day of each month or portion of a calendar month throughout the balance of
the Lease term, unless and until this license is revoked by Landlord in
accordance with Section 5 below. (Any such revocation shall not affect the
balance of the Lease, except that Landlord may treat any default by Tenant
hereunder as a default under the Lease.) Such license fee shall be paid together
with Tenant's Base Rent and other monthly charges, with the first such
installment of the license fee due on the Effective Date. The monthly license
fee for any partial calendar month shall be equitably prorated, as calculated by
Landlord in its reasonable discretion. In addition to the monthly charges stated
above, Tenant shall be obligated to pay for any power usage on a monthly basis
if Tenant requires equipment to be hooked up to a power source.
The amount of the monthly lease fee shall be adjusted as each January 1
during the Lease term. For purposes of calculating such adjustment, the Consumer
Price Index for All Urban Consumers, U.S. City Average, All Items (1967 = 100),
unadjusted (herein the "Index") published by the Bureau of Labor Statistics of
the United States Department of Labor for the month during which the Effective
Date occurs shall be the base Index figure (the "Base Index"). The Base Index
shall be compared to the Index figure for December of each year during the term
of the Lease, including the initial partial
3
<PAGE>
calendar year during which the Effective Date occurs. In the event that the
Index figure for December of any year during the term of the Lease shall be
greater than the Base Index, then in addition to the monthly license fee, Tenant
shall pay to Landlord a monthly amount equal to the same percentage increase in
the monthly license fee as the percentage increase in the Index for such
December over the Base Index. Such amount shall be payable monthly commencing
with the payment of the license fee for the January immediately following such
December.
In the event that the Index for any December during the term of the
Lease is not yet available upon the date that any installment of the monthly
license fee is due, Tenant shall continue paying the monthly license fee, as
previously adjusted, in the amount applicable for such December until the Index
for that month is published, whereupon Tenant shall immediately pay Landlord the
adjustments which would have been due in the months following such December had
the Index for such December been available. In the event that publication of the
Index is discontinued, Landlord and Tenant agree that the index of consumer
prices which is most closely analogous to the Index shall be used in place of
the Index for calculation of the adjustments payable hereunder. In the event
that the referents of techniques employed in the calculation of the Index shall
be modified and such modification would have resulted in a different figure for
the Base Index, Landlord and Tenant agree that the Base Index shall be
appropriately adjusted and that the Index, as modified, shall be used as
provided hereunder.
3. Indemnity and Waiver. Tenant hereby agrees to indemnify and hold
harmless Landlord and its partners, its agent Paramount Group, Inc. and their
respective officers, directors, shareholders, agents and employees
(collectively, the "Landlord Group") from and against any and all claims
(including but not limited to claims for bodily injury or property damage),
actions, mechanic's liens, losses, liabilities, and expenses (including
reasonable attorney fees and costs of defense by Landlord's legal counsel)
(collectively, "Claims"), which may arise from the installation, operation, use,
maintenance or removal of conduit, cable, wiring, connecting lines, equipment or
other property pursuant to this Amendment or from Tenant's use of the Conduit
Room, the Connecting Conduit, or the Landlord Installations. Similarly, Tenant
shall pay upon demand by Landlord the costs to repair any physical damage to the
Building caused by such installation, operation, use, maintenance or removal.
Tenant hereby waives and releases the Landlord Group from any Claims Tenant may
have at any time (including but not limited to Claims relating to interruptions
in services) arising out of or relating in any way to the installation,
operation, use, maintenance, or removal of conduit, cable, wiring, connecting
lines, equipment or other property described in this Amendment or Tenant's use
of the Conduit Room, the Connecting Conduit, or the Landlord Installations,
whether or not caused by the negligence of any member of the Landlord Group or
Landlord's contractors. Such waiver and release shall not apply to Claims to the
extent caused by Landlord's willful misconduct. However, in no event shall
Landlord or any member of the Landlord Group be liable to Tenant for lost
profits or consequential, incidental or punitive damages of any kind.
4. Removal of Cable, Wiring and Connecting Lines. Tenant agrees that,
upon the termination of this license as described in Section 5 below, Tenant
(or, at Landlord's election, the contractor designated by Landlord) shall
promptly remove, at Tenant's sole cost and expense, all cable, wiring,
connecting lines, and other installations, equipment or property installed or
placed by or for Tenant in the Conduit Room or the Connecting Conduit (excepting
the Connecting Conduit itself and the Landlord Installations, which shall remain
the property Landlord), and restore those portions of the Building damaged by
such removal to their conditions immediately prior to the installation or
placement of such items. If Tenant fails to promptly remove all such items
pursuant to this Section 4, or if Landlord elects to have such work performed by
Landlord's contractor, Landlord may remove such items and restore those portions
of the Building damaged by such removal to their condition immediately prior to
the installation or placement of such items, in which case Tenant agrees
promptly to pay Landlord's reasonable cost of removal and restoration, including
Landlord's administrative fee.
5. No Lease or Easement of Conduit Room or Connecting Conduit;
Termination of License. Tenant acknowledges that the rights granted to Tenant
hereunder do not constitute a lease of any portion of the Conduit Room, the
Connecting Conduit or the Landlord Installations nor an easement, but rather
constitute a non-exclusive license for use in common with others. Such license
is revocable by Landlord in Landlord's sole discretion upon any default by
Tenant under the Lease which is not cured within the applicable cure period.
Landlord shall retain such rights of revocation notwithstanding any expenditure
of money on the installations described herein or other actual or alleged
reliance by Tenant. Such revocation shall be made by written notice from
Landlord to Tenant. The license shall terminate in any event, without notice
from Landlord, upon the expiration or termination of the Lease. Such license is
personal to Tenant, and Tenant's rights hereunder may not be assigned (except in
connection with a permitted assignment of Tenant's entire interest in the
Lease), sub-licensed, or otherwise transferred in any fashion, regardless of
whether such an arrangement is called an assignment, a sub-license, a
co-location agreement or any other name. Tenant agrees not to permit any third
party or place, use or operate their own equipment, wiring, cabling or
connecting lines in or about Tenant's Landlord Installations or Connecting
Conduit. Any default
4
<PAGE>
by Tenant under this Amendment shall be deemed to be a default under the Lease.
The license fee described in Section 2 above shall be deemed to be additional
rent for the Premises described in the Lease, and Tenant acknowledges that the
availability of the license enhances the value of those Premises. Tenant shall
remain obligated for such additional rent for the balance of the Lease term, and
shall remain obligated for Tenant's other obligations under this Amendment,
regardless of whether Tenant actually makes use of the license, or whether
Tenant surrenders the license, or whether the license is terminated due to
Tenant's default under the Lease.
6. Applicability of Other Provisions. Except as explicitly provided
otherwise herein, Tenant's obligations under the Lease for the protection of the
Building, Landlord, the Landlord Group, and third parties, including but not
limited to Tenant's obligations regarding maintenance, repairs, mechanic's
liens, insurance, attorneys' fees and costs of suit, shall apply in the same
fashion with respect to Tenant's use of the Conduit Room, the Connecting Conduit
and the Landlord Installations as they do with respect to Tenant's use of the
Premises.
7. Miscellaneous. This Amendment supersedes all prior to
contemporaneous understandings, negotiations, or agreements between the parties,
whether written or oral, with respect to its subject matter. The Lease, as
amended herein, may be further amended only in writing signed by both Landlord
and Tenant.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date and at the place first written above.
LANDLORD: ONE WILSHIRE ARCADE IMPERIAL, LTD.
a California Limited Partnership
By: Paramount Group, Inc., Its Agent
By: /s/ Daniel K. Brown
---------------------------------
Daniel K. Brown
Its: Director - Property Management
--------------------------------
By:
---------------------------------
Its:
--------------------------------
TENANT: PAC-WEST TELECOMM, INC.
a California Corporation
By: /s/ Dennis ????????
---------------------------------
Its: Treasurer
--------------------------------
By:
---------------------------------
Its:
--------------------------------
<PAGE>
[LOGO]
PARAMOUNT
GROUP, INC.
EXHIBIT A
ONE WILSHIRE BUILDING
---------------------
CONDUIT ("MEET POINT") ROOM RULES
---------------------------------
The Meet Point Room is a conduit room located on the fourth floor of
the One Wilshire building located at 624 S. Grand Avenue, Los Angeles,
California 90017 (the "Building") for the special purpose of facilitating
interconnections between various telecommunications providers and users who
currently hold licenses with the Building for the use of such facilities
("Participants"). As a condition to maintaining their license and to the ongoing
use of the Meet Point Room, all Participants must comply with the Meet Point
Room Rules set forth herein and as may be adopted or revised by the Building in
its reasonable discretion from time to time.
These Meet Point Room Rules are in addition to the terms, covenants,
and conditions of any agreement (including but not limited to a lease) between
Participant and the Building for use of the Meet Point Room. In the event these
Rules conflict with any provision of such agreement, such agreement shall
control.
The Building may waive any one or more of these Meet Point Room Rules
for the benefit of a Participant, but no such waiver by the Building shall be
construed as a waiver of such Rules in favor or anyone other than such
Participant for whose benefit such waiver was expressly intended, nor prevent
the Building from thereafter enforcing such Rules against such Participant or
any or all of the other Participants.
The Building reserves the right to make such other and reasonable Meet
Point Room Rules as, in its judgment, may from time to time be necessary or
desirable. Participant agrees to abide by all such Meet Point Room Rules as
stated herein and any additional reasonable rules and regulations which are
adopted.
1. Participants must furnish the Building with the names (and other
necessary identification as Building may require) of its personnel who
are authorized by Participant to enter the Meet Point Room.
Participants are responsible for keeping such authorized user list
current.
2. Participants wishing to enter into the Meet Point Room must sign in at
the Meet Point Room log book located at the Building Security Desk.
3. Each person wishing to enter the Meet Point Room must be on the
authorized user list. Positive proof of identity is required before
entrance to the Meet Point Room is permitted. A driver's license or
other authenticated photograph identification is the only acceptable
form of positive proof. Such form of identification will be held as
security until Participant completes Participant's activities in the
Meet Point Room.
4. Each person wishing to enter the Meet Point Room must obtain a security
access card from Building Security each time he or she wishes to enter.
On entering or leaving the Meet Point Room, Participant must make sure
the door is shut and not left ajar.
5. If Participant intends to perform cross-connect work in the Meet Point
Room, upon entry Participant must submit a fully executed (by
Participant and the Building's authorized representative) Cross-Connect
Authority Form in the form provided by the Building.
6. Upon leaving the Meet Point Room, Participant must sign out in the Meet
Point Room log book at which time Participant's photo identification
will be returned.
7. All activities in the Meet Point Room must be in compliance with the
law including all applicable local, state, and federal laws, rules,
codes and regulations.
CRR-1
<PAGE>
8. Participants desiring to interconnect to another Participant's
cross-connect array must negotiate such interconnection directly with
such other Participant and the building shall have not obligation in
that regard.
9. All cross-connects must be accomplished utilizing industry-standard
cable and wire that complies with the local Building code and other
applicable laws and following approved procedures.
10. All wiring shall be routed through the furnished channels, raceways,
etc. All cable shall be dressed-in and secured so as to ensure a
professional appearance, run straight and level, with 90 degree corners
where possible. Where tie wraps are used, the end shall be cut to
preserve the professional appearance.
11. Groups of cable routed to the Meet Point Room shall remain bundled
together to the degree possible for easy identification.
12. All cables must be clearly labeled utilizing Building-provided tags.
13. The Meet Point Room must be kept clean and free of debris at all times.
14. Tampering in any way with other Participants' circuits and
cross-connects is not permissible and is grounds for immediate
revocation of Participant's Meet Point Room rights. All other
infractions of Meet Point Room Rules must be corrected within the
notice and cure period prescribed in Section 5(a) of the Agreement to
which these rules are attached.
15. If circuit tamper is detected at any time by any Participant, it must
be reported immediately to the Building Security Desk.
16. Notification of infraction is accomplished by Building Management's
delivery of a written warning to the Participant.
17. Receipt of three (3) warnings within a six-month period is cause for
immediate revocation of Meet Point Room participation rights.
18. Upon expiration or revocation of Meet Point Room participation rights,
Participant must make arrangements to vacate the Meet Point Room and
remove all cross-connects associated with Participant's assigned
array(s) within 30 calendar days of notification.
CRR-2
<PAGE>
PARAMOUNT GROUP, INC.
ONE WILSHIRE ARCADE IMPERIAL, LTD.
THIRD AMENDMENT TO LEASE
------------------------
PARTIES: ONE WILSHIRE ARCADE IMPERIAL, LTD.,
a California Limited Partnership
624 S. Grand Avenue, Suite 1207
Los Angeles, CA 90017
("Landlord")
PAC-WEST TELECOMM, INC.
a California Corporation
624 So. Grand Avenue, Suite 1210
Los Angeles, CA 90017
DATE: April 24, 1998
PLACE: Los Angeles, California
RECITALS
--------
A. Landlord and Tenant are the parties to a lease dated July 3, 1996,
as amended by a Lease Commencement Certificate dated October 23, 1996, a First
Amendment to Lease re Telecommunications Conduit dated December 11, 1996, and a
Second Amendment to Lease re License for Use of Telecommunications Conduit and
Special Conduit Interconnection Room dated March 20, 1997 (collectively, the
"Lease"), concerning premises (the "Premises") consisting of Suite 1210 in
Landlord's office building at 624 South Grand Avenue, Los Angeles, California
90017 (the "Building").
B. Landlord and Tenant now desire to expand the Premises under the
Lease to include Suite 1204 in the Building consisting of approximately 2,140
rentable square feet ("Suite 1204") and certain roof and antenna space on or
about May 1, 1998. Suite 1204 is more particularly shown on Exhibit A attached
hereto.
C. Landlord is willing to expand the Premises on the terms and
conditions set forth in this Third Amendment to Lease.
THEREFORE, Landlord and Tenant hereby amend the Lease in the following
particulars only:
1
<PAGE>
AGREEMENT
---------
1. Expanded Premises. Effective on the later of May 1, 1998, or the
date upon which Landlord tenders possession of Suite 1204 to Tenant (the
"Expansion Date"), Suite 1204 shall be included as part of the Premises for all
purposes under the Lease.
Notwithstanding anything to the contrary contained herein, if for any
reason Landlord does not tender possession of Suite 1204 to Tenant on or before
June 1, 1998, then Tenant shall have the right to cancel this Third Amendment to
Lease by delivering to Landlord written notice of such cancellation at any time
thereafter, provided that Tenant delivers such notice of cancellation to
Landlord prior to Landlord's tender of possession of Suite 1204 to Tenant. Such
right of cancellation of this Third Amendment to Lease shall be Tenant's sole
remedy for Landlord's failure to tender possession of Suite 1204.
2. Base Rent for Expansion Space; CPI Increases. Commencing on the
Expansion Date, Tenant shall pay to Landlord, in addition to the Base Rent owing
for the existing Premises, and in addition to the Condenser Space rent described
in Section 8 below, a Base Rent for Suite 1204 in accordance with the following
schedule:
Monthly Monthly
Period Base Rent Rent Credit
------ --------- -----------
From May 1, 1998 to July 31, 1998 $5,350.00 $5,350.00
From Aug. 1, 1998 to Sept. 30, 2006 $5,350.00 (None)
The Base Rent for the period from August 1, 1998 to August 31, 1998,
shall be prepaid by Tenant upon execution of this amendment. If the Expansion
Date is after May 1, 1998, then all dates in the above schedule (except the
September 30, 2006 expiration date) shall be correspondingly delayed.
The Base Rents for Suite 1204 in the above schedule are subject to
further adjustment pursuant to the Rent Escalation Rider (concerning change sin
the Consumer Price Index) attached to the original Lease; provided, however,
that for purposes of applying the provisions of such Rider to the Base Rent for
Suite 1204, the "Base Index" under such Rider shall be December, 1997, rather
than June, 1996.
Base Rents for any partial calendar month shall be equitably prorated
as calculated by Landlord in its reasonable discretion.
3. Taxes and Operating and Utility Costs for Expansion Space. Effective
upon the Expansion Date and continuing for the balance of the Lease term, as it
may be extended, Tenant shall also be responsible for rent escalations
attributable to Suite 1204 as described in Section 4 of the Original Lease;
provided, however,
2
<PAGE>
that (1) Tenant's rent escalations for Suite 1204 pursuant to such Rider shall
be calculated separately from the escalations for the original Premises; (2) the
Tenant's "Percentage Share" for purposes of such calculations for Suite 1204
shall be 0.378%; (3) the base year for Real Estate Taxes for purposes of such
calculations for Suite 1204 shall be changed from tax fiscal year 1996-1997 to
tax fiscal year 1997-1998; and (4) the base year for Operating Costs and Utility
Costs for purposes of such calculations for Suite 1204 shall be changed from
1996 to 1998.
4. Tenant to Take Expansion Space "As Is". Tenant shall accept Suite
1204 in its "as is" shell condition existing as of the Expansion Date.
Landlord shall have no obligation to construct or modify tenant
improvements for Tenant; provided, however, that prior to the Expansion Date,
Landlord shall demolish the existing tenant improvements in Suite 1204. The
precise scope of such demolition work shall be determined by Landlord in
Landlord's reasonable discretion, except that Landlord shall not demolish any
such improvements which Tenant requests Landlord to leave in Suite 1204 in a
written notice delivered to Landlord within (5) days after the full execution
and delivery by both parties of this Amendment. Tenant shall be solely
responsible for making and paying for any and all tenant improvements to Suite
1204 that Tenant deems appropriate, subject to compliance with the terms and
conditions of the Lease, including but not limited to those terms requiring
Landlord's advance written approval of the work. Tenant shall only use
contractors and subcontractors selected from Landlord's list of contractors and
subcontractors currently approved by Landlord for work in the Building.
5. Brokers. Unless otherwise agreed in writing, if Tenant has dealt
with any real estate broker or other person or firm with respect to this Third
Amendment to Lease, Tenant shall be solely responsible for the payment of any
fee due said broker, person or firm and Tenant hereby indemnifies and holds
Landlord harmless from and against and liability with respect thereto.
6. Parking. Tenant's allotment of unreserved parking spaces as
described in Section K on page 2 of the original Lease and in the Parking Space
Rider to the original Lease is hereby increased from 5 unreserved space to 7
unreserved spaces.
7. Extension Option. The Extension Option Rider to the original Lese
shall apply to Suite 1204, the Condenser Space (described in Section8), and the
emergency generator facilities described in the Emergency Generator Rider
attached hereto, in the same fashion as to the original Premises and the conduit
and generator facilities described in the original Lease. The options described
in such Rider may be exercised by Tenant only as to the entire Premises,
including Suite 1204, the Condenser Space, and the
3
<PAGE>
conduit and generator facilities, and if such an option is exercised, the rents
for the original Premises, Suite 1204, the Condenser Space, and the conduit and
generator facilities shall each be adjusted as provided in such Rider.
8. Tenant's Supplemental Air-Conditioning; Condenser Space. Tenant
shall have the right to install in Suite 1204 its own self-contained 24-hour
heating, ventilating and air-conditioning unit, subject to compliance with the
other provisions of this Lease, including but not limited to obtaining
Landlord's prior written consent to the plans and specifications for the work
and electrical requirements of the unit. Tenant shall in no event be permitted
to exhaust such system out of the perimeter of the Building. Tenant shall pay
all costs of electricity for such unit and, at Landlord's election, the
electrical requirements for such unit shall be separately metered to Tenant at
Tenant's expense.
Tenant shall have the right to use a portion of the third floor roof of
the Building for condenser units and related air-conditioning equipment for
Tenant's system, but for no other use. Such area (the "Condenser Space") shall
not exceed 20 feet by 15 feet in size and shall be designated by Landlord in its
reasonable discretion.
Commencing upon the date three (3) months after the Expansion Date and
continuing for the balance of the Lease term, Tenant shall pay to Landlord, in
addition to the Base Rent owing for the existing Premises and Suite 1204, a Base
Rent for the Condenser Space of $1,000 per month. Such monthly Base Rent for the
Condenser Space shall be due in advance on the first day of each month or
partial calendar month throughout the remaining Lease term together with
Tenant's regular Base Rent and other monthly charges, with the first payment due
on the date three months after the Expansion Date. Rent for any partial calendar
month shall be equitably prorated, as calculated by Landlord in its reasonable
discretion. The Base Rent for the Condenser Space shall be subject to adjustment
as described in the Rent Escalation Rider to the original Lease; provided,
however, that for purposes of applying the provisions of such rider to the Base
Rent for the Condenser Space, the "Base Index" under such Rider shall be
December, 1997, rather than June, 1996.
The installation and operation of any equipment in the Condenser Space
shall be at the sole cost and expense of Tenant (including, but not limited to,
costs of electrical supply, which, if Landlord so elects, shall be metered
separately to Tenant at Tenant's expense). Any installation of equipment and the
operation of any new or existing equipment shall require Landlord's prior
written approval of (i) the plans and specifications for any installation work;
(ii) a description of the areas of the Building to which Tenant will require
access both for the initial work and for ongoing maintenance of the improvements
or installations; (iii)
4
<PAGE>
The names of all contractors and subcontractors who will perform such work, all
of whom shall be selected from Landlord's list of contractors approved for work
in the Building; (iv) copies of all liability, casualty and worker's
compensation insurance applicable to the construction, maintenance and ongoing
operation of the improvements and installations; and (v) copies of all
governmental permits required for the work. Such approval may be conditioned,
among other things, upon Tenant's making or paying for any reinforcement to the
Condenser Space reasonably deemed necessary by Landlord to support any equipment
installed by Tenant.
9. Security Deposit. Effective upon the execution and delivery of this
Third Amendment to Lease, Tenant shall deliver to Landlord an additional
Security Deposit of $5,350 to be held and used by Landlord pursuant to Section 6
of he original Lease, thereby bringing the total Security Deposit pursuant to
such Section 6 to $17,850.
10. Conduits. Tenant shall have the right, at Tenant's sole cost and
expense, to install up to four 4-inch conduits connecting Suite 1204 with
Tenant's original Premises in Suite 1210. Such conduits shall follow a route
designated by Landlord in its reasonable discretion. Tenant shall perform the
installation work in accordance with Section 29 and other applicable provisions
of the original lease and shall obtain Landlord's prior written consent (which
will not be unreasonably withheld) to the plans and specifications for the work
and the contractor who will perform the work.
11. Electricity Service. Tenant shall have the right to use up to a
total of 600 amps from the new 3,000-amp service being installed by Landlord for
the Building. Landlord anticipates that such service will be installed and
connected to the 12th floor core of the Building May 1, 1998, but makes no
representation or warranty in that regard. The additional 600 amps may be
allocated between Suite 1204 and Suite 1210 as Tenant may elect. Tenant shall
pay all costs of hooking up such suites to the new service as installed and
connected by Landlord to the 12th floor core of the Building.
In consideration for such right, Tenant agrees to pay Landlord the sum
of $54,000 as additional rent. Such $54,000 shall be paid by Tenant to Landlord
in 12 equal monthly installments of $4,500 each, due on the first day of each
month for 12 consecutive months, with the first such installment due three
months after the Expansion Date (or if the Expansion Date is not on the first
day of a calendar month, then on the first day of the fourth full calendar month
after the Expansion Date).
If the Building's new 3,000-amp electrical service is not installed in
the Building and connected to the 12th floor Building core by June 1, 1998, then
for every day after June 1, 1998, until
5
<PAGE>
such installation and connection is complete, Tenant shall be entitled to an
additional day of free Base Rent beyond the three-month free Base Rent period
described in Section 2 above. Moreover, if such installation and connection work
of Landlord is not completed by July 1, 1998, Tenant shall be entitled to cancel
this Third Amendment to Lease (but not the balance of the Lease) by giving
written notice of such cancellation to Landlord at any time prior to the
completion of such installation. In such event, Tenant shall be entitled to a
refund of any portion of the $54,000 fee described above which has then been
paid to Landlord. The rent abatement and cancellation rights described in this
paragraph shall be Tenant's sole and exclusive remedies for any delay in
Landlord's installation and connection to the 12th floor core of the Building's
new 3,000-amp service.
All costs of connections of such new service from the Building core to
Tenant's equipment and facilities shall be borne by Tenant.
As with Tenant's existing electrical facilities, all of Tenant's actual
electricity usage of the new service described above shall be separately metered
at Tenant's expense, and Tenant shall pay to Landlord month, within 15 days
after receipt of a billing from Landlord, the costs of such usage, including the
utility cost and Landlord's reasonable administrative fee.
12. Miscellaneous. This Third Amendment to Lease supersedes all prior
or contemporaneous understandings, negotiations, or agreements between the
parties, whether written or oral, with respect to its subject matter. This Third
Amendment to Lease is part of and shall be attached as an addendum to the Lease.
The Lease, as amended by this Third Amendment to Lease, may be further amended
only in a writing signed by both Landlord and Tenant. All terms of the Lease
which have not been expressly altered by this Third Amendment to Lease shall
remain in full force and effect.
6
<PAGE>
13. Exhibits. The following exhibits and riders are attached to and are
a part of this Third Amendment to Lease:
Exhibit A - - Floor Plan for Expansion Space
Emergency Generator Rider
IN WITNESS WHEREOF, the parties have executed this Third Amendment to
Lease as of the date and at the place first written above.
TENANT: PAC-WEST TELECOMM, INC.
a California Corporation
By: /s/ Dennis V. Meyer
-------------------------------
Its: Treasurer
---------------------------
By:
-------------------------------
Its:
---------------------------
LANDLORD: ONE WILSHIRE ARCADE IMPERIAL, LTD.
a California Limited Partnership
By: Paramount Group, Inc.
Its Agent
By: Roger S. Newman
-------------------------------
Its: Senior Vice President
---------------------------
By:
-------------------------------
Its:
---------------------------
7
<PAGE>
[Floor Plan Appears Here]
EXHIBIT "A"
12TH FLOOR PAC-WEST TELCOMM, INC.
ONE WILSHIRE BUILDING Suite 1204
624 SOUTH GRAND AVE., LOS ANGELES, CA 90017 Approximately 2,140 sq ft
<PAGE>
[PARAMOUNT GROUP Logo]Paramount
Group, Inc.
EMERGENCY GENERATOR RIDER TO THIRD AMENDMENT
1. The parties acknowledge that Landlord has installed a third Emergency
Generator in the Building. Tenant is hereby granted the right to use up to 400
kilowatts of emergency power from such Emergency Generator in the event of an
interruption of normal electrical service to the Premises during the Lease Term,
provided that: (a) Tenant notifies Landlord in writing within thirty (30) days
following the Expansion Date of the number of kilowatts (not to exceed 400
kilowatts) of emergency power which Tenant reserves the right to use; (b)
Tenant pays Landlord, at the times prescribed in Section 2 below, a one-time fee
in an amount equal to $500 per kilowatt of emergency power so reserved; and (c)
Tenant pays Landlord as additional rent under the Lease a monthly sum in an
amount reasonably determined by Landlord in good faith based on the amount of
emergency power reserved by Tenant, and Landlord's costs of operation, use,
maintenance, fuel, oil, governmental permits, licenses and fees, insurance,
Landlord's profit and administration and other expenses relating to the
Emergency Generator. The monthly amount of the additional rent described in item
(c) initially shall be $1.20 per kilowatt per month. Tenant shall also pay the
costs to connect Tenant's Premises to the Emergency Generator as described in
Section 4 below.
2. Each such payment described in subparagraph 1(c) above shall be due on
the first day of each month with Tenant's other rent payments, with the first
such payment due on the date three months after the Expansion Date. Such monthly
amount may be adjusted annually, in Landlord's discretion, during the term of
the Lease and any extensions thereto. The one-time fee described in Section 1(b)
above and the one-time fee described in Section 5 below shall be due and payable
in 12 equal monthly installments, due on the first day of each month for 12
consecutive months, with the first such installment due on the date three months
after the Expansion Date (or if the Expansion Date is not on the first day of a
calendar month, then on the first day of the fourth full calendar month after
the Expansion Date).
3. Tenant's use of such emergency power shall be in accordance with such
rules and regulations as may be established by Landlord from time to time.
4. Landlord shall repair and maintain the Emergency Generator, provided
that Tenant shall reimburse Landlord upon demand, as additional rent hereunder,
for the cost of any repairs or extraordinary maintenance for the Emergency
Generator necessitated by acts of Tenant or Tenant's employees, contractors,
assignees, sublessees, agents, licensees or invitees. In addition, any
installation of equipment, wiring or cabling in the Premises or the Building for
the purpose of enabling Tenant to access the Emergency Generator shall be
performed by Landlord in accordance with plans and specifications approved by
the parties in writing in advance, and Tenant shall reimburse Landlord for the
costs of such installation, including, but not limited to, design fees and costs
of demolition.
5. The Emergency Generator service described above is in addition to, not
in lieu of, the Emergency Generator service already provided to Tenant from the
Building's second Emergency Generator, as described in the Emergency Generator
Rider to the original Lease. Pursuant to such original Emergency Generator Rider
(as modified by subsequent agreement of the parties), Tenant is presently
allocated 115 kilowatts of emergency power from the second Emergency Generator.
The parties hereby amend such original Emergency Generator Rider to increase
Tenant's allocation of emergency power from that second Emergency Generator by
85 kilowatts, to a total of 200 kilowatts of emergency power from that
generator. The additional monthly rent for such additional 85 kilowatts
(pursuant to Sections 1(c) and 2 of the original Emergency Generator Rider)
shall be $1.20 per month per kilowatt (subject to further adjustment hereafter
pursuant to such Rider). Tenant shall also pay to Landlord, at the times
prescribed in Section 2 above, a one-time fee of $42,500 ($500 per kilowatt) for
the right to be allocated such additional 85 kilowatts of emergency power.
EGR-1
<PAGE>
6. The provision of Emergency Generator service by Landlord to Tenant shall
be subject to Section 9.6 of the Lease.
7. This Emergency Generator Rider supersedes all prior or contemporaneous
understandings, negotiations, or agreements between the parties, whether written
or oral, with respect to its subject matter. This Emergency Generator Rider is
part of and shall be attached to the Lease.
8. All terms of the Lease which have not been expressly altered by this
Emergency Generator Rider shall remain in full force and effect.
<PAGE>
PARAMOUNT GROUP, INC.
ONE WILSHIRE ARCADE IMPERIAL, LTD.
FOURTH AMENDMENT TO LEASE
PARTIES: ONE WILSHIRE ARCADE IMPERIAL, LTD.
a California Limited Partnership
624 South Grand Avenue, Suite 1207
Los Angeles, California 90017
("Landlord")
PAC-WEST TELECOMM, INC.
a California corporation
624 South Grand Avenue, Suite 1210
Los Angeles, California 90017
("Tenant")
DATE: December 8, 1998
PLACE: Los Angeles, California
- --------------------------------------------------------------------------------
RECITALS
A. Landlord and Tenant are the parties to a lease dated July 3, 1996, as
amended by a Lease Commencement Certificate dated October 23, 1996, a First
Amendment to Lease re Telecommunications Conduit dated December 11, 1996, a
Second Amendment to Lease re License for Use of Telecommunications Conduit and
Special Conduit Interconnection Room dated March 20, 1997, and a Third
Amendment to Lease dated April 24, 1998 (collectively, the "Lease"), concerning
premises (the "Premises") consisting of Suites 1204 and 1210 and certain roof
space in Landlord's office building at 624 South Grand Avenue, Los Angeles,
California 90017 (the "Building").
B. Landlord and Tenant now desire to expand the Premises under the Lease
to include Suite 1214 in the Building consisting of approximately 665 rentable
square feet ("Suite 1214"). Suite 1214 is more particularly shown on Exhibit A
attached hereto.
C. Landlord is willing to expand the Premises on the terms and conditions
set forth in this Fourth Amendment to Lease.
THEREFORE, Landlord and Tenant hereby amend the Lease in the following
particulars only:
1
<PAGE>
AGREEMENT
---------
1. Expanded Premises. Effective on the later of January 1, 1999, or the
date upon which Landlord tenders possession of Suite 1214 to Tenant (the
"Effective Date"), Suite 1214 shall be included as part of the Premises for all
purposes under the Lease. Tenant acknowledges that Suite 1214 is presently
occupied by another tenant whom Landlord expects will vacate on or before
December 31, 1998, but Landlord is making no representation or warranty in that
regard.
Notwithstanding anything to the contrary contained herein, if for any
reason Landlord does not tender possession of Suite 1214 to Tenant on or before
April 1, 1999, then Tenant shall have the right to cancel this Fourth Amendment
to Lease (but not the balance of the Lease) by delivering to Landlord written
notice of such cancellation at any time thereafter, provided that Tenant
delivers such notice of cancellation to Landlord prior to Landlord's tender of
possession of Suite 1214 to Tenant. Such right of cancellation of this Fourth
Amendment to Lease shall be Tenant's sole remedy for Landlord's failure to
tender possession of Suite 1214. Landlord reserves the right to cancel this
Fourth Amendment to Lease prior to the Effective Date in the event of Landlord's
failure for any reason to execute an agreement with the existing tenant in Suite
1214 concerning its vacation of Suite 1214 on terms acceptable to Landlord in
its sole discretion.
2. Base Rent for Suite 1214; CPI Increases. Commencing on the Effective
Date, Tenant shall pay to Landlord, in addition to the Base Rent owing for the
existing Premises, a Base Rent for Suite 1214 in accordance with the following
schedule:
<TABLE>
<CAPTION>
Monthly
Period Base Rent
------ ---------
<S> <C>
Effective Date to September 30, 2006 $1,773.33
</TABLE>
The Base Rent for Suite 1214 in the above schedule is subject to further
adjustment pursuant to the Rent Escalation Rider (concerning changes in the
Consumer Price Index) attached to the original Lease in the same fashion that
such rider applies to the Base Rent for the original Premises. If possession of
Suite 1214 is tendered by Landlord to Tenant after January 1, 1999, the Lease
termination date shall nonetheless remain unchanged.
Base Rent for Suite 1214 for any partial calendar month during which the
Effective Date occurs shall be equitably prorated as calculated by Landlord in
its reasonable discretion.
3. Taxes and Operating and Utility Costs for Suite 1214. Effective upon
the Effective Date, Tenant shall also be responsible for rent escalations
attributable to Suite 1214 as described in
2
<PAGE>
Section 4 of the Original Lease which relates to Real Estate Taxes, Operating
Costs and Utility Costs of the Building; provided, however, that (a) Tenant's
rent escalations for Suite 1214 pursuant to such Rider shall be calculated
separately from the escalations for the balance of the Premises; and (b) the
Tenant's "Percentage Share" for purposes of such calculations for Suite 1214
shall be 0.1168%.
4. Tenant to Take Suite 1214 "As Is". Tenant shall accept Suite 1214 in
its "as is" condition existing as of the Effective Date provided, however, that:
(a) the following items in Suite 1214 are subject to removal by, or upon
authorization of, the existing tenant in Suite 1214, or by Landlord:
telecommunications switching equipment and attachments, racks, computers
HVAC units and any other personal property or trade fixtures of the
existing tenant in Suite 1214; and
(b) Landlord shall remove certain asbestos-containing fireproofing from the
structural steel in Suite 1214 and replace it with fireproofing that does
not contain asbestos, the extent and scope of such work to be determined by
Landlord in its reasonable discretion. Landlord and Tenant shall cooperate
in scheduling such work in a manner so as not to interfere with Tenant's
operations to the extent reasonably practical (but without obligation on
Landlord's part to incur liability for overtime or other premium payments).
Prior to the performance by Landlord of any asbestos-related demolition and
abatement work, Tenant shall, upon Landlord's request and at Tenant's
expense, remove all of Tenant's equipment, furniture and personal property
from the work area (as determined by Landlord in its sole discretion).
Tenant further acknowledges that during Landlord's performance of such
asbestos-related demolition and abatement work, the work area shall be
sealed off and access by persons thereto prohibited.
Except as otherwise provided in subparagraph (b) above, Landlord shall have
no obligation for the construction or modification of tenant improvements for
Tenant in Suite 1214. In constructing its own tenant improvements to Suite 1214,
if any, Tenant shall comply with the other applicable provisions of the Lease
(including but not limited to Section 29 of the original Lease) and shall
utilize only contractors and subcontractors approved in writing by Landlord for
work in the Building.
5. Brokers. Unless otherwise agreed in writing, if Tenant has dealt with
any real estate broker or other person or firm with respect to this Fourth
Amendment to Lease, Tenant shall be solely responsible for the payment of any
fee due said broker, person or
3
<PAGE>
firm and Tenant hereby indemnifies and holds Landlord harmless from and against
any liability with respect thereto.
6. Extension Option. The terms and conditions of the Extension Option
Rider to the original Lease shall apply to Suite 1214, in the same fashion as
they apply to the original Premises. The options described in such Rider may be
exercised by Tenant only as to the entire Premises, including Suite 1214, and if
such options are exercised, the rent for Suite 1214 shall be adjusted as
provided in such Rider. Therefore, references in the Extension Option Rider to
the original Lease shall be deemed to include Suite 1214.
7. Miscellaneous. This Fourth Amendment to Lease supersedes all prior or
contemporaneous understandings, negotiations, or agreements between the parties,
whether written or oral, with respect to its subject matter. This Fourth
Amendment to Lease is part of and shall be attached as an addendum to the Lease.
The Lease, as amended by this Fourth Amendment to Lease, may be further amended
only in a writing signed by both Landlord and Tenant. All terms of the Lease
which have not been expressly altered by this Fourth Amendment to Lease shall
remain in full force and effect.
4
<PAGE>
8. Exhibits. The following exhibits and riders are attached to and are
a part of this Fourth Amendment to Lease:
EXHIBIT A -- FLOOR PLAN FOR SUITE 1214
IN WITNESS WHEREOF, the parties have executed this Fourth Amendment to
Lease as of the date and the place first written above.
TENANT: PAC-WEST TELECOMM, INC
a California corporation
By: /S/ Richard E. Bryson
---------------------------
Its: Chief Financial Officer
By:______________________________
Its___________________________
LANDLORD: ONE WILSHIRE ARCADE IMPERIAL, LTD.
a California Limited Partnership
By: Paramount Group, Inc.,
Its Agent
By:_______________________________
Its__________________________
By:_______________________________
Its__________________________
5
<PAGE>
EXHIBIT A
[FLOOR PLAN OF 12TH FLOOR, ONE WILSHIRE BUILDING,
624 SOUTH GRAND AVE, LOS ANGELES, CA 90017]
PAC-WEST TELECOM, INC.
Suite 1214
Approximately
665 rentable square feet
SCALE
0' 25' 50' 75'
<PAGE>
PARAMOUNT GROUP, INC.
ONE WILSHIRE ARCADE IMPERIAL, LTD.
FIFTH AMENDMENT TO LEASE
PARTIES: ONE WILSHIRE ARCADE IMPERIAL, LTD.
a California Limited Partnership
624 South Grand Avenue, Suite 1207
Los Angeles, California 90017
("Landlord")
PAC-WEST TELECOMM, INC.
a California corporation
624 South Grand Avenue, Suite 1210
Los Angeles, California 90017
("Tenant")
DATE: December 24, 1998
PLACE: Los Angeles, California
- --------------------------------------------------------------------------------
RECITALS
A. Landlord and Tenant are the parties to a lease dated July 2, 1996, as
amended by a Lease Commencement Certificate dated October 23, 1996, a First
Amendment to Lease re Telecommunications Conduit dated December 11, 1996, a
Second Amendment to Lease re License for Use of Telecommunications Conduit and
Special Conduit Interconnection Room dated March 20, 1997, a Third Amendment to
Lease dated April 24, 1998, and a Fourth Amendment to Lease dated December 8,
1998 (collectively, the "Lease"), concerning premises (the "Premises")
consisting of Suites 1204, 1210, and 1214 and certain roof space in Landlord's
office building at 624 South Grand Avenue, Los Angeles, California 90017 (the
"Building").
B. Landlord and Tenant now desire to expand the Premises under the Lease
to include Suite 1209 in the Building consisting of approximately 653 rentable
square feet ("Suite 1209"). Suite 1209 is more particularly shown on Exhibit A
attached hereto.
C. Landlord is willing to expand the Premises on the terms and conditions
set forth in this Fifth Amendment to Lease.
THEREFORE, Landlord and Tenant hereby amend the Lease in the following
particulars only:
1
<PAGE>
AGREEMENT
1. Expanded premises. Effective on the later of January 1, 1999, or the
date upon which Landlord tenders possession of Suite 1209 to Tenant (the
"Effective Date"), Suite 1209 shall be included as part of the Premises for all
purposes under the lease. Tenant acknowledges that Suite 1209 is presently
occupied by another tenant whom Landlord expects will vacate on or before
December 31, 1998, but Landlord is making no representation or warranty in that
regard.
Notwithstanding anything to the contrary herein, if for any reason Landlord
does not tender possession of Suite 1209 to Tenant on or before April 1, 1999,
then Tenant shall have the right to cancel this Fifth Amendment to Lease (but
not the balance of the Lease) by delivering to Landlord written notice of such
cancellation at any time thereafter, provided that Tenant delivers such noticed
cancellation to Landlord prior to Landlord's tender of possession of Suite 1209
to Tenant. Such right of cancellation of this Fifth Amendment to Lease shall be
Tenant's sole remedy for Landlord's failure to tender possession of Suite 1209.
Landlord reserves the right to cancel this Fifth Amendment to Lease prior to
the Effective Date in the event of Landlord's failure for any reason to execute
an agreement with the existing tenant in Suite 1209 concerning its vacation of
Suite 1209 on terms acceptable to Landlord in its sole discretion.
2. Inducements by Tenant to Existing Tenant of Suite 1209. In order to
assist Landlord in including the existing tenant (Paragon Internet Exchange,
Inc.) of Suite 1209 to agree to terminate its lease as described in Section 1,
Tenant agrees to deliver to Landlord upon the execution of this Agreement the
sum of $12,294.90. $4,617.00 of such amount shall be in the form of a check
payable to Landlord, and the remaining $7,677.90 shall be in the form of a check
payable to Pacific Building Interiors. If such a lease termination agreement is
entered by Landlord and the existing tenant of Suite 1209, such sums shall be
used to pay such existing Tenant's past-due unpaid rental balance owed to
Landlord of $4,617.00 and such existing tenant's unpaid balance f $7,677.90 owed
to Pacific Building Interiors for tenant improvement work to Suite 1209. Such
$12,294.90 shall be returned to Tenant only if this Amendment is cancelled
pursuant to Section 1 above.
Tenant also agrees to permit such existing tenant, throughout the term of
Tenant's lease of Suite 1209 i.e., until September 30, 2006), to license
"co-location" space in Suite 1209 for installation of up to five racks for
telecommunications equipment. In this regard Tenant shall offer such license to
the existing Tenant on the same terms and conditions (including but not limited
to monetary terms) which Tenant customarily offers to its other co-location
customers for comparable space and service at the time such license agreement is
entered.
2
<PAGE>
3. Base Rent for Suite 1209; CPI Increases. Commencing on the Effective
Date, Tenant shall pay to Landlord, in addition to the Base Rent owing for the
existing Premises, a Base Rent for Suite 1209 in accordance with the following
schedule:
Monthly
Period Base Rent
------ ---------
Effective Date to September 30, 2006 $1,741.33
The Base Rent for Suite 1209 in the above schedule is subject to further
adjustment pursuant to the Rent Escalation Rider (concerning changes in the
Consumer Price Index) attached to the original Lease in the same fashion that
such rider applies to the Base Rent for the original Premises. If possession of
Suite 1209 is tendered by Landlord to Tenant after January 1, 1999, the Lease
termination date shall nonetheless remain unchanged.
Base Rent for Suite 1209 for any partial calendar month during which the
Effective Date occurs shall be equitably prorated as calculated by Landlord in
its reasonable discretion.
4. Taxes and Operating and Utility Costs for Suite 1209. Effective upon
the Effective Date, Tenant shall also be responsible for rent escalations
attributable to Suite 1209 as described in Section 4 of the Original Lease which
relates to Real Estate Taxes, Operating Costs and Utility Costs of the Building;
provided, however, that (a) Tenant's rent escalations for Suite 1209 pursuant
to such Rider shall be calculated separately from the escalations for the
balance of the Premises; and (b) the Tenant's "Percentage Shares" for purposes
of such calculations for Suite 1209 shall be 0.1147%.
5. Tenant to Take Suite 1209 "As Is". Tenant shall accept Suite 1209 in
its "as is" condition existing as of the Effective Date; provided, however, that
the following items in Suite 1209 are subject to removal by, or upon
authorization of, the existing tenant in Suite 1209, or by Landlord;
telecommunications switching equipment and attachments, racks, computers, HVAC
units and any other personal property or trade fixtures of the existing tenant
in Suite 1209. Landlord shall have no obligation for the construction or
modification of tenant improvements for Tenant in Suite 1209. In constructing
its own tenant improvements to Suite 1209, if any, Tenant shall comply with the
other applicable provisions of the Lease (including but not limited to Section
29 of the original Lease) and shall utilize only contractors and subcontractors
approved in writing by Landlord for work in the Building.
6. Brokers. Unless otherwise agreed in writing, if Tenant has dealt with
any real estate broker or other person or firm with respect to this Fifth
Amendment to Lease, Tenant shall be solely responsible for the payment of any
fee due said broker, person or
3
<PAGE>
firm and Tenant hereby indemnifies and holds Landlord harmless from and against
any liability with respect thereto.
7. Extension Option. The terms and conditions of the Extension Option
Rider to the original Lease shall apply to Suite 1209, in the same fashion as
they apply to the original Premises. The options described in such Rider may be
exercised by Tenant only as to the entire Premises, including Suite 1209, and if
such options are exercised, the rent for Suite 1209 shall be adjusted as
provided in such Rider. Therefore, references in the Extension Option Rider to
the original Lease shall be deemed to include Suite 1209.
8. Miscellaneous. This Fifth Amendment to Lease supersedes all prior or
contemporaneous understandings, negotiations, or agreements between the parties,
whether written or oral, with respect to its subject matter. This Fifth
Amendment to Lease is part of and shall be attached as an addendum to the Lease.
The Lease, as amended by this Fifth Amendment to Lease, may be further amended
only in a writing signed by both Landlord and Tenant. All terms of the Lease
which have not been expressly altered by this Fifth Amendment to Lease shall
remain in full force and effect.
4
<PAGE>
9. Exhibits. The following exhibits and riders are attached to and are a
part of the Fifth Amendment to Lease:
Exhibit A -- Floor Plan for Suite 1209
IN WITNESS WHEREOF, the parties have executed this Fifth Amendment to Lease
as of the date and at the place first written above.
TENANT: PAC-WEST TELECOM, INC.
a California corporation
By: /s/ Richard E. Bryson
------------------------------
Its Chief Financial Officer
--------------------------
By:
------------------------------
Its
--------------------------
LANDLORD: ONE WILSHIRE ARCADE IMPERIAL, LTD.
a California Limited Partnership
By: Paramount Group, Inc.,
Its Agent
By: /s/ Roger S. Newman
------------------------------
Its Senior Vice President
--------------------------
By:
------------------------------
Its
--------------------------
5
<PAGE>
[FLOOR PLAN OF ONE WILSHIRE -- 12TH FLOOR]
EXHIBIT A
PAC-WEST TELECOMM, INC.
Suite 1209
Approximately
653 Rentable Square Feet
<PAGE>
Exhibit 10.19
BALCO PROPERTIES
LEASE
(California)
TENANT: PAC-WEST TELECOMM, INC.
DATE: November 10, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
SUMMARY OF LEASE TERMS............................................. 1
- ----------------------
AGREEMENT.......................................................... 3
- ---------
1. Premises................................................. 3
2. Term..................................................... 4
3. Rent..................................................... 4
4. Rent Escalation.......................................... 5
5. Tax on Tenant's Property: Other Taxes................... 9
6. Security Deposit.........................................10
7. Late Payments............................................11
8. Use of Premises..........................................11
9. Building.................................................12
10. Condition of Premises....................................15
11. Damage to Premises or Building...........................15
12. Eminent Domain...........................................17
13. Default..................................................18
14. Remedies Upon Default....................................19
15. Surrender of Premises: Removal of Property..............22
16. Costs of Suit; Attorneys' Fees; Waiver of Jury Trial.....24
17. Assignment and Subletting................................25
18. Transfer of Landlord's Interest..........................31
19. Holding Over.............................................31
20. Notices..................................................31
21. Quiet Enjoyment..........................................32
22. Tenant's Further Obligations.............................32
25. Rights Reserved to Landlord..............................34
26. Force Majeure............................................35
27. Waiver of Claims; Indemnity..............................35
28. Insurance................................................36
29. Fixtures; Tenant Improvements and Alterations............38
30. Mechanic's Lien..........................................41
31. Alternate Space..........................................41
32. Hazardous Materials......................................41
33. Miscellaneous............................................42
35. Tenant's Supplemental Air-Conditioning...................47
<PAGE>
BALCO PROPERTIES
----------------
OFFICE LEASE
------------
(California)
THIS LEASE is made as of the 10th day of November, 1998, between BALCO
PROPERTIES (hereinafter called "Landlord"), and PAC-WEST TELECOMM, INC., a
California corporation (hereinafter called "Tenant").
SUMMARY OF LEASE TERMS
----------------------
A. Addresses:
1. Tenant's Premises: 1624 Franklin Street
Mezzanine; Suites
40, 100, 201, 203
210, 214 and 222;
Oakland, California
94612
Notice Address: Pac-West Telecomm
4210 Coronado Avenue
Stockton, California
95204
Attn: President
2. Landlord's Notice Address: 925 Ygnacio Valley
Road, Walnut
Creek, California
94596
3. Landlord's Address for Rent Payments: 925 Ygnacio Valley
Road, Walnut
Creek, California
94596
B. Approximate Rentable Area of the Premises:
See Schedule 1. The parties agree that such figure is only a reasonable
estimate of the Rentable Area of the Premises. The figures in Items E,
G, H and J below and the other provisions of this Lease shall not be
adjusted due to any difference between the actual area of the Premises
and the estimated area shown above.
C. Lease Term: Five (5) Years, Zero (0) Months
D. 1. Estimated Commencement Date: December 1, 1998
2. Commencement Date: December 1, 1998
1
<PAGE>
E. Schedule of Monthly Base Rents:
Schedule 1 contains the monthly Base Rents applicable during the term
of the Lease, subject to adjustments pursuant to the Rent Escalation Rider to
the Lease regarding increases in the Consumer Price Index.
The Base Rent for the first month shall be prepaid by Tenant upon
execution of this Lease. If the actual Commencement Date is before or after the
Estimated Commencement Date, then all dates set forth above shall be
correspondingly accelerated or delayed, as the case may be. Base Rent for any
partial calendar month shall be equitably prorated as calculated by Landlord in
its reasonable discretion. In the event of a default by Tenant under this Lease
which is not cured within the applicable cure period set forth in Section 13.2,
Tenant shall be obligated to pay to Landlord, without any further notice from
Landlord, a sum equal to all rent credits previously credited to Tenant pursuant
to the above schedule, and not further rent credits shall be applicable for the
balance of the lease term.
F. Base Years for Expenses: Real Estate Taxes - 1999-2000; Operating and
Utility Costs - 1998.
G. Tenant's "Percentage Share" of Real Estate Taxes, Operating and Utility
Costs: See Schedule 1
H. Security Deposit: See Schedule 1
I. Permitted Use: Telecommunications business.
J. Maximum Tenant Improvement Allowance: Tenant to take space "AS-IS",
Landlord will contribute $8000.00 towards Tenant's improvement work.;
K. Tenant's Parking Allotment: None (But see Emergency Generator and
Electrical Service Riders
L. Landlord's Brokers: None
2
<PAGE>
M. Riders:
The following Schedules, Exhibits, Riders and Addenda are attached to
and are part of this Lease:
Schedule 1 - Summary of Lease Terms
Exhibit A - Floor Plan of Premises
Exhibit B - Rules and Regulations
Exhibit C - Consent to Customer Sublease
Exhibit D - List of Tenant's Personal Property
Rent Escalation Rider
Telecommunications Conduit Rider
Emergency Generator Rider
Extension Option Rider
Electrical Service Rider
Roof Rights Rider
Expansion Space Rider
N. Guaranty: Not Applicable.
AGREEMENT
---------
1. Premises. Landlord hereby leases the Premises to Tenant and Tenant
hereby hires and takes the Premises from Landlord. The Premises are located at
the address set forth in Section A(1) on page 1 and are more particularly shown
on Exhibit A attached hereto and incorporated herein by this reference. The
office building in which the Premises are located is referred to herein as the
"Building". From time to time during the term of this Lease, and upon the mutual
agreement of Landlord and Tenant, Landlord will lease to Tenant and Tenant will
lease from Landlord additional space within the Building, which, when added,
will be deemed included within the definition of the "Premises". If and when
such areas in the Building are identified by the parties, Landlord and Tenant
and will complete Items B, D, E, G and H contained in Schedule 1 applicable to
such additional space and a supplement to Exhibit A describing the additional
space. Tenant's rent, percentage share of real estate tax, operating and utility
costs and Security Deposit shall automatically be increased to reflect the
additional space, and the amounts as will be set forth in Schedule 1, otherwise,
Tenant's lease of the additional space shall be on the same terms and conditions
as affect the original Premises from time to time. To the extent there exists
one or more leases, licenses or other agreements between Landlord (or its
predecessor) and Tenant relating to any portion of the Premises occupied by
Tenant as of the date of this Lease, including the "Office Lease Form" dated
August 28, 1997 covering Suites 40, 210 and 214, between Tenant and Downtown
3
<PAGE>
Properties dba Franklin Building, and any amendments or addenda thereto, such
lease, license or other agreement shall be deemed replaced and superceded by
this Lease.
2. Term.
2.1 The term of this Lease shall commence on the "Commencement
Date" indicated in Section D on page 1 and shall extend for the period set forth
in Section C on page 1. In the event that Landlord, for any reason, cannot
tender possession of the Premises to Tenant on or before the "Estimated
Commencement Date" indicated in Section D on page 1, this Lease shall not be
void or voidable, nor shall Landlord be liable to Tenant in any way as a result
of such failure to tender possession. In the event that Landlord cannot tender
possession of the Premises to Tenant for any reason other than the acts or
omissions of Tenant, Tenant's obligation to pay rent hereunder shall be deferred
by a period of time equal to the delay in Landlord's delivery of possession not
caused by Tenant. If such inability to tender possession of the Premises for
reasons other than the acts or omissions of Tenant continues for a period in
excess of ninety (90) days after the Estimated Commencement Date, Tenant shall
have the right, exercisable by notice to Landlord, to terminate this Lease, but
the suspension of rent obligations and the right of termination pursuant to this
Section 2.1 shall be Tenant's sole remedies in the circumstances herein
described.
2.2 In the event that Tenant is allowed to enter into possession of
the Premises prior to the Commencement Date, such possession shall be deemed to
be pursuant to, and shall be governed by, the terms, covenants and conditions of
this Lease, including, without limitation, the covenant to pay rent, as though
the Commencement Date occurred upon the date of taking of possession by Tenant.
2.3 In the event that the Commencement Date falls on other than the
first day of a month, rent for any initial partial month of the term hereof
shall be appropriately prorated; and if the date of commencement of Tenant's
rent obligations is delayed, pursuant to Section 2.1, the end of the term hereof
shall be correspondingly delayed. At the request of either party hereto, both
parties shall execute a memorandum confirming the date of commencement of
Tenant's rent obligations.
3. Rent. Beginning on the Commencement Date (subject to the adjustment
pursuant to Sections 2.1 or 2.2 above), the base rent ("Base Rent") for the
Premises shall be in accordance with the Schedule of Monthly Base Rents set
forth in Section E on page 2. Each installment of Base Rent shall be payable in
advance on the first day of each and every month throughout the term of this
Lease. Tenant agrees to pay all rent, without offset, demand or deduction of any
kind, to Landlord by mail to the address set forth in Section A(3) on page 1 or
in such manner, to such other person or at such other place as Landlord may from
time to time designate. Tenant agrees that no payment made to Landlord by check
or other
4
<PAGE>
instrument shall contain a restrictive endorsement of any kind; and if any such
instrument should contain a restrictive endorsement in violation of the
foregoing, that endorsement shall have no legal effect whatever, notwithstanding
that such item is processed for payment.
4. Rent Escalation.
4.1 Tenant shall pay, as monthly rent hereunder, in addition to the
Base Rent, the sums provided in this Section 4. Tenant shall be advised of any
change, from time to time, in rent escalation payments required hereunder by
written notice from Landlord, which shall include information in such detail as
Landlord may reasonably determine to be necessary in support of such change.
Tenant shall have thirty (30) days after the receipt of any such notice to
protest the change indicated therein, and Tenant's failure to make such protest
in a written notice to Landlord within such 30-day period shall be conclusively
deemed to be Tenant's agreement to such charges. Notwithstanding any such
protest, all rent escalation payments falling due after service of such notice
shall be made in accordance with such notice until the protest has been
resolved, whereupon any necessary adjustment shall be made between Landlord and
Tenant. Any audit arising out of such a protest by Tenant shall be done, at
Tenant's expense, in accordance with generally accepted auditing and management
standards by a major public accounting firm selected by Tenant and approved by
Landlord in its reasonable discretion. Such audit shall be performed at the
offices of Balco Properties or at such other location in the United States as
Landlord may select from time to time for the maintenance of its accounting
records for the Building.
4.2 Following the first December 31 during the term of the Lease,
Tenant shall pay Landlord in a single lump sum upon billing therefor, Tenant's
Percentage Share (as defined in Section G on page 2 of the Lease) of each of the
following amounts: (1) the amount (if any) by which Real Estate Taxes for the
then current tax fiscal year exceed the Real Estate Taxes for the Base Year for
Real Estate Taxes set forth in Section F on page 2; (2) the amount (if any) by
which Operating Costs for the just completed calendar year exceed the Operating
Costs for the Base Year for Operating Costs set forth in Section F on page 2;
and the amount (if any) by which Utility Costs for the just completed calendar
year exceed the Utility Costs for the Base Year for Utility Costs set forth in
Section F on page 2. At the same time, Tenant shall also pay to Landlord one-
twelfth of Tenant's Percentage Share of each of the following amounts: (i) the
excess (if any) of annual Real Estate Taxes (based on the preceding calendar
year) over the Base Year Real Estate Taxes; (ii) the excess (if any) of annual
Operating Costs (based on the preceding calendar year) over the Base Year
Operating Costs; and (iii) the excess (if any) of annual Utility Costs (based on
the preceding calendar year) over Base Year Utility Costs. The Real Estate Taxes
for any partial fiscal year at the end of the lease term and the Operating Costs
and Utility Costs for any partial calendar year at the end of the lease term
shall be appropriately prorated.
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For purposes hereof, "Real Estate Taxes" shall include any form of
assessment, license fee, license tax, business license fee, commercial rental
tax, levy, penalty, charge, tax or similar imposition (other than net income,
inheritance or estate taxes), imposed by any authority having the direct or
indirect power to tax, including any city, county, state or federal government,
or any school, agricultural, lighting, drainage, flood control or other special
district thereof, as against any legal or equitable interest of Landlord in the
Premises or in the real property of which the Premises and the Building are a
part, including, but not limited to, the following:
(i) Any tax on Landlord's "right" to rent or "right" to other
income from the Premises or as against Landlord's business of leasing the
Premises;
(ii) Any assessment, tax, fee, levy or charge in substitution,
partially or totally, of any assessment, tax, fee, levy or charge previously
included within the definition of Real Estate Taxes, it being acknowledged by
Tenant and Landlord that Proposition 13 was adopted by the votes of the State of
California in the June 1978 Election and that assessments, taxes, fees, levies
and charges may be imposed by governmental agencies for such services as fire
protection, street, sidewalk and road maintenance, refuse removal and for other
governmental services formerly provided without charge to property owners or
occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies and charges to be included within the
definition of "Real Property Taxes" for the purpose of this Lease;
(iii) Any assessment, tax, fee, levy or charge allocable to or
measured by the areas of the Premises or the rent payable hereunder, including,
without limitation, any gross income tax or excise tax levied by the State, City
or Federal government, or any political subdivision thereof, with respect to the
possession, leasing, operating, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises, or any portion thereof;
(iv) Any assessment, tax, fee, levy or charge upon this
transaction or any document to which Tenant is a party, creating or transferring
an interest or an estate in the Premises;
(v) Any assessment, tax, fee, levy or charge by any governmental
agency related to any transportation plan, fund or system instituted within the
geographic area of which the Building is a part; or
(vi) Reasonable legal and other professional fees, costs and
disbursements incurred in connection with proceedings to contest, determine or
reduce real property taxes.
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The definition of "Real Estate Taxes", including any additional tax the
nature of which was previously included within the definition of "Real Estate
Taxes", shall include any increases in such taxes, levies, charges or
assessments occasioned by increases in tax rates or increases in assessed
valuations, whether occurring by sale or otherwise.
As used in this Lease, the term "Operation Costs" shall mean all costs
and expenses of management, operation, maintenance, overhaul, improvement or
repair of the Building, the common areas and the site, as determined by standard
accounting practices, including the following costs by way of illustration but
not limitation:
(a) Any and all assessments imposed with respect to the Building,
common areas, and/or the site on which the Building is located, pursuant to any
covenants, conditions and restrictions affecting the site, common areas or
Building;
(b) Any costs, levies or assessments resulting from statutes or
regulations promulgated by any governmental authority in connection with the use
or occupancy of the Building or the Premises;
(c) Costs of all insurance obtained by Landlord;
(d) Wages, salaries and other labor costs (including, but not
limited to, social security taxes, unemployment taxes, other payroll taxes and
governmental charges and the costs, if any, of providing disability,
hospitalization, medical, welfare, pension, retirement or other employee
benefits, whether or not imposed by law) of employees, independent contractors
and other persons engaged in the management, operation, maintenance, overhaul,
improvement or repair of the Building;
(e) Building management office and storage rental;
(f) Management and administrative fees (which Tenant acknowledges
are present six percent (6%) of accrued gross revenues of the Building and which
may be adjusted from time to time);
(g) Supplies, materials, equipment and tools;
(h) Costs of, and appropriate reserves for, repair, painting,
resurfacing and maintenance of the Building, the common areas, the site and the
parking facilities, and their respective fixtures and equipment systems,
including, but not limited to, the elevators, the structural portions of the
Building, and the plumbing, heating, ventilation, air-conditioning, telephone
cable riser and electrical systems installed or furnished by Landlord;
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(i) Depreciation on a straight-line basis and rental of personal
property used in maintenance;
(j) Amortization on a straight-line basis over the useful life
(together with interest at the interest rate defined in Subsection 33.9 of this
Lease on the unamortized balance) of all costs of a capital nature (including,
without limitation, capital improvement, capital replacements, capital repairs,
capital equipment and capital tools):
(1) reasonably intended to produce a reduction in Operating
Costs, Utility Costs or energy consumption; or
(2) required under any governmental or quasi-governmental
law, rule, order, ordinance or regulation that was not applicable to the
Building at the time it was originally constructed; or
(3) for repair or replacement of any Building equipment
needed to operate the Building at the same quality levels as prior to the
replacement;
(k) Personal property taxes levied on or attributable to personal
property used in connection with the Building, the common areas, or the site;
(l) Costs of all service contracts pertaining to the Premises,
the Building or the site;
(m) Reasonable accounting, audit, verification, legal and other
consulting fees;
(n) Costs and expenses of lighting, janitorial service, cleaning,
refuse removal, security and similar items, including appropriate reserves; and
(o) Fees imposed by any federal, state or local government for
fire and police protection, trash removal or other similar services which do not
constitute Real Estate Taxes.
The following shall be excluded from Operating Costs: federal and
state income taxes imposed on Landlord's net income; any and all costs or
expenses to procure tenants for the Building, including, but not limited to,
brokerage commissions, legal fees and costs of remodeling suites; mortgage or
debt service; and depreciation, except that amortization of improvements of the
type specified in Subsection (j) above shall in no event be considered
"depreciation".
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For purposes hereof, "Utility Costs" shall include all charges,
surcharges and other costs of all utilities paid for by Landlord in connection
with the Premises and/or Building, including, without limitation, costs of
heating, ventilation and air-conditions for the Premises and/or Building, costs
of furnishing gas, electricity and other fuels or power sources to the Premises
and/or Building, and costs of furnishing water and sewer services to the
Premises and/or Building.
Because Tenant will be installing and using separate electrical service
and air conditioning for its Premises, for the purposes of this Lease, Operating
Costs shall not include capital costs incurred by Landlord in connection with
the following capital improvements to the Building:
(i) Upgrades or new installations of electrical service; and
(ii) Air conditioning service.
However, said improvements may be included in the Operating Costs if Tenant uses
said improvements, or if the improvements benefit the Premises.
The term "Building" as used in this Section 4.2 shall be deemed to
include not only the Building but also any parking facility owned, leased or
operated by Landlord in order to meet the parking requirements of the Building.
If the average occupancy of the rentable area of the Building
during the Tenant's Base Year for Operating and Utility Costs as set forth in
Section F on page 2 or during any other calendar year of the Lease Term is less
than ninety percent (90%) of the total rentable area of the Building, the
Operating Costs and Utility Costs shall be adjusted by Landlord for such
calendar year, prior to the pass-through of Operating Costs and Utility Costs to
Tenant pursuant to this Section 4.2, to reflect what they would have been had
ninety percent (90%) of the rentable area been occupied during that year. In
making such calculation, the Landlord's reasonable opinion of what portion, if
any, of each cost was affected by changes in occupancy shall be binding upon the
parties.
5. Tax on Tenant's Property; Other Taxes.
5.1 Tenant shall be liable for, and Tenant hereby indemnifies
and holds Landlord harmless from and against any liability in connection with,
all taxes levied directly or indirectly against any personal property, fixtures,
machinery, equipment, apparatus, systems and appurtenances placed by Tenant in
or about, or utilized by Tenant in, upon or in connection with, the Premises
("Equipment Taxes"). If any Equipment Taxes are levied against Landlord or
Landlord's property or if the assessed value of Landlord's property is
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increased by the inclusion therein of a value placed upon such personal
property, fixtures, machinery, equipment, apparatus, systems or appurtenances of
Tenant, and if Landlord, after written notice to Tenant, pays the Equipment
Taxes or taxes based upon such an increased assessment (which Landlord shall
have the right to do regardless of the validity of such levy, but only under
proper protest if requested by Tenant prior to such payment and if payment under
protest is permissible), Tenant shall pay to Landlord upon demand, as additional
rent hereunder, the taxes so levied against Landlord or the proportion of such
taxes resulting from such increase in the assessment; provided, however, that in
any such event Tenant shall have the right, in the name of Landlord and with
Landlord's full cooperation, but at no cost to Landlord, to bring suite in any
court of competent jurisdiction to recover the amount of any such tax so paid
under protest, and any amount so recovered shall belong to Tenant.
5.2 If the tenant improvements in the Premises, whether installed
and/or paid for by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at which tenant improvements
conforming to Landlord's building standards in other space in the Building are
assessed, then the real property taxes and assessments levied against Landlord
or Landlord's property by reason of such excess assessed valuation shall be
deemed to be Equipment Taxes and shall be governed by the provisions of Section
5.1. Any such amounts, and any similar amounts attributable to excess
improvements by other tenants of the Building and recovered by Landlord from
such other tenants under comparable lease provisions, shall not be included in
Real Estate Taxes for purposes of rent escalation under Section 4 of this Lease.
5.3 Tenant shall pay, as additional rent hereunder, upon demand and
in such manner and at such times as Landlord shall direct from time to time by
written notice to Tenant, any excise, sales, privilege or other tax, assessment
or other charge (other than income or franchise taxes) imposed, assessed or
levied by any governmental or quasi-governmental authority or agency upon
Landlord on account of this Lease, the rent or other payments made by Tenant
hereunder, any other benefit received by Landlord hereunder, Landlord's business
as a lessor hereunder, or otherwise in respect of or as a result of the
agreement or relationship of Landlord and Tenant hereunder.
6. Security Deposit. A deposit (the "Security Deposit") in the amount set
forth in Section H on page 2 shall be paid by Tenant upon execution of this
Lease and shall be held by Landlord without liability for interest and as
security for the performance by Tenant of Tenant's covenants and obligations
under this Lease, it being expressly understood that the Security Deposit shall
not be considered an advance payment of rent or a measure of Landlord's damages
in case of default by Tenant. Upon the occurrence of any breach or default under
this Lease by Tenant, Landlord may, from time to time, without prejudice to nay
other remedy, use the security deposit or any portion thereof to the extent
necessary to make
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good any arrearages of rent or any other damage, injury, expense, or liability
caused to Landlord by such breach or default. Following any application of the
Security Deposit, Tenant shall pay to Landlord on demand an amount to restore
the Security Deposit to its original amount. In the event of bankruptcy or other
debtor relief proceedings by or against Tenant, the Security Deposit shall be
deemed to be applied first to the payment of rent and other charges due
Landlord, in the order that such rent or charges became due and owing, for all
periods prior to filing of such proceedings. Landlord shall not be required to
keep the Security Deposit separate from its general funds. Upon termination of
this Lease, any remaining balance of the Security Deposit shall be returned by
Landlord to Tenant within fourteen (14) days after termination of Tenant's
tenancy.
7. Late Payments. All covenants and agreements to be performed by Tenant
under any of the terms of this Lease shall be performed by Tenant at Tenant's
sole cost and expense and without any abatement of rent. Tenant acknowledges
that the late payment by Tenant to Landlord of any sums due under this Lease
will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of such cost being extremely difficult and impractical to fix. Such costs
include, without limitation, processing and accounting charges, and late charges
that may be imposed on Landlord by the terms of any note or other obligation
secured by any encumbrance covering the Premises or the Building of which the
Premises are a part. Therefore, if any monthly installment of rent is not
received by Landlord by the date when due or within five (5) days thereafter, or
if Tenant fails to pay any other sum of money when due hereunder or within five
(5) days thereafter, Tenant shall pay to Landlord, as additional rent, the sum
of five percent (5%) of the overdue amount as a late charge. Landlord's
acceptance of any late charge, or interest pursuant to Section 33.9, shall not
be deemed to be liquidated damages, nor constitute a waiver of Tenant's default
with respect to the overdue amount, nor prevent Landlord from exercising any of
the other rights and remedies available to Landlord under this Lease or any law
nor or hereafter in effect. Further, in the event such late charge is imposed by
Landlord for two (2) consecutive months for whatever reason, Landlord shall have
the option to require that, beginning with the first payment of rent due
following the imposition of the second consecutive late charge, rent shall no
longer be paid in monthly installments but shall be payable three (3) months in
advance.
8. Use of Premises. Tenant, and any permitted subtenant or assignee,
shall use the Premises only for the use described in Section I on page 2. Any
other use of the Premises is absolutely prohibited. Tenant shall not use or
occupy the Premises in violation of any recorded covenants, conditions and
restrictions affecting the land on which the Building is located nor of any law,
ordinance, rule and regulation. Tenant shall not do or permit to be done
anything which will invalidate or increase the cost of any fire, extended
coverage or any other insurance policy covering the Building or property located
therein and shall comply with all rules, regulations and requirements of any
applicable fire rating bureau or other organization performing a similar
function. Tenant shall promptly upon demand reimburse
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Landlord as additional rent for any additional premium charged for any insurance
policy by reason of Tenant's failure to comply with the provisions of this
Section 8. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants of occupants of the Building, or injure or annoy them, or use or allow
the Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about
the Premises. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises and shall keep the Premises in first class repair and
appearance. Tenant shall not place a load upon the Premises exceeding the
average pounds of live load per square foot of floor space specified for the
Building by Landlord's architect or engineer, with any partitions to be
considered a part of the live load. In accordance with the recommendations of
Landlord's architects or engineers, Landlord reserves the right to prescribe the
weight and position of all safes, files and heavy equipment which Tenant desires
to place in the Premises so as to distribute properly the weight thereof.
Tenant's business machines and mechanical equipment which cause vibration or
noise that may be transmitted to the Building structure or to any other space in
the Building shall be so installed, maintained and used by Tenant as to
eliminate such vibration or noise. Tenant shall be responsible for the cost of
all structural engineering required to determine structural load. In any event,
unless specifically authorized herein, Tenant shall not prepare or serve, or
authorize the preparation or service of, food or beverages in the Premises,
except only the occasional preparation of coffee, tea, hot chocolate and other
such common refreshments for Tenants and its employees. Tenant shall not conduct
any auction in or about the Premises or the Building without Landlord's prior
written consent.
9. Building.
9.1 Throughout the term of this Lease, subject to shortage and
accidents beyond Landlord's reasonable control, and subject to reimbursement
pursuant to Section 4.2, Landlord shall repair and maintain all structural
elements of the Building and common areas (including, without limitation, the
structural walls, doors, floors, ceilings, roof, elevators, stairwells, lobby,
heating system, telephone cable riser for Building-standard service from the
Building's main terminal to the terminal box on the same floor as the Premises
(but excluding Tenant's telephone equipment and the cable and wiring from such
equipment to the terminal box, plumbing and electrical wiring) and maintain the
exterior of the Premises, including grounds, walks, drives and loading area, if
any. Tenant shall reimburse Landlord upon demand, as additional rent hereunder,
for the cost of any repairs or extraordinary maintenance necessitated by acts of
Tenant or Tenant's employees, contractors, agents, licensees or invitees.
9.2 Provided that Tenant is not in default hereunder, subject to
shortages and accidents beyond Landlord's reasonable control, Landlord shall
furnish building standard heating service Monday through Friday from 8:00 A.M.
to 6:00 P.M., except for holidays ("Building Hours"). No heating will be
furnished by Landlord during hours other than as set
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forth above, except upon prior arrangement with Tenant and at an extra charge as
may be agreed to between Landlord and Tenant. For purposes of this Section 9.2,
"holidays" shall mean and refer to the holidays of Christmas, New Year's Day,
President's Day, Memorial Day, the Fourth of July, Labor Day, Thanksgiving and
the day after Thanksgiving, as those holidays are defined, recognized or
established by governmental authorities or agencies from time to time and such
other days the New York Stock Exchange is closed. Tenant shall install, at its
expense, such air conditioning equipment as may be reasonably determined by
Tenant (or reasonably required by Landlord if the Premises generates heat that
materially affects other tenants of the Building, the type of installation and
the location thereof shall be subject to Landlord's consent (not be unreasonably
withheld, conditioned or delayed) and Sections 15, 29 and 35 of this Lease.
9.3 Landlord shall provide, at Tenant's sole cost and expense,
electricity for lighting and power in the Premises if:
(a) The connected electrical load for lighting does not exceed
an average of one (1) watt per usable square foot of the Premises during the
Building Hours on a monthly basis; and
(b) The connected electrical load for all other power purposes
does not exceed an average of two (2) watts per usable square foot of the
Premises during the Building Hours on a monthly basis.
Electricity for Tenant's lighting and other power purposes shall be at a
nominal one-hundred and twenty (120) volts. No electrical circuit for the supply
of power shall require a current capacity exceeding twenty (20) amperes.
Landlord shall replace lamps, starters and ballasts for Building standard
lighting fixtures within the Premises on Tenant's request and at Tenant's
expense. Tenant shall replace lamps, starters and ballasts for non-Building
standard lighting fixtures within the Premises at Tenant's expense.
Tenant, at Tenant's sole cost and expense, will be installing a separate
electrical service for the operation of its telecommunications equipment located
in the Premises and air conditioning units, but shall be entitled to use the
Building's power, subject to the limitations set forth above. The installation
of such new electrical service shall be subject to the approval of Landlord as
to both the type of installation and the location thereof, and said installation
shall be subject to the terms and conditions contained in this Lease, including,
but not limited to, Sections 15 and 29 and the Electrical Service Rider attached
to the Lease.
9.4 Landlord shall furnish unheated water from mains for drinking,
lavatory and toilet purposes drawn through fixtures installed by Landlord, or by
Tenant with Landlord's express prior written consent, and heated water for
lavatory purposes from regular building
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supply in such quantities as required in Landlord's judgment for the comfortable
and normal use of the Premises. Tenant shall pay Landlord for additional water
which is furnished for any other purpose. The amount that Tenant shall pay
Landlord for such additional water shall be the average price per gallon charged
to the Landlord for the Building by the entity providing water.
9.5 Landlord will furnish janitor service (including washing of
windows with reasonable frequency as determined by Landlord) in and about the
Premises, to the extent necessitated by normal office use of the Premises,
Monday through Friday, holidays excepted. In the event that Tenant shall fail to
keep the Premises in a clean and orderly condition, Landlord may do so and any
costs incurred by Landlord in connection therewith shall be payable by Tenant to
Landlord upon demand, as additional rent hereunder. Tenant shall also pay to
Landlord, as additional rent hereunder, amounts equal to any increase in cost of
janitor service in and about the Premises if such increase in costs is due (a)
use of the Premises by Tenant during hours other than normal business hours, or
(b) location in or about the Premises of any fixtures, improvements, materials
or finish items (including, without limitation, wall coverings and floor
coverings) other than those which are of the standard type adopted by Landlord
for the Building. Only those persons who have been approved by Landlord may
perform janitorial services.
9.6 Landlord shall furnish passenger and freight elevator service in
common with Landlord and other tenants Monday through Friday from 8:00 A.M. to
6:00 P.M. and Saturday from 8:00 A.M. to 1:00 P.M. Landlord shall provide
limited passenger elevator service daily at all times such normal passenger
service is not furnished.
9.7 Landlord does not warrant that any service will be free from
interruptions, caused by repairs, renewals, improvements, changes of service,
alterations, strikes, lockouts, labor controversies, accidents, inability to
obtain fuel, steam, water or supplies or other cause, provided the cause is
beyond the reasonable control of Landlord. Landlord agrees to give Tenant notice
of any extended interruptions of which Landlord has prior knowledge. No
interruption of service shall be deemed an eviction or disturbance of Tenant's
use and possession of the Premises or any part thereof, nor relieve Tenant from
performance of Tenant's obligations under this Lease. Landlord shall not be
liable for any failure to make such repairs or furnish such services unless the
failure shall be reasonably curable by Landlord and nonetheless shall persist
for an unreasonable time after written notice from Tenant of the need for such
repairs or the failure to furnish such service. There shall be no abatement of
rent and no liability of Landlord by reason of any injury to or interference
with Tenant's business arising from the making of any repairs, alterations or
improvements, or provision of any service in or to any portion of the Building,
including the Premises, or in or to the fixtures, appurtenances and equipment
therein; provided that in making such repairs, alterations or improvements or
providing such service Landlord shall interfere as little as
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reasonably practicable with the conduct of Tenant's business in the Premises,
without, however, being obligated to incur liability for overtime or other
premium payment to its agents, employees or contractors in connection therewith.
If Tenant's beneficial use of all or a substantial portion of the Premises is
prevented for a period in excess of three (3) consecutive business days
(excluding Saturdays, Sundays and holidays), the Base Rent shall be equitably
abated commencing with the fourth business day and continuing until such use is
no longer prevented. Such abatement, to the extent provided above, shall be
Tenant's sole remedy. Except as provided above, Tenant shall not be entitled to
any abatement of reduction of rent or other remedy by reason of Landlord's
failure to furnish any of the services or Building systems called for by this
Lease when such failure is caused by accident, breakage, repairs, strikes,
lockouts or other labor disturbances or labor disputes of any character, or any
other cause. As a material inducement to Landlord's entry into this Lease,
Tenant waives and releases any rights it may have to make repairs at Landlord's
expense under Section 1941 and 1942 of the California Civil Code.
10. Condition of Premises. By occupying the Premises, Tenant shall be
deemed to accept the same and acknowledge that they comply fully with Landlord's
covenants and obligations hereunder. Tenant acknowledges that neither Landlord
nor any agent, employee or representative of Landlord has made any
representation or warranty with respect to any matter, including, but not
limited to, any matter regarding the Building or Premises, the applicable zoning
or the effect of other applicable laws, or the suitability or fitness of the
Building or Premises for the conduct of Tenant's business or any other purpose.
Tenant is relying solely on its own investigations with respect to all such
matters. During the term of this Lease, Tenant shall maintain the Premises in as
good condition as when Tenant took possession, ordinary wear and tear and
repairs which are specifically made the responsibility of Landlord hereunder
excepted, and shall repair all damage or injury to the Building or to fixtures,
appurtenances and equipment of the Building caused by Tenant's installation or
removal of its property or resulting from the negligence or tortuous conduct of
Tenant, its employees, contractors, agents, licensees and invitees. In the event
of failure by Tenant to perform its covenants of maintenance and repair
hereunder, Landlord may perform such maintenance and repair and any amounts
expended by Landlord in connection therewith shall be payable by Tenant to
Landlord upon demand, as additional rent hereunder.
11. Damage to Premises or Building.
11.1 In the event that the Building should be totally destroyed by
fire or other casualty, this Lease shall terminate. In the event the Premises or
a substantial portion of the Building should be so damaged or destroyed that
rebuilding or repairs cannot, in Landlord's opinion, be completed within one
hundred eighty (180) days after the date of such damage or Landlord will not
receive insurance proceeds sufficient to cover the cost of such repairs,
reconstruction and restoration (including proceeds from Tenant and/or Tenant's
insurance
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which Tenant is required to deliver to Landlord pursuant to Subsection 11.2
below), Landlord may at its option terminate this Lease upon notice to Tenant,
or Landlord may proceed to restore the Building. In the event that such
rebuilding or repairs can, in Landlord's opinion, be completed within one
hundred eighty days (180) days after the date of such damage and Landlord will
receive insurance proceeds sufficient to cover the costs of such repairs,
reconstruction and restoration (including proceeds from Tenant and/or Tenant's
insurance which Tenant is required to deliver to Landlord pursuant to Subsection
11.2 below), Landlord shall restore the Building. In the event that Landlord is
obligated or elects to restore the Building, Landlord shall commence to rebuild
or repair the Building reasonably promptly after such damage or destruction and
shall proceed with reasonable diligence to restore it to substantially the
condition in which it was immediately prior to the casualty, except that
Landlord shall not be required to rebuild, repair or replace any part of the
partitions, fixtures, alterations, decorations or other improvements which may
have been constructed by or specifically for Tenant, or by or for other tenants
within the Building. In such event, this Lease shall remain in full force and
effect, provided that if Tenant is dispossessed by reason of such casualty from
all or a substantial portion of the Premises for more than three (3) consecutive
business days, Tenant shall be entitled to a ratable abatement of the Base Rent
during the time and to the extent the Premises are unfit for occupancy,
commencing with the fourth business day; and provided further that Tenant shall
have the right to terminate this Lease upon thirty (30) days prior notice served
upon Landlord prior to actual completion of any necessary restoration of the
Premises if such restoration is not substantially completed within one hundred
eighty (180) days after the casualty or thirty (30) days after delivery of said
notice, whichever is later. Such abatement or termination, to the extent
provided above, shall be Tenant's sole remedy. Notwithstanding the foregoing to
the contrary, if the damage is due to the negligence or willful misconduct of
Tenant or any of Tenant's agents, employees or invitees, there shall be no
abatement of rent. Except for abatement of rent as provided hereinabove, Tenant
shall not be entitled to any compensation or damages for loss of, or
interference with, Tenant's business or use or access of all or any part of the
Premises resulting from any such damage, repair, reconstruction or restoration.
11.2 In the event of any damage or destruction of all or any part of
the Premises, Tenant shall immediately: (a) notify Landlord thereof; and (b)
deliver to Landlord all insurance proceeds received by Tenant with respect to
the Premises (but not Tenant's equipment or improvements, and unless and except
to the extent the repair of the damage or destruction was Tenant's
responsibility and Tenant discharged said responsibility by fully reimbursing
Landlord for all costs related to such repair or reconstruction). Leasehold
Improvements and Tenant changes in the Premises to the extent such items are not
covered by Landlord's casualty insurance (excluding proceeds for Tenant's
furniture and other personal property), whether or not this Lease is terminated
as permitted in this Section 11, and Tenant hereby assigns to Landlord all
rights to receive such insurance proceeds. If, for any reason (including
Tenant's failure to obtain insurance for full replacement cost of any Tenant
changes
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which Tenant is required to insure pursuant to this Lease), Tenant fails to
receive insurance proceeds covering the full replacement cost of such Tenant
changes which are damaged, Tenant shall be deemed to have self-insured the
replacement cost of such tenant changes, and upon any damage or destruction
thereof, Tenant shall immediately pay to Landlord the full replacement cost of
such items, less any insurance proceeds actually received by Landlord from
Landlord's or Tenant's insurance with respect to such items.
11.3 In the event any holder of a mortgage or deed of trust on the
Building should require that the insurance proceeds payable upon damage or
destruction to the Building by fire or other casualty be used to retire the debt
secured by such mortgage or deed of trust, or in the event any lessor under any
underlying or ground lease should require that such proceeds be paid to such
lessor, Landlord shall in no event have any obligation to rebuild, and an
Landlord's election, this Lease shall terminate.
11.4 With the exception of insurance required to be carried by Tenant
under Section 28 of this Lease, and except as provided in Section 11.2, any
insurance which may be carried by Landlord or Tenant against loss or damage to
the Building or to the Premises shall be for the sole benefit of the party
carrying such insurance and under its sole control. Landlord shall not be
required to carry insurance of any kind on Tenant's property and, except by
reason of the breach by Landlord of any of its obligations hereunder, shall not
be obligated to repair any damage thereto or to replace the same.
11.5 In addition to termination rights in Subsection 11.1 above,
Landlord shall have the right to terminate this Lease if any damage to the
Building or Premises occurs during the last twelve (12) months of the Term of
this Lease and Landlord estimates that the repair, reconstruction or restoration
of such damage cannot be completed within the earlier of (a) the scheduled
expiration date of the Lease Term, or (b) sixty (60) days after the date of such
casualty.
11.6 Tenant, as a material inducement to Landlord's entering into
this Lease, irrevocably waives and releases its rights under the provisions of
Sections 1932(2) and 1933(4) of the California Civil Code (and any successor
statutes permitting Tenant to terminate this Lease as a result of any damage or
destruction), it being the intention of the parties hereto that the express
terms of this Lease shall control under any circumstances in which those
provisions might otherwise apply.
12. Eminent Domain.
12.1 In the event the whole of the Premises, or so much thereof as to
render the balance unusable to Tenant for the purposes leased hereunder, as
reasonably determined by Landlord, shall be lawfully condemned or taken in any
manner for any public or quasi-
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public use, or conveyed by Landlord in lieu thereof (a "Taking"), this Lease and
the term hereby granted shall forthwith cease and terminate on the date of the
taking of possession by a condemning authority (the "Date of Taking").
12.2 In the event of a Taking of a portion of the Premises which does
not result in the termination of this Lease pursuant to Section 12.1, above, the
Base Rent shall be abated in proportion to the part of the Premises so taken.
12.3 In the event there is a Taking of a portion of the Building
other than the Premises, and if, in the opinion of Landlord, the Taking is so
substantial as to render the remainder of the Building uneconomic to maintain
despite reasonable reconstruction or remodeling, or if it would be necessary to
alter the Building or Premises materially, Landlord may terminate this Lease by
notifying Tenant of such termination within 60 days following the Date of
taking, and this Lease shall end on the date specified in the notice of
termination, which shall not be less than 60 days after the giving of such
notice.
12.4 No temporary Taking of the Building or Premises and/or of
Tenant's rights therein or under this Lease shall terminate this Lease or give
Tenant any right to abatement of rent hereunder. Tenant shall be entitled to
receive such portion or portions of any award made for the temporary use with
respect to the period of the taking which is within the term of this Lease,
provided that, if such taking shall remain in force at the expiration or earlier
termination of this Lease, then Tenant shall pay to Landlord a sum equal to the
reasonable costs of performing Tenant's obligations under Section 15 with
respect to Tenant's surrender of the premises and, upon such payment, shall be
excused from such obligations. For purposes of this Section 12.4, a temporary
taking shall be defined as a taking for a period of 270 days or less.
12.5 Except for the award in the event of a temporary Taking as
contemplated in Section 12.4, above, Tenant hereby releases and shall have no
interest in, or right to participate with respect to the determination of, any
compensation for any Taking, except only that Tenant shall be entitled to the
portion of any award specifically designated by the condemning authority to be
for any personal property of Tenant included in any such Taking or for any
relocation expenses or business interruption loss incurred by Tenant.
13. Default.
13.1 Subject to Tenant's cure rights set forth in Section 13.2 below,
the following events shall be deemed to be events or default by Tenant under
this Lease:
(a) If Tenant shall fail to pay any installment of rent or any
other sum required to be paid by Tenant under this Lease as due.
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(b) If Tenant shall fail to comply with any term, provision or
covenant of this Lease, other than provisions pertaining to the payment of
money.
(c) If Tenant shall make an assignment for the benefit of
creditors.
(d) If Tenant shall file a petition under any section or
chapter of the federal Bankruptcy Code, as amended from time to time, or under
any similar low or statute of the United States or any State thereof pertaining
to bankruptcy, insolvency or debtor relief, or Tenant shall have a petition or
other proceedings filed against Tenant under any such law or chapter thereof and
such petition or proceeding shall not be vacated or set aside within 60 days
after such filing.
(e) If a receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant and such receivership shall not be
terminated and possession of such assets restored to Tenant within 30 days after
such appointment.
(f) If Tenant shall desert or vacate any substantial portion of
the Premises and the same shall remain unoccupied for more than 14 days
thereafter.
(g) If Tenant shall assign this Lease or sublet the Premises in
violation of the terms hereof.
13.2 Any shorter period for cure provided by law notwithstanding, and
in lieu thereof, including without limitation California Code of Civil Procedure
Section 116 1, Tenant may cure any monetary default under Subsection 13.1 (a),
above, at any time within 5 days after written notice of default is received by
Tenant from Landlord; and (except as specifically provided otherwise in Section
24) Tenant may cure any non-monetary default within 15 days after written notice
of default is received by Tenant from Landlord, provided that if such non-
monetary default is curable but is of such a nature that the cure cannot be
completed within 15 days, Tenant shall be allowed to cure the default if Tenant
promptly commences the cure upon receipt of the notice and diligently prosecutes
the same to completion.
14. Remedies Upon Default.
14.1 Upon the occurrence of any event of default by Tenant, Landlord
shall have, in addition to any other remedies available to Landlord at law or in
equity, the option to pursue any one or more of the following remedies (each and
all of which shall be cumulative and non-exclusive) without any notice or demand
whatsoever:
(a) Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without
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prejudice to any other remedy which it may have for possession or arrearages in
rent, enter upon and taken possession of the Premises and expel or remove Tenant
and any other person who may be occupying the Premises or any part thereof,
without being liable for prosecution or any claim or damages therefor; and
Landlord may recover from Tenant the following:
(1) The worth at the time of award of any unpaid rent which
has been earned at the time of such termination; plus
(2) The worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(3) The worth at the time of award of the amount by which
the unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided; plus
(4) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, specifically including but not limited to attorneys'
fees, removal and storage (or disposal) of Tenant's personal property,
unreimbursed leasehold improvement costs (e.g., the amounts Landlord has
expended for leasehold improvements which have not been recovered as of the
termination of the Lease when amortized on a straight-line basis over the
originally scheduled lease term), brokerage commissions and advertising expenses
incurred, expense of remodeling the Premises or any portion thereof for a now
tenant, whether for the same or a different use, and any special concessions
made to obtain a new tenant; and
(5) At Landlord's election, such, other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
The term "rent" as used in this Subsection 14.1 (a) shall be deemed to be and to
mean all sums of every nature required to be paid by Tenant pursuant to the
terms of this Lease, whether to Landlord or to others. Any such sums which are
based on percentages of income, increased costs or other historical data shall
be reasonable estimates or projections computed by Landlord on the basis of the
amounts thereof accruing during the 24-month period immediately prior to
default, except that if it becomes necessary to compute such sums before a
24-month period has expired, then the computation shall be made on the basis of
the amounts accruing during such shorter period. As used in Subsections 14.1
(a)(1) and (2), above, the "worth at the time of award" shall be computed by
allowing interest from the date the sums became due at the lesser of (i) the
Bank of America prime rate on the due date plus 3%, or (ii) the maximum rate
permitted by law. As used in Subsection 14.1 (a)(3), above, the
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"worth at the time of award" shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus 1%.
(b) In the event of any such default by Tenant, in addition to
any other remedies available to Landlord under this Lease, at law or in equity,
Landlord shall also have the right, with or without terminating this Lease, to
reenter the Premises and remove all persons and property from the Premises, such
property may be removed, stored and/or disposed of pursuant to any procedures
permitted by applicable law, including but not limited to those described in
Section 15.3. No reentry or taking possession of the Premises by Landlord
pursuant to this Subsection 14.1 (b), and no acceptance of surrender of the
Premises or other action on Landlord's part, shall be construed as an election
to terminate this Lease unless a written notice of such intention be given to
Tenant or unless the termination thereof be decreed by a court of competent
jurisdiction.
(c) In the event of any such default by Tenant, in addition to
any other remedies available to Landlord under this Lease, at law or in equity,
Landlord shall have the right to continue this Lease in full force and effect,
whether or not Tenant shall have abandoned the Premises. The foregoing remedy
shall also be available to Landlord pursuant to California Civil Code Section
1951.4 and any successor statute in the event Tenant has abandoned the Premises.
In the event Landlord elects to continue this Lease in full force and effect
pursuant to this Subsection 14.1 (c), then Landlord shall be entitled to enforce
all of its rights and remedies under this Lease, including the right to recover
rent as it becomes due. Landlord's election not to terminate this Lease pursuant
to this Subsection 14.1 (c) or pursuant to any other provision of this Lease, at
law or in equity, shall not preclude Landlord from subsequently electing to
terminate this Lease or pursuing any of its other remedies.
(d) Whether or not Landlord elects to terminate this Lease on
account of any default by Tenant, Landlord shall have the right to terminate any
and all subleases, licenses, concessions or other consensual arrangements for
possession entered into by Tenant and affecting the Premises or may, in
Landlord's sole discretion, succeed to Tenant's interest in such subleases,
licenses, concessions or arrangements. If Landlord so elects to succeed to
Tenant's interest, Tenant shall, as of the date of notice by Landlord of such
election, have no further right to or interest in the rent or other
consideration receivable thereunder.
14.2 Following the occurrence of an event of default by Tenant,
Landlord shall have the right to require that any or all subsequent amounts paid
by Tenant to Landlord hereunder, whether in cure of the default in question or
otherwise, be paid in the form of cash, money order, cashier's or certified
check drawn on an institution acceptable to Landlord, or by other means approved
by Landlord, notwithstanding any prior practice of accepting payments in any
different form.
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14.3 All rights, options and remedies of Landlord contained in this
Section 14 and elsewhere in this Lease shall be construed and hold to be
cumulative, and no one of them shall be exclusive of the other, and Landlord
shall have the right to pursue any one or more of such remedies or any other
remedy or relief which may be provided by law or in equity, whether or not
stated in this Lease. Nothing in this Section 14 shall be deemed to limit or
otherwise affect Tenant's indemnification of Landlord pursuant to any provision
of this Lease.
14.4 Landlord shall not be deemed in default in the performance of
any obligation required to be performed by Landlord under this Lease unless
Landlord has failed to perform such obligation within 30 days after the receipt
of written notice from Tenant specifying in detail Landlord's failure to
perform; provided however, that if the nature of Landlord's obligation is such
that more than 30 days are required for its performance, then Landlord shall not
be deemed in default if it commences such performance within such 30-day period
and thereafter diligently pursues the same to completion. Upon any such uncured
default by Landlord, Tenant shall be entitled, as Tenant's sole and exclusive
remedy, to recover from Landlord Tenant's actual damages (but not lost profits
or other incidental or consequential damages) shown by Tenant to have been
directly caused thereby; provided, however: (a) Tenant shall have no right to
offset or abate rent in the event of any default by Landlord under this Lease,
except to the extent offset rights are specifically provided to Tenant in this
Lease; (b) Tenant shall in no event be entitled to terminate this Lease by
reason of Landlord's default; and (c) Tenant's rights and remedies hereunder
shall be limited to the extent Tenant has expressly waived in this Lease any of
such rights or remedies, including the limitation on Landlord's liability
contained in Section 33.17 hereof.
14.5 No waiver by Landlord or Tenant of any violation or breach of
any of the terms, provisions and covenants herein contained shall be deemed or
construed to constitute a waiver of any other or later violation or breach of
the same or any other of the terms, provisions, and covenants herein contained.
Forbearance by Landlord in enforcement of one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to constitute
a waiver of such default. The acceptance of any rent hereunder by Landlord
following the occurrence of any default, whether or not known to Landlord, shall
not be deemed a waiver of any such default, except only a default in the payment
of the rent so accepted, subject to the provisions of Section 33.1.
15. Surrender of Premises; Removal of Property.
15.1 No act or thing done by Landlord or any agent or employee of
Landlord during the term hereof shall be deemed to constitute an acceptance by
Landlord of a surrender of the Premises unless such intent is specifically
acknowledged in a writing signed by Landlord with reference to this Section. The
delivery of keys to the Premises to Landlord or any agent or employee of
Landlord shall not constitute a surrender of the Premises or effect a
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termination of this Lease, whether or not the keys are thereafter retained by
Landlord, and notwithstanding such delivery Tenant shall be entitled to the
return of such keys at any reasonable time upon request until this Lease shall
have been properly terminated. The voluntary or other surrender of this Lease by
Tenant, whether accepted by Landlord or not, or a mutual termination hereof,
shall not work a merger, and at the option of Landlord shall operate as an
assignment to Landlord of all subleases or subtenancies affecting the Premises.
15.2 Upon the expiration of the term of this Lease, or upon any
earlier termination of this Lease, Tenant shall, subject to the provisions of
this Section 15, quit and surrender possession of the Premises to Landlord in as
good order and condition as when Tenant took possession (said date of possession
shall relate back to Tenant's original date of possession, whether prior to or
subsequent to the date of this Lease), reasonable wear and tear and repairs
which are specifically made the responsibility of Landlord hereunder excepted.
Upon such expiration or termination, Tenant shall, without expense to Landlord,
remove or cause to be removed from the Premises all debris and rubbish, and such
items of furniture, equipment, free-standing cabinet work, movable partitions
and other articles of personal property owned by Tenant or installed or placed
by Tenant at its expense in the Premises, and such similar articles of any other
persons claiming under Tenant, as Landlord may, in its sole discretion, require
to be removed, and Tenant shall repair at its own expense all damage to the
Premises and Building resulting from such removal.
15.3 Whenever Landlord shall reenter the Premises as provided in this
Lease, any personal property of Tenant not removed by Tenant upon the expiration
of the term of this Lease, or within ten (10) days after a termination by reason
of Tenant's default as provided in this Lease, shall be deemed abandoned by
Tenant and may be disposed of by Landlord (without liability to Tenant) in
accordance with Sections 1980 through 1991 of the California Civil Code and
Section 1174 of the California Code of Civil Procedure, or in accordance with
any laws or judicial decisions which may supplement or supplant those provisions
from time to time, or in accordance with any other legally permissible
procedure, whether by public or private sale or otherwise. Landlord shall be
entitled to apply any proceeds of the sale of such items to any sums due to
Landlord by Tenant and to Landlord's costs of removal, storage and sale of such
items. Alternatively, Landlord shall be entitled to treat Tenant's failure to
remove such items from the Premises as either a permitted or unpermitted
holdover pursuant to Section 19 of this Lease.
15.4 All fixtures, alterations, additions, repairs, improvements
and/or appurtenances attached to or built into or on or about the Premises prior
to or during the term hereof, whether by Landlord at its expense or at the
expense of Tenant, or by Tenant at its expense, or by previous occupants of the
Premises, shall be and remain part of the Premises and shall not be removed by
Tenant at the end of the term of this Lease. Such fixtures, alterations,
additions, repairs, improvements and/or appurtenances shall include, without
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limitation, floor coverings, drapes, paneling, molding, doors, kitchen and
dishwashing fixtures and equipment, plumbing systems, electrical systems,
lighting systems, (excluding Tenant's telecommunications switching equipment and
the equipment specified on the attached Exhibit D, which Tenant may, and shall,
remove from the Premises upon the expiration or termination of the Lease), all
fixtures and outlets for the systems mentioned above and for all telephone,
radio, telegraph and television purposes, and any special flooring or ceiling
installations. Notwithstanding the foregoing, Landlord may, in its sole
discretion, require Tenant, at Tenant's sole Cost and expense, to remove any
fixtures, alterations, additions, repairs, improvements and/or appurtenances
attached or built into or on or about the Premises, and to repair any damages to
the Building and Premises occasioned by the installation, construction,
operation and/or removal of such fixtures, equipment, alterations, additions,
repairs, improvements and/or appurtenances, as well as any damage caused by the
removal of the telecommunications switching equipment referred to above. If
Tenant shall fail to complete such removal and repair such damage, Landlord may
do so and may charge the reasonable cost thereof to Tenant.
15.5 Tenant hereby waives all claims for damages or other liability
in connection with Landlord's reentering and taking possession of the Premises
or removing, retaining, storing or selling the property of Tenant as herein
provided, and Tenant hereby indemnifies and holds Landlord harmless from any
such damages or other liability, and no such reentry shall be considered or
construed to be a forcible entry.
16. Costs of Suit; Attorneys' Fees; Waiver of Jury Trial.
16.1 If Tenant or Landlord shall bring any action for any relief,
declaratory or otherwise, against the other arising out of or under this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the losing party shall pay the successful party its costs of suit,
including, without limitation, a reasonable sum for attorneys' and other
professional fees relating to such suit, and such fees shall be deemed to have
accrued on the commencement of such action and shall be paid whether or not such
action is contested or prosecuted to judgment.
16.2 In the event that Landlord shall, without fault of Landlord's
part, be made party to any litigation instituted by Tenant or by any third party
against Tenant, or by or against any person holding under or using the Premises
by license of Tenant, or for the foreclosure of any lien for labor or material
furnished to or for Tenant or of any such other person, Tenant hereby
Indemnifies and holds Landlord harmless from and against all costs and expenses,
including reasonable attorneys' fees, incurred by Landlord in or in connection
with such litigation.
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16.3 In order to limit the cost of resolving any disputes between the
parties, and as a material inducement to each party to enter into this Lease,
each party hereby waives the right to a jury trial with respect to any
litigation between the parties arising out of this Lease, Tenant's occupancy of
the Premises, or Landlord's ownership, operation or management of the Building,
irrespective of any rights to a jury trial which either party otherwise then
would have under applicable statutes, constitutions, judicial decisions or other
laws.
17. Assignment and Subletting.
17.1 Except as hereinafter provided, Tenant shall not sublet all or
any part of the Premises, nor assign this Lease, nor enter any license, "co-
location agreement" or other agreement permitting a third party (other than
Tenant's employees and occasional guests) to use or occupy any portion of the
Premises, without Landlord's express prior written consent, which consent shall
not unreasonably be withheld. (For purposes of the balance of this Section 17.1
and Sections 17.2 through 17.4, the term "sublease" shall be deemed to include
licenses, co-location agreements, and other agreements for use or occupancy of
the Premises as described in the preceding sentence. The terms "subtenant" and
"sublet" shall be construed accordingly.)
In order to assist Landlord in evaluating any proposed assignment or
sublease, Tenant agrees to provide Landlord with the proposed subtenant or
assignee's current financial statement and financial statements for the
preceding 2 years and such other information concerning the business background
and financial condition of the proposed subtenant or assignee and of Tenant as
Landlord may reasonably request.
Landlord and Tenant hereby agree that Landlord's disapproval of any
proposed sublease or assignment hereunder shall be deemed reasonable if based
upon any reasonable factor, including, without limitation, any or all of the
following factors:
(a) The proposed transfer would result in more than two
subleases of portions of the Premises being in effect at any time during the
term;
(b) The rent payable by the proposed transferee would be less
then the fair market rental value for the space as determined pursuant to the
last paragraph of this Section 17.1 (except as otherwise provided in Section
17.2);
(c) The proposed transferee is an existing tenant or occupant of
the Building or has negotiated with Landlord within the last twelve months for
space in the Building or is another transferee prohibited by the next to last
paragraph of this Section 17.1;
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(d) The proposed transferee is a governmental entity;
(e) The transaction calls for new demising walls to be built,
and the portion of the Premises proposed to be sublet or assigned is irregular
in shape and/or has inadequate means of ingress and egress;
(f) The use of the Premises by the proposed transferee (i) is
not permitted by the use provisions of this Lease, or (ii) might, in Landlord's
reasonable opinion, violate any right for an exclusive use granted by Landlord
to another Tenant in the Building;
(g) The transfer would likely result, in Landlord's reasonable
opinion, in a significant increase in the use of the parking areas or common
areas of the building due to the transferee's employees or Visitors, and/or
significant increase in the demand for utilities and services to be provided by
Landlord to the Premises;
(h) The assignee or subtenant does not, in Landlord's reasonable
opinion, have the financial capability to fulfill the obligations imposed by the
transfer, or in the case of an assignment, the assignee does not, in Landlord's
reasonable opinion, have income and net worth at least equal to that of Tenant;
(i) The transferee is not, in the Landlord's reasonable opinion,
of reputable or good character or consistent with Landlord's desired tenant mix;
(j) The transferee is a real estate developer or landlord or is
acting directly or indirectly on behalf of a real estate developer or landlord;
(k) The proposed transferee may, in Landlord's reasonable
opinion, increase the chances of significant hazardous waste contamination with
the Premises or the Building;
(l) In the reasonable judgment of the Landlord, the purpose for
which the transferee intends to use the Premises is not in keeping with the
standards of the Landlord for the Building or is in violation of the terms of
any other lease in the building; or
(m) Landlord has not leased 95% of the rentable area in the
Building.
Notwithstanding the foregoing, Tenant may, subject to the rest of the
terms hereof, sublet all of the Premises or assign this Lease to any entity
controlling, controlled by or under common control with Tenant (including
assignment or subletting to any corporation resulting from a merger or
consolidation with Tenant, or to any person or entity which acquires all the
assets of Tenant's business as a going concern) provided that, with regard to
each such
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assignment or subletting: (A) Landlord receives the financial statements
prescribed above and such other financial and background information as Landlord
may request regarding the assignee or subtenant at least 20 days prior to such
proposed assignment or sublease; (B) the Landlord determines, in its reasonable
discretion, that the income and not worth of the assignee or subtenant comply
with the standards prescribed in item (h) above; (C) the use of the Premises is
not altered; (D) the Landlord determines, in its sole and absolute discretion,
that the transaction is not being entered into as a subterfuge to avoid the
restrictions on assignment and subletting in the Lease; and (E) the subtenant or
assignee expressly assumes the obligations of Tenant hereunder as prescribed
below in this Section 17.1.
Neither this Lease nor the term hereby demised shall be mortgaged or
collaterally assigned by Tenant, nor shall tenant mortgage, assign, pledge or
otherwise transfer the interest of Tenant in and to any sublease or the rentals
payable thereunder, provided Landlord will sign a Landlord Waiver for Bank of
America in the form and content as previously signed by Landlord on September 3,
1998.
Any sublease, assignment, mortgage, pledge, encumbrance, or transfer
made in violation of this Section 17.1 shall be void and at Landlord's election
shall terminate this Lease.
Each subtenant, assignee or transferee of Tenant, other than Landlord,
shall assume all obligations of Tenant under this Lease and shall be and remain
liable jointly and severally with Tenant for the payment of the rent, and for
the due performance of all the terms, covenants, conditions and agreements
herein contained on tenant's part to be performed for the term of this Lease
(provided that in the case of a sublease, the subtenant's obligations shall be
limited to those obligations relating to the subleased space and the common woes
during the sublease term). No sublease or assignment shall be deemed approved by
Landlord unless such subtenant or assignee and Tenant shall deliver to Landlord
a counterpart of such sublease or assignment and an instrument in a form
acceptable to Landlord, which contains a covenant of assumption by the subtenant
or assignee satisfactory in substance and form to Landlord, consistent with the
requirements of this Section 17.1, but the failure or refusal of the subtenant
or assignee to execute such instrument of assumption shall not release or
discharge the subtenant or assignee from its liability as set forth above.
No subtenant or assignee not complying with the foregoing requirements
shall have any interest in the Security Deposit. Any assignee that does comply
with the foregoing requirements shall automatically succeed to Tenant's position
with respect to the Security Deposit, and Landlord shall have the right to
refund all or any portion of the Security Deposit to the assignee at any time or
under any circumstances with no liability to the assignor.
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Landlord may require that the assignee or subtenant remit directly to
Landlord on a monthly basis, all monies due to Tenant by said assignee or
subtenant. In such event Landlord shall apply the sums received to the
obligations of Tenant and its successors under this Lease.
In the event of default by any assignee or subtenant or any successor
of Tenant in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
such assignee, subtenant or successor.
Landlord may consent to subsequent assignments of the Lease or
sublettings or amendments or modifications to the Lease with the assignee or
other successor of Tenant, and without obtaining Tenant's consent thereto, and
any such actions shall not relieve Tenant of liability under this Lease.
Consent by Landlord to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting.
Subject to Section 17.2, Tenant agrees that all advertising by Tenant
to market the space in the Premises to be sublet or assigned shall require
Landlord's prior written approval, which shall not be unreasonably withheld.
Subject to Section 17.2, Tenant further agrees that it shall not, without
Landlord's prior written consent, which may be granted or withheld in Landlord's
sole discretion, market any space in the Premises, assign the lease or sublet
any space in the Premises to existing tenants occupants of the Building, or to
any entity controlling, controlled by, or under common control with any existing
tenant or occupant of the Building, except for any entity controlling,
controlled by or under common control with Tenant.
Subject to Section 17.2, Tenant agrees that it shall not sublet, nor
assign, nor advertise as available for subletting or assignment, nor list with
brokers for subletting or assignment, all or any portion of the Premises for a
consideration which is equal to less than the fair market rental value, as
determined by Landlord in its reasonable discretion, for comparable space in the
Building for a comparable term commencing concurrently with the assignment or
sublease term, with comparable rent credits and tenant improvement allowances.
Within 10 days after Landlord receives any written request from Tenant for
Landlord's estimate of the fair market rental value for specified space (which
request shall identify the space in question, the proposed term and the proposed
rent credits and improvement allowances), Landlord shall notify Tenant in
writing of the fair market rental value for such space for a comparable term
with comparable rent credits and tenant improvement allowances.
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17.2 Landlord acknowledges that Tenant's business to be conducted on
the Premises requires the installation on the Premises of certain communications
equipment by telecommunications customers of Tenant ("Customers") in order for
such Customers to interconnect with Tenant's terminal facilities.
Notwithstanding anything contained elsewhere in this Section 17, Landlord
consents to a license agreement, sublease or "co-location agreement" between
Tenant and such a Customer for the purposes of permitting such a
telecommunications connections, so long as (a) such licenses, subleases or co-
location agreements do not collectively cover more than 60% of the Premises at
any one time; and (b) each such Customer executes a consent in the form attached
hereto as Exhibit C which shall be deemed executed by Landlord, in writing, by
attaching a copy of the Exhibit C signature page. Provided that Tenant's
transactions with Customers comply with items (a) and (b) above, they need not
comply with those requirements of Section 17.1 above regarding financial
statements, advertising, and minimum rental rates. Tenant shall be liable to
Landlord for any violation by its Customers of any provisions of this Lease. In
addition and without limitation to any other indemnity contained in this Lease,
Tenant, as material part of the consideration to Landlord agreeing to allow
Customers to co-locate on the Premises, shall require each Customer to enter a
waiver of claims and indemnity in favor of Landlord pursuant to the terms set
forth in Section 27 of this Lease, and Tenant shall indemnify and hold Landlord
and Landlord's agents, employees, affiliates, successors-in-interest harmless
from and against any and all claims, demands, suits, fines, losses and other
liabilities of whatever nature and whether relating to loss of life of injury to
persons or damage to property or other consequential or economic damage, that is
in any way suffered by or caused by any Customer ("Claim") whether or not any
such Claim is caused by or alleged to have been caused by Landlord, its agents,
employees, affiliates and successors-in-interest.
17.3 In the event that Tenant desires to assign this Lease, or to
enter into a sublease, as to all or any portion of the Premises, except (a)
where the subtenant or assignee is an entity controlling, controlled by or under
common control with Tenant, or (b) as permitted under Section 17.2 herein,
Tenant shall, prior to solicitation of offers therefor, give Landlord notice of
Tenant's desire to assign or sublet and of the portion of the Premises to be
affected by the proposed assignment or sublease. Landlord shall have the right,
exercisable by noticed to Tenant within 60 days after Landlord's receipt of
Tenant's notice of desire to assign or sublet, to terminate this Lease as to the
portion of the Premises affected by the proposed assignment or sublease, such
termination to be effective as of the date 60 days after notice by Landlord to
Tenant of such termination.
In the event of a termination of this Lease as to a portion of the
Premises pursuant to this Section 17.3, effective as of such termination, the
Premises shall be deemed to no longer include the portion of the Premises
subject to such termination, Tenant shall surrender Possession of that portion
of the Premises in accordance with the provisions of this
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Lease, and the rent payable hereunder and Tenant's Percentage Share shall be
appropriately adjusted based upon the rentable area remaining within the
Premises.
If Landlord does not elect to terminate pursuant to this Section 17.3,
and if Tenant does not enter into an assignment or sublease as specified in
Tenant's notice of desire to assign or sublet within 6 months after the
expiration of Landlord's 60-day period for election to terminate, then Tenant
shall again comply with the provisions of this Section 17.3 before assigning
this lease, or entering into a sublease, as to all or any portion of the
Premises.
17.4 In the event that Tenant has sought and received Landlord's
consent to assign this Lease, or to enter into a sublease as to all or any
portion of the Premises, the monthly rent payable by Tenant to Landlord,
pursuant to Section 3, shall be increased by the amount to be received by Tenant
during each month pursuant to the terms of the assignment or sublease, in excess
of Tenant's monthly rental payable to Landlord for the space subject to the
assignment or sublease. The amounts referred to in the previous sentence include
rent, additional rent, or any other payment in respect of use or occupancy, or
in reimbursement of costs of leasehold improvements installed by Tenant, and
whether paid in a lump sum or periodic payments; provided however, such amounts
shall not include any fees charged by Tenant to its Customers to the extent such
fees are based on Tenant's services (not square footage of space used by the
Customers) as provided under Section 17.2 herein. In no event shall the total
sums payable to the Landlord be less than the monthly rental Landlord would have
received but for such assignment or sublease. This Section is not applicable to
co-locate Customers of Tenant.
The additional rent shall be due and payable to Landlord in accordance
with the scheduled specified in the sublease or assignment instrument, and the
failure of any subtenant or assignee to make any payments in accordance with
that schedule shall not affect the obligation of Tenant to pay the additional
rent to Landlord.
The calculation of the amount of rentable space being sublet shall be
made by Landlord in accordance with its usual standards. Landlord may require
acknowledgment by Tenant of Tenant's concurrence on the Landlord's calculation
of the amount of rentable space being sublet as a condition to Landlord's
consent to any sublease.
The provisions of a sublease or assignment instrument consented to by
Landlord cannot be modified, nor the sublease or assignment terminated, other
than in accordance with its terms, without the prior written consent of the
Landlord, which consent shall not be unreasonably withheld. The terms of this
Section 17.4 shall apply to any subleasing or assignment by any subtenant or
assignee.
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17.5 Tenant shall pay to Landlord, promptly upon receipt of a billing
from Landlord, the amount of Landlord's reasonable attorney fees incurred in
connection with Landlord's review of approval of any sublease or assignment
transaction requiring Landlord's consent hereunder.
18. Transfer of Landlord's Interest. In the event of any transfer of
Landlord's interest in the Building or Premises, other than a transfer for
security purposes only, the transferor shall be automatically relieved of any
and all obligations and liabilities on the part of Landlord accruing from and
after On date of such transfer, including, without limitation, the obligation of
Landlord to return the Security Deposit as provided in this Lease; provided that
the transferor shall, within a reasonable time, transfer any Security Deposit
then held by Landlord, or any portion thereof remaining after proper deductions
therefrom, to the transferee and shall thereafter notify Tenant of such
transfer, of any claims made against the Security Deposit, and of the
transferee's name and address, by written notice delivered personally (in which
case Tenant shall acknowledge receipt of such notice by signing Landlord's copy
of such notice) or by registered or certified mail.
19. Holding Over. If Tenant holds over after the term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for any further term, and in such case, Base Rent shall be payable at a monthly
rate equal to the greater of : (a) two hundred percent (200%) of the Base Rent
applicable to the Premises immediately prior to the date of such expiration or
earlier termination; or (b) one hundred fifty percent (150%) of the prevailing
market rate excluding any rental or other concessions (as reasonably determined
by Landlord) for the Premises in effect on the date of such expiration or
earlier termination. Such month-to-month tenancy shall be subject to every other
term, covenant and agreement contained herein. Nothing contained in this Section
19 shall be construed as consent by Landlord to any holding over by Tenant, and
Landlord expressly reserves the right to require Tenant to surrender possession
of the Premises to Landlord as provided in this Lease upon the expiration or
other termination of this Lease.
20. Notices. In every case when, under the provisions of this Lease, it
shall be necessary or desirable for one party hereto to serve any notice,
request or demand on the other, such notice or demand shall be in writing and
shall be served personally or by deposit in the United States mail, postage and
fees fully prepaid, registered or certified mail, with return receipt requested,
addressed to the applicable address for notice set forth in Section A on page 1.
Landlord or Tenant may, from time to time, by notice in writing served upon the
other as aforesaid, designate a different mailing address or a different person
to whom all such notices or demands are thereafter to be addressed. Service of
any such notice or demand if given personally shall be deemed complete upon
delivery, and if made by mail shall be deemed
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complete on the day of actual delivery as shown by the addressee's registry or
certification receipt or at the expiration of 2 business days after the date of
mailing, whichever is earlier.
Notwithstanding the provisions of this Section 20, any notice of default as
described in Section 13.2 and any pleadings or notices given by either party to
the other with respect to any judicial proceeding between the parties shall be
served in the manner prescribed by applicable California law without reference
to this paragraph, and shall be deemed served at such time as is provided by
such applicable law without reference to this paragraph.
21. Quiet Enjoyment. Landlord covenants that Tenant, upon paying the rent
and performing the covenants of this Lease on Tenant's part to be performed,
shall and may peaceably and quietly have, hold and enjoy the Premises for the
term of this Lease.
22. Tenant's Further Obligations.
22.1 Except for ordinary wear and as otherwise provided in this
Lease, Tenant shall, at Tenant's expense, keep in good order, condition and
repair the interior of the Premises and shall promptly and adequately repair all
damage to the interior of the Premises and replace or repair all glass,
fixtures, equipment and appurtenances therein damaged or broken, under the
supervision and with the approval of Landlord and, if Tenant does not do so,
Landlord may, but need not, make such repairs and replacements. If landlord does
so, Tenant shall pay Landlord the cost thereof promptly upon demand, as
additional rent hereunder.
22.2 Tenant shall comply with all laws, ordinances, rules,
regulations, orders and directives of governmental and quasi-governmental bodies
and authorities having jurisdiction over Tenant or the Premises from time to
time and shall obtain and keep in effect all licenses, permits (including but
not limited to conditional use permits) and other authorizations required with
respect to the business or businesses conducted by Tenant within or from the
Premises or with respect to any special equipment or facilities of Tenant
permitted under the other provisions of this Lease. Tenant and its employees,
agents, licensees and invitees shall also comply with all reasonable rules and
regulations which Landlord may adopt from time to time for the protection and
welfare of the Building and its tenants and occupants; provided that Tenant
shall not be responsible for compliance with any rule or regulation adopted by
Landlord unless or until Tenant is furnished with a copy thereof. The present
rules and regulations for the Building are attached hereto as Exhibit B.
Landlord shall have no liability to Tenant for the failure or any other tenant
in the Building to observe the rules and regulations.
23. Estoppel Certificate. At any time and from time to time, within
fifteen (15) days after written request by Landlord, Tenant shall execute,
acknowledge and deliver to Landlord
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a statement in writing certifying that this Lease is unmodified and in full
force and affect (or if there have been modifications, that this Lease is in
full force and effect as modified and stating the modifications), that Tenant
knows of no default hereunder by Landlord and has no right or offset or
deduction against the rent or any other charge payable to Landlord (or
specifying any claimed), the amount of any security posted by Tenant, the dates
to which the rent and other charges have been paid in advance, any increases or
decreases of rent that are anticipated, the commencement date of the Lease and
such other matters as may be reasonably requested by Landlord. It is intended
that any statement delivered pursuant to this Section 23 may be relied upon by
any purchaser of the fee or mortgages or beneficiary or assignee of any mortgage
or trust deed upon the fee of the Building or Premises. Tenant's failure to
deliver the statement within the period specified above shall be conclusive and
binding upon Tenant that the Lease is in full force and effect without
modification except as may be represented by Landlord, that there are no uncured
defaults in Landlord's performance and that Tenant has no right of offset,
counterclaim or deduction against rental, and that no more than one month's
rental has been paid in advance.
At any time and from time to time, within fifteen (15) days after written
request by Tenant, Landlord shall execute, acknowledge and deliver to Tenant a
statement in writing certifying that this Lease is unmodified and in full force
and affect (or if there have been modifications, that this Lease is in full
force and effect as modified and stating the modifications), that Landlord knows
of no default hereunder by Tenant and has no right of offset or deduction
against the rent or any other charge payable to Tenant (or specifying any
claimed), the amount of any security posted by Landlord, the dates to which the
rent and other charges have been paid in advance, any increases or decreases of
rent that are anticipated, the commencement date of the Lease and such other
matters as may be reasonably requested by Tenant.
24. Subordination And Attornment. This Lease is and at all times shall be
subject and subordinate to any ground or underlying leases, mortgages, trust
deeds or like encumbrances, which may now or hereafter affect the Building or
Premises, and to all renewals, modifications, consolidations, replacements and
extensions of any such lease, mortgage, trust deed or like encumbrance. As a
condition precedent to the effectiveness of any such subordination of this Lease
to any future ground or underlying leases or the lien of any future mortgages,
deeds of trust, or like encumbrances, Landlord shall provide to Tenant a
commercially reasonable non-disturbance and attornment agreement in favor of
Tenant executed by such future ground lessor, master lessor, mortgagee or deed
of trust beneficiary, as the case may be, which shall provide that Tenant's
quiet possession of the Premises shall not be disturbed on account of such
subordination to such future lease or lien so long as Tenant is not in default
under any provisions of this Lease. Notwithstanding the foregoing, Landlord
shall have the right to subordinate or cause to be subordinated any or all
ground or underlying leases or the lien of any or all mortgages, deeds of trust
or like encumbrances to the Lease. In
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the event that any ground or underlying lease terminates for any reason or any
mortgage, deed of trust or like encumbrance is foreclosing or a conveyance in
lieu of foreclosure is made for any reason, then at the election of Landlord's
successor-in-interest, Tenant shall attorn to and become the tenant of such
successor. Tenant hereby waives its rights under any current or future law which
gives or purports to give Tenant any right to terminate or otherwise adversely
affect this Lease and the obligations of Tenant hereunder in the event of any
such foreclosure proceeding or sale. Tenant covenants and agrees to execute and
deliver to Landlord in the form reasonably required by Landlord, within 10 days
after receipt of written demand by Landlord, any additional documents evidencing
the priority or subordination of this Lease with respect to any ground or
underlying lease or the lien of any mortgage, deed of trust, or like
encumbrance. Should Tenant fail to sign and return any such documents within
said (ten) (10) day period after a final written notice and three (3) additional
days to cure, Tenant shall be in default hereunder without the benefit of any
additional notice or cure periods, except as may be required by statute.
25. Rights Reserved to Landlord.
25.1 All portions of the Building are reserved to Landlord, including
exterior building walls, core corridor walls and doors and any core corridor
entrance, but excluding the Premises and the inside surfaces of all walls,
windows and doors bounding the Premises. Landlord also reserves any space in or
adjacent to the Premises used for shafts, stacks, pipes, conduits, fan rooms,
ducts, electric or other utilities, sinks or other building facilities, and the
use thereof, as well as the right to access thereto through the Premises for the
purposes of operation, maintenance, decoration and repair.
25.2 Landlord shall have the following rights exercisable without
notice and without liability to Tenant for damage or injury to property, person
or business (all claims for damage being hereby released), and without effecting
an eviction or disturbance of Tenant's use or possession or giving rising to any
claim for setoffs or abatement of rent:
(a) To enter the Premises at all reasonable times so long as a
representative of Tenant is present, and if not, with twenty four (24) hours
advanced notice to Tenant except in the event of an actual or potential
emergency situation in which event no notice shall be required, during the term
of this Lease for the purpose of inspecting the same, supplying janitorial
service, posting notices of non-responsibility, exhibiting the Premises to
prospective tenants, purchasers or others, or making such repairs or
replacements therein as may be required by this Lease or as Landlord may deem
appropriate; provided that Landlord shall use all reasonable efforts not to
disturb Tenant's use and occupancy and shall when practical, give Tenant prior
notice of such repairs. For each of the foregoing purposes, Tenant shall provide
to Landlord a key with which to unlock at any time all of the doors in, upon and
about the Premises, excluding Tenant's vaults and safes. Landlord may use any
other means
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which Landlord may deem proper to open such doors in an emergency in order to
obtain entry to the Premises. Any entry to the Premises obtained by Landlord by
any means shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a detainer of, the Premises, or an eviction
of Tenant from the Premises or any portion thereof, or grounds for abatement or
reduction of rent. Any damages or losses on account of any such entry by
Landlord shall be Tenant's sole responsibility except as otherwise expressly
provided herein. Nothing in this Section 25 shall be construed as obligating
Landlord to perform any repairs, alterations or decorations, except as otherwise
expressly required in this Lease.
(b) To change the name or street address of the Premises or
Building.
(c) To install and maintain signs on the exterior and
interior of the Building, except within the Premises.
(d) To have pass keys to the Premises.
(e) To decorate, remodel, repair, alter or otherwise
prepare the Premises for reoccupancy during the last 6 months of the term hereof
if, during or prior to such time, Tenant has vacated the Premises, or any time
after Tenant abandons the Premises.
(f) To have access to all mail chutes according to the
rules of the United States Postal Service.
(g) To do or permit to be done any work in or about the
exterior of the Building or any adjacent or nearby building, land, street or
alley.
(h) To grant to anyone the exclusive right to conduct any
business or render any service in the Building, provided such exclusive right
shall not operate to exclude Tenant from the use expressly permitted by this
Lease.
26. Force Majeure. Whenever there is provided in this Lease a time
limitation for performance by Landlord or Tenant of any construction, repair,
maintenance or service, the time provided for shall be extended for as long as
and to the extent that delay in compliance with such limitation is due to an act
of God, governmental control or other factors beyond the reasonable control of
Landlord or Tenant, respectively.
27. Waiver of Claims; Indemnity.
27.1 Tenant, as a material part of the consideration to Landlord,
hereby assumes all risk of, and waives all claims it may have against Landlord,
its agents, employees, affiliates and successors in interest for damage to or
loss of property or personal injury or loss
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of life resulting from the Building or Premises or any part thereof becoming out
of repair, by reason of any repair or alteration thereof, or resulting from any
accident within the Building or Premises or on or about any space adjoining the
Building or Premises, or resulting directly or indirectly from any act or
omission of any person, or due to any condition, design or defect of the
Building or Premises, or any space adjoining the Building or Premises, or the
mechanical systems of the Building or Premises, which may exist or occur,
whether such damage, loss or injury results from conditions arising upon the
Premises or upon other portions of the Building, or from other sources or
places, and regardless of whether the cause of such damage, loss or injury or
the means of repairing the same is accessible to Tenant; provided such
assumption and waiver shall not apply to claims caused by the gross negligence
or willful misconduct of Landlord or its agents.
27.2 Tenant hereby indemnifies and holds Landlord and Landlord's
agents, employees, affiliates and successors in interest harmless from and
against any and all claims, demands, suits, fines, losses and other liabilities
for or relating to injury or loss of life to persons or damage to or loss of
property arising from Tenant's (or any subtenant or Customer's) use of the
Building or Premises or from the conduct of Tenant's (or any subtenant or
Customer's) business or from any work done, permitted or suffered by Tenant (or
any subtenant or Consumer) in or about the Premises or elsewhere, and further
indemnifies and holds Landlord and Landlord's agents, employees, affiliates and
successors in interest harmless from and against any and all claims arising from
any breach or default in the performance of any obligation on Tenant's (or any
subtenant or Customer's) part to be performed under the terms of this Lease, or
arising from any negligence or intentional conduct of Tenant or Tenant's agents,
employees, contractors, licensees, invitees, subtenants, Customers,
representatives or successors in interest, and from and against all costs,
attorneys' and other professional fees, expenses and liabilities incurred by
Landlord or Landlord's agents, employees, affiliates and successors in interest
in or in connection with any such claim, demand, suit, fine or proceeding. In
the event that any action or proceeding be brought against Landlord or
Landlord's agents, employees, affiliates or successors-in-interest by reason of
any such claim, Tenant upon notice from Landlord shall defend such action or
proceeding at Tenant's cost and expense by counsel approved by Landlord, such
approval not to be unreasonably withheld.
28. Insurance.
28.1 Tenant shall procure and shall maintain in effect, at Tenant's
sole cost and expense throughout the term of this Lease, including any
extensions and renewals thereof, public liability and property damage insurance
against claims for bodily injury, death or property damage occurring upon or
about the Premises or Building, in each case naming Landlord as additional
insured and, upon request by Landlord, naming the holder of any mortgage, deed
of trust or like encumbrance or the lessor under any underlying lease covering
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the Building as additional insured, with a limit of liability of not less than
$2,000,000.00 single limit. If from time to time, the limits of liability set
forth above are, in the reasonable opinion of Landlord, inadequate, Tenant shall
increase such insurance coverage to an amount as shall be designated by
Landlord's notice to Tenant.
Tenant shall also procure and maintain, at Tenant's sole cost and
expense throughout the term of this Lease, casualty insurance on Tenant's
personal property in the Premises and any leasehold improvements which the
Tenant installed at its own cost in an amount at least equal to the full
replacement cost of such property, providing coverage against all perils insured
against by a "fire and extended coverage" policy, as well as sprinkler damage,
vandalism and malicious mischief.
Tenant shall also obtain the following insurance:
(a) Worker's compensation and employer's liability insurance in
form and amount satisfactory to Landlord.
(b) Loss of income and extra expense insurance in such amounts
as will reimburse Tenant for direct or indirect loss of earnings attributable to
all perils commonly insured against by prudent tenants or attributable to
prevention of access to or use of the Premises or the Building as a result of
such perils.
(c) Liquor liability insurance coverage in limits of not less
than Five Hundred Thousand Dollars ($500,000), if at any time during the term
hereof any alcoholic beverages of any nature are served on the Premises.
(d) Any other form or forms of insurance as Landlord or
Landlord's lender or ground or primary lessors may reasonably require from time
to time in form, in amounts, and for insurance risks against which a prudent
tenant of a comparable size and in a comparable business would protect itself.
Such policies of insurance shall be with insurance companies
acceptable to Landlord, shall not have a deductible amount exceeding Twenty-Five
Thousand Dollars ($25,000.00) in the aggregate, and shall specifically provide
that the insurance afforded by such policies for the benefit of Landlord and
Landlord's mortgagees and ground lessors shall be primary, and that any
insurance carried by Landlord or Landlord's mortgagees and ground lessors shall
be excess and non-contributing. Such policies shall be evidenced by certificates
of insurance delivered to Landlord from time to time showing such insurance to
be at all times prepaid and in full force and affect and providing that such
insurance cannot be cancelled or modified upon less than 30 days' prior written
notice to Landlord. If at any time Tenant has not provided Landlord with a then
currently effective certificate of insurance acceptable to
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Landlord as to any insurance required to be maintained by Tenant, Landlord may,
after ten (10) days prior written notice, without further inquiry as to whether
such insurance is actually in force, obtain such a policy and Tenant shall
reimburse Landlord, upon demand as additional rent hereunder, for the cost
thereof, together with Landlord's administrative fee equal to 25% of the
premium.
28.2 Tenant hereby waives its rights against Landlord and its
managing agent and their respective partners, officers, directors, shareholders,
employees, agents, representatives, contractors, affiliates, successors,
licensees, and invitees with respect to any claims or damages or losses
(including any claims for bodily injury to persons and/or damage to property)
which are caused by or result from (a) risks insured against under any insurance
policy carried by Tenant at the time of such claim, damage, loss or injury, or
(b) risks which would have been covered under any insurance required to be
obtained and maintained by Tenant under this lease had such insurance been
obtained and maintained as required. The foregoing waivers shall be in addition,
and not a limitation of, any other waivers or releases contained in this Lease.
28.3 Tenant shall cause each insurance policy required to be obtained
by it pursuant to this Section 28 to provide that the insurer waives all rights
of recovery by way of subrogation against Landlord and its managing agent and
their respective partners, officers, directors, shareholders, employees, agents,
representatives, contractors, affiliates, successors, licensees, and invitees in
connection with any claims, losses and damages covered by such policy. If Tenant
fails to maintain insurance required hereunder, Tenant shall be deemed to be
self-insured with a deemed full waiver of subrogation as set forth in the
immediately preceding sentence.
29. Fixtures: Tenant Improvements And Alterations.
29.1 Except as otherwise provided in Section 35 or any Rider to this
Lease, all improvements, fixtures and/or equipment which Tenant may install or
place in or about the Premises, and all alternations, repairs or changes to the
Premises, and all signs installed in, on or about the Premises, from time to
time, shall be at the sole cost of Tenant. Landlord shall be without any
obligation in connection therewith. Tenant hereby indemnifies and holds Landlord
harmless from any liability, cost, obligation, expense or claim of lien in any
manner relating to the installation, placement, removal or financing of any such
alterations, repairs, changes, improvements, fixtures, and/or equipment in, on
or about the Premises. Tenant's proposed improvements addressed in the emergency
Generator Rider and the Electrical Service Rider are subject to all of the terms
and conditions of this Section 29.
29.2 Notwithstanding any provision in this Section 29 to the
contrary, Tenant is absolutely prohibited from making any alterations,
additions, improvements or decorations
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which: (i) affect any area outside the Premises (except as expressly provided in
the Riders hereto or consented to by Landlord); (ii) affect the Building's
structure, equipment, services or systems, or the proper functioning thereof, or
Landlord's access thereto; (iii) affect the outside appearance, character or use
of the Building or the common areas (except as expressly provided in the Riders
hereto or consented to by Landlord); (iv) weaken or impair the structural
strength of the Building; (v) in the opinion of Landlord, lessen the value of
the Building (except as expressly provided in the Riders hereto or consented to
by Landlord); (vi) will violate or require a change in any occupancy certificate
applicable to the Premises; or (vii) in the opinion of Landlord, will increase
the Building's Operating Costs or Utility Costs.
29.3 Before proceeding with any alteration, repair or change which is
not otherwise prohibited In Subsection 29.2 above, Tenant must first obtain
Landlord's written approval, which approval will not be unreasonably withheld,
conditioned or delayed, of (i) the plans and specifications for all such work;
(ii) with respect to any connecting lines that will be outside the Premises (if
such lines are permitted by Landlord in its sole discretion, except for lines
related to Tenant's installation of air conditioning units and the matters
addressed in Riders hereto, in which case such consent shall not be unreasonably
withheld), a description of the areas of the Building to which Tenant will
require access both for the initial work and for ongoing maintenance of the
improvements or installations; (iii) the names of all contractors and
subcontractors who will perform such work, all of whom are subject to Landlord's
reasonable approval; (iv) copies of all liability, casualty and worker's
compensation insurance applicable to the construction, maintenance and ongoing
operation of the improvements and installations; and (v) copies of all
governmental permits required for the work. Landlord's consent to such matters
shall not unreasonably be withheld, conditioned or delayed; provided, however,
that with regard to any such matters which may affect the structural members,
the heating, ventilation, or other building systems, exterior walls, windows and
doors of the Building, and with regard to the installation of any signs outside
the Premises, Landlord may grant or withhold its consent in its unlimited
discretion. Landlord may impose, as a condition of its consent to any
alterations, repairs or changes of the Premises, such requirements as Landlord
in its sole reasonable discretion may deem desirable, including, but not limited
to, the requirement that Tenant utilize for such purposes contractors,
materials, mechanics and materialmen reasonably approved by Landlord for work in
the Building. For the purposes of Tenant initial improvements constructed at the
commencement of the Lease, Landlord hereby approves the following: (i) MidCal
Construction; (ii) Carr Electric; (iii) Comfort Air; (iv) Bay Alarm Company; and
(v) Pac West Telecom (to the extent it is licensed to perform such work).
29.4 After Landlord has approved the change, repair or alteration and
the other items listed in Section 29.3, Tenant shall enter into an agreement for
the performance of such change, repair or alteration with the contractors and
subcontractors approved by Landlord, as provided in Section 29.3. Before
proceeding with any change, repair or alteration
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Tenant shall (i) provide Landlord with 10 days' prior written notice thereof;
and (ii) pay to Landlord, within 10 days after written demand, the costs of any
increased insurance premiums incurred by Landlord as a result of such changes,
repairs or alterations. In addition, before proceeding with any change, repair
or alteration (Landlord will not require the foregoing bond or surety for
initial improvement work performed by the four (4) contractors listed at the end
of Section 29.3), Tenant's contractors shall obtain, on behalf of Tenant and at
Tenant's sole cost and expense: (A) all necessary governmental permits and
approvals for the commencement and completion of such change, repair or
alteration; and (B) a completion and lien indemnity bond, or other surety,
satisfactory to Landlord for such change, repair or alteration. Landlord's
approval of permits pursuant to Section 29.3 shall not relieve Tenant of the
obligation to obtain any other or supplemental permits required by the preceding
sentence.
29.5 Tenant shall pay to Landlord, as additional rent, the reasonable
costs of Landlord's engineers and other consultants (but not Landlord's on-site
management personnel) for review of all plans, specifications and working
drawings for the change, repair or alteration within 10 business days after
Tenant's receipt of invoices either from Landlord or such consultants. In
addition to such costs, Tenant shall pay to Landlord, within 10 business days
after completion of any change, repair or alteration, the actual, reasonable
costs incurred by Landlord for services rendered by Landlord's management
personnel and engineers to coordinate and/or supervise any of the change, repair
or alteration to the extent such services are provided in excess of or after the
normal on-site hours of such engineers and management personnel.
29.6 All changes, repairs and alterations shall be performed: (i) in
accordance with the approved plans, specifications and working drawings; (ii)
lien-free and in a first-class and workmanlike manner; (iii) in compliance with
all laws, rules, and regulations of all governmental agencies and authorities;
(iv) in such a manner so as to not to interfere with the occupancy of any other
tenant in the Building, nor impose any additional expense or delay upon Landlord
in the maintenance and operation of the Building; and (v) at such times, in such
manner and subject to rules and regulations as Landlord may from time to time
reasonably designate.
29.7 Throughout the performance of any such change, repair or
alteration Tenant shall obtain, or cause its contractors to obtain, worker's
compensation insurance and general liability insurance covering the work in
compliance with provisions of Section 28 of this Lease, and builder's risk
insurance for the work reasonably acceptable to Landlord.
29.8 In the event Tenant orders any construction, alteration,
decorating or repair work directly from Landlord, or from the contractor
selected by Landlord, the charges for such work, together with Landlord's
administration fee equal to 15% of the contract price, shall be deemed
additional rent under this Lease, payable upon billing therefor, either in
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advance of the start of work, or periodically during construction, or upon the
substantial completion of such work, at Landlord's option.
30. Mechanic's Lien. Tenant agrees to give Landlord written notice of the
commencement date of any alterations, improvements or repairs to be made in, to
or upon the Premises not later then fifteen (15) days prior to the commencement
of any such work, in order to give Landlord time to post notices of non-
responsibility. Tenant will not permit any mechanic's, materialman's or other
lien to be placed upon the Premises or Building or improvements therein during
the term hereof; and in the event that any mechanic's, materialman's or other
lien is filed against the Premises or Building or improvements therein in
connection with any alteration, repair, improvement or change of, or
installation of fixtures or equipment in, the Premises, Tenant shall cause such
lien to be released within 10 days after such filing, either by satisfaction or
such claim or by posting of a bond. Notwithstanding the foregoing, Landlord
shall have the right and privilege at Landlord's option of paying the amount of
any such lien or claim, or any portion thereof, without inquiry as to the
validity thereof, and any amounts so paid, including expenses and interest,
shall be deemed additional rent hereunder due from Tenant to Landlord upon
demand.
31. Alternate Space. Except for Suite 40 on the 1st floor of the Building
currently occupied by Tenant, if the Premises comprise less than a full floor in
the Building, Landlord shall have the privilege of moving Tenant to other space
in the Building comparable to the Premises, and all terms hereof shall apply to
the new space with equal force. In such event Landlord shall give Tenant at
least 60 days' prior notice in writing and shall move Tenant's effects to the
new space at Landlord's sole cost and expense at such time and in such manner as
to inconvenience Tenant as little as practicable.
32. Hazardous Materials.
32.1 In addition to its other obligations under this Lease, Tenant
covenants to comply with all laws relating to Hazardous Materials, as defined
below, with respect to the Premises and the Building. Except for general office
supplies typically used in an office area in the ordinary course of business
(such as copier toner, liquid paper, glue, ink and cleaning solvents), for use
in the manner for which they were designed and only in accordance with all
Hazardous Materials laws and the highest standards prevailing in the industry
for such use, and then only in such amounts as may be normal for the office
business operations conducted by Tenant on the Premises, neither Tenant nor any
of Tenant's agents, employees, contractors, subtenants, assignees, licensees or
invitees ("Tenant's Parties") shall use, handle store or dispose of any
Hazardous Materials in, on, under or about the Premises, the building or the
site on which the Building is located. Tenant shall promptly take all actions,
at its sale cost and expense, as are necessary to return the Premises, Building
and site to the condition existing prior to the introduction of any such
Hazardous Materials by Tenant or any Tenant Parties,
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provided Landlord's approval of such actions shall first be obtained.
Furthermore, Tenant shall immediately notify Landlord of any inquiry, test,
investigation or enforcement proceeding by or against Tenant or the Premises
concerning the presence of any Hazardous Material.
32.2 Tenant shall be solely responsible for and shall indemnify,
defend (with counsel reasonably approved by Landlord) and hold Landlord harmless
from and against any and all claims, demands, judgments, suits, causes of
action, damages, penalties, fines, liabilities, losses and expenses (including,
without limitation, investigation and clean-up costs, attorneys' fees,
consultant fees and court costs) which arise during or after the term of this
Lease as a result of the breach of any of the obligations and covenants set
forth in this Section 32, and/or any contamination of the Premises, Building or
site directly on indirectly arising from the activities of Tenant or any Tenant
Parties.
32.3 For purposes of this Lease, the term "Hazardous Materials" shall
mean, collectively, asbestos, any petroleum fuel, and any hazardous or toxic
substance, material or waste which is or becomes regulated or defined as
hazardous or toxic by any local governmental authority, the State of California
or the United States Government, including, but not limited to, any material or
substance defined as hazardous or toxic under the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq.; the
Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq.; the
Toxic Substances Control Act, 15 U.S.C. Sections 2601, et seq.; the Federal
Water Pollution Control Act, 33 U.S.C. Sections 1251, et seq.; the California
Hazardous Substance Account Act, California Health and Safety Code Sections
25330, et seq.; the California Hazardous Waste Control Act, California Health
and Safety Code Sections 25100 et seq.; the California Safe Drinking Water and
Toxic Health Enforcement Act, California Health and Safety Code Sections
25249.5, et seq.; California Health and Safety Code Sections 25280, et seq.
(Underground Storage of Hazardous Substances); the California Hazardous Waste
Treatment Reform Act, California Health and Safety Code Sections 25179.1, et
seq.; California Health and Safety Code Sections 25501, et seq. (Hazardous
Materials Release Response Plans and Inventory); Petroleum Underground Storage
Tank Cleanup, Health and Safety Code Sections 25299.10, et seq.; and the Porter-
Cologne Water Quality Control Act, California Water Code Sections 13000, et
seq., as such laws may be amended from time to time.
32.4 The foregoing covenants and indemnities of Tenant shall survive
the expiration of earlier termination of the Lease.
33. Miscellaneous.
33.1 No receipt of money by Landlord from Tenant after the
termination of this Lease, the service of any notice, the commencement of any
suit or final judgment for possession shall reinstate, continue or extend the
term of this Lease or affect any such notice,
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demand, suit or judgment. No payment by Tenant or receipt by Landlord of a
lesser amount than the rent payment herein stipulated shall be deemed to be
other than on account of the rent, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such rent or pursue any
other remedy provided in the Lease. Tenant agrees that each of the foregoing
covenants and agreements shall be applicable to all obligations of Tenant to
Landlord, whether expressly contained in this Lease or imposed by any statute or
at common law.
33.2 If any provision of this Lease or its application to any party
or circumstances shall be determined by any court of competent jurisdiction to
be invalid or unenforceable to any extent, the remainder of this Lease or the
application of such provision to such person or circumstances, other than those
as to which it is so determined invalid or unenforceable to any extent, shall
not be affected thereby, and each provision hereof shall be valid and shall be
enforced to the fullest extent permitted by law; and it is the intention of the
parties to this Lease that in lieu of each clause or provision of this Lease
that is illegal, invalid or unenforceable, there be added as a part of this
Lease a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable.
33.3 The covenants and obligations of Tenant pursuant to this Lease
shall be independent of performance by Landlord of the covenants and obligations
of Landlord pursuant to this Lease, and performance by Tenant of each covenant
and obligation of Tenant pursuant to this Lease shall be a condition precedent
to the duty of Landlord to perform the covenants and obligations of Landlord
pursuant to this Lease.
33.4 The headings of Sections of this Lease are for convenience only
and do not define, limit or construe the contents thereof. References made in
this Lease to numbered Sections, Paragraphs and Subparagraphs shall refer to
numbered Section, Paragraphs or Subparagraphs of this Lease unless otherwise
indicated.
33.5 Where appropriate, words in the singular, including without
limitation the words "Landlord" and `Tenant", include the plural, and vice
versa. Words in the neuter gender include the masculine and feminine genders,
and vice versa, and words in the masculine gender include the feminine gender,
and vice versa.
33.6 If more than one person or entity executes this Lease as Tenant:
(a) each of them is and shall be jointly and severally liable for the covenants,
conditions, provisions and agreements of this Lease to be kept, observed and
performed by Tenant; and (b) the act or signature of, or notice from or to, any
one or more of them with respect to this Lease shall be binding upon each and
all of the persons and entities executing this Lease as Tenant with the
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same force and effect as if each and all of them had so acted or signed, or
given or received such notice.
33.7 Time is of the essence of this Lease. Failure of either party to
perform any act strictly within the applicable period specified herein shall
entitle the other to exercise all remedies herein contemplated. All references
in this Lease to "days" shall mean calendar days unless specifically stated
herein to be "business" days.
33.8 This Lease shall be governed by and interpreted in accordance
with the laws of the State of California.
33.9 All monetary obligations of either party hereunder to the other
remaining past due 10 days or more after the date specified herein for payment
shall bear interest until paid at the lesser of (i) the Bank of America prime
rate as of the due date plus 6%, or (ii) the maximum rate permitted by law.
33.10 This instrument, along with any riders, exhibits and
attachments or other documents referred to in Section M on page 2 (all of which
riders, exhibits, attachments and other documents are hereby incorporated into
this instrument by this reference), constitutes the entire and exclusive
agreement between Landlord and Tenant relating to the Premises, and this
agreement and said riders, exhibits and attachments and other documents may be
altered, amended or revoked only by an instrument in writing signed by the party
to be charged thereby. All prior or contemporaneous oral agreements,
understandings and/or practices relative to the leasing of the Premises are
merged herein or revoked hereby. References in this instrument to this "Lease"
shall mean, refer to and include this instrument as well as any riders,
exhibits, attachments or other documents referred to in Section M, and
references to any covenant, condition, obligation and/or undertaking "herein",
"hereunder" or "pursuant hereto" (or language of like import) shall mean, refer
to and include the covenants, conditions, obligations and undertakings existing
pursuant to this instrument and such riders, exhibits, attachments or other
documents. All terms defined in this instrument shall be deemed to have the same
meanings in all riders, exhibits, attachments or other documents referred to in
Section M unless the context thereof clearly requires the contrary.
33.11 Tenant hereby consents to amendment of this Lease as and to the
extent required by any lender which makes a loan to Landlord secured in whole or
in part by the Building, provided that no such change shall decrease the Term or
cancel a renewal term contained herein or increase the rent payable hereunder or
impair Tenant's use of the Premises.
33.12 Unless otherwise agreed in writing, if Tenant has dealt with any
real estate broker or other person or firm with respect to leasing or renting
space in the Building,
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Tenant shall be solely responsible for the payment of any fee due said broker,
person or firm and Tenant hereby indemnifies and holds Landlord harmless from
and against any liability with respect thereto. Notwithstanding the foregoing,
Landlord agrees to pay, and to hold Tenant harmless from, the commission owning
to the brokers identified in Section L on page 2, as provided in a separate
agreement between Landlord and such brokers.
33.13 Tenant agrees to Pay to Landlord as additional rent hereunder
any taxes required by law to be paid by Tenant and collected from Tenant by
Landlord.
33.14 Submission of this Lease for examination, even though executed
by Tenant, shall not bind Landlord in any manner, and no lease or other
obligation on the part of Landlord shall arise until this Lease is executed and
delivered by Landlord to Tenant. This Lease shall not be binding and in effect
until a counterpart hereof has been executed and delivered by the parties, each
to the other.
33.15 Tenant shall not cause the recordation of this Lease, a short
form memorandum of this Lease or any reference to this Lease.
33.16 Upon ten (10) days' prior written request from Landlord (which
Landlord may make at anytime during the term but no more often than two times in
any calendar year), Tenant shall deliver to Landlord (a) a current financial
statement of Tenant and any guarantor of this Lease, and (b) financial
statements of Tenant and such guarantor for the two years prior to the current
financial statement year. Such statements shall be prepared in accordance with
generally acceptable accounting principles, and certified as true in all
material respects by Tenant (if Tenant is an individual) or by an authorized
officer or general partner of Tenant (if Tenant is a corporation or partnership,
respectively).
33.17 Notwithstanding anything contained in this lease to the
contrary, the obligations of Landlord under this Lease (including any actual or
alleged breach or default of Landlord) do not constitute personal obligations of
the individual partners, directors, officers, shareholders, agents of employees
of Landlord or of Landlord's partners or agents, and Tenant shall not seek
recourse against any such persons or entities or any of their personal assets
for satisfaction of any liability with respect to this Lease. In addition, in
consideration of the benefits accruing hereunder to Tenant and notwithstanding
anything contained in this Lease to the contrary, Tenant hereby covenants and
agrees for itself and all of its successors and assigns that the liability of
Landlord for its obligations under this Lease (including any liability as a
result of any actual or alleged failure, breach or default hereunder by
Landlord) shall be limited solely to, and Tenant's and its successors' and
assigns' sole and exclusive remedy shall be against, Landlord's interest in the
Building and proceeds therefrom, and no other assets of Landlord.
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33.18 If Tenant is identified herein as a corporation, then the
persons executing this Lease on behalf of Tenant hereby represent that they are
duly authorized to execute and deliver this Lease on behalf of Tenant pursuant
to Tenant's by-laws or a resolution Of its board of director s.
If Tenant is identified herein as a partnership, the undersigned
represents that they are all of the general partners of Tenant, that Tenant has
been formed under the laws of the State of California, and is duly qualified to
do business in the State of California, and that this Lease is being executed on
behalf of Tenant. Each of the partners of Tenant executing this Lease agrees
that he or she and Tenant are irrevocably bound by execution of any amendment to
or modification of this Lease by one or more of the partners of Tenant. Tenant
agrees that each now partner in Tenant shall be obligated under this Lease, in
the same fashion as the existing partners, and that each now partner shall
execute a copy of this Lease and deliver it to Landlord within 60 days after
that partner's admission to the partnership. In the event that such newly
admitted partner is a corporation, the principal or principals for whose benefit
the corporation has been organized shall execute and deliver to Landlord a lease
guaranty in form acceptable to Landlord. Each newly admitted partner in Tenant
shall be jointly and severally liable with the remaining partners for the
performance and satisfaction of all obligations of the Tenant under this Lease
accruing from and after the effective date of the admission of the now partner
to the Partnership. If the provisions of this paragraph we satisfied, the
admission of a now partner shall not be considered an assignment of the lease
for the purposes of Section 17 hereof.
33.19 Subject to the provisions of Section 17 above, and except as
otherwise provided in this Lease, all of the covenants, conditions and
provisions of this Lease shall be binding upon, and shall inure to the benefit
of the parties hereto and their respective heirs, personal representatives and
permitted successors and assigns; provided, however, that no rights shall inure
to the benefit of any transferee of Tenant unless the transfer to such
transferee is made in compliance with the provisions of Section 17, and no
options or other rights which are expressly made personal to the original Tenant
hereunder or in any rider attached hereto shall be assignable to or exercisable
by anyone other than the original Tenant under this Lease.
33.20 The voluntary or other surrender of this Lease by Tenant or
mutual termination thereof shall not work as a merger and shall, at this option
of Landlord, either (a) terminate all and any existing subleases, or (b) operate
as an assignment to Landlord of Tenant's interest under any or all such
subleases.
33.21 Except for Tenant's identity sign on the entry doors of the
Premises and Tenant's elevator lobby identity sign on any full floor of the
Building leased by Tenant (which signs shall be consistent with the Building's
signage program and otherwise subject to
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Landlord's prior written approval), Tenant shall have no right to place any sign
upon the Premises, the Building or the site on which the Building is located or
which can be seen from outside the Premises.
33.22 The effectiveness of this Lease and Landlord's obligations
hereunder are subject to and conditional upon Tenant's delivery to Landlord of a
lease guaranty in the form prescribed by Landlord in its sole discretion, fully
executed by the guarantor or guarantors specified in Section N on page 2 of this
Lease.
34. "AS-IS" Condition. Tenant is taking the Premises in its "AS-IS"
condition existing as of the execution date of this Lease. Landlord shall have
no obligation for the construction or modification of tenant improvements for
Tenant; however, Landlord shall provide Tenant $8,000.00 rent credit against the
cost of Tenant's improvements. In constructing its own tenant improvements to
the Premises, Tenant shall comply with the other applicable provisions of this
Lease (including but not limited to all of Article 29).
35. Tenant's Supplemental Air-Conditioning. Tenant shall have the right to
install, access, maintain and repair, at Tenant's sole cost and expense, air
flow computer room compressor air conditioning units in the Premises, and up to
a total of 22 associated roof top condensing units; which will be located in two
locations on the second story roof. Installation of all such equipment is and
shall be subject to compliance with the other provisions of this Lease,
including but not limited to all of Article 29 (including Section 29.3) which
requires Tenant to submit plans and specifications to Landlord prior to
installation of equipment. Tenant's installation shall comply with the
recommendation of Landlord's noise/acoustical engineer.
SIGNATURE PAGE FOLLOWS
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PAC-WEST TELECOMM, INC.
a California corporation
By:
-------------------------------------------------
Print Name:
-----------------------------------------
Its: Chairman of the Board/President/Vice President
(CIRCLE ONE)
By: /s/ Richard E. Bryson
-------------------------------------------------
Print Name: Chief Financial Officer
-----------------------------------------
Its: Secretary/Assistant Secretary/Chief Financial
Officer/Assistant Treasurer
(CIRCLE ONE)
BALCO PROPERTIES
By: /s/ Bruce A. Westphal
-------------------------------------------------
Its: Chairman
------------------------------------------------
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SCHEDULE 1
<TABLE>
<CAPTION>
Premises Suite 40 Suite 100 Mezzanine Suite 201 Suite 203 Suite 210 Suite 214 Suite 222 Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Diagram of Premises
Exhibit # A-1 A-2 A-3 A-4 A-5 A-6 A-7 A-8
- -----------------------------------------------------------------------------------------------------------------------------------
B. Rentable Area in
square feet 2656 113 2274 216 1311 1369 800 1232 9971 sq. ft.
- -----------------------------------------------------------------------------------------------------------------------------------
D. Rent Commencement
Date SEE LEASE
- -----------------------------------------------------------------------------------------------------------------------------------
E. First Year Base Rent $1.07 $1.50 $1.50 $1.50 $1.50 $1.07 $1.07 $1.50*
- -----------------------------------------------------------------------------------------------------------------------------------
Per sq. ft. $2842.00 $169.50 $3411.00 $324.00 $1966.50 $1465.00 $856.00 $1848.00 $12,882.00
Total
- -----------------------------------------------------------------------------------------------------------------------------------
Rent Increases Suites 40, 210 and 214: Rent shall be increased annually on the anniversary of the Commencement Date
pursuant to Rent Escalation Rider.
All other space: Rent to be increased to $1.60 per square foot on the first annual anniversary
of the Commencement Date. Thereafter, rent shall be increased annually on the anniversary of the
Commencement Date pursuant to Rent Escalation Rider.
- -----------------------------------------------------------------------------------------------------------------------------------
G. Percentage Share 3.41% .14% 2.92% .28% 1.68% 1.76% 1.03% 1.58% 12.80%
- -----------------------------------------------------------------------------------------------------------------------------------
Security Deposit 2842.00 169.50 3411.00 324.00 1966.50 1465.00 856.00 1848.00 $12,882.00**
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* As additional Rent due upon execution of this Lease, Tenant shall pay
Landlord the sum of $20,000 as reimbursement of the cost to move other
tenants in the Building to accommodate Tenant.
** Tenant shall, on execution of this Lease, deposit $7,721 ($5,161 having
already been deposited with Landlord through the prior leases).
<PAGE>
EXHIBIT 10.20
LEASE AGREEMENT
<PAGE>
TABLE OF CONTENTS
1. BASIC LEASE PROVISIONS..........................................1
2. EXHIBITS........................................................3
3. PREMISES........................................................3
4. TERM............................................................5
5. RENTAL..........................................................6
6. POSSESSION AND USE..............................................8
7. UTILITIES SERVICES..............................................9
8. INDEMNITY; INSURANCE...........................................10
9. TITLE OF LANDLORD..............................................13
10. TENANT'S LIMITED RIGHT TO MAKE ALTERATIONS.....................13
11. MECHANICS LIENS................................................14
12. PERSONAL PROPERTY; FIXTURES....................................15
13. ASSIGNMENT AND SUBLEASING......................................15
14. REPAIRS; MAINTENANCE...........................................16
15. RECONSTRUCTION.................................................18
16. BANKRUPTCY; INVOLUNTARY TRANSFERS..............................20
17. DEFAULTS BY TENANT; REMEDIES...................................21
18. DEFAULTS BY LANDLORD, REMEDIES.................................24
19. EMINENT DOMAIN.................................................25
20. ATTORNEYS FEES.................................................25
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21.1 SALE OF PREMISES BY LANDLORD/OPTION TO PURCHASE................26
21.2 OPTION TO PURCHASE.............................................26
22. SUBORDINATION; ATTORNMENT......................................27
23. QUIET POSSESSION...............................................28
24. CAPTIONS AND TERMS.............................................28
25. NOTICES........................................................28
26. OBLIGATIONS OF SUCCESSORS......................................29
27. CONSENT OF LANDLORD AND TENANT.................................29
28. MISCELLANEOUS..................................................29
ii
<PAGE>
LEASE AGREEMENT In consideration of the rents and covenants hereinafter
set forth, Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the following described premises upon the following terms and
conditions:
1. BASIC LEASE PROVISIONS. BASIC LEASE PROVISIONS
Lease Date: December 17, 1998
Landlord: Wing Fong & Associates LLC
Tenant: Pac-West Telecomm, Inc.
Property Address: 302 and 304 East Carson Street, Las Vegas, Nevada 89101
Preliminary Term
Date(1): January 1, 1999, sometimes "Effective Date"
Rent Commencement
Date: The earlier of the date Tenant takes possession for the
(_____) (_____) conduct of its business or ten (10) months after Tenant
Initials Initials takes possession of the Premises to commence construction of
Tenant Improvements, but no later than November 1, 1999,
sometimes "Lease Term"
Lease term: 120 months from the Rent Commencement Date __________________
Option: Two five (5) year options with nine (9) months' prior written
notice
Annual Rent: $1.50 per rentable square foot per month ($18.00 per year),
plus cost of living adjustments inclusive of all services and
expenses except for electricity and janitorial (Annual rent of
$195,570.00, payable in installments of $16,297.50 per month)
Parking: Six (6) spaces will be provided, which parking spaces shall be
provided at $50.00 per month, subject to adjustment parking
together with a 20' x 100' strip on the south side of the
premises of 304 East Carson Street to be used by the Tenant
during the preliminary term.
Late Charge: 5% of delinquent amount
CAM: Lease is a modified gross Lease. Tenant shall pay its own
janitorial service and utilities. Tenant's proratable portion
shall be a fraction
- --------
(1) Actual date to be inserted and initialed.
<PAGE>
denominator of which is the Tenant's Floor Area at
304 East Carson Street and the numerator of which is
the aggregate rental space and parking space at 302
and 304 East Carson Street. Tenant shall also pay
proratably the Landlord's increase in its CAM above
the 1999 Base Year.
Right of Refusal: Tenant has right of first refusal to any
additional space available on the first floor of 304
East Carson currently occupied by a jewelry store.
Addresses for Notices:
To Landlord:
1553 North Decatur Boulevard
Las Vegas, Nevada 89108
Attention: Wing Fong
With copy to: Deaner, Deaner, Scann & Malan
720 South Fourth Street, Suite 300
Las Vegas, Nevada 99101
Attention: Charles W. Deaner, Esq.
To Tenant:
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, CA 95204
Attention: Dennis V. Meyer, Controller
With copies Robert C. Morrison
c/o Neumiller and Beardslee
P.O. Box 20
Stockton, CA 95201-3020
Initial Deposit: $35,000.00. Provided Tenant is not in default, the
initial deposit will be applied to the first and
second months of the Lease Term.
Premises: The first floor of certain commercial space, commonly
304 East Carson Street, having 10,865 rentable square
feet of Floor Area, as more particularly described in
Exhibit "A". Together with certain roof rights on 302
East Carson Street, as described in paragraph 3.5.
Address of Premises: 302-304 East Carson Avenue
Las Vegas, Nevada 89101
Reference to this Article 1 in other Articles or Sections of this Lease is for
convenience and to
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designate certain defined terms contained within some of the other Articles or
Sections where references to any of the particular Basic Lease Provisions
appear. Each reference in this Lease to any of the Basic Lease Provisions
contained in this Article I shall be construed to incorporate all of the terms
of such Basic Lease Provision.
2. EXHIBITS.
Exhibits described in the Table of Contents hereof are attached hereto and made
a part of this Lease.
3. PREMISES
3.1 Demise. Landlord hereby leases to and Tenant hereby leases from Landlord as
of the Effective Date specified in Article 1 ("Effective Date"), the commercial
space which includes the parking rights per paragraph 3.5 and the roof rights
per Paragraph 3.6 referred to as the "Premises" and described on Exhibit "A."
All obligations of Tenant under this Lease shall be effective as of the
Effective Date, except the obligations of Tenant to pay annual rental as
specified under Section 5.1 or the other charges provided elsewhere in this
Lease. The Premises shall be remodeled in accordance with the procedures,
outlined in Exhibit "B," called "Tenant's Work." Landlord and Tenant agree that
the Premises comprise the Floor Area specified in Article 1 and further defined
in Section 3.3 and the roof and parking rights defined in Section 3.5 and 3.6.
3.2 Acceptance of the Premises. Landlord agrees to deliver to Tenant, and Tenant
agrees to accept from Landlord, possession of the Premises as of the date
Landlord notifies Tenant that the Premises are available for Tenant to begin
construction of Tenant Improvements ("Lease Commencement Date") in accordance
with the provisions of Exhibit "B."
3.3 Floor Area Defined. The term " Floor Area," as used throughout this Lease,
shall mean and include all areas for the exclusive use and occupancy by a tenant
measured from the exterior surface of exterior walls (and from the extensions
thereof, in the case of openings) and from the center of interior partitions,
and will include, but not be limited to, restrooms, storage areas, clerical or
office areas and employee areas, but excluding mezzanines.
3.4 Generator Space/Parking. Subject to Landlord's approval of final drawings
(an approval to be added as an exhibit to this Lease) submitted to Landlord by
Tenant, which approval shall not be unreasonably withheld, conditioned or
delayed, Landlord agrees to provide Tenant with sufficient space in the alley
access service area between 302 and 304 East Carson and adjacent to the Premises
to allow for the installation, maintenance and operation of an emergency
generator (750 KW maximum), diesel fuel tank (1,500 gallon maximum) adjacent to
the generator, and air conditioning units (125 ton maximum capacity).
Tenant shall have the right to increase the size of the generator, capacity of
the fuel tank, air
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conditioning capacity from time to time during the lease Term, subject to
landlord approval, which approval shall not be unreasonably withheld,
conditioned or delayed. The location of the generator, fuel tank and air
conditioning units shall be mutually agreed upon by Landlord and Tenant.
Installation and use of the generator, fuel tank and air conditioning units
shall be in accordance with all applicable municipal and state codes.
Tenant hereby agrees to indemnify and hold Landlord harmless in connection with
all matters pertaining to Tenant's installation, use and maintenance of the
generator, fuel tank and air conditioning units. Specifically, Tenant shall be
responsible to maintain and service the generator and fuel tank to reasonably
prevent the release of hazardous substances from same. Tenant further agrees to
indemnify and hold Landlord harmless from any and all municipal, state or
federal fines, penalties and legal actions, whether governmental or by private
parties, pertaining to the release of hazardous substances from either the
generator or the fuel tank. This covenant shall survive any termination of this
Lease.
3.5 Parking. Landlord shall designate and provide Tenant with six (6) parking
spaces at the then published monthly parking rates for vehicle parking or
placement of equipment, currently at $50 per month per space. Increases in
parking rates, if any shall be limited to rates comparable to other equivalent
parking facilities in the neighborhood. The parking spaces shall be located in
the southwest corner together with the right in the Tenant to use of the docking
door, access to which is from the last parking stall in the southwest corner.
Tenant also has additional parking rights during the Lease Term as it appears in
paragraph 1.
3.6 Roof Rights/Antenna. Landlord will allow Tenant access to and use of such
portions of the roof of 302 East Carson as shall be reasonably required by the
Tenant with no additional rent between Landlord and Tenant for the purpose of
installing a stub tower or antenna masts which may contain collectively up to
fifty (50) antennae/dishes for telecommunications reception and/or transmission.
The dishes will be either 15," 24 " or 48 " in diameter. Tenant shall exercise
its rights and perform its obligations hereunder in such a way as to not cause
interference with the use of the roof by Landlord or other existing users of the
roof tenants. In the event that the operation of Tenant's facilities causes or
results in interference with the existing operations of Landlord or other
Tenants, Tenant agrees to eliminate such interference, including without
limitation reconfiguring or relocating Tenant's antennae/dishes, re-engineering
Tenant's roof operation, working with the Landlord or other Tenants, and all
other steps deemed necessary by Landlord to eliminate such interference.
Landlord will allow Tenant unlimited access to the roof to perform emergency
repairs or replacements. Tenant shall have such access 24 hours per day, 365
days a year, on an unescorted basis, otherwise in accordance with Landlord's
rules and regulations regarding rooftop access. All costs of installation,
operation, and maintenance of the antennas and the connection cable (including
any modifications to the roof and the costs of obtaining any necessary permits
or
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approvals) shall be borne by Tenant. Tenant will hold harmless the Landlord from
anybody, any liability or loss arising out of the unlimited access to the roof
by the Tenant, Tenant's employees, agents, and representatives.
Landlord agrees that the use of the roof of 302 and 304 East Carson is an
integral part of the interests conveyed by this Lease, and no sale, financing,
or refinancing of either 302 or 304 East Carson shall interfere with Tenant's
use of such roof.
3.7 Telecommunications Carriers. Tenant shall have the right to select and
utilize up to three (3) telecommunications and data carrier(s) (the "Carriers")
of its choice and as required by regulatory authorities. Landlord agrees that:
(i) Landlord will grant the Carriers by Tenant a license (the "License") for a
term which is consistent with Tenant's lease term, (the "License Term") to
install, operate, maintain, repair, and replace cable and associated equipment
in order to collocate with Tenant (the "Facilities"), subject to landlord's
consent, which shall not be unreasonably withheld, delayed, or conditioned, and
in compliance with building Rules and Regulations; (ii) Landlord shall provide
Carriers reasonable Access to enable Carriers to provide Carriers' public
utility telecommunications services to the Premises (iii) the License
contemplated herein is for carriers to collocate with Tenant and is not an
exclusive right to Tenant and/or Tenant's Carriers or vendors and Landlord
reserves the right to grant, renew or extend licenses to other Carriers for the
purposes of locating telecommunications equipment in the building at Landlord's
sole discretion; and (iv) nothing contained herein shall be construed as
granting Carriers or Tenant any Property or ownership rights in the building or
to create a partnership or joint venture between Landlord, Carriers or Tenant.
Landlord agrees there shall be no extra use for Tenant's use of the roof by
Landlord or other existing users of the roof tenants. In the event that the
operation of Tenant's facilities causes or results in interference with the
existing operations of Landlord or other Tenants, Tenant agrees to eliminate
such interference, including without limitation reconfiguring or relocating
Tenant's antennae/dishes, re-engineering Tenant's roof operation, working with
the Landlord or other Tenants, and all other steps deemed necessary by Landlord
to eliminate such interference.
3.8 Signage. Landlord, at its sole costs and expense, shall install Tenant's
suite number at the main entry to the Premises and a tenant identification strip
on the building directory. In addition, Tenant shall have the right, at its sole
cost and expense, to utilize the existing signage and the entire south wall of
304 East Carson for displaying its company name and logo.
3.9 Waiver of Landlord's Lien. Landlord recognizes that Tenant shall be
installing telephone switching equipment, and related furniture and equipment
(collectively the "Equipment"). Landlord further recognizes that Tenant may,
from time to time, finance and refinance said equipment, and its unrestricted
right to do so is critical to Tenant's business operations. Accordingly,
Landlord hereby waives, in favor of both Tenant and any party providing
financing to Tenant, any lien, interest, and/or right of Landlord in and to the
Equipment, whether arising by statute or at common law, including but not
limited to any "Landlord's Lien," and any right to distraint for rent. Upon not
less than ten (10) business days
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prior written notice from Tenant, Landlord shall execute, acknowledge, and
deliver to Tenant a statement in writing, in a form reasonably acceptable to
Tenant and any bona fide lender providing financing to Tenant, confirming such
waiver.
3.9 Surrender of the Premises. Tenant will surrender possession of the Premises
to Landlord at the expiration of the Lease Term or the earlier termination of
this Lease.
4. TERM.
4.1 Definition. This Lease shall be effective as of the Lease Commencement Date
and shall continue thereafter during the Lease Term specified in Article 1
("Lease Term"), unless sooner terminated. The number of years specified in the
Lease Term shall not begin until the date when the obligation to pay any rental
and additional rent under the under this Lease commences (the "Rent Commencement
Date"). The Rent Commencement Date shall be the date which is the earlier of:
(i) ______________, 1999
(ii) the date Tenant first commences to use and/or occupy the Demised
Premises other than for the construction of Tenant's Improvements and for the
testing of communications equipment; or
(iii) the date that is ten (10) months from the date that Landlord
delivers the premises to Tenant for the installation of the Tenant Improvements,
except that said ten (10) months may be extended by reason of force majeure
referred to in Section 29.7. Landlord and Tenant shall confirm the Rent
Commencement Date by placing their initials at the appropriate headings at
Article 1.
4.2 Options. The Rental Rate for the First Option Period shall be at the same
rate as the rental for the last month of the Initial Term subject to the cost of
living adjustment for each additional year as provided in the Lease. The rental
rate for the Second Option Period shall be the rent for the last month of the
First Option Period, again, subject to the cost of living adjustment as provided
in Paragraph 5.1.
5. RENTAL.
5.1 Annual Rental. Tenant, subject to CPI adjustment, agrees to pay as rental
for the use of the Premises the Annual Rent specified in Article 1. The Annual
Rental shall be due in advance in twelve (12) equal monthly installments during
each year on the first (lst) day, and payable not later than, the tenth (10th)
of each calendar month, without setoff, deduction, prior notice or demand,
commencing on the Rent Commencement Date. Should the rental period commence on a
day other than the first day of a calendar month, then the rental for the first
fractional month shall be computed on a daily basis for the period from the
Commencement Date to the end of the
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calendar month and at an amount equal to one-three hundred sixtieth (1/360th) of
the Annual Rental for each day, and thereafter shall be computed and paid as
aforesaid.
On each anniversary of the Rent Commencement Date, the Base Rent shall be
adjusted according to this paragraph.
(a) In this paragraph, (1) the "Base Year" shall mean the full calendar
year beginning in the month in which the Rent Commencement Date occurs; (2) the
"CPI Index" shall mean the Consumer Price Index for All Urban Consumers, 1982-84
Base Year, All Items, U.S City Average as published by the Bureau of Labor
Statistics of the United States Department of Labor (the "Bureau"); and the "CPI
Index for the Base Year" shall mean the average of the monthly price indexes for
each of the twelve months of the Base Year.
(b) The adjustment in the Annual Rent shall be based on the percentage
difference between the CPI Index for the last month of the then-current lease
year ( the "Adjustment Month") and the price index for the Base Year. If the CPI
index for the Adjustment Month is greater than the CPI Index for the Base year,
then the Base Rent set forth in Paragraph (without regard to any adjustments
under this paragraph) shall be multiplied by the percentage difference between
the CPI Index for the Adjustment Month and the CPI Index for the Base Year, and
the product of that calculation shall be added to the Base Rent set forth in
this paragraph effective as of the anniversary of the the Lease Year The
adjusted Base Rent shall be payable until it is readjusted pursuant to the terms
of this Lease. If the actual amount determined to be owing is greater than
Tenant's estimated payments, the deficiency shall be paid by Tenant as
additional rent together with the next monthly installment of Base Rent due
hereunder.
(c) For example, If the Base Rent on the Rent Commencement Date is
$195,570.00, the CPI Index for the Base Year is 103, and the CPI Index for the
Adjustment Month is 106, then percentage difference (106 minus 103 divided by
103, or .029) will be multiplied by the Base Rent to arrive at the rent increase
($195,570.00 x .029 $5,671.53 ). The Base rent for the upcoming year will be
$195,570.00 ($195,570.00 $5,671.53 = $201,241.00).
(d) Notwithstanding anything in this Lease to the contrary, in no event
shall the Base Rent rate payable during any Lease Year be more than one hundred
and five percent (105%) of the base rent rate payable hereunder during the
immediately preceding Lease Year, and in no event may any unused increase
resulting from the foregoing limitation be carried over to a subsequent year.
(e) If the Index is changed so that a Base Year other than 1982 is
used, the Index shall be converted in accordance with the conversion factor
published by the Bureau. If the Index is discontinued, unavailable or in any
manner revised during the Lease Term, then the Index shall be adjusted or
replaced by Landlord in order to obtain substantially the same result as would
be obtained if the Index had not been so discontinued, unavailable or revised.
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(f) Promptly after the adjustment in the Base Rent is determined for
each Lease Year, Landlord shall submit to Tenant a statement setting forth the
amount of such adjustment and the computations by which it was determined. Since
the actual increase in the Base Rent may not be determined until after the start
off a new Lease Year, until the actual increase in the Base Rent is determined,
Tenant shall make estimated monthly payments of Base Rent during such Lease Year
in an amount based upon Landlord's reasonable estimate of the increase in the
monthly installments of Base Rent that will be payable during such Lease Year
promptly after receipt of a statement from Landlord setting forth the actual
increase in the monthly installments of Base Rent for such Lease Year, the
difference between the estimated monthly payments paid by Tenant and the actual
amount of Base Rent determined to be owing for such months shall be calculated
if the estimated Payments by Tenant exceed the actual amount determined to be
owing, the excess shall be credited to Tenant.
5.2 Common Area Maintenance. Tenant shall pay for its own electrical service and
janitorial service. Any other common area maintenance charge or expense shall be
paid by Landlord. Tenant will pay proratably, as defined in paragraph 1, any
increase in the Landlord's expenses for Common Area Maintenance in excess of the
Base Year of 1999.
5.3 Late Charge. If any monthly rental installment or Additional Rent is not
received by Landlord by the tenth (10th) day of the month for which it is due,
Tenant will immediately pay to Landlord a late charge equal to five percent (5
%) of that monthly rental or Additional Rent installment. Landlord and Tenant
agree that this late charge represents a reasonable estimate of such costs and
expenses and is fair compensation to Landlord for its loss because of nonpayment
by Tenant. Acceptance of any late charge shall not constitute a waiver of
Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord
from exercising all other rights and remedies available to Landlord under this
Lease.
5.4 Address for Payments. All rental and other payments shall be paid by Tenant
to Landlord at its management office in the Premises, or at such other place as
may from time to time be designated by Landlord in writing at least ten (10)
days prior to the next ensuing payment date.
6. POSSESSION AND USE.
6.1 Permitted Uses. Possession of the Premises shall be delivered to Tenant
broom clean and free and clear of all tenants and occupants and the rights of
either, and also free of liens and encumbrances, except those specified in
Article 9 hereof, Tenant shall use and occupy the Premises solely for the
purposes of operation, installation, maintenance, repair and replacement of
telecommunications equipment and related facilities such as an emergency
generator, HVAC equipment, and rooftop antenna equipment, all as shall be
described in this Lease, and for general office use. Tenant represents that its
intended use shall not pose any human health or environmental hazard and that
Tenant shall be responsible for any remediation, which obligation shall continue
following any termination of this Lease. Further, Tenant shall be responsible
for
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complying with all applicable laws governing its use of the Premises.
Tenant shall have the non-exclusive right to solicit and provide
telecommunications services to the other tenants and occupants of 302 and 304
East Carson and to other buildings in Las Vegas owned by Landlord, subject to
the execution of suitable agreements with respect to such other buildings.
Landlord represents that, to Landlord's knowledge, Tenant's intended use of the
Premises is not in violation of the Certificate of Occupancy, or any covenant,
condition or restriction on the building as existing as of the Lease
Commencement Date. Tenant shall not use or occupy the Premises in violation of
the laws of the United States of America, or the laws, ordinances, regulations,
and requirements of the State, County, and City where the Property is situated.
6.2 Condition of Premises. From and after the Effective Date, Tenant shall keep
the Premises, and every part thereof, in a clean and wholesome condition, free
from any objectionable noises, odors or nuisances, and shall comply with all
health and police regulations in all respects. Tenant agrees that all trash and
rubbish of Tenant shall be deposited only within receptacles as provided by
Landlord. No other trash receptacles are permitted to remain outside the
building.
6.3 Deliveries. After the completion of Tenant's initial improvements, Tenant
shall use its best efforts to prevent delivery trucks or other vehicles
servicing the Tenant's Premises from parking or standing in front of, or at the
rear of, the Premises for an unreasonable length of time or to otherwise
interfere with vehicular and pedestrian traffic. Landlord reserves the right to
reasonably regulate further the activities of Tenant in regard to deliveries and
servicing of the Premises, and Tenant agrees to abide by such further
nondiscriminatory regulations of Landlord. Tenant shall be allowed, with
appropriate liability insurance coverage, to use the former bank drive-through
area to park vehicles and to store materials and equipment during the
construction period of tenant's improvements. If, during the construction period
the drive-in teller area is included as part of a lease for the first floor
(presently Bank Area), then, upon five (5) days' written notice the use of said
area by the Tenant shall end. Tenant shall have the right to use of the docking
door, access to which is from the last parking stall in the southwest corner.
6.4 Landlord's Obligations. Landlord, to its best knowledge, represents to
Tenant that Tenant's contemplated use of the building and Premises as described
herein and the Premises themselves are not in violation of or prohibited by any
state or local land use, zoning, environmental or other law which would prohibit
or condition the issuance of a building or construction permit or prevent or
uneconomically condition occupancy of the premises by Tenant for the conduct of
Tenant's business as described in this Lease. Landlord agrees to use
commercially reasonable best efforts to supply information, sign applications,
make introductions to and facilitate communications with local planning
authorities and represent Tenant along with Tenant's professional advisors in
obtaining all necessary approvals to construct Tenant's contemplated
improvements and obtain any and all necessary certifications to occupy the
premises and conduct its business thereon.
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7. UTILITIES SERVICES
7.1 Tenant's Obligation. Tenant shall pay for all telephone, electric current
used by Tenant on the Premises, and any taxes thereon, from and after the
delivery of possession of the Premises by Landlord. If any charges are not paid
when due, Landlord may pay the same, and the amount paid by Landlord will
thereupon become due to Landlord as Additional Rent together with interest
thereon at the rate of eighteen percent (18%) per annum. Tenant shall install
its own electric meter(s) from the tenant improvement allowance. If any
utilities are furnished by Landlord, then the rates charged Tenant shall not
exceed those of the local public utility company as if its services were
furnished directly to Tenant.
7.2 No Liability of Landlord. Landlord shall not be liable in damages or
otherwise for any failure or interruption of utility service furnished to the
Premises except as shall have been caused by Landlord's failure to pay for such
services. No failure or interruption will entitle Tenant to terminate this Lease
or to stop any rental or other payments due hereunder; provided, however, that
Tenant may contract directly with the applicable utility to restore such
service, and charge the cost thereof to Landlord. If the Landlord elects to
discontinue furnishing any utilities to the Premises for any reason other than
nonpayment by Tenant of any utility charge, or other rental payment required
hereunder, Tenant shall obtain its own utilities for the Premises. Tenant shall
have the right to use all existing conduits and facilities situated in the
Premises, and to construct such additional conduits and facilities as may be
necessary for tenant's use.
8. INDEMNITY; INSURANCE
8.1 Indemnity by Tenant. From and after substantial completion of Landlord's
Work as set forth in Exhibit "C" (or any earlier date on which Tenant enters the
Premises), Landlord will not be liable for and Tenant shall indemnify and defend
Landlord from all claims, demands, liens, losses, damages, and expenses or costs
(hereinafter "claims") arising from the construction, repair, alteration,
improvement, use, or occupancy of the Premises by Tenant or any person thereon,
including, without limitation, any labor dispute involving Tenant; however,
Tenant's obligation to indemnify Landlord will not extend to claims caused
solely by the willful act, violation of law or active negligence of Landlord, or
its designated agents, servants or employees, Tenant's obligations to indemnify
and defend shall include, without limitation, the obligation to pay Landlord's
reasonable attorney fees and other costs incurred after Landlord's first notice
of each such claim.
8.2 Tenant's Insurance Obligation. Tenant further covenants and agrees that from
the commencement date of the Tenant's Work (or any earlier date on which Tenant
enters the Premises) and for the Term of the Lease, Tenant will maintain, at its
cost, the following types of insurance, in the amounts specified and in the form
hereinafter provided for:
(a) Commercial General Liability Public Liability and Property Damage.
Commercial General Liability insurance with coverage limits of not less than Two
Million
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Dollars ($2,000,000.00) combined single limit for bodily injury and property
damage including the ISO Commercial General Liability Form. Bodily injury
liability insurance and property damage liability insurance required hereunder
shall specifically insure the performance by Tenant of the indemnity agreement
as to liability for injury to or death of persons and damage to property in this
Article 8 contained.
(b) Tenant Improvements. Insurance covering Tenant's fixtures including
the items specified as "Tenant's Work" in Exhibit "B" and Tenant's improvements
permitted under Article (10), merchandise, and personal property from time to
time on or in the Premises, in an amount not less than ninety percent (90%) of
their full replacement cost from time to time after the Effective Date providing
protection against any peril included within the classification "All Risk,"
together with insurance against sprinkler damage. Tenant shall have the right to
negotiate and settle any claim related to such insurance. If the tenant
improvements are to he restored as provided herein, the proceeds of such
insurance shall he used for such purpose.
(c) Business Interruption Insurance. Insurance covering business
interruption insuring any loss (other than the rents payable hereunder)
sustained by Tenant for a minimum period of six (6) months if the Premises are
destroyed or rendered inaccessible by a risk required to be insured by Tenant
under this Lease.
(d) Policy Form. All policies of insurance required hereunder shall be
issued by insurance companies with a general policyholder's rating of not less
than A and a financial rating of not less than Class XIII as rated in the most
current available "Best's" Insurance Reports, and qualified to do business in
the State where the Premises is situated. Such policies shall be issued in the
names of Tenant, with Landlord designated as loss payee, as its interests may
appear, and if requested by Landlord, the Landlord's mortgagee or beneficiary
shall be designated as loss payee, as their interest may appear on certificates
of insurance shall be delivered to Landlord within ten (10) days after
substantial completion of Landlord's Work as set forth in Exhibit "C" (or any
earlier date on which Tenant enters the Premises). Thereafter, certificates
shall be delivered to Landlord within ten (10) days prior to the expiration of
the term of each policy. As often as any such policy shall expire or terminate,
renewal or additional polices shall be procured and maintained by Tenant in like
manner and to like extent. All policies of insurance must contain a provision
that the company writing the policy will give to Landlord twenty (20) days'
advance notice in writing of any cancellation. Such public liability, property
damage, and other casualty policies shall be written as primary policies, not
contributing with or in excess of coverage which Landlord may carry.
Tenant shall procure and thereafter maintain throughout the
term of this Lease, at its sole cost, workers' compensation insurance covering
all of the employees employed upon the Premises or in connection with the
operations conducted thereon (said coverage to be either through the State
Industrial Insurance System, as a carrier-insured employer or, if permitted, as
a self-insured employer), and shall in all respects comply with the workers'
compensation law of the State in which the Premises is located. From time to
time upon Landlord's request, and in any
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event upon commencement of the term of this Lease, Tenant shall furnish Landlord
with a certificate of compliance with the workers' compensation law issued by
Tenant's carrier or the Director of the Workers' Compensation Department of the
State in which the Premises is located.
8.3 Landlord's Insurance Obligation.
(a) Landlord shall provide Builder's Risk insurance during the course
of construction, and at all times from and after substantial completion of
Landlord's Work, maintain in effect a policy or policies of insurance covering
(i) the building of which the Premises are a part, in an amount not less than
eighty percent (80%) of full replacement cost (exclusive of the cost of
excavations, foundations and footings) from time to time after the Effective
Date or the amount or type of such insurance Landlord or Landlord's mortgagee or
beneficiary may require Landlord to maintain, whichever is the greater,
providing protection at least against any peril generally included in the
classification "All Risk" together with insurance against sprinkler damage; and
(ii) the rents payable hereunder. Landlord shall maintain a policy of Commercial
General Liability insurance with limits of coverage comparable to similar
buildings in the neighborhood. Landlord's obligation to carry said insurance may
be brought within the coverage of any so-called blanket policy or policies of
insurance carried and maintained by Landlord, provided that the coverage
afforded will not be reduced or diminished by reason of the use of such blanket
policy of insurance.
(b) Policy Form. All policies of insurance required hereunder shall be
issued by insurance companies with a general policyholder's rating of not less
than A and a financial rating of not less than Class XIII as rated in the most
current available "Best's" Insurance Reports, and qualified to do business in
the State where the Premises is situated. Such policies shall be issued in the
names of Landlord, with Tenant designated as loss payee, as its interests may
appear, and if requested by Tenant, the Tenant's mortgagee or beneficiary shall
be designated as loss payee, as their interest may appear on certificates of
insurance shall be delivered to Tenant within ten (10) days after substantial
completion of Landlord's Work as set forth in Exhibit "C" (or any earlier date
on which Tenant enters the Premises). Thereafter, certificates shall be
delivered to Tenant within ten (10) days prior to the expiration of the term of
each policy. As often as any such policy shall expire or terminate, renewal or
additional policies shall be procured and maintained by Landlordin like manner
and to like extent. All policies of insurance must contain a provision that the
company writing the policy will give to Tenant twenty (20) days' advance notice
in writing of any cancellation. Such public liability, property damage, and
other casualty policies shall be written as primary policies, not contributing
with or in excess of coverage which Tenant may carry.
(c) Landlord shall procure and thereafter maintain throughout the term
of this Lease, at its sole cost, workers' compensation insurance covering all of
the employees employed upon the Premises or in connection with the operations
conducted thereon (said coverage to be either through the State Industrial
Insurance System, as a carrier-insured employer or, if permitted, as a
self-insured employer), and shall in all respects comply with the workers'
compensation law of
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the State in which the Premises is located. From time to time upon Tenant's
request, and in any event upon commencement of the term of this Lease, Landlord
shall furnish Tenant with a certificate of compliance with the workers'
compensation law issued by Landlord's carrier or the Director of the Workers'
Compensation Department of the State in which the Premises is located.
8.4 Mutual Waiver of Subrogation Rights. Landlord and Tenant hereby waive any
rights each may have against the other on account of any loss or damage
occasioned to Landlord or Tenant, as the case may be, to their respective
property, the Premises, its contents or to other portions of the Premises,
arising from any risk generally covered by All Risk insurance; and the parties
each, on behalf of their respective insurance companies insuring the property of
either Landlord or Tenant against any such loss, waive any right of subrogation
that either may have against the other. This waiver of subrogation shall be
operative only so long as available in the State where the Premises is situated
and provided further that policy is not validated thereby.
8.5 Insurance Use Restrictions. Tenant agrees that it will not carry any stock
or goods or do anything in or about the Premises which will in any way increase
the insurance rates upon the building of which the Premises are a part. Tenant
agrees to pay to Landlord upon demand the amount of any increase in premiums
charged to Landlord for insurance carried by Landlord pursuant to Section 8.3,
which is increased because of Tenant's violation of the foregoing restrictions,
irrespective of whether Landlord shall have consented to Tenant's act.
8.6 Blanket Insurance. Tenant's obligations to carry the insurance provided for
herein may be brought within the coverage of a so-called blanket policy or
policies of insurance carried and maintained by Tenant; provided, however, that
Landlord and Landlord's mortgagee or beneficiary shall be named as an additional
insured thereunder as their interests may appear and that the coverage afforded
Landlord will not be reduced or diminished by reason of the use of such blanket
policy of insurance, and provided further that the requirements set forth herein
are otherwise satisfied. Tenant agrees to permit Landlord at all reasonable
times to inspect any policies of insurance of Tenant which policies or copies
thereof are not delivered to Landlord, and Landlord agrees to permit Tenant at
all reasonable times to inspect any policies of insurance of Landlord which
policies or copies thereof are not delivered to Tenant.
9. TITLE OF LANDLORD
Landlord covenants that as of the Effective Date there are no liens upon its
estate other than the following:
(a) the effect of covenants, conditions, restrictions, easements, or
deeds of trust, any ground lease of record, any rights of way of record, and any
other matters or documents of record; provided, however that Landlord represents
that to the best of its knowledge, no such matter or document restricts or
interferes with the ability of Tenant to conduct its business operations as
contemplated by this Lease.
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(b) the effect of any zoning laws of the City, County, and State where
the Premises is situated; provided, however that Landlord represents that to the
best of its knowledge, so such zoning law restricts or interferes with the
ability of Tenant to conduct its business operations as contemplated by this
Lease.
and
(c) general and special taxes not delinquent. Tenant acknowledges that
this Lease is subordinate to said matters of record and any amendment or
modification thereof.
10. TENANT'S LIMITED RIGHT TO MAKE ALTERATIONS
10.1 Permitted Alterations. After completion of all work in accordance with
Exhibit "B," the Tenant may, at its own expense and after giving Landlord notice
in writing of its intention to do so, make such alterations, additions,
improvements, and changes (collectively referred to in this Article as
"Improvements") in and to the interior of the Premises (except those of a
structural nature) as it may find necessary or convenient for its purposes, so
long as the value of the Premises is not thereby diminished; provided, however,
each Improvement costing in excess of Twenty-five Thousand Dollars ($25,000.00)
may be made only with the approval in writing of Landlord, which approval shall
not be unreasonably withheld, conditioned, or delayed.
Except as provided in Paragraph 3.6 and elsewhere in this Lease, no improvements
shall be made to any storefront, mechanical system, exterior walls or roof of
the Premises, subsequent to Tenant's initial improvements. the Tenant shall not
make or cause to be made any penetration into or through the roof or floor of
the Premises except with the prior written approval of Landlord. Tenant will
reimburse Landlord for all reasonable costs and expense (including, without
limitation, any architect's and/or engineer's fees) incurred by Landlord in
approving or disapproving Tenant's plans for Improvements. Tenant shall be
directly responsible for any and all damages resulting from any violation of the
provisions of this Article.
10.2 Construction Requirements. All Improvements to be made to the Premises
which require the approval of Landlord shall be under the supervision of a
competent architect or licensed structural engineer and made in accordance with
plans and specifications approved in writing by Landlord before the commencement
of work. All work must be done in a good and workmanlike manner and diligently
prosecuted to completion. Upon completion of the work, Tenant shall within five
(5) days record in the office of the County Recorder, a Notice of Completion,
and deliver to Landlord, within ten days after completion of said work, with a
copy of the building permit and of the recorded Notice of Completion. Upon
termination of this Lease, Improvements other than Tenant's trade fixtures,
telecommunications equipment, generator, HVAC Units, furniture, and personal
property, shall not be removed by Tenant but shall become a part of the
Premises. Improvements shall be made in accordance with applicable laws and
ordinances.
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10.3 Insurance for Permitted Alterations. If the Tenant makes any Improvements
to the Premises under the provisions of this Article 10, Tenant agrees to carry
such insurance as required by Section 8.2(c), covering any such Improvements.
None of the Improvements shall be insured by Landlord under any insurance it may
carry upon the building of which the Premises are a part, nor shall Landlord be
required under the provisions of Article 15 to reinstall any such Improvements.
11. MECHANICS LIENS
11.1 Tenant's Covenants. Tenant will pay all costs for work done on the
Premises. Tenant will keep the Premises free and clear of mechanics' liens and
other liens for work done for Tenant or persons claiming under Tenant. Tenant
shall indemnify, defend, and hold Landlord harmless from all liability, loss,
damage, costs, attorneys fees, and other expenses on account of claims of lien
of laborers or materialmen or other for work performed or materials or supplies
furnished to or for Tenant or persons claiming under Tenant.
11.2 Contest of Lien. If Tenant wants to contest any mechanics' lien, it shall
furnish Landlord adequate security in the amount of the claim, plus estimated
costs and interest, or provide a bond or from a responsible corporate surety in
amount sufficient on the discharge of the lien. If a final judgment establishing
the validity or existence of a lien for any amount is entered, Tenant shall
immediately pay and satisfy the same.
11.3 Right to Cure. If Tenant fails to pay a mechanics' lien claim or has not
given the Landlord security as provided in Section 11.2, Landlord may (but shall
not be so required to) pay said claim and the amount so paid, together with
costs and reasonable attorneys fees incurred in connection therewith, shall be
immediately due and owing from Tenant to Landlord, together with interest at the
maximum lawful rate from the time of Landlord's payment.
11.4 Notice of Lien. Should any claim of lien be filed against the Premises or
any action affecting the title to such property be commenced, the party
receiving notice of such lien or action shall forthwith give the other party
written notice thereof.
11.5 Notice of Nonresponsibility. Landlord or its representatives shall have the
right to go upon and inspect the Premises at all reasonable times and post and
keep posted thereon such notices which Landlord may deem to be proper for the
protection of Landlord's interest in the Premises. Tenant shall, before the
commencement of any work which might result in any such lien, give to Landlord
written notice of its intention to do so in sufficient time to enable the
recording by Landlord of a Notice of Non-Responsibility.
12. PERSONAL PROPERTY; FIXTURES
12.1 Removal and Replacement. Subject to the provisions of Section 12.2, any
personal property brought on the Premises shall remain the property of the
Tenant. Tenant shall not be
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obligated to replace such personal property at the expiration or earlier
termination of this Lease. Tenant will at its expense, immediately repair any
damage occasioned to the Premises by reason of the removal of any such personal
property.
12.2 Fixtures. All of Tenant's leasehold improvements, (excluding Tenant's
personal property, trade fixtures, telecommunications equipment, generator, HVAC
Units, Halon fire suppression fire equipment and furniture) but also including,
without limitation, all mechanical systems, light fixtures, floor coverings and
partitions, whether or not constructed pursuant to Exhibit "B" (collectively
referred to as "fixtures" in this Lease) shall become the property of Landlord
upon expiration or earlier termination of this Lease.
12.3 Personal Property Taxes. Tenant shall pay before delinquency all taxes
(including sales and use taxes), assessments, license fees and public charges
levied, assessed or imposed upon Tenant's business as well as upon its
merchandise, fixtures, and personal property. If any items of property are
assessed with property of Landlord, then, and in such event, such assessment
shall be divided between Landlord and Tenant to the end that Tenant shall pay
only its equitable portion of such assessment. Landlord shall determine the
basis of prorating any such assessment and such termination shall be binding
upon both Landlord and Tenant. Tenant shall pay such amount within thirty (30)
days of receipt of Landlord's bill therefor. No taxes, assessments, fees, or
charges referred to in this Section 12.3 shall be considered as taxes and
assessments under the provisions of Section 5.3.
13. ASSIGNMENT AND SUBLEASING
Landlord agrees that Tenant may allow clients and customers of Tenant to occupy
space in the Premises for their telecommunications equipment and technicians
(co-location) and such occupancy shall not be considered an assignment or
sublease for the purposes of the Lease; provided, however, such clients and
customers shall be required to comply with all the terms and conditions of the
Tenant's Lease. Tenant may assign or sublet the Premises without Landlord's
consent to a subsidiary, affiliate, parent, merger partner, or in connection
with an acquisition of substantially all of the stock or assets of Tenant,
provided the assignee or subtenant agrees to the Lease terms and is objectively
creditworthy in Landlord's reasonable judgment. Tenant may be released from
liability on the Lease, subject to Landlord's approval, pursuant to an
acquisition if the assignee has a net worth equal to or greater than that of the
Tenant. Tenant shall have the right to sublet or assign the Lease to a third
party other than the above with Landlord's consent, which consent shall not be
unreasonably withheld, conditioned, or delayed; provided (i) the assignee or
subtenant agrees to the Lease terms and is objectively creditworthy in
Landlord's reasonable judgment, (ii) the assignee or subtenant is engaged in a
business that is objectively compatible with the other businesses in the
building.
14. REPAIRS; MAINTENANCE
14.1 Tenant Maintenance and Repair. Tenant acknowledges that Tenant is leasing
the
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Leased Premises on an 'as is' basis subject to Landlord's obligations set forth
in Section 14.2 below and elsewhere in this Lease, including the Exhibits.
Tenant shall, subject to Landlord's obligations under this Lease, at all times
during the Term, and at Tenant's sole cost, expense, keep, maintain, and repair
the Premises, excluding the exterior walls, in good and sanitary order and
condition including without limitation, the maintenance and repair of any store
front, doors, window casements, glazing, plumbing, pipes, electrical wiring, and
conduits, and the maintenance of a service contract with a heating and air
conditioning contractor approved by Landlord. Landlord will pass through all
contractor's equipment warranties to Tenant for the term of those warranties.
Tenant shall also at Tenant's sole cost be responsible for any alterations or
Improvements to the Premises necessitated as a result of the requirement of any
municipal, state, or federal authority which is uniquely applicable to a
business or businesses utilizing equipment similar to the Tenant. After
completion of Tenant Improvements, Landlord shall be responsible for such
alterations or improvements with respect to the Building and common areas,
including without limitation the Americans with Disabilities Act and similar
state and local codes related to the disabled or handicapped. By entering into
the Premises, Tenant shall be deemed to have accepted the Premises as being in
good and sanitary order, condition, and repair, and Tenant agrees on the last
day of the Term or on sooner termination of this Lease to surrender the Premises
with appurtenances, in the same condition as when Tenant's initial improvements
shall have been completed, reasonable use and wear and damage by fire, act of
God, or by the elements excepted. Landlord shall regularly sweep and clean the
sidewalks adjacent to the Premises, as needed, and shall be responsible for
keeping the Premises' trash enclosure free of debris.
14.2 Landlord's Obligations.
(a) Landlord shall, maintain the building's roof and exterior walls and
common areas in good and sanitary order, condition, and repair. Landlord shall
not be required to make any repairs to the exterior walls or roof unless Tenant
has notified Landlord in writing of the need for repairs and Landlord shall have
had a reasonable period of time to commerce and complete the repairs. Landlord
shall be responsible for the repair of any latent defects that become apparent
or are discovered at any time during the Term of the Lease. Landlord shall be
responsible for removing or properly treating any asbestos-containing materials
that are discovered on the Premises or in the Building.
(b) Notwithstanding anything to the contrary expressly or impliedly
contained elsewhere herein (and except for the electrical, plumbing, heating and
air conditioning installations to be done by Tenant within the Premises as part
of its tenant improvements and present and future compliance with all state,
federal, and local laws or requirements specifically applicable to the Premises
because of the business operated thereon by the Tenant), Landlord shall be
responsible for the present and future general compliance of the building,
parking lots and premises with all state federal and local laws and or
requirements with respect to the physical condition of, access to, or occupancy
of the building, parking lots and Premises including but not limited to any
requirements imposed by local planning authorities with respect to fire
suppression
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or fire sprinkler systems, ADA, OSHA, environmental or any other requirements.
14.3 Interruption Of Landlord's Services; Tenant's Limited Right
To Make Emergency Repairs. Landlord acknowledges that Tenant's
business of providing telecommunications service to customers requires
continuous operation of Tenant's business in the Premises. Accordingly,
(a) Except in the case of an emergency or force majeure event, Landlord
agrees not to reduce, interrupt or cease the normal service of the heating, air
conditioning, ventilation, elevator, plumbing, electrical systems, telephone
systems, and/or utilities services in or applicable to the Premises without
having provided Tenant with reasonable advance notice and having met with Tenant
in a timely manner in advance to advise Tenant of Landlord's intentions and
requirements, and having worked in good faith with Tenant to devise a procedure
to achieve Landlord's objective in such a way as to preserve to the extent
possible Tenant's continued use, possession, and occupancy of the Premises and
Tenant's ability to conduct its operations on a continuous basis.
(b) If an emergency event or circumstance occurs that threatens to
materially interfere with Tenant's ability to operate its Equipment in a proper
manner and pursuant to the Lease the Landlord is required to take action to
correct the situation (a "Required Action") and Landlord has knowingly failed to
provide or commence the required action within the time period required by the
Lease (or a reasonable period of time, if no period of time is specified in the
Lease) after the receipt of notice, Tenant may proceed to take the Required
Action pursuant to the terms of the Lease. If any Required Action is taken by
Tenant pursuant to the terms of this section, then Landlord shall reimburse
Tenant for its reasonable and documented costs and expenses in taking the
Required Action within thirty days after receipt by Landlord of an invoice from
Tenant.
14.3 Tenant's Failure to Maintain. If Tenant does not make repairs or maintain
the Premises, or any part thereof, in a manner reasonably satisfactory to
Landlord, Landlord shall have the right, upon written notice to Tenant to make
the repairs or perform such maintenance for the account of Tenant. The cost of
said work will be paid by Tenant as Additional Rent.
14.4 Right to Enter. Landlord or its authorized representatives may enter the
Premises at all times during usual business hours for the purpose of inspecting
the same. Landlord or any person authorized by Landlord may go upon the Premises
and make any necessary repairs to the Premises and perform any work therein (a)
that may be necessary to comply with any laws, ordinances, rules or regulations
of any public authority, any insurance services offices, or any similar body,
including without limitation, the investigation, testing, removal and/or
abatement of any material or waste considered hazardous to the environment by
Landlord, or any governmental entity, (b) that Landlord may deem necessary to
prevent waste or deterioration of Premises by Tenant's failure to make or cause
such repairs to be made or performed, (c) that Landlord may deem necessary to
perform remodeling, construction or other work incidental to any portion of the
Premises, including without limitation, the premises of another tenant adjacent
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to, above or below the Premises. Nothing herein contained shall imply a duty on
the part of Landlord to do such work which, under any provision of this Lease,
Tenant may be required to do, nor shall Landlord's performance of any repairs on
behalf of Tenant constitute a waiver of Tenant's default in failing to do the
same. No exercise by Landlord of any rights herein reserved shall entitle Tenant
to any compensation, damages or abatement of rent from Landlord for any injury
or inconvenience occasioned thereby. In the event Landlord makes or causes any
such repairs to be made or performed on the Premises, as provided for herein,
Tenant shall pay the cost thereof to Landlord, as additional rent, promptly upon
receipt of an invoice therefor, except for that work as provided in Subparagraph
(c) of this Section 14.4, which shall be at the sole cost and expense of
Landlord.
It is understood that Tenant is in the telecommunications business and that the
Equipment installed in the Premises operates continuously. Accordingly, in the
event that Landlord intends to enter the Premises to make repairs (including
without limitation electrical, mechanical, or plumbing work) that will involve
disruption or interruption to such Tenant's continuous telecommunications
service, Landlord agrees to provide Tenant with not less than ninety-six (96)
hours prior written notice of Landlord's intent to enter the Premises,
specifying in reasonable detail the nature of the repairs and the extent, if
known, of the planned interruption of any utilities or Landlord's services. In
the event that Landlord intends to enter the Premises to make repairs that will
not involve disruption or interruption to Tenant's Service to its customers,
Landlord agrees to provide Tenant with not less than seventy-two (72) hours
prior written notice of Landlord's intent to enter the Premises. In either case,
in the event that any interruption in Landlord's services is expected, Landlord
agrees to reasonably cooperate with Tenant in arranging for temporary services.
The foregoing provisions shall not apply in the case of an emergency, in which
case Landlord agrees to provide to Tenant as much notice as is practicable under
the circumstances, and agrees to use reasonable care and precaution in order to
minimize the interruption or disruption to Tenant's Service.
15. RECONSTRUCTION
15.1 Insured Casualty. If the Premises are damaged by fire or other perils
covered by Landlord's insurance, Landlord shall notify Tenant within thirty (30)
days of the date of the casualty of Landlord's reasonable determination of the
time needed to repair the damage, and:
(a) If the Premises can he repaired within one hundred twenty (120)
days of the date of the casualty, Landlord shall promptly commence the repair,
reconstruction, and restoration (collectively referred to as Fire construction"
in this Article) of the Premises and prosecute the same diligently to completion
within such one hundred twenty (120) days, in which event this Lease shall
continue in full force and effect, except that rent shall be abated on a pro
rata basis from the date of such casualty for such period until the repairs are
completed; or
(b) In the event that Fire Construction cannot be or is not completed
in 120 days of the date of destruction, Tenant shall have the option to
terminate the Lease on the giving of ten
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(10) days written notice to the Landlord.
(c) In the event of a partial or total destruction of the Premises
during the last year of the Lease Term, Landlord and Tenant shall each have the
option to terminate this Lease on written notice to the other of exercise
thereof within thirty (30) days after such destruction. For purposes of this
Article "partial destruction" shall mean destruction to an extent of at least
fifty percent (50%) of the full replacement cost as of the date of destruction.
15.2 Uninsured Casualty. In the event the Premises are damaged by any flood,
earthquake, act of war, nuclear reaction, nuclear radiation or radioactive
contamination, or from any other casualty not covered by Landlord's insurance to
any extent whatsoever, Landlord may, within thirty (30) days following the date
of such damage, either commence reconstruction of the Premises and prosecute the
same diligently to completion within one hundred twenty (120) days, in which
event this Lease shall continue in full force and effect (except that rent shall
be abated on a prorata basis from the date of such casualty for that period of
time from the date of the casualty until the repairs are completed), or elect
not to perform such reconstruction of the Premises, in which event this Lease
shall cease and terminate. In either such event, Landlord shall give Tenant
written notice of its intention within said thirty (30) days of the casualty. In
the event that the reconstruction of the Premises cannot be completed or is not
comleted within 120 days of the date of construction, Tenant shall have the
option to terminate the Lease on the giving of ten (10) days written notice to
the Landlord.
15.3 Construction Provisions. Any reconstruction under this Article 15 will
conform to the provisions of Exhibits "B" and "C."......Landlord shall
reconstruct the Premises only to the extent of the work described in Exhibit
"C"; Tenant, at its sole cost and expense, shall reconstruct all items set forth
in Exhibit "B" and shall replace its merchandise, fixtures, and personal
property. Tenant shall commence the reconstruction of Tenant's Work and
replacement of Tenant's merchandise, fixtures, and personal property promptly
upon delivery to it of possession of the Premises diligently prosecute the same
to completion.
15.4 Release of Liability. Upon termination of this Lease under any of the
provisions of this Article, the parties shall be released thereby without
further obligation to the other party coincident with the surrender of
possession of the Premises to Landlord, except for items which have theretofore
accrued and are then unpaid. In the event of termination, all proceeds from
Tenant's insurance under Section 8.2(c), covering fixtures, but excluding
proceeds for Tenant's removable property, shall be disbursed and paid to
Landlord.
15.5 Abatement of Rent. In the event of reconstruction, the minimum annual
rental provided to be paid under Article 1 shall be abated proportionately to
the extent to which Tenant's use of the Premises is impaired from the date of
destruction to completion of such reconstruction and replacement as specified in
Section 17.3. Tenant shall continue its business on the Premises during any such
period to the extent reasonably practicable. The obligation of Tenant to pay any
additional rent shall remain in full force and effect. Tenant will not be
entitled to compensation
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or damages from Landlord for loss of the use of the whole or any part of the
Premises, or building of which the Premises are a part or to Tenant's personal
property, or for any inconvenience or annoyance occasioned by such damage,
reconstruction or replacement. Tenant hereby waives any statutory rights of
termination that may arise by reason of any partial or total destruction of the
Premises which Landlord is obligated to restore or may restore under any of the
provisions of this Lease.
15.6 Notwithstanding the foregoing provisions, Landlord acknowledges the nature
of Tenant's use of the Premises, which is to provide continuous
telecommunications service, and that interruption to such service for a
substantial period of time could impose substantial financial harm to Tenant,
and that a long lead time for restoration of the Premises could result in
unrecoverable lost business, notwithstanding Tenant's business interruption
insurance coverage. Accordingly, notwithstanding anything in this Lease to the
contrary, if damage or casualty to all or any part of the Premises or to any
portion of the Building, not caused by Tenant, that is necessary for Tenant's
operation (including without limitation the roof, generator space, main point of
entry for fiber carriers) due to fire, flood, weather, sabotage, or other
occurrences, renders Tenant's continuous telecommunications service impossible
or impractical, Tenant shall have the right to terminate this Lease within ten
(10) days of the damage or casualty, unless Landlord is able to (a) make a
substantially equivalent temporary location immediately available so as to allow
Tenant to restore its continuous telecommunications service, and (b) to restore
the Premises or affected other area or provide a suitable replacement location
for Tenant within sixty (60) days.
16. BANKRUPTCY; INVOLUNTARY TRANSFERS
16.1 Right of Termination. Should any of the following events occur, Landlord
may terminate this Lease and any interest of Tenant herein, effective with the
commencement of the event:
(a) Proceedings are instituted whereby all, or substantially all, of
Tenant's assets are placed in the hands of a receiver, trustee or assignee for
the benefit of Tenant's creditors, and such proceedings continue for at least
thirty (30) days;
(b) Any creditor of Tenant institutes judicial or administrative
process to execute on, attach or otherwise seize any of Tenant's trade fixtures,
improvements, inventory or personal property located on the Premises and Tenant
fails to discharge, set aside, exonerate by posting a bond, or otherwise obtain
a release of such property within thirty (30) days.
(c) Tenant becomes a debtor in any case filed under the Bankruptcy Code
or similar law providing relief to bankrupt or insolvent debtors;
(d) Tenant makes a bulk sale of all, or substantially all, of Tenant's
trade fixtures, improvements, inventory or personal property located on the
Premises, other than in a permitted
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Occupancy Transaction under Article 13, and fails to replace same with similar
items of equal or greater value and utility within three (3) days; or
(e) Any of the above events occurs with respect to any Guarantor of
this Lease.
16.2 Request for Information. Within ten (10) days after Landlord's request
therefor, Tenant or any Guarantor of this Lease shall provide Landlord, their
mortgagee or proposed mortgagee, as Landlord shall specify, such financial,
legal, and business information (i) concerning any of the events described in
Section 16.1 as Landlord shall request, or (ii) as Landlord shall request
regarding the balance of this Lease.
17. DEFAULTS BY TENANT; REMEDIES
17.1 Events of Default. The occurrence of any of the following shall constitute
a default by Tenant and a breach of this Lease:
(a) Failing or refusing to pay any amount of minimum annual rental or
additional rent when due in accordance with the provisions of this Lease;
(b) Abandoning the Premises by failing or refusing to occupy and
operate the Premises for a period of ten (10) days; provided, however, that
Tenant shall not be deemed to have abandoned" or "vacated" the Premises so long
as Tenant performs all of its obligations hereunder, including without
limitation paying Rent and maintaining the Premises, and it is not readily
apparent to the general public or to other occupants of the Building that the
Premises are not in current use.);
(c) Failing or refusing to perform fully and promptly any material
covenant or condition of this Lease, other than those specified in subparagraphs
(a) an (b) above;
(d) Maintaining, committing or permitting on the Premises waste, or use
of the Premises for an unlawful purpose; or
(e) Assignment or Sublease contrary to the provisions of Article 13; or
violating the provisions of Article 16.
17.2 Notices. Upon the occurrence of any of the defaults specified in
subparagraphs (a), (b), and/or (c) of Section 17. 1, Landlord shall give Tenant,
and any subtenant, a written notice specifying the nature of the default and the
provisions of this Lease breached and demanding that Tenant, and any subtenant,
either fully cure each such default within the time period specified below or
quit the Premises and surrender the same to Landlord:
(a) For nonpayment of annual rental or additional rent, five (5)
business days;
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(b) For abandonment of the Premises, ten (10) business days;
(c) For any other curable default, thirty (30) business days; provided,
however, if such default cannot be cured within thirty business (30) days,
Tenant shall be deemed to have cured such default if Tenant so notifies Landlord
in writing and commences cure of the default within said thirty (30) business
day period and diligently and in good faith continues with and actually
completes said cure.
17.3 Landlord's Rights and Remedies. Should Tenant fail to cure within the time
periods specified in Section 17.1 any default specified in subparagraphs (a),
(b), or (c) of Section 17. 1, or fail to quit the Premises in accordance with
subparagraph (d) of Section 17. 1 for any default specified in subparagraph (d)
of Section 17. 1, Landlord may exercise any of the following rights upon giving
Tenant five (5) business days notice to the address set forth in the Notice
provision of this Lease, but without further notice or demand of any kind to
Tenant or any other person, except as required by applicable State law:
(a) The right of Landlord to terminate this Lease and to reenter the
Premises and take possession thereof and remove all persons therefrom, and
Tenant shall have no further claim thereon or hereunder;
(b) The right of Landlord, without declaring this Lease terminated, to
reenter the Premises and occupy the whole or any part thereof for and on account
of Tenant and to collect any unpaid rentals and other charges, which have become
payable, or which may thereafter become payable; or
(c) The right of Landlord, even though it may have reentered the
Premises, to thereafter elect to terminate this Lease and all of the rights of
Tenant in or to the Premises.
Should Landlord have reentered the Premises under the provisions of subparagraph
(b) of this Section 17.3, Landlord shall not be deemed to have terminated this
Lease, or the liability of Tenant to pay any rental or other charges thereafter
accruing, or to have terminated Tenant's liability for damages under any of the
provisions hereof, by any such reentry or by any action, in unlawful detainer or
otherwise, to obtain possession of the Premises, unless Landlord shall have
notified Tenant in writing that it has so elected to terminate this Lease.
Tenant further covenants that the service by Landlord of any notice pursuant to
the unlawful detainer statutes of the State where the Premises is situated and
the surrender of possession pursuant to such notice shall not (unless Landlord
elects to the contrary at the time of or at any time subsequent to the serving
of such notices and such election is evidenced by a written notice to Tenant) be
deemed to be a termination of this Lease. In the event of any entry or taking
possession of the Premises as aforesaid, Landlord shall have the right, but not
the obligation, to remove therefrom all or any part of the personal property
located therein and may place the same in storage at a public warehouse at the
expense and risk of Tenant. The rights and remedies given to Landlord in this
Article shall be additional and supplemental to all rights or remedies which
Landlord may have
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under laws in force when the default occurs. Notwithstanding anything in this
Lease to the contrary, in exercising its remedies, Landlord shall first have
obtained an order from a court of competent jurisdiction and shall not exercise
"Self-Help" rights such as distress, distraint, or lockout.
Upon Default by Tenant, under any circumstances wherein Landlord shall have
regained possession of the Premises from Tenant, with or without termination of
the Lease, Landlord shall use commercially reasonable efforts to mitigate
Landlord's damages (whether or not required by law) by attempting in good faith
to re-let the Premises, upon such terms and conditions as Landlord shall
reasonably determine to be necessary or convenient. Under no circumstances shall
Landlord be required to give preference to the Premises over any other space
that Landlord has available within the city in which the Building is located,
and Tenant shall be responsible for any expenses incurred by Landlord in making
the Premises available for re-letting.
17.4 Landlord's Damages. Should Landlord elect to terminate this Lease, pursuant
to the provisions of this Article 17, Landlord may recover from Tenant, as
damages, the following:
(a) The worth at the time of award of any unpaid rental which had been
earned at the time of such termination; plus
(b) The worth at the time of award of the amount by which the unpaid
rental which would have been earned after termination until the time of award
exceeds the amount of such rental loss Tenant proves could have been reasonably
avoided; plus
(c) The worth at the time of award of the amount by which the unpaid
rental for the balance of the Lease Term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; plus
(d) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, including, without limitation, any costs or expense incurred
by Landlord in (i) retaking possession of the Premises, including reasonable
attorney fees therefor, (ii) maintaining or preserving the Premises after such
default, (iii) preparing the Premises for reletting to a new tenant, including
repairs or alterations to the Premises for such reletting, (iv) leasing
commissions, or (v) any other costs necessary or appropriate to relet the
Premises; plus
(e) At Landlord's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by the laws of the
State where the Premises is situated.
17.5 Definitions; Worth at the Time of Award; Rental. As used in subparagraphs
(a) and (b) above, the "worth at the time of award" is computed by allowing
interest at eighteen percent
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(18%) per annum, but if such rate is in violation of Nevada law, then at the
highest rate allowed by Nevada law. As used in subparagraph (c) above, the
"worth at the time of award" is computed by discounting such amount at the
discount rate of the Federal Reserve Bank situated nearest to the location of
the Premises at the time of award plus one percent (1.00 %). For all purposes of
this Article only, the term "rental" shall be deemed to be Annual Rent and
Additional Rent. All such sums, other than Annual Rent shall, for the purpose of
calculating any amount due under the provisions of subparagraph (c) above, be
computed on the basis of the average monthly amount thereof accruing during the
immediately preceding sixty (60) month period, except that, if it becomes
necessary to compute such rental before such a sixty (60) month period has
occurred, then such rental shall be computed on the basis of the average monthly
amount hereof accruing during such shorter period.
17.6 No Waiver. The waiver by Landlord of any breach of any term, covenant or
condition contained in this Lease shall not be deemed to be a waiver of such
term, covenant or condition or of any subsequent breach of the same or any other
term, covenant or condition contained in this Lease. The subsequent acceptance
of rental hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease or
of any right of Landlord to a forfeiture of the Lease by reason of such breach,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rental. No term, covenant or condition of this Lease shall be
deemed to have been waived by Landlord unless such waiver be in writing and
signed by Landlord.
17.7 Conflicts With State Law. To the extent permitted by applicable State law,
the time periods provided above for cure of Tenant's defaults under this Lease
or for surrender of the Premises shall be in lieu of, and not in addition to,
any similar time periods prescribed by applicable State law as a condition
precedent to the commencement of legal action against Tenant for possession of
the Premises. Anything to the contrary notwithstanding contained in this
Article, any written notice, other than as specifically set forth in this
Article, required by any statute or law now or hereafter in force is hereby
waived by Tenant to the fullest extent waivable under law, except any notice
applicable to judicial proceedings.
18. DEFAULTS BY LANDLORD, REMEDIES
18.1 Limitation on Liability. In the event Landlord shall neglect or fail to
perform or observe any of the covenants, provisions or conditions contained in
this Lease on its part to be performed or observed within five (5) business days
after written notice of default (or if more than five (5) business days shall be
required because of the nature of the default, if Landlord shall fail to proceed
diligently to cure such default after written notice thereof), then in that
event Landlord shall be liable to Tenant for any and all damages sustained by
Tenant as a result of Landlord's breach.
18.2 Mortgagee Right to Cure. If the Premises or any part thereof are at any
time subject to a first mortgage or a first deed of trust and this Lease or the
rentals due from Tenant hereunder are
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assigned to such mortgagee, trustee or beneficiary (called "Assignee" for
purposes of this Article only) and Tenant is given written notice thereof,
including the post office address of such Assignee, then Tenant shall give
written notice of any default by Landlord to such Assignee, specifying the
default in reasonable detail, and affording such Assignee a reasonable
opportunity to make performance for and on behalf of Landlord provided that the
time for any such assignee to perform shall run concurrently with and end with
the Landlord's time to perform. If and when the said Assignee has made
performance on behalf of Landlord, such default shall be deemed cured.
19. EMINENT DOMAIN
19.1 Taking Resulting in Termination. If the entire Premises shall be taken
under the power of eminent domain by any public or quasi-public authority, this
Lease shall terminate and expire as of the date of such taking, and Landlord and
Tenant shall each thereupon be released from any further liability accruing
under this Lease. If less than the entire Premises is taken by eminent domain,
or if by reason of any taking, regardless of the amount so taken, the remainder
of the Premises is not one undivided parcel of property, either Landlord or
Tenant shall have the right to terminate this Lease as of the date Tenant is
required to vacate a portion of the Premises, upon giving notice in writing of
such election within thirty (30) days after receipt by Tenant from Landlord of
written notice that said Premises have been so appropriated or taken. In the
event of such termination, both Landlord and Tenant shall thereupon be released
from any liability thereafter accruing hereunder. Landlord agrees immediately
after learning of any appropriation or taking to give to Tenant notice in
writing thereof.
19.2 Award. If this Lease is terminated in either manner provided in Section 19.
1, Landlord shall be entitled to the entire award or compensation in such
proceedings, but the rental and other charges for the last month of Tenant's
occupancy shall be prorated and Landlord agrees to refund to Tenant any rent or
other charges paid in advance. Tenant's right to receive compensation or damages
for its fixtures and personal property and any other property rights that do not
thereby diminish Landlord's award shall not be affected in any manner hereby.
19.3 Partial Taking. If both Landlord and Tenant elect not so to terminate this
Lease, Tenant shall continue to occupy that portion of the Premises which shall
not have been appropriated or taken as herein provided, the parties will proceed
as follows: (a) at Landlord's cost and expense and as soon as reasonably
possible, Landlord will restore the Premises on the land remaining to a complete
unit of like quality and character as existed prior to such appropriation or
taking; (b) the Annual Rent provided for in Article 5 shall be reduced on an
equitable basis, taking into account the relative values of the portion taken as
compared to the portion remaining; and (c) Landlord shall be entitled to receive
the total award or compensation in such proceeding. Tenant hereby waives any
statutory rights of termination which may arise by reason of any partial taking
of the Premises under the power of eminent domain.
19.4 Transfer Under Threat of Taking. For the purposes of this Article only, a
voluntary
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sale or conveyance under threat and in lieu of condemnation shall be deemed an
appropriation or taking under the power of eminent domain.
20. ATTORNEYS FEES
If either Landlord or Tenant institutes any action or proceeding against the
other relating to the provisions of this Lease, or any default hereunder, the
non prevailing party in such action or proceeding shall reimburse the prevailing
party for the reasonable expenses of attorney fees and all costs and
disbursements incurred therein by the prevailing party, including, without
limitation, any such fees, costs or disbursements incurred on any appeals from
such action or proceeding. Subject to the provisions of local law, the
prevailing party shall recover all such fees, costs or disbursements as costs
taxable by the court or arbiter in the action or proceeding itself without the
necessity for a cross action by the prevailing party.
21.1 SALE OF PREMISES BY LANDLORD/OPTION TO PURCHASE
If Landlord sells, exchanges or assigns this Lease, Landlord shall be and is
hereby entirely freed and relieved of all liability toward Tenant and Tenant's
successors and assigns under any and all of its covenants and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises or this Lease occurring after the consummation
of such sale or exchange and assignment, provided such purchaser or assignee
shall expressly assume said covenants and obligations of Landlord. At any time
and from time to time on ten (10) days' written notice from Landlord, Tenant
shall execute, acknowledge, and deliver to Landlord a certificate (prepared by
Landlord in executable form, with information thereon certified by the Landlord
to the best of its knowledge as true and correct) indicating thereon any
exceptions thereto which may exist at that time. Said statement may be relied
upon by a purchaser or assignee of the Premises. Failure of Tenant to execute
and deliver such certificate or any comparable certificate, except when the
certificate is not true and correct, required by any lender or prospective
lender or purchaser of the Premises within said ten (10) day period shall
constitute an acknowledgment by Tenant that the statements included in the
certificate are true and correct, without exception. Failure of Tenant to
execute and deliver a certificate within said ten (10) day period will cause
Landlord to incur certain costs and expenses not contemplated under this Lease,
the exact amount of which costs and expenses being extremely difficult or
impractical to fix. Such costs and expenses will include, without limitation,
administrative, processing, and accounting expenses as well as potential loss of
the sale of the Premises by Landlord. Therefore, if a certificate is requested
and not received as required in this Article 21, Tenant shall, if Tenant has not
so complied within three (3) business days of notice thereof, pay to Landlord a
late charge equal to ten percent (10%)of the Annual Rent then payable. Landlord
and Tenant agree that this late charge represents a reasonable estimate of such
costs and expenses and is fair compensation to Landlord for its loss suffered by
such non-delivery by Tenant. Acceptance of this late charge shall not constitute
a waiver of Tenant's default with respect to such non-delivery by Tenant, nor
prevent Landlord from exercising all other rights and remedies available to
Landlord under this Lease.
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21.2 OPTION TO PURCHASE.2 OPTION TO PURCHASE. In the event that Landlord decides
to sell either or both the land and buildings at 302 and 304 East Carson of
which the Premises are a part during the initial or any extended term of this
Lease, Tenant shall have the Option to either purchase the building on the same
terms and conditions offered by any third party purchaser or to purchase the
building for all cash at its then fair market value (excluding the value of any
improvements made to the buidling by Tenant) as determined by an MAI appraiser
selected by Tenant. Landlord shall give written notice to Tenant in the event of
any contract to sell to a third party which shall include a copy of the contract
setting forth all terms and conditions. Tenant shall have thirty (30) days from
receipt of such notice to exercise its option to acquire the building in
accordance with one of the two alternatives. In the event Tenant selects the
second alternative and Landlord disagrees with the opinion of fair market value
as determined by Tenant's MAI appraiser, Landlord shall appoint its own MAI
appraiser to determine the fair market value subject to the exclusion noted
above. If the two values are within ten percent (10%) of one another, the
average of the two shall be the option price. If the two values deviate by more
than ten percent (10%), the two appraisers shall appoint a third MAI appraiser
who shall determine the fair market value of the building subject to the
exclusion noted above and the average of the three values shall be the option
price.
22. SUBORDINATION; ATTORNMENT
22.1 Subordination. Upon the written request of Landlord, or any mortgagee, deed
of trust trustee or beneficiary of Landlord, or of any lessor of Landlord,
Tenant will, in writing, subordinate its rights under this Lease to the lien or
security interest of any mortgage, deed of trust (including all future advances
made thereunder subsequent to the Effective Date of this Lease), or the interest
of any lease in which Landlord is the lessee; provided that the subordination
document acknwoledges that so long as Tenant is not in default hereunder, this
Lease shall remain in full force and effect from the Effective Date until the
termination of this Lease.
22.2 Attornment. If Landlord's equity of redemption or other interest in the
Premises under a mortgage or deed of trust encumbering the Premises is
foreclosed judicially or nonjudicially, or if Landlord's rights and interest, if
any, as a lessee with respect to the Premises are terminated, Tenant shall
attorn to Landlord's lawful successor, provided said successor accepts the
Premises subject to this Lease.
Non-Disturbance Agreement. Contemporaneously with the execution of this
Lease, Landlord shall have obtained for Tenant's benefit, from the holder (the
"Mortgagee") of any superior mortgage or deed of trust (the "Mortgage"), or from
the holder (the "Ground Lessor") of any ground lease, an agreement in the
Mortgagee's or Ground Lessor's standard form (or, if none, in the form attached
as Exhibit to the effect that, in the event of any foreclosure of
the.....Mortgage or ground lease, the Mortgagee or around lessor will not make
Tenant a party defendant to such foreclosure (unless required by applicable law,
in which event Tenant would receive equivalent protection) nor disturb its right
to use the Premises under this Lease, provided Tenant shall not be in default
hereunder beyond any applicable grace period (a "Non-Disturbance
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Agreement"). Tenant's subordination of this Lease to future superior interests
shall be conditioned upon the receipt by Tenant of a Non-Disturbance Agreement
from the holder of the superior interest.
22.3 Estoppel Certificate. At any time and from time to time on not more than
ten (10) days' written notice from Landlord, Tenant shall execute, acknowledge,
and deliver to Landlord a statement in writing, prepared by Landlord in
executable form with information thereon certified by the Landlord to the best
of its knowledge as true and correct with all applicable information in
Landlord's possession supplied, including without limitation, certifying and
acknowledging the following: (a) this Lease represents the entire agreement
between Landlord and Tenant and is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the dates to which the
rental and other charges are paid in advance, if any; (b) when the obligation to
pay Annual Rent commences and when the Lease Term ends; and (c) there are not,
to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder
and Tenant has not the right to offset, counterclaim or deduction against
rental, or, if any uncured defaults are claimed, the amount of any offset,
counterclaim or deduction alleged by Tenant. Any such statement may be relied
upon by any prospective purchaser or lender upon the security of the real
property of which the building and the Premises are a part. Tenant's failure to
deliver such statement, except when the certificate is not true and correct,
within such time shall be conclusive and binding upon Tenant (a) that this Lease
is in full force and effect, without modification except as may be represented
by Landlord; (b) that there are no uncured defaults in Landlord's performance
and that Tenant has no right of offset, counterclaim or deduction against
rental; and (c) that no more than one (1) month's rental has been paid in
advance.
23. QUIET POSSESSION
Landlord agrees that Tenant may upon payment of the rental and performance of
the covenants and conditions of this Lease, quietly hold and enjoy the Premises
from an after Landlord's delivery of the Premises to Tenant in accordance with
Article 4, until the end of the Lease Term; subject, however, to the provisions
of Section 14.4.
24. CAPTIONS AND TERMS
24.1 Captions. The captions of the Articles and Sections of this Lease are for
convenience only, are not a part of this Lease and do not in any way limit or
amplify the terms and provisions of this Lease.
24.2 Parties. If more than one (1) person or corporation is named as Landlord or
Tenant in this Lease and executes the same as such, in such event the words
"Landlord" or "Tenant" wherever used in this Lease are intended to refer to all
such persons or corporations, and the liability of such persons or corporations
for compliance with and performance of all the terms, covenants, and provisions
of this Lease shall be joint and several. The masculine pronoun used
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herein shall include the feminine or the neuter, as the case may be, and the use
of the singular shall include the plural.
25. NOTICES
25.1 Notices. Wherever in this Lease it shall be required or permitted that
notice or demand be given or served by either party to this Lease to or on the
other, such notice or demand shall be given or served and shall not be deemed to
have been duly given or served unless and until (i) in writing, (ii) forwarded
by any overnight air courier service (such as Federal Express, etc.), or
certified or registered mail, addressed to the addresses of the parties
specified in Article 1, (iii) the date noted for receipt on the return receipt,
or the date of refusal thereof. Either party may change such address by written
notice by certified or registered mail to the other. The foregoing method of
service shall be exclusive, and Tenant hereby waives, to the fullest extent
permitted under law, the right to any other method of service required by any
statute or law now or hereafter in force.
26. OBLIGATIONS OF SUCCESSORS
The parties hereto agree that all the provisions of this Lease are to be
construed as covenants and agreements and that said provisions shall bind and
inure to the benefit of the parties hereto and their respective heirs, legal
representatives, successors, and assigns.
27. CONSENT OF LANDLORD AND TENANT
Wherever in this Lease Landlord or Tenant is required to give its consent or
approval to any action on the part of the other, such consent or approval shall
not be unreasonably withheld, conditioned, or delayed unless otherwise expressly
provided. If Landlord or Tenant fail to give any such consent, the other party
hereto shall be entitled to specific performance at law and shall have such
other remedies as are reserved to it under this Lease, but in no event shall
Landlord or Tenant be responsible in monetary damages for such failure to give
consent unless said consent is withheld maliciously or in bad faith.
28. MISCELLANEOUS
28.1 No Partnership. It is agreed that nothing contained in this Lease shall be
deemed or construed as creating a partnership or joint venture between Landlord
and Tenant or between Landlord and any other party, or cause Landlord to be
responsible in any way for the debts or obligations of Tenant or any other
party.
28.2 Severability. If any provision of this Lease shall be determined to be void
by any court of competent jurisdiction, then such determination shall not affect
any other provision of this Lease and all such other provisions shall remain in
full force and effect. It is the intention of the
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parties hereto that if any provision of this Lease is capable of two
constructions, one of which would render the provision void and the other of
which would render the provision valid, then the provision shall have the
meaning which renders it valid.
28.3 Corporate Requirements. If Tenant hereunder is a corporation, the persons
executing this Lease on behalf of Tenant hereby covenant and warrant that they
are authorized to execute this Lease on behalf of the corporation.
28.4 Prior Representations. It is understood that there are no oral or written
agreements or representations between the parties hereto affecting this Lease,
and this Lease supersedes and cancels any and all previous negotiations,
arrangements, representations, brochures, agreements, and understandings, if
any, between the parties hereto or displayed by Landlord to Tenant with respect
to the subject matter thereof, and none thereof shall be used to interpret or
construe this Lease.
28.5 Governing Law. The laws of the State of Nevada shall govern the validity,
performance, and enforcement of this Lease.
28.6 Waiver or Consent Limitation. A waiver of any given breach or default,
which shall always be in writing, shall not be a waiver of any other breach or
default. Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent similar act by
Tenant.
28.7 Force Majeure. The occurrence of any of the following events shall excuse
such obligations of Landlord or Tenant as are thereby rendered impossible or
reasonably impracticable for so long as such event continues: strikes; lockouts;
labor disputes; acts of God; inability to obtain labor, materials or reasonable
substitutes therefor; governmental restrictions, regulations or controls;
judicial orders; enemy or hostile governmental action; civil commotion; fire or
other casualty; and other causes beyond the reasonable control of the party
obligated to perform. Notwithstanding the foregoing, the occurrence of such
events shall not excuse Tenant's obligations to pay Annual Rent and Additional
Rent (unless the provisions of Article 15 apply) nor excuse such obligations as
this Lease may otherwise impose on the party to obey, remedy or avoid such
event. Should the work performed by Tenant or Tenants contractor result in a
strike, lockout and/or labor disputes, such strike, lockout or labor dispute
shall not excuse Tenant's performance, although such performance may be delated
during the pendency of such circumstance.
28.8 Waiver of Rights or Redemption. Tenant hereby expressly waives any and all
rights of redemption granted by or under any present or future laws in the event
Tenant is evicted or dispossessed for any cause or in the event Landlord obtains
possession of the Premises by reason of the violation by Tenant of any of the
covenants and conditions of this Lease or otherwise. The rights given to
Landlord herein are in addition to any rights that may be given to Landlord by
any
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statute or otherwise.
28.9 Amendments. To be effective and binding on Landlord and Tenant, any
amendment, modification, addition or deletion to the provisions of this Lease
must be made in writing and executed by both parties.
28.10 Right to Enter. Subject to the other provisions of this Lease applicable
to re-entry, Landlord or its representatives shall have the, right to enter the
Premises at all reasonable times for the purpose of showing the Premises to
prospective purchasers.
28.11 Relocation Rights. Landlord may not relocate the Tenant to other Premises
except with the written consent of the Tenant.
28.12 Time is of the Essence. Time is of the essence as to the obligations
contained in this Lease.
28.13 Recordation. Landlord and Tenant shall record a memorandum of this Lease
in the land records of Clark County, Nevada, provided that such memorandum does
not disclose any of the financial terms of this lease.
28.14 Confidentiality. Landlord and Tenant shall keep confidential the terms of
this Lease except for such disclosure as may be required by law, in connection
with any proceeding between Landlord and Tenant, or by Landlord in connection
with (a) any financing or sale of the building within which the Premises are a
part or (b) any proceeding to obtain a reduction in real estate taxes on the
building.
28.15 Brokerage. Landlord and Tenant each represent that they had no dealings
with any real estate broker, finder or other person, with respect to this Lease
in any manner, except CB Richard Ellis who is Landlord's broker, (the
"Brokers.") Landlord and Tenant each agrees to indemnify and hold harmless the
other against and from any claim or demand for any brokerage commission or other
fees and all costs, actions, claims, demands, losses, judgments, settlements,
expenses and liabilities in connection therewith, including, without limitation,
attorneys' fees and expenses arising out of any purported or actual dealings by
the Landlord or the Tenant and any broker other than the CB Richard Ellis.
Landlord shall pay any commissions or fees that are payable to CB Richard Ellis
with respect to this Lease, in accordance with the provisions of a separate
commission agreement.
EXECUTED AS OF THE DAY AND YEAR FIRST WRITTEN ABOVE
FONG & ASSOCIATES, LLC
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By: /s/ Wing Fong
----------------------------------
WING FONG
Its Managing Member
PAC-WEST TELECOMM, INC.
By: /s/ Richard E. Bryson
----------------------------------
Richard E. Bryson
Its Chief Financial Officer
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FIRST AMENDMENT TO LEASE
That certain Lease dated as of December 17, 1998, between Wing Fong &
Associates LLC ("Landlord"), and Pac-West Telecomm, Inc. ("Tenant") for the
Premises located at 302 and 304 East Carson Street, Las Vegas, Nevada 89101, is,
to reflect the addition of 1,200 square feet, amended as follows:
1. Article 1, Paragraph entitled "Annual Rent" is amended to read:
"Annual Rental: $1.50 per rentable square foot per month ($18.00 per year),
plus cost of living adjustments inclusive of all services and
expenses except for electricity and janitorial (Annual rent
of $217,170.00, payable in installments of $18,097.50 per
month"
2. Article 1, Paragraph entitled "Premises" is amended to read:
"Premises: The first floor of certain commercial space, commonly 304
East Carson Street, having 12,065 rentable square feet of
Floor Area, as more particularly described in Exhibit "A".
Together with certain roof rights on 302 East Carson Street,
as described in paragraph 3.5."
As amended by this First Amendment to Lease, Landlord and Tenant hereby
ratify and reaffirm the above Lease.
FONG & ASSOCIATES, LLC
By: /s/ Wing Fong
-------------------------
WING FONG
Its Managing Member
-------------------------
PAC-WEST TELECOMM, INC.
By: /s/ Richard E. Bryson
-------------------------
Its Chief Financial Officer
-------------------------
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Exhibit 10.21
PROMISSORY NOTE
---------------
September 16, 1998 $200,000
Wallace W. Griffin ("Maker"), hereby promises to pay to the
order of Pac-West Telecomm, Inc., a California corporation (the "Company"), at
its office in 4210 Coronado Avenue, Stockton, CA 95204, or such other place as
designated in writing by the holder hereof, the aggregate principal sum of
$200,000 together with interest thereon calculated from the date hereof in
accordance with the provisions of this Note.
This Note is the promissory note referred to in the Executive
Agreement, dated as of September 16, 1998, by and among the Company, Maker and
the other parties thereto (the "Executive Agreement"). Section 13(a) of the
Executive Agreement contains provisions for the issuance of this Note upon the
terms and conditions specified therein. Capitalized terms used herein and not
otherwise defined shall have the meanings given to them in the Executive
Agreement.
1. Payment of Interest. Interest shall accrue on the
outstanding principal amount of this Note at a rate equal to the lesser of (i)
5.54% per annum [AFR as of the Effective Date], compounded annually, or (ii) the
highest rate permitted by applicable law, and shall be payable at such time as
the principal of this Note becomes due and payable.
2. Payment of Principal on Note.
(a) Payments of Principal. In the event Maker receives any net
cash proceeds (i) in connection with his ownership of the Executive Stock or
(ii) relating to any other transaction or series of transactions in which Maker
sells any of the Executive Stock, Maker shall apply all of such proceeds first,
to any accrued interest and second, to any principal then outstanding. On the
first to occur of (i) a Sale of the Company, (ii) 60 days after the date on
which Maker ceases to be employed by the Company or any of its Subsidiaries for
any reason or (iii) the date which is five years after the date of this Note,
Maker shall pay the entire principal amount then outstanding and any accrued
interest to the Company.
(b) Prepayments. Maker may, at any time and from time to time
without premium or penalty, prepay all or any portion of the outstanding
principal amount of the Note; provided that any prepayment will be accompanied
by a payment of accrued interest on the portion being prepaid. A prepayment of
less than all of the outstanding principal amount of the Note shall not relieve
Maker of his obligation to make any payment on the Note pursuant to paragraph
2(a) above.
(c) Right of Offset. The Maker shall be entitled to offset any
amounts owed to the Maker by the Company, arising pursuant to and as set forth
in Section 15 of the Executive Agreement between the Company and the Maker,
against any amounts payable under this Note.
<PAGE>
3. Pledge Agreement. The amounts due under this Note are
secured by a pledge of 37,500 shares of the Company's Common Stock, and the
payment of the principal amount and accrued interest under this Note is subject
to certain offset rights under the Executive Agreement.
4. Events of Default.
(a) Definition. For purposes of this Note, an Event of Default
shall be deemed to have occurred if:
(i) Maker fails to pay (A) when due, the full amount of
interest then accrued or (B) when due, the full amount of any principal
payment; or
(ii) Maker makes an assignment for the benefit of creditors or
admits in writing his inability to pay his debts generally as they
become due; or an order, judgment or decree is entered adjudicating
Maker bankrupt or insolvent; or any order for relief with respect to
Maker is entered under the Federal Bankruptcy Code; or Maker petitions
or applies to any tribunal for the appointment of a custodian, trustee,
receiver or liquidator of any substantial part of Maker's assets, or
commences any proceeding relating to Maker under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction; or any such
petition or application is filed, or any such proceeding is commenced,
against Maker and either (A) Maker by any act indicates its approval
thereof, consent thereto or acquiescence therein or (B) such petition,
application or proceeding is not dismissed within 60 days.
(b) Consequences of Events of Default.
(i) If an Event of Default of the type described in
subparagraph 4(a)(ii) has occurred the aggregate principal amount of
the Note (together with all accrued interest thereon and all other
amounts payable in connection therewith) shall become immediately due
and payable without any action on the part of the Company, and Maker
shall immediately pay to the Company all amounts due and payable with
respect to the Note.
(ii) If an Event of Default of the type described in
subparagraph 4(a)(i) has occurred and continued for 5 days, the Company
may declare all or any portion of the outstanding principal amount of
the Note (together with all accrued interest thereon and all other
amounts due in connection therewith) due and payable and demand
immediate payment of all or any portion of the outstanding principal
amount of the Note.
5. Full Recourse. This Note shall be full recourse as against
the Maker.
6. Certain Waivers. Maker, or his successors and assigns,
hereby waives diligence, presentment, protest and demand and notice of protest
and demand, dishonor and nonpayment of this Note, and expressly agrees that this
Note, or any payment hereunder, may be
<PAGE>
extended from time to time and that the holder hereof may accept security for
this Note or release security for this Note, all without in any way affecting
the liability of Maker hereunder.
7. Amendment and Waiver. Except as otherwise expressly
provided herein, the provisions of the Note may be amended and Maker may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if Maker has obtained the written consent of the Company.
8. Cancellation. After all principal and accrued interest at
any time owed on this Note has been paid in full, this Note shall be surrendered
to Maker for cancellation and shall not be reissued.
9. Place of Payment. Payments of principal and interest are to
be delivered to the Company at the following address:
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, CA 95204
Telecopy No.: (209) 926-3205
Attn: President
or to such other address or to the attention of such other person as specified
by prior written notice to Maker.
10. Costs of Collection. In the event that Maker fails to pay
any amounts due hereunder when due, Maker shall pay to the Company, in addition
to such amounts due, all costs of collection, including reasonable attorneys
fees. In the event a court of competent jurisdiction determines that this Note
is not yet due or is otherwise unenforceable at any time when enforcement is
sought by the Company, the Company shall pay all reasonable costs and attorneys
fees of Maker incurred in connection with such attempted enforcement.
11. Governing Law. This Note is made under and governed by the
internal law, not the laws of conflicts, of the State of California.
<PAGE>
IN WITNESS WHEREOF, Maker has executed and delivered this Note
as of the date above.
/s/ Wallace W. Griffin
-----------------------------
WALLACE W. GRIFFIN
<PAGE>
PAC-WEST TELECOMM, INC.
EXECUTIVE STOCK PLEDGE AGREEMENT
--------------------------------
THIS PLEDGE AGREEMENT is made as of September 16, 1998,
between Wallace W. Griffin ("Pledgor"), and the Pac-West Telecomm, Inc., a
California corporation (the "Company").
The Company and Pledgor are parties to an Executive Agreement,
dated September 16, 1998, pursuant to which Pledgor purchased 37,500 shares of
the Company's Common Stock, $.01 par value (the "Pledged Shares"), for an
aggregate purchase price of $250,000. The Company has allowed Pledgor to
purchase a portion of the Pledged Shares by delivery to the Company of a
promissory note (the "Note") in the aggregate principal amount of $200,000. This
Pledge Agreement provides the terms and conditions upon which the Note is
secured by a pledge to the Company of the Pledged Shares.
NOW, THEREFORE, in consideration of the premises contained
herein and other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, and in order to induce the Company to accept the
Note as partial payment for the Pledged Shares, Pledgor and the Company hereby
agree as follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants
to the Company a security interest in, the Pledged Shares as security for the
prompt and complete payment when due of the unpaid principal of and interest on
the Note and full payment and performance of the obligations and liabilities of
Pledgor hereunder.
2. Delivery of Pledged Shares. Upon the execution of this
Pledge Agreement, Pledgor shall deliver to the Company the certificate(s)
representing the Pledged Shares, together with duly executed forms of assignment
sufficient to transfer title thereto to the Company.
3. Voting Rights; Cash Dividends. Notwithstanding anything to
the contrary contained herein, during the term of this Pledge Agreement until
such time as there exists a default in the payment of principal or interest on
the Note or any other default under the Note or hereunder, Pledgor shall be
entitled to all voting rights with respect to the Pledged Shares and shall be
entitled to receive all cash dividends paid in respect of the Pledged Shares.
Upon the occurrence of and during the continuance of any such default, Pledgor
shall no longer be able to vote the Pledged Shares and the Company shall retain
all such cash dividends payable on the Pledged Shares as additional security
hereunder.
<PAGE>
4. Stock Dividends; Distributions, etc. If, while this Pledge
Agreement is in effect, Pledgor becomes entitled to receive or receives any
securities or other property in addition to, in substitution of, or in exchange
for any of the Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
5. Default. If Pledgor defaults in the payment of the
principal or interest under the Note when it becomes due (whether upon demand,
acceleration or otherwise) or any other event of default under the Note or this
Pledge Agreement occurs (including the bankruptcy or insolvency of Pledgor), the
Company may exercise any and all the rights, powers and remedies of any owner of
the Pledged Shares (including the right to vote the shares and receive dividends
and distributions with respect to such shares) and shall have and may exercise
without demand any and all the rights and remedies granted to a secured party
upon default under the Uniform Commercial Code of California or otherwise
available to the Company under applicable law. Without limiting the foregoing,
the Company is authorized to sell, assign and deliver at its discretion, from
time to time, all or any part of the Pledged Shares at any private sale or
public auction, on not less than ten days written notice to Pledgor, at such
price or prices and upon such terms as the Company may deem advisable. Pledgor
shall have no right to redeem the Pledged Shares after any such sale or
assignment. At any such sale or auction, the Company may bid for, and become the
purchaser of, the whole or any part of the Pledged Shares offered for sale. In
case of any such sale, after deducting the costs, attorneys' fees and other
expenses of sale and delivery, the remaining proceeds of such sale shall be
applied to the principal of and accrued interest on the Note; provided that
after payment in full of the indebtedness evidenced by the Note, the balance of
the proceeds of sale then remaining shall be paid to Pledgor and Pledgor shall
be entitled to the return of any of the Pledged Shares remaining in the hands of
the Company. Pledgor shall be liable for any deficiency if the remaining
proceeds are insufficient to pay the indebtedness under the Note in full,
including the fees of any attorneys employed by the Company to collect such
deficiency.
6. Costs and Attorneys' Fees. All costs and expenses
(including reasonable attorneys' fees) incurred in exercising any right, power
or remedy conferred by this Pledge Agreement or in the enforcement thereof,
shall become part of the indebtedness secured hereunder and shall be paid by
Pledgor or repaid from the proceeds of the sale of the Pledged Shares hereunder.
In the event a court of competent jurisdiction determines that this Pledge
Agreement is not yet enforceable or is otherwise unenforceable at any time when
enforcement is sought by the Company, the Company shall pay all reasonable costs
and attorneys fees of Pledgor incurred in connection with such attempted
enforcement.
7. Payment of Indebtedness and Release of Pledged Shares. Upon
payment in full of the indebtedness evidenced by the Note, the Company shall
surrender the Pledged Shares to Pledgor together with all forms of assignment.
<PAGE>
8. No Other Liens; No Sales or Transfers. Pledgor hereby
represents and warrants that he has good and valid title to all of the Pledge
Shares, free and clear of all liens, security interests and other encumbrances,
and Pledgor hereby covenants that, until such time as all of the outstanding
principal of and interest on the Note has been repaid, Pledgor shall not (i)
create, incur, assume or suffer to exist any pledge, security interest,
encumbrance, lien or charge of any kind against the Pledged Shares or Pledgor's
rights or a holder thereof, other than pursuant to this Agreement, or (ii) sell
or otherwise transfer any Pledged Shares or any interest therein.
9. Further Assurances. Pledgor agrees that at any time and
from time to time upon the written request of the Company, Pledgor shall execute
and deliver such further documents (including UCC financing statements) and do
such further acts and things as the Company may reasonably request in order to
effect the purposes of this Pledge Agreement.
10. Severability. Any provision of this Pledge Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Company shall not by
any act, delay, omission or otherwise be deemed to have waived any of its rights
or remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
12. Waivers, Amendments; Applicable Law. None of the terms or
provisions of this Pledge Agreement may be waived, altered, modified or amended
except by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the Pledgor hereunder shall together with the
rights and remedies of the Company hereunder, inure to the benefit of the
Company and its successors and assigns. This Pledge Agreement shall be governed
by, and be construed and interpreted in accordance with, the laws of the State
of California.
<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed as
of the date first above written.
PAC-WEST TELECOMM, INC.
By: /s/ John K. La Rue
------------------------
Name: John K. La Rue
----------------------
Its: President
-----------------------
By: /s/ Dennis V. Meyer
------------------------
Name: Dennis V. Meyer
----------------------
Its: Chief Financial Officer
-----------------------
/s/ Wallace W. Griffin
---------------------------
WALLACE W. GRIFFIN
<PAGE>
Exhibit 10.22
PROMISSORY NOTE
---------------
October 30, 1998 $33,334
Richard Bryson ("Maker"), hereby promises to pay to the order of
Pac-West Telecomm, Inc., a California corporation (the "Company"), at its office
in 4210 Coronado Avenue, Stockton, CA 95204, or such other place as designated
in writing by the holder hereof, the aggregate principal sum of $33,334 together
with interest thereon calculated from the date hereof in accordance with the
provisions of this Note.
This Note in the promissory note referred to in the Executive
Agreement, dated as of October 16, 1998, by and among the Company, Maker and the
other parties thereto (the "Executive Agreement"). Section 13(a) of the
Executive Agreement contains provisions for the insurance of this Note upon the
terms and conditions specified therein. Capitalized terms used herein and not
otherwise defined shall have the meanings given to them in the Executive
Agreement.
1 Payment of Interest. Interest shall accrue on the outstanding
principal amount of this Note at a rate equal to the lesser of (i) 5.12% per
annum [AFR as of the Effective Date], compounded annually, or (ii) the highest
rate permitted by applicable law, and shall be payable at such time as the
principal of this Note becomes due and payable.
2 Payment of Principal on Note.
(a) Payments of Principal. In the event Maker receives any net cash
proceeds (i) in connection with his ownership of the Executive Stock or (ii)
relating to any other transaction or series of transactions in which Maker sells
any of the Executive Stock, Maker shall apply all of such proceeds first, to any
accrued interest and second, to any principal then outstanding. On the first to
occur of (i)a Sale of a Company, (ii) 60 days after the date on which Maker
ceases to be employed by the Company or any of its Subsidiaries for any reason
or (iii) the date which is 5 years after the date of this Note, Maker shall pay
the entire principal amount then outstanding and any accrued interest to the
Company.
(b) Prepayments. Maker may, at any time and from time to time without
premium or penalty, prepay all or any portion of the outstanding principal
amount of the Note; provided that any prepayment will be accompanied by a
payment of accrued interest on the portion being prepaid. A prepayment of less
than all of the outstanding principal amount of the Note shall not relieve Maker
of his obligation to make any payment on the Note pursuant of paragraph 2(a)
above.
(c) Right of Offset. The Maker shall be entitled to offset any
amounts owed to the Maker by the Company, arising pursuant to and as set forth
in Section 15 of the Executive Agreement between the Company and the Maker,
against any amounts payable under this Note.
3 Pledge Agreement. The amounts due under this Note our secured
by a pledge of 6,247 shares of the Company's Common Stock, and the payment of
the principal amount and accrued interest under this Note is subject to certain
offset rights under the Executive Agreement.
4 Events of Default.
(a) Definition. For the purposes of this Note, an Event of Default
shall be deemed to have occurred if:
<PAGE>
(i) Maker fails to pay (A) when due, the full amount of interest then
accrued or (B) when due, the full amount of any principal payment; or
(ii) Maker makes an assignment for the benefit of creditor or admits
in writing his inability to pay his debts generally as they become due; an
order, judgement or decree is entered adjudicating Maker bankrupt or
insolvent; or any order of relief with respect to Maker is entered under
the Federal Bankruptcy Code; or Maker petitions or applies to any tribunal
for the appointment of a custodian, trustee, receiver or liquidator of any
substantial part of Makers assessments, or commences any proceedings
relating to Maker under any Bankruptcy, reorganization, arrangement,
insolvency, readjustment or debt, dissolution or liquidation law of any
jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against Maker and either (A) Maker by any act
indicates its approval thereof, consent thereto or acquiescence therein or
(B) such petition, application or proceeding is not dismissed within 60
days.
(b) Consequences of Events of Default.
(i) In an Event of Default of the type described in subparagraph
4(a)(ii) has occurred the aggregate principal amount of the Note (together with
all accrued interest thereon and all other amounts payable in connection
therewith) shall become immediately due and payable without any action on the
part of the Company, and Maker shall immediately pay to the Company all amounts
due and payable with respect to the Note.
(ii) If an Event of Default of the type described in subparagraph
4(a)(i) has occurred and continued for 5 days, the Company may declare all or
any portion of the outstanding principal amount of the Note (together with the
accrued interest thereon and all other amounts due in connection therewith) due
and payable and demand immediate payment of all or any portion of the
outstanding principal amount of the Note.
5 Full Recourse. This Note shall be full recourse as against the
Maker.
6 Certain Waivers. Maker, or his successors and assigns, hereby
waives diligence, presentment, protest and demand and notice of protest and
demand, dishonor and nonpayment of this Note, and expressly agrees that this
Note, or any payment hereunder, may be extended from time to time and that the
holder hereof may accept security for this Note or release security for this
Note, all without in any way affecting the liability of Maker hereunder.
7 Amendment and Waiver. Except as otherwise expressly provided
herein, the provisions of the Note may be amended and Maker may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if Maker has obtained the written consent of the Company.
8 Cancellation. After all principal and accrued interest at any
time owed on this Note has been paid in full, this Note shall be surrendered to
Maker for cancellation and shall not be reissued.
9 Place of Payment. Payments of principal and interest are to be
delivered to the Company at the following address:
Pac-West Telecomm, Inc.
4210 Coronado Avenue
Stockton, CA 95204
Telecopy No.: (209) 926-3125
Attn: President
or to such other address or to the attention of such other person as specified
by prior written notice to Maker.
2
<PAGE>
10 Costs of Collection. In the event that Maker fails to pay any
amounts due hereunder when due,. Maker shall pay to the company, in addition to
such amounts due, all costs of collection, including reasonable attorney fees.
In the event a court of competent jurisdiction determines that this Note is not
yet due or is otherwise unenforceable at any time when enforcement is sought by
the Company, the Company shall pay all reasonable costs and attorney fees of
Maker incurred in connection with such attempted enforcement.
11 Governing Law. This Note is made under and governed by the
internal law, not the laws of conflicts, of the State of California.
3
<PAGE>
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of
the date above.
/s/ Richard Bryson
--------------------------
Richard Bryson
4
<PAGE>
PAC-WEST TELECOMM, INC.
EXECUTIVE STOCK PLEDGE AGREEMENT
--------------------------------
THIS PLEDGE AGREEMENT is made as of October 30, 1998, between Richard
Bryson ("Pledgor"), and the Pac-West Telecomm, Inc., a California corporation
(the "Company").
The Company and Pledgor our parties to an Executive Agreement, dated
October 16, 1998, pursuant to which Pledgor purchased 6,247 shares of Company's
Common Stock, $.01 par value (the "Pledged Shares"), for an aggregate purchase
price of $41,677. The Company had allowed Pledgor to purchase a portion of the
Pledged Shares by delivery to the Company of a promissory note (the "Note") in
the aggregate principal amount of $33,334. This Pledge Agreement provides the
terms in conditions upon which the Note is secured by a pledge to the Company of
the Pledged Shares.
NOW, THEREFORE, in consideration of this premises contain herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company to except the Note as
partial payment for the Pledged Shares, Pledgor and the Company hereby agree as
follows:
1 Pledge. Pledgor hereby pledges to the Company, and grants to the
Company a security interest in, the Pledged Shares as security for the prompt
and complete payment when due of the unpaid principal of and interest on the
Note and full payment in performance of the obligations and liabilities of
Pledgor hereunder.
2 Delivery of Pledged Shares. Upon the execution of this Pledge
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Shares, together with dually executed forms of assignment sufficient
to transfer title thereto to the Company.
3 Voting Rights; Cash Dividends. Notwithstanding anything to the
contrary contained herein, during the term of this Pledge Agreement until such
time as there exists a default in the payment of principal or interest on the
Note or any other default under the Note or hereunder, Pledgor shall be entitled
to all voting rights with respect to the Pledged Shares. Upon the occurrence of
enduring the continuance of any such default, Pledgor shall no longer be able to
vote the Pledged Shares and the Company shall retain all such cash dividends
payable on the Pledged Shares as additional security hereunder.
4 Stock Dividends; Distributions, etc. If, while this Pledge
Agreement is in effect, Pledgor becomes entitled to receive or receives any
securities or other property on addition to, in substitution of, or in exchange
for any of the Pledged Shares (whether a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other Note and shall
promptly deliver such additional security to the Company together with dually
executed forms of assignment, any such additional security shall be deemed to be
part of the Pledged Shares hereunder.
5 Default. If Pledgor defaults in the payment of the principal or
interest under the Note when it becomes due (whether upon demand, acceleration
or otherwise) or any other event of default under the Note or this Pledge
Agreement occurs (including the bankruptcy or insolvency of Pledgor), the
Company may exercise any and all the rights, powers and remedies of any owner of
the Pledged Shares (including the right to vote the shares and receive dividends
and distributions with respect to such shares) and shall have and may exercise
without
<PAGE>
demand any and all the rights and remedies granted to a secured party upon
default under the Uniform Commercial Code of California or otherwise available
to the Company under applicable law. Without limiting the foregoing, the Company
is authorized to sell, assign and deliver at its discretion, from time to time,
all or any part of the Pledged Shares at any private sale or public auction, on
not less than ten days written notice to Pledgor, at such price or prices and
upon such terms as the Company may deem advisable. Pledgor shall have no right
to redeem the Pledged Shares after any such sale or assignment. At any such sale
or auction, the Company may bid for, and become the purchaser of, the whole or
any part of the Pledged Shares offered for sale. In case of any such sale, after
deducting the costs, attorneys' fees and other expenses on sale and delivery,
the remaining proceeds of such sale shall be applied to the principal of and
accrued interest on the Note; provided that after payment in full of the
indebtedness evidenced by the Note, the balance of the proceeds of sale then
remaining shall be paid to Pledgor and Pledgor shall be entitled to the return
of any of the Pledged Shares remaining in the hands of the Company. Pledgor
shall be liable for any deficiency if the remaining proceeds are insufficient to
pay the indebtedness under the Note in full, including the fees of any attorneys
employed by the Company to collect such deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including
reasonable attorneys' fees) incurred in exercising any right, power or remedy
conferred by this Pledge Agreement or in the enforcement thereof, shall become
part of the indebtedness secured hereunder and shall be paid by Pledgor or
repaid from the proceeds of the sale of the Pledged Shares hereunder. In the
event a court of competent jurisdiction determines that this Pledge Agreement is
not yet enforceable or is otherwise unenforceable at any time when enforcement
is sought by the Company, the Company shall pay all reasonable costs and
attorneys fees of Pledgor incurred in connection with such attempted
enforcement.
7. Payment of Indebtedness and Release of Pledged Shares. Upon
payment in full of the indebtedness evidenced by the Note, the Company shall
surrender the Pledged Shares to Pledgor together with all forms of assignment.
8. No Other Liens; No Sales or Transfers. Pledgor hereby
represents and warrants that he has good and valid title to all of the Pledge
Shares, free and clear of all liens, security interests and other encumbrances,
and Pledgor hereby covenants that, until such time as all of the outstanding
principal of and interest on the Note has been repaid, Pledgor shall not (i)
create, incur, assume or suffer to exist any pledge, security interest,
encumbrance, lien or charge of any kind against the Pledged Shares or Pledgor's
rights or a holder thereof, other than pursuant to this Agreement, or (ii) sell
or otherwise transfer any Pledged Shares or any interest therein.
9. Further Assurances. Pledgor agrees that at any time and from
time to time upon the written request of the Company, Pledgor shall execute and
deliver such further documents (including UCC financing statements) and do such
further acts and things as the Company may reasonably request in order to effect
the purposes of this Pledge Agreement.
10. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Company shall not by any
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A Waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
-2-
<PAGE>
12 Waivers, Amendments; Applicable Law. None of the terms or
provisions of this Pledge Agreement maybe waived, altered, modified or amended
except by an instrument in writing, dually executed by the parties hereto. This
Agreement and all obligations of the Pledgor hereunder shall together with the
rights and remedies of the Company hereunder, inure to the benefit of the
Company and its successors and assigns. This Pledge Agreement shall be covered
by, and be construed and interpreted in accordance with, the laws of the State
of California.
-3-
<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the
date first above written.
PAC-WEST TELECOMM, INC.
By: /s/ Wallace W. Griffin
---------------------------------------
Name: Wallace W. Griffin
-------------------------------------
Its: President and Chief Executive Officer
--------------------------------------
-4-
<PAGE>
EXHIBIT 12.1
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(unaudited)
<TABLE>
<CAPTION>
Period from Date of Pro Forma
Commencement Year Ended Year Ended Year Ended
(October 1, 1996) to December 31, December 31, December 31,
December 31, 1996 1997 1998 1998
-------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Computation of Earnings:
Income (loss) before
provision for income
taxes and
extraordinary item... $234,000 $7,492,000 $1,311,000 $ (91,000)
Net fixed charges (b). 213,000 1,575,000 5,258,000 6,660,000
-------- ---------- ---------- ----------
Total earnings...... $447,000 $9,067,000 $6,569,000 $6,569,000
======== ========== ========== ==========
Computation of Fixed
Charges:
Interest expense...... $105,000 $ 932,000 $4,199,000 $5,601,000
Capitalized interest.. 0 0 303,000 303,000
Estimated interest
component of rental
expenses............. 108,000 643,000 1,059,000 1,059,000
-------- ---------- ---------- ----------
Total fixed charges. $213,000 $1,575,000 $5,561,000 $6,963,000
======== ========== ========== ==========
Ratio of earnings to
fixed charges.......... 2.1x 5.8x 1.2x -- (a)
</TABLE>
- --------
(a) On a pro forma basis earnings were insufficient to cover fixed charges by
$394,000 for the year ended December 31, 1998.
(b) Excludes capitalized interest.
<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
April 21, 1999
<PAGE>
Exhibit 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
_____________________________
____ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. NATIONAL BANKING ASSOCIATION 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
_____________________________
PAC-WEST TELECOMM, INC.
(Exact name of obligor as specified in its charter)
CALIFORNIA 68-0383568
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4210 CORONADO AVENUE
STOCKTON, CALIFORNIA 95204
(Address of principal executive offices) (Zip code)
_____________________________
13 1/2% SENIOR NOTES DUE 2009
(Title of the indenture securities)
================================================================================
<PAGE>
Item 1. General Information. Furnish the following information as to the
--------------------
trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust
powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
--------------------------
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
----------------
Item 16. List of Exhibits. List below all exhibits filed as a part of this
-----------------
Statement of Eligibility. Norwest Bank
incorporates by reference into this Form T-1 the
exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association of the
trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of the
trustee to commence business issued June 28, 1872,
by the Comptroller of the Currency to The
Northwestern National Bank of Minneapolis.*
b. A copy of the certificate of the Comptroller of
the Currency dated January 2, 1934, approving the
consolidation of The Northwestern National Bank of
Minneapolis and The Minnesota Loan and Trust
Company of Minneapolis, with the surviving entity
being titled Northwestern National Bank and Trust
Company of Minneapolis.*
c. A copy of the certificate of the Acting
Comptroller of the
<PAGE>
Currency dated January 12, 1943, as to change of
corporate title of Northwestern National Bank and
Trust Company of Minneapolis to Northwestern
National Bank of Minneapolis.*
d. A copy of the letter dated May 12, 1983 from the
Regional Counsel, Comptroller of the Currency,
acknowledging receipt of notice of name change
effective May 1, 1983 from Northwestern National
Bank of Minneapolis to Norwest Bank Minneapolis,
National Association.*
e. A copy of the letter dated January 4, 1988 from
the Administrator of National Banks for the
Comptroller of the Currency certifying approval of
consolidation and merger effective January 1, 1988
of Norwest Bank Minneapolis, National Association
with various other banks under the title of
"Norwest Bank Minnesota, National Association."*
Exhibit 3. A copy of the authorization of the trustee to exercise
corporate trust powers issued January 2, 1934, by the
Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b)
of the Act.
Exhibit 7. A copy of the latest report of condition of the
trustee published pursuant to law or the requirements
of its supervising or examining authority.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
<PAGE>
* Incorporated by reference to exhibit number 25 filed with registration
statement number 33-66026.
** Incorporated by reference to exhibit number 25 filed with registration
statement number 333-25233.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 15th day of April 1999.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Y. Schweiger
---------------------------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE>
EXHIBIT 6
April 15, 1999
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Y. Schweiger
---------------------------------
Jane Y. Schweiger
Corporate Trust Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1998 AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 15,236,000
<SECURITIES> 0
<RECEIVABLES> 5,087,000
<ALLOWANCES> (400,000)
<INVENTORY> 447,000
<CURRENT-ASSETS> 23,810,000
<PP&E> 63,677,000
<DEPRECIATION> (6,383,000)
<TOTAL-ASSETS> 82,493,000
<CURRENT-LIABILITIES> 8,278,000
<BONDS> 100,116,000
46,324,000
0
<COMMON> 13,000
<OTHER-SE> (74,126,000)
<TOTAL-LIABILITY-AND-EQUITY> 82,493,000
<SALES> 0
<TOTAL-REVENUES> 42,211,000
<CGS> 0
<TOTAL-COSTS> 33,927,000
<OTHER-EXPENSES> 2,674,000
<LOSS-PROVISION> 100,000
<INTEREST-EXPENSE> 4,199,000
<INCOME-PRETAX> 1,311,000
<INCOME-TAX> 1,561,000
<INCOME-CONTINUING> (250,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (417,000)
<CHANGES> 0
<NET-INCOME> (667,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
