<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 2000
REGISTRATION NO. 333-93569
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
JATO COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 4813 84-1466226
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
--------------------------
1099 18(TH) STREET
SUITE 2200
DENVER, CO 80202
(303) 226-8400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
GERALD K. DINSMORE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
JATO COMMUNICATIONS CORP.
1099 18(TH) STREET
SUITE 2200
DENVER, CO 80202
(303) 226-8400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
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<S> <C>
JAMES C.T. LINFIELD, ESQ. RICHARD L. NEVINS, ESQ.
COOLEY GODWARD LLP BAKER & MCKENZIE
2595 CANYON BOULEVARD, SUITE 250 805 THIRD AVENUE
BOULDER, CO 80302 NEW YORK, NY 10022
(303) 546-4000 (212) 751-5700
</TABLE>
--------------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration 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. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT PRICE(1)(2) FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value....... 10,263,750 $15.00 $153,956,250 $40,645
</TABLE>
(1) Includes shares that the underwriters have the option to purchase solely to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 10, 2000
PROSPECTUS
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
8,925,000 SHARES
[LOGO]
JATO COMMUNICATIONS CORP.
COMMON STOCK
------------------
This is Jato's initial public offering of common stock. Jato is offering
8,925,000 shares in this offering.
We expect the public offering price to be between $13.00 and $15.00 per
share. Currently, no public market exists for the shares. After pricing of the
offering, our common stock will trade on the Nasdaq National Market under the
symbol "JATO."
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price................................... $ $
Underwriting Discounts.................................. $ $
Proceeds, before expenses, to Jato...................... $ $
</TABLE>
------------------------
The underwriters may also purchase from our selling stockholders, up to an
additional 1,338,750 shares at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover
over-allotments. See "Principal and Selling Stockholders."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We expect that the shares of common stock will be ready for delivery in New
York, New York on or about , 2000.
------------------------
MERRILL LYNCH & CO. BEAR, STEARNS & CO. INC.
THOMAS WEISEL PARTNERS LLC
----------------
The date of this prospectus is , 2000.
<PAGE>
[Inside front cover -- Picture of the sky with clouds overlaid with a map of the
United States overlaid with the Company's network architecture. The top right
hand corner of the inside front cover contains the text "Our Network."]
[Gatefold -- Map of United States highlighting selected markets throughout the
United States in which we currently provide and intend to provide service by the
middle of 2000 and 2001. The top left hand corner of the gatefold contains the
text "Jato Service Area."]
<PAGE>
TABLE OF CONTENTS
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PAGE
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<S> <C>
Summary..................................................... 1
Risk Factors................................................ 3
Forward-Looking Statements.................................. 14
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 26
Management.................................................. 48
Principal and Selling Stockholders.......................... 59
Certain Relationships and Related Transactions.............. 62
Description of Capital Stock................................ 65
Shares Eligible for Future Sale............................. 69
Underwriting................................................ 71
Legal Matters............................................... 75
Experts..................................................... 75
Where You Can Find Additional Information................... 75
Index to Consolidated Financial Statements.................. F-1
</TABLE>
i
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION REGARDING OUR BUSINESS AND IS
QUALIFIED BY THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS. WE ARE A START UP COMPANY WITH A HISTORY OF SIGNIFICANT LOSSES, A
LARGE ACCUMULATED DEFICIT AND AN EXPECTATION OF CONTINUED SIGNIFICANT LOSSES.
YOU SHOULD CAREFULLY READ AND CONSIDER THIS ENTIRE PROSPECTUS, INCLUDING THE
"RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND ALL RELATED NOTES
BEFORE MAKING AN INVESTMENT DECISION.
JATO COMMUNICATIONS CORP.
OVERVIEW
We provide our customers broadband data communications services including
high speed Internet access, e-commerce, wide and local area networking and
associated applications and services. Our services are tailored to meet the
growing data communications needs of small- and medium-sized businesses in our
targeted markets. We are developing a nationwide network platform based
principally on digital subscriber line, or DSL, technology. DSL is a data
transmission technology enabling high-speed access through an existing copper
connection located between the network service provider and the end user. We
have designed our network to accomodate a variety of local access technologies
in addition to DSL. We intend to offer our services primarily through a direct
sales force comprised of account managers, telesales personnel and specialized
account groups. As more fully described in "Business--Strategic Alliances," we
have entered into strategic arrangements with Qwest Communications Corporation,
Global Crossing Bandwidth, Inc., Lucent Technologies and Microsoft Corporation
in order to rapidly deploy our network and achieve our sales and operating
goals.
We have targeted 50 smaller metropolitan areas nationwide which we believe
present attractive business opportunities and are currently underserved by
existing data communications providers. We estimate these secondary markets
contain, in aggregate, approximately 2.8 million businesses and 145 cities. We
expect to offer services in 40 of our targeted secondary markets by the end of
2000 and expect to offer services in all 50 of our targeted secondary markets by
the middle of 2001. As of March 24, 2000, we offered service in eleven markets
encompassing 176 central offices and have equipment installed in an additional
122 incumbent carrier central offices which comprise an incremental eight
markets. As of March 24, 2000, we had approximately 1,345 lines in service and
we were under contract to supply over 2,200 additional lines to our customers.
STRATEGY
Our strategy for expanding our services to small- and medium-sized
businesses in our target markets nationwide is to:
- Exploit our early-mover advantage,
- Acquire customers through direct marketing and other sales channels,
- Offer a wide variety of Internet based applications and services, and
- Retain customers through superior customer care and support.
1
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THE OFFERING
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<S> <C>
Common stock offered by Jato.............. 8,925,000 Shares
Common stock outstanding after this
offering................................ 53,574,327 Shares(1)
Use of proceeds........................... We estimate that our net proceeds from this offering and
the concurrent placement to Qwest will be approximately
$117.0 million. We intend to use approximately
$64.1 million of these net proceeds to fund capital
expenditures and operating losses related to the
continued deployment of our network, an additional
$30.0 million to expand sales and marketing activities
and the remaining $22.9 million for working capital and
other general corporate purposes.
Dividend policy........................... We currently intend to retain any future earnings to
fund the growth and development of our business.
Therefore, we do not currently anticipate paying cash
dividends.
Nasdaq National Market Symbol............. JATO
</TABLE>
- ------------------------
(1) Based on the number of shares outstanding on March 24, 2000. Includes
9,628,010 outstanding shares of common stock, 34,842,746 shares of common
stock to be issued upon conversion of our preferred stock, and the 178,571
shares of common stock to be issued to Qwest at an assumed initial public
offering price of $14.00 per share upon the closing of a private placement
concurrent with this offering. Excludes 7,583,180 shares of common stock
issuable upon the exercise of stock options outstanding as of March 24,
2000, with a weighted average exercise price of $3.31 per share, 315,489 of
which were exercisable, 7,035 shares of common stock issuable upon the
exercise of outstanding warrants at an exercise price of $2.13 per share and
the 297,619 shares of common stock issuable to Qwest pursuant to a warrant
with an aggregate exercise price of $5.0 million and a per share exercise
price equal to 120% of the initial public offering price per share in this
offering. Unless we indicate otherwise, all information in this prospectus
pertaining to the purchase price per share for the shares to be sold to
Qwest in the concurrent placement assumes an initial public offering price
of $14.00 per share and an exercise price per share for the warrant to be
issued to Qwest in the concurrent placement of $16.80, representing 120% of
the assumed initial public offering price of $14.00 per share. Throughout
this prospectus, Qwest refers to Qwest or to U.S. TeleSource, Inc., its
wholly owned subsidiary, as applicable. See "Capitalization."
OTHER INFORMATION
We were incorporated in Delaware on June 12, 1998. Our principal executive
office is located at 1099 18(th) Street, Suite 2200, Denver, Colorado 80202 and
our telephone number is (303) 226-8400. The information contained on our Web
site, www.jato.net, does not constitute part of this prospectus.
We own applications for federal registration and claim rights in the service
mark Jato. We also claim rights in the service marks JatoBridge and JatoDirect.
This prospectus also refers to trade names and trademarks of other companies.
------------------------
EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS:
- GIVES EFFECT TO THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF
PREFERRED STOCK INTO COMMON STOCK UPON THE CLOSING OF THE OFFERING, AND
- ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
2
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO INVEST IN SHARES OF
OUR COMMON STOCK.
OUR BUSINESS AND PROSPECTS ARE DIFFICULT TO EVALUATE BECAUSE WE HAVE A SHORT
OPERATING HISTORY
We were formed in June 1998 and have limited historical financial and
operating data upon which you can evaluate our business and prospects. We
commenced commercial operations in June 1999. Prior to December 1999, we were
considered a development stage company. Investors in our common stock must
consider our business and prospects in light of the risks and difficulties
typically encountered by companies in their early stages of operations,
particularly those in rapidly evolving markets such as the telecommunications
industry.
BECAUSE THE MARKET FOR DSL AND OTHER BROADBAND SERVICES IS NEW AND EVOLVING, WE
CANNOT PREDICT ITS FUTURE GROWTH OR ULTIMATE SIZE, WHICH COULD IMPAIR OUR
ABILITY TO ACHIEVE PROFITABILITY
The market for DSL and other broadband services is in its early stage of
development. Since this market is new and evolving and because our current and
future competitors are likely to introduce competing services, we cannot
accurately predict the rate at which this market will grow, if at all, or
whether new or increased competition will result in market saturation. Various
providers of similar communications services are testing products from various
suppliers for various applications, and suppliers have not broadly adopted an
industry standard. If the market for these services, or the 50 target markets we
have identified, fail to develop, grow more slowly than anticipated or become
saturated with competitors, these events could impair our ability to generate
revenue and achieve profitability.
OUR STRATEGY OF TARGETING SECONDARY MARKETS IS UNPROVEN AND WE MAY NOT ACHIEVE
MARKET ACCEPTANCE
We believe that the combination of our unproven business model and the
highly competitive and fast changing market in which we compete makes it
impossible to predict the extent to which our network services will achieve
market acceptance and our overall success. Our larger competitors have chosen to
target the largest, most populous markets in the U.S., while we have elected to
focus on smaller, less populous markets. To be successful, we must develop and
market network services that are widely accepted by businesses at profitable
prices. We may never be able to deploy our network as planned, achieve
significant market acceptance, achieve favorable operating results or
profitability or generate sufficient cash flow to repay our debt.
WE EXPECT OUR LOSSES AND NEGATIVE CASH FLOW TO CONTINUE AS WE EXPAND OUR NETWORK
SERVICES AND WE MAY NEVER ACHIEVE PROFITABILITY, WHICH MAY CAUSE OUR STOCK PRICE
TO DECLINE
We have incurred losses and experienced negative operating cash flow for
each month since our formation. As of December 31, 1999, we had an accumulated
deficit of approximately $15.3 million. We intend to rapidly and substantially
increase our capital expenditures and will incur materially higher operating
expenses in an effort to expand our network services. Furthermore, as a result
of recent stock and option grants, we anticipate that there will be significant
charges to earnings in future periods. As a result of these factors, we expect
to incur substantial operating and net losses and negative operating cash flow
for the foreseeable future. We will need to obtain additional financing to
expand our network, pay our expenses, and make payments on our debt. We cannot
give you any assurance about whether or when we will have sufficient revenues to
satisfy our funding requirements or pay our debt service obligations.
3
<PAGE>
OUR FAILURE TO ACHIEVE OR SUSTAIN MARKET ACCEPTANCE AT DESIRED PRICING LEVELS
COULD IMPAIR OUR ABILITY TO ACHIEVE PROFITABILITY OR POSITIVE CASH FLOW
We are expanding our operations based in part upon our prediction of future
prices that we will attain for our services. Our failure to achieve or sustain
market acceptance at desired pricing levels could impair our ability to achieve
profitability or positive cash flow, which would have a material adverse effect
on our business, prospects, operating results and financial condition. Prices
for high-speed Internet access and other data transport and networking services
have fallen historically and we expect this trend will continue and may
accelerate. In addition, to expedite customer acquisition in new markets, we
have reduced and expect that we will need to continue to reduce installation
costs, provide customer premise equipment at prices below our own costs and
provide discounted monthly service fees. Accordingly, we cannot predict to what
extent we may need to reduce our prices to remain competitive or whether we will
be able to sustain future pricing levels as our competitors introduce competing
services or similar services at lower prices.
OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND COULD CAUSE OUR STOCK PRICE TO BE VOLATILE
Our annual and quarterly operating results are likely to fluctuate
significantly in the future due to numerous factors, many of which are outside
of our control. These factors include:
- our ability or inability to deploy our network on a timely basis;
- the rate of customer acquisition and turnover;
- the prices our customers are willing to pay;
- the amount and timing of expenditures relating to the expansion of our
network and service offerings;
- the timing and availability of central office collocation facilities and
transport facilities;
- the expansion and success of our strategic alliances and relationships;
- introduction of new services or technologies by our competitors;
- price competition;
- the ability of our equipment, applications and service suppliers to meet
our needs;
- regulatory developments, including interpretations of the 1996
Telecommunications Act;
- technical difficulties or network downtime;
- the condition of the communications and network service industries and
general economic conditions; and
- the amount and timing of noncash charges resulting from compensation
expenses.
Because of these factors, our operating results in one or more future
periods could fail to meet or exceed the expectations of securities analysts or
investors. In that event, the trading price of our common stock would likely
decline.
IF WE CANNOT ACQUIRE THIRD-PARTY BILLING, CUSTOMER SERVICE AND INFORMATION
SUPPORT SYSTEMS ON A TIMELY BASIS, OUR BUSINESS WILL SUFFER
Information and processing systems are vital to our growth and ability to
monitor costs, bill customers, process customer orders and achieve operating
efficiencies. Our plans for the development and implementation of our
operational and support systems rely, for the most part, on acquiring products
and services offered by third-party vendors and integrating those products and
services
4
<PAGE>
in-house to produce efficient operational solutions. However, we may not
successfully identify all of our information and processing needs or implement
these systems on a timely basis or at all, and these systems may not perform as
expected.
We have only recently begun to acquire rights to use these vital products
and services. In addition, our right to use these systems will be dependent upon
license agreements with third-party vendors. Some of those agreements may be
cancelable by the vendor and the cancellation or nonrenewal of these agreements
may interrupt our service until we find alternative suitable vendors.
OUR DEPENDENCE ON INCUMBENT CARRIERS FOR COLLOCATION AND TRANSMISSION FACILITIES
COULD DELAY OUR ABILITY TO PROVIDE OUR SERVICES
We must use copper telephone lines controlled by the incumbent carriers to
provide DSL connections to customers. We also depend on the incumbent carriers
for collocation, for a substantial portion of the transmission facilities we use
to connect our equipment in incumbent carrier central offices to our network and
for testing and maintaining the quality of the copper lines that we use. In many
cases, we may be unable to obtain access to collocation and transmission
facilities from the incumbent carriers, or to gain access at acceptable rates,
terms and conditions, including timeliness. Lengthy periods between our request
for and the actual provision of the collocation space and telephone lines will
cause us to incur significant expenses in advance of the receipt of revenues. If
sales that we forecast for a particular period do not occur due to these delays,
or due to the loss of potential customers, our business, prospects, operating
results, and financial condition could be materially and adversely affected.
Because we will compete with incumbent carriers in our markets, they may be
reluctant to cooperate with us. If this occurs, we may not have alternate means
of connecting our DSL equipment with the copper lines or connecting our
equipment in central offices to our switching centers. The number of other
competitive carriers that request collocation space will also affect the
availability of collocation space and transmission capacity. Delays in obtaining
access to collocation space and telephone lines or the rejection of our
applications for collocation could result in delays in, and increased expenses
associated with, the rollout of our services.
WE DEPEND ON THE QUALITY AND AVAILABILITY OF EXISTING COPPER LINES TO EXPAND OUR
NETWORK AND PROVIDE QUALITY SERVICE
We depend significantly on the quality and availability of incumbent
carriers' copper lines and their maintenance of such lines. We may not be able
to obtain the copper lines and the services we require from incumbent carriers
at satisfactory quality levels, rates, terms and conditions. Our inability to do
so could delay the expansion of our networks and degrade the quality of our
services to our customers.
WE ARE UNABLE TO CONTROL THE TERMS AND CONDITIONS UNDER WHICH WE GAIN ACCESS TO
INCUMBENT CARRIER COLLOCATION AND TRANSMISSION FACILITIES WHICH COULD CAUSE
DELAYS IN OUR EXPANSION INTO ADDITIONAL MARKETS
We are required to enter into and implement interconnection agreements in
each of our target regions with the appropriate incumbent carrier in order to
provide service in those regions. We cannot control the terms under which we
collocate our equipment, connect to copper lines or gain the use of an incumbent
carrier's transmission facilities. State tariffs, state public utility
commissions and interconnection agreements with the incumbent carriers determine
the price, terms and conditions under which collocation space is made available.
We may be unable to negotiate, enter into or renew requisite interconnection
agreements on acceptable terms or at all. In addition, disputes may arise
between us and the incumbent carriers with respect to interconnection
agreements, and we may be unable to resolve disputes in our favor. If we are
unable to enter into or experience a delay in obtaining interconnection
agreements, this inability or delay could cause delays in our expansion into
5
<PAGE>
additional markets. In addition, the interconnection agreements are subject to
Federal Communications Commission, state commission and judicial oversight.
These government authorities may modify the terms of the interconnection
agreements in a way that harms our business.
OUR DEPENDENCE ON THIRD PARTIES FOR TRANSPORT CONNECTIONS COULD EXPOSE US TO
DELAYS
We depend on the availability of transport connections from third parties to
connect our equipment within and between our markets. These third party carriers
include interexchange carriers, incumbent carriers and other competitive
carriers. Many of these entities are, or may become, our competitors. We may be
unable to negotiate and renew favorable supply agreements. Further, we depend on
the timeliness of these companies to process our orders for customers who seek
to use our services. Moreover, the backhaul and backbone transport providers
whose networks we lease may be unable to obtain or maintain permits and
rights-of-way necessary to develop and operate existing and future networks.
WE WILL RELY ON DIRECT SALES, WHICH MAY NOT BE A COST-EFFECTIVE METHOD OF
SELLING OUR SERVICES TO BUSINESSES
We will market and sell our products through a direct sales force supported
by a dedicated marketing staff. The market for DSL and other broadband services
is new, and our direct sales efforts may not be a cost-effective means of
selling these services to businesses. Many of our competitors are selling their
services indirectly through Internet service providers, other carriers,
value-added resellers, and system integrators. Our direct method may prove to be
a more costly approach. Although we believe that our success depends largely on
maintaining a dedicated marketing staff and sales force, we may not achieve a
level of sales sufficient to justify maintaining our own marketing staff and
sales force.
WE WILL ALSO RELY ON INDIRECT SALES, WHICH MAY BE INEFFECTIVE BECAUSE WE CANNOT
CONTROL THESE SERVICE PROVIDERS
We will also rely on indirect sales channels for the marketing and sales of
our network services. We will seek to establish relationships with numerous
service providers, including Internet service providers, interexchange carriers,
other competitive carriers and value added resellers to gain access to
customers. All of our agreements to date with service providers are
non-exclusive, and we anticipate that future agreements will also be on a
non-exclusive basis, allowing service providers to resell services offered by
our competitors. These agreements are generally short term, and can be cancelled
by the service provider without significant financial or other consequences. We
cannot control how these service providers perform and cannot be certain that
their performance will be satisfactory to us or our customers. Many of these
companies also compete with us. If the number of customers we obtain through
indirect sales channels is significantly lower than our forecast for any reason,
or if the service providers with which we have contracted are unsuccessful in
competing in their own intensely competitive markets, we will be unable obtain
the market penetration required to achieve and sustain profitability.
INTENSE COMPETITION IN OUR TARGET MARKETS COULD PREVENT US FROM INCREASING
REVENUE AND ACHIEVING OR SUSTAINING PROFITABILITY
Our industry is highly competitive. We have not obtained significant market
share in any of the areas where we offer or intend to offer services, nor do we
expect to do so in the near future given the size of the local
telecommunications market, the intense competition and the diversity of customer
needs. In each market area in which we provide or intend to provide services, we
compete or will compete with several other service providers and the variety of
technologies they use for local access,
6
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high-speed connections. We anticipate the level of competition in our industry
to intensify in the future due, in part, to increasing consolidation. We
anticipate significant competition from:
- Incumbent local exchange carriers, which have begun deploying DSL-based
services or other high-speed data communications services, combined with
existing wide area, metropolitan and local area networks;
- DSL-based competitive local exchange carriers which are currently
providing DSL-based services in numerous areas;
- Interexchange carriers which are building and expanding their networks to
support high-speed local access, including competitive DSL-based services,
combined with metropolitan and wide area networks, as well as offering a
full range of Internet services and applications;
- Cable modem service providers which are offering high-speed Internet
access over cable networks, and principally to residential customers, have
positioned themselves to do the same for businesses;
- Traditional competitive local exchange carriers which have recently begun
offering DSL services to their customers;
- Internet service providers which have begun to develop high-speed access
capabilities to augment their existing products and services; and
- Providers utilizing alternative technologies, such as wireless and
satellite-based data service providers.
Most of our current and potential competitors have longer operating
histories, larger customer bases, more established relationships with customers
and suppliers in their respective industries, greater name recognition and
significantly greater financial, technical, marketing, service support and other
resources than Jato. We also face intense competition with respect to the prices
and types of services and products we offer. As a result, our competitors may be
able to respond more quickly than we can to new and evolving opportunities,
technologies or customer demands. For more information regarding our competition
see "Business -- Competition."
IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND OUR OPERATIONS WHEN
NEEDED, OUR NETWORK DEPLOYMENT WOULD BE ADVERSELY AFFECTED. THIS COULD CAUSE OUR
BUSINESS, PROSPECTS AND OPERATING RESULTS TO BE MATERIALLY HARMED
We have yet to generate significant revenues, and have no assurance of
future revenues. We believe that our cash and cash equivalents at December 31,
1999, additional funds received from Qwest, Global Crossing and Microsoft, the
proceeds from this offering and amounts available under our Lucent credit
facility, will be adequate to fund our capital expenditures and operating losses
through November 2000. We will not have completed our network deployment by then
and will need additional capital, whether or not our estimate on how long
current capital resources will last is accurate. If we are not able to raise
additional funds when needed, we would be required to significantly scale back
our operations. This would have a material adverse effect on our business,
prospects, operating results and financial condition. There can be no assurance
that additional capital will be available on terms acceptable to us, or at all.
The expansion and development of our business will require significant
additional capital. To realize our network deployment objectives, we spent
$21.2 million in 1999, and expect to spend an additional $100 million in 2000.
We will require additional financing to fund our capital expenditures and
operating losses in the future. Our actual funding requirements may differ
materially if our assumptions are incorrect.
7
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We may be unable to obtain any future equity or debt financing on acceptable
terms or at all. Recently the financial markets have experienced extreme price
fluctuations. A market downturn or general market uncertainty may adversely
affect our ability to secure additional financing. If we are unable to obtain
additional capital or are required to obtain it on terms less satisfactory than
what we desire, we will need to delay deployment of our services or take other
actions that could adversely affect our business, prospects, operating results
and financial condition. To date, our cash flow from operations has been
insufficient to cover our expenses and capital needs. Please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
WE MAY NOT BE ABLE TO SERVICE EXISTING AND FUTURE DEBT OBLIGATIONS, WHICH MAY BE
SUBSTANTIAL, OR COMPLY WITH RESTRICTIVE COVENANTS IMPOSED BY OUR LENDERS
Lucent has provided us with a $50 million credit facility which is secured
by substantially all of our network equipment. We expect to borrow the entire
amount of this facility. We expect to seek additional financing in the near
future, which may include the incurrence of substantial debt obligations. We are
not currently generating cash flows, and have no assurances of future cash
flows, sufficient to fund our operations or repay existing or future debt. Thus,
there is no assurance that we will be able to repay our existing debt or any
additional debt in the future. In addition to the restrictive covenants imposed
on us by our credit facility with Lucent, any debt we are able to raise in the
future will likely contain restrictive covenants that would place additional
burdens on our ability to execute our business plan or incur additional debt.
CHANGES TO REGULATIONS AFFECTING THE TELECOMMUNICATIONS INDUSTRY COULD REDUCE
DEMAND FOR OUR PRODUCTS OR ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
We are subject to regulation by the Federal Communications Commission, and
by state public service and public utility commissions as a provider of
telecommunications services. Changes in existing laws, policies or regulations
in the states and localities we serve or by the Federal Communications
Commission could materially and adversely affect our business, prospects,
operating results or financial condition, particularly if those legal,
regulatory or policy changes increase the cost and regulatory burdens of
providing services. There can be no assurance that regulatory authorities in the
areas we serve or the Federal Communications Commission will not take actions
having an adverse effect on our business, prospects, financial condition or
operating results. The 1996 Telecommunications Act has significantly altered
regulation of the telecommunications industry by preempting state and local laws
to the extent that they prevent competition and by imposing a variety of new
duties on competitive carriers and incumbent carriers in order to promote
competition in local exchange and access services. Although we believe that the
1996 Telecommunications Act and other trends in federal and state legislation
and regulation that favor increased competition are to our advantage, there can
be no assurance that the increased competitive opportunities or other changes in
current regulations or future regulations at the federal or state level will not
have a material adverse effect on our ability to expand into additional markets.
See "Business -- Government Regulation."
WE PLAN TO EXPAND RAPIDLY AND IT MAY BE DIFFICULT TO MANAGE OUR GROWTH
To meet our objectives, we need to rapidly and significantly expand our
operations. Our expansion to date has challenged our management, financial
controls, operations systems, personnel and other resources. Any future rapid
expansion would increase these strains. If our marketing strategy is successful,
we may experience difficulties responding to customer demand for services and
technical support in a timely manner and in accordance with customer
expectations. As a result, rapid growth of
8
<PAGE>
our business would make it difficult to implement successfully our strategy to
provide superior customer service. To manage the expected growth of our
operations, we must:
- improve existing and implement new operational, financial and management
information controls, reporting systems and procedures;
- hire, train and manage additional qualified personnel;
- expand and upgrade our core technologies; and
- effectively manage multiple relationships with our customers, suppliers
and other third parties.
We may not be able to install management information and control systems in
an efficient and timely manner, and our current or planned personnel, systems,
procedures and controls may not be adequate to support our future operations.
Failure to manage our future growth effectively could adversely affect the
expansion of our customer base and service offerings. Any failure to
successfully address these issues could materially and adversely affect our
business, prospects, operating results and financial condition.
UNLESS WE ARE ABLE TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGY, WE WILL NOT BE
ABLE TO SUSTAIN OR GROW OUR BUSINESS
The telecommunications industry is subject to rapid and significant
technological changes, including continuing developments in DSL technology,
which does not have widely accepted standards, and alternative technologies for
providing high-speed data communications. As a consequence:
- we will rely on third parties, including some of our competitors and
potential competitors, to develop and provide us with access to
communications and networking technology;
- our success will depend on our ability to anticipate or adapt to new
technology on a timely basis; and
- we expect that new products and technologies will emerge that may be
superior to, or may not be compatible with, our products and technologies.
If we fail to adapt successfully to technological changes or fail to obtain
access to important technologies, our business will suffer.
WE MAY BE UNABLE TO EFFECTIVELY EXPAND OUR NETWORK SERVICES AND PROVIDE HIGH
PERFORMANCE TO A SUBSTANTIAL NUMBER OF END USERS
Due to the limited deployment to date of our network services, we cannot
guarantee that our network will be able to connect and manage a substantial
number of end users while achieving high performance. Further, our network may
be unable to achieve and maintain competitive digital transmission speeds.
Actual transmission speeds on our network will depend on a variety of factors
and many of these factors are beyond our control, including the type of DSL
technology deployed, the distance an end user is located from a central office,
the quality of the telephone lines, the presence of interfering transmission on
nearby lines and other factors. As a result, we may not be able to achieve and
maintain digital transmission speeds that are attractive in the market which
would harm our business.
OUR SERVICES MAY SUFFER BECAUSE THE TELEPHONE LINES WE REQUIRE MAY BE
UNAVAILABLE OR IN POOR CONDITION
Our ability to provide DSL-based services to potential customers depends on
the quality, physical condition, availability and maintenance of telephone lines
within the control of the incumbent carriers. We believe that the current
condition of telephone lines in many cases will be inadequate to permit us to
fully implement our network services. In addition, the incumbent carriers may
not maintain the
9
<PAGE>
telephone lines in a condition that will allow us to implement our network
effectively. The telephone lines may not be of sufficient quality or the
incumbent carriers may claim they are not of sufficient quality to allow us to
fully implement or operate our network services. Further, some customers use
technologies other than copper lines to provide telephone services, and DSL
might not be available to these customers.
IF WE ARE UNABLE TO RETAIN AND HIRE OUR KEY PERSONNEL, WE MAY NOT BE ABLE TO
SUCCESSFULLY ACHIEVE OUR OBJECTIVES
Our success depends on the performance of our key personnel in executing our
business plan including the continued service of Gerald K. Dinsmore, our
President and Chief Executive Officer, Terri L. Compton, our Executive Vice
President, Operations and Chief Operating Officer, William D. Myers, our Senior
Vice President, Finance and Strategic Planning and Chief Financial Officer and
Rex A. Humston, our Senior Vice President, Engineering and Chief Technology
Officer. Several members of our senior management team have joined Jato very
recently. If they are unable to effectively integrate themselves into our
business or work together as a management team, our business will suffer. See
"Management." In addition, our employees, including members of our senior
management team, may terminate their employment with us at any time. For
instance, Brian Gast, Leonard Allsup, and Bruce Dines have resigned their
officer positions. Messrs. Gast, Allsup and Dines have assisted us in
identifying successors and are participating in an orderly transition process.
In addition, Messrs. Gast and Allsup will continue to serve as directors until
June 30, 2000. We also do not have "key person" life insurance policies on any
of our employees. If any of our key employees left or was seriously injured and
unable to work and we were unable to find a qualified replacement, our business
could be harmed. Our future success also depends on our continuing ability to
identify, attract, motivate and retain highly skilled personnel. We plan to
significantly expand our operations, and we will need to hire additional
personnel as our business grows. The industry in which we compete has a high
level of employee mobility and aggressive recruiting of skilled personnel. We
face intense competition for qualified personnel, particularly in network
engineering, sales and marketing and product development. If we are unable to
continue to employ our key personnel or to attract and retain qualified
personnel in the future our business, prospects, operating results and financial
condition could be materially and adversely affected.
RELIANCE ON LUCENT FOR NETWORK DEPLOYMENT AND MONITORING COULD RESULT IN
SIGNIFICANT DELAYS AND COSTS
We entered into a strategic alliance with Lucent to install, integrate,
monitor and maintain our nationwide broadband network. Any failure or inability
by Lucent to perform these functions in a timely manner could cause significant
delays and costs in providing services to our existing and prospective customers
and deploying our network in our target markets. Any such failure could
materially and adversely affect our business, prospects, operating results and
financial condition. In addition, our alliance with Lucent is non-exclusive;
they are providing or may provide similar services to our competitors.
OUR DEPENDENCE ON THIRD PARTIES FOR EQUIPMENT, INSTALLATION AND PROVISION OF
FIELD MAY EXPOSE US TO SUPPLY AND OTHER INTERRUPTIONS
We currently plan to purchase all of our equipment from a number of vendors
and outsource substantially all of the installation and field service of our
networks to third parties, principally Lucent. Our reliance on third party
vendors involves a number of risks, including the absence of guaranteed capacity
and reduced control over delivery schedules, quality assurance, production
yields and costs. If any of our suppliers reduces or interrupts its supply, or
if any significant installer or field service provider interrupts its service to
us, this reduction or interruption could disrupt our business. Our suppliers may
be unable to manufacture and deliver the amount of equipment we order, or the
available supply may be insufficient to meet our demand. If our suppliers or
licensors enter into competition with us, or if our competitors enter into
exclusive or restrictive arrangements with the suppliers or licensors, then
these events may materially and adversely affect the availability and pricing of
the equipment we purchase.
10
<PAGE>
WE DEPEND ON OUR NETWORK INFRASTRUCTURE TO BE RELIABLE; ANY FAILURE OF THE
RELIABILITY OF OUR NETWORK COULD MATERIALLY HARM OUR BUSINESS
Our success will depend upon the capacity, reliability and security of our
network. Our failure to maintain and expand our network infrastructure on a
timely basis or adapt it to either changing customer requirements or evolving
industry standards could have a material adverse effect on our business,
prospects, operating results and financial condition. Because we expect that a
substantial portion of our future revenues will be derived from providing
tailored applications and services to our customers, we must continue to expand
and adapt our network infrastructure as the number of end users and the amount
of information they wish to transfer increase and as customer requirements
change. If end user demand evolves to favor higher downstream transmission
speeds than those we currently offer, we cannot be sure that we will be able to
expand or adapt our network infrastructure to meet this additional demand or our
customers' changing requirements on a timely basis, at a commercially reasonable
cost, or at all.
INTERFERENCE OR CLAIMS OF INTERFERENCE COULD DELAY OUR NETWORK DEPLOYMENT OR
HARM OUR SERVICES
All transport technologies deployed on copper telephone lines have the
potential to interfere with, or to be interfered by, other transport
technologies on the copper telephone lines. We believe that our DSL
technologies, like other transport technologies, do not interfere with existing
voice services. There are several initiatives underway to establish national
standards and principles for the deployment of DSL technologies. We believe that
our technologies can be deployed consistently with these evolving standards.
Nevertheless, incumbent carriers may claim that the potential for interference
permits them to restrict or delay our deployment of DSL services. Interference
could degrade the performance of our services or make us unable to provide
service on selected lines. The procedures to resolve interference issues between
competitive carriers and incumbent carriers are still being developed, and these
procedures may not be effective. We may be unable to successfully negotiate
interference resolution procedures with incumbent carriers. Moreover, incumbent
carriers may make claims regarding interference or unilaterally take action to
resolve interference issues to the detriment of our services. State or federal
regulatory bodies could also institute responsive actions. Interference, or
claims of interference, if widespread, would adversely affect our speed of
deployment, reputation, brand image, service quality and customer satisfaction
and retention.
UNCERTAIN FEDERAL AND STATE TAX AND OTHER SURCHARGES ON OUR SERVICES MAY
INCREASE OUR PAYMENT OBLIGATIONS
Telecommunications providers pay a variety of surcharges and fees on their
gross revenues from interstate and intrastate services. The division of our
services between interstate and intrastate services is a matter of
interpretation, and in the future the Federal Communications Commission or
relevant state commission authorities may contest this division. A change in the
characterization of the jurisdiction of our services could cause our payment
obligations to increase. In addition, pursuant to periodic revisions by state
and federal regulators of the applicable surcharges, we may be subject to
increases in the surcharges and fees currently paid.
CLAIMS AGAINST US ALLEGING OUR INFRINGEMENT OF A THIRD PARTY'S INTELLECTUAL
PROPERTY COULD RESULT IN SIGNIFICANT EXPENSE TO US AND RESULT IN OUR LOSS OF
SIGNIFICANT RIGHTS
We rely on a combination of licenses, confidentiality agreements and other
contracts to establish and protect our intellectual property rights. We have
applied for service marks on certain terms and symbols that we believe are
important for our business. We currently have no patents or patent applications
pending. The steps we have taken may be inadequate to protect our technology or
other intellectual property. Third parties may assert infringement claims
against us and, in the event of an unfavorable ruling on any claim, we may be
unable to obtain a license or similar agreement to use
11
<PAGE>
intellectual property we rely upon to conduct our business. In addition, these
claims may divert management's attention and be costly to defend. We also rely
on unpatented trade secrets and know-how to maintain our competitive positions,
which we seek to protect, in part, by confidentiality agreements with employees,
consultants and others. However, these agreements may be breached or terminated,
and we may not have adequate remedies for any breach. In addition, our
competitors may otherwise learn or discover our trade secrets. Our management
personnel were previously employees of other telecommunications companies. In
many cases, these individuals are conducting activities for us in areas similar
to those in which they were involved prior to joining us. As a result, we or our
employees could be subject to allegations of violation of trade secrets and
other similar claims.
A DECLINE IN THE STRONG U.S. ECONOMY, WHICH HAS ENABLED COMPANIES TO KEEP PACE
WITH RAPID TECHNOLOGICAL CHANGE, SUCH AS DSL, COULD ADVERSELY IMPACT DEMAND FOR
OUR SERVICES
In the last few years the general health of the U.S. economy has been
relatively strong and growing, which has led to increased capital spending by
individuals and growing companies to keep pace with rapid technological
advances. To the extent the general economic health of the U.S. declines from
recent historically high levels, or to the extent businesses and individuals
fear a decline is imminent, these businesses and individuals may reduce
expenditures for our services. Any decline or concern about an imminent decline
could delay decisions among certain of our customers to roll out our services or
could delay decisions by prospective customers to make initial evaluations of
our services.
OUR EXISTING PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS WILL
CONTINUE TO CONTROL OUR COMPANY AND THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER
MATTERS REQUIRING STOCKHOLDER APPROVAL
Following the offering, our executive officers, directors and our
stockholders who currently own over five percent of our common stock will, in
the aggregate, beneficially own approximately 46.82% of our outstanding common
stock. These stockholders, if they vote together, will be able to significantly
influence matters that we require our stockholders to approve, including
electing directors and approving significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of Jato, which could result in a lower stock price. See
"Principal and Selling Stockholders" for information about the ownership of
common stock by our executive officers, directors and principal stockholders.
WE FACE RISKS RELATED TO YEAR 2000
Our software and third party hardware and software we use for our internal
systems to run our business may contain undetected errors or defects associated
with Year 2000. If any such errors or defects do exist, we may incur material
costs, which would adversely affect our business.
WE EXPECT OUR STOCK PRICE TO BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL
SHARES AT OR ABOVE THE OFFERING PRICE
You should be aware that the stock of companies in our industry have
experienced extreme price and volume fluctuations. The price at which our common
stock will trade will depend upon many factors, including our quarterly and
annual operating results, variations between our actual results and analyst and
investor expectations, announcements by us or others and developments affecting
our business, investor perceptions of our company and comparable public
companies, changes in our industry and general market and economic conditions.
Some of these factors are beyond our control.
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<PAGE>
WE HAVE NOT PAID AND DO NOT INTEND TO PAY DIVIDENDS, THEREFORE YOU WILL NOT
RECEIVE A RETURN ON YOUR INVESTMENT FROM THE RECEIPT OF DIVIDENDS
We have not paid any dividends, and we do not intend to pay cash dividends
in the foreseeable future. Our current financing documents contain provisions
which restrict our ability to pay dividends.
CERTAIN PROVISIONS IN OUR CORPORATE CHARTER AND BYLAWS MAY DISCOURAGE TAKE-OVER
ATTEMPTS AND THUS DEPRESS THE MARKET PRICE OF OUR STOCK
Some of the provisions that will be included in our restated certificate of
incorporation and bylaws may discourage, delay or prevent a merger or
acquisition at a premium price. These provisions include:
- authorizing the issuance of "blank check" preferred stock;
- providing for a classified Board of Directors with staggered, three-year
terms and limiting the removal of directors by the stockholders to removal
for cause;
- eliminating the ability of stockholders to act by written consent in lieu
of a stockholder meeting or to call a special meeting of stockholders;
- requiring a super-majority stockholder vote to effect certain amendments;
and
- requiring advance notice of stockholder proposals and stockholder
nominations of directors.
In addition, certain provisions of the Delaware General Corporation Law may
deter someone from acquiring or merging with us, including a transaction that
results in stockholders receiving a premium over the market price for the shares
of common stock held by them. Section 203 of the Delaware General Corporation
Law also imposes certain restrictions on mergers and other business combinations
between us and any holder of more than 15% and less than 85% of our common
stock. See "Description of Capital Stock -- Possible Anti-Takeover Matters."
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE
OUR STOCK PRICE TO FALL
Sales of substantial amounts of common stock in the public market following
this offering, or the appearance that a large number of shares is available for
sale, could adversely affect the market price for the common stock. The number
of shares of common stock available for sale in the public market will be
limited by lock-up agreements under which the holders of substantially all of
our outstanding shares of common stock and options and warrants to purchase
common stock will agree not to sell or otherwise dispose of any of their shares
for a period of 180 days after the date of this prospectus without the prior
written consent of Merrill Lynch & Co. However, Merrill Lynch & Co. may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to lock-up agreements. In addition to the adverse effect
a price decline could have on holders of common stock, that decline would likely
impede our ability to raise capital through the issuance of additional shares of
common stock or other equity securities. See "Description of Capital Stock --
Registration Rights" and "Shares Eligible for Future Sale."
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN NET TANGIBLE BOOK VALUE
Because our common stock has in the past been sold at prices substantially
less than the public offering price that you will pay, you will incur immediate
and substantial dilution of $10.72 in the net tangible book value per share of
the common stock from the price you pay for the common stock in this offering.
13
<PAGE>
MANAGEMENT HAS BROAD DISCRETION TO USE THE NET PROCEEDS FROM THIS OFFERING AND
THE PROCEEDS MAY NOT BE USED APPROPRIATELY
Our management will have broad discretion over the use of proceeds we raise
in this offering, and you must rely on the judgment of management in the
application of our net offering proceeds. See "Use of Proceeds."
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us, including, among other things:
- our anticipated growth strategies;
- our intention to introduce new applications and services;
- our future expenditures for network deployment;
- our ability to continue to control costs and maintain quality; and
- anticipated trends in our business, including trends in technology
and the growth of broadband applications and services.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. Our actual results could differ materially from those discussed in
these statements. Factors that could contribute to such differences include
those discussed in "Risk Factors," "Business," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
prospectus.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO
DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. 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. THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS,
REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE
SECURITIES.
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<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of 8,925,000 shares of
common stock in this offering will be approximately $114.5 million based upon an
assumed initial public offering price of $14.00 per share, after deducting
underwriting discounts and commissions and estimated expenses payable by us. We
will not receive any of the proceeds of the shares sold by the selling
stockholders upon any exercise of the underwriters' over-allotment option. In
addition, we will receive $2.5 million of additional proceeds from the
concurrent placement to Qwest.
We expect to use approximately $64.1 million of our net proceeds from this
offering and the concurrent placement to Qwest to fund capital expenditures
related to the continued deployment of our network, $30.0 million for the
expansion of our sales and marketing activities, and $22.9 million for working
capital and other general corporate purposes.
In particular, we expect to make capital expenditures of approximately
$100 million during 2000 for equipment purchases and expansion of our network.
We expect to require additional financing to fund our capital expenditures and
operating losses in the future. The amounts we actually expend in such areas may
vary significantly and will depend on a number of factors, including our future
revenues. Accordingly, management will retain broad discretion in the use of the
net proceeds of this offering. You will not have the opportunity to evaluate the
economic, financial or other information on which we base our decisions on how
to use the proceeds. Pending such uses, the net proceeds of this offering will
be invested in short term, interest bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will depend
upon our financial condition, operating results, capital requirements, covenants
in our debt instruments and such other factors as the board of directors deems
relevant. In addition, our current financing documents restrict our ability to
pay dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the receipt of proceeds of
$25 million for our sale of 4,464,285 shares of Series D preferred stock
at a price of $5.60 per share in January and February 2000 and the
exercise of options and warrants to purchase a net of 63,489 shares of
common stock for approximately $117,000; and
- on a pro forma and as adjusted basis to reflect the automatic conversion
of all of the outstanding shares of our preferred stock, the receipt of
the estimated net proceeds from the sale of common stock offered by us in
this offering, after deducting estimated underwriting discounts and
estimated offering expenses payable by us and the receipt of the net
proceeds from the sale of 178,571 shares of our common stock (based on an
assumed initial public offering price of $14.00 per share) to Qwest at an
aggregate purchase price of $2.5 million in the concurrent placement.
You should read this table in conjunction with our consolidated financial
statements and the related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------------
PRO FORMA
AS
ACTUAL(1) PRO FORMA ADJUSTED
--------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $15,017 $40,134 $157,137
======= ======= ========
DEBT:
Long-term debt.............................................. $16,868 $16,868 $ 16,868
STOCKHOLDERS' EQUITY:
Series A preferred stock, $.01 par value, 1,751,985 shares
authorized actual and pro forma and no shares authorized
pro forma as adjusted; 1,751,985 shares issued and
outstanding actual and pro forma and no shares issued and
outstanding pro forma as adjusted......................... 1,301 1,301 --
Series B preferred stock, $.01 par value, 13,615,322 shares
authorized actual and pro forma and no shares authorized
pro forma as adjusted; 13,615,322 shares issued and
outstanding actual and pro forma and no shares issued and
outstanding pro forma as adjusted......................... 20,174 20,174 --
Series C preferred stock, $.01 par value; 8,550,000 shares
authorized actual, 4,932,308 shares authorized pro forma
and no shares authorized pro forma as adjusted; 4,932,308
shares issued and outstanding actual and pro forma and no
shares issued and outstanding pro forma as adjusted....... 27,561 27,561 --
Series D preferred stock, $.01 par value, no shares
authorized actual, 5,000,000 shares authorized pro forma,
and no shares authorized pro forma as adjusted; no shares
issued and outstanding actual, 4,464,285 shares issued and
outstanding pro forma and no shares issued and outstanding
pro forma as adjusted..................................... -- 25,000 --
Common stock, $.01 par value, 80,000,000 shares authorized
actual and pro forma and pro forma as adjusted; 9,564,521
shares issued and outstanding actual; 9,628,010 shares
issued and outstanding pro forma and 53,574,327 shares
issued and outstanding pro forma as adjusted.............. 96 96 536
Additional paid-in capital.................................. 14,967 15,084 205,683
Deferred compensation....................................... (13,735) (13,735) (13,735)
Accumulated deficit......................................... (15,256) (15,256) (15,256)
------- ------- --------
Total stockholders' equity................................ 35,108 60,225 177,228
------- ------- --------
Total capitalization.................................... $51,976 $77,093 $194,096
======= ======= ========
</TABLE>
- ------------------------------
(1) The number of shares of common stock in this table excludes:
- 7,035 shares of common stock subject to issuance upon exercise of warrants
outstanding as of December 31, 1999, all of which will expire if not
exercised prior to the closing of this offering;
- 5,733,455 shares of common stock issuable upon exercise of options
outstanding under our 1998 equity incentive plan as of December 31, 1999;
and
- 297,619 shares of common stock (based on an assumed initial public
offering price of $14.00 per share) subject to issuance upon exercise of
the warrant issuable to Qwest at the concurrent placement for an aggregate
exercise price of $5.0 million.
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<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $1.37 per
share. Pro forma net tangible book value represents the amount of total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding after giving effect to the issuance of the Series D preferred stock,
the conversion of all outstanding shares of preferred stock into common stock,
the issuance of a net of 63,489 shares of common stock pursuant to the exercise
of options and a warrant and the issuance of 178,571 shares of common stock
(based on an assumed initial public offering price of $14.00 per share) to Qwest
in the concurrent placement. Without taking into account any other changes in
the net tangible book value after December 31, 1999, other than to give effect
to our receipt of the net proceeds from the sale of the 8,925,000 shares of
common stock in this offering, our pro forma net tangible book value as of
December 31, 1999 would have been approximately $175.6 million or $3.28 per
share. This represents an immediate increase in net tangible book value of $1.91
per share to existing stockholders and an immediate dilution of $10.72 per share
to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $ 14.00
Pro forma net tangible book value per share at
December 31, 1999..................................... 1.37
Increase per share attributable to new investors........ 1.91
-------
Pro forma net tangible book value per share after this
offering................................................ 3.28
-------
Dilution per share to new investors....................... $ 10.72
=======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, the differences between existing stockholders and the new investors with
respect to:
- the number of shares of common stock purchased from us, after giving
effect to the issuance of the Series D preferred stock and assuming
conversion of all outstanding shares of preferred stock into common stock,
the issuance of a net of 63,489 shares of common stock pursuant to the
exercise of options and a warrant and the issuance of 178,571 shares of
common stock (based on an assumed initial public offering price of $14.00
per share) to Qwest in the concurrent placement for an aggregate purchase
price of $2.5 million;
- the total consideration paid to us; and
- the average price per share existing stockholders and new investors pay
when they buy common stock in this offering before deduction of estimated
underwriting discounts and offering expenses.
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<PAGE>
The calculation in this table with respect to shares to be purchased by new
investors in this offering reflect an assumed initial public offering price of
$14.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....................... 44,649,327 83.3% $ 81,228,000 39.4% $ 1.82
New investors............................... 8,925,000 16.7 124,950,000 60.6 $ 14.00
----------- ------ ------------ ------
Total..................................... 53,574,327 100.0% $206,178,000 100.0%
=========== ====== ============ ======
</TABLE>
Any sale of common shares by Jato's selling stockholders pursuant to the
underwriters' over-allotment option will reduce the number of common shares held
by existing stockholders to 43,310,577 if the over-allotment option is exercised
in full, or approximately 80.8% of the total number of common shares outstanding
upon the closing of this offering, and will increase the number of shares held
by new public investors to 10,263,750 if the underwriters' over-allotment option
is exercised in full or approximately 19.2%, of the total number of common
shares outstanding after this offering.
As of March 24, 2000, there were outstanding options to purchase an
aggregate of 7,583,180 shares of common stock at a weighted average exercise
price of $3.31 per share. There will be further dilution to new investors to the
extent any of these options are exercised.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data have been derived from
our audited financial statements and notes. The consolidated financial
statements are included elsewhere in this prospectus. You should read the
following data together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
INCEPTION TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------ -----------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $-- $ 315
Operating Expenses:
Network and service costs................................. -- 1,170
Marketing expenses........................................ -- 1,919
Selling, general and administrative....................... 404 11,152
Amortization of deferred compensation..................... -- 843
Depreciation and amortization............................. 1 469
------ --------
Operating loss.............................................. (405) (15,238)
Interest income............................................. 9 378
------ --------
Net loss.................................................... $ (396) $(14,860)
====== ========
Net loss per common share (basic and diluted)............... $(0.05) $ (1.64)
Shares used in computing net loss per share................. 8,266 9,053
Unaudited pro forma net loss per common share (basic and
diluted)(1)............................................... $(0.04) $ (0.64)
Shares used in computing pro forma net loss per share....... 9,036 23,099
OTHER FINANCIAL DATA:
EBITDA(2)................................................... $ (404) $(13,926)
Capital expenditures........................................ 58 21,156
Net cash flows from:
Operating activities...................................... (123) (10,906)
Investing activities...................................... (85) (22,161)
Financing activities...................................... 1,478 46,814
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
---------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA(3):
Cash and cash equivalents................................... $15,017 $40,134 $157,137
Property and equipment, net................................. 37,463 37,463 37,463
Total assets................................................ 55,591 80,708 197,711
Total liabilities........................................... 20,483 20,483 20,483
Deferred compensation....................................... (13,735) (13,735) (13,735)
Accumulated deficit......................................... (15,256) (15,256) (15,256)
Total stockholders' equity.................................. 35,108 60,225 177,228
</TABLE>
- ------------------------------
(1) Unaudited pro forma net loss per share gives effect to the automatic
conversion of the preferred stock into common stock, which will occur upon
the closing of this offering.
(2) EBITDA consists of net loss excluding net interest, taxes, depreciation and
amortization of capital assets, and amortization of deferred compensation.
We believe that EBITDA is a measure of financial performance commonly
employed in the telecommunications industry, and is useful to investors and
analysts as an indicator of a company's ability to fund its operations and
to service or incur debt. Conversely, negative EBITDA implies that a company
is not currently generating sufficient income to fund its operations or
service its debt. EBITDA is not a measure calculated under generally
accepted accounting principles. Other companies may calculate EBITDA
differently from us; consequently, our calculation of EBITDA may not be
comparable to other companies' calculations of EBITDA. EBITDA is not an
alternative to operating income as an indicator of operating performance or
an alternative to cash flows from operating activities as a measure of
liquidity, and investors should consider these measures as well.
In particular, EBITDA differs significantly from cash flows from operating
activities reflected in the consolidated statements of cash flows. Cash from
operating activities is net of interest and taxes paid and is a more
comprehensive determination of periodic income on a cash (vs. accrual)
basis, exclusive of non-cash items of income and expenses such as
depreciation and amortization. In contrast, EBITDA is derived from accrual
basis income and is not reduced for cash invested in working capital.
Consequently, EBITDA is not affected by the timing of receivable collections
or when accrued expenses are paid.
(3) The pro forma balance sheet information reflects the issuance of 4,464,285
shares of Series D preferred stock for $25 million and the exercise of
options and a warrant to purchase a net of 63,489 shares of common stock for
approximately $117,000. In addition, the pro forma as adjusted balance sheet
information reflects the automatic conversion of the preferred stock, the
receipt of the estimated net proceeds from the sale of common stock in this
offering offered by us, after deducting estimated underwriting discounts and
estimated offering expenses payable by us and the receipt of the estimated
net proceeds from the sale of common stock to Qwest in the concurrent
placement.
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<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 should be read in conjunction with "Selected Consolidated
Financial Data" and our consolidated financial statements and related notes
included elsewhere in this prospectus. In the discussion below, we refer to the
period from June 12, 1998 (date of inception) to December 31, 1998 as "1998."
OVERVIEW
We provide broadband data network applications and services to small- and
medium-sized businesses in our target secondary markets. We initiated our
service in June 1999. As of March 24, 2000, we provided services in eleven
markets and had collocated our equipment in eight additional markets. We intend
to expand our services into a total of 40 markets nationwide by the end of 2000
and expect to offer services in all 50 of our targeted secondary markets by the
middle of 2001.
Since inception on June 12, 1998, our principal activities have included:
- obtaining required state and federal governmental authorizations;
- negotiating and entering into interconnection agreements with incumbent
carriers;
- acquiring collocation space and deploying our network equipment;
- identifying, pursuing and negotiating agreements with potential strategic
partners;
- developing criteria for market selection and analyzing potential markets
against these criteria;
- refining our customer targeting parameters;
- launching service in target markets;
- selling and marketing our applications and services;
- hiring management and other personnel;
- raising capital; and
- developing and implementing our operations support system and other back
office systems.
We have incurred operating losses, net losses and negative earnings before
interest, taxes, depreciation and amortization, or EBITDA, during each month
since June 12, 1998. As of December 31, 1998 and 1999, we had an accumulated
deficit of $396,000 and $15.3 million, respectively. We intend to substantially
increase our capital expenditures and will incur materially higher operating
expenses in an effort to rapidly deploy our network and introduce our
applications and services. We expect to incur substantial operating losses, net
losses and negative EBITDA as we expand our operations.
We incur significant network and operations expenses, sales and marketing
expenses and capital expenditures when we enter a new market. Once we have
deployed our network in a market, the majority of our additional expenditures
depend on orders to connect new end users. These additional expenditures
primarily include DSL line cards, incremental digital subscriber line access
multiplexers and customer premise equipment. In addition to the capital
expenditures required to enter a market, we will be required to fund each
market's cash flow deficit as we build our customer base.
As a result of recent stock and option grants, there will be significant
charges to earnings in future periods. As of December 31, 1999, Jato had
recorded $13.7 million of unamortized deferred compensation. Such amount will be
charged to earnings over the next several years. Further, we anticipate
recording additional deferred compensation of approximately $13.8 million during
the first
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quarter of 2000 related to stock option grants during that period. Such amount
will be charged to earnings over the next several years.
In January 2000, we received a $10 million equity investment from Microsoft.
During the first quarter of 2000, we expect to record a $10 million charge to
net loss available to common stockholders representing a preferential dividend
on the Series D preferred stock.
In February 2000, we entered into strategic relationships with Qwest and
Global Crossing. As part of these strategic relationships, we received equity
investments totaling $15 million. During the first quarter of 2000, we expect to
record intangible assets of $34 million associated with these transactions which
will be amortized over periods of five to six years.
FACTORS AFFECTING FUTURE OPERATIONS
REVENUES. Initially, we expect to derive a majority of our revenues from
broadband connectivity and communications services. Currently, we offer our
services through our Internet service provider and value added reseller
customers directly to the end user. We bill these customers in advance for
monthly recurring charges based on the data transfer speeds selected by the end
user. We currently offer flat rate plans at wholesale prices for our high-speed
access and connectivity services. We expect to offer our services directly to
end users at retail prices in the future. These monthly fees will include
charges for high-speed access and connectivity, Internet access and applications
and services we provide. In addition to monthly service fees, end users are
billed for nonrecurring service activation, customer premise equipment and
installation charges. To encourage potential customers to adopt our services, we
may offer reduced monthly prices for an initial period of time or reduced
service activation, customer premise equipment, or installation charges. We
expect that, as a result of competition, prices for our services will decline
over time.
As our business develops and we begin to offer additional applications and
services, we expect to become less dependent on access and broadband
connectivity revenues. By providing network-enabled applications, we expect to
enhance our overall gross margins by adding additional revenues without
incurring incremental fixed costs. We also believe that these additional
services will enable us to build customer loyalty and effectively minimize
customer turnover, or "churn."
We seek to price our services competitively in relation to those of the
incumbent carriers and other competitive carriers in each market. Current
standard line prices that we charge to our wholesale customers for our services
generally range from $70 per month for 144 Kbps service to $195 per month for
1.5 Mbps service before any discounts. During the past several years, market
prices for many telecommunications services have been declining. Therefore, we
anticipate prices for our services to decrease each year. As prices decline for
any given speed of service, we expect that the total number of end users and the
proportion of our end users purchasing our higher-speed, higher-priced services
will increase. Our incremental cost to upgrade an end user's speed is generally
minimal.
Our future financial performance and our ability to achieve positive
operating cash flow, if ever, will depend on a number of factors, some of which
we cannot control. We believe that improvements in our financial performance
depend largely on our ability to:
- rapidly and cost-effectively deploy our network, including collocating our
equipment in numerous central office facilities;
- provide high quality services at competitive prices;
- offer additional applications;
- acquire customers in a cost-effective manner through direct and indirect
sales channels;
- attract qualified personnel, particularly in sales and marketing;
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- minimize customer turnover;
- retain installation and wiring contractors to install equipment and wiring
at customer premises on a timely and cost-effective basis;
- cost-effectively manage increased selling, marketing, general and
administrative expenses; and
- indentify and integrate the necessary administrative and operations
support systems to effectively manage our growth.
NETWORK AND SERVICE COSTS. Our network expenses consist of nonrecurring and
monthly recurring charges for the transport elements we choose to lease rather
than own. We expect that these costs will increase significantly in the future.
Nonrecurring network expenses include installation fees related to transport and
local loop circuits. We expect these costs will be largely related to the
activation of new central offices and new end users. Monthly recurring network
expenses include transport fees, facility rent, power, license fees for
applications and other fees charged by incumbent carriers, competitive carriers
and other providers. Additionally, we pay monthly network maintenance and
monitoring fees to Lucent. As our end user base grows, we expect the largest
element of network expenses to be incumbent carrier charges for leased copper
lines, which are typically approximately $20 per line per month, depending on
the identity of the incumbent carrier and the location of the lines.
MARKETING EXPENSES. Our marketing expenses consist primarily of expenses
related to the development of our brand name, promotional materials and
advertising. We expect that our marketing expenses will grow significantly as we
enter new markets and offer our services on a nationwide basis.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our general and
administrative expenses consist primarily of costs related to personnel,
customer service, finance, administrative services, recruiting and legal
services. We expect that these costs will grow significantly as we expand our
operations. However, we expect these expenses to decline as a percentage of our
revenue as we build our customer base and the number of end users connected to
our network increases.
To attract and retain a highly qualified sales force, we plan to offer our
sales personnel a compensation package consisting of a base salary plus
commissions and stock options. We currently incent our sales personnel with
commissions based on the number of lines sold. Previously earned commissions are
reduced as a result of customer turnover.
AMORTIZATION OF DEFERRED COMPENSATION. Deferred compensation arose as a
result of granting stock awards to employees and directors with purchase or
exercise prices per share subsequently determined to be below the deemed fair
values per share for financial reporting purposes of our common stock at the
purchase or grant dates. The deferred compensation is being amortized over the
applicable vesting period (generally 4 years).
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses include:
- depreciation of network equipment;
- depreciation of furniture, fixtures, computers and equipment; and
- amortization of collocation costs.
We expect depreciation and amortization expense to increase significantly as
more of our network becomes operational and as we increase capital expenditures
to expand our operations. Depreciation is computed on a straight-line basis over
estimated useful lives ranging from three to seven years.
INTEREST EXPENSE. We expect interest expense to increase substantially as
we borrow funds under our credit facility with Lucent.
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<PAGE>
TAXATION. We have not generated any taxable income to date and therefore
have not paid any federal income taxes since inception. We expect to generate
significant operating loss carryforwards. Use of our net operating loss
carryforwards may be subject to limitations under Section 382 of the Internal
Revenue Code of 1986, as amended. We have recorded a full valuation allowance on
our deferred tax asset, consisting primarily of net operating loss
carryforwards, because of uncertainty regarding its recoverability.
RESULTS OF OPERATIONS
REVENUES. We first introduced services in June 1999 and recognized $315,000
of revenue for the year ended December 31, 1999. As of March 24, 2000, we had
approximately 1,345 lines in service. Average monthly recurring revenue per
installed line for the period approximated $80. As of March 24, 2000, we were
under contract to supply over 2,200 additional lines to our customers. We expect
revenues to increase rapidly as our installed subscriber base increases.
Initially, we will derive a majority of our revenue from DSL access and
connectivity services. In the future, we expect to supplement our transport
revenues by providing applications and services to our customers.
NETWORK AND SERVICE COSTS. We did not incur any network and service costs
during 1998. For the year ended December 31, 1999, network and service costs
totaled $1.2 million.
MARKETING EXPENSES. Marketing expenses totaled $1.9 million for the year
ended December 31, 1999 and principally related to launch of our service in our
initial markets.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in 1998 and for the year ended December 31, 1999 were
approximately $404,000 and $11.2 million, respectively. This increase was
primarily due to increases in our personnel.
AMORTIZATION OF DEFERRED COMPENSATION. No amortization of deferred
compensation was recognized in 1998. For the year ended December 31, 1999,
amortization of deferred compensation was $843,000. The unamortized balance of
$13.7 million at December 31, 1999 will be amortized over the vesting period of
each grant, which is generally four years.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses in 1998 and for the year ended December 31, 1999 were approximately
$1,000 and $469,000, respectively.
INTEREST EXPENSE (INCOME) AND OTHER INCOME, NET. Net interest income and
other income, net, for 1998 and for the year ended December 31, 1999 was
approximately $9,000 and $378,000 respectively, and was primarily related to
interest earned on invested balances.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had an accumulated deficit of approximately
$15.3 million and cash and cash equivalents of approximately $15.0 million.
During 1998 and for the year ended December 31, 1999, the net cash used in our
operating activities was approximately $123,000 and $10.9 million, respectively.
This cash was used for a variety of operating purposes, including personnel
costs, consulting and legal expenses, network operations and other
administrative expenses. The net cash used in investing activities during 1998
and for the year ended December 31, 1999 was approximately $85,000 and
$22.2 million, respectively, and was used primarily for the payment of
collocation costs and the purchase of networking and other equipment. Net cash
provided by financing activities in 1998 and for the year ended December 31,
1999 was approximately $1.5 million and $46.8 million, respectively, and
primarily resulted from the sale of common and preferred stock.
The development and expansion of our business will require significant
capital expenditures. The principal capital expenditures incurred to enter each
market include the procurement, design and
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construction of collocation space, and the purchase and installation of all
necessary telecommunications equipment.
The number of central offices that we expect to target in a market will
vary, as will the average capital cost in a given market. Capital expenditures,
exclusive of $16.9 million funded by the Lucent credit facility, including
collocation fees, were approximately $58,000 and $21.2 million in 1998 and for
the year ended December 31, 1999, respectively. We expect to make capital
expenditures of approximately $100 million in 2000.
From inception through December 31, 1999, we raised $49 million in equity
from a group of investors that includes ABN-AMRO, CEA Capital, Crest
Communications, Hambrecht & Quist, Mayfield Fund and TCI Satellite
Entertainment. Subsequent to December 31, 1999, we have raised an additional
$25 million in invested equity from Qwest, Global Crossing and Microsoft.
In July 1999, Jato Operating Corp., a wholly-owned subsidiary, entered into
a senior secured credit facility with Lucent that provides up to $50 million of
vendor financing for equipment and network services provided by Lucent and
certain other third party vendor equipment utilized in Jato's incremental
digital subscriber line access multiplexers and switching center. The facility
is fully and unconditionally guaranteed by Jato, and each direct or indirect
subsidiary of Jato Operating Corp. Borrowings under the facility are available
in two separate tranches. The first tranche of $30 million is available through
July 2001. The second tranche of $20 million becomes available upon the full
utilization or expiration of the first tranche and must be utilized by July
2002. Borrowings under the senior secured credit facility are restricted based
upon the company's leverage ratio and capitalization. Commencing September 30,
2002, principal repayment installments are required in accordance with a
schedule, until final maturity on May 31, 2006. Borrowings under the facility
bear interest at the rate of LIBOR plus 4.5% per year or an alternative base
rate, which is generally equal to the greater of 3.5% over the prime rate or 4%
over the federal funds rate per year. The facility is secured by liens against
certain network equipment and imposes certain financial and other covenants. As
of December 31, 1999, we had drawn down $16.9 million under the Lucent credit
facility at an interest rate of 10.625%.
We believe that the net proceeds from this offering, together with our
existing cash balances, amounts raised in the first quarter of 2000 from Qwest,
Global Crossing and Microsoft, the funds to be received from Qwest in the
concurrent placement and amounts available under our credit facility, will be
sufficient to fund our operating losses, capital expenditures, lease payments
and working capital requirements through November 2000. We expect our operating
losses and capital expenditures to increase substantially as we expand our
network. We expect that additional financing will be required in the future. We
may attempt to finance our future capital needs through some combination of
commercial bank borrowings, leasing, vendor financing and the sale of additional
equity or debt securities.
Our capital requirements will vary based upon the timing and the success of
implementation of our business plan and as a result of regulatory, technological
and competitive developments or if:
- demand for our services or our cash flow from operations varies from
projections;
- our development plans or projections change or prove to be inaccurate;
- we make any acquisitions; or
- we accelerate deployment of our network or otherwise alter the schedule or
targets of our business plan implementation.
We will be required to raise additional capital to complete our network
deployment. There can be no assurance that additional capital will be available
on terms acceptable to us, or at all. While we would be able to sustain some
level of operations throughout all of 2000 absent additional capital, including
the proceeds from this offering, we would be required to significantly scale
back our
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operations and delay the expansion of our network. This would have a material
adverse effect on our business, financial condition and results of operations.
As of December 31, 1999, we had not entered into any financial instruments
that expose us to material market risk.
THE YEAR 2000
Computer systems and software must accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, many software and
computer systems that accepted only two digit entries needed to be upgraded in
order to accept dates beginning January 1, 2000. We did not experience any date
related problems with our software or third party software and hardware we use
for our internal systems. In addition, we have not been made aware of, nor have
we experienced, date related problems with any third party software. We do not
believe that we will incur material costs in the future because of date related
problems.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which provides guidance that requires
capitalization of certain costs incurred during an internal-use software
development project. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The adoption of this policy has not had a material effect on
our results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which provides guidance on the financial reporting of
start-up costs and organizational costs. It requires costs of start-up
activities and organizational costs to be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. We have not
capitalized any such costs to date. Accordingly, the adoption of SOP 98-5 has
not had an impact on our financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivatives and hedging
activities. Among other things, this statement requires that an entity recognize
all derivative instruments on the balance sheet as either assets or liabilities,
and to account for those instruments at fair value. SFAS No. 133 must be applied
to financial statements no later than the first fiscal quarter of 2001. The
Company does not believe adoption of SFAS No. 133 will have a material impact on
its financial position or results of operations.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in financial statements. SAB 101 must be applied to financial statements no
later than the first fiscal quarter of 2000. The Company does not believe
application of SAB 101 will have a material impact on its financial position or
results of operations.
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BUSINESS
OVERVIEW
We provide broadband network connectivity, which is the ability to rapidly
transport high quantities of data between multiple end users, and associated
applications and services to small- and medium-sized businesses in our target
secondary markets. We are developing a secure nationwide network that will allow
us to tailor our broadband solutions to meet the needs of our business
customers. We offer high-speed Internet access together with a suite of
applications including web hosting, e-mail and e-commerce services. Digital
subscriber line, or DSL technology, which utilizes standard copper telephone
lines, is our primary high-speed connection platform. In order to maximize our
service coverage area, we intend to use a variety of broadband local access
technologies in our target markets.
We intend to exploit our advantage as an early entrant in secondary markets
to become a leading provider of network enabled applications and services. We
plan to rapidly deploy our network nationwide in markets that we believe are
presently underserved. In order to establish a direct customer relationship, we
market our applications and services primarily through direct sales channels
including account managers, telesales personnel and specialized account groups.
In addition, we supplement our direct sales efforts through strategic
partnerships with Internet service providers and value added resellers. We
believe our tailored solutions and direct sales approach, combined with our
broadband network will allow us to attract and retain high value data-centric
customers. As of March 24, 2000, we had approximately 1,345 lines in service and
we were under contract to supply over 2,200 additional lines to our customers.
We began offering commercial services in June 1999 and, as of March 24,
2000, we provided our services in eleven markets and had collocated our
equipment in eight additional markets. We intend to offer our services in a
total of 40 markets nationwide, comprised of 120 cities, by the end of 2000 and
expect to offer services in all 50 of our targeted secondary markets by the
middle of 2001. As of March 24, 2000, we had collocated our network equipment in
over 298 incumbent carrier central offices and expect to be in approximately 650
central office locations by the end of 2000. We have obtained competitive
carrier certification in 47 states and expect to have competitive carrier
certification in all 48 contiguous states by the middle of 2000. To date, we
have signed interconnection agreements covering substantially all of our target
markets. We have entered into interconnection agreements with Ameritech, Bell
Atlantic, BellSouth, GTE, Pacific Bell, Southwestern Bell, Sprint and U S WEST.
We have entered into a strategic alliance with Lucent Technologies to
install, integrate, monitor and maintain our nationwide network. Lucent will
also provide $50 million in vendor financing for our network related
expenditures as well as financial support to market co-branded products and
services. We believe this strategic alliance will allow us to rapidly deploy our
network and introduce our applications and services on a national scale.
We also have recently entered into strategic relationships with Qwest,
Microsoft and Global Crossing. As part of these strategic relationships, we
received equity investments of $10 million each from Qwest and Microsoft and $5
million from Global Crossing. In addition, Qwest has agreed to purchase 178,571
shares of our common stock (based on an assumed initial public offering price of
$14.00 per share) having an aggregate purchase price of $2.5 million and we have
agreed to issue to Qwest a warrant to purchase 297,619 shares of our of common
stock (based on an assumed initial public offering price of $14.00 per share)
having an aggregate exercise price of $5.0 million at the concurrent placement.
We also have entered into commercial arrangements with Qwest which provide for
the purchase from Qwest of large-scale transport services, with Microsoft to
utilize Microsoft products to create a variety of applications service provider
services and with Global Crossing to provide a variety of Internet protocol
services.
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Our senior management team has extensive experience in broadband
communications, next generation data technology and business and consumer
marketing. Our President and CEO, Gerald K. Dinsmore, was previously a senior
executive with GTE serving as president of GTE's Business Development and
Integration Group. Mr. Dinsmore has over 23 years of experience in data
networking and telecommunications. William D. Myers, our CFO, has held several
senior executive positions with Tele-Communications, Inc., most recently as Vice
President and Treasurer of TCI Satellite Entertainment/PrimeStar. Terri L.
Compton, our Executive Vice President--Operations and Chief Operating Officer
has held several senior executive positions at GTE. Rex A. Humston, our Senior
Vice President, Engineering and Chief Technology Officer, has previously held
senior executive positions with several telecommunications companies. Since
inception, in addition to the $50 million provided by Lucent, we have raised
$74 million in equity from a group of investors that includes the following
entities or their affiliates: ABN-AMRO, CEA Capital, Crest Communications,
Qwest, Global Crossing, Hambrecht & Quist, Mayfield Fund, Microsoft and TCI
Satellite Entertainment.
MARKET OPPORTUNITY
We believe that we have a significant business opportunity as a result of
the following factors:
SIGNIFICANT AND GROWING DEMAND FOR HIGH-SPEED CONNECTIVITY AMONG SMALL- AND
MEDIUM-SIZED BUSINESSES
Our target customers, which include small- and medium-sized businesses,
professionals working in home offices and telecommuters, are increasingly
demanding high-speed data networking applications and services to remain
competitive. These end users are becoming dependent on high-speed connectivity
to communicate more efficiently with employees, customers and suppliers to
facilitate e-commerce transactions and to access critical information and
business applications. Industry commentators project that the total market for
Internet access and data networking services will grow from $6.2 billion in 1997
to approximately $49.7 billion by 2002, with approximately $27.9 billion to come
from services to businesses.
OUR TARGET SECONDARY MARKETS ARE ATTRACTIVE AND UNDERSERVED
Our secondary markets, in the aggregate, encompass approximately
2.8 million businesses and approximately 28 million households. Industry studies
have estimated that approximately 98% of all businesses in our target markets
are small- to medium-sized businesses with fewer than 100 employees. We believe
other broadband communication providers are focusing their deployment efforts on
larger markets, leaving secondary markets with limited broadband communications
alternatives. With less competition, we believe that marketing and
administrative expenses in these secondary markets will be lower than those in
larger primary markets. As a result, we believe these current conditions provide
a significant opportunity to effectively market our bundled suite of
applications and services.
THE GROWTH OF OUTSOURCED DATA NETWORKING SYSTEMS
We believe many small- and medium-sized businesses lack the resources to
properly administer increasingly complex data networking systems. Outsourced
solutions allow these businesses to reduce costs and to focus resources on their
core business activities. Industry sources estimate that spending in the U.S. on
distributed networking, network services and applications will grow from
$54.2 billion in 1998 to $173 billion in 2002.
LIMITATIONS OF EXISTING COMMUNICATIONS ALTERNATIVES
Traditionally, small- and medium-sized businesses have been forced to choose
between low-speed or high cost alternatives for Internet access and data
transport services. According to industry analysts,
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through 1998, dial-up connections and integrated services digital network lines
represented 93% of all U.S. business Internet access methods, as measured as a
percentage of total circuits. Integrated digital service network is a
transmission method that provides circuit-switched access to the public network
at speeds of 64 or 128 Kbps for voice, data and video transmission. Market
research reports estimate that slow Internet connections now jeopardize
approximately $4.4 billion a year in online sales. For higher speed transport,
these businesses have had to purchase T1 connections, which provide an
"always-on" high-speed digital transmission link, but are relatively expensive
(typically up to $800 per month depending upon distance and region) and complex
to order, install and maintain. As a result, neither of the traditional
low-speed alternatives (dial-up modems or integrated digital service network
lines) nor the relatively expensive T1 services provides small- and medium-sized
businesses with an adequate or cost-effective solution for their high-speed
communications needs.
FAVORABLE REGULATORY ENVIRONMENT CREATED BY THE TELECOMMUNICATIONS ACT OF
1996
The Telecommunications Act of 1996 established a legal framework that
encourages the utilization of incumbent carrier infrastructure to compete with
the incumbent local exchange carriers. The 1996 Telecommunications Act mandates
that incumbent local exchange carriers:
- allow competitive carriers to lease telephone lines on a line-by-line
basis;
- provide space in the incumbent carriers' central offices for competitive
carriers' equipment to connect to the leased lines;
- provide access to backbone fiber networks; and
- provide access to operations support systems to permit competitive
carriers to access customer databases.
Under the 1996 Telecommunications Act, in order to be able to offer long
distance services in their local service area, incumbent carriers must
demonstrate to the satisfaction of state public utilities commissions that they
have permitted competitive access to their local telephone networks. Although
DSL technology predated the 1996 Telecommunications Act, by opening the local
telephone loop to competition, the 1996 Telecommunications Act made it possible
for competitive carriers focused on high-speed data communications to integrate
their equipment and service offering with the public switched telephone network.
OUR SOLUTION
We believe our broadband network services effectively address many of the
unsatisfied data communications needs of small- and medium-sized businesses in
our target secondary markets by offering an attractive combination of service,
quality, performance and price. Our services, which we believe will enable us to
achieve higher penetration in our target markets, achieve higher revenue per
customer and maximize customer retention, consists of:
HIGH-SPEED, COST-EFFECTIVE CONNECTIVITY
We offer our customers high-speed broadband connectivity that is dedicated
and "always-on." These "always on" connections provide customers with the
ability to readily and continuously access the Internet instead of having to
dial into a network for access. We currently utilize a broadband platform that
is DSL based, yet designed to integrate a variety of high-speed local access
technologies. Through our symmetric digital subscriber line services, we
currently offer symmetrical transmission speeds to and from the end user up to
1.5 Mbps and we have the capability to provide symmetrical transmission speeds
up to 3 Mbps using standard multiplexing technology. In addition, we expect that
evolving technologies will facilitate even faster transmission speeds. For
customers that subscribe to our 1.5
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Mbps service, the transfer rate is over 25 times faster than a 56.6 Kbps dial-up
modem, at a fraction of the cost of a dedicated T1 connection.
BROADBAND APPLICATIONS AND SERVICES
We offer a full range of applications and services that are tailored to meet
the needs of small- and medium-sized businesses. In addition to providing
broadband transport, we offer a suite of network-enabled applications and
services, including wide area network and regional local area network
networking, high-speed Internet access, e-mail and Web hosting and authoring
services. We also intend to continually upgrade our portfolio of applications
and services as additional applications and features become available so that we
may continue to effectively meet our customers' growing communication needs.
FOCUS ON THE END USER
We provide our customers with a single point of contact for their
sophisticated data networking and communications needs. Through our
relationships with application developers, we are able to offer our customers a
wide selection of applications and services. In addition, our customer care and
support services form an integral part of our overall package of services. We
believe customer care is especially important to small- and medium-sized
businesses because they typically do not have dedicated internal support staffs
to effectively manage their sophisticated data networking needs. Through our
dedicated customer service group, we provide call center and Internet based
customer care services 24 hours a day, seven days a week.
NATIONWIDE SECURE NETWORK
Our nationwide broadband network enables businesses with multiple sites to
connect their distributed business activities to one central computing location.
We also enable remote local area networks that tie into corporate local area
networks, to service the requirements of the remote telecommuter. Our wide area
networks provide customers with high-speed, secure and reliable end-to-end
connections. Through our strategic relationships, we will be able to provide our
customers with virtual private networks and other broadband services across
multiple cities through a nationwide network.
FLEXIBILITY AND SCALABILITY
We have designed our network and service offerings to enable customers to
not only purchase the level of service and network performance that meets their
current requirements but also enables them to easily upgrade their service level
as their demand for bandwidth increases. In most cases we can implement customer
bandwidth upgrades remotely, without the need to add additional hardware or to
send a technician to the customer's premises.
OUR STRATEGY
Our strategy for expanding our services to small- and medium-sized
businesses in our target markets nationwide is to:
EXPLOIT OUR EARLY-MOVER ADVANTAGE IN OUR TARGET SECONDARY MARKETS
We believe that by being the first, or one of the first, providers of
broadband applications and services in our target markets, we will not only
encounter less competition but will also be able to capture significant limited
resources, including collocation space, key customer relationships and important
distribution channels. As of March 24, 2000, we provided our services in eleven
markets and had collocated our equipment in eight additional markets. We expect
to offer our services in a total of
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50 markets nationwide, comprised of 145 cities, by the middle of 2001. Through
our alliance with Lucent, we anticipate being able to rapidly deploy our
nationwide, broadband network. We believe that this alliance will allow us to
gain significant time to market advantages relative to our potential
competitors, permitting us to establish ourselves as the leading provider of
broadband connectivity and associated applications and services in our markets.
We also believe that our early entrant status in our target markets will provide
us with inherent pricing flexibility and lower operating and marketing costs.
DRIVE CUSTOMER ACQUISITION THROUGH DIRECT MARKETING
In marketing our services, we intend to emphasize direct sales through
account managers, telesales personnel and specialized account groups. We expect
our emphasis on direct sales will enable us to quickly establish a branded
presence and achieve significant market penetration in each market that we
enter. By using JatoBridge, our proprietary database marketing system, we can
develop a list of potential customers that is prioritized by characteristics
that indicate a need for bandwidth intensive data communications services and
applications. This allows us to streamline our sales and marketing activities
and to focus our efforts on potential customers with the highest propensity to
purchase broadband services. In addition, we have specialized account groups
that sell into vertical sectors, such as the healthcare, travel, and real estate
businesses, which have growing demands for industry-specific broadband
applications and services. Our indirect sales approach is designed to expand our
distribution capabilities through strategic relationships with Internet service
providers and value added resellers. We intend to establish mutually beneficial
sales and marketing relationships with these providers that will allow us to
accelerate customer acquisition in our markets. We intend to retain the
relationship with our customers so that we can ensure high quality service,
offer new applications and services as they become available, and enhance brand
recognition and loyalty.
OFFER A WIDE ARRAY OF BROADBAND APPLICATIONS AND SERVICES
We seek to provide a superior value proposition to our customers by
partnering with a variety of independent network and application services
providers to offer our customers a wide range of value-added applications as
well as enhanced network solutions. We intend to offer the ability to initiate,
develop and manage Internet-based business operations beginning with services
such as domain name registration, Web site creation, Web hosting and e-commerce.
Our relationships with companies such as Netopia and Network Solutions Inc.
allow us to offer our customers basic applications and services, such as e-mail
and Web hosting and authoring. We believe that our approach of offering a suite
of applications will further differentiate us from our competitors and result in
increased penetration of our target customer base.
PROVIDE SUPERIOR CUSTOMER CARE AND SUPPORT
We believe that customer care is critical to the retention of our target
customers and we intend to further differentiate ourselves from our competition
by developing and implementing state-of-the-art customer support systems and
capabilities. Our dedicated business unit provides order management,
provisioning, customer care, operations support and billing services. We have
designed our provisioning and service systems to enable our customers to be
self-sufficient and yet have rapid access to additional support services, if
needed. Our customer support services are available 24 hours a day, seven days a
week.
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STRATEGIC ALLIANCES
We seek to establish alliances with third parties that allow us to leverage
their individual expertise, and thus enhance our network capabilities. We
anticipate that we will enter into additional strategic alliances with others in
the future. We have strategic alliances with the following companies:
LUCENT TECHNOLOGIES
In July 1999, we entered into a strategic alliance with Lucent Technologies
to further our nationwide network deployment. The material terms of the alliance
are:
- NATIONWIDE NETWORK DEPLOYMENT. Lucent will construct, install and
integrate our network equipment in the central offices of incumbent
carriers.
- VENDOR FINANCING. We have entered into an agreement with Lucent that
provides up to $50 million in vendor financing.
- MARKETING ASSISTANCE. Lucent will provide us financial support to market
co-branded products and services.
- NETWORK MONITORING. Through its nationwide network facilities, Lucent will
provide network monitoring and maintenance services 24 hours a day,
seven days a week.
QWEST COMMUNICATIONS
In February 2000, we entered into a strategic alliance with Qwest to further
enhance our network capabilities. The material terms of the alliance are:
- QWEST INVESTMENT. Qwest invested $10 million in us in return for shares of
our Series D preferred stock which will convert into 2,512,499 shares of
common stock upon the closing of this offering. As part of this
transaction, Qwest has agreed to standstill agreements restricting its
ability to purchase more than 10% of our outstanding capital stock,
without our consent, for a period of three years. In addition, upon the
closing of the concurrent placement, which will close immediately after
the closing of this offering, Qwest will purchase 178,571 shares of common
stock (based on an assumed initial public offering price of $14.00 per
share) for an aggregate purchase price of $2.5 million. In addition, at
the closing of the concurrent placement, we have agreed to issue Qwest a
warrant for the purchase of 297,619 shares of common stock (based on an
assumed initial public offering price of $14.00 per share) at an aggregate
exercise price of $5.0 million.
- DSL SERVICES. We have been designated as Qwest's preferred provider of
business DSL services in selected cities and central offices. Qwest has
agreed to use its reasonable efforts to sell a minimum of 75,000 business
class DSL lines using Jato DSL facilities over five and one-half years.
Moreover, we have agreed to use our reasonable efforts to supply Qwest
with a minimum of 15,000 lines using Qwest DSL facilities. Both parties
will purchase each line on a one year commitment.
- NETWORK SERVICES. Jato will use Qwest as one of its preferred suppliers of
broadband communications services and large-scale transport services.
- SERVICE AGREEMENT. As part of the commercial relationship, we have agreed
to purchase $25.0 million of these Qwest DSL and network services over
five and one-half years, at an agreed-upon price of $16.0 million,
reflecting the present value of such purchase price, payable to Qwest upon
the closing of the offering.
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MICROSOFT CORPORATION
In January 2000, we entered into a strategic alliance with Microsoft to
further our applications and services. The material terms of the alliance are:
- MICROSOFT INVESTMENT. Microsoft invested $10 million in us in return for
shares of our Series D preferred stock which will convert into 2,512,499
shares of common stock upon the closing of this offering.
- ASP SERVICES. As part of the two-year agreement, Jato Communications may
use Microsoft products, such as Microsoft-Registered Trademark- Office,
the Microsoft Outlook-Registered Trademark- messaging and collaboration
client, Site Server Commerce Edition and Microsoft Exchange, to create a
variety of applications service provider services focused on knowledge
management, e-commerce and line-of-business solutions. In addition, Jato
will offer Managed PC Services, a bundled solution consisting of a
combination of hardware, software and services provided to customers for a
monthly fee.
- JOINT MARKETING OF OUR SERVICES. Jato and Microsoft will cooperatively
develop and implement sales and marketing plans for these products.
GLOBAL CROSSING
In February 2000, we entered into a strategic alliance with Global Crossing
to enhance our network capabilities. The material terms of the alliance are:
- GLOBAL CROSSING INVESTMENT. Global Crossing invested $5 million in us in
return for shares of our Series D preferred stock which will convert into
1,256,249 shares of common stock upon the closing of this offering. As
part of this transaction, Global Crossing has agreed to standstill
agreements restricting its ability to purchase more than 10% of our
outstanding capital stock, without our consent, for a period of three
years.
- DSL SERVICES. We have been designated as a preferred supplier of Global
Crossing's business DSL services in selected cities and central offices.
Global Crossing is forecasting a volume of 75,000 business-class DSL lines
to be sold in this footprint under this agreement over the next five
years.
- NETWORK SERVICES. Jato will use Global Crossing as its preferred supplier
of IP Plus services.
- SERVICE AGREEMENT. As part of the commercial relationship, we have agreed
to purchase $30 million of IP Plus services, IP Transit, application
hosting services and other applications from Global Crossing over the
six-year term of the agreement.
APPLICATIONS AND SERVICES
A core element of our strategy is the establishment of relationships with
companies that have either developed applications or provide services that meet
the specific needs of small- and medium-sized businesses. Our relationships with
companies such as Global Crossing, Microsoft, Netopia and WebPerfect provide us
the ability to offer our customers a variety of applications and services at
cost-effective prices. Through our two year agreement with Netopia, Netopia has
licensed to us, on a non-exclusive basis, its web site and other e-store
products and services. In addition, Netopia has agreed to create a co-branded
version of its web site and products for hosting web sites which we will offer
to our customers. Our three year agreement with WebPerfect provides for
WebPerfect to create and host a private-label web-based e-mail service that Jato
intends to offer to its customers. We have non-exclusive agreements with these
companies to license and resell their applications or services. We may also
agree to jointly market our services with our partners.
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CURRENT APPLICATIONS AND SERVICES
Our suite of services includes the following:
- BROADBAND SERVICES. Our broadband service provides customers with
high-speed Internet access and other network services. We support a
variety of broadband access speeds that afford our customers a dedicated
and "always on" connection. We supply Internet access through our
relationships with several Internet service providers.
- WIDE AREA AND REMOTE LOCAL AREA NETWORKS. In each of our markets we offer
wide area network connectivity between distributed customer sites. Wide
area networks provide our customers with a relatively inexpensive
dedicated network through which they can share and exchange data at
broadband transmission speeds. Remote local area networks allow
teleworkers to connect to their corporate local area network with a DSL
modem at high transmission speeds.
- WEB HOSTING AND AUTHORING. Our relationship with Netopia allows us to
provide Web hosting and two levels of Web authoring services. The entry
level services allow our customers to utilize a Web site template to
create a basic e-brochure Web site. For our customers who demand extended
Web site capabilities, we are able to offer professional level solutions
to create a fully customized Web site.
- E-COMMERCE. Our Netopia relationship also provides customers desiring to
sell their products and services over the Internet with a more elaborate
Web presence. These additional services include, among others, product
cataloging, online shopping cart capability, credit card transaction
processing, and order fulfillment notification.
- E-MAIL SERVICES. We provide outsourced e-mail services for our customers,
thus allowing them to eliminate the overhead typically associated with
managing in-house e-mail platforms.
EXTENDED APPLICATIONS AND SERVICES
We are continually examining a broad range of additional applications and
services. These future services may include, among others:
- PRIVATE BRANCH EXCHANGE EXTENSION. We believe that an exceptional
opportunity exists to provide our small- and medium-sized business
customers the ability to extend their office private branch exchange phone
system to their workers' offsite locations. This technology would permit
us to offer our customers, over existing copper loops, high-speed data and
simultaneous private branch exchange phone extension services, such as
four digit dialing, conference calling and speed dialing. We expect our
customers to be able to reduce their intra-company long distance telephone
charges, increase their data communications capabilities as well as create
a closer relationship with remote workers through this service offering.
We are currently engaged in technical engineering trials of this
technology over our network architecture.
- VOICE OVER DSL. In contrast to our proposed private branch exchange
extension service where the end-to-end telephone connection is transmitted
over a dedicated DSL wide area network, our anticipated Voice over DSL
offering will transmit voice traffic over our network onto the public
telephone exchange system. Voice over DSL service allows customers to
avoid separate local access charges for stand-alone telephone service. We
are currently testing this voice capability over our network architecture
with Copper Mountain Networks and Tollbridge. To facilitate this service,
we expect to resell voice capacity from other competitive carriers.
- VIRTUAL PRIVATE NETWORKS. Virtual private networks are an evolution of
wide area networks. Whereas wide area network offerings involve the
deployment of dedicated lines to a customer over a private backbone,
virtual private networks will permit private networks to be deployed over
shared public networks, thereby reducing subscriber costs.
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- MULTI-TENANT ACCESS. Multi-tenant access involves the installation of
incremental digital subscriber line access multiplexers at the customer
premises instead of at a central office. This offering would be focused on
serving commercial customers occupying a dense office park or high-rise.
Because our incremental digital subscriber line access multiplexers would
be located on the customer's site, we would be able to offer more
customers our higher speed services as a result of the decreased loop
length. Further, our ability to rapidly provision customers would be
enhanced because we would not be depending on the incumbent carrier to
provision the existing copper line to the customer's premise.
TARGET CUSTOMERS
We believe that small- and medium-sized businesses in secondary markets have
specific needs for which our applications and services are well suited. These
target customers tend to have the following characteristics:
- Growing high-speed Internet access and high bandwidth network needs;
- Inadequate or nonexistent information technology staff and departments;
- Fewer than 100 employees;
- Existing integrated services digital network or dial-up Internet access
service;
- Reliance on traditional high-speed alternatives, such as T1 lines which
are significantly more expensive; and
- Underserved by existing service providers.
MARKETING AND SALES
We create market awareness and promote our applications and services to
small- and medium-sized businesses through our focused marketing efforts, our
direct sales approach and indirectly through marketing partners, such as
Internet service providers and value added resellers.
MARKETING
The goal of our marketing efforts is to establish the Jato brand as a
preferred provider of network-enabled applications and services. We believe that
our marketing approach will help to make us a market share leader in each of the
markets we offer, or intend to offer, our services. Our marketing group is
focused on enhancing brand recognition, differentiating us from other data
communication providers, leveraging our early entrant advantage and dominating
selected vertical sectors of our markets. We believe that our alliance with
Lucent will give us a significant advantage in achieving these objectives as
Lucent has agreed to provide us with financial support to market co-branded
products and services in each market we deploy our network. Our marketing
approach will differ in each market, depending upon such factors as the presence
or absence of direct competitors, the nature of any competitive advertising and
promotional offers, preconceptions or lack of awareness about DSL and other
high-speed Internet access options, and our time-to-market advantage relative to
other providers. We also support our direct and wholesale sales efforts with
coordinated public relations programs, which are designed to educate consumers,
develop active interest from our target customer base and, most importantly,
enhance our brand recognition. With this approach, we believe that we will be
able to deepen our market penetration and increase customer retention.
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DIRECT SALES
Key elements of our direct sales approach include:
- NEW MARKET LAUNCH TEAM. To facilitate a new market launch, we dispatch our
new market launch team to establish our local sales office and recruit and
hire local sales personnel to service that market. Because our new market
launch team repeats this market development process in each of our target
markets, we can quickly and efficiently establish our sales presence.
- JATOBRIDGE DATABASE. Our proprietary database marketing system, called
JatoBridge, targets and pre-qualifies potential customers in each of our
target markets. With JatoBridge, we aggregate and process demographic,
marketing, and geographic data relative to small- and medium-sized
businesses in our target markets using a combination of proprietary
selection algorithms, statistical modeling and analytical tools to develop
a pre-qualified list of potential customers with the highest probability
of acquiring DSL technology and enabled applications. In addition, through
our geographic information systems, we can determine the capability of
delivering broadband services to prospective customers' sites based on
central office and individual customer locations. We believe JatoBridge
will allow us to increase and accelerate market penetration, reduce
customer acquisition expenses, increase customer retention rates, and
facilitate the sale of additional applications and services.
- ACCOUNT MANAGERS. Our account managers are responsible for identifying and
soliciting potential customers within their geographic region. We hire
account managers within each market who have specific experience selling
communications or other similar services. Our account managers work in
tandem with our telesales personnel to efficiently establish a local
presence and facilitate the sale of our applications and services. Account
managers are compensated with a base salary and commissions based on the
number of lines sold.
- TELESALES PERSONNEL. Our telesales personnel cover territories around
central offices where we have deployed, or intend to deploy, our network
applications and services. Our telesales personnel are compensated with a
base salary and commissions based on the number of lines sold in a
particular market. We believe that our telesales approach, when combined
with JatoBridge and our account managers, will enable us to penetrate our
potential customer base more quickly and efficiently, and will facilitate
the sale of our applications and services.
- SPECIALIZED ACCOUNT GROUPS. We have established specialized account groups
to sell applications and services to small-and medium-sized businesses in
specific, data intensive industries. Account groups have initially been
established in the healthcare, travel and real estate sectors. We staff
these specialized account groups with professionals who have expertise and
experience in the particular sector that they will serve.
INDIRECT SALES
We also market our services to end users through strategic marketing
partners, including Internet service providers, interexchange carriers and value
added resellers. We offer each indirect sales partner high-speed network access
services that it can bundle with its own product offerings.
CUSTOMER CARE AND SUPPORT SERVICES
We believe that a dedicated customer service group, exceptional operations
support systems and seamless process integration are all critical ingredients to
delivering customer care that meets or exceeds our customers' expectations,
reduces churn and increases our ability to sell new services to existing
customers. Beginning with our initial customer contact through provisioning,
billing and ongoing support services, we provide our customers with a single
point of contact. We have designed our provisioning and service systems to
enable our customers to be self-sufficient and yet have rapid
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access to additional support if needed. Our customer care system is designed to
interact with our customers via e-mail, call center or directly through our
extranet 24 hours a day, seven days a week.
Our workflow management system provides intelligent routing and management
of customer orders through the appropriate internal and external organizations
from the point of order entry through incumbent carrier provisioning and on-site
installation. Our systems have been designed to be both flexible and scalable in
order to support our expected future back office requirements. Our intelligent
routing and management capability allows us to efficiently manage our
provisioning process and immediately recognize and address potential or incurred
customer order problems on a real-time basis. We have applied performance
metrics to each step in the provisioning process so that we may anticipate and
quickly react to potential problems or conditions that could cause a delay or
disruption in service.
PROVISIONING
Our business model requires the lease of unbundled local loops from the
incumbent carrier. Our experience shows that the timely and accurate transfer of
information between ourselves and the incumbent carrier is crucial for success.
Thus, we have entered into an agreement with Mantiss as our provider of the
incumbent carrier gateway platform for provisioning management. We have selected
this company based on their technical architecture and their ability to
proactively manage the interface changes inherent in incumbent carrier order
gateways. We believe that through this electronic data interface with the
incumbent carriers we will be able to further reduce the time required to
provision unbundled local loops.
BILLING
Flexible and scalable billing capabilities are critical to our direct sales
strategy. We have chosen to implement Solect Technology Group's IAF billing
system application. Solect's IAF Horizon is a leading IP billing software
solution for service providers. IAF Horizon provides an integrated approach to
billing, customer care and service management. Its platform architecture will
enable flexibility, scalability and adaptability. Solect's key customers
include, among others, GTE Data Services, Eircom, and AT&T Canada.
NETWORK DEPLOYMENT
We collocate our equipment in selected central offices to cover on average
over 80% of the businesses in our target markets. We believe this enables us to
maximize our capital expenditure efficiencies while reaching a significant
portion of our markets. As of March 24, 2000, we provided services in eleven
markets and had collocated our equipment in eight additional markets. We intend
to offer our services in a total of 40 markets nationwide, comprised of 120
cities, by the end of 2000 and in all 50 of our target markets by the middle of
2001.
NETWORK ARCHITECTURE
DSL TECHNOLOGY
Our DSL access service allows customers to choose the speed and performance
level that they require today with the option to upgrade in the future. In most
cases, our customer premise equipment does not require any hardware
modifications or an on-site service call to upgrade to a higher level of
service. Substantially all upgrades can be configured remotely through software
configuration changes. Subject to the distance and other limitations described
below, our customers are able to change their level of service with the help of
a customer support representative or by logging into our extranet. For our
customers who desire to increase their network performance but are presently
limited from upgrade due to their distance from the central office, we can, in
many cases, double the speed of any
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of our service offerings by utilizing standard multiplexing technology. We
believe that prospective customers will find this to be a very attractive,
cost-effective solution to their networking needs.
SYMMETRIC DIGITAL SUBSCRIBER LINE. We primarily offer a variation of DSL
called symmetric digital subscriber line. Symmetric digital subscriber line
transmission speeds are the same to and from the end user. In contrast to other
DSL technologies, symmetric digital subscriber line permits us to provision
customers at a specific transmission speed. Customers order the speed they
desire and pay additional subscription charges to increase the speed. We offer
symmetric digital subscriber line at speeds that range from 144 Kbps to
1.5 Mbps. For customers that are generally located within 9,000 feet of a
central office, we can provide transmission speeds that are equivalent to T1
services at a fraction of the price. Through standard multiplexing technology,
we can extend T1 equivalent speeds up to 13,500 feet of a central office. At
lower symmetric digital subscriber line transmission speeds, we are generally
able to provide services to end users that are within 20,000 feet of a central
office. The speeds at which we provision customers are designed to meet the
typical bandwidth requirements of small- to medium-sized businesses.
INTEGRATED DIGITAL SUBSCRIBER LINE. We also offer integrated digital
subscriber line technology. This technology allows us to reach end users within
35,000 feet of a central office service area. We target these services to
current integrated services digital network subscribers because integrated
digital subscriber line can typically utilize the customer's existing integrated
services digital network equipment. We believe integrated digital subscriber
line compares favorably with integrated services digital network on a
price/performance basis. Integrated digital subscriber line service is
significantly less expensive, when the flat rate of integrated digital
subscriber line is compared with the integrated services digital network per
minute or flat rate charges. Integrated digital subscriber line operates at
speeds up to 144 Kbps, or 288 Kbps using standard multiplexing technology,
whereas integrated services digital network is limited to 128 Kpbs. Moreover,
because integrated digital subscriber line is "always-on," as compared to the
dial-up integrated services digital network service, customers can readily and
continuously access the Internet. We also offer integrated digital subscriber
line to customers that do not have lines consisting of continuous copper, such
as certain customers who tend to be served with Digital Loop Carrier services
from their incumbent carrier.
OTHER BROADBAND ACCESS SOLUTIONS
We expect to utilize a variety of wireline and wireless broadband access
technologies to supplement our core DSL network and maximize our nationwide
footprint. We intend to deploy complementary technologies in areas where DSL is
not accessible or cost effective.
NETWORK DESIGN, IMPLEMENTATION AND MANAGEMENT
We have designed and are deploying our network through engineering,
equipment and service alliances with national suppliers. We have a strategic
alliance with Lucent to install, monitor and maintain our central office
equipment, local area and national networks. Lucent will provide us with
end-to-end network management 24 hours a day, seven days a week through their
national network operations center that can respond to every level of our
network beginning with individual customer lines, through our central office
equipment and through our local area and national backbone circuits. We believe
that our expertise in technology and alliance management allows us to focus and
maximize the technical specialties of each of our suppliers and assemble a
network that is reliable, rapidly expandable and capital efficient. We have
established a network engineering and management staff within our organization
that will provide management oversight of our network deployment and operations
and provide supplementary deployment and other services. We believe that our
network strategy enables us to quickly deploy our national network, minimize our
capital expenditure and overhead requirements and rapidly fulfill and adapt to
the needs of our customers.
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NETWORK COMPONENTS
DSL MODEMS AND CUSTOMER PREMISE INSTALLATION. We purchase DSL modems
primarily from Netopia and arrange for the on-site installation and wiring
through outside vendors including CMC Telecor and Integrated Systems Installers.
We ensure the successful connection of the modem into the local loop.
LEASED LOCAL ACCESS LINES. We lease the copper line running from our
central office equipment to the end user. We provision the line from the
incumbent carrier and perform tests to ensure line quality. We also monitor this
line via the Turnstone equipment that we receive through our Lucent relationship
to proactively ensure the quality of the connection. Through our Turnstone
monitoring capabilities we are able to remotely diagnose and temporarily correct
problems by re-routing customer traffic resulting in minimal service disruption
to the end user. The Turnstone equipment enables us to reduce our operating
costs and improve service quality.
CENTRAL OFFICE EQUIPMENT. Through our relationship with Lucent, we utilize
Copper Mountain incremental digital subscriber line access multiplexers
equipment in our central office locations. Lucent installs, maintains and
monitors all of our equipment in our central office locations. This arrangement
allows us to deploy our central office equipment quickly and consistently across
our nationwide network. We believe that by utilizing the national service
infrastructure of Lucent we will reduce our central office installation costs
and we will be able to focus on managing the quality of installation services
and on the efficient and rapid deployment of our network. We have also deployed
Turnstone equipment in each of our central office locations.
SWITCHING CENTER. Our switching center is a local point of presence within
a market where local traffic is aggregated from our central office locations.
The switching center houses our asynchronous transfer mode, switches and
internet protocol routers. Asynchronous transfer mode is an efficient, high-
speed transport mechanism that utilizes a packet-like switching and multiplexing
technique. We design our switching centers for high availability including
backup power, redundant equipment and active network monitoring.
BACKHAUL SERVICES. We utilize backhaul network services to transport
traffic from central offices to our switching centers, as well as route traffic
from our switching centers to the local point of presence of our Internet
service providers partners or backbone provider. These backhaul services are
provided by national and global networking carriers such as Qwest
Communications, Level 3 Communications and MCI WorldCom. Through our
relationships with these communications companies, we can offer our customers
seamless, broadband data networking capabilities.
BACKBONE SERVICES. We will interconnect our switching centers through
national providers such as Qwest Communications, Level 3 Communications and MCI
WorldCom. Through these providers, we will create a nationwide broadband
infrastructure. An integrated national network will enable us to provide
advanced data services such as virtual private networks. In the future, we
expect to add additional transmission protocols, including frame relay and
asynchronous transfer mode services.
COMPETITION
We expect to face competition from many competitors with significantly
greater financial resources, well-established brand names and large, existing
installed customer bases. Moreover, we expect to face increased competition in
the future. We expect significant competition from:
INCUMBENT LOCAL EXCHANGE CARRIERS. Incumbent local exchange carriers, such
as Bell Atlantic, SBC Communications and U S WEST, have begun deploying
DSL-based services and other high speed data communications services. Such
carriers are also leasing wide area connections and have existing metropolitan
area networks and circuit switched local area networks. We believe that
incumbent carriers have the potential to quickly overcome many of the issues
that have delayed widespread
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deployment of DSL services in the past. As a result of owning copper lines,
these incumbent carriers can bundle digital data services with their existing
voice services to attain a significant competitive advantage in serving
customers. Incumbent carriers also possess sufficient capital to deploy DSL
services rapidly and are in a position to offer service from central offices
where we may be unable to secure collocation space. Collocation refers to a
location where a competitive carrier network interconnects with the network of
an incumbent carrier inside an incumbent carrier's central office. In addition,
the Federal Communications Commission is considering establishing requirements
for separate subsidiaries through which these carriers could provide DSL service
on a substantially deregulated basis. As such, we expect these carriers to be
strong competitors in each of our target markets.
INTEREXCHANGE CARRIERS. Many of the leading interexchange carriers,
including AT&T, MCI WorldCom and Sprint, are building and expanding their
networks to support high-speed, end-to-end network services. Increasingly, their
bundled services include high-speed local access combined with metropolitan and
wide area networks, and a full range of Internet services and applications.
These carriers have deployed national networks, have strong brand recognition,
and in many cases have announced the deployment of DSL services in combination
with their current fiber networks as a result of interconnection agreements and
collocation spaces with many incumbent local exchange carriers. More recent
national carriers, such as Qwest Communications, Level 3 Communications and IXC
Communications are building and managing high-bandwidth, nationwide Internet
protocol-based packet networks and partnering with Internet service providers to
offer services directly to the public, including business customers.
CABLE MODEM SERVICE PROVIDERS. Cable modem service providers, like
Excite@Home and its cable partners, are offering or preparing to offer
high-speed Internet access over hybrid fiber coaxial cable networks to
consumers. @Work has positioned itself to do the same for businesses. Where
deployed, these networks provide local access service similar to our services,
and in some cases at higher speeds and lower prices.
DSL-BASED COMPETITIVE LOCAL EXCHANGE CARRIERS. Certain competitive
carriers, such as BlueStar Communications, Covad Communications, DSL.net,
HarvardNet, Network Access Solutions, NorthPoint and Rhythms NetConnections, are
offering DSL-based data services. We also anticipate competition from other
national and regional carriers. Other competitive carriers are likely to do so
in the future. The 1996 Telecommunications Act specifically grants competitive
carriers the right to negotiate interconnection agreements with incumbent
carriers, including interconnection agreements which may be identical to, or
more favorable than, our agreements.
TRADITIONAL COMPETITIVE LOCAL EXCHANGE CARRIERS. Traditional competitive
carriers such as Allegiance, BTI, Electric Lightwave, e.spire, Intermedia and
McCleodUSA have extensive fiber-based networks in many metropolitan areas,
primarily providing voice and high-speed data circuits to business users. Many
of these carriers have begun offering DSL services to their customers.
INTERNET SERVICE PROVIDERS. Internet service providers, like America
Online, Flashcom and UUnet, provide Internet access to residential and business
customers. These companies generally provide Internet access over the incumbent
carriers' circuit switched networks at integrated services digital network
speeds or below. However, some Internet service providers have begun offering
DSL-based access using their own DSL services, or DSL services offered by the
incumbent carrier or other DSL-based competitive carriers. Some Internet service
providers, such as Concentric Network Corporation, Mindspring
Enterprises, Inc., PSINet Inc. and Verio, have significant and even nationwide
marketing presences and combine these with strategic or commercial alliances
with DSL-based competitive carriers.
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WIRELESS AND SATELLITE DATA SERVICE PROVIDERS. Several new companies,
including Advanced Radio Telecom, Teligent and WinStar Communications, are
emerging as wireless data service providers, over a variety of frequency
allocations. Satellite-based data service providers, such as Motorola Satellite
Systems and Hughes Communications are also emerging. These companies use a
variety of new and emerging technologies, such as terrestrial wireless services,
point-to-point and point-to-multipoint fixed wireless services, satellite-based
networking and high-speed wireless digital communications.
We may be unable to compete successfully with these or future competitors.
The most significant competitive factors include: price, performance,
transmission speed, service reliability, breadth of product offerings, network
security, ease of access and use, customer support, brand recognition, operating
experience, capital and exclusive contracts with customers and Internet service
providers and businesses with multiple locations. Additionally, the
telecommunications industry is subject to rapid and significant changes in
technology. As such, we cannot assess the effect such technological changes will
have on our business, particularly the developments in DSL technology and
alternative high-speed data communications technologies. These developments
could have a material adverse effect on our competitive position.
GOVERNMENT REGULATION
Jato is a telecommunications common carrier. As a result, we are subject to
substantial federal, state and local regulation of our services and facilities.
The Federal Communications Commission exercises jurisdiction over state-to-state
and international services. Each state public utility and service commission has
jurisdiction over services within that state. In addition, cities and other
local governments may require us to obtain licenses or franchises to operate our
networks in or across a public right-of-way.
FEDERAL REGULATION
In 1996, the federal government enacted the 1996 Telecommunications Act,
which establishes a pro-competitive, de-regulatory framework for the provision
of local and state-to-state telecommunications services by all
telecommunications providers. The 1996 Telecommunications Act imposes three
levels of duties on telecommunications carriers:
- general obligations applicable to all entities offering local exchange
services;
- additional obligations applicable to the previous monopoly local exchange
carriers (the so-called incumbent local exchange carriers); and
- special duties of the former Bell System operating companies (the
so-called regional bell operating companies).
All local exchange carriers, including Jato, must:
- not prohibit or unduly restrict resale of their services;
- provide number portability;
- provide dialing parity and nondiscriminatory access to telephone numbers,
operator services, directory assistance and directory listings;
- afford access to poles, ducts, conduits and rights-of-way; and
- establish reciprocal compensation arrangements for the transport and
termination of local telecommunications traffic.
Incumbent local exchange carriers must also comply with additional
obligations intended to enable new competitors to compete with the incumbent's
services. Incumbent carriers must negotiate local interconnection agreements in
good faith, make those agreements available to all competitors on a
nondiscriminatory basis and permit competitors to interconnect their networks in
order to exchange
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calls between their respective subscribers. Incumbent carriers must provide this
interconnection at any technically feasible point within the incumbent carrier's
network and on just, reasonable and nondiscriminatory rates, terms and
conditions. In addition, the 1996 Telecommunications Act permits competitors to
utilize portions of the incumbent carrier's network on an individual basis in
order to offer any telecommunications service, to co-locate their equipment at
the incumbent carrier's network locations, and to obtain the incumbent carrier's
retail services at wholesale prices for resale to end users.
In addition, the 1996 Telecommunications Act imposes a number of
restrictions on the ability of regional bell operating companies to manufacture
telecommunications equipment and to provide long distance and other services.
Under section 271 of the 1996 Telecommunications Act, the regional bell
operating companies must comply with certain safeguards and offer
interconnection that satisfies a prescribed 14-point checklist before they may
provide long distance services within their local territories. These safeguards
are designed to ensure that the regional bell operating companies' competitors
have fully opened their networks to competitors and to promote competition by
preventing regional bell operating companies from using their market power in
local exchange services to obtain an anti-competitive advantage in the provision
of other services.
The overriding purpose of the 1996 Telecommunications Act is to create
competitive opportunities for companies to offer all types of telecommunications
services. In so doing, the 1996 Telecommunications Act granted important
regulatory relief to industry segments which compete with competitive local
exchange carriers. The Federal Communications Commission was given authority to
refrain from applying most statutes and regulations to our competitors
(including the incumbent carriers). Incumbent carriers were given substantial
new pricing flexibility and the regional bell operating companies were given
broader rights to participate in related telecommunications markets. Cable
television providers were authorized to offer telecommunications services and
internet access over their cable networks. In addition, under the 1996
Telecommunications Act all utility holding companies are permitted to diversify
into telecommunications services. Each of these potentially competitive
services, as well as data services delivered via wireless or satellite
technologies, are subject to differing regulatory regimes which frequently are
not at parity with one another. As a result, Jato may face competition from
entities subject to more favorable or less onerous regulation than applies to
us.
Federal proceedings implementing the provisions of the 1996
Telecommunications Act have been extremely complex and are subject to continuing
revision. Jato relies substantially on rights granted to us by the 1996
Telecommunications Act, including rights to co-locate our equipment at the
incumbent carriers' locations and to use the incumbent carriers' telephone lines
and other network elements. Federal rules implementing these rights may have a
material effect on our business.
Most of the framework implementing the local competition provisions of the
1996 Telecommunications Act was established in an order adopted by the Federal
Communications Commission on August 8, 1996 in its CC Docket 96-98. In its
order, the Federal Communications Commission:
- identified certain minimum points in the network where the incumbent
carriers must permit competitors to interconnect and install their own
equipment for carrying telecommunications traffic;
- prescribed standards to ensure that interconnection could be made at other
efficient places in the network;
- adopted a minimum list of network elements (i.e., those portions of the
incumbent carriers' networks that incumbents must allow competitors to use
on an unbundled basis);
- adopted rules requiring incumbents to offer those elements at quality
levels specified by competitive carriers and to combine those elements
upon request;
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- adopted a methodology for the state public utility commissions to use in
establishing cost-based rates for interconnection and the use of these
network elements; and
- adopted a methodology for applying the 1996 Telecommunications Act's
avoided cost standard when setting wholesale prices for the incumbent
carrier's retail services.
Most provisions of the Federal Communications Commission's order were
appealed. Numerous appeals were consolidated for consideration by U.S. Court of
Appeals for the Eighth Circuit (captioned IOWA UTILITIES BOARD V. FCC). On
July 18, 1997, the Court of Appeals released its decision regarding issues
raised in the consolidated appeals of the order, upholding the Federal
Communications Commission's order in part and reversing it in part; it modified
that decision on August 22, 1997.
On January 25, 1999, the U.S. Supreme Court reversed important portions of
the Eighth Circuit's holding in IOWA UTILITIES BOARD. Specifically, the Supreme
Court ruled that:
- the Federal Communications Commission properly exercised its authority
under the 1996 Telecommunications Act in establishing pricing rules for
incumbent carriers' network elements and resale;
- the Federal Communications Commission had authority to preclude incumbent
carriers from separating unbundled network elements which are already
combined; and
- the Federal Communications Commission was justified in promulgating
rules enabling competitors to select favorable provisions from other
carriers' existing interconnection agreements.
However, the Supreme Court also held that the Federal Communications
Commission's analysis in identifying the minimum list of network elements was
inadequate. The Court ruled that the Federal Communications Commission failed to
consider sufficiently the requirement under the 1996 Telecommunications Act that
those network elements be necessary, or that a lack of access to those elements
would impair the ability of competitors to offer services. The Court vacated the
relevant rule and remanded the matter to the Federal Communications Commission
either to modify the rule or justify it, subject to further court review.
Certain other aspects of the Federal Communications Commission's order were
vacated by the Eighth Circuit and were not appealed to the Supreme Court; thus,
they remain vacated. These include Federal Communications Commission rules that
had directed incumbents to combine network elements requested by competitors
whether or not those elements had previously been combined, and a provision
requiring that interconnection arrangements be superior in quality to those
provided by the incumbent carriers to themselves, when requested to do so by
competitors. The Federal Communications Commission and several competitive local
exchange carriers have asked the Eighth Circuit to reinstate these rules based
upon the Supreme Court's reasoning, but these requests have not yet been acted
upon by the court.
On September 15, 1999, the Federal Communications Commission adopted an
order reexamining its minimum list of network elements as directed by the
Supreme Court. This order reaffirmed the most important six of the original
seven mandatory network elements that incumbents must provide, and expanded the
ability of competitors to obtain unbundled local loops, especially loops used to
provide DSL and other high capacity services. The order makes clear that the
states are free to add other unbundled network elements to the list identified
by the Federal Communications Commission. In addition, the Federal
Communications Commission affirmed the rights of competitors to obtain pre-
existing combinations of network elements, including extended loops. The 1999
order, however, scaled back competitors' abilities to use the incumbent's local
switches and generally does not require incumbents to share their data
communication networks. Many of these rules became effective on February 17,
2000, but some portions of the rules, including rules requiring incumbent
carriers to make available information about the suitability of lines for
DSL service, will not take effect until May 2000.
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Several petitions for review and/or reconsideration have been filed by various
industry parties. We are unable to predict what the outcome of any resulting
litigation will be or when these matters will be resolved.
Finally, the Federal Communications Commission is considering a proceeding
which may affect Jato's ability to gain access to multi-tenant buildings in
order to provide its services. No decision has been issued in this proceeding,
and Jato is unable to predict when, or if, the Federal Communications Commission
will act in the proceeding.
With the increasing deployment of high-speed telecommunications networks,
the Federal Communications Commission continues to review its policies and
rules for the provision of advanced communications services. Advanced
communications services are wireline, broadband telecommunications services,
such as services that rely on digital subscriber line technology (commonly
referred to as xDSL) and packet-switched technology. In an order released on
August 6, 1998, the Federal Communications Commission clarified that the
interconnection, unbundling and resale obligations under the 1996
Telecommunications Act applied to the incumbents' advanced communications
facilities and services, and proposed measures to promote the deployment of
advanced communications services by both incumbent carriers and competitors.
However, the Federal Communications Commission also interpreted the 1996
Telecommunications Act as permitting (under certain circumstances) incumbent
carriers to deploy advanced communications services through separate affiliates
that would not be subject to the 1996 Telecommunication Act's unbundling and
resale obligations. The Federal Communications Commission currently is reviewing
these findings to more fully consider the proper classification of advanced
telecommunications services and the implications of that classification on the
scope of the incumbents' obligations with respect to the provision of these
services. This review could significantly affect competitor's abilities to gain
access to the incumbents' advanced service capabilities as well as the degree of
regulation the incumbents' retail advanced services may be subjected to.
On March 18, 1999, the Federal Communications Commission adopted a First
Report and Order in these proceedings further strengthening the rights of
competitors to lease space within the incumbent's facilities in order to place
the carrier's own telecommunications equipment. The Federal Communications
Commission, for example, permitted competitors to share space used by other
carriers at their option and required incumbent carriers to permit competitors
to place equipment in pre-installed racks and other cageless collocation
arrangements. The Federal Communications Commission also broadened the range of
permissible equipment that competitors may install to include equipment that
performs some switching and enhanced services functions. Finally, the Federal
Communications Commission limited the incumbents' ability to claim that
competitors' equipment posed fire or electrical hazards and proposed
rules making the standards incumbents may use more specific.
On March 17, 2000, the U.S. Court of Appeals for the D.C. Circuit remanded
significant portions of the First Report and Order for further consideration by
the Federal Communications Commission. The court concluded that the agency's
rules were overly broad to the extent that they were not limited to activities
which were required to achieve the statute's goal of establishing
interconnection between networks and allowing use of unbundled network elements.
The court specifically required the Federal Communications Commission to
reconsider rules allowing collocating carriers to connect with each other
directly and to utilize equipment that performs functions not directly related
to interconnection with the incumbent carrier. The court upheld the agency's
rule that incumbent local exchange carriers offer lower-cost "cageless"
collocation arrangements and its rule spreading costs for preparation of
unoccupied space among multiple carriers, but required the agency to review its
rules limiting the ability of incumbent carriers to dictate the space in which a
carrier may place its equipment. Revisions to these rules on remand may have an
adverse impact upon our ability to obtain necessary collocation space at
reasonable cost. We cannot predict the final outcome of these proceedings and
associated appeals. In addition, we note that incumbent carriers continue to
seek both legislation and Federal
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Communications Commission action to free them from regulation of advanced
services, including the obligation to unbundle their own DSL facilities, and we
are unable to predict the outcome of these efforts.
On November 18, 1999, the Federal Communications Commission adopted an order
in its advanced services proceeding requiring incumbents to offer access to the
high frequency portion of telephone lines they use to provide voice services to
a customer, provided that access will not degrade the voice services provided
over the same telephone lines. Access to the high frequency portion of a
telephone line -- referred to as line sharing -- will enable competitors to
provide high-speed data services (such as DSL) to a customer, without requiring
the customer to obtain a second telephone line dedicated for this purpose.
However, several important elements of line sharing, including the price at
which incumbents must provide such access, were left to the state commissions to
determine using federal guidelines. In addition, the order specifically
determines that symmetrical digital subscriber line technology used by Jato, is
not eligible for deployment on a line sharing basis because it uses the
frequencies devoted to voice transmissions. Moreover, incumbent carriers will
have at least until June 2000 to implement these new requirements. As a result,
we are unable to predict when line sharing will become available, or the degree
to which it will reduce the costs currently associated with providing high-speed
data services.
In November 1998, the Federal Communications Commission ruled that DSL
services used to provide dedicated access to interstate services, such as
Internet access, are interstate services subject to its jurisdiction. The
Federal Communications Commission permitted incumbent carriers to include such
DSL services in their federally-filed tariffs, rather than in state tariffs. On
February 26, 1999, the Federal Communications Commission ruled that local calls
placed to Internet service providers (so-called Internet service provider-bound
traffic) also is predominantly interstate traffic that is subject to federal
jurisdiction. However, having found that most Internet service provider-bound
traffic is jurisdictionally interstate, the Federal Communications Commission
went on to clarify that its ruling did not preclude parties from treating this
traffic as local traffic for purposes of the payments carriers make when local
calls originate with one carrier and are completed to subscribers of another
carrier. On a prospective basis, the Federal Communications Commission is
considering rules for carrier to carrier payments for Internet service
provider-bound traffic.
On March 24, 2000, the U.S. Court of Appeals for the D.C. Circuit vacated
and remanded the Federal Communications Commission's decision regarding Internet
service provider-bound traffic. The Court upheld the Federal Communications
Commission's jurisdiction over this traffic, but held that the agency had not
engaged in "reasoned decisionmaking" in determining whether this traffic is
"local" within the meaning of the reciprocal compensation provisions of the 1996
Telecommunications Act. It is not clear at this time the impact that this
decision will have on carrier to carrier payments for Internet service
provider-bound traffic.
In response to several carrier tariffs offering interstate DSL services, the
Federal Communications Commission has ruled that advanced services that are
provided to Internet service providers for use in connection with the Internet
service providers Internet access services are wholesale telecommunications
services, not telecommunications services offered at retail. As a result,
competitors may not obtain these DSL services at wholesale prices under the 1996
Telecommunications Act. Services which are offered to business or residential
subscribers directly, however, are retail services and may be obtained by other
carriers at the wholesale price. This ruling may allow Internet service
providers to obtain volume and term discounts which meet or exceed those
available to non-Internet service providers that purchase DSL services.
In general, the Federal Communications Commission has a policy of
encouraging the entry of new competitors, such as Jato, in the
telecommunications industry and preventing anti-competitive practices.
Therefore, the Federal Communications Commission has established different
levels of regulation for dominant carriers and nondominant carriers. Large
incumbent local exchange carriers such as GTE and
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the regional bell operating companies are currently considered dominant carriers
in their territories, while competitors such as Jato are considered nondominant
carriers.
- TARIFFS: As a nondominant carrier, we may install and operate
telecommunications facilities without prior Federal Communications
Commission authorization. Services of nondominant carriers have been
subject to relatively limited regulation by the Federal Communications
Commission, primarily consisting of the filing of tariffs and periodic
reports. However, nondominant carriers like Jato must offer interstate
services on a nondiscriminatory basis, at just and reasonable rates, and
remain subject to Federal Communications Commission complaint procedures.
Nondominant carriers have the option of filing tariffs for access services
provided to carriers who originate or terminate long distance calls to a
customer. However, the Federal Communications Commission has ruled that
long distance carriers must cancel their tariffs for domestic, state to
state long distance services, except for operator assisted calls and
casual calling using a carrier's 1-800 or 101-XXXX number. The Federal
Communications Commission's order has not taken effect, pending a review
of its lawfulness before the U.S. Court of Appeals for the District of
Columbia Circuit. We have not yet filed any tariffs for interstate
services with the Federal Communications Commission.
- INTERNATIONAL SERVICES: Nondominant carriers such as Jato are required to
obtain Federal Communications Commission authorization and file tariffs
before providing international communications services. At this time, we
do not have authority from the Federal Communications Commission to
provide voice or data communications services between the United States
and foreign points. We believe that such authority likely would be granted
by the Federal Communications Commission upon request.
- CONTRIBUTIONS TO FUND UNIVERSAL SERVICE SUBSIDIES: On May 8, 1997, the
Federal Communications Commission released an order in its CC Docket No.
96-45, which reforms the current system of interstate support mechanisms
designed to make telephone service universally available. The Federal
Communications Commission established a set of policies and rules to
ensure that low-income consumers and consumers living in rural, insular
and other high cost areas receive a defined set of local
telecommunications services at affordable rates. This is to be
accomplished in part through expansion of direct consumer subsidy programs
and in part by ensuring that rural, small and high cost local exchange
carriers continue to receive universal service subsidy support. The
Federal Communications Commission also created new programs to subsidize
connection of eligible schools, libraries and rural health care providers
to telecommunications networks. These programs will be funded by
assessment of eligible revenues of nearly all providers of interstate
telecommunications carriers, including DSL providers such as Jato. Like
all carriers that provide interstate telecommunications services, we will
be required to contribute to the subsidy. The subsidy could also enable
the incumbent carriers to reduce prices that they charge to certain
customers, putting additional competitive pressure on Jato. We presently
are unable to predict the potential impact of these universal service
funding reforms, but they could have a significant impact on our future
operations.
- OTHER GOVERNMENT REGULATION: Government regulation in a number of other
areas may affect Jato. For example, the Communications Assistance to Law
Enforcement Act requires telecommunications carriers to modify the design
of their equipment, facilities and services to ensure that electronic
surveillance can be performed at the request of authorized law enforcement
representatives. Telecommunications carriers are currently required to
comply with the core requirements of the Communications Assistance to Law
Enforcement Act in the year 2000. The potential cost to Jato in meeting
these requirements, which may be substantial, is unknown at this time. In
addition, government regulation of the Internet may also have an indirect
effect on our business, by increasing the cost of Internet access, making
the businesses of Internet service providers, who are customers of ours,
less viable. If these costs are passed on
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to customers of Internet service providers it could, in turn, affect the
extent to which companies and individuals access the Internet and engage
in electronic commerce. This may ultimately have a detrimental effect on
us.
STATE REGULATION
Jato believes that most, if not all, states in which it proposes to operate
will require a certification or other authorization to offer intrastate
services. However, provisions of the 1996 Telecommunications Act bar states and
localities from imposing any requirement that may prohibit, or have the effect
of prohibiting, the ability of any entity to enter the telecommunications
market. The Federal Communications Commission has the authority to preempt state
actions that operate as entry barriers.
Jato has obtained intrastate authority in each of the states where we
provide intrastate telecommunications services. In most states, Jato is required
to file tariffs setting forth the terms, conditions and prices for services that
are classified as intrastate.
We believe that, as the degree of intrastate competition increases, some
states are likely to offer incumbent carriers increasing pricing flexibility.
This pricing flexibility may present incumbent carriers with an opportunity to
subsidize services that compete with our services with revenues generated from
less competitive services, thereby allowing incumbent carriers to offer services
competing with ours at prices below the cost of providing the service. Jato
cannot predict the extent to which this may occur or its impact on our business.
Numerous states have adopted or are considering adoption of new programs to
fund state universal programs. Jato could be required to contribute a
significant portion of its intrastate end user revenues toward the funding of
such programs, and such a development could have a significant impact on our
future operations.
LOCAL REGULATION
Should Jato in the future decide to operate its own network facilities over
public rights-of-way, it may be required to obtain various permits and
authorizations from municipalities where the facilities are located. Some
municipalities may seek to impose similar requirements on users of transmission
facilities, even though they do not own such facilities. If municipal
governments impose conditions on granting permits or other authorizations or if
they fail to act in granting such permits or other authorizations, our business
could be adversely affected.
LOCAL INTERCONNECTION
Jato has entered into interconnection agreements covering substantially all
of our target markets. We have entered into interconnection agreements with
Ameritech, Bell Atlantic, BellSouth, GTE, Pacific Bell, Southwestern Bell,
Sprint and US West. In most instances, we have adopted entire agreements between
the incumbent and another competitive carrier in each of these states. We take
these agreements subject to the terms and conditions negotiated and/or
arbitrated by the other carrier, and for the remaining term of the underlying
agreement. Some of our local interconnection agreements are scheduled to expire
during the year 2000, and will require extension or renegotiation in the near
future. There can be no assurance that these negotiations and renegotiations of
interconnection agreements will be successful, that the agreements can be
extended in a favorable manner, or that arbitration of any unresolved issues by
any state public regulatory commission will be decided favorably to us.
EMPLOYEES
As of March 24, 2000, we had approximately 373 employees. We believe that
our future success will depend in part on our continued ability to attract, hire
and retain qualified personnel. Competition
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for such personnel is intense, and we may be unable to identify, attract and
retain such personnel in the future. None of our employees are represented by a
labor union or are the subject of a collective bargaining agreement. We have
never experienced a work stoppage and believe that our employee relations are
good.
PROPERTIES
Our headquarters are located in facilities consisting of approximately
30,000 square feet in Denver, Colorado, which we occupy under a lease that
expires in June 2004. The term of this lease may be extended. Under this lease,
we have a continuing right of first refusal covering all of the office space on
an additional floor comprising 22,000 square feet and a one time right of first
refusal covering 7,600 square feet on another floor.
We have also entered into a lease for an additional 13,000 square feet in
Denver, Colorado, which lease terminates in January 2003. These new facilities
are in the building adjacent to the building in which our headquarters are
currently located and are owned by the same landlord.
We recently entered into a sublease for approximately 21,000 square feet in
a building located in Englewood, Colorado, which lease terminates in May 2002.
We also lease space for network equipment installations and local offices in a
number of other locations.
LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings. See Note 7
of the notes to our consolidated financial statements.
------------------------
We use market data and industry forecasts throughout this prospectus, which
we have obtained from internal surveys, market research, publicly available
information and industry publications. We have not independently verified any of
this information.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS
Our directors, executive officers and other officers and their ages as of
March 24, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ----------------------------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS
Gerald K. Dinsmore............ 50 President, Chief Executive Officer and Director
Terri L. Compton.............. 43 Executive Vice President, Operations and Chief
Operating Officer
William D. Myers.............. 42 Senior Vice President, Finance and Strategic
Planning, Chief Financial Officer, Treasurer and
Secretary
Rex A. Humston................ 40 Senior Vice President, Engineering and Chief
Technology Officer
Brian E. Gast................. 40 Chairman of the Board
Leonard Allsup................ 51 Director
Eric A. Benhamou(1)........... 44 Director
Todd A. Brooks(1)(2).......... 39 Director
James J. Collis(1)(2)......... 37 Director
Donald T. Lynch............... 51 Director
Gregg A. Mockenhaupt(1)(2).... 30 Director
OTHER OFFICERS
Keith M. Bennett.............. 51 President, Direct Markets
Thomas W. Hall................ 48 President, Indirect Markets
Robert G. Vidal............... 50 Senior Vice President, Human Resources and
Administration
F. Thomas Danner III.......... 39 Vice President, Applications Planning
Patrick M. Green.............. 44 Vice President, Carrier Relations
Gerard A. Maglio.............. 53 Vice President, Marketing
Edward P. Ziehm............... 41 Vice President, Business Operations
</TABLE>
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
DIRECTORS AND EXECUTIVE OFFICERS
All the officers identified above serve at the discretion of our board of
directors. There are no family relationships between any persons identified
above. The following are brief biographies of the directors, executive officers
and other officers identified above.
GERALD K. DINSMORE joined Jato in August 1999 as its President and Chief
Operating Officer, was elected to the board of directors in September 1999 and
was appointed Chief Executive Officer in November 1999. Prior to joining Jato,
Mr. Dinsmore served as President--Business Development and
48
<PAGE>
Integration of GTE from June 1997 to January 1999. As such, Mr. Dinsmore was
responsible for finance, strategic planning, business development, marketing and
regulatory affairs for all GTE business units. From 1993 to June 1997,
Mr. Dinsmore served as Senior Vice President of Finance, Strategy and Technology
Planning of GTE. In such capacity, Mr. Dinsmore was responsible for developing
and implementing long-term strategic planning, including technological
initiatives and mergers and acquisitions. Mr. Dinsmore also served as a member
of the Executive Leadership Council of GTE from 1996 to January 1999.
TERRI L. COMPTON joined Jato in December 1999 as its Senior Vice President,
Market Operations and was appointed Executive Vice President, Operations and
Chief Operating Officer in February 2000. Prior to joining the Company, Ms.
Compton served as Vice President--Strategic Planning and Business
Development/National of GTE from September 1998 until December 1999. From
June 1996 until September 1998, Ms. Compton served as GTE's Vice
President--Business Development, National. From October 1986 until June 1996,
Ms. Compton served in various capacities at GTE.
WILLIAM D. MYERS joined Jato in August 1999 as its Vice President, Finance,
Chief Financial Officer and Treasurer. Mr. Myers was elected Secretary in
December 1999 and appointed Senior Vice President, Finance and Strategic
Planning in February 2000. Prior to joining the Company, Mr. Myers was Vice
President of Finance and Treasurer of Primestar, Inc. from April 1998 to
August 1999. From September 1996 to April 1998, Mr. Myers served as Vice
President of Finance and Treasurer of TCI Satellite Entertainment, Inc. From
November 1994 to September 1996, Mr. Myers was Vice President of Capital
Management for TCI Cable Management Corporation and served as Director of
Finance for Tele-Communications, Inc. from December 1991 to November 1994.
REX A. HUMSTON joined Jato in October 1998 as its Vice President,
Engineering and Chief Technology Officer and was appointed Senior Vice
President, Engineering in February 2000. Prior to joining the Company,
Mr. Humston was Vice President, Information Systems and Technology for Jones
International Inc., a telecommunications company, from May 1997 until
October 1998. From February 1996 to May 1997, Mr. Humston was Vice President and
Chief Information Officer of Health Decisions International, a teleservices
company. From April 1994 to February 1996, Mr. Humston served as Director,
Information Services for OneComm Corporation, a telecommunications company.
BRIAN E. GAST is a founder of Jato and has served as a member of the board
of directors since its inception in 1998. Mr. Gast was elected Chairman of the
Board in November 1999 and served as Chief Executive Officer from Jato's
inception to November 1999. From inception to August 1999, Mr. Gast served as
President of Jato. Prior to forming the Company, Mr. Gast co-founded Formus
Communications, Inc., a developer of wireless broadband systems, in
November 1996 and served as its President. In December 1988, Mr. Gast co-founded
American Telecasting, Inc., a national operator of wireless cable television
systems, and served as its President and Chief Executive Officer from
March 1990 to January 1996.
LEONARD ALLSUP is a founder of Jato and has served as a member of the board
of directors since its inception in 1998. Mr. Allsup also served as the
Company's Treasurer from inception until August 1999 and as a Vice President of
the Company until February 2000. Prior to joining the Company, Mr. Allsup served
as Vice President, Strategic Alliances of Formus Communications, Inc., from
November 1996 to June 1998. Prior to joining Formus in 1996, Mr. Allsup was an
advisor to several privately owned companies in the cable television and gaming
industries. From February 1991 to July 1995, Mr. Allsup was President and Chief
Operating Officer of KBL-Media, Inc., a subsidiary of KBLCOM, Inc., a
diversified telecommunications company.
ERIC A. BENHAMOU has served as a member of the board of directors since
December 1999. Mr. Benhamou has served as Chief Executive Officer of 3Com
Corporation since September 1990 and as its President from April 1990 through
August 1998. Mr. Benhamou has been the Chairman of the Board of Directors of
3Com since July 1994. Mr. Benhamou served as 3Com's Chief Operating Officer
49
<PAGE>
from April 1990 through September 1990. From October 1987 through April 1990,
Mr. Benhamou held various general management positions within 3Com.
Mr. Benhamou also serves as Chairman of the Board of Cypress Semiconductor,
Inc., and as a director of Legato Systems, Inc. Mr. Benhamou is a member of
President Clinton's Information Technology Advisory Council.
TODD A. BROOKS has served as a member of the board of directors since
September 1999. Mr. Brooks joined Mayfield Fund, a Menlo Park-based venture
capital firm in February 1999, and has been a General Partner since June 1999,
where he specializes in investing in companies in the telecommunications
equipment and services sectors. From April 1995 to January 1999, Mr. Brooks
served as a Managing Principal for JAFCO America Ventures, the U.S. subsidiary
of JAFCO Co. LTD, an international venture capital investment firm. From August
1993 to April 1995, Mr. Brooks served as an equity research analyst for
telecommunications investments for Franklin-Templeton Group, an investment
corporation. From June 1987 to August 1991, Mr. Brooks held various engineering
and marketing roles at Applied Materials, Inc., a semiconductor capital
equipment company. Mr. Brooks currently serves on the board of directors of
Avanex Corp., a publicly traded company and he also serves on several private
company boards of directors.
JAMES J. COLLIS has served as a member of the board of directors since
April 1999. Mr. Collis is an Executive Vice President of Seaport Capital, LLC, a
limited liability company that manages Seaport Capital Partners II, L.P.; CEA
Capital Partners USA, L.P.; and CEA Capital Partners USA CI, L.P. The three
partnerships are private investment funds formed to make growth stage and buyout
investments in media, communications and information services companies. Prior
to April 1, 2000, Mr. Collis held a similar position with CEA Management LLC, a
predecessor firm. Before joining CEA Management Corp., Mr. Collis was a
Principal at Chase Manhattan Bank beginning in December 1996. Before becoming a
Principal, Mr. Collis was a Vice President of Chase Manhattan Bank beginning in
June 1995 and an Associate before that beginning in June 1991. Mr. Collis
specializes in investing in companies in the media and telecommunications
industry and serves on the boards of directors of Acme Communications, Inc. and
for numerous private media and telecommunication companies.
DONALD T. LYNCH has served as a member of the Board of Directors since
December 1999. In January 1999, Mr. Lynch founded Lynch Associates, LLC, a
telecommunications consulting company. Prior to that, Mr. Lynch served in
various management positions at MCI Telecommunications Corporation from November
1981 to December 1998, including Senior Vice President--Finance, Network MCI
Services from June 1994 to September 1995, Senior Vice President, Financial and
Accounting Operations from September 1995 to September 1996 and Senior Vice
President, Local Financial Operations from September 1996 to December 1998.
GREGG A. MOCKENHAUPT has served as a member of the board of directors since
April 1999. Since March 1996, Mr. Mockenhaupt has served as a member of Crest
Partners II, LLC, a private investment firm that was formed in 1996 to focus on
communications-related investments and which is the general partner of Crest
Communications Partners, L.P. Prior to joining Crest in March 1996, Mr.
Mockenhaupt was an Associate in the Mergers & Acquisitions Group of Smith
Barney Inc. from June 1994 to March 1996. Mr. Mockenhaupt serves on several
private company boards of directors.
OTHER OFFICERS
KEITH M. BENNETT joined Jato in July 1999 as its President, Direct Markets.
Prior to joining the Company, Mr. Bennett served as President of Compass
Management and Consulting from November 1997 to July 1999. Mr. Bennett held
senior management positions with U S WEST (Director of Sales and Customer
Service) from October 1992 to March 1996, USA.NET (Vice President of Sales) from
March 1996 to December 1996, Intergram International (Senior Vice President)
from February 1997 to November 1997, and Online Systems Services (Senior Vice
President) from April 1998 to November 1998.
50
<PAGE>
THOMAS W. HALL joined Jato in December 1999 as its President, Indirect
Markets. Prior to joining the Company, Mr. Hall served as Vice President,
IP/Data Services of GTE from December 1998 until December 1999. From January
1998 until December 1998, Mr. Hall served as GTE's Vice President,
Internetworking Strategic Planning. Mr. Hall served as GTE's Regional President,
Texas/New Mexico from November 1996 until January 1998. From October 1994 until
November 1996, Mr. Hall served in various capacities at GTE.
ROBERT G. VIDAL joined Jato in July 1999 as its Vice President, Human
Resources and was appointed Senior Vice President, Human Resources and
Administration in February 2000. Prior to joining the Company, Mr. Vidal served
as Vice President, Human Resources for New Era of Networks, a global provider of
packaged solutions, from October 1998 through July 1999. From March 1998 to
October 1998, Mr. Vidal served as Vice President, Human Resources, for Customer
Insight Company, a Metromail Company. From August 1997 to March 1998, Mr. Vidal
held the position of Assistant Chief Operating Officer for Denver Public
Schools, the largest urban school district in Colorado. Beginning in 1989
through June of 1994, Mr. Vidal held the position of Senior Vice President,
Human Resources for CenterMark properties, a national retail real estate
developer.
F. THOMAS DANNER, III joined Jato in May 1999 as its Vice President,
Applications Planning. Prior to joining the Company, Mr. Danner served as
Executive Director of DMW Worldwide, Inc. from July 1997 to May 1999. From
August 1996 to July 1997, Mr. Danner was a principal of The McKenna Group, a
market-consulting group. From January 1994 to August 1996, Mr. Danner served as
Chief Architect of BellSouth Entertainment. From February 1985 to January 1994,
Mr. Danner served as Vice President of Development of BellSouth Advanced
Networks.
PATRICK M. GREEN joined Jato in December 1998 as its Vice President, Carrier
Relations. Prior to joining the Company, Mr. Green was a consultant to domestic
and multinational companies in the local telephony and subscription television
industries from late 1995 to October 1998. From 1992 until forming his
consulting practice in late 1995, Mr. Green served as Vice President-Finance and
Administration of KBL-Media.
GERARD A. MAGLIO joined Jato in June 1999 as its Vice President, Marketing.
Prior to joining the Company, Mr. Maglio was the principal of Maglio &
Associates, a cable television and telecommunications firm founded in 1991.
Mr. Maglio is also a principal and partner in a number of entrepreneurial
marketing ventures both in and out of the cable telecommunications areas.
Mr. Maglio held senior management positions at American Television &
Communications (now Time Warner Cable) from July 1976 to August 1980, Rainbow
Programming Services from August 1980 to September 1982, Daniels & Associates
from September 1982 to September 1988, United Artists Cable from September 1988
to December 1991, DMX from February 1992 to April 1993 and Tele-Trend
Communications from April 1993 to July 1995.
EDWARD P. ZIEHM joined Jato in July 1999 as its Vice President, Business
Operations. Prior to joining the Company, Mr. Ziehm served in various
senior-level management positions at subsidiaries of TCI, including Executive
Vice President of Corporate Development for DMX and Vice President of TCI Music
from June 1997 to January 1998. He also served as Vice President Business
Technology & Operations for TCI from May 1993 to January 1997.
DIRECTORS' TERMS
We currently have eight directors. Members of the board of directors
currently hold office and serve until our next annual meeting of stockholders or
until their respective successors have been elected. In December 1999, our board
of directors approved, subject to stockholder approval, our restated certificate
of incorporation to provide for, among other things, a classified board of
directors. The restated certificate of incorporation states that the terms of
office of the board of directors will be divided into three classes: class I,
whose term will expire at the annual meeting of stockholders to be
51
<PAGE>
held in 2001, class II, whose term will expire at the annual meeting of
stockholders to be held in 2002 and class III, whose term will expire at the
annual meeting of stockholders to be held in 2003. Under this provision,
Messrs. Collis and Mockenhaupt will serve as class I directors, Messrs. Allsup,
Brooks and Gast will serve as class II directors and Messrs. Benhamou, Dinsmore
and Lynch will serve as class III directors. At each annual meeting of
stockholders beginning with the 2001 annual meeting, the successors to directors
whose terms expire will be elected to serve from the time of election and
qualification until the third annual meeting following election and until their
successors have been elected.
BOARD COMMITTEES
COMPENSATION COMMITTEE. Our compensation committee consists of
Messrs. Brooks, Collis and Mockenhaupt. The compensation committee reviews
salaries, bonuses and stock options of our executive officers, and administers
our executive compensation policies, stock option plans and the bonus program.
No member of the compensation committee has been an officer or employee of Jato
at any time. None of our executive officers serves as a member of the board of
directors or compensation committee of any other company that has one or more
executive officers serving as a member of our board of directors or compensation
committee.
AUDIT COMMITTEE. Our audit committee consists of Messrs. Benhamou, Brooks,
Collis and Mockenhaupt. Effective upon the closing of this offering, our audit
committee will consist of Messrs. Benhamou, Brooks and Lynch. The audit
committee is primarily concerned with the effectiveness of our accounting
policies and practices, financial reporting and internal controls. Specifically,
the audit committee recommends to the board the firm to be appointed as our
independent public accountants; reviews and approves the scope of the annual
examination of our books and records; reviews the audit findings and
recommendations of the independent public accountants; monitors the extent to
which we have implemented changes recommended by the independent public
accountants, or the audit committee; and provides oversight with respect to
accounting principles to be employed in our financial reporting.
DIRECTOR COMPENSATION
Our directors do not currently receive any cash compensation for services on
the board of directors or any committee thereof, but directors may be reimbursed
for customary and reasonable expenses incurred in attending these meetings. The
Company is exploring the possibility of implementing a compensation plan for
directors in the future. All directors are eligible to participate in our 2000
Equity Incentive Plan. In March 2000, we granted options to Messrs. Benhamou and
Lynch for the purchase of 105,525 shares and 49,245 shares at an exercise price
of $3.98 per share. In addition, we granted options to Mr. Lynch for the
purchase of 21,105 shares at an exercise price of $13.00 per share. These
options vest in three equal annual installments commencing on the first
anniversary of the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the board of directors
is an officer or employee of Jato. None of our executive officers serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving on our board of directors or
Compensation Committee.
EMPLOYMENT AGREEMENTS AND TRANSITION AGREEMENTS
GERALD K. DINSMORE. On November 16, 1999, we entered into an amended
employment agreement with Gerald K. Dinsmore, our Chief Executive Officer. The
agreement has a two-year term
52
<PAGE>
which automatically renews on a month-to-month basis unless either of us gives
30 day's prior written notice to the other. The agreement provides for an annual
base salary of $300,000 which will increase annually in an amount determined by
our board of directors.
Mr. Dinsmore may be paid a cash bonus at the discretion of our board of
directors. Mr. Dinsmore also was granted an option to purchase 1,125,600 shares
of our common stock, subject to the terms and conditions set forth in the stock
option agreement attached to his employment agreement. The agreement also
provides for the accelerated vesting of 50% of Mr. Dinsmore's unvested stock
options and restricted stock upon his death. Either of us can terminate Mr.
Dinsmore's employment at any time. However, if we terminate Mr. Dinsmore's
employment without cause, he will be entitled to receive twelve months' base
salary and any pro-rated bonus he is entitled to for that year. We have agreed
to reimburse certain commuting and relocation expenses of Mr. Dinsmore
associated with his relocation from Dallas to Denver, as well as closing costs,
moving expenses, furnishings, and related expenses up to an aggregate maximum of
$100,000.
Mr. Dinsmore's employment agreement contains provisions which prohibits him
during the term of the employment agreement from engaging in any other
employment, occupation or business enterprise, other than those in which he is a
passive investor. In addition, Mr. Dinsmore has agreed to abide by the terms of
his previously executed non-competition, proprietary information and inventions
agreement.
REX A. HUMSTON. On April 16, 1999, we entered into an employment agreement
with Rex A. Humston, our Vice President, Engineering and Chief Technology
Officer. The agreement has a one-year term, which automatically renews on a
month-to-month basis unless either of us gives 30 days' prior written notice to
the other. The agreement provides for an annual base salary of $150,000 which
amount increases annually by the greater of:
- 5% of Mr. Humston's salary, or
- an amount determined by our board of directors.
Mr. Humston may be paid a cash bonus at the discretion of our board of
directors. The agreement also provides for the acceleration of vesting of Mr.
Humston's stock options and the termination of our repurchase rights on the
shares of stock underlying those options if certain change in control
transactions occur and for acceleration of the vesting on 50% of Mr. Humston's
unvested stock options and restricted stock upon his death. Either of us can
terminate Mr. Humston's employment at any time. However, if we terminate
Mr. Humston's employment without cause, he will be entitled to receive twelve
months' base salary and any pro-rated bonus he is entitled to for that year.
Mr. Humston's employment agreement contains provisions which prohibits him
during the term of the employment agreement from engaging in any other
employment, occupation or business enterprise, other than those in which he is a
passive investor. In addition, Mr. Humston's agreement contains noncompete
provisions which prohibits him, during his employment and for a period of twelve
months after the termination of his employment, from engaging in any activities
in competition with us, and from accepting employment or establishing a business
relationship with certain of our competitors.
The employment agreements we have entered into with certain of our other
executive officers and key employees generally provide for similar terms as
those described above. If we terminate an executive's employment during the term
of his employment agreement without cause, the executive would generally be
entitled to receive a severance package from the Company.
On April 3, 2000, we entered into amended and restated employment transition
and separation agreements with each of Brian E. Gast, our current Chairman and
former Chief Executive Officer, Leonard Allsup, our former Vice President,
Strategic Relationships and Bruce E. Dines, Jr., our former
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<PAGE>
Vice President, Customer Relations. Under the terms of the agreements,
Messrs. Gast, Allsup and Dines each will receive:
- his salary and health benefits through the earlier to occur of the closing
of this offering or June 30, 2000;
- a lump sum payment equal to one year of his current base salary, less
applicable deductions and withholdings; and
- a bonus payment equal to the portion of the bonus he is entitled to
receive for the calendar year based upon the number of full months he was
employed for the year.
In addition, the vesting of all remaining unvested shares of Messrs. Gast,
Allsup and Dines' restricted stock was accelerated such that the first half of
the 2,270,523 shares, 2,105,060 shares, and 1,139,858 shares, respectively,
vested on March 31, 2000 and the second half will vest on the earlier of the
closing of this offering or June 30, 2000. Under these agreements,
Messrs. Gast, Allsup and Dines also agree that for an additional 180-day period
after their 180-day lock-up agreements with the underwriters expire, they will
not sell more than an aggregate of 2,462,250 shares during such period. In
addition, for so long as Messrs. Gast, Allsup and Dines own shares of our stock,
they agree that they will not:
- knowingly sell their shares of the Company stock to a person or group who,
as a result of such sale, would own 5% or more of the Company's
outstanding stock or to directly or indirectly solicit any person or group
to purchase from them or any other shares in the Company if such person or
group, as a result of such purchase, would own 5% or more of the Company's
outstanding stock;
- knowingly sell their shares of the Company stock to a Company competitor
or to directly or indirectly solicit any competitor to purchase from
shares in the Company from them; and
- engage in, or support, a hostile proxy solicitation.
The agreements provide for releases by Messrs. Gast, Allsup and Dines in
favor of the Company and contain non-compete and nonsolicitation provisions
which will apply to Messrs. Gast, Allsup and Dines during the remainder of their
employment with the Company and for a period of twelve months following their
separation date. The agreements also provide that Messrs. Gast and Allsup will
continue to serve as directors until June 30, 2000.
Jato loaned $100,000 to Mr. Gast pursuant to his original employment
agreement. The loan is secured by a pledge of Mr. Gast's common stock. The loan
bears interest at a rate of 5% per annum, compounded quarterly, and principal
and interest amounts were forgiven on March 31, 2000. Mr. Gast will be solely
responsible for all tax consequences relating to the forgiveness of the loan.
54
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our four other most highly compensated
executive officers whose annual salary and bonus exceeded $100,000 for services
rendered in all capacities to us during 1999 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE(1)(2)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
----------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION(S) SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) COMPENSATION
- ------------------ ---------- --------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gerald K. Dinsmore(3) ........ $ 78,965 -- -- -- $113,764(4)
President and Chief
Executive Officer
Brian E. Gast(5) ............. $238,762 -- $36,347(6) -- $ 22,466(7)
Chairman and Former Chief
Executive Officer
Rex A. Humston ............... $148,269 -- -- -- $ 551(8)
Vice President, Engineering
and Chief Technology Officer
Leonard Allsup ............... $148,269 -- -- -- $ 611(8)
Former Vice President,
Strategic Relationships
Bruce E. Dines, Jr. .......... $148,269 -- -- -- $ 21,761(9)
Former Vice President,
Customer Operations
</TABLE>
- ------------------------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include medical, group life
insurance or other benefits received by the Named Executive Officers that
are available generally to all salaried employees and various perquisites
and other personal benefits received by the Named Executive Officers, which
do not exceed the less of $50,000 or 10% of any officer's salary and bonus
disclosed in this table.
(2) If Mr. Myers and Ms. Compton, who were not hired by Jato until August 1999
and November 1999, respectively, had been employed with Jato for the entire
year, their compensation would have been required disclosure in this table.
For 1999, Mr. Myers' base salary was $185,000 and Ms. Compton's base salary
was $200,000.
(3) Mr. Dinsmore has served as President and Chief Operating Officer from
August 1999 and as Chief Executive Officer since November 1999.
(4) Represents $100,000 of reimbursement for closing costs, moving expenses,
furnishings and related expenses as well as $13,653 of relocation expenses
and a housing allowance and $111 of health club benefits.
(5) Mr. Gast served as President from inception until August 1999 and as Chief
Executive Officer from inception until November 1999.
(6) Represents forgiveness of note payable.
(7) Represents $21,840 for relocation expenses and $626 of health club
benefits.
(8) Represents health club benefits.
(9) Represents $21,210 of relocation expenses and $551 of health club benefits.
55
<PAGE>
OPTION GRANTS IN 1999
The following table sets forth information regarding options granted to the
Named Executive Officers during 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
PERCENT OF ASSUMED ANNUAL RATES OF
TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
NUMBER OF GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE ------------------------------
NAME GRANTED 1999 ($/SHARE) EXPIRATION DATE 5% 10%
- ---- --------- ------------- --------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gerald K. Dinsmore..... 1,125,600 18.5% $1.83 12/02/09 $8,614,946 $21,831,964
</TABLE>
The percent of total options granted to employees in the above table is
based on 6,101,385 total options granted in 1999. Twenty-five percent of these
options vest on December 3, 2000, and the remainder vest in equal installments
each month over the three-year period following December 3, 2000. Our board of
directors may reprice options under the terms of our equity incentive plan.
The potential realizable value represents amounts, net of exercise price
before taxes, that may be realized upon exercise of the options immediately
prior to the expiration of their terms assuming appreciation of 5% and 10% over
the option term. Assuming 5% and 10% annual appreciation, these values are
calculated based on rules promulgated by the Securities and Exchange Commission
and an assumed initial public offering price of $14.00 per share and do not
reflect our estimate of future stock price growth. The actual value realized may
be greater or less than the potential realizable value set forth in the table.
1999 OPTION EXERCISE AND YEAR-END OPTION VALUES
The following table sets forth information concerning the value realized
upon exercise of options during 1999 and the number and value of unexercised
options held by each of the Named Executive Officers at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald K. Dinsmore......... -- -- -- 1,125,600 -- $13,698,552
</TABLE>
In the table above, the value of the unexercised in-the-money options is
based on an assumed public offering price of $14.00 per share minus the per
share exercise price, multiplied by the number of shares underlying the option.
EQUITY INCENTIVE PLAN
Our 1998 Equity Incentive Plan was adopted by the board of directors and
approved by our stockholders on August 10, 1998. The incentive plan was amended
and restated as the 2000 Equity Incentive Plan in February 2000. There is
currently an aggregate of 12,240,900 shares of common stock authorized for
issuance under the incentive plan. The incentive plan will terminate on
February 7, 2010 unless sooner terminated by the board (or Committee).
As of March 24, 2000, we had 7,583,180 shares of common stock issuable upon
exercise of stock options under the incentive plan at a weighted average price
of $3.31 per share, 315,489 shares of which are exercisable. In addition,
703,500 shares of restricted stock have been purchased under the plan at a price
of $.533 per share. No other stock awards have been granted under the incentive
plan.
The incentive plan provides for the grant of incentive stock options, as
defined under the Internal Revenue Code of 1986, as amended, to employees
(including officers and employee-directors) and
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<PAGE>
nonstatutory stock options, restricted stock purchase awards, stock bonuses and
stock appreciation rights to employees (including officers and
employee-directors), directors and consultants of Jato and its affiliates. The
incentive plan is administered by the board or a committee appointed by the
board which determines recipients and types of awards to be granted, including
the exercise price, number of shares subject to the award and the exercisability
thereof.
The terms of options granted under the incentive plan may not exceed ten
years. The board or committee determines the exercise price of options granted
under the incentive plan. However, the exercise price for an incentive stock
option cannot be less than 100% of the fair market value of the common stock on
the date of the option grant. The exercise price for a nonstatutory stock option
shall be determined in the sole discretion of the Board; provided, however, that
upon the closing of this offering, the exercise price of a nonstatutory stock
option cannot be less than 85% of the fair market value of the common stock on
the date of the option grant. Options granted under the incentive plan vest at
the rate specified in the option agreement, which is generally four years.
Generally, the optionee may not transfer a stock option other than by will or
the laws of descent or distribution unless the optionee holds a nonstatutory
stock option that provides for transfer in the stock option agreement. However,
an optionee may designate a beneficiary who may exercise the option following
the optionee's death. An optionee whose service relationship with Jato or any
affiliate ceases for any reason may exercise vested options for the term
provided in the option agreement, which is generally three months.
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of Jato or any affiliate of Jato, unless the option
exercise price is at least 110% of the fair market value of the stock subject to
the option on the date of grant and the term of the option does not exceed five
years from the date of grant. In addition, the aggregate fair market value,
determined at the time of grant, of the shares of common stock with respect to
which incentive stock options are exercisable for the first time by an optionee
during any calendar year, under the incentive plan and all other stock plans of
Jato and its affiliates, may not exceed $100,000.
Pursuant to Section 162(m) of the Internal Revenue Code (which denies a
deduction to publicly held corporations for certain compensation paid to
specified employees in a taxable year to the extent that the compensation
exceeds $1,000,000), no person may be granted options under the incentive plan
covering more than 2,500,000 shares of common stock in any calendar year.
Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the incentive plan. Under its general authority to grant and to
amend options, the board (or committee) has the implicit authority to reprice
outstanding options or to offer optionees the opportunity to replace outstanding
options with new options for the same or a different number of shares. Both the
original and new options will count toward the Internal Revenue Code
Section 162(m) limitation set forth above.
Restricted stock purchase awards granted under the incentive plan may be
granted pursuant to a repurchase option in favor of Jato in accordance with a
vesting schedule determined by the board (or committee). The price of a
restricted stock purchase award under the incentive plan can not be less than
85% of the fair market value of the stock subject to the award on the date of
grant. Stock bonuses may be awarded in consideration of past services without a
purchase payment. Unless otherwise specified, rights under a stock bonus or
restricted stock bonus agreement generally may not be transferred other than by
will or the laws of descent and distribution during such period as the stock
awarded pursuant to such an agreement remains subject to the agreement. Stock
appreciation rights granted under the incentive plan allow a recipient to elect
to receive cash or stock of a value equal to the appreciation of optioned
rights. The incentive plan authorizes three types of stock appreciation rights:
a tandem stock appreciation right is granted along with a stock option and is
subject to the same
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<PAGE>
terms and conditions applicable to the option. It requires the holder to elect
between exercising the option (and receiving our shares) or surrendering, in
whole or in part, the option and receiving instead cash or stock equal to the
appreciation of the shares that are surrendered. A concurrent stock appreciation
right also is granted with a stock option and is subject to the same terms and
conditions applicable to the option. However, it is exercised automatically at
the same time that the recipient exercises the option. Without surrendering any
of the shares subject to the option, the recipient receives cash or stock equal
to the appreciation of the shares exercised. On the other hand, an independent
stock appreciation right is not granted with a stock option, although it
generally is subject to the same terms and conditions applicable to nonstatutory
stock options. On exercising the independent stock appreciation right, the
recipient receives cash or stock equal to the appreciation of the share
equivalents that the recipient is exercising.
If there is any sale of substantially all of our assets, any merger, reverse
merger or any consolidation in which we are not the surviving corporation, or
any acquisition by certain persons, entities or groups of 50% or more of our
stock, all outstanding awards under the Incentive Plan either will be assumed or
substituted for by any surviving entity. If the surviving entity determines not
to assume or substitute for such awards, the vesting provisions of such stock
awards will be accelerated and the awards terminated if not exercised prior to
such transaction.
401(K) PLAN
The Company sponsors a qualified defined contribution retirement plan,
called the Jato Communications Corp. 401(k) Plan, or 401(k) Plan, under which
eligible employees may elect to defer their current compensation by up to
certain statutorily prescribed annual limits ($10,500 in 2000) and to contribute
such amounts to the 401(k) Plan. The 401(k) Plan is intended to qualify under
Section 401 of the Code, so that contributions by employees or by the Company to
the 401(k) Plan, and income earned on such contributions, are not taxable to the
employees until withdrawn, and so that contributions by the Company will be
deductible by the Company when made. The trustee for the 401(k) Plan is Orchard
Trust Company. The 401(k) Plan permits employees to direct investment of their
accounts in the 401(k) Plan among a selection of mutual funds.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock as of March 24, 2000 for:
- each person (or group of affiliated persons) known to us to own
beneficially more than 5% of the common stock,
- each of our directors and named executive officers, and
- all of our directors and executive officers as a group.
The information has been adjusted to reflect the sale of the common stock in
this offering, the conversion of all outstanding shares of preferred stock into
common stock, the 178,571 shares of common stock (based on an assumed initial
public offering price of $14.00 per share) to be issued to Qwest upon the
closing of the concurrent placement and the 297,619 shares of common stock
(based on an assumed initial public offering price of $14.00 per share) issuable
to Qwest upon exercise of the warrant to be issued upon the closing of the
concurrent placement.
In accordance with the rules of the Securities and Exchange Commission, the
following table gives effect to the shares of common stock that could be issued
upon the exercise of outstanding options and warrants within 60 days of
March 24, 2000. Unless otherwise noted in the footnotes to the table and subject
to community property laws where applicable, the following individuals have sole
voting and investment control with respect to the shares beneficially owned by
them. Unless otherwise indicated, the business address for each of the
individuals or entities listed below is c/o Jato Communications Corp., 1099
18(th) Street, Suite 2200, Denver, Colorado 80202.
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<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER SHARES BENEFICIALLY OWNED(1)
OF SHARES ---------------------------------
BENEFICIALLY PRIOR TO AFTER
NAME OWNED(1) THE OFFERING THE OFFERING
- ---- ------------ ------------ ------------
<S> <C> <C> <C>
Crest Communications Partners, L.P. .................. 6,381,747 14.35 11.91%
320 Park Avenue, 17(th) Floor
New York, NY 10022
CEA Capital Partners USA, L.P.(2) .................... 6,381,744 14.35 11.91
17 State Street, 35(th) Floor
New York, NY 10004
Entities affiliated with
Hambrecht & Quist(3) ................................. 3,316,488 7.46 6.19
One Bush Street
San Francisco, CA 94104
Entities affiliated with
ABN AMRO Capital (USA), Inc.(4) ...................... 3,785,494 8.51 7.07
208 S. LaSalle Street, 10(th) Floor
Chicago, IL 60604
Entities affiliated with
Mayfield X, L.P.(5) .................................. 2,763,745 6.21 5.16
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Microsoft Corporation ................................ 2,512,499 5.65 4.69
One Microsoft Way
Redmond, WA 98052
Qwest Communications Corporation(6) .................. 2,512,499 5.65 5.55
555 Seventeenth Street
Denver, CO 80202
Brian E. Gast(7)...................................... 3,243,604 7.29 6.05
Leonard Allsup(8)..................................... 3,120,253 7.02 5.82
Eric A. Benhamou...................................... -- * *
Todd A. Brooks(9)..................................... 2,763,745 6.21 5.16
James J. Collis(10)................................... 6,381,744 14.35 11.91
Gerald K. Dinsmore.................................... 736,139 1.66 1.37
Donald T. Lynch....................................... -- * *
Gregg A. Mockenhaupt(11).............................. 6,381,747 14.35 11.91
Bruce E. Dines, Jr.(12)............................... 1,726,856 3.88 3.22
Rex A. Humston........................................ 716,061 1.61 1.34
All directors and executive officers as a
group (12 persons)(13).............................. 25,080,710 56.40% 46.82%
</TABLE>
- ------------------------
* Indicates beneficial ownership of less than one percent.
(1) In accordance with Rule 13d-3 under the Securities and Exchange Act of 1934,
as amended (the "Exchange Act"), a person is deemed to be a "beneficial
owner" of a security if he or she has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the
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disposition of such security. A person is also deemed to be a beneficial
owner of any securities of which that person has the right to acquire
beneficial ownership within 60 days. More than one person may be deemed to
be a beneficial owner of the same securities. The percentage ownership of
each stockholder is calculated based on the total number of outstanding
shares of common stock, including outstanding shares of preferred stock
convertible into common stock, as of March 24, 2000.
(2) Includes 1,504,175 shares held by its affiliate CEA Capital Partners USA CI,
L.P.
(3) Includes 229,136 shares held by H&Q Jato Communications Investors, L.P.,
299,488 shares held by Hambrecht & Quist California, 130,649 shares held by
Hambrecht & Quist Employee Venture Fund, L.P. II, 2,625,057 shares held by
Access Technology Partners, L.P. and 32,158 shares held by Access Technology
Partners Brokers Fund, L.P. of which H&Q Venture Management, L.L.C. is the
general partner.
(4) Includes 184,136 shares held by ABN AMRO Incorporated and 956,992 shares
held by I Eagle Trust. I Eagle Trust is managed by ABN AMRO Private Equity,
a department of ABN AMRO, Inc.
(5) Includes 276,373 shares held by Mayfield Principals Fund, L.L.C. and
82,911 shares held by Mayfield Associates Fund IV, L.P.
(6) These shares are held by U.S. TeleSource, Inc., a wholly-owned subsidiary of
Qwest Communications Corporation, and do not include 178,571 shares to be
issued in the concurrent private placement and a warrant to purchase 297,619
shares (each based on an assumed initial offering price of $14.00 per
share). For the purpose of calculating percentages after the offering both
the 178,571 shares to be issued in the concurrent private placement and the
shares issuable upon exercise of the warrant have been included.
(7) Includes 633,150 shares held by Gast Investment LLLP of which Mr. Gast is a
general partner. Includes 536,711 shares that will be sold by Mr. Gast if
the underwriters' over-allotment option is exercised in full. If sold, his
percentage owned after the offering will be 4.93%.
(8) Includes 37,519 shares held as custodian for his daughter. Includes 516,300
shares that will be sold by Mr. Allsup if the underwriters' over-allotment
option is exercised in full. If sold, his percentage owned after the
offering will be 4.74%.
(9) Mr. Brooks is a Managing Director of Mayfield X Management, LLC, the general
partner of Mayfield X, L.P. and a Managing Director of Mayfield Principals
Fund, LLC (the "Mayfield Entities"). Mr. Brooks may be deemed to be the
indirect beneficial owner of the shares owned by the Mayfield Entities. Mr.
Brooks disclaims beneficial ownership of the shares held by the Mayfield
Entities, except to the extent of his pecuniary interest arising therein.
(10) Mr. Collis is an Executive Vice President of Seaport Capital, LLC, which is
the fund manager of CEA Capital Partners USA, L.P. and CEA Capital Partners
USA CI, L.P. and disclaims beneficial ownership of the shares held by each
of CEA Capital Partners USA, L.P. and CEA Capital Partners USA CI, L.P.,
except to the extent of his pecuniary interest arising therein.
(11) The General Partner of Crest Communications Partners, L.P. ("CCP") is Crest
Partners II, LLC. The management company of CCP is Crest Communications
Holdings LLC ("Holdings"). Holdings may be deemed to indirectly beneficially
own the shares owned by CCP. Mr. Mockenhaupt is a member of Holdings and may
be deemed to be the indirect beneficial owner of the shares owned by CCP.
Mr. Mockenhaupt disclaims beneficial ownership of the shares held by CCP,
except to the extent of his pecuniary interest arising therein.
(12) Includes 4,689 shares held by Mr. Dines' spouse, 42,210 shares held by the
Bruce E. Dines Jr. 1999 Annuity Trust, of which Mr. Dines is Trustee and
93,799 shares held by DYNEX & Co., a general partnership, of which Mr. Dines
is a general partner. Includes 285,739 shares that will be sold by
Mr. Dines if the underwriters' over-allotment option is exercised in full.
If sold, his percentage owned after the offering will be 2.62%.
(13) Includes 1,338,750 shares that will be sold by several of our selling
stockholders if the underwriters' over-allotment option is exercised in
full. See Notes 7, 8 and 12 above.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of transactions since our inception in
July 1998 to which we have been a party, in which the amount involved exceeds
$60,000 and in which any director, executive officer or holder of more than 5%
of our capital stock had or will have a direct or indirect material interest,
other than our compensation arrangements with our executive officers which are
described under "Management."
SERIES C FINANCING
On September 16, 1999 and December 22, 1999, we issued an aggregate of
3,947,642 shares of Series C preferred stock to certain principal stockholders
and certain other investors at a purchase price of $7.00 per share. We agreed to
reduce the price per share of the Series C preferred stock to $5.60 per share if
specified conditions were not satisfied by November 15, 1999. On November 16,
1999, we issued an additional 984,666 shares of Series C preferred stock because
such conditions were not satisfied. Of the 4,932,308 shares of Series C
preferred stock issued, which will convert into 6,939,757 shares of common stock
upon the closing of this offering, an aggregate of 3,749,992 shares were sold to
the following principal stockholders for an aggregate purchase price of
approximately $21 million:
<TABLE>
<CAPTION>
AGGREGATE
PURCHASER NUMBER OF SHARES PURCHASE PRICE
- --------- ---------------- --------------
<S> <C> <C>
Crest Communications Partners, L.P.......................... 535,713 $ 2,999,997.00
Entities affiliated with CEA Capital Partners USA, L.P...... 535,713 2,999,997.00
Entities affiliated with ABN AMRO Capital (USA), Inc........ 357,142 1,999,998.00
Entities affiliated with Hambrecht & Quist.................. 357,140 1,999,998.00
Entities affiliated with Mayfield X, L.P.................... 1,964,284 11,000,003.00
--------- --------------
Total:...................................................... 3,749,992 $20,999,993.00
========= ==============
</TABLE>
In addition, of the 4,932,308 shares of Series C preferred stock issued,
37,500 shares, 17,857 shares and 17,857 shares were sold to Gerald K. Dinsmore,
Gerard A. Maglio and Edward P. Ziehm, respectively, officers of Jato, for
purchase prices of $210,000, $100,002, and $100,002, respectively. An aggregate
of 1,109,102 shares were sold to other accredited investors.
SERIES B FINANCING
On April 16, 1999 and May 15, 1999, we issued an aggregate of 13,615,322
shares of Series B preferred stock to certain principal stockholders and certain
other investors at a purchase price of $1.50 per share. Of the 13,615,322 shares
of Series B preferred stock issued, which will convert into 19,156,758 shares of
common stock upon the closing of this offering, an aggregate of
12,333,333 shares were sold to the following principal stockholders for an
aggregate purchase price of approximately $18.5 million and an aggregate of
1,281,989 shares were sold to other accredited investors.
<TABLE>
<CAPTION>
AGGREGATE
PURCHASER NUMBER OF SHARES PURCHASE PRICE
- --------- ---------------- --------------
<S> <C> <C>
Crest Communications Partners, L.P.......................... 4,000,000 $ 6,000,000.00
Entities affiliated with CEA Capital Partners USA, L.P...... 4,000,000 6,000,000.00
Entities affiliated with ABN AMRO Capital (USA), Inc........ 2,333,333 3,499,999.50
Entities affiliated with Hambrecht & Quist.................. 2,000,000 3,000,000.00
---------- --------------
Total:...................................................... 12,333,333 $18,499,999.50
========== ==============
</TABLE>
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<PAGE>
SERIES A FINANCING
On October 23, 1998 and October 30, 1998, we issued an aggregate of
1,143,323 and 608,662 shares, respectively, of Series A preferred stock to
certain principal stockholders and certain other investors at a purchase price
of $0.75 per share. Of the 1,751,985 shares of Series A preferred stock sold by
us, which will convert into 2,465,042 shares of common stock upon the closing of
this offering, 133,333 shares were sold to Gerard A. Maglio, an officer of Jato,
for an aggregate purchase price of approximately $100,000.
REGISTRATION RIGHTS
Pursuant to the second amended and restated investors' rights agreement
dated as of January 20, 2000, as amended, among Jato and certain investors, the
investors have certain registration rights for the shares of common stock held
by them. See "Description of Capital Stock -- Registration Rights" for a
description of these registration rights.
LOANS
In May 1999, Jato loaned $100,000 to Mr. Gast pursuant to his original
employment agreement. The loan was forgiven as provided in Mr. Gast's transition
agreement. See "-- Employment Agreements and Transition Agreements."
COMMON STOCK PURCHASES
On August 31, 1999, Mr. Dinsmore purchased 703,500 shares of our common
stock pursuant to a restricted stock purchase agreement that is subject to a
repurchase option on our behalf, which is released at a rate of 25% on the first
anniversary of the purchase and the balance ratably over 24 months. The
repurchase option terminates in the event of a change of control of Jato,
termination without cause, or a material reduction in responsibilities or job
title. The purchase price for the restricted common stock was $0.533 per share,
or $375,000 in the aggregate, which was paid for with $5,000 in cash and the
execution of a full recourse promissory note for $370,000, which is secured by a
pledge of the 703,500 shares of restricted common stock. The note bears interest
at a rate of 7% per annum over two years. Subject to Mr. Dinsmore not
terminating his employment with Jato, principal and interest amounts under the
note will be forgiven in two installments of equal amount on the first and
second anniversary of his start date with Jato. Upon each such installment Jato
will pay Mr. Dinsmore $80,000 to cover taxes associated with the forgiveness of
the note. All principal and interest of the note will be forgiven and both
tax-related payments will be paid upon the occurrence of:
- a change of control,
- termination of his employment for reasons other than cause,
- material reduction of responsibilities or duties, or
- a material downgrading of title.
DIRECTOR STOCK OPTIONS
In March 2000, we granted options to Messrs. Benhamou and Lynch for the
purchase of 105,525 shares and 49,245 shares at an exercise price of $3.98 per
share. In addition, we granted options to Mr. Lynch for the purchase of 21,105
shares at an exercise price of $13.00 per share. These options vest in three
equal annual installments commencing on the first anniversary of the date of
grant.
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<PAGE>
STRATEGIC INVESTMENTS AND RELATIONSHIPS
MICROSOFT. In January 2000, we entered into a strategic relationship with
Microsoft in which Microsoft invested $10 million in us in return for shares of
our Series D preferred stock which will convert into 2,512,499 shares of common
stock upon the closing of this offering. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." During the term of
our two-year agreement, Jato may use Microsoft products, such as
Microsoft-Registered Trademark- Office, the Microsoft
Outlook-Registered Trademark- messaging and collaboration client, Site Server
Commerce Edition and Microsoft Exchange, to create a variety of applications
service provider services focused on knowledge management, e-commerce and
line-of-business solutions. In addition, Jato will offer Managed PC Services, a
bundled solution consisting of a combination of hardware, software and services
provided to customers for a monthly fee. Jato and Microsoft will cooperatively
develop and implement sales and marketing plans for these products.
QWEST. In February 2000, Qwest invested $10 million in us in return for
shares of our Series D preferred stock which will convert into 2,512,499 shares
of common stock upon the closing of this offering. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." As a part of
this transaction, Qwest has agreed to certain standstill agreements restricting
its ability to purchase more than 10% of our outstanding capital stock, without
our consent, for a period of three years. In addition, upon the closing of the
concurrent placement, which will close immediately after the closing of this
offering, Qwest will purchase 178,571 shares of common stock (based on an
assumed initial public offering price of $14.00 per share) for an aggregate
purchase price of $2.5 million. In addition, at the closing of the concurrent
placement, we have agreed to issue Qwest a warrant for the purchase of 297,619
shares of common stock (based on an assumed initial public offering price of
$14.00 per share) at an aggregate exercise price of $5.0 million.
Concurrently with Qwest's equity investment in us, we have been designated
as Qwest's preferred provider of business services in selected cities and
central offices. Qwest has agreed to use its reasonable efforts to sell a
minimum of 75,000 business class DSL lines using Jato DSL facilities over five
and one-half years. Moreover, we have agreed to use our reasonable efforts to
supply Qwest with a minimum of 15,000 lines using Qwest's DSL facilities. Both
partners will purchase each line on a one year commitment. We will use Qwest as
one of our preferred suppliers of broadband communications services and
large-scale transport services. As part of our commercial relationship with
Qwest, we have agreed to purchase $25.0 million of these Qwest DSL and network
services over five and one-half years, at an agreed-upon price of
$16.0 million, reflecting the present value of such purchase price, payable to
Qwest upon the closing of the offering.
EMPLOYMENT AGREEMENTS AND TRANSITION AGREEMENTS
We have entered into employment agreements and transition agreements with
several of our officers. See "Executive Compensation -- Employment Agreements
and Transition Agreements."
OTHER TRANSACTIONS
We intend to enter into indemnity agreements with each of our executive
officers and directors.
We believe that each of the transactions described above was carried out on
terms that were no less favorable to us than those that would have been obtained
from unaffiliated third parties. Any future transactions between us and any of
our directors, officers or principal stockholders will be on terms no less
favorable to us than could be obtained from unaffiliated third parties and will
be approved by a majority of the independent and disinterested members of the
board of directors.
For information concerning indemnification of directors and officers see
"Description of Capital Stock -- Limitations on Liability and Indemnification
Matters."
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock currently consists of 80,000,000 shares of
common stock, par value $.01 per share and 30,000,000 million shares of
preferred stock, par value $.01 per share.
The following description of our securities reflects changes that will be
made to our certificate of incorporation and bylaws upon the closing of this
offering. We have filed our restated certificate of incorporation and amended
and restated bylaws as exhibits to the registration statement of which this
prospectus is a part.
COMMON STOCK
Our authorized common stock consists of 200,000,000 shares, par value $.01
per share. As of March 24, 2000, there were 9,628,010 shares of common stock
outstanding and held of record by 18 stockholders. Upon the closing of this
offering, and after giving the simultaneous conversion of all of our outstanding
shares of preferred stock and the issuance of 178,571 shares of common stock
(based on an assumed initial public offering price of $14.00 per share) to Qwest
upon the closing of the concurrent placement, there will be 53,574,327 shares of
common stock outstanding (assuming no exercise of the underwriters'
over-allotment option).
Holders of common stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders. Holders of common stock are not
entitled to cumulative voting rights in the election of directors. Accordingly,
minority stockholders will not be able to elect directors on the basis of their
votes alone. Subject to preferences that may be applicable to any
then-outstanding shares of preferred stock, holders of common stock are entitled
to receive ratably such dividends as may be declared by our board of directors.
In the event we liquidate, dissolve or wind up our affairs, holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preferences of any then-outstanding shares of
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights.
PREFERRED STOCK
Our Series A, Series B, Series C and Series D preferred stock will
automatically convert into shares of common stock upon the closing of this
offering. For a description of the terms of our preferred stock, see Note 8 of
the notes to our consolidated financial statements.
Our board of directors is authorized, without further stockholder approval,
to issue up to an aggregate of 5,000,000 shares of preferred stock in one or
more series. The board of directors may fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series, and the dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption price or prices and
liquidation preferences. The issuance of preferred stock could:
- adversely affect the voting power of holders of common stock;
- adversely affect the likelihood that the holders of common stock will
receive dividend payments and payments upon liquidation; and
- delay, defer or prevent a change in control.
We have no present plans to issue any shares of preferred stock.
WARRANTS
In August 1999, we issued a warrant to purchase 7,035 shares of common stock
at an exercise price of $2.13 per share to one investor. The warrant contains
anti-dilution provisions providing for an
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<PAGE>
adjustment of the exercise price and the number of shares of common stock
underlying the warrant upon the occurrence of any recapitalization,
reclassification, stock dividend, stock split, stock combination or similar
transaction. This warrant will expire upon the closing of this offering, unless
earlier exercised.
For a description of a warrant that we are obligated to issue upon the
closing of this offering, please see "Certain Relationships and Related
Transactions -- Strategic Investments and Relationships."
REGISTRATION RIGHTS
Pursuant to the second amended and restated investors' rights agreement
dated as of January 20, 2000, as amended, between Jato and some of our
investors, the investors have registration rights for the 7,879,200 shares of
common stock and the 24,763,900 shares of preferred stock, which are convertible
into 34,774,791 shares of common stock, held by them. Under the rights
agreement, the investors may demand, on no more than two occasions, by written
request from holders of:
- more than 40% of the then outstanding investors' registrable securities
held by (1) those investors who converted their shares of Series A
preferred stock into shares of common stock and (2) Brian E. Gast,
Bruce E. Dines and Leonard Allsup or
- at least 51% of the then outstanding investors' registrable securities
held by those investors who converted their shares of Series B preferred
stock into shares of common stock, that we file a registration statement
under the Securities Act covering all or a portion of the investors'
registrable securities; provided that, in the case of a registration on a
form other than a Form S-3, there is an aggregate offering price to the
public of at least $10.0 million. In addition, the holders of more than
25% of the then outstanding investors' registrable securities may demand,
by written request, that we file a registration statement on Form S-3,
provided that there is an aggregate offering price to the public of at
least $5.0 million. These registration rights are subject to our right to
delay the filing of a registration statement for a period not to exceed
90 days, provided that we cannot delay more than once in a 12-month period
after receiving the registration demand. In the case of a registration on
a form other than Form S-3, the managing underwriter, if any, of any such
offering has certain rights to limit the number of the registrable
securities proposed to be included in such registration.
In addition, the investors under the rights agreement also have "piggyback"
registration rights. If we propose to register any of our securities under the
Securities Act (other than pursuant to the investors' demand registration rights
noted above), the investors may require us to include all or a portion of their
registrable securities in such registration. The managing underwriter, if any,
of any such offering will have the right to limit the number of the registrable
securities to no less than 25% of the total number of securities proposed to be
included in such registration.
All registration expenses incurred in connection with the above
registrations would be borne by us. Each selling investor would pay all
underwriting discounts and selling commissions applicable to the sale of his or
its registrable securities.
All registration rights described above will terminate five years after the
date of our initial public offering. Following the closing of this offering, the
registration rights of each investor will terminate 12 months following the date
when all of the registrable securities held by that investor may be sold under
Rule 144 of the Securities Act during any 90-day period. The holders of
registrable securities have waived their right to include shares in this
offering.
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POSSIBLE ANTI-TAKEOVER MATTERS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, which generally prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
that status with the approval of the corporation's board of directors or unless
the business combination is approved in a prescribed manner. "Business
combinations" include mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. With certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, fifteen percent (15%) or more
of a corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change-in-control attempts and,
accordingly, may discourage attempts to acquire us.
The following provisions of our restated certificate of incorporation and
amended and restated bylaws that will become effective upon the closing of this
offering may have an anti-takeover effect and may delay or prevent a tender
offer or takeover attempt that a stockholder might consider to be in its best
interest, including attempts that might result in a premium over the market
price for the common stock:
CLASSIFIED BOARD OF DIRECTORS. Our board of directors will be divided into
three classes. The directors in class I will hold office until the first annual
meeting of stockholders following this offering, the directors in class II will
hold office until the second annual meeting of stockholders following this
offering, and the directors in class III will hold office until the third annual
meeting of stockholders following this offering. After each such election, the
directors in that class will serve for terms of three years. The classification
system of electing directors may tend to discourage a third party from making a
tender offer or otherwise attempting to obtain control of us and may maintain
the incumbency of the board of directors, since such classification generally
increases the difficulty of replacing a majority of the directors.
BOARD OF DIRECTOR VACANCIES. The board of directors will be authorized to
fill vacant directorships and to increase the size of the board of directors.
This may deter a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
resulting vacancies with its own nominees.
STOCKHOLDER ACTION; SPECIAL MEETINGS OF STOCKHOLDERS. Our stockholders will
not be permitted to take action by written consent, but only at duly called
annual or special meetings of stockholders. In addition, special meetings of
stockholders may be called only by the chairman of the board, the chief
executive officer or a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at an annual
meeting of stockholders, must deliver a written notice to our principal
executive offices within a prescribed time period. Our amended and restated
bylaws also set forth specific requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
the election of directors at an annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to limitations imposed by the Nasdaq National
Market. We may use these additional shares for a variety of corporate purposes,
including future public offerings to raise additional capital, acquisitions and
employee benefit plans. The existence of authorized but unissued and unreserved
common stock and preferred stock
67
<PAGE>
could render more difficult or discourage an attempt to obtain control of us by
means of a proxy contest, tender offer, merger or otherwise.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated bylaws that will become effective upon the closing
of this offering provide that we will indemnify our directors and executive
officers to the fullest extent permitted by Delaware law and may indemnify our
other officers, employees and other agents to the fullest extent permitted by
Delaware law.
In addition, our restated certificate of incorporation that will become
effective upon the closing of this offering provides that, to the fullest extent
permitted by Delaware law, our directors will not be personally liable to us or
our stockholders for monetary damages for any breach of fiduciary duty as
directors. This provision of the restated certificate of incorporation does not
eliminate the directors' duty of care. In appropriate circumstances, equitable
remedies such as an injunction or other forms of non-monetary relief are
available under Delaware law. This provision also does not affect the directors'
responsibilities under any other laws, such as the federal securities laws and
state and federal environmental laws.
Each director will continue to be subject to liability for:
- breach of a director's duty of loyalty to us and our stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
- any transaction from which a director derived an improper personal
benefit.
We also intend to enter into indemnity agreements with our directors and
executive officers and to obtain directors' and officers' liability insurance.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought. We are not aware of any
pending or threatened litigation that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling our company pursuant
to the foregoing provisions, we have been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
LISTING
Our common stock has been approved for quotation on the Nasdaq National
Market under the trading symbol JATO.
TRANSFER AGENT AND REGISTRAR
We have appointed Norwest Bank Minnesota, N.A. to serve as the transfer
agent and registrar for the common stock.
68
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot predict what effect, if any, market sales of shares or the
availability of shares for sale will have on the market price of our common
stock prevailing from time to time. Nevertheless, sales of substantial amounts
of common stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the closing of this offering, we will have a total of 53,574,327 shares
of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option, the issuance of 8,925,000 shares of common stock upon the
closing of this offering and the issuance of 178,571 shares of common stock
(based on an assumed initial public offering price of $14.00 per share) to Qwest
upon the closing of the concurrent placement at an assumed public offering price
of $14.00 per share and no exercise of options. Of the outstanding shares, the
8,925,000 shares being sold in this offering will be freely tradable, except
that any shares held by our "affiliates" may only be sold in compliance with the
limitations described below. The remaining 44,470,756 shares of common stock
will be "restricted securities" that may be sold in the public market only if
they are registered under the Securities Act or if they qualify for an exemption
from registration under Rule 144, 144(k) or 701 promulgated under the Securities
Act.
Subject to the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, additional shares will become available for sale in
the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ---------------------------------------------
<S> <C>
0................................. Upon the date of this prospectus (shares
eligible for resale under Rule 144(k) and not
subject to lock-up agreements)
1,069,658................................ 90 days following the date of this prospectus
(shares eligible for resale under Rules 144
and 701 and not subject to lock-up
agreements)
10,328,737................................ 180 days following the date of this
prospectus (lock-up agreements released)
33,072,361................................ After the expiration of the lock-up period
pursuant to Rule 144
</TABLE>
In general, under Rule 144, a person (or persons whose shares are required
to be aggregated), including an affiliate, who has beneficially owned shares for
at least one year is entitled to sell, within any three-month period commencing
90 days after the date of this prospectus, a number of shares that does not
exceed the greater of:
- 1% of the then-outstanding shares of common stock (approximately 535,743
shares immediately after this offering) or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the date on which notice of that sale is filed.
In addition, a person who is not considered an affiliate of ours at any
time during the 90 days preceding a sale and who has beneficially owned
the shares proposed to be sold for at least two years is entitled to sell
such shares under Rule 144(k) without regard to the volume limitations
described above. Securities issued in reliance on Rule 701 (such as shares
of common stock that may be acquired pursuant to the exercise of certain
options granted prior to this offering) are also restricted securities and
may be sold by stockholders other than our affiliates 90 days after the
effective date of this
69
<PAGE>
offering subject only to the manner of sale provisions of Rule 144 and by
our affiliates under Rule 144 without compliance with its one-year holding
period requirement.
In addition, following the completion of this offering, we intend to file a
registration statement to register for resale the 12,240,900 shares of common
stock available for issuance under our stock plan. Accordingly, shares issued
under the plan will become eligible for resale in the public market from time to
time, subject to the lock-up agreements described below and, in the case of
affiliates of Jato, the volume limitations of Rule 144 described above. As of
March 24, 2000, options and purchase rights to acquire a total of 7,583,180
shares of common stock are outstanding under our stock plans, of which 315,489
are currently exercisable.
Directors, officers and stockholders of Jato holding an aggregate of
43,579,669 shares of common stock have agreed that they will not sell any shares
of common stock without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, for a period of 180 days from the date of this
prospectus. Please refer to our discussion in "Underwriting" for further
discussion of these agreements.
We have agreed not to sell or otherwise dispose of, or file a registration
statement with respect to, any shares of common stock during the 180-day period
following the date of this prospectus, other than the grant of options and
purchase rights under our stock plan and the issuance of common stock pursuant
thereto.
Following this offering, certain of our stockholders will have rights to
have their shares of common stock registered for resale under the Securities
Act. Please refer to our discussion under "Description of Capital Stock --
Registration Rights" for further discussion of these registration rights.
70
<PAGE>
UNDERWRITING
We intend to offer our common stock through a number of underwriters.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co. Inc. and
Thomas Weisel Partners LLC are acting as representatives of each of the
underwriters named below. Subject to the terms and conditions described in a
purchase agreement among us and the underwriters, we have agreed to sell to the
underwriters, and the underwriters severally have agreed to purchase from us,
the numbers of shares of common stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
Bear, Stearns & Co. Inc.....................................
Thomas Weisel Partners LLC..................................
---------
Total............................................ 8,925,000
=========
</TABLE>
The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of these shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.
We have agreed to indemnify the underwriters against various liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares of common stock, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
legal matters by their counsel, including the validity of the shares, and other
conditions contained in the purchase agreement, such as the receipt by the
underwriters of officer's certificates and legal opinions. The underwriters
reserve the right to withdraw, cancel or modify offers to the public and to
reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus and to dealers at that
price less a concession not in excess of $ per share. The underwriters may
allow, and the dealers may reallow, a discount not in excess of $ per share
to other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The following table shows the per share and total public offering price,
underwriting discount and proceeds before expenses to us and, if the
over-allotment is exercised in full, to the selling stockholders.
71
<PAGE>
The information assumes either no exercise or full exercise by the underwriters
of their over-allotment option.
<TABLE>
<CAPTION>
TOTAL
-------------------
WITHOUT WITH
PER SHARE OPTION OPTION
--------- -------- --------
<S> <C> <C> <C>
Public offering price................................ $ $ $
Underwriting discount................................ $ $ $
Proceeds, before expenses, to Jato................... $ $ $
Proceeds to selling stockholders..................... $ $ $
</TABLE>
We expect to incur expenses of approximately $1.7 million in connection with
this offering.
OVER-ALLOTMENT OPTION
Our selling stockholders have granted an option to the underwriters to
purchase up to 1,338,750 additional shares of our common stock at the public
offering price less the underwriting discount. The underwriters may exercise
this option for 30 days from the date of this prospectus solely to cover any
over-allotments. If the underwriters exercise this option, each will be
obligated, subject to conditions contained in the purchase agreement, to
purchase from our selling stockholders a number of additional shares of our
common stock proportionate to that underwriter's initial amount reflected in the
foregoing table. See "Principal and Selling Stockholders."
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 600,000 shares offered by this prospectus, for sale
to some of our employees, directors, officers and their friends and family
members, as well as to some of the employees of our strategic partners. If these
persons purchase reserved shares, this will reduce the number of shares of our
common stock available for sale to the general public. Any reserved shares that
are not orally confirmed for purchase within one day of the pricing of this
offering will be offered by the underwriters to the general public on the same
terms as other shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We and our officers and directors and substantially all of our existing
stockholders have agreed, with exceptions, not to sell or transfer any common
stock for 180 days after the date of this prospectus without first obtaining the
written consent of Merrill Lynch. Specifically, we and these other individuals
have agreed not to directly or indirectly
- offer, pledge, sell or contract to sell any shares of our common stock;
- sell any option or contract to purchase any shares of our common stock;
- purchase any option or contract to sell any shares of our common stock;
- grant any option, right or warrant for the sale of any shares of our
common stock;
- lend or otherwise dispose of or transfer any shares of our common stock;
- request or demand that we file a registration statement related to our
common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities, in cash or otherwise.
This lockup provision applies to our common stock and to securities
convertible into or exchangeable or exercisable for or repayable with our common
stock. It also applies to our common
72
<PAGE>
stock owned now or acquired later by the person executing the agreement or for
which the person acquiring the agreement later acquires the power of
disposition.
QUOTATION ON THE NASDAQ NATIONAL MARKET
Our shares have been approved for quotation on the Nasdaq National Market
under the symbol "JATO."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between us and the representatives. In addition to prevailing market conditions,
the factors to be considered in determining the initial public offering price
are
- the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us;
- our financial information;
- the history of, and the prospects for, our company and the industry in
which we compete;
- an assessment of our management, its past and present operations, and the
prospects for, and timing of, our future revenues;
- the present state of our development; and
- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also possible
that after the offering the shares will not trade in the public market at or
above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the shares is completed, rules of the Securities
and Exchange Commission may limit the ability of the underwriters and selling
group members to bid for and purchase our common stock. However, the
representatives may engage in transactions that stabilize the price of our
common stock, such as bids or purchases to peg, fix or maintain that price.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the representatives may reduce that short position
by purchasing shares in the open market. The representatives may also elect to
reduce any short position by exercising all or part of the over-allotment option
described above. Purchases of the common stock to stabilize its price or to
reduce a short position may cause the price of the common stock to be higher
than it might be in the absence of such purchases.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares in
the open market to reduce the underwriters' short position or to stabilize the
price of such shares, they may reclaim the amount of the selling concession from
the underwriters and selling group members who sold those shares. The imposition
of a penalty bid might also have an effect on the price of our common stock to
the extent that it discourages resales of our common stock.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the
73
<PAGE>
representatives will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
NO PUBLIC OFFERING OUTSIDE THE UNITED STATES
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to our company, the selling stockholders or shares of
our common stock in any jurisdiction where action for that purpose is required.
Accordingly, the shares of our common stock may not be offered or sold, directly
or indirectly, and neither this prospectus nor any other offering material or
advertisements in connection with the shares of common stock may be distributed
or published, in or from any country or jurisdiction except in compliance with
any applicable rules and regulations or any such country or jurisdiction.
Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price on the cover page of this
prospectus.
UK SELLING RESTRICTIONS
Each underwriter will agree, on behalf of itself and its relevant
affiliates, that:
- it has not offered or sold and will not offer or sell any shares of common
stock to persons in the United Kingdom, except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses
or otherwise in circumstances which do not constitute an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995;
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the United
Kingdom; and
- it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issuance
of common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 as amended by the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1997 or
is a person to whom such document may otherwise lawfully be issued or
passed on.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates may in the future engage in
investment banking and other commercial dealings in the ordinary course of
business with us, for which they may receive customary compensation.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
152 filed public offerings of equity securities, of which 108 have been
completed, and has acted as a syndicate member in an additional 77 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with us
pursuant to the underwriting agreement entered into in connection with this
offering.
74
<PAGE>
LEGAL MATTERS
Cooley Godward LLP, Boulder, Colorado will pass upon the validity of the
shares of common stock offered hereby. Baker & McKenzie, New York, New York will
pass upon certain legal matters in connection with the offering for the
underwriters. If the underwriters exercise their right to purchase additional
shares to cover over-allotments, Hogan & Hartson L.L.P., Denver, Colorado will
pass upon certain legal matters for our selling stockholders in connection with
the offering. An investment partnership affiliated with Cooley Godward LLP owns
33,333 shares of our preferred stock which will convert into 46,899 shares of
our common stock upon the completion of this offering.
EXPERTS
The consolidated financial statements included in this prospectus and
elsewhere in the registration statement as of December 31, 1998 and
December 31, 1999 and from June 12, 1998 (date of inception) to December 31,
1998 and for the year ended December 31, 1999 have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits, schedules and amendments) under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus does not contain all of the information in the registration
statement. For further information about us and our common stock, please refer
to the registration statement. In each instance, please refer to the copy of
that contract, agreement or document filed as an exhibit to the registration
statement.
You may read and copy all or any portion of the registration statement or
any other information the company files at the SEC's public reference room at
450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings, including the registration statement, are also
available to you on the SEC's web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended. In
accordance with those requirements, we will file periodic reports, proxy
statements and other information with the SEC. You may also inspect these
reports, proxy statements and other information at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
We intend to furnish our stockholders with annual reports containing audited
financial statements and with quarterly reports for the first three quarters of
each year containing interim financial information.
75
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Financial Statements:
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999.................................................... F-3
Consolidated Statements of Operations for the period from
June 12, 1998 (date of inception) to December 31, 1998
and for the year ended December 31, 1999................ F-4
Consolidated Statements of Changes in Stockholders' Equity
for the period from June 12, 1998 (date of inception) to
December 31, 1998 and for the year ended December
31,1999................................................. F-5
Consolidated Statements of Cash Flows for the period from
June 12, 1998 (date of inception) to December 31, 1998
and for the year ended December 31, 1999................ F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jato Communications Corp.:
We have audited the accompanying consolidated balance sheets of Jato
Communications Corp. (a Delaware corporation) and subsidiaries as of
December 31, 1999 and 1998 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the year ended
December 31, 1999 and for the period from June 12, 1998 (date of inception) to
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Jato
Communications Corp. and subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and cash flows for the year ended
December 31, 1999 and for the period from June 12, 1998 (date of inception) to
December 31, 1998 in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 9, 2000
(except with respect to the
matters discussed in Note 10,
as to which the date is
March 30, 2000).
F-2
<PAGE>
JATO COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $1,270 $ 15,017
Trade accounts receivable................................. -- 255
Inventory................................................. -- 486
Prepaid expenses and other current assets................. 12 202
------ --------
Total current assets........................................ 1,282 15,960
Property and Equipment:
Networking equipment...................................... 3 17,410
Central office collocation space improvements............. 22 16,070
Computer equipment and software........................... 17 2,852
Furniture and fixtures.................................... 16 1,601
------ --------
Total property and equipment................................ 58 37,933
Accumulated depreciation.................................. (1) (470)
------ --------
Net property and equipment.................................. 57 37,463
Restricted cash............................................. -- 500
Note receivable from officer................................ -- 67
Deferred financing costs, net............................... -- 1,169
Other noncurrent assets..................................... 27 432
------ --------
Total assets............................................ $1,366 $ 55,591
====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 73 $ 1,679
Accrued expenses and other current liabilities............ 211 1,936
------ --------
Total current liabilities................................... 284 3,615
Long-term debt.............................................. -- 16,868
------ --------
Total liabilities........................................... 284 20,483
Commitments and Contingencies
Stockholders' Equity:
Convertible Preferred Stock, $0.01 par value, 30,000,000
shares authorized;
Series A Convertible preferred stock, 3,000,000 and
1,751,985 shares authorized, respectively; 1,751,985
shares issued and outstanding, respectively............ 1,301 1,301
Series B Convertible preferred stock, none and
13,615,322 shares authorized, respectively; none and
13,615,322 issued and outstanding, respectively........ -- 20,174
Series C Convertible preferred stock, none and 8,550,000
shares authorized, respectively, none and 4,932,308
shares issued and outstanding, respectively............ -- 27,561
Common Stock, $.01 par value, 40,000,000 and 80,000,000
shares authorized, respectively; 8,793,752 and 9,564,521
shares issued and outstanding, respectively............. 88 96
Additional paid-in capital................................ 89 14,967
Deferred compensation..................................... -- (13,735)
Accumulated deficit....................................... (396) (15,256)
------ --------
Total stockholders' equity.................................. 1,082 35,108
------ --------
Total liabilities and stockholders' equity.............. $1,366 $ 55,591
====== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
JATO COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 12, 1998 YEAR ENDED
(DATE OF INCEPTION) TO DECEMBER 31,
DECEMBER 31, 1998 1999
---------------------- ------------
<S> <C> <C>
Revenues.................................................... --$ $ 315
Operating Expenses:
Network and service costs................................. -- 1,170
Marketing expenses........................................ -- 1,919
Selling, general and administrative....................... 404 11,152
Amortization of deferred compensation..................... -- 843
Depreciation and amortization............................. 1 469
------ --------
Operating loss.............................................. (405) (15,238)
Interest income........................................... 9 838
Interest expense.......................................... -- (431)
Other, net................................................ -- (29)
------ --------
Net loss.................................................... $ (396) $(14,860)
====== ========
Basic and diluted loss per common share..................... $(0.05) $ (1.64)
====== ========
Weighted average common shares outstanding-and diluted...... 8,266 9,053
====== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-4
<PAGE>
JATO COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
-------- -------- -------- -------- ---------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization,
including retroactive effect
of stock splits.............. -- $ -- 7,879 $79 $ 41 $ -- $ -- $ 120
Issuance of common stock in
August 1998 for cash of $0.05
per share.................... -- -- 732 7 29 -- -- 36
Issuance of common stock in
October 1998 for cash of
$0.11 per share.............. -- -- 183 2 19 -- -- 21
Issuance of Series A
convertible preferred stock,
net of offering costs of
$13.......................... 1,752 1,301 -- -- -- -- -- 1,301
Net loss....................... -- -- -- -- -- -- (396) (396)
------ ------- ----- --- ------- -------- -------- --------
Balances at December 31,
1998......................... 1,752 1,301 8,794 88 89 -- (396) 1,082
Issuance of Series B
convertible preferred stock,
net of offering costs of
$178......................... 13,615 20,245 -- -- -- -- -- 20,245
Issuance of warrants for common
stock pursuant to sale of
Series B convertible
preferred stock, at fair
value........................ -- (71) -- -- 71 -- -- --
Issuance of common stock
pursuant to exercise of stock
options...................... -- -- 28 1 16 -- -- 17
Issuance of common stock
options and warrants for
common stock to consultants,
at fair value................ -- -- -- -- 74 -- -- 74
Issuance of common stock in
August 1999 for cash of $1.07
per share, at fair value..... -- -- 11 -- 29 -- 29
Issuance of common stock in
August 1999 for cash of $2.13
per share, at fair value..... -- -- 28 -- 110 -- -- 110
Issuance of restricted common
stock, at fair value......... -- -- 704 7 5,664 (5,664) -- 7
Issuance of Series C
convertible preferred stock,
net of offering costs of
$59.......................... 4,932 27,561 -- -- -- -- -- 27,561
Deferred compensation.......... -- -- -- -- 8,914 (8,914) -- --
Amortization of deferred
compensation................. -- -- -- -- -- 843 -- 843
Net loss....................... -- -- -- -- -- -- (14,860) (14,860)
------ ------- ----- --- ------- -------- -------- --------
Balances at December 31,
1999......................... 20,299 $49,036 9,565 $96 $14,967 $(13,735) $(15,256) $ 35,108
====== ======= ===== === ======= ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
JATO COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 12, 1998 YEAR ENDED
(DATE OF INCEPTION) TO DECEMBER 31,
DECEMBER 31, 1998 1999
---------------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (396) $(14,860)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization............................. 1 469
Amortization of deferred compensation..................... -- 843
Amortization of deferred financing costs.................. -- 66
Other non-cash expenses................................... -- 176
Changes in current assets and current liabilities:
Accounts receivable..................................... -- (255)
Inventory............................................... -- (486)
Prepaid expenses and other current assets............... (12) (190)
Accounts payable........................................ 73 1,606
Accrued expenses and other current liabilities.......... 211 1,725
------ --------
Net cash flows from operating activities.................... (123) (10,906)
------ --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (58) (21,156)
Cash and cash equivalents used to collateralize standby
letters of credit......................................... -- (500)
Issuance of note receivable to officer...................... -- (100)
Other noncurrent assets..................................... (27) (405)
------ --------
Net cash flows from investing activities.................... (85) (22,161)
------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock.......................... 177 77
Proceeds from exercise of common stock options.............. -- 17
Proceeds from sale of Series A preferred stock.............. 1,314 --
Proceeds from sale of Series B preferred stock.............. -- 20,423
Proceeds from sale of Series C preferred stock.............. -- 27,620
Preferred stock offering costs.............................. (13) (237)
Deferred financing costs.................................... -- (1,086)
------ --------
Net cash flows from financing activities.................... 1,478 46,814
------ --------
Net increase in cash and cash equivalents................... 1,270 13,747
Cash and cash equivalents, beginning of period.............. -- 1,270
------ --------
Cash and cash equivalents, end of period.................... $1,270 $ 15,017
====== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Borrowings for property, plant and equipment under credit
facility................................................ --$ $ 16,719
Deferred financing costs paid by credit facility.......... -- 149
Cash paid for interest.................................... -- 36
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-6
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
THE COMPANY
Jato Communications Corp. (Jato, or the Company), a Delaware corporation,
was formed in June 1998 to provide high-speed digital communications services
using digital subscriber line (DSL) technology. Prior to December 1999, Jato had
not commenced principal operations nor generated significant revenues and was
therefore considered to be a development stage enterprise in accordance with
Statement of Financial Accounting Standards (SFAS) No. 7 "Accounting and
Reporting by Development Stage Enterprises." The Company is no longer considered
a development stage enterprise.
The Company is aggressively deploying its network and DSL Services. The
Company believes that its cash and cash equivalents at December 31, 1999,
additional equity capital raised during January and February 2000 (see Note 10)
and availability under its senior secured credit facility will be adequate to
sustain its current level of operations through June of 2000. As the Company
continues the development of its business, it will use currently available funds
while seeking additional sources of financing, including expected proceeds from
this offering. Management believes the Company will have access to additional
capital; however, if unsuccessful in obtaining additional financing, the Company
will continue expansion of its operations on a significantly reduced scale based
on its existing capital resources. While the Company believes it would be able
to sustain some level of operations through the end of 2000 absent any
additional capital, it would be required to significantly scale back operations
and delay network expansion. This would have a material adverse effect on the
Company's business, financial condition and results of operations. Management
cannot be assured that additional capital will be available on terms acceptable
to the Company.
The Company's operations are subject to significant risks and uncertainties
including competitive, financial, developmental, operational, technological,
regulatory and other risks associated with an emerging and growing business. The
Company expects to continue to report operating and net losses as it develops
its network and expands its customer base. Improvements in Jato's future results
of operations are largely dependent upon its ability to attract high-quality
customers in a highly competitive, relatively immature market while controlling
its overall cost structure, including costs associated with adding new
customers. There can be no assurance that Jato will be successful with regard to
these matters.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the operations
of the Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses for each reporting
period. Actual results could differ from those estimates.
F-7
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid monetary investments with an
original maturity of 90 days or less at the date of purchase to be cash
equivalents. Cash equivalents as of December 31, 1998 and 1999 consist
principally of money market funds, commercial paper and other short-term,
interest bearing, high-grade securities. These balances are stated at cost which
approximates market value.
CONCENTRATION OF CREDIT RISK
As of December 31, 1999, three customers comprised 21%, 19% and 15% of the
Company's trade receivables balance and approximately 16%, 17% and 11% of
revenues, respectively, for the year ended December 31, 1999.
INVENTORY
Inventory consists of communications equipment that will be installed at
customer locations. Inventory is accounted for using the first-in, first-out
method at the lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided over
the estimated useful lives of the assets (3-7 years) using the straight-line
method. Maintenance and repairs are expensed as incurred and the costs of
betterments are capitalized.
Central office collocation space improvements represent payments to
incumbent carriers for infrastructure improvements within their central offices
to allow Jato to install its equipment. These improvements allow Jato to
interconnect with the carrier's network. These payments are capitalized and are
amortized over an estimated useful life of five years.
The Company capitalizes costs associated with the design and implementation
of its network, including internally and externally developed software.
Capitalized external software costs include the actual costs to purchase
existing software from vendors. Capitalized internal costs generally include
personnel costs incurred in the enhancement and implementation of purchased
software packages.
LONG-LIVED ASSETS
Jato investigates potential impairments of its long-lived assets on an
exception basis when evidence exists that events or changes in circumstances may
have made recovery of an asset's carrying value unlikely. An impairment loss is
recognized when the sum of the expected undiscounted future net cash flows is
less than the carrying amount of the assets. No such losses have been
identified. Recoverability of long-lived assets is dependent upon successful
execution of Jato's business plan, among other factors.
RESTRICTED CASH
As of December 31, 1999, the Company had $500,000 in commercial deposits
held in the Company's name but restricted as security for certain of the
Company's standby letters of credit.
F-8
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Jato presently derives revenue from two principal sources: transport
services and installation and activation services. Transport services represent
monthly recurring service revenues and are recognized in the period the services
are provided. Amounts billed in advance of providing services are recorded as
deferred revenue until the period the services are provided. Installation and
activation services represent services provided to configure customer premise
and other equipment in connection with the installation and activation of Jato's
transport services. Such revenues are recognized in the period the services are
completed. Revenues earned from installation and activation services represent
amounts charged to recover direct costs. Direct costs in excess of revenues
earned are expensed in the period incurred. To date, revenues earned from
installation and activation have not significantly exceeded direct costs.
ADVERTISING AND SALES PROMOTION COSTS
Advertising and sales promotion costs are expensed as incurred. No such
costs were incurred during 1998. Advertising expenses totaled $1.9 million for
the year ended December 31, 1999.
INCOME TAXES
The Company accounts for income taxes using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Valuation allowances are established as necessary to reduce net
deferred tax assets to the amounts expected to be realized.
BASIC AND DILUTED LOSS PER SHARE
Basic and diluted loss per share amounts are presented below in accordance
with the requirements of SFAS No. 128, "Earnings Per Share." Basic net loss per
share is computed by dividing net loss applicable to common stockholders by the
weighted average number of shares of the Company's common stock outstanding
during the period after giving consideration to shares subject to repurchase.
Diluted net loss per share is determined in the same manner as basic net loss
per share except that the number of shares is increased assuming exercise of
dilutive stock options and warrants using the treasury stock method and
conversion of the Company's convertible preferred stock. As of December 31, 1998
and 1999, options to purchase 70,350 and 5.8 million shares of common stock were
outstanding, respectively. Common stock equivalents (stock options and warrants)
are excluded from the calculation of diluted loss per share, as they are
antidilutive. The Series A, Series B and Series C convertible preferred stock
that are convertible into shares of common stock also are excluded from the
F-9
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
calculation of diluted loss per share as they are antidilutive. The following
table presents the calculation of basic and diluted loss per share (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
JUNE 12, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
Net loss................................... $ (396) $(14,860)
------ --------
Basic and Diluted:
Weighted-average common shares
outstanding.............................. 8,266 9,053
------ --------
Basic and diluted loss per share........... $(0.05) $ (1.64)
====== ========
Shares of common stock issuable upon
conversion of:
Series A convertible preferred stock....... 2,465 2,465
Series B convertible preferred stock....... -- 19,157
Series C convertible preferred stock....... -- 6,940
Options for common stock issued to
employees................................ 70 5,677
Options for common stock issued to
consultants.............................. 56
Warrants for common stock issued to non-
employees................................ -- 35
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for each period presented is computed using the
net loss and weighted average number of common shares outstanding, including the
pro forma effects of the assumed conversion of the Company's Series A, B and C
convertible preferred stock into shares of the Company's common stock, as those
shares automatically convert to the Company's common stock pursuant to an
initial public offering. The pro forma effects assume that each conversion
occurred on January 1 of the respective year, or at the date of original
issuance, if later.
The unaudited pro forma effects of each of these transactions are as
follows:
<TABLE>
<CAPTION>
JUNE 12, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
Pro forma basic and diluted loss per common
share.................................... $(0.04) $ (0.64)
====== =======
Pro forma weighted average common shares
outstanding-basic and diluted............ 9,036 23,099
====== =======
</TABLE>
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with Accounting Principles Board Opinion (APB) No. 25, "Accounting
for Stock Issued to Employees," and
F-10
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
related interpretations, and complies with the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." The Company accounts for
equity instruments issued to non-employees in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18 "Accounting for
Equity Investments that are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling Goods or Services."
COMPREHENSIVE LOSS
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income." The
adoption of this statement had no impact on the Company's consolidated financial
statements for the periods presented, as net loss has been the same as
comprehensive loss since inception.
SEGMENT INFORMATION
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." The "management" approach to segment
reporting required by SFAS No. 131 designates the internal organization that is
used by top management for making operating decisions and assessing performance
as the source of the Company's reportable segments. Jato presently operates in
one segment: High-speed network and data transport services.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance that requires capitalization of certain costs incurred during an
internal-use software development project. SOP 98-1 is effective for fiscal
years beginning after December 15, 1998. The adoption of this policy has not had
a material effect on the Company's consolidated results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which provides guidance on the financial reporting of
start-up costs and organizational costs. It requires costs of start-up
activities and organizational costs to be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. Jato has not
capitalized any such costs to date. Accordingly, the adoption of SOP 98-5 has
not had an impact on Jato's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Among other
things, this statement requires that an entity recognize all derivative
instruments on the balance sheet as either assets or liabilities, and to account
for those instruments at fair value. SFAS No. 133 must be applied to financial
statements no later than the first fiscal quarter of 2001. The Company does not
believe adoption will have a material impact on its consolidated financial
position or results of operations.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in financial statements. SAB 101 must be applied to financial statements no
later than the first fiscal quarter of 2000. The Company does not believe
adoption will have a material impact on its consolidated financial position or
results of operations.
F-11
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain 1998 balances have been reclassified to conform to the 1999
presentation.
3. NOTE RECEIVABLE FROM OFFICER
In May 1999, pursuant to an employment agreement, Jato loaned $100,000 to
one of its executive officers. This note receivable is a non-recourse loan
secured by a pledge of that executive officer's common stock. The note
receivable is due in May 2002 and bears interest at an annual rate of 5.0%,
compounded quarterly. Principal and interest are due at maturity, unless
forgiven. In accordance with the terms of the employment agreement, one-third of
the principal and one-third of the accrued interest were forgiven on
December 31, 1999. The remaining principal balance and any accrued interest will
be forgiven in equal installments on December 31, 2000 and 2001 provided that
the executive officer is employed with Jato. If the executive officer
voluntarily terminates his employment with Jato, principal and interest shall be
due and fully payable on December 31, 2001. The Company is amortizing this
principal and interest related to this loan to compensation expense over the
term of the loan.
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Payroll..................................................... $204 $ 561
Litigation settlement....................................... -- 300
Taxes....................................................... -- 312
Rent........................................................ -- 283
Interest.................................................... -- 179
Other....................................................... 7 301
---- ------
$211 $1,936
==== ======
</TABLE>
5. CREDIT FACILITY
In July 1999, Jato Operating Corp, a wholly-owned subsidiary formed in
April 1999, entered into a senior secured credit facility with a third-party
vendor that provides for up to $50 million of financing for equipment and
network services provided by the vendor. The $50 million is available to the
Company in two separate tranches. The first tranche of $30 million must be drawn
down upon by July 2001. The second tranche of $20 million becomes available upon
the full utilization or expiration of the first tranche and must be drawn down
upon by July 2002. Borrowings under the facility bear interest at the rate of
LIBOR plus 4.5% per year or an alternative base rate, which is generally equal
to the greater of 3.5% over the Prime Rate or 4% over the federal funds rate per
year. The facility requires quarterly interest payments.
F-12
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. CREDIT FACILITY (CONTINUED)
Principal installments are due at the end of each fiscal quarter in
accordance with the following schedule:
<TABLE>
<S> <C>
- -- September 2002 to June 2003.............................. 2.50%
- -- September 2003 to June 2004.............................. 5.00%
- -- September 2004 to June 2005.............................. 8.75%
- -- September 2005 to March 2006............................. 8.75%
</TABLE>
Any principal amount that is outstanding after March 2006 is due on May 31,
2006. The facility is fully and unconditionally guaranteed by Jato, and each
direct or indirect subsidiary of Jato Operating Corp. Borrowings under the
senior secured credit facility are restricted based upon the Company's leverage
ratio and capitalization. Upon closing, the Company was permitted to borrow the
entire first tranche of $30 million. The facility is secured by liens against
certain of the Company's network equipment and imposes certain financial and
other covenants. Direct costs incurred in connection with this credit facility
are capitalized and being amortized to interest expense over the term of the
facility. Amounts outstanding under the credit facility as of December 31, 1999
bore interest at 10.625%.
6. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 12, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
Current tax expense:
Federal.................................. -- $ $--
State.................................... -- --
----- -------
-- --
----- -------
Deferred tax expense (benefit):
Federal.................................. (135) (4,656)
State.................................... (13) (466)
Increase in valuation allowance for
deferred tax assets.................... 148 5,122
----- -------
-- --
----- -------
Total provision (benefit).............. -- $ $--
===== =======
</TABLE>
F-13
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The primary components of temporary differences that give rise to deferred
taxes are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Current deferred tax assets:
Accrued expenses.......................................... $ 76 $ --
Valuation allowance....................................... (76) --
---- -------
Net current deferred tax assets............................. -- --
Noncurrent deferred tax assets:
Net operating loss carryforwards.......................... 57 11,699
Other..................................................... 15 --
---- -------
Total noncurrent deferred tax assets........................ 72 11,699
Noncurrent deferred tax liabilities:
Capitalized network costs................................. -- (6,210)
Excess of tax over book depreciation...................... -- (310)
---- -------
Total noncurrent deferred tax assets........................ 72 5,179
Valuation allowance......................................... (72) (5,179)
---- -------
Net noncurrent deferred tax assets.......................... -- --
---- -------
Net deferred tax assets..................................... $-- $ --
==== =======
</TABLE>
The actual tax provision for 1998 and 1999 is reconciled to the amounts
computed by applying the statutory Federal tax rate to income before taxes as
follows:
<TABLE>
<CAPTION>
JUNE 12, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
Statutory rate............................. 34.0% 34.0%
State income taxes, net of Federal
effect................................... 3.4 3.4
Valuation allowance........................ (37.4) (37.4)
----- -----
Income tax provision....................... -- % -- %
===== =====
</TABLE>
Due to the uncertainty surrounding the realization of the Company's deferred
tax assets through future taxable income, Jato has recorded a valuation
allowance against its net deferred tax assets as of December 31, 1998 and 1999.
Management evaluates the recoverability of the deferred tax asset and the level
of the valuation allowance on an ongoing basis. At such time as it is determined
that it is more likely than not that the deferred tax asset will be realizable,
the valuation allowance will be reduced. Future adjustments to the valuation
allowance will be recognized as a separate component of Jato's provision for
income taxes. As of December 31, 1999, Jato had a net unused operating loss
carryforward of approximately $31.3 million, which begins to expire in 2018.
7. COMMITMENTS AND CONTINGENCIES
The Company leases office space under noncancelable operating leases. Rent
expense under operating leases was $15,000 and $284,000 for the period from
June 12, 1998 (date of inception) to
F-14
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
December 31, 1998 and for the year ended December 31, 1999, respectively. Future
minimum lease payments under noncancelable operating leases as of December 31,
1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $1,159
2001........................................................ 1,166
2002........................................................ 1,101
2003........................................................ 749
2004........................................................ 375
Thereafter.................................................. --
------
Total minimum lease payments............................ $4,550
======
</TABLE>
GTE SETTLEMENT
In December 1999, GTE Service Corporation and GTE Corporation (GTE) filed a
lawsuit against the Company and an executive officer of the Company who was
formerly employed by GTE. The lawsuit alleged that the Company and the executive
officer violated certain non-inducement and non-hire provisions of the
executive's separation agreement with GTE. In December 1999, the lawsuit was
settled. Under the terms of the settlement agreement, the Company, without
admitting any fault, agreed to pay GTE $100,000 in cash and issued a $200,000
note payable to GTE. This liability is included in other current liabilities on
the accompanying consolidated balance sheet. The note payable is interest-free
and due the earlier of the completion of an initial public offering of the
Company's stock or March 1, 2000. The Company also agreed to pay GTE an
additional $300,000 in the event that the Company violates certain non-hire
provisions of the settlement agreement.
OTHER MATTERS
The Company is subject to decisions of state public utility commissions, the
Federal Communications Commission and the courts as they relate to the
interpretation and implementation of the Telecommunications Act of 1996, the
interpretation of competitive carrier interconnection agreements in general and
the Company's interconnection agreements in particular. In some cases the
Company may be bound by the results of ongoing proceedings of these bodies or
the legal outcomes of other contested interconnection agreements that are
similar to the Company's agreements. The Company cannot currently estimate the
effect, if any, of these proceedings on future financial results.
8. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The Company has 30,000,000 authorized shares of preferred stock, of which
1,751,985 shares are designated as "Series A" preferred stock, 13,615,322 are
designated as "Series B" and 8,550,000 are designated as "Series C". During
October 1998, the Company sold 1,751,985 shares of Series A convertible
preferred stock resulting in net proceeds to the Company of $1.3 million. In
April and May 1999, the Company sold 13,615,322 shares of Series B convertible
preferred stock resulting in net proceeds to the Company of approximately
$20.2 million. In September 1999, the Company sold 4,932,308 shares of Series C
convertible preferred stock resulting in net proceeds to the Company of
approximately $27.6 million.
F-15
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
DIVIDENDS
The holders of Series A, Series B and Series C preferred stock are entitled
to participate equally in the payment of all dividends with, but payable as a
priority to payment to, the holders of common stock on an as-converted basis
when and if declared by the Board of Directors. No such dividends have been
declared or paid to date.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution, or winding up of the Company,
including a change of control, the holders of Series A, Series B and Series C
preferred stock are entitled to receive, in preference to the holders of common
stock, an amount per share equal to the greater of (a) the respective original
issue price, as adjusted for any stock splits, stock dividends or the like, plus
all declared but unpaid dividends thereon and (b) such amount as would have been
received had each share of Series A, Series B or Series C preferred stock been
converted into shares of common stock immediately prior to the occurrence of
such event.
CONVERSION RIGHTS
Each share of Series A, Series B and Series C preferred stock is
convertible, at the option of the holder, into shares of common stock, subject
to adjustment upon the occurrence of certain dilutive issuances, stock splits or
combinations (see Note 10).
Each share of Series A preferred stock shall automatically convert into
shares of common stock, based on the then-effective conversion price, (a) at any
time upon the affirmative election of the holders of a majority of the
outstanding Series A preferred stock or (b) immediately upon the sale of Jato's
common stock in a firm commitment public offering pursuant to which the public
offering proceeds are at least $1.34 per share and the aggregate gross cash
proceeds to Jato are at least $10 million.
Each share of Series B preferred stock shall automatically convert into
shares of common stock, based on the then-effective conversion price,
(a) immediately upon the sale of Jato's common stock in a firm commitment public
offering in which (i) the per share price is at least equal to $2.67 (if prior
to April 2002) or $3.73 (if after April 2002), (ii) the aggregate gross cash
proceeds to Jato are at least $30 million and (iii) the shares of common stock
are listed on any national securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934 or (b) if, during a
180 day period following the closing of a firm commitment public offering that
does not meet the criteria specified in (a) above, the average closing price of
Jato's common stock exceeds $2.67 (if prior to April 2002) or $3.73 (if after
April 2002).
Each share of Series C preferred stock shall automatically convert into
shares of common stock, based on the then-effective conversion price,
(a) immediately upon the sale of Jato's common stock in a firm commitment public
offering in which (i) the per share price is at least equal to $5.97 and
(ii) the aggregate gross cash proceeds to Jato are at least $30 million.
Each series of preferred stock carries provisions that protect the holders
of such securities from dilution caused by capital reorganizations, stock splits
or other similar occurrences.
F-16
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
REDEMPTION RIGHTS
No series of convertible preferred stock is redeemable.
VOTING RIGHTS
The holders of each series of preferred stock are entitled to vote on all
matters and entitled to the number of votes equal to the whole number of shares
of common stock into which the preferred stock could be converted pursuant to
the conversion rights. The holders of preferred stock shall vote together with
holders of common stock and not as a separate class at any annual or special
meeting of stockholders.
In addition to any other vote or consent required by law or otherwise, the
vote or written consent of the holders of a majority of the outstanding
Series B preferred stock is necessary for the Company to take any of the
following actions:
- Amend, alter or repeal any provision of the Company's certificate of
incorporation or its Bylaws;
- Authorize any new class or series of stock or any other securities
convertible or exchangeable for equity securities of the Company ranking
on a parity with or senior to the Series B preferred stock in right of
liquidation preference or dividends;
- Enter into an agreement regarding an acquisition or asset transfer, as
defined;
- Initiate bankruptcy or other similar proceedings or appoint a receiver,
trustee, custodian or other similar person;
- Consummate an initial public offering;
- Redeem, purchase, pay dividends or make other distributions with respect
to any of the Company's capital stock;
- Issue bonds, debentures, notes or other debt obligations convertible into,
or exchangeable for, or having rights to purchase, shares of the Company's
common stock, unless (i) otherwise approved by the Company's Board of
Directors, including at lease two designees of the Series B preferred
stock, (ii) the per share cash consideration exceeds the then-applicable
Series B conversion price (as defined) and (iii) the Company's Board of
Directors, including the Series B designees, determines that the per share
cash consideration is at least equal to the then-current fair market value
of the Company's common stock;
- Issue capital stock that ranks junior to the Series A and Series B
preferred stock, except (i) approved issuances (as defined); (ii) in
connection with a qualified offering, and (iii) such as may otherwise be
approved by the Company's Board of Directors;
- Issue any option, warrant put, call or other arrangement for the purchase
or acquisition of any capital stock of the Company, other than approved
issuances (as defined);
- Change the authorized number of members of the Company's Board of
Directors; or
- Issue additional shares of Series A preferred stock.
F-17
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
The holders of Series B preferred stock, voting as a separate class on an
as-converted basis, shall be entitled to elect two members of the Company's
Board of Directors. The holders of common stock, Series A preferred stock and
Series B preferred stock, voting together as a class, on an as-converted basis,
are entitled to elect all remaining members of the Board of Directors.
In addition to any other vote or consent required by law or otherwise, the
vote or written consent of the holders of a majority of the outstanding
Series C preferred stock is necessary for the Company to (i) amend, alter or
repeal any provision of the Company's certificate of incorporation or its Bylaws
or (ii) authorize any new class or series of stock or any other securities
convertible or exchangeable for equity securities of the Company ranking senior
to the Series C preferred stock in right of liquidation preference or dividends.
The Company has reserved shares of common stock as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- ----------
<S> <C> <C>
Conversion of:
Series A preferred stock............................ 2,465,033 2,465,033
Series B preferred stock............................ -- 19,156,741
Series C preferred stock............................ -- 6,939,725
1998 Equity Incentive Plan............................ 4,467,225 7,984,725
Warrants for common stock issued to consultants....... -- 35,175
--------- ----------
6,932,258 36,581,399
========= ==========
</TABLE>
In August 1998, the Company declared a 2:1 forward stock split, in the form
of a stock dividend, on its common stock. The accompanying consolidated
financial statements have been restated to reflect this stock split, since
inception.
9. STOCK OPTIONS AND OTHER STOCK AWARDS
In August 1998, the Company adopted the 1998 Equity Incentive Plan pursuant
to which the Board of Directors may grant stock awards to employees, directors
and consultants. As of December 31, 1999, Jato has reserved 7,984,725 shares of
common stock for granting awards under the Plan. Stock awards may consist of
incentive or nonstatutory stock options, stock appreciation rights, stock
bonuses, or restricted stock awards. Generally, stock options become exercisable
at a rate of 25% at the end of the first year following the vesting commencement
date and 1/48(th) of the total grant per month of employment thereafter, and
expire after a maximum term of ten years.
In August 1999, the Company entered into a restricted stock agreement
pursuant to the 1998 Equity Incentive Plan with one of its executive officers
for the purchase of 703,500 shares of restricted common stock. The restricted
stock was purchased with a $370,000 promissory note issued to the Company by the
employee. The note is due in August 2001 and is secured by a pledge of the
restricted common stock. The Company has agreed to forgive the promissory note
in two equal annual installments beginning August 31, 2000, provided the
employee is still employed with Jato as of such dates. Accordingly, the Company
has recorded the restricted stock award at the estimated fair market
F-18
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS AND OTHER STOCK AWARDS (CONTINUED)
value on the date of the award as deferred compensation and is amortizing the
amount as a charge to operations over the vesting period of the restricted
common stock, which is three years.
Plan activity for the period from June 12, 1998 (date of inception) to
December 31, 1998, and for the year ended December 31,1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
-------------------- ---------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Options outstanding, beginning of period............... -- $-- 70,350 $1.07
Granted................................................ 70,350 1.07 6,178,770 2.03
Exercised.............................................. -- -- (28,140) 0.63
Forfeited.............................................. -- -- (487,525) 2.88
------ ----- --------- -----
Options outstanding, end of period..................... 70,350 $1.07 5,733,455 $1.95
====== ===== ========= =====
Exercisable at end of period........................... -- $-- 180,152 $1.69
====== ===== ========= =====
</TABLE>
Exercise prices for employee awards outstanding as of December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE EXERCISABLE WEIGHTED-
AS OF REMAINING WEIGHTED- AS OF AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, EXERCISE
EXERCISE PRICES 1999 LIFE EXERCISE PRICE 1999 PRICE
- --------------- ------------ ----------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$1.07 3,153,790 9.43 $1.07 136,888 $1.07
1.83 1,125,600 9.92 1.83 -- 1.83
3.55 84,420 9.70 3.55 31,657 3.55
3.98 1,369,645 9.86 3.98 11,607 3.98
--------- ---- ----- ------- -----
$1.07-$3.98.. 5,733,455 9.64 $1.95 180,152 $1.69
========= ==== ===== ======= =====
</TABLE>
The Company believes that all employee stock awards granted prior to
May 1999 were granted at or above fair market value on the date of grant.
Subsequent to May 1999, for financial reporting purposes, the Company has
determined that the deemed fair market value on the date of grant of certain
stock awards exceeded the exercise price of the related award. As a result,
during the year ended December 31, 1999, the Company recorded deferred
compensation of $14.8 million. This amount was recorded as a reduction of
stockholders' equity and is being amortized as a charge to operations over the
vesting period of the applicable awards. For the year ended December 31, 1999,
the Company recognized approximately $843,000 of stock compensation expense.
Pro forma information regarding net loss and loss per share is required by
SFAS No. 123 and has been determined as if the Company had accounted for its
stock-based compensation plans using the fair value method prescribed by that
statement. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. All
options are initially assumed to vest. Compensation previously recognized is
reversed to the extent applicable to forfeitures of unvested options. Had
compensation cost for the Company's stock-based compensation
F-19
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS AND OTHER STOCK AWARDS (CONTINUED)
plans been determined consistent with SFAS No. 123, the Company's net loss and
loss per share for the year ended December 31, 1999 would have been as follows
(in thousands, except per share amounts):
<TABLE>
<S> <C>
Net loss:
As reported............................................... $(14,860)
Pro forma under SFAS No. 123.............................. $(17,658)
Basic and diluted loss per share:
As reported............................................... $ (1.64)
Pro forma under SFAS No. 123.............................. $ (1.95)
</TABLE>
The weighted-average fair value of stock options granted during the period
from June 12, 1998 (date of inception) to December 31, 1998 and during the year
ended December 31, 1999 was $0.21 and $3.10, respectively.
The fair value of each employee stock option award was estimated at the date
of the grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rate of 5.6%, expected dividend
yield of 0%, expected life of four years, and expected volatility of .001%.
The fair value of options and warrants issued to non-employees were recorded
at the fair value of the option or warrant at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate ranging from 5.3% to 5.7%, expected
dividend yield of 0%; expected life ranging from one to five years, and expected
volatility of 100%. The estimated fair values of the stock options and warrants
issued to non-employees range from $0.76 to $2.54 per share.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock-based compensation awards.
10. SUBSEQUENT EVENTS
In January of 2000, the Company sold 1,785,714 shares of Series D
convertible preferred stock ("Series D") to Microsoft Corporation for gross
proceeds of $10 million. The Series D stock contains rights equal to those of
the Series C as they relate to dividends, liquidation preference, conversion and
voting (See Note 8). The Series D owned by Microsoft Corporation is convertible
into 2,512,499 shares of the Company's common stock. The Company concluded the
Series D was sold at below fair market value. Accordingly, the Company expects
to record a $10 million charge to net loss available to common stockholders
during the first quarter of 2000 representing a preferential dividend on the
Series D preferred stock.
In February of 2000, the Company entered into a commercial relationship with
Qwest Communications Corporation (Qwest). Through this relationship, the Company
has been designated as Qwest's preferred provider of business DSL services in
selected cities and central offices. Qwest has
F-20
<PAGE>
JATO COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS (CONTINUED)
agreed to use its reasonable efforts to sell a minimum of 75,000 business class
DSL lines using Jato's facilities over five and one-half years. The Company has
agreed to use its reasonable efforts to supply Qwest with a minimum of 15,000
lines using Qwest DSL facilities. Both parties will purchase each line on a one
year commitment. The Company has agreed to purchase $25 million of Qwest DSL and
network services over five and one-half years, beginning February 9, 2000, via
an upfront payment of $16.0 million, which represents the present value of the
purchase price.
In February of 2000, the Company entered into a commercial relationship with
Global Crossing Bandwidth, Inc. (Global Crossing) through which the Company has
been designated as a preferred supplier of Global Crossing's business DSL
services in selected cities and central offices. The Company will use Global
Crossing as its preferred supplier of certain network services. Global Crossing
is forecasting a volume of 75,000 business-class DSL lines to be sold under this
agreement over the next five years. The Company has agreed to purchase
$30 million of network services and other applications from Global Crossing over
a six year term.
As part of the commercial services agreements entered into with Qwest and
Global Crossing, the Company sold an aggregate of 2,678,571 shares of Series D
at an amount determined to be below fair market value. The Series D is
convertible into 3,768,748 shares of the Company's common stock. In connection
with these business relationships, during the first quarter, the Company will
capitalize approximately $34.0 million of intangible assets that will be
amortized to operating expense over the respective life of the service
agreements.
On March 30, 2000, the Company effected a 1 for 1.407 forward stock split,
which has been retroactively reflected in the accompanying financial statements
and notes thereto.
F-21
<PAGE>
THROUGH AND INCLUDING (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8,925,000 SHARES
[LOGO]
JATO
COMMUNICATIONS
CORP.
COMMON STOCK
--------
PROSPECTUS
-------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
THOMAS WEISEL PARTNERS LLC
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discount and commissions, payable by the registrant in connection
with the sale of the common stock being registered hereby. All amounts shown are
estimates, except the Securities and Exchange Commission registration fee and
the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 40,645
NASD filing fee............................................. 15,896
Nasdaq National Market listing fee.......................... 95,000
Blue Sky fees and expenses.................................. 5,000
Printing and engraving expenses............................. 500,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 170,000
Directors' and officers' insurance.......................... 350,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous expenses...................................... 13,459
----------
TOTAL....................................................... $1,700,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits indemnification
of the registrant's officers and directors under certain conditions and subject
to certain limitations. Section 145 of the Delaware General Corporation Law also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against such
person and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her under the provisions of Section 145 of the Delaware General
Corporation Law.
The company's amended and restated bylaws that will become effective upon
the closing of this offering provide that the company will indemnify its
directors and executive officers to the fullest extent permitted by Delaware law
and may indemnify its other officers, employees and other agents to the fullest
extent permitted by Delaware law.
In addition, the company's restated certificate of incorporation that will
become effective upon the closing of this offering provides that, to the fullest
extent permitted by Delaware law, its directors will not be personally liable to
the company or its stockholders for monetary damages for any breach of fiduciary
duty as directors. This provision of the restated certificate of incorporation
does not eliminate the directors' duty of care. In appropriate circumstances,
equitable remedies such as an injunction or other forms of non-monetary relief
are available under Delaware law. This provision also does not affect the
directors' responsibilities under any other laws, such as the federal securities
laws and state and federal environmental laws.
Each director will continue to be subject to liability for:
- breach of a director's duty of loyalty to the company and its
stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
II-1
<PAGE>
- any transaction from which a director derived an improper personal
benefit.
The company also intends to enter into indemnity agreements with its
directors and executive officers and to obtain directors' and officers'
liability insurance.
There is no pending litigation or proceeding involving any of the company's
directors or officers as to which indemnification is being sought. The company
is not aware of any pending or threatened litigation that may result in a claim
for indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The company has issued and sold the following securities since June 12, 1998
(date of inception).
On various dates between April 1999 and March 24, 2000, the Company
authorized the grant of stock options to employees, consultants, directors and
officers to purchase an aggregate of 7,583,180 shares of its Common Stock at
exercise prices ranging from $1.07 to $13.00 per share. The Company relied on
the exemption provided by Rule 701 of the Securities Act.
On July 13, 1998, the Company issued an aggregate of 3,939,601 shares of its
Common Stock at a price per share of $.0334 to its founders for cash and
assignment of certain proprietary rights to the Company in the aggregate amount
of $131,600.05. On October 13, 1998 the Company declared a 1:1 stock dividend
for each outstanding share of its Common Stock for the issuance of an aggregate
of 3,939,601 shares. The Company relied on the exemptions provided by
Section 4(2) and 4(6) of the Securities Act.
In August 1998, the Company issued an aggregate of 731,640 shares of its
Common Stock at a price of $.04975 per share to two of its employees for cash
proceeds in the aggregate amount of $36,400. The Company relied on the exemption
provided by Rule 701 of the Securities Act.
In October 1998, the Company issued 182,910 shares of its Common Stock at a
price per share of $.109343 to one of its employees for cash proceeds in the
amount of $20,000. The Company relied on the exemptions provided by Rule 701 of
the Securities Act.
In October 1998, the Company issued an aggregate of 1,751,985 shares of its
Series A Preferred Stock (which will convert into 2,465,042 shares of Common
Stock) to certain accredited investors at a purchase price of $0.75 per share
for cash proceeds in the amount of $1,313,988.75. The Company relied on the
exemptions provided by Rule 506 of Regulation D under the Securities Act.
In April and May 1999, the Company issued an aggregate of 13,615,322 shares
of its Series B Preferred Stock (which will convert into 19,156,758 shares of
Common Stock) to certain accredited investors at a purchase price of $1.50 per
share for cash proceeds in the amount of $20,422,983.00. The Company relied on
the exemptions provided by Rule 506 of Regulation D under the Securities Act.
In May 1999, the Company issued a warrant to purchase 28,140 shares of its
Common Stock at an exercise price of $2.13 per share to one accredited investor.
The investor exercised this warrant in full on February 29, 2000. The Company
relied on the exemption provided by Section 4(2) of the Securities Act.
On May 13, 1999 the Company authorized the grant of a stock option to
purchase 56,280 shares of its Common Stock to one of its directors at an
exercise price of $.1777 per share. On May 13, 1999 such optionee exercised his
option to purchase 14,070 shares for an aggregate consideration of $2,500. The
Company relied on the exemption provided by Rule 701 of the Securities Act.
On August 1, 1999, the Company issued a warrant to purchase 7,035 shares of
its Common Stock at an exercise price of $2.13 per share to one accredited
investor. The Company relied on the exemption provided by Section 4(2) of the
Securities Act.
II-2
<PAGE>
On August 31, 1999, the Company issued 703,500 shares of its Common Stock at
a price of $.53 per share to Gerald K. Dinsmore. The Company relied on the
exemption provision provided by Rule 701 of the Securities Act.
On September 16, 1999, the Company issued an aggregate of 3,938,714 shares
of its Series C Preferred Stock (which will convert into 5,541,770 shares of
Common Stock) to certain accredited investors at a purchase price of $7.00 per
share for cash proceeds in the amount of $24,570,996 and a note in the amount of
$3,000,002. The Company relied on the exemptions provided by Rule 506 of
Regulation D under the Securities Act.
In September 1999, the Company issued an aggregate of 28,140 and
10,991 shares of its Common Stock at a price of $2.13 per share and $1.07 per
share, respectively, to one employee and one consultant, respectively. The
Company relied on the exemption provision provided by Rule 701 of the Securities
Act.
On November 16, 1999, the Company issued an aggregate of 984,666 additional
shares of its Series C Preferred Stock (which will convert into 1,385,425 shares
of Common Stock) in connection with the price adjustment from $7.00 to $5.60 per
share. The Company relied on the exemptions provided by Rule 506 of
Regulation D under the Securities Act.
On December 22, 1999, the Company issued an aggregate of 8,928 shares of its
Series C Preferred Stock (which will convert into 12,561 shares of Common Stock)
to one accredited investor at a purchase price of $5.60 per share for cash
proceeds of $49,996.80. The Company relied on the exemption provision provided
by Rule 506 of Regulation D under the Securities Act.
On January 20, 2000, the Company issued an aggregate of 1,785,714 shares of
its Series D Preferred Stock (which will convert into 2,512,499 shares of Common
Stock) to one qualified institutional buyer at a purchase price of $5.60 per
share for cash proceeds of $9,999,998.40. The Company relied on the exemption
provided by Section 4(2) of the Securities Act.
On February 9, 2000, the Company issued an aggregate of 1,785,714 shares of
its Series D Preferred Stock (which will convert into 2,512,499 shares of Common
Stock) at a purchase price of $5.60 per share for cash proceeds of $9,999,998.40
and entered into an agreement to (a) sell $2.5 million of shares of its Common
Stock at the public offering price per share and (b) issue a warrant to purchase
$5.0 million of shares of its Common Stock at an exercise price per share of
120% of the public offering price per share, immediately after the closing of
this offering to one institutional accredited investor. The Company relied on
the exemption provided by Section 4(2) of the Securities Act.
On February 23, 2000, the Company issued an aggregate of 892,857 shares of
its Series D Preferred Stock (which will convert into 1,256,249 shares of Common
Stock) at a purchase price of $5.60 per share for cash proceeds of $5,000,000.
The Company relied on the exemption provided by Section 4(2) of the Securities
Act.
The recipients of the above-described securities represented their intention
to acquire the securities for investment only and not with a view for
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. All recipients had adequate access, through
employment or other relationships, to information about the Company.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
1.1 Form of Purchase Agreement.
3.1 Restated Certificate of Incorporation of the Company, as
amended and currently in effect.
3.2 Form of Restated Certificate of Incorporation of the Company
to become effective upon the closing of the Offering.
3.5+ Amended Bylaws of the Company, currently in effect.
3.6+ Amended and Restated Bylaws of the Company to become
effective upon the closing of the Offering.
4.1 Reference is made to Exhibits 3.1 through 3.6.
4.2+ Specimen stock certificate representing shares of Common
Stock of the Company.
5.1 Opinion of Cooley Godward LLP regarding the legality of the
securities being registered.
10.1 Founders Amended and Restated Employment Transition and
Separation Agreement dated April 3, 2000 between the
registrant and Brian E. Gast.
10.2 Founders Amended and Restated Employment Transition and
Separation Agreement dated April 3, 2000 between the
registrant and Leonard Allsup.
10.3 Founders Amended and Restated Employment Transition and
Separation Agreement dated April 3, 2000 between the
registrant and Bruce E. Dines.
10.4+ Employment Agreement dated April 16, 1999 between the
registrant and Patrick Green.
10.5+ Employment Agreement dated April 16, 1999 between the
registrant and Rex A. Humston.
10.6+ Employment Agreement dated May 10, 1999 between the
registrant and Fred Thomas Danner, III.
10.7+ Employment Agreement dated August 16, 1999 between the
registrant and William D. Myers.
10.8+ Employment Agreement dated June 1, 1999 between the
registrant and Gerard A. Maglio.
10.9+ Amended Employment Agreement dated November 16, 1999 between
the registrant and Gerald K. Dinsmore.
10.10+ Warrant to purchase 20,000 shares of Common Stock of the
registrant issued to Daniels & Associates on June 18, 1999.
10.11+ Warrant to purchase 5,000 shares of Common Stock of the
registrant issued to Teah Bennett on August 1, 1999.
10.12+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Brian E. Gast.
10.13+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Bruce E. Dines.
10.14+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Leonard Allsup.
10.15+ Stock Purchase Agreement dated August 28, 1998 between the
registrant and Rex A. Humston.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
10.16+ Stock Purchase Agreement dated October 14, 1998 between the
registrant and Patrick M. Green.
10.17+ Stock Purchase Agreement dated August 31, 1999 between the
registrant and Gerald K. Dinsmore.
10.18+ Series A Preferred Stock Purchase Agreement entered into as
of October 23, 1998 among the registrant and the parties
named therein.
10.19+ Series B Preferred Stock Purchase Agreement entered into as
of April 16, 1999 among the registrant and the parties named
therein.
10.20+ Series C Preferred Stock Purchase Agreement entered into as
of September 16, 1999 among the registrant and the parties
named therein, as amended.
10.21+ Series D Preferred Stock Purchase Agreement entered into as
of January 20, 2000 between the registrant and Microsoft
Corporation.
10.22+ Series D Preferred Stock Purchase Agreement entered into as
of February 9, 2000 between the registrant and U.S.
TeleSource, Inc.
10.23+ Stock Purchase Agreement entered into as of February 9, 2000
between the registrant and U.S. TeleSource, Inc.
10.24 2000 Equity Incentive Plan.
10.25+ Form of Grant Notice and Stock Option Agreement.
10.26+ Office Lease Agreement dated January 1, 1999 between the
registrant and Denver-Stellar Associates Limited
Partnership, as amended.
10.27+ Office Sublease Agreement dated February 21, 2000 between
the registrant and Homespace Services, Inc.
10.28+ Second Amended and Restated Investors' Rights Agreement
dated as of January 20, 2000 among the registrant and the
investors named therein.
10.29+ Second Amended and Restated Stockholders' Agreement dated as
of January 20, 2000 among the registrant and the
stockholders named therein.
10.30+ Form of Indemnity Agreements between the registrant and each
of its directors and executive officers.
10.31**+ Credit Agreement dated as of July 14, 1999 among the
registrant, Jato Operating Corp., the Lenders party thereto,
State Street Bank and Trust Company and Lucent Technologies
Inc.
10.32+ Purchase Agreement dated March 18, 1999 between the Company
and Hi Country Wire & Telephone, Ltd.
10.33**+ Agreement effective February 12, 1999 between the registrant
and Lucent Technologies Inc., as amended.
10.34** Master Services Agreement entered into as of February 9,
2000 between the registrant and Qwest Communications
Corporation.
10.35** Capacity Agreement entered into as of February 23, 2000
between the registrant and Global Crossing Bandwidth, Inc.
10.36**+ Services Agreement entered into as of February 23, 2000
between the registrant and Global Crossing Bandwidth, Inc.
10.37+ Employment Agreement dated November 29, 1999 between the
registrant and Terri L. Compton.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
10.38+ Employment Agreement dated November 29, 1999 between the
registrant and Thomas W. Hall.
10.39+ Series D Preferred Stock Purchase Agreement entered into as
of February 24, 2000 between the registrant and Global
Crossing Bandwidth, Inc.
21.1+ Statement re: subsidiaries of the registrant.
23.1 Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of attorney (included on Page II-6).
27 Financial Data Schedule.
</TABLE>
- ------------------------
** The Company is applying for confidential treatment with respect to portions
of these exhibits.
+ Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES.
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Denver, County of Denver, State of Colorado, on April 10, 2000.
<TABLE>
<S> <C> <C>
By: /s/ WILLIAM D. MYERS
-----------------------------------------
William D. Myers
SENIOR VICE PRESIDENT, FINANCE AND
STRATEGIC PLANNING
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President, Chief Executive
* Officer and Director
---------------------------------------- (PRINCIPAL EXECUTIVE April 10, 2000
Gerald K. Dinsmore OFFICER)
Senior Vice President,
Finance and Strategic
/s/ WILLIAM D. MYERS Planning, Chief Financial
---------------------------------------- Officer and Treasurer April 10, 2000
William D. Myers (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
*
---------------------------------------- Chairman of the Board April 10, 2000
Brian E. Gast
*
---------------------------------------- Vice President and Director April 10, 2000
Leonard Allsup
*
---------------------------------------- Director April 10, 2000
Eric A. Benhamou
*
---------------------------------------- Director April 10, 2000
Todd A. Brooks
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
---------------------------------------- Director April 10, 2000
James J. Collis
*
---------------------------------------- Director April 10, 2000
Donald T. Lynch
*
---------------------------------------- Director April 10, 2000
Gregg A. Mockenhaupt
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ WILLIAM D. MYERS
--------------------------------------
William D. Myers
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
1.1 Form of Purchase Agreement.
3.1 Restated Certificate of Incorporation of the Company, as
amended and currently in effect.
3.2 Form of Restated Certificate of Incorporation of the Company
to become effective upon the closing of the Offering.
3.5+ Amended Bylaws of the Company, currently in effect.
3.6+ Amended and Restated Bylaws of the Company to become
effective upon the closing of the Offering.
4.1 Reference is made to Exhibits 3.1 through 3.6.
4.2+ Specimen stock certificate representing shares of Common
Stock of the Company.
5.1 Opinion of Cooley Godward LLP regarding the legality of the
securities being registered.
10.1 Founders Amended and Restated Employment Transition and
Separation Agreement dated April 3, 2000 between the
registrant and Brian E. Gast.
10.2 Founders Amended and Restated Employment Transition and
Separation Agreement dated April 3, 2000 between the
registrant and Leonard Allsup.
10.3 Founders Amended and Restated Employment Transition and
Separation Agreement dated April 3, 2000 between the
registrant and Bruce E. Dines.
10.4+ Employment Agreement dated April 16, 1999 between the
registrant and Patrick Green.
10.5+ Employment Agreement dated April 16, 1999 between the
registrant and Rex A. Humston.
10.6+ Employment Agreement dated May 10, 1999 between the
registrant and Fred Thomas Danner, III.
10.7+ Employment Agreement dated August 16, 1999 between the
registrant and William D. Myers.
10.8+ Employment Agreement dated June 1, 1999 between the
registrant and Gerard A. Maglio.
10.9+ Amended Employment Agreement dated November 16, 1999 between
the registrant and Gerald K. Dinsmore.
10.10+ Warrant to purchase 20,000 shares of Common Stock of the
registrant issued to Daniels & Associates on June 18, 1999.
10.11+ Warrant to purchase 5,000 shares of Common Stock of the
registrant issued to Teah Bennett on August 1, 1999.
10.12+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Brian E. Gast.
10.13+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Bruce E. Dines.
10.14+ Founder's Stock Purchase Agreement dated July 13, 1998
between the registrant and Leonard Allsup.
10.15+ Stock Purchase Agreement dated August 28, 1998 between the
registrant and Rex A. Humston.
10.16+ Stock Purchase Agreement dated October 14, 1998 between the
registrant and Patrick M. Green.
10.17+ Stock Purchase Agreement dated August 31, 1999 between the
registrant and Gerald K. Dinsmore.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
10.18+ Series A Preferred Stock Purchase Agreement entered into as
of October 23, 1998 among the registrant and the parties
named therein.
10.19+ Series B Preferred Stock Purchase Agreement entered into as
of April 16, 1999 among the registrant and the parties named
therein.
10.20+ Series C Preferred Stock Purchase Agreement entered into as
of September 16, 1999 among the registrant and the parties
named therein, as amended.
10.21+ Series D Preferred Stock Purchase Agreement entered into as
of January 20, 2000 between the registrant and Microsoft
Corporation.
10.22+ Series D Preferred Stock Purchase Agreement entered into as
of February 9, 2000 between the registrant and U.S.
TeleSource, Inc.
10.23+ Stock Purchase Agreement entered into as of February 9, 2000
between the registrant and U.S. TeleSource, Inc.
10.24 2000 Equity Incentive Plan.
10.25+ Form of Grant Notice and Stock Option Agreement.
10.26+ Office Lease Agreement dated January 1, 1999 between the
registrant and Denver-Stellar Associates Limited
Partnership, as amended.
10.27+ Office Sublease Agreement dated February 21, 2000 between
the registrant and Homespace Services, Inc.
10.28+ Second Amended and Restated Investors' Rights Agreement
dated as of January 20, 2000 among the registrant and the
investors named therein.
10.29+ Second Amended and Restated Stockholders' Agreement dated as
of January 20, 2000 among the registrant and the
stockholders named therein.
10.30+ Form of Indemnity Agreements between the registrant and each
of its directors and executive officers.
10.31**+ Credit Agreement dated as of July 14, 1999 among the
registrant, Jato Operating Corp., the Lenders party thereto,
State Street Bank and Trust Company and Lucent Technologies
Inc.
10.32+ Purchase Agreement dated March 18, 1999 between the Company
and Hi Country Wire & Telephone, Ltd.
10.33**+ Agreement effective February 12, 1999 between the registrant
and Lucent Technologies Inc., as amended.
10.34** Master Services Agreement entered into as of February 9,
2000 between the registrant and Qwest Communications
Corporation.
10.35** Capacity Agreement entered into as of February 23, 2000
between the registrant and Global Crossing Bandwidth, Inc.
10.36**+ Services Agreement entered into as of February 23, 2000
between the registrant and Global Crossing Bandwidth, Inc.
10.37+ Employment Agreement dated November 29, 1999 between the
registrant and Terri L. Compton.
10.38+ Employment Agreement dated November 29, 1999 between the
registrant and Thomas W. Hall.
10.39+ Series D Preferred Stock Purchase Agreement entered into as
of February 24, 2000 between the registrant and Global
Crossing Bandwidth, Inc.
21.1+ Statement re: subsidiaries of the registrant.
23.1 Consent of Cooley Godward LLP (included in Exhibit 5.1).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of attorney (included on Page II-6).
27 Financial Data Schedule.
</TABLE>
- ------------------------
** The Company is applying for confidential treatment with respect to portions
of these exhibits.
+ Previously filed.
<PAGE>
==============================================================================
JATO COMMUNICATIONS CORP.
(a Delaware corporation)
8,925,000 Shares of Common Stock
PURCHASE AGREEMENT
Dated: , 2000
==============================================================================
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Representations and Warranties........................................................................3
(a) Representations and Warranties by the Company.....................................................3
(i) Compliance with Registration Requirements..........................................3
(ii) Independent Accountants............................................................4
(iii) Financial Statements...............................................................4
(iv) No Material Adverse Change in Business.............................................4
(v) Good Standing of the Company.......................................................5
(vi) Good Standing of Subsidiaries......................................................5
(vii) Capitalization.....................................................................5
(viii) Authorization of Agreement.........................................................6
(ix) Authorization and Description of Securities........................................6
(x) Absence of Defaults and Conflicts..................................................6
(xi) Absence of Labor Dispute...........................................................7
(xii) Absence of Proceedings.............................................................7
(xiii) Accuracy of Exhibits...............................................................7
(xiv) Possession of Intellectual Property................................................7
(xv) Absence of Further Requirements....................................................7
(xvi) Compliance with Law; Authorizations................................................8
(xvii) Title to Property.................................................................10
(xviii) Compliance with Cuba Act..........................................................10
(xix) Investment Company Act............................................................10
(xx) Environmental Laws................................................................10
(xxi) Registration Rights...............................................................11
(xxii) Tax Returns.......................................................................11
(xxiii) Insurance.........................................................................12
(xxiv) Internal Accounting Controls......................................................12
(b) Representations and Warranties by the Selling Shareholders.......................................12
(i) Accurate Disclosure...............................................................12
(ii) Authorization of Agreements.......................................................12
(iii) Good and Marketable Title.........................................................13
(iv) Due Execution of Power of Attorney and Custody Agreement..........................13
(v) Absence of Manipulation...........................................................13
(vi) Absence of Further Requirements...................................................14
(vii) Restriction on Sale of Securities.................................................14
(viii) Certificates Suitable for Transfer................................................14
(ix) No Association with NASD..........................................................14
(c) Officer's Certificates...........................................................................14
SECTION 2. Sale and Delivery to Underwriters; Closing...........................................................14
(a) Initial Securities...............................................................................14
(b) Option Securities................................................................................15
(c) Payment..........................................................................................15
i
<PAGE>
(d) Denominations; Registration......................................................................16
SECTION 3. Covenants of the Company.............................................................................16
(a) Compliance with Securities Regulations and Commission Requests...................................16
(b) Filing of Amendments.............................................................................17
(c) Delivery of Registration Statements..............................................................17
(d) Delivery of Prospectuses.........................................................................17
(e) Continued Compliance with Securities Laws........................................................17
(f) Blue Sky Qualifications..........................................................................18
(g) Rule 158.........................................................................................18
(h) Use of Proceeds..................................................................................18
(i) Listing..........................................................................................18
(j) Restriction on Sale of Securities................................................................18
(k) Reporting Requirements...........................................................................19
(l) Compliance with NASD Rules.......................................................................19
(m) Compliance with Rule 463.........................................................................19
SECTION 4. Payment of Expenses..................................................................................19
(a) Expenses.........................................................................................19
(b) Expenses of the Selling Shareholders.............................................................20
(c) Termination of Agreement.........................................................................20
(d) Allocation of Expenses...........................................................................20
SECTION 5. Conditions of Underwriters'Obligations...............................................................20
(a) Effectiveness of Registration Statement..........................................................20
(b) Opinion of Counsel for Company...................................................................21
(c) Opinion of Counsel for the Selling Shareholders..................................................21
(d) Opinion of Counsel for Underwriters..............................................................21
(e) Officers'Certificate.............................................................................21
(f) Certificate of Selling Shareholders..............................................................22
(g) Accountant's Comfort Letter......................................................................22
(h) Bring-down Comfort Letter........................................................................22
(i) Approval of Listing..............................................................................22
(j) No Objection.....................................................................................22
(k) Lock-up Agreements...............................................................................22
(l) Waivers of Registration Rights...................................................................22
(m) Conditions to Purchase of Option Securities......................................................22
(i) Officers'Certificate..............................................................23
(ii) Certificate of Selling Shareholders...............................................23
(iii) Opinion of Counsel for Company....................................................23
(iv) Opinion of Counsel for the Selling Shareholders...................................23
(v) Opinion of Counsel for Underwriters...............................................23
(vi) Bring-down Comfort Letter.........................................................23
(n) Additional Documents.............................................................................23
(o) Termination of Agreement.........................................................................24
ii
<PAGE>
SECTION 6. Indemnification......................................................................................24
(a) Indemnification of Underwriters..................................................................24
(b) Indemnification of Company, Directors, Officers and Selling Shareholders.........................26
(c) Actions against Parties; Notification............................................................26
(d) Settlement without Consent if Failure to Reimburse...............................................27
(e) Indemnification for Reserved Securities..........................................................27
(f) Other Agreements with Respect to Indemnification.................................................27
SECTION 7. Contribution.........................................................................................27
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.......................................29
SECTION 9. Termination of Agreement.............................................................................29
(a) Termination; General.............................................................................29
(b) Liabilities......................................................................................29
SECTION 10. Default by One or More of the Underwriters..........................................................29
SECTION 11. Default by one or more of the Selling Shareholders or the Company...................................30
SECTION 12. Notices.............................................................................................31
SECTION 13. Parties.............................................................................................31
SECTION 14. GOVERNING LAW AND TIME..............................................................................31
SECTION 15. Effect of Headings..................................................................................31
SCHEDULES
Schedule A - List of Underwriters............................................Sch A-1
Schedule B - Number of Securities To Be Sold.................................Sch B-1
Schedule C - Pricing Information.............................................Sch C-1
Schedule D - List of Persons and Entities Subject to Lock-up.................Sch D-1
EXHIBITS
Exhibit A - Form of Opinion of Cooley Godward LLP,
Company Counsel................................................A-1
Exhibit B - Form of Lock-up Letter..............................................B-1
Exhibit C - Form of Waiver of Registration Rights...............................C-1
Exhibit D - List of Authorizations..............................................D-1
</TABLE>
iii
<PAGE>
JATO COMMUNICATIONS CORP.
(a Delaware corporation)
8,925,000 Shares of Common Stock
(Par Value $.01 Per Share)
PURCHASE AGREEMENT
, 2000
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Thomas Weisel Partners LLC
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Jato Communications Corp., a Delaware corporation (the "Company"), and the
persons listed in Schedule B hereto (the "Selling Shareholders"), confirm their
respective agreements with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Bear, Stearns & Co. Inc. and Thomas Weisel LLC
are acting as representatives (in such capacity, the "Representatives"), with
respect to (i) the sale by the Company and the purchase by the Underwriters,
acting severally and not jointly, of the respective numbers of shares of Common
Stock, par value $.01 per share, of the Company ("Common Stock") set forth in
Schedules A and B hereto and (ii) the grant by the Selling Shareholders to the
Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part of 1,338,750 additional shares
of Common Stock to cover over-allotments, if any. The aforesaid 8,925,000 shares
of Common Stock (the "Initial Securities") to be purchased by the Underwriters
and all or any part of the 1,338,750 shares of Common Stock subject to the
option described in Section 2(b) hereof (the "Option Securities") are
hereinafter called, collectively, the "Securities".
The Company and the Selling Shareholders understand that the Underwriters
propose to make a public offering of the Securities as soon as the
Representatives deem advisable after this Agreement has been executed and
delivered.
<PAGE>
The Company, the Selling Shareholders and the Underwriters agree that up to
600,000 shares of the Securities to be purchased by the Underwriters (the
"Reserved Securities") shall be reserved for sale by the Underwriters to certain
eligible Company employees, directors and officers and their friends and family
members and certain eligible employees of the Company's strategic partners
(collectively, the "Reserved Class Offerees"), as part of the distribution of
the Securities by the Underwriters, subject to the terms of this Agreement, the
applicable rules, regulations and interpretations of the National Association of
Securities Dealers, Inc. ("NASD") and all other applicable laws, rules and
regulations. To the extent that such Reserved Securities are not orally
confirmed for purchase by the Reserved Class Offerees by the end of the first
business day after the date of this Agreement, such Reserved Securities may be
offered to the public as part of the public offering contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-93569) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final prospectus in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is herein
called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall
refer to the preliminary prospectus dated [_________], 2000 together with the
Term Sheet and all references in this Agreement to the date of the Prospectus
shall mean the date of the Term Sheet. For purposes of this Agreement, all
references to the Registration Statement, any preliminary prospectus, the
Prospectus or any Term Sheet or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission pursuant
to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
2
<PAGE>
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company represents
and warrants to each Underwriter as of the date hereof, as of Closing Time
referred to in Section 2(c) hereof, and as of each Date of Delivery (if any)
referred to in Section 2(b) hereof, and agrees with each Underwriter, as
follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at Closing Time (and, if any Option Securities are purchased,
at the Date of Delivery), the Registration Statement, the Rule 462(b)
Registration Statement and any amendments and supplements thereto complied
and will comply in all material respects with the requirements of the 1933
Act and the 1933 Act Regulations and did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and the Prospectus, any preliminary prospectus and any
supplement thereto or prospectus wrapper prepared in connection therewith,
at their respective times of issuance and at the Closing Time, complied and
will comply in all material respects with any applicable laws or
regulations of foreign jurisdictions in which the Prospectus and such
preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the offer and sale of Reserved Securities.
Neither the Prospectus nor any amendments or supplements thereto (including
any prospectus wrapper), at the time the Prospectus or any such amendment
or supplement was issued and at Closing Time (and, if any Option Securities
are purchased, at the Date of Delivery), included or will include an untrue
statement of a material fact or omitted or will 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. If Rule 434 is
used, the Company will comply with the requirements of Rule 434 and the
Prospectus shall not be "materially different", as such term is used in
Rule 434, from the prospectus included in the Registration Statement at the
time it became effective. The representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement or Prospectus. It is understood that the statements set forth in
the Registration Statement and the Prospectus under the heading
"Underwriting" constitute the only
3
<PAGE>
information furnished in writing by or on behalf of the Underwriters
expressly for use therein.
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectus delivered to the Underwriters for
use in connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(ii) INDEPENDENT ACCOUNTANTS. The accountants who certified the
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iii) FINANCIAL STATEMENTS. The financial statements included in the
Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the Company
and its consolidated subsidiaries at the dates indicated and the statement
of operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved. The supporting schedules included in the Registration
Statement present fairly in accordance with GAAP the information required
to be stated therein. The selected financial data and the summary financial
information included in the Prospectus present fairly the information shown
therein and have been compiled on a basis consistent with that of the
audited financial statements included in the Registration Statement. The
pro forma financial information included in the Registration Statement and
the Prospectus present fairly the information shown therein, have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly compiled
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.
(iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered as
one enterprise, and (C) there has been no dividend or
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distribution of any kind declared, paid or made by the Company on any class
of its capital stock.
(v) GOOD STANDING OF THE COMPANY. The Company has been duly organized
and is validly existing as a corporation in good standing under the laws of
the State of Delaware and has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under this
Agreement; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so
to qualify or to be in good standing would not result in a Material Adverse
Effect.
(vi) GOOD STANDING OF SUBSIDIARIES. Jato Operating Corp., a Delaware
corporation, Jato Operating Corp. Two, a Delaware corporation, and Jato
Communications Corp. of Virginia, a Virginia corporation (each a
"Subsidiary" and, collectively, the "Subsidiaries") are the only
subsidiaries of the Company. Each Subsidiary has been duly organized and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and 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 where the failure so
to qualify or to be in good standing would not result in a Material Adverse
Effect; except as otherwise disclosed in the Registration Statement, all of
the issued and outstanding capital stock of each such Subsidiary has been
duly authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through subsidiaries, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of any Subsidiary
was issued in violation of the preemptive or similar rights of any
securityholder of such Subsidiary. Each of the Subsidiaries is listed on
Exhibit 21 to the Registration Statement.
(vii) CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus in the column
entitled "Actual" under the caption "Capitalization" (except for subsequent
issuances, if any, pursuant to this Agreement, pursuant to reservations,
agreements or employee benefit plans referred to in the Prospectus or
pursuant to the exercise of convertible securities or options referred to
in the Prospectus). The shares of issued and outstanding capital stock of
the Company have been duly authorized and validly issued and are fully paid
and non-assessable; and none of the outstanding shares of capital stock of
the Company was issued in violation of the preemptive or other similar
rights of any securityholder of the Company.
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(viii) AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Company.
(ix) AUTHORIZATION AND DESCRIPTION OF SECURITIES. The Securities have
been duly authorized for issuance and sale to the Underwriters pursuant to
this Agreement and, when issued and delivered by the Company pursuant to
this Agreement against payment of the consideration set forth herein, will
be validly issued and fully paid and non-assessable; the Common Stock
conforms to all statements relating thereto contained in the Prospectus and
such description conforms to the rights set forth in the instruments
defining the same; no holder of the Securities will be subject to personal
liability by reason of being such a holder; and the issuance of the
Securities is not subject to the preemptive or other similar rights of any
securityholder of the Company.
(x) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor any of
its subsidiaries is in violation of its charter or by-laws or in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it or
any of them may be bound, or to which any of the property or assets of the
Company or any subsidiary is subject (collectively, "Agreements and
Instruments") except for such defaults that would not result in a Material
Adverse Effect, and the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated herein and
in the Registration Statement (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use of Proceeds") and
compliance by the Company with its obligations hereunder have been duly
authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or a Repayment 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 or
any of its subsidiaries pursuant to, the Agreements and Instruments (except
for such conflicts, breaches or defaults or liens, charges or encumbrances
that, singly or in the aggregate, would not result in a Material Adverse
Effect), nor will such action result in any violation of the provisions of
the charter or by-laws of the Company or any subsidiary or any applicable
law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any of its subsidiaries or any of
their assets, properties or operations. As used herein, a "Repayment Event"
means any event or condition which gives the holder of any note, debenture
or other evidence of indebtedness or preferred stock (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 or preferred stock by
the Company or any of its subsidiaries.
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(xi) ABSENCE OF LABOR DISPUTE. No labor dispute with the employees of
the Company or any subsidiary exists or, to the knowledge of the Company,
is imminent, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its or any of its subsidiaries'
principal suppliers, manufacturers, customers or contractors, which, in
either case, may reasonably be expected to result in a Material Adverse
Effect.
(xii) ABSENCE OF PROCEEDINGS. There is no action, suit, proceeding,
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the Company, threatened, against or affecting the Company or any
subsidiary, which is required to be disclosed in the Registration Statement
(other than as disclosed therein), or which might reasonably be expected to
result in a Material Adverse Effect, or which might reasonably be expected
to materially and adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in this Agreement or the
performance by the Company of its obligations hereunder. The aggregate of
all pending legal or governmental proceedings to which the Company or any
of its subsidiaries is a party or of which any of their respective property
or assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material Adverse
Effect.
(xiii) ACCURACY OF EXHIBITS. There are no contracts or documents which
are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto which have not been so
described and filed as required.
(xiv) POSSESSION OF INTELLECTUAL PROPERTY. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them, and neither the Company nor any of its subsidiaries
has received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company or any of its subsidiaries therein, and which infringement or
conflict (if the subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect.
(xv) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Securities hereunder or the consummation of the transactions
contemplated by this
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Agreement, except (i) such as have been already obtained or as may be
required under the 1933 Act or the 1933 Regulations or state securities
laws and (ii) such as have been obtained under the laws and regulations of
jurisdictions outside the United States in which the Reserved Securities
are offered.
(xvi) COMPLIANCE WITH LAW; AUTHORIZATIONS. The Company and its
subsidiaries have operated their businesses in compliance with each law,
ordinance, or governmental or regulatory rule or regulation, whether
federal, state, local, or foreign, to which their businesses or assets are
subject, except where failure to do so, singly or in the aggregate, would
not have a Material Adverse Effect. The Company and its subsidiaries
possess such permits, licenses, approvals, consents, franchises, easements,
licenses, variances, exemptions, rights, applications, filings,
registrations, orders, and other authorizations and approvals issued by the
appropriate federal, state, local or foreign regulatory agencies,
authorities, or bodies necessary or used to conduct the business now
operated by them (collectively, "Authorizations"), free and clear of all
liens (other than the liens granted to pursuant to that certain Credit
Agreement, dated as of July 1, 1999 among the Company, Jato Operating
Corp., the Lender parties thereto, State Street Bank and Trust Company and
Lucent Technologies Inc.), charges, encumbrances, and adverse claims and in
compliance with all laws, rules, regulations, orders, and decrees, except
where the failure to do so would not, singly or in the aggregate, have a
Material Adverse Effect. A true and complete list of the Authorizations is
attached as Exhibit D hereto. The Company and its subsidiaries are in
compliance with the terms and conditions of all such Authorizations, except
where the failure so to comply would not, singly or in the aggregate, have
a Material Adverse Effect. All of the Authorizations are valid and in full
force and effect and exclusively held by the Company or its appropriate
subsidiary, except where the invalidity of such Authorizations or the
failure of such Authorizations to be in full force and effect and
exclusively held would not have a Material Adverse Effect. Neither the
Company nor any of its subsidiaries has received any notice of any
applications, petitions to deny, complaints, or proceedings relating to the
denial, revocation or modification of any such Authorizations, or to the
operations of the Company or any of its subsidiaries or the provision of
services by any of them, which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a Material
Adverse Effect. No event has occurred with respect to any of the
Authorizations which permits, or after notice or lapse of time or both
would permit, revocation or termination thereof or would result in any
impairment of the rights of the holder of any of the Authorizations. All of
the Authorizations are renewable by their terms or in the ordinary course
of business without the need to comply with any qualification procedures
not generally applicable to the renewal of such authorizations or to pay
any amounts other than routine filing fees. None of the Authorizations will
be adversely affected by consummation of the transactions contemplated
hereby. No partner, officer, employees, or former employee of the Company
or any subsidiary of the Company, or any other person, firm, or corporation
owns or has any proprietary, financial, or other interest (direct or
indirect) in any Authorization which the Company or
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its subsidiaries owns, possesses, or uses in the operation of their
businesses. The Company has not been informed of any fact, event or
circumstance that is reasonably likely to impair the Company's (or any
subsidiary's) ability to obtain any Authorizations necessary or advisable
in order to effectuate the Company's future plans and strategies described
in the Prospectus. Without limiting the generality of this paragraph:
(A) The Company and each of its subsidiaries hold all
telecommunications regulatory licenses, permits, authorizations,
consents and approvals (the "Telecommunications Licenses") required
from the Federal Communications Commission (the "FCC") for the Company
and its subsidiaries to conduct their business in the manner described
in the Prospectus except as would not have, individually or in the
aggregate, a Material Adverse Effect; the Telecommunications Licenses
have been duly and validly issued and are in full force and effect,
except where the failure to be in full force and effect would not
have, singly or in the aggregate, a Material Adverse Effect; no
proceedings to revoke or restrict the Telecommunications Licenses are
pending or, to the best of the Company's knowledge, threatened;
neither the Company nor its subsidiaries are in violation of any of
the terms and conditions of any of the Telecommunications Licenses,
are in violation of the Communications Act of 1934, as amended, or the
Telecommunications Act of 1996, as amended (collectively, the
"Communications Act"), or are in violation of any FCC rules and
regulations except as would not have, individually or in the
aggregate, a Material Adverse Effect; and the Company and its
subsidiaries have in effect with the FCC all tariffs necessary to
conduct their business in the manner described in the Prospectus
except as would not have, singly or in the aggregate, a Material
Adverse Effect;
(B) The Company and its subsidiaries have obtained all state and
municipal Telecommunications Licenses and filed all tariffs for the
provision of telecommunications services in any state required to
conduct their business in the manner described in the Prospectus
except where the failure to do so would not have, individually or in
the aggregate, a Material Adverse Effect;
(C) There is no outstanding adverse judgment, injunction, decree
or order that has been issued by the FCC or any state utility
commission or similar state agency ("PUC") or municipality against the
Company or its subsidiaries or any action, proceeding or investigation
pending before the FCC or any state PUC or municipality, or, to the
Company's knowledge, threatened by the FCC or any state PUC or
municipality against the Company or its subsidiaries which, if the
subject of any unfavorable decision, ruling or finding, would have a
Material Adverse Effect;
(D) No license, permit, consent, approval, order or authorization
of, or filing with, the FCC or with any state PUC or municipal
authority on the part of
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the Company or its subsidiaries is required in connection with the
issuance or sale of the Securities; and
(E) Neither the issuance and sale of the Securities nor the
performance by the Company or its subsidiaries of their obligations
under this Agreement will result in a violation in any material
respect of: (1) the Communications Act or the applicable rules or
regulations, or any order, writ, judgment, injunction, decree or award
of the FCC binding on the Company or its subsidiaries; (2) any state
telecommunications laws or any applicable state PUC rules or
regulations, or any order, writ, judgment, injunction, decree or award
of any state PUC binding on the Company or its subsidiaries; or (3)
any municipal rules or regulations applicable to the Company or its
subsidiaries.
(xvii) TITLE TO PROPERTY. The Company and its subsidiaries have good
and marketable title to all real property owned by the Company and its
subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (a) are
described in the Prospectus or (b) do not, singly or in the aggregate,
materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company or any of
its subsidiaries; and all of the leases and subleases material to the
business of the Company and its subsidiaries, considered as one enterprise,
and under which the Company or any of its subsidiaries holds properties
described in the Prospectus, are in full force and effect, and neither the
Company nor any of its subsidiaries has any notice of any claim of any sort
that has been asserted by anyone adverse to the rights of the Company or
any of its subsidiaries under any of the leases or subleases mentioned
above, or affecting or questioning the rights of the Company or any
subsidiary to the continued possession of the leased or subleased premises
under any such lease or sublease that, if the subject of an unfavorable
decision or finding, would result in a Material Adverse Effect.
(xviii) COMPLIANCE WITH CUBA ACT. The Company has complied with, and
is and will be in compliance with, the provisions of that certain Florida
act relating to disclosure of doing business with Cuba, codified as Section
517.075 of the Florida statutes, and the rules and regulations thereunder
(collectively, the "Cuba Act"), or is exempt therefrom.
(xix) INVESTMENT COMPANY ACT. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(xx) ENVIRONMENTAL LAWS. Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) neither the Company nor any of its
subsidiaries is in violation of any federal, state,
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local or foreign statute, law, rule, regulation, ordinance, code, policy or
rule of common law or any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) the Company
and its subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance
with their requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company or any of its subsidiaries and (D) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company or any of its subsidiaries relating to Hazardous Materials or any
Environmental Laws.
(xxi) REGISTRATION RIGHTS. There are no persons with registration
rights or other similar rights to have any securities registered pursuant
to the Registration Statement or otherwise registered by the Company under
the 1933 Act, other than those parties to the Second Amended and Restated
Investors' Rights Agreement, dated as of January 20, 2000, among the
Company and the parties named therein (the "Investors' Rights Agreement"),
all of whose registration rights have been waived in connection with the
offering of the Securities pursuant to this Agreement on or prior to the
date hereof.
(xxii) TAX RETURNS. The Company and its subsidiaries have filed all
federal, state, local and foreign tax returns that are required to be filed
or have duly requested extensions thereof and have paid all taxes required
to be paid by any of them and any related assessments, fines or penalties,
except for any such tax, assessment, fine or penalty that is being
contested in good faith and by appropriate proceedings, and adequate
charges, accruals and reserves have been provided for in the financial
statements referred to in Section 1(a)(iii) above in respect of all
federal, state, local and foreign taxes for all periods as to which the tax
liability of the Company or any of its subsidiaries has not been finally
determined or remains open to examination by applicable taxing authorities,
except for such failures to file, request extensions, make payments and
provide for adequate charges, accruals and reserves as would not, singly or
in the aggregate, result in a Material Adverse Effect.
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(xxiii) INSURANCE. The Company and each of its subsidiaries maintains
insurance covering its properties, operations, personnel and business. Such
insurance insures against such losses and risks as are adequate in
accordance with customary industry practice to protect the Company, each of
its subsidiaries and their businesses. Neither the Company nor any of its
subsidiaries has received notice from any insurer or agent of such insurer
that substantial capital improvement or other expenditures will have to be
made in order to continue such insurance. All such insurance is outstanding
and duly in force on the date hereof.
(xxiv) INTERNAL ACCOUNTING CONTROLS. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurances
that (A) transactions are executed in accordance with management's general
or specific authorization; (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain accountability for assets; (C) access to assets is permitted only
in accordance with management's general or specific authorization; and (D)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(b) REPRESENTATIONS AND WARRANTIES BY THE SELLING SHAREHOLDERS. Each
Selling Shareholder severally represents and warrants to each Underwriter as of
the date hereof, as of the Closing Time, and, if the Selling Shareholder is
selling Option Securities on a Date of Delivery, as of each such Date of
Delivery, and agrees with each Underwriter, as follows:
(i) ACCURATE DISCLOSURE. To the best knowledge of such Selling
Shareholder, the representations and warranties of the Company contained in
Section 1(a) hereof are true and correct; such Selling Shareholder has
reviewed and is familiar with the Registration Statement and the Prospectus
and neither the Prospectus nor any amendments or supplements thereto
(including any prospectus wrapper) includes any untrue statement of a
material fact 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; such Selling Shareholder is not prompted to sell
the Securities to be sold by such Selling Shareholder hereunder by any
information concerning the Company or any subsidiary of the Company which
is not set forth in the Prospectus.
(ii) AUTHORIZATION OF AGREEMENTS. Each Selling Shareholder has the
full right, power and authority to enter into this Agreement and a Power of
Attorney and Custody Agreement (the "Power of Attorney and Custody
Agreement") and to sell, transfer and deliver the Securities to be sold by
such Selling Shareholder hereunder. The execution and delivery of this
Agreement and the Power of Attorney and Custody Agreement and the sale and
delivery of the Securities to be sold by such Selling Shareholder and the
consummation of the transactions contemplated herein and compliance by such
Selling Shareholder with its obligations hereunder have been duly
authorized by such Selling Shareholder and do not and will not, whether
with or without the giving of notice or
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passage of time or both, conflict with or constitute a breach of, or
default under, or result in the creation or imposition of any tax, lien,
charge or encumbrance upon the Securities to be sold by such Selling
Shareholder or any property or assets of such Selling Shareholder pursuant
to any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, license, lease or other agreement or instrument to which
such Selling Shareholder is a party or by which such Selling Shareholder
may be bound, or to which any of the property or assets of such Selling
Shareholder is subject, nor will such action result in any violation of any
applicable treaty, law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over such Selling Shareholder or any of its
properties.
(iii) GOOD AND MARKETABLE TITLE. Such Selling Shareholder has, and
will at the Closing Time and, if any Option Securities are purchased, on
the Date of Delivery have good and marketable title to the Securities to be
sold by such Selling Shareholder hereunder, free and clear of any security
interest, mortgage, pledge, lien, charge, claim, equity or encumbrance of
any kind, other than pursuant to this Agreement; and upon delivery of such
Securities and payment of the purchase price therefor as herein
contemplated, assuming each such Underwriter has no notice of any adverse
claim, each of the Underwriters will receive good and marketable title to
the Securities purchased by it from such Selling Shareholder, free and
clear of any security interest, mortgage, pledge, lien, charge, claim,
equity or encumbrance of any kind.
(iv) DUE EXECUTION OF POWER OF ATTORNEY AND CUSTODY AGREEMENT. Such
Selling Shareholder has duly executed and delivered, in the form heretofore
furnished to the Representatives, the Power of Attorney and Custody
Agreement with James J. Collis, as attorney-in-fact (the
"Attorney(s)-in-Fact") and the Company, as custodian (the "Custodian");
the Custodian is authorized to deliver the Securities to be sold by such
Selling Shareholder hereunder and to accept payment therefor; and the
Attorney-in-Fact is authorized to execute and deliver this Agreement and
the certificate referred to in Section 5(f) or that may be required
pursuant to Section(s) 5(m) and 5(n) on behalf of such Selling
Shareholder, to sell, assign and transfer to the Underwriters the
Securities to be sold by such Selling Shareholder hereunder, to determine
the purchase price to be paid by the Underwriters to such Selling
Shareholder, as provided in Section 2(a) hereof, to authorize the delivery
of the Securities to be sold by such Selling Shareholder hereunder, to
accept payment therefor, and otherwise to act on behalf of such Selling
Shareholder in connection with this Agreement.
(v) ABSENCE OF MANIPULATION. Such Selling Shareholder has not taken,
and will not take, directly or indirectly, any action which is designed to
or which has constituted or which might reasonably be 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.
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(vi) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or consent,
approval, authorization, order, registration, qualification or decree of,
any court or governmental authority or agency, domestic or foreign, is
necessary or required for the performance by each Selling Shareholder of
its obligations hereunder or in the Power of Attorney and Custody
Agreement, or in connection with the sale and delivery of the Securities
hereunder or the consummation of the transactions contemplated by this
Agreement, except (i) such as may have previously been made or obtained or
as may be required under the 1933 Act or the 1933 Act Regulations or state
securities laws and (ii) such as have been obtained under the laws and
regulations of jurisdictions outside the United States in which the
Reserved Securities are offered.
(vii) RESTRICTION ON SALE OF SECURITIES. Such Selling Shareholder has
heretofore delivered to the Representatives an agreement substantially in
the form of Exhibit B hereto signed by such Selling Shareholder and will
comply with all of its obligations thereunder.
(viii) CERTIFICATES SUITABLE FOR TRANSFER. Certificates for all of the
Securities to be sold by such Selling Shareholder pursuant to this
Agreement, in suitable form for transfer by delivery or accompanied by duly
executed instruments of transfer or assignment in blank with signatures
guaranteed, have been placed in custody with the Custodian with irrevocable
conditional instructions to deliver such Securities to the Underwriters
pursuant to this Agreement.
(ix) NO ASSOCIATION WITH NASD. Neither such Selling Stockholder nor
any of his affiliates directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, or has any other association with (within the meaning of Article I,
Section 1(m) of the By-laws of the NASD), any member firm of the NASD.
(c) OFFICER'S CERTIFICATES. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Representatives or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby; and any
certificate signed by or on behalf of the Selling Shareholders as such and
delivered to the Representatives or to counsel for the Underwriters pursuant to
the terms of this Agreement shall be deemed a representation and warranty by
such Selling Shareholder to the Underwriters as to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING.
(a) INITIAL SECURITIES. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to each Underwriter, severally and not jointly, and each
Underwriter, severally and not jointly, agrees to purchase from the Company, at
the price per share set forth in Schedule C, that proportion of the number of
Initial Securities set forth in Schedule B opposite the name of the
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Company which the number of Initial Securities set forth in Schedule A opposite
the name of such Underwriter, plus any additional number of Initial Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof, bears to the total number of Initial
Securities, subject, in each case, to such adjustments among the Underwriters as
the Representatives in their sole discretion shall make to eliminate any sales
or purchases of fractional securities.
(b) OPTION SECURITIES. In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Selling Shareholders, acting severally, in accordance with that
proportion of the total number of Option Securities set forth in Schedule B
which the number of Option Securities set forth in Schedule B opposite the name
of the respective Selling Shareholder bears to the total number of Option
Securities (such proportion, as it relates to each Selling Shareholder, the
"Proportionate Share"), and not jointly, hereby grant an option to the
Underwriters, severally and not jointly, to purchase up to an additional
1,338,750 shares of Common Stock, at the price per share set forth in Schedule
C, less an amount per share equal to any dividends or distributions declared by
the Company and payable on the Initial Securities but not payable on the Option
Securities. The option hereby granted will expire 30 days after the date hereof
and may be exercised in whole or in part from time to time only for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Initial Securities upon notice by the Representatives to
the Selling Shareholders setting forth the number of Option Securities as to
which the several Underwriters are then exercising the option and the time and
date of payment and delivery for such Option Securities. Any such time and date
of delivery (a "Date of Delivery") shall be determined by the Representatives,
but shall not be later than seven full business days after the exercise of said
option, nor in any event prior to Closing Time, as hereinafter defined. If the
option is exercised as to all or any portion of the Option Securities, each of
the Underwriters, acting severally and not jointly, will purchase that
proportion of the total number of Option Securities then being purchased which
the number of Initial Securities set forth in Schedule A opposite the name of
such Underwriter bears to the total number of Initial Securities, subject in
each case to such adjustments as the Representatives in their discretion shall
make to eliminate any sales or purchases of fractional shares.
(c) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Baker &
McKenzie, 805 Third Avenue, New York, New York 10022, or at such other place as
shall be agreed upon by the Representatives and the Company, at 9:00 A.M.
(Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Representatives and the Company (such time and date of payment and delivery
being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option
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Securities shall be made at the above-mentioned offices, or at such other place
as shall be agreed upon by the Representatives and the Company, on each Date of
Delivery as specified in the notice from the Representatives to the Company.
Payment shall be made to the Company and the Selling Shareholders by wire
transfer of immediately available funds to bank accounts designated by the
Company and the Custodian pursuant to each Selling Shareholder's Power of
Attorney and Custody Agreement, as the case may be, against delivery to the
Representatives for the respective accounts of the Underwriters of certificates
for the Securities to be purchased by them. It is understood that each
Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by Closing Time
or the relevant Date of Delivery, as the case may be, but such payment shall not
relieve such Underwriter from its obligations hereunder.
(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial Securities
and the Option Securities, if any, shall be in such denominations and registered
in such names as the Representatives may request in writing at least one full
business day before Closing Time or the relevant Date of Delivery, as the case
may be. The certificates for the Initial Securities and the Option Securities,
if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to Closing Time or the relevant Date of Delivery, as
the case may be.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
Underwriter as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS. The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
or Rule 434, as applicable, and will notify the Representatives immediately, and
confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect the
filings necessary pursuant to Rule 424(b) and will take such steps as it deems
necessary to ascertain promptly whether the form of prospectus transmitted for
filing under Rule 424(b) was received for filing by the Commission and, in the
event that it was not, it will promptly file such prospectus. The
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Company will make every reasonable effort to prevent the issuance of any stop
order and, if any stop order is issued, to obtain the lifting thereof at the
earliest possible moment.
(b) FILING OF AMENDMENTS. The Company will give the Representatives notice
of its intention to file or prepare any amendment to the Registration Statement
(including any filing under Rule 462(b)), any Term Sheet or any amendment,
supplement or revision to either the prospectus, included in the Registration
Statement at the time it became effective or to the Prospectus, will furnish the
Representatives with copies of any such documents a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file or
use any such document to which the Representatives or counsel for the
Underwriters shall object.
(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has furnished or will
deliver to the Representatives and counsel for the Underwriters, without charge,
signed copies of the Registration Statement as originally filed and of each
amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Representatives, without charge, a
conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters. The copies of
the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) DELIVERY OF PROSPECTUSES. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably request. The
Prospectus and any amendments or supplements thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will comply with
the 1933 Act and the 1933 Act Regulations so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement and in the
Prospectus. If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the opinion of
counsel for the Underwriters or for the Company, to amend the Registration
Statement or amend or supplement the Prospectus in order that the Prospectus
will not include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading
in the light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the
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requirements of the 1933 Act or the 1933 Act Regulations, the Company will
promptly prepare and file with the Commission, subject to Section 3(b), such
amendment or supplement as may be necessary to correct such statement or
omission or to make the Registration Statement or the Prospectus comply with
such requirements, and the Company will furnish to the Underwriters such number
of copies of such amendment or supplement as the Underwriters may reasonably
request.
(f) BLUE SKY QUALIFICATIONS. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Securities for offering and
sale under the applicable securities laws of such states and other jurisdictions
(domestic or foreign) as the Representatives may designate and to maintain such
qualifications in effect for a period of not less than one year from the later
of the effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(g) RULE 158. The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(h) USE OF PROCEEDS. The Company will use the net proceeds received by it
from the sale of the Securities in the manner specified in the Prospectus under
"Use of Proceeds".
(i) LISTING. The Company will use its best efforts to effect and maintain
the quotation of the Securities on the Nasdaq National Market and will file with
the Nasdaq National Market all documents and notices required by the Nasdaq
National Market of companies that have securities that are traded in the
over-the-counter market and quotations for which are reported by the Nasdaq
National Market.
(j) RESTRICTION ON SALE OF SECURITIES. During a period of 180 days from the
date of the Prospectus, the Company will not, without the prior written consent
of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of any share of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or file any registration statement
under the 1933 Act with respect to any of the foregoing or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause (i) or
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(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Securities to be sold hereunder; (B) any shares of Common Stock issued by
the Company upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof and referred to in the Prospectus; (C)
any shares of Common Stock issued or issuable by the Company pursuant to that
certain Stock Purchase Agreement, dated February 9, 2000 between the Company and
U.S. Telesource, Inc., PROVIDED that the Representatives shall have received an
agreement substantially in the form of Exhibit B hereto signed by each recipient
of such shares; (D) any shares of Common Stock issued or issuable by the Company
to strategic or other investors, pursuant to agreements outstanding on the date
hereof, PROVIDED that the Representatives shall have received an agreement
substantially in the form of Exhibit B hereto signed by each such investor; or
(E) any shares of Common Stock issued or options to purchase Common Stock
granted pursuant to existing employee benefit plans of the Company referred to
in the Prospectus.
(k) REPORTING REQUIREMENTS. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
file all documents required to be filed with the Commission pursuant to the 1934
Act within the time periods required by the 1934 Act and the rules and
regulations of the Commission thereunder.
(l) COMPLIANCE WITH NASD RULES. The Company hereby agrees that it will
ensure that the Reserved Securities will be restricted as required by the NASD
or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of this Agreement. The Underwriters
will notify the Company as to which persons will need to be so restricted. At
the request of the Underwriters, the Company will direct the transfer agent to
place a stop transfer restriction upon such securities for such period of time.
Should the Company release, or seek to release, from such restrictions any of
the Reserved Securities, the Company agrees to reimburse the Underwriters for
any reasonable expenses (including, without limitation, legal expenses) they
incur in connection with such release.
(m) COMPLIANCE WITH RULE 463. The Company will file with the Commission
such reports on Form 10-Q as may be required pursuant to Rule 463 of the 1933
Act Regulations.
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. The Company and the Selling Shareholders will pay all
expenses incident to the performance of their respective obligations under this
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation, printing
and delivery to the Underwriters of this Agreement, any Agreement among
Underwriters and such other documents as may be required in connection with the
offering, purchase, sale, issuance or delivery of the Securities, (iii) the
preparation, issuance and delivery of the certificates for the Securities to the
Underwriters, including any stock or other transfer taxes and any stamp or other
duties payable upon the sale, issuance or delivery of the Securities to the
Underwriters, (iv) the fees and disbursements of the Company's counsel,
accountants and
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other advisors, (v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f) hereof, including filing fees and
the reasonable fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, (vi) the printing and delivery to the
Underwriters of copies of each preliminary prospectus, any Term Sheets and of
the Prospectus and any amendments or supplements thereto, (vii) the preparation,
printing and delivery to the Underwriters of copies of the Blue Sky Survey and
any supplement thereto, (viii) the fees and expenses of any transfer agent or
registrar for the Securities, (ix) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the NASD of the terms of the sale of the Securities, (x) the
fees and expenses incurred in connection with the inclusion of the Securities in
the Nasdaq National Market, and (xi) all costs and expenses of the Underwriters,
including the fees and disbursements of counsel for the Underwriters, in
connection with the matters related to the Reserved Securities which are
designated by the Company for sale to the Reserved Class Offerees.
(b) EXPENSES OF THE SELLING SHAREHOLDERS. The Selling Shareholders, jointly
and severally, will pay all expenses incident to the performance of their
respective obligations under, and the consummation of the transactions
contemplated by this Agreement, including (i) any stamp duties, capital duties
and stock transfer taxes, if any, payable upon the sale of the Securities to the
Underwriters, and their transfer between the Underwriters pursuant to an
agreement between such Underwriters, and (ii) the fees and disbursements of
their respective counsel and accountants.
(c) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5, Section 9(a)(i)
or Section 11 hereof, the Company and the Selling Shareholders shall reimburse
the Underwriters for all of their out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the Underwriters.
(d) ALLOCATION OF EXPENSES. The provisions of this Section shall not affect
any agreement that the Company and the Selling Shareholders may make for the
sharing of such costs and expenses.
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Selling Shareholders
contained in Section 1 hereof or in certificates of any officer of the Company
or any subsidiary of the Company or on behalf of any Selling Shareholder
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement,
including any Rule 462(b) Registration Statement, has become effective and at
Closing Time no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, and any request on the
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part of the Commission for additional information shall have been complied with
to the reasonable satisfaction of counsel to the Underwriters. A prospectus
containing the Rule 430A Information shall have been filed with the Commission
in accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434,
a Term Sheet shall have been filed with the Commission in accordance with Rule
424(b).
(b) OPINION OF COUNSEL FOR COMPANY. At Closing Time, the Representatives
shall have received the favorable opinions, dated as of Closing Time, of Cooley
Godward LLP, counsel for the Company, substantially to the effect set forth in
Exhibit A hereto and to such further effect as counsel to the Underwriters may
reasonably request, and of Kelley Drye & Warren LLP, special regulatory counsel
for the Company, each in form and substance satisfactory to counsel for the
Underwriters, together with signed or reproduced copies of each such opinion for
each of the other Underwriters.
(c) OPINION OF COUNSEL FOR THE SELLING SHAREHOLDERS. At the Closing Time,
the Representatives shall have received the favorable opinion, dated as of
Closing Time, of Hogan & Hartson LLP, counsel for the Selling Shareholders, in
form and substance satisfactory to counsel for the Underwriters, together with
signed or reproduced copies of such opinion for each of the other Underwriters.
(d) OPINION OF COUNSEL FOR UNDERWRITERS. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Baker & McKenzie, counsel for the Underwriters, in form and substance
satisfactory to the Representatives, together with signed or reproduced copies
of such opinion for each of the other Underwriters. In giving such opinion such
counsel may rely, as to all matters governed by the laws of jurisdictions other
than the law of the State of New York, the federal law of the United States and
the General Corporation Law of the State of Delaware, upon the opinions of
counsel satisfactory to the Representatives. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of officers of the Company and its
subsidiaries and certificates of public officials.
(e) OFFICERS' CERTIFICATE. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, and the Representatives shall have
received a certificate of the President or a Vice President of the Company and
of the chief financial or chief accounting officer of the Company, dated as of
Closing Time, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section 1(a) hereof are true
and correct with the same force and effect as though expressly made at and as of
Closing Time, (iii) the Company has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to Closing
Time, and (iv) no stop
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order suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or are pending or are
contemplated by the Commission.
(f) CERTIFICATE OF SELLING SHAREHOLDERS. At Closing Time, the
Representatives shall have received a certificate of an Attorney-in-Fact on
behalf of each Selling Shareholder, dated as of Closing Time, to the effect that
(i) the representations and warranties of each Selling Shareholder contained in
Section 1(b) hereof are true and correct in all respects with the same force and
effect as though expressly made at and as of Closing Time and (ii) each Selling
Shareholder has complied in all material respects with all agreements and all
conditions on its part to be performed under this Agreement at or prior to
Closing Time.
(g) ACCOUNTANT'S COMFORT LETTER. At the time of the execution of this
Agreement, the Representatives shall have received from Arthur Andersen LLP a
letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Underwriters, containing statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(h) BRING-DOWN COMFORT LETTER. At Closing Time, the Representatives shall
have received from Arthur Andersen LLP a letter, dated as of Closing Time, to
the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (g) of this Section, except that the specified date
referred to shall be a date not more than three business days prior to Closing
Time.
(i) APPROVAL OF LISTING. At Closing Time, the Securities shall have been
approved for inclusion in the Nasdaq National Market, subject only to official
notice of issuance.
(j) NO OBJECTION. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.
(k) LOCK-UP AGREEMENTS. At the date of this Agreement, the Representatives
shall have received an agreement substantially in the form of Exhibit B hereto
signed by each of the persons listed on Schedule C hereto.
(l) WAIVERS OF REGISTRATION RIGHTS. At the date of this Agreement, the
Representatives shall have received waivers substantially in the form of Exhibit
C hereto signed by all of the parties accorded notice and registration rights
under the Investors' Rights Agreement in connection with the offering of
Securities pursuant to this Agreement.
(m) CONDITIONS TO PURCHASE OF OPTION SECURITIES. In the event that the
Underwriters exercise their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and warranties
of the Company and the Selling Shareholders
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contained herein and the statements in any certificates furnished by the
Company, any subsidiary of the Company and the Selling Shareholders hereunder
shall be true and correct as of each Date of Delivery and, at the relevant Date
of Delivery, the Representatives shall have received:
(i) OFFICERS' CERTIFICATE. A certificate, dated such Date of Delivery,
of the President or a Vice President of the Company and of the chief
financial or chief accounting officer of the Company confirming that the
certificate delivered at Closing Time pursuant to Section 5(d) hereof
remains true and correct as of such Date of Delivery.
(ii) CERTIFICATE OF SELLING SHAREHOLDERS. A certificate, dated such
Date of Delivery, of an Attorney-in-Fact on behalf of each Selling
Shareholder confirming that the certificate delivered at Closing Time
pursuant to Section 5(f) remains true and correct as of such Date of
Delivery.
(iii) OPINION OF COUNSEL FOR COMPANY. The favorable opinion of Cooley
Godward LLP, counsel for the Company, together with the favorable opinion
of Kelley Drye & Warren LLP, special regulatory counsel for the Company,
each in form and substance satisfactory to counsel for the Underwriters,
dated such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same effect as the
opinions required by Section 5(b) hereof.
(iv) OPINION OF COUNSEL FOR THE SELLING SHAREHOLDERS. The favorable
opinion of Hogan & Hartson LLP, counsel for the Selling Shareholders, in
form and substance satisfactory to counsel for the Underwriters, dated such
Date of Delivery, relating to the Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion required
by Section 5(c) hereof.
(v) OPINION OF COUNSEL FOR UNDERWRITERS. The favorable opinion of
Baker & McKenzie, counsel for the Underwriters, dated such Date of
Delivery, relating to the Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion required by
Section 5(d) hereof.
(vi) BRING-DOWN COMFORT LETTER. A letter from Arthur Andersen LLP, in
form and substance satisfactory to the Representatives and dated such Date
of Delivery, substantially in the same form and substance as the letter
furnished to the Representatives pursuant to Section 5(g) hereof, except
that the "specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to such Date of
Delivery.
(n) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of Delivery,
counsel for the Underwriters shall have been furnished with such documents and
opinions as they may require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or
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warranties, or the fulfillment of any of the conditions, herein contained; and
all proceedings taken by the Company and the Selling Shareholders in connection
with the issuance and sale of the Securities as herein contemplated shall be
satisfactory in form and substance to the Representatives and counsel for the
Underwriters.
(o) TERMINATION OF AGREEMENT. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after Closing Time, the obligations
of the several Underwriters to purchase the relevant Option Securities, may be
terminated by the Representatives by notice to the Company at any time at or
prior to Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party except as
provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any
such termination and remain in full force and effect.
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF UNDERWRITERS. The Company and the Selling
Shareholders, severally and not jointly in accordance with each Selling
Shareholder's Proportionate Share, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in any
preliminary prospectus or the Prospectus (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;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of (A) the violation of any applicable
laws or regulations of foreign jurisdictions where Reserved Securities have
been offered and (B) any untrue statement or alleged untrue statement of a
material fact included in the supplement or prospectus wrapper material
distributed in foreign jurisdictions in connection with the reservation and
sale of the Reserved Securities to the Reserved Class Offerees or the
omission or alleged omission therefrom of a material fact necessary to make
the statements therein, when considered in conjunction with the Prospectus
or preliminary prospectus, not misleading;
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(iii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation of
the nature referred to in Section 6(a)(ii)(A) hereof; provided that
(subject to Section 6(d) below) any such settlement is effected with the
written consent of the Company and the Selling Shareholders; and
(iv) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission or
in connection with any violation of the nature referred to in Section
6(a)(ii)(A) hereof, to the extent that any such expense is not paid under
(i), (ii) or (iii) above;
PROVIDED, HOWEVER, that (A) this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made
in reliance upon and in conformity with written information furnished to
the Company by any Underwriter through Merrill Lynch expressly for use in
the Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); (B) neither the Company nor any Selling Shareholder will be
liable to any Underwriter with respect to any Prospectus to the extent that
the Company shall sustain the burden of proving that any such loss,
liability, claim, damage or expense resulted from the fact that such
Underwriter, in contravention of a requirement of this Agreement or
applicable law, sold Securities to a person to whom such Underwriter failed
to send or give, at or prior to the Closing Date, a copy of the Prospectus,
as then amended or supplemented if: (i) the Company has previously
furnished copies thereof (sufficiently in advance of the Closing Time to
allow for distribution by the Closing Time) to the Underwriter and the
loss, liability, claim, damage or expense of such Underwriter resulted from
an untrue statement or omission of a material fact contained in or omitted
from the preliminary prospectus which was corrected in the Prospectus as,
if applicable, amended or supplemented prior to the Closing Time and such
Prospectus was required by law to be delivered at or prior to the written
confirmation of sale to such person and (ii) such failure to give or send
such Prospectus by the Closing Time to the party or parties asserting such
loss, liability, claim, damage or expense would have constituted a valid
defense to the claim asserted by such person; and (C) no Selling
Shareholder shall be responsible for any indemnity obligation in excess of
the net
25
<PAGE>
proceeds from the offering of Securities pursuant to this Agreement (before
deducting expenses) received by such Selling Shareholder.
(b) INDEMNIFICATION OF COMPANY, DIRECTORS, OFFICERS AND SELLING
SHAREHOLDERS. Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and each Selling
Shareholder against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through Merrill
Lynch expressly for use in the Registration Statement (or any amendment thereto)
or such preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim 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 any indemnified party.
26
<PAGE>
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(iii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(e) INDEMNIFICATION FOR RESERVED SECURITIES. In connection with the offer
and sale of the Reserved Securities, the Company agrees, promptly upon a request
in writing, to indemnify and hold harmless the Underwriters from and against any
and all losses, liabilities, claims, damages and expenses incurred by them as a
result of the failure of any Reserved Class Offerees to pay for and accept
delivery of Reserved Securities which, by the end of the first business day
following the date of this Agreement, were subject to a properly confirmed
agreement to purchase.
(f) OTHER AGREEMENTS WITH RESPECT TO INDEMNIFICATION. The provisions of
this Section shall not affect any agreement among the Company and the Selling
Shareholders with respect to indemnification or contribution.
SECTION 7. CONTRIBUTION. If the indemnification provided for in Section 6
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other hand from
the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) 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 and the
Selling Shareholders on the one hand and of the Underwriters on the other hand
in connection with the statements or omissions, or in connection with any
violation of the nature referred to in Section 6(a)(ii)(A) hereof, which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative benefits received by the Company and the Selling Shareholders
on the one hand and the Underwriters 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 Selling Shareholders and the total underwriting discount
received by the Underwriters, in each case as set forth on the cover of the
Prospectus,
27
<PAGE>
or, if Rule 434 is used, the corresponding location on the Term Sheet, bear to
the aggregate initial public offering price of the Securities as set forth on
such cover.
The relative fault of the Company and the Selling Shareholders on the one
hand and the Underwriters 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 relates
to information supplied by the Company or the Selling Shareholders or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission or any
violation of the nature referred to in Section 6(a)(ii)(A) hereof.
The Company, the Selling Shareholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Underwriters 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 above in this Section
7. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7: (a) no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission; and (b) no Selling
Shareholder shall be required to contribute any amount in excess of the net
proceeds from the offering of Securities pursuant to this Agreement (before
deducting expenses) received by such Selling Shareholder.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.
28
<PAGE>
The provisions of this Section shall not affect any agreement among the
Company and the Selling Shareholders with respect to contribution.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or any of its subsidiaries or the
Selling Shareholders submitted pursuant hereto, shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
any Underwriter or controlling person, or by or on behalf of the Company or the
Selling Shareholders, and shall survive delivery of the Securities to the
Underwriters.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Representatives may terminate this Agreement,
by notice to the Company and the Selling Shareholders, at any time at or prior
to Closing Time (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the Representatives, impracticable to market the Securities or to
enforce contracts for the sale of the Securities, or (iii) if trading in any
securities of the Company has been suspended or materially limited by the
Commission or the Nasdaq National Market, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq National
Market has been suspended or materially limited, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices have been required, by
any of said exchanges or by such system or by order of the Commission, the
National Association of Securities Dealers, Inc. or any other governmental
authority, or (iv) if a banking moratorium has been declared by either Federal
or New York authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof, and provided further that Sections 1, 6,
7 and 8 shall survive such termination and remain in full force and effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or more of
the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms
29
<PAGE>
herein set forth; if, however, the Representatives shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the number
of Securities to be purchased on such date, each of the non-defaulting
Underwriters shall be obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
Securities to be purchased on such date, this Agreement or, with respect to any
Date of Delivery which occurs after Closing Time, the obligation of the
Underwriters to purchase and of the Company to sell the Option Securities to be
purchased and sold on such Date of Delivery shall terminate without liability on
the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after Closing
Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either (i) the Representatives or (ii) the Company and any
Selling Shareholder shall have the right to postpone Closing Time or the
relevant Date of Delivery, as the case may be, for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10.
SECTION 11. DEFAULT BY ONE OR MORE OF THE SELLING SHAREHOLDERS OR THE
COMPANY. (a) If a Selling Shareholder shall fail at Closing Time or at a Date of
Delivery to sell and deliver the number of Securities which such Selling
Shareholder or Selling Shareholders are obligated to sell hereunder, and the
remaining Selling Shareholders do not exercise the right hereby granted to
increase, pro rata or otherwise, the number of Securities to be sold by them
hereunder to the total number to be sold by all Selling Shareholders as set
forth in Schedule B hereto, then the Underwriters may, at the option of the
Representatives, by notice from the Representatives to the Company and the
non-defaulting Selling Shareholders, either (x) terminate this Agreement without
any liability on the fault of any non-defaulting party except that the
provisions of Sections 1, 4, 6, 7 and 8 shall remain in full force and effect or
(y) elect to purchase the Securities which the non-defaulting Selling
Shareholders and the Company have agreed to sell hereunder. No action taken
pursuant to this Section 11 shall relieve any Selling Shareholder so defaulting
from liability, if any, in respect of such default.
In the event of a default by any Selling Shareholder as referred to in this
Section 11, each of the Representatives, the Company and the non-defaulting
Selling Shareholders shall have the
30
<PAGE>
right to postpone Closing Time or Date of Delivery for a period not exceeding
seven days in order to effect any required change in the Registration Statement
or Prospectus or in any other documents or arrangements.
(b) If the Company shall fail at Closing Time or at the Date of Delivery to
sell the number of Securities that it is obligated to sell hereunder, then this
Agreement shall terminate without any liability on the part of any
non-defaulting party; provided, however, that the provisions of Sections 1, 4,
6, 7, and 8 shall remain in full force and effect. No action taken pursuant to
this Section shall relieve the Company from liability, if any, in respect of
such default.
SECTION 12. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives c/o Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith at North Tower, World Financial Center,
New York, New York 10281-1201, attention of Victor Nesi; and notices to the
Company shall be directed to it at 1099 18th Street, Suite 2200, Denver,
Colorado 80202, attention of Gerald K. Dinsmore; and notices to the Selling
Shareholders shall be directed to CEA Capital Partners USA, L.P., 17 State
Street, 35th Floor, New York, NY 10004, attention of James J. Collis, as
Attorney-in-Fact.
SECTION 13. PARTIES. This Agreement shall each inure to the benefit of and
be binding upon the Underwriters, the Company and the Selling Shareholders and
their respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Underwriters, the Company and the Selling Shareholders and their
respective successors and the controlling persons and officers and directors
referred to in Sections 6 and 7 and their heirs and legal representatives, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained. This Agreement and all conditions and
provisions hereof are intended to be for the sole and exclusive benefit of the
Underwriters, the Company and the Selling ShareholderS and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from any Underwriter shall be deemed to
be a successor by reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES
OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. EFFECT OF HEADINGS. The Article and Section headings herein and
the Table of Contents are for convenience only and shall not affect the
construction hereof.
31
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company and the Attorney-in-Fact for the Selling
Shareholders a counterpart hereof, whereupon this instrument, along with all
counterparts, will become a binding agreement among the Underwriters, the
Company and the Selling Shareholders in accordance with its terms.
Very truly yours,
JATO COMMUNICATIONS CORP.
By
--------------------------------
Title:
By
--------------------------------
As Attorney-in-Fact acting on
behalf of the Selling Shareholders
named in Schedule B hereto
CONFIRMED AND ACCEPTED, as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO. INC.
THOMAS WEISEL PARTNERS LLC
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
-------------------------------------
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
32
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Name of Underwriter Initial Securities
------------------- ------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................................
Bear, Stearns & Co. Inc. ...............................................................
Thomas Weisel LLC.......................................................................
Total................................................................................... 8,925,000
</TABLE>
Sch A - 1
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Initial Maximum Number of Option
Securities To Be Sold Securities To Be Sold
------------------------------ ------------------------
<S> <C> <C>
JATO COMMUNICATIONS CORP. 8,925,000 0
Brian E. Gast 0 536,711
Leonard Allsup 0 516,300
Bruce E. Dines, Jr. 0 285,739
Total ................................... 8,925,000 1,338,750
</TABLE>
Sch B - 1
<PAGE>
SCHEDULE C
JATO COMMUNICATIONS CORP.
8,925,000 Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $ .
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $ , being an amount equal to the initial
public offering price set forth above less $ per share; provided that
the purchase price per share for any Option Securities purchased upon the
exercise of the over-allotment option described in Section 2(b) shall be
reduced by an amount per share equal to any dividends or distributions
declared by the Company and payable on the Initial Securities but not payable
on the Option Securities.
Sch C - 1
<PAGE>
SCHEDULE D
List of persons and entities
subject to lock-up
Sch D - 1
<PAGE>
Exhibit A
FORM OF OPINION OF COOLEY GODWARD LLP, COMPANY COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Purchase
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 where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus in the column entitled "Actual" under the caption
"Capitalization" (except for subsequent issuances, if any, pursuant to the
Purchase Agreement or pursuant to reservations, agreements or employee benefit
plans referred to in the Prospectus or pursuant to the exercise of convertible
securities or options referred to in the Prospectus); the shares of issued and
outstanding capital stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; and none of the outstanding shares
of capital stock of the Company was issued in violation of the preemptive or, to
the best of our knowledge, other similar rights of any securityholder of the
Company.
(v) The Securities to be purchased by the Underwriters from the Company
have been duly authorized for issuance and sale to the Underwriters pursuant to
the Purchase Agreement and, when issued and delivered by the Company pursuant to
the Purchase Agreement against payment of the consideration set forth in the
Purchase Agreement, will be validly issued and fully paid and non-assessable and
no holder of the Securities is or will be subject to personal liability by
reason of being such a holder.
(vi) The issuance and sale of the Securities by the Company is not subject
to the preemptive or other similar rights of any securityholder of the Company
arising (A) by operation of law or under the charter or bylaws of the Company or
(B) to the best of our knowledge, under any agreement to which the Company is a
party.
(vii) Each Subsidiary has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and is
duly qualified as a foreign corporation to transact business and
Exh A - 1
<PAGE>
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 where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; except as otherwise
disclosed in the Registration Statement, all of the issued and outstanding
capital stock of each Subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and, to the best of our knowledge, is owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity relating to the
Company's interest therein; none of the outstanding shares of capital stock of
any Subsidiary was issued in violation of the preemptive or, to the best of our
knowledge, similar rights of any securityholder of such Subsidiary. To the best
of our knowledge, the Company does not have any subsidiaries other than those
identified in Exhibit 21 to the Registration Statement.
(viii) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(ix) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectus pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); and, to the best of our knowledge, no
stop order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission.
(x) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectus, and each amendment or supplement to the Registration
Statement and Prospectus, as of their respective effective or issue dates (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which we express no opinion) complied as to form in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
(xi) If Rule 434 has been relied upon, the Prospectus was not "materially
different," as such term is used in Rule 434, from the prospectus included in
the Registration Statement at the time it became effective.
(xii) The form of certificate used to evidence the Common Stock complies in
all material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company and the
requirements of the Nasdaq National Market.
(xiii) To the best of our knowledge, there is not pending or overtly
threatened any action, suit, proceeding, inquiry or investigation, to which the
Company or any subsidiary is a party, or to which the property of the Company or
any subsidiary is subject, before or brought by any court or governmental agency
or body, domestic or foreign, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of the
Exh A - 2
<PAGE>
transactions contemplated in the Purchase Agreement or the performance by the
Company of its obligations thereunder.
(xiv) The information in the Prospectus under "Business--Properties",
"Business--Legal Proceedings", "Description of Capital Stock" and in the
Registration Statement under Item 14, to the extent that it constitutes matters
of law, summaries of legal matters, the Company's charter and bylaws or legal
proceedings, or legal conclusions, has been reviewed by us and is correct in all
material respects.
(xv) To the best of our knowledge, there are no statutes or regulations
that are required to be described under the 1933 Act or the 1933 Act Regulations
in the Prospectus that are not described as required.
(xvi) All descriptions in the Registration Statement of contracts and other
documents to which the Company or its subsidiaries are a party are accurate in
all material respects; to the best of our knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto under the 1933 Act or the 1933 Act
Regulations, other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto, and the descriptions thereof or
references thereto are correct in all material respects.
(xvii) To the best of our knowledge, neither the Company nor any subsidiary
is in violation of its charter or by-laws and no default by the Company or any
subsidiary exists in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration Statement or the
Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement.
(xviii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act and the
1933 Act Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to which such counsel need
express no opinion) is necessary or required in connection with the due
authorization, execution and delivery of the Purchase Agreement or for the
offering, issuance, sale or delivery of the Securities.
(xix) The execution, delivery and performance of the Purchase Agreement and
the consummation of the transactions contemplated in the Purchase Agreement and
in the Registration Statement (including the issuance and sale of the Securities
and the use of the proceeds from the sale of the Securities as described in the
Prospectus under the caption "Use Of Proceeds") and compliance by the Company
with its obligations under the Purchase Agreement do not and will not, whether
with or without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined in Section
1(a)(x) of the Purchase Agreement) under or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the Company or
any subsidiary pursuant to any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or any other
Exh A - 3
<PAGE>
agreement or instrument, known to us, to which the Company or any subsidiary is
a party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any subsidiary is subject (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that would not
have a Material Adverse Effect), nor will such action result in any violation of
the provisions of the charter or by-laws of the Company or any subsidiary, or
any applicable law, statute, rule, regulation, judgment, order, writ or decree,
known to us, of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any subsidiary or any of their
respective properties, assets or operations.
(xx) To the best of our knowledge, there are no persons with registration
rights or other similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the 1933
Act, other than those parties to the Investors' Rights Agreement all of whose
registration rights have been waived in connection with the offering of the
Securities pursuant to the Purchase Agreement on or prior to the date thereof.
(xxi) The Company is not an "investment company" or an entity "controlled"
by an "investment company," as such terms are defined in the 1940 Act and, after
giving effect to the offering and sale of the Securities and application of the
proceeds thereof as described in the Prospectus, will not be required to
register as such under the 1940 Act.
(xxii) Nothing has come to our attention that would lead us to believe that
the Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we make no statement), at the time such Registration
Statement or any such amendment became effective, 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 or any amendment or supplement thereto (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we make no statement), at the time the Prospectus was
issued, at the time any such amended or supplemented prospectus was issued or at
Closing Time, included or includes 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.
In rendering such opinion, such counsel may rely as to matters of fact (but
not as to legal conclusions), to the extent they deem proper, on certificates of
responsible officers of the Company and public officials. Such opinion shall not
state that it is to be governed or qualified by, or that it is otherwise subject
to, any treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
Exh A - 4
<PAGE>
Exhibit B
___________, 1999
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Thomas Weisel LLC
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: PROPOSED PUBLIC OFFERING BY JATO COMMUNICATIONS CORP.
Dear Sirs:
The undersigned, an optionholder, stockholder, warrantholder, officer
and/or director of Jato Communications Corp., a Delaware corporation (the
"Company"), understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch"), Bear, Stearns & Co. Inc. and Thomas
Weisel LLC propose to enter into a Purchase Agreement (the "Purchase Agreement")
with the Company providing for the public offering of shares (the "Securities")
of the Company's common stock, par value $.01 per share (the "Common Stock"). In
recognition of the benefit that such an offering will confer upon the
undersigned as an optionholder, stockholder, warrantholder, officer and/or
director of the Company, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned agrees
with each underwriter to be named in the Purchase Agreement that, during a
period of 180 days from the date of the Purchase Agreement, the undersigned will
not, otherwise than (a) as a bona fide gift or gifts, provided the donee or
donees agree to be bound by the terms of a lock-up agreement substantially
similar to this agreement, (b) as a distribution to limited partners or
stockholders of the undersigned, provided that the distributees agree to be
bound by the terms of a lock-up agreement substantially similar to this
agreement or (c) with the prior written consent of Merrill Lynch, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, or otherwise dispose of or transfer any shares
of the Company's Common Stock or any securities convertible into or exchangeable
or exercisable for Common Stock, whether now owned or hereafter acquired by the
undersigned or with respect to which the undersigned has or hereafter acquires
the power of disposition, or file any registration statement under the
Securities Act of 1933, as amended, with respect to any of the foregoing or (ii)
enter into any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of ownership
of the Common Stock, whether any such swap or transaction is to be settled by
delivery of Common Stock or other securities, in cash or otherwise.
Very truly yours,
Signature:
------------------------
Print Name:
------------------------
Exh B - 1
<PAGE>
Exhibit C
WAIVER OF REGISTRATION RIGHTS
The undersigned stockholder of Jato Communications Corp., a Delaware corporation
(the "Company"), is an "Investor" under that certain Second Amended and Restated
Investors' Rights Agreement, dated as of January 20, 2000, by and among the
Company, the Founders (as defined therein) and the Investors (as defined
therein) (the "Rights Agreement"), and has certain registration rights as set
forth therein.
The Company intends to sell shares of its Common Stock in its initial public
offering of underwritten shares pursuant to a Registration Statement on Form S-1
to be filed with the Securities and Exchange Commission (the "Offering"). As a
condition to its participation in the Offering, Merrill Lynch & Co., as
representative of the several underwriters, will require that all Investors
under the Rights Agreement waive compliance by the Company with the notice and
participation rights set forth in Section 3.2 of the Rights Agreement (the
"Piggyback Rights").
Pursuant to Section 11.5 of the Rights Agreement, the obligations of the Company
and the rights of the Holders (as defined therein) may be waived only upon the
prior written consent of (a) the holders of a majority of the outstanding shares
of Series B Shares, Series C Shares and Series D Shares (as defined therein) or
share equivalents and (b) the holders of a majority of the outstanding
Stockholder Shares (as defined therein) or share equivalents. By signing below,
the undersigned stockholder hereby waives compliance by the Company with all
provisions of the Rights Agreement in connection with the Offering, including
without limitation, any right to notice and participation pursuant to the
provisions of the Piggyback Rights, and any similar rights arising from any
prior agreement intended to be superceded by the Rights Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Waiver of
Registration Rights as of ______________ ____, 2000. STOCKHOLDER:
----------------------------------------
(Print Name)
By:
------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Common Stock:
-------------------------------
Series A Preferred Stock:
-------------------
Series B Preferred Stock:
-------------------
Series C Preferred Stock:
-------------------
Series D Preferred Stock:
-------------------
Exh C - 1
<PAGE>
Exhibit D
LIST OF AUTHORIZATIONS
Exh D - 1
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
JATO COMMUNICATIONS CORP.
Pursuant to Sections 242 & 245
Jato Communications Corp., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
1. The name of the corporation is Jato Communications Corp. The
corporation was originally incorporated under the name Jato Communications
Corporation. The date of filing of its original Certificate of Incorporation
with the Secretary of State of the State of Delaware was June 12, 1998.
2. This Restated Certificate of Incorporation of Jato
Communications Corp. has been duly adopted in accordance with the provisions
of Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware.
3. This Restated Certificate of Incorporation restates and further
amends the Restated Certificate of Incorporation of this corporation by
restating the text of the original Restated Certificate of Incorporation in
full to read as follows:
I.
The name of this Corporation is Jato Communications Corp. (the
"CORPORATION" or the "COMPANY").
II.
The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 1209 Orange
Street, City of Wilmington, County of New Castle, and the name of the
registered agent of the Corporation in the State of Delaware at such address
is The Corporation Trust Company.
III.
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 the State of Delaware.
IV.
A. This Corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is one hundred
ten million (110,000,000) shares. Eighty million (80,000,000) shares shall
be Common Stock, each having a par value of $.01. Thirty million
(30,000,000) shares shall be Preferred Stock, each having a par value of $.01.
1
<PAGE>
B. The number of authorized shares of Common Stock may be
increased or decreased (but not below the number of shares of Common Stock
then outstanding) by the affirmative vote of the holders of a majority of the
stock of the Corporation (voting together on an as-if-converted basis).
C. The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized, within the
limitations and restrictions stated in this Certificate of Incorporation, to
fix or alter the dividend rights, dividend rate, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions),
the redemption price or prices, the liquidation preferences of any wholly
unissued series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or any of them; and to increase or
decrease the number of shares of any series subsequent to the issue of shares
of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing the
number of shares of such series.
D. One million seven hundred fifty-one thousand nine hundred
eighty-five (1,751,985) of the authorized shares of Preferred Stock are
hereby designated "Series A Preferred Stock" (the "SERIES A STOCK").
Thirteen million six hundred fifteen thousand three hundred twenty-two
(13,615,322) of the authorized shares of Preferred Stock are hereby
designated "Series B Preferred Stock" (the "SERIES B STOCK"). Four million
nine hundred thirty-two thousand three hundred eight (4,932,308) of the
authorized shares of Preferred Stock are hereby designated "Series C
Preferred Stock" (the "SERIES C STOCK"). Five million (5,000,000) of the
authorized shares of Preferred Stock are hereby designated "Series D
Preferred Stock" (the "SERIES D STOCK").
E. The rights, preferences, privileges, restrictions and other
matters relating to the Series A Stock, Series B Stock, Series C Stock and
Series D Stock are as follows:
1. DIVIDEND RIGHTS. Holders of Series A Stock, Series B
Stock, Series C Stock and Series D Stock shall be entitled to participate
equally in the payment of dividends, whether in-kind or in cash, and if in
cash, when and as declared by the Board of Directors, out of funds that are
legally available therefor, with, but payable as a priority to payment to,
the holders of Common Stock on an as-converted basis.
2. VOTING RIGHTS.
a. Except as otherwise provided herein or as
required by law, the Series A Stock, Series B Stock, Series C Stock and
Series D Stock shall be voted equally with the shares of the Common Stock of
the Company, and not as a separate class, at any annual or special meeting of
stockholders of the Company, and may act by written consent in the same
manner as the Common Stock, in either case upon the following basis: each
holder of shares of Series A Stock, Series B Stock, Series C Stock and Series
D Stock shall be entitled to such number of votes as shall be equal to the
whole number of shares of Common Stock into which such holder's aggregate
number of shares of Series A Stock, Series B Stock, Series C Stock and Series
D Stock,
2
<PAGE>
respectively, are convertible (pursuant to Section 4 hereof) immediately
after the close of business on the record date fixed for such meeting or the
effective date of such written consent.
b. SEPARATE VOTE OF SERIES B STOCK. In addition to
any other vote or consent required herein or by law, the vote or written
consent of the holders of a majority of the outstanding Series B Stock shall
be necessary for the Company to effect any of the following actions:
(i) Any amendment, alteration or repeal of any
provision of this Restated Certificate of Incorporation or the Amended Bylaws
of the Company (including any filing of a Certificate of Designation);
(ii) Any authorization or any designation,
whether by reclassification or otherwise or any issuance, of any new class or
series of stock or any other securities convertible into or exchangeable for
equity securities of the Company ranking on a parity with or senior to the
Series B Stock in right of liquidation preference or dividends;
(iii) Any agreement by the Company regarding an
Acquisition or Asset Transfer (each as defined in Section 3(c) below);
(iv) File, commencement of a case, proceeding
or other action under any law relating to bankruptcy, insolvency or relief of
debtors or the appointment of a receiver, trustee, custodian or any similar
person;
(v) Consummation of an initial public offering
of the Company's Common Stock pursuant to a registration statement filed with
the Securities and Exchange Commission, other than a Qualified Offering (as
defined in Section 4(j)(ii) below);
(vi) Any redemption, repurchase, payment of
dividends or other distributions with respect to any capital stock of the
Company (except for acquisitions of stock approved by the Board of Directors
which permit the Company to repurchase such shares upon termination of
services to the Company by one or more employees thereof or in exercise of
the Company's right of first refusal);
(vii) Any issuance of bonds, debentures, notes
or other debt obligations convertible into, or exchangeable for, or having
rights to purchase, shares of Common Stock of the Company unless (A)
otherwise approved by the Company's Board of Directors, including at least
two (2) designees of the Series B Stock (the "SERIES B DIRECTORS"), (B) the
per share cash consideration received or receivable in exchange for such
Common Stock (or the Common Stock per share equivalents of securities
convertible into Common Stock) is in excess of the then-applicable Series B
Conversion Price (as defined in Section 4(c) below) and (C) the Company's
Board of Directors, including the Series B Directors, determines that the per
share cash consideration received or receivable in exchange for such Common
Stock (or securities convertible into Common Stock) is equal to or greater
than the then-current fair market value of the Company's Common Stock;
(viii) Any issuance of capital stock of the
Company ranking junior to the Series A Stock and the Series B Stock ("JUNIOR
STOCK"), except (A) shares of
3
<PAGE>
Common Stock and/or options, warrants or other Common Stock purchase rights,
and the Common Stock issued pursuant to such options, warrants or other
rights after the Original Issue Date (as defined in Section 4(d)(i) below) to
employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board of Directors ("APPROVED
ISSUANCES"), (B) in connection with a Qualified Offering, and (C) such as may
otherwise be approved by the Company's Board of Directors, including the
Series B Directors, PROVIDED, THAT, the per share cash consideration received
or receivable upon issuance of such Junior Stock (or its Common Stock
equivalents) exceeds the then-applicable Series B Conversion Price and the
Company's Board of Directors, including two of the Series B Directors,
determines that the per share cash consideration received or receivable upon
issuance of such Junior Stock (or its Common Stock equivalents) is equal to
or greater than the then-current fair market value of the Company's Common
Stock, plus an appropriate premium;
(ix) Any issuance of any option, warrant, put,
call or other arrangement for the purchase or acquisition of any capital
stock of the Company or any subsidiary of the Company, except Approved
Issuances;
(x) Any increase or decrease in the authorized
number of members of the Company's Board of Directors from six (6); or
(xi) Any issuance of additional shares of
Series A Stock.
c. SEPARATE VOTE OF SERIES C STOCK AND SERIES D
STOCK. In addition to any other vote or consent required herein or by law,
the vote or written consent of the holders of at least fifty-one percent
(51%) of the outstanding Series C Stock and Series D Stock shall be necessary
for the Company to effect any of the following actions:
(i) Any amendment, alteration or repeal of any
provision of this Restated Certificate of Incorporation or the Amended Bylaws
of the Company (including any filing of a Certificate of Designation) that
alters or changes the voting powers, preferences, or other special rights or
privileges, or restrictions of the Series C Stock or Series D Stock so as to
affect the holders of Series C Stock or Series D Stock adversely; or
(ii) Any authorization or any designation,
whether by reclassification or otherwise or any issuance, of any new class or
series of stock or any other securities convertible into or exchangeable for
equity securities of the Company ranking senior to the Series C Stock or
Series D Stock in right of liquidation preference or dividends.
d. ELECTION OF BOARD OF DIRECTORS.
(i) The holders of Series B Stock, voting as a
separate class on an as-converted basis, shall be entitled to elect two (2)
members of the Company's Board of Directors at each meeting or pursuant to
each consent of the Company's stockholders for the election of directors, and
to remove from office such director and to fill any vacancy caused by the
resignation, death or removal of such director. The holders of Common Stock,
Series A Stock, Series B Stock, Series C Stock and Series D Stock, voting
together as a class on an as-converted basis, shall be entitled to elect all
remaining members of the Board of Directors.
4
<PAGE>
(ii) In the event that the Company effects any
of the actions set forth in Section 2(b) above without first obtaining the
vote or written consent of the holders of a majority of the outstanding
Series B Stock, the number of members on the Board of Directors of the
Company shall automatically be increased by two (2) directors and the holders
of Series B Stock, voting as a separate class on an as-converted basis, shall
be entitled to elect the members to occupy the two (2) new vacancies on the
Company's Board of Directors at each meeting or pursuant to each consent of
the Company's stockholders for the election of directors, and to remove from
office such director and to fill any vacancy caused by the resignation, death
or removal of such director.
(iii) So long as any shares of Series B Stock
are outstanding, the number of directors of the Company shall at all times be
such that the exercise, by the holders of shares of Series B Stock, of the
right to elect directors under the circumstances provided in clause (ii) of
this Section 2(d) will not contravene any provisions of the Delaware General
Corporation Law or this Restated Certificate of Incorporation.
3. LIQUIDATION RIGHTS.
a. Upon any liquidation, dissolution, or winding up
of the Company, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of any Junior Stock, (i) the holders of
Series A Stock shall be entitled to be paid out of the assets of the Company
an amount per share of Series A Stock equal to the greater of (A) the sum of
the Series A Original Issue Price (as defined in Section 4(b)) (as adjusted
for any stock splits, stock dividends or the like) plus all declared but
unpaid dividends on the Series A Stock and (B) such amount as would have been
received had each share of Series A Stock outstanding been converted into
shares of Common Stock immediately prior to such liquidation, dissolution or
winding up, (ii) the holders of Series B Stock shall be entitled to be paid
out of the assets of the Company an amount per share of Series B Stock equal
to the greater of (A) the sum of the Series B Original Issue Price (as
defined in Section 4(b)) (as adjusted for any stock splits, stock dividends
or the like) plus all declared but unpaid dividends on the Series B Stock and
(B) such amount as would have been received had each share of Series B Stock
outstanding been converted into shares of Common Stock immediately prior to
such liquidation, dissolution or winding up, (iii) the holders of Series C
Stock shall be entitled to be paid out of the assets of the Company an amount
per share of Series C Stock equal to the greater of (A) the sum of the Series
C Original Issue Price (as defined in Section 4(b)) (as adjusted for any
stock splits, stock dividends or the like) plus all declared but unpaid
dividends on the Series C Stock and (B) such amount as would have been
received had each share of Series C Stock outstanding been converted into
shares of Common Stock immediately prior to such liquidation, dissolution or
winding up, and (iv) the holders of Series D Stock shall be entitled to be
paid out of the assets of the Company an amount per share of Series D Stock
equal to the greater of (A) the sum of the Series D Original Issue Price (as
defined in Section 4(b)) (as adjusted for any stock splits, stock dividends
or the like) plus all declared but unpaid dividends on the Series D Stock and
(B) such amount as would have been received had each share of Series D Stock
outstanding been converted into shares of Common Stock immediately prior to
such liquidation, dissolution or winding up.
5
<PAGE>
b. After the payment of the full liquidation
preference to the holders of Series A Stock, Series B Stock, Series C Stock
and Series D Stock of the amounts set forth in Section 3(a) above, the
remaining assets of the Company legally available for distribution, if any,
shall be distributed ratably to the holders of the Common Stock.
c. The following events shall be considered a
liquidation under this Section 3:
(i) (A) any consolidation or merger of the
Company with or into any other corporation or other entity or person, or any
other corporate reorganization, in which the stockholders of the Company
immediately prior to such consolidation, merger or reorganization, hold less
than fifty percent (50%) of the outstanding voting power of the surviving
entity (or its parent) following the consolidation, merger or reorganization
or (B) any transaction (or series of related transactions involving a person
or entity, or group of affiliated persons or entities) in which in excess of
fifty percent (50%) of the Company's voting power is transferred (an
"ACQUISITION"); or
(ii) a sale, lease or other disposition of all
or substantially all of the assets of the Company for cash or securities or a
statutory share exchange in which the stockholders of the Company may
participate (an "ASSET TRANSFER").
d. If, upon any liquidation, distribution, or
winding up, the assets of the Company shall be insufficient to make payment
in full to all holders of Series A Stock, Series B Stock, Series C Stock and
Series D Stock of the amounts set forth in Section 3(a) above, then such
assets shall be distributed among the holders of Series A Stock, Series B
Stock, Series C Stock and Series D Stock at the time outstanding, ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled pursuant to this Section 3 based upon the Series A Original Issue
Price, Series B Original Issue Price, Series C Original Issue Price and
Series D Original Issue Price (as defined in Section 4(b) below).
4. CONVERSION RIGHTS.
The holders of Series A Stock, Series B Stock, Series C
Stock and Series D Stock shall have the following rights with respect to the
conversion of the Series A Stock, Series B Stock, Series C Stock and Series D
Stock into shares of Common Stock:
a. OPTIONAL CONVERSION. Subject to and in
compliance with the provisions of this Section 4, any number of shares of
Series A Stock, Series B Stock, Series C Stock and Series D Stock may, at the
option of the holder, be converted at any time into fully-paid and
nonassessable shares of Common Stock. The number of shares of Common Stock to
which a holder of Series A Stock, Series B Stock, Series C Stock or Series D
Stock shall be entitled upon conversion shall be the product obtained by
multiplying the applicable "Conversion Rate" then in effect (determined as
provided in Section 4(b)) by the number of shares of Series A Stock, Series B
Stock, Series C Stock or Series D Stock, as applicable, being converted.
b. CONVERSION RATE. The conversion rate in effect
at any time for conversion of the Series A Stock (the "Series A Conversion
Rate") shall be the quotient obtained by dividing the Series A Original Issue
Price by the "Series A Conversion Price," calculated as
6
<PAGE>
provided in Section 4(c). The "Original Issue Price" of the Series A Stock
shall be Seventy-Five Cents ($.75) (the "Series A Original Issue Price").
The conversion rate in effect at any time for conversion of the Series B
Stock (the "Series B Conversion Rate") shall be the quotient obtained by
dividing the Series B Original Issue Price by the "Series B Conversion
Price," calculated as provided in Section 4(c). The "Original Issue Price"
of the Series B Stock shall be One Dollar Fifty Cents ($1.50) (the "Series B
Original Issue Price"). The conversion rate in effect at any time for
conversion of the Series C Stock (the "Series C Conversion Rate") shall be
the quotient obtained by dividing the Series C Original Issue Price by the
"Series C Conversion Price," calculated as provided in Section 4(c). The
"Original Issue Price" of the Series C Stock shall be Five Dollars Sixty
Cents ($5.60) (the "Series C Original Issue Price"). The conversion rate in
effect at any time for conversion of the Series D Stock (the "Series D
Conversion Rate") shall be the quotient obtained by dividing the Series D
Original Issue Price by the "Series D Conversion Price," calculated as
provided in Section 4(c). The "Original Issue Price" of the Series D Stock
shall be Five Dollars Sixty Cents ($5.60) (the "Series D Original Issue
Price").
c. CONVERSION PRICE. The conversion price for the
Series A Stock shall initially be the Series A Original Issue Price (the
"SERIES A CONVERSION PRICE"). Such Series A Conversion Price shall be
adjusted from time to time in accordance with this Section 4. All references
to the Series A Conversion Price herein shall mean the Series A Conversion
Price as so adjusted. The conversion price for the Series B Stock shall
initially be the Series B Original Issue Price (the "SERIES B CONVERSION
PRICE"). Such initial Series B Conversion Price shall be adjusted from time
to time in accordance with this Section 4. All references to the Series B
Conversion Price herein shall mean the Series B Conversion Price as so
adjusted. The conversion price for the Series C Stock shall initially be the
Series C Original Issue Price (the "SERIES C CONVERSION PRICE"). Such
initial Series C Conversion Price shall be adjusted from time to time in
accordance with this Section 4. All references to the Series C Conversion
Price herein shall mean the Series C Conversion Price as so adjusted. The
conversion price for the Series D Stock shall initially be the Series D
Original Issue Price (the "SERIES D CONVERSION PRICE"). Such initial Series
D Conversion Price shall be adjusted from time to time in accordance with
this Section 4. All references to the Series D Conversion Price herein shall
mean the Series D Conversion Price as so adjusted. The Series A Conversion
Price, the Series B Conversion Price, the Series C Conversion Price and the
Series D Conversion Price shall collectively be referred to as the
"CONVERSION PRICES," and each a "CONVERSION PRICE."
d. SALE OF SHARES BELOW SERIES B CONVERSION PRICE,
SERIES C CONVERSION PRICE AND SERIES D CONVERSION PRICE.
(i) If at any time or from time to time after
the date that the first share of Series D Stock is issued (the "ORIGINAL
ISSUE DATE"), the Company issues or sells, or is deemed by the express
provisions of this Section 4(d) to have issued or sold, Additional Shares of
Common Stock (as hereinafter defined), other than as a subdivision or
combination of shares of Common Stock as provided in Section 4(e) below, for
an Effective Price (as hereinafter defined) less than the then-effective
Series B Conversion Price, Series C Conversion Price or Series D Conversion
Price, as applicable, then and in each such case the then-existing Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price, as
applicable, shall be reduced, but not increased as of the opening of business
on the date of such issue or sale to a price determined by multiplying the
Series B Conversion Price, Series C Conversion Price or
7
<PAGE>
Series D Conversion Price, as applicable, by a fraction (i) the numerator
of which shall be (A) the number of shares of Common Stock deemed outstanding
(as defined below) immediately prior to such issue or sale plus (B) the
number of shares of Common Stock which the aggregate consideration received
(as defined in subsection d(ii)) by the Company for the total number of
Additional Shares of Common Stock so issued would purchase at such Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price, as
applicable, and (ii) the denominator of which shall be the number of shares
of Common Stock deemed outstanding (as defined below) immediately prior to
such issue or sale plus the total number of Additional Shares of Common Stock
so issued. For the purposes of the preceding sentence, the number of shares
of Common Stock deemed to be outstanding as of a given date shall be the sum
of (A) the number of shares of Common Stock actually outstanding, (B) the
number of shares of Common Stock into which the then-outstanding shares of
Series A Stock, Series B Stock, Series C Stock and Series D Stock could be
converted if fully converted on the day immediately preceding the given date,
and (C) the number of shares of Common Stock which could be obtained through
the exercise or conversion of all other rights, options and convertible
securities then exercisable or convertible on the day immediately preceding
the given date.
(ii) For the purpose of making any adjustment
required under this Section 4(d), the consideration received by the Company
for any issue or sale of securities shall (A) to the extent it consists of
cash, be computed at the net amount of cash received by the Company after
deduction of any underwriting or similar commissions, compensation or
concessions paid or allowed by the Company in connection with such issue or
sale but without deduction of any expenses payable by the Company, (B) to the
extent it consists of property other than cash, be computed at the fair value
of that property as determined in good faith by the Board of Directors
(including a majority of the Series B Directors), and (C) if Additional
Shares of Common Stock, Convertible Securities (as hereinafter defined or
rights or options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the Company for a consideration which covers
both, be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors (including a
majority of the Series B Directors) to be allocable to such Additional Shares
of Common Stock, Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required
under this Section 4(d), if the Company issues or sells any rights or options
for the purchase of, or stock or other securities convertible into or
exchangeable for, Additional Shares of Common Stock (such convertible or
exchangeable stock or securities being herein referred to as "CONVERTIBLE
SECURITIES") whether or not such rights or options or the right to convert or
exchange any such convertible securities are immediately exercisable, and if
the Effective Price of such Additional Shares of Common Stock is less than
the Series B Conversion Price, Series C Conversion Price or Series D
Conversion Price, as applicable, in each case the Company shall be deemed to
have issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of Common
Stock issuable upon exercise or conversion or exchange thereof and to have
received as consideration for the issuance of such shares an amount equal to
the total amount of the consideration, if any, received by the Company for
the issuance of such rights or options or Convertible Securities, plus, in
the case of such rights or options, the minimum amounts of consideration, if
any, payable to the Company upon the
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<PAGE>
exercise of such rights or options, plus, in the case of Convertible
Securities, the minimum amounts of consideration, if any, payable to the
Company (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) upon the conversion thereof; PROVIDED, THAT,
that if the minimum amount of consideration payable to the Company upon the
exercise or conversion of rights, options or Convertible Securities is
reduced over time or on the occurrence or non-occurrence of specified events
other than by reason of antidilution adjustments, the Effective Price shall
be recalculated using the figure to which such minimum amount of
consideration is reduced; PROVIDED, FURTHER, that if the minimum amount of
consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities is subsequently increased, the
Effective Price shall be again recalculated using the increased minimum
amount of consideration payable to the Company upon the exercise or
conversion of such rights, options or Convertible Securities. No further
adjustment of the Series B Conversion Price, Series C Conversion Price or
Series D Conversion Price, as applicable, as adjusted upon the issuance of
such rights, options or Convertible Securities, shall be made as a result of
the actual issuance of Additional Shares of Common Stock on the exercise of
any such rights or options or the conversion of any such Convertible
Securities. If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without having
been exercised, the Series B Conversion Price, Series C Conversion Price or
Series D Conversion Price, as applicable, as adjusted upon the issuance of
such rights, options or Convertible Securities shall be readjusted to the
Series B Conversion Price, Series C Conversion Price or Series D Conversion
Price, as applicable, which would have been in effect had an adjustment been
made on the basis that the only Additional Shares of Common Stock so issued
were the Additional Shares of Common Stock, if any, actually issued or sold
on the exercise of such rights or options or rights of conversion of such
Convertible Securities, and such Additional Shares of Common Stock, if any,
were issued or sold for the consideration actually received by the Company
upon such exercise, plus the consideration, if any, actually received by the
Company for the granting of all such rights or options, whether or not
exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted, plus the consideration, if any,
actually received by the Company (other than by cancellation of liabilities
or obligations evidenced by such Convertible Securities) on the conversion of
such Convertible Securities, PROVIDED THAT such readjustment shall not apply
to prior conversions of Series B Stock, Series C Stock or Series D Stock.
(iv) "ADDITIONAL SHARES OF COMMON STOCK" shall
mean all shares of Common Stock issued by the Company or deemed to be issued
pursuant to this Section 4(d), whether or not subsequently reacquired or
retired by the Company other than (A) shares of Common Stock issued upon
conversion of the Series A Stock, Series B Stock, Series C Stock or Series D
Stock; (B) Approved Issuances; and (C) shares of Common Stock issued pursuant
to the exercise of options, warrants or convertible securities outstanding as
of the Original Issue Date. The "EFFECTIVE PRICE" of Additional Shares of
Common Stock shall mean the quotient determined by dividing the total number
of Additional Shares of Common Stock issued or sold, or deemed to have been
issued or sold by the Company under this Section 4(d), into the aggregate
consideration received, or deemed to have been received by the Company for
such issue under this Section 4(d), for such Additional Shares of Common
Stock.
e. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If
the Company shall at any time or from time to time after the Original Issue
Date effect a subdivision
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<PAGE>
of the outstanding Common Stock without a corresponding subdivision of the
Preferred Stock, each Conversion Price in effect immediately before that
subdivision shall be proportionately decreased. Conversely, if the Company
shall at any time or from time to time after the Original Issue Date combine
the outstanding shares of Common Stock into a smaller number of shares
without a corresponding combination of the Preferred Stock, each Conversion
Price in effect immediately before the combination shall be proportionately
increased. Any adjustment under this Section 4(e) shall become effective at
the close of business on the date the subdivision or combination becomes
effective.
f. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If at any time or from time to time after the Original Issue
Date, the Common Stock issuable upon the conversion of the Series A Stock,
Series B Stock, Series C Stock and Series D Stock is changed into the same or
a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than an Acquisition or
Asset Transfer as defined in Section 3(c) or a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale
of assets provided for elsewhere in this Section 4), in any such event each
holder of Series A Stock, Series B Stock, Series C Stock and Series D Stock
shall have the right thereafter to convert such stock into the kind and
amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the maximum
number of shares of Common Stock into which such shares of Series A Stock,
Series B Stock, Series C Stock or Series D Stock, as applicable, could have
been converted immediately prior to such recapitalization, reclassification
or change, all subject to further adjustment as provided herein or with
respect to such other securities or property by the terms thereof.
g. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES
OF ASSETS. If at any time or from time to time after the Original Issue
Date, there is a capital reorganization of the Common Stock (other than an
Acquisition or Asset Transfer as defined in Section 3(c) or a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 4, as a part of
such capital reorganization, provision shall be made so that the holders of
the Series A Stock, Series B Stock, Series C Stock and Series D Stock shall
thereafter be entitled to receive upon conversion of the Series A Stock,
Series B Stock, Series C Stock and Series D Stock the number of shares of
stock or other securities or property of the Company to which a holder of the
number of shares of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, subject to adjustment in respect of
such stock or securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
4 with respect to the rights of the holders of Series A Stock, Series B
Stock, Series C Stock and Series D Stock after the capital reorganization to
the end that the provisions of this Section 4 (including adjustment of the
Conversion Price then in effect and the number of shares issuable upon
conversion of the Series A Stock, Series B Stock, Series C Stock or Series D
Stock, as applicable) shall be applicable after that event and be as nearly
equivalent as practicable.
h. CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of the Conversion Price for the number of shares
of Common Stock or other securities issuable upon conversion of the Series A
Stock, Series B Stock, Series C Stock or Series D Stock, if the Series A
Stock, Series B Stock, Series C Stock or Series D Stock is then
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<PAGE>
convertible pursuant to this Section 4, the Company, at its expense, shall
compute such adjustment or readjustment in accordance with the provisions
hereof and prepare a certificate showing such adjustment or readjustment, and
shall mail such certificate, by first class mail, postage prepaid, to each
registered holder of such stock at the holder's address as shown in the
Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (i) the consideration
received or deemed to be received by the Company for any Additional Shares of
Common Stock issued or sold or deemed to have been issued or sold, (ii) each
Conversion Price at the time in effect, (iii) the number of Additional Shares
of Common Stock and (iv) the type and amount, if any, of other property which
at the time would be received upon conversion of the Series A Stock, Series B
Stock, Series C Stock and Series D Stock.
i. NOTICES OF RECORD DATE. Upon (i) any taking by
the Company of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any Acquisition (as defined in
Section 3(c)) or other capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company with or into any other corporation, or
any Asset Transfer (as defined in Section 3(c)), or any voluntary or
involuntary dissolution, liquidation or winding up of the Company, the
Company shall mail to each holder of Series A Stock, Series B Stock, Series C
Stock and Series D Stock at least twenty (20) days prior to the record date
specified therein a notice specifying (A) the date on which any such record
is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (B) the date on which any such
Acquisition, reorganization, reclassification, transfer, consolidation,
merger, Asset Transfer, dissolution, liquidation or winding up is expected to
become effective, and (C) the date, if any, that is to be fixed as to when
the holders of record of Common Stock (or other securities) shall be entitled
to exchange their shares of Common Stock (or other securities) for securities
or other property deliverable upon such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer,
dissolution, liquidation or winding up.
j. AUTOMATIC CONVERSION.
(i) Each share of Series A Stock shall
automatically be converted into shares of Common Stock, based on the
then-effective Series A Conversion Price, (A) at any time upon the
affirmative election of the holders of a majority of the outstanding shares
of Series A Stock or (B) immediately upon the closing of a firmly
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), covering
the offer and sale of Common Stock for the account of the Company in which
(i) the per share price is at least $1.88 per share (as adjusted for any
stock dividends, combinations, splits, recapitalizations and the like) and
(ii) the gross cash proceeds to the Company (before underwriting discounts,
commissions and fees) are at least $10,000,000. Upon such automatic
conversion, any declared and unpaid dividends shall be paid in accordance
with the provisions of Section 4(k).
(ii) Each share of Series B Stock shall
automatically be converted into shares of Common Stock, based on the
then-effective Series B Conversion Price, (A) immediately upon the closing of
a firmly underwritten public offering pursuant to an
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<PAGE>
effective registration statement under the Securities Act covering the offer
and sale of Common Stock for the account of the Company (an "INITIAL
OFFERING") in which (i) the per share price is at least equal to the "Target
Multiple" (as hereinafter defined) multiplied by the then-effective Series B
Conversion Price (the "THRESHOLD PRICE"), (ii) the gross cash proceeds to the
Company (before underwriting discounts, commissions and fees) are at least
$30,000,000 and (iii) the shares of Common Stock are listed on any national
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934 (a "QUALIFIED OFFERING") or (B) following an
Initial Offering which is not a Qualified Offering on the business day
following the end of a 180-day period during which the average closing price
of the Company's Common Stock on each such day exceeded the Threshold Price.
Upon such automatic conversion, any declared and unpaid dividends shall be
paid in accordance with the provisions of Section 4(k). As used herein,
"TARGET MULTIPLE" shall mean (A) an amount equal to 2.5 prior to the third
anniversary of the Original Issue Date and (B) an amount equal to 3.5 on or
after the third anniversary of the Original Issue Date.
(iii) Each share of Series C Stock and Series D
Stock shall automatically be converted into shares of Common Stock, based on
the then-effective Series C Conversion Price or Series D Conversion Price, as
applicable, immediately upon the closing of a firmly underwritten public
offering pursuant to an effective registration statement under the Securities
Act, covering the offer and sale of Common Stock for the account of the
Company in which (i) the per share price is at least $8.40 per share (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like) and (ii) the gross cash proceeds to the Company (before
underwriting discounts, commissions and fees) are at least $30,000,000. Upon
such automatic conversion, any declared and unpaid dividends shall be paid in
accordance with the provisions of Section 4(k).
k. MECHANICS OF CONVERSION.
(i) OPTIONAL CONVERSION. Each holder of
Series A Stock, Series B Stock, Series C Stock or Series D Stock who desires
to convert the same into shares of Common Stock pursuant to this Section 4
shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Company or any transfer agent for such stock, and shall
give written notice to the Company at such office that such holder elects to
convert the same. Such notice shall state the number of shares of Series A
Stock, Series B Stock, Series C Stock or Series D Stock being converted.
Thereupon, the Company shall promptly issue and deliver at such office to
such holder a certificate or certificates for the number of shares of Common
Stock to which such holder is entitled and shall promptly pay in cash or, to
the extent sufficient funds are not then legally available therefor, in
Common Stock (at the Common Stock's fair market value determined by the Board
of Directors as of the date of such conversion), any accrued dividends on the
shares of Series A Stock, Series B Stock, Series C Stock and Series D Stock
being converted. Such conversion shall be deemed to have been made at the
close of business on the date of such surrender of the certificates
representing the shares of Series A Stock, Series B Stock, Series C Stock or
Series D Stock, as applicable, to be converted, and the person entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such shares of Common Stock
on such date.
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<PAGE>
(ii) AUTOMATIC CONVERSION. Upon the occurrence
of the event specified in paragraph 4(j) above, the outstanding shares of
Series A Stock, Series B Stock, Series C Stock or Series D Stock, as the case
may be, shall be converted automatically without any further action by the
holders of such shares and whether or not the certificates representing such
shares are surrendered to the Company or its transfer agent; PROVIDED,
HOWEVER, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless
the certificates evidencing such shares of Series A Stock, Series B Stock,
Series C Stock and Series D Stock are either delivered to the Company or its
transfer agent as provided below, or the holder notifies the Company or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company
from any loss incurred by it in connection with such certificates. Upon the
occurrence of such automatic conversion of the Series A Stock, Series B
Stock, Series C Stock or Series D Stock, the holders of Series A Stock,
Series B Stock, Series C Stock or Series D Stock shall surrender the
certificates representing such shares at the office of the Company or any
transfer agent for the Series A Stock, Series B Stock, Series C Stock and
Series D Stock, as applicable. Thereupon, there shall be issued and
delivered to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or certificates
for the number of shares of Common Stock into which the shares of Series A
Stock, Series B Stock, Series C Stock or Series D Stock surrendered were
convertible on the date on which such automatic conversion occurred, and any
declared and unpaid dividends shall be paid in accordance with the provisions
of Section 4(k)(i) above.
l. FRACTIONAL SHARES. No fractional shares of
Common Stock shall be issued upon conversion of Series A Stock, Series B
Stock, Series C Stock or Series D Stock. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share
of Series A Stock, Series B Stock, Series C Stock or Series D Stock by a
holder thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If, after
the aforementioned aggregation, the conversion would result in the issuance
of any fractional share, the Company shall, in lieu of issuing any fractional
share, pay cash equal to the product of such fraction multiplied by the
Common Stock's fair market value (as determined by the Board of Directors) on
the date of conversion.
m. RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A Stock, Series B Stock,
Series C Stock and Series D Stock, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Stock, Series B Stock, Series C Stock and
Series D Stock. If at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Stock, Series B Stock, Series C Stock and
Series D Stock, the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for
such purpose. The Company covenants that all shares of Common Stock which
shall be so issuable shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, free from preemptive or similar rights
on the part of the holders of any shares of capital stock or securities of
the Company, and free from all liens and charges with respect to the issue
thereof; and without limiting the generality of the foregoing, the
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<PAGE>
Company covenants that it will from time to time take all such action as may
be requisite to assure that the par value, if any, per share of the Common
Stock is at all times equal to or less than the then-effective Conversion
Price. The Company will take all such action as may be necessary to assure
that such shares of Common Stock may be so issued without violation by the
Company of any applicable law or regulation or agreement, or of any
requirements of any domestic securities exchange upon which the Common Stock
may be listed. Without limiting the foregoing, the Company will take all
such action as may be necessary to assure that, upon conversion of any of the
Series B Stock, Series C Stock or Series D Stock, an amount equal to the
lesser of (a) the par value of each share of Common Stock outstanding
immediately prior to such conversion or (b) the Conversion Price shall be
credited to the Company's stated capital account for each share of Common
Stock issued upon such conversion, and that, if clause (a) above is
applicable, the balance of the Conversion Price of Series B Stock, Series C
Stock or Series D Stock converted shall be credited to the Company's capital
surplus account.
n. NOTICES. Any notice required by the provisions
of this Section 4 shall be in writing and shall be deemed effectively given:
(i) upon personal delivery to the party to be notified, (ii) when sent by
confirmed telex or facsimile if sent during normal business hours of the
recipient; if not, then on the next business day, (iii) upon receipt after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All notices shall be addressed to each holder of
record at the address of such holder appearing on the books of the Company.
o. PAYMENT OF TAXES. The Company will pay all taxes
(other than taxes based upon income) and other governmental charges that may
be imposed with respect to the issue or delivery of shares of Common Stock
upon conversion of shares of Series A Stock, Series B Stock, Series C Stock
and Series D Stock, excluding any tax or other charge imposed in connection
with any transfer involved in the issue and delivery of shares of Common
Stock in a name other than that in which the shares of Series A Stock Series
B Stock, Series C Stock or Series D Stock, as applicable, so converted were
registered.
p. REGISTRATION AND LISTING OF COMMON STOCK. If any
shares of Common Stock required to be reserved for purposes of conversion of
the Series B Stock, Series C Stock or Series D Stock hereunder require
registration with or approval of any governmental authority under any Federal
or state law (other than the Securities Act) before any such shares may be
issued upon conversion, the Company will, at its expense and as expeditiously
as possible, use its best efforts to cause such shares to be duly registered
or approved, as the case may be. Shares of Common Stock issuable upon
conversion of the Series B Stock, Series C Stock or Series D Stock shall be
registered in accordance with any such law then in force if required before
such shares may be issued upon conversion. If and so long as the Common
Stock is listed on any national securities exchange, the Company will, at its
expense, obtain promptly and maintain the approval for listing on each such
exchange upon official notice of issuance, such shares of Common Stock
issuable upon conversion of then-outstanding Series B Stock, Series C Stock
and Series D Stock and maintain the listing of such shares after their
issuance; and the Company will also list on such national securities
exchange, will register under the Securities Exchange Act of 1934 and will
maintain such listing of, any other securities that at any time are issuable
upon conversion of the Series B Stock, Series C Stock or Series D Stock, if
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<PAGE>
and at the time that any securities of the same class shall be listed on such
national securities exchange by the Company.
q. CLOSING OF BOOKS. The Company will at no time
close its transfer books against the transfer of any Series B Stock, Series C
Stock or Series D Stock or of any shares of Common Stock issued or issuable
upon the conversion of any Series B Stock, Series C Stock or Series D Stock
in any manner which interferes with the timely conversion of such Series B
Stock, Series C Stock or Series D Stock; PROVIDED, THAT, any such transfer is
not made in violation of any applicable law or contract.
r. CERTAIN COVENANTS. Any registered holder of
Series B Stock, Series C Stock or Series D Stock may proceed to protect and
enforce its rights and the rights of such holders by any available remedy by
proceeding at law or in equity to protect and enforce any such rights,
whether for the specific enforcement of any provision in this Restated
Certificate of Incorporation or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
5. NO REISSUANCE OF PREFERRED STOCK. No share or shares of
Series A Stock, Series B Stock, Series C Stock or Series D Stock acquired by
the Company by reason of redemption, purchase, conversion or otherwise shall
be reissued.
V.
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of
the powers of the Corporation, of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors. Except as
otherwise provided in Article IV, Section E.2 hereof, the number of directors
which shall constitute the whole Board of Directors shall be fixed by the
Board of Directors in the manner provided in the Amended Bylaws.
B. The Board of Directors is expressly authorized to make, amend,
supplement or repeal the Amended Bylaws; PROVIDED, HOWEVER, that the
stockholders may change or repeal any Bylaw adopted by the Board of Directors
by the affirmative vote of the holders of a majority of the voting power of
all of the then outstanding shares of the capital stock of the Corporation;
and, PROVIDED FURTHER, that no amendment or supplement to the Amended Bylaws
adopted by the Board of Directors shall vary or conflict with any amendment
or supplement thus adopted by the stockholders.
C. The directors of the Corporation need not be elected by written
ballot unless the Amended Bylaws so provide.
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<PAGE>
VI.
A. A director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
an improper personal benefit. If the Delaware General Corporation Law is
amended after approval by the stockholders of this Article to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
B. Any repeal or modification of this Article VI shall be
prospective and shall not affect the rights under this Article VI in effect
at the time of the alleged occurrence of any act or omission to act giving
rise to liability or indemnification.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Restated Certificate has been subscribed this 19th
day of January, 2000 by the undersigned who affirms that the statements made
herein are true and correct.
JATO COMMUNICATIONS CORP.
/s/ Gerald K. Dinsmore
----------------------------------------
Gerald K. Dinsmore
President and Chief Executive Officer
17
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE RESTATED CERTIFICATE OF INCORPORATION OF
JATO COMMUNICATIONS CORP.
Jato Communications Corp., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies as follows:
FIRST: The name of the Corporation is Jato Communications Corp.
SECOND: The date on which the original Certificate of Incorporation of
the corporation was filed with the Secretary of State of the State of Delaware
is June 12, 1998.
THIRD: Article IV of the Restated Certificate of Incorporation of the
Corporation is hereby amended to add the following sentence to the beginning
thereof:
"Upon the effectiveness of this Certificate of Amendment, every 1
outstanding share of Common Stock of the Corporation shall be split and
divided into 1.407 shares of Common Stock. No fractional shares shall be
issued in connection therewith, and each stockholder otherwise entitled
to receive a fractional share shall receive the next lower whole number
of shares of Common Stock."
FOURTH: The foregoing amendment to the Certificate of Incorporation of
the Corporation has been duly adopted by the directors and stockholders of the
Corporation in accordance with the provisions of Sections 141, 228 and 242 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has executed this Certificate of
Amendment on the 29th day of March, 2000.
JATO COMMUNICATIONS CORP.
By: /s/ William D. Myers
-----------------------------------------------
Name: William D. Myers
Title: Senior Vice President, Finance and
Strategic Planning, Chief Financial
Officer and Secretary
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
JATO COMMUNICATIONS CORP.
Jato Communications Corp., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
1. The name of the corporation is Jato Communications Corp. The corporation was
originally incorporated under the name Jato Communications Corporation. The date
of filing of its original Certificate of Incorporation with the Secretary of
State of the State of Delaware was June 12, 1998.
2. This Restated Certificate of Incorporation of Jato Communications Corp. has
been duly adopted in accordance with the provisions of Sections 228, 242 and 245
of the General Corporation Law of the State of Delaware.
3. This Restated Certificate of Incorporation restates and further amends the
Restated Certificate of Incorporation of this corporation by restating the text
of the original Restated Certificate of Incorporation in full to read as
follows:
I.
The name of this Corporation is Jato Communications Corp. (the
"CORPORATION" or the "COMPANY").
II.
The address, including street, number, city and county, of the registered
office of the Corporation in the State of Delaware is 1209 Orange Street, City
of Wilmington, County of New Castle, and the name of the registered agent of the
Corporation in the State of Delaware at such address is The Corporation Trust
Company.
III.
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
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is two hundred five
million (205,000,000) shares. Two hundred
1
<PAGE>
million (200,000,000) shares shall be Common Stock, each having a par value of
$.01. Five million (5,000,000) shares shall be Preferred Stock, each having a
par value of $.01.
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law
("DGCL"), to fix or alter from time to time the designation, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions of any wholly unissued series of Preferred Stock, and to
establish from time to time the number of shares constituting any such series or
any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. BOARD OF DIRECTORS
Subject to the rights of the holders of any series of Preferred Stock
to elect additional directors under specified circumstances, the directors shall
be divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the adoption and filing of this Certificate of
Incorporation, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following the adoption and filing of this
Certificate of Incorporation, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the adoption and filing of
this Certificate of Incorporation, the term of office of the Class III directors
shall expire and Class III directors shall be elected for a full term of three
years. At each succeeding annual meeting of stockholders, directors shall be
elected for a full term of three years to succeed the directors of the class
whose terms expire at such annual meeting.
2
<PAGE>
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
3. REMOVAL OF DIRECTORS
a. Neither the Board of Directors nor any individual director
may be removed without cause.
b. Subject to any limitation imposed by law, any individual
director or directors may be removed with cause by the holders of a majority of
the voting power of the corporation entitled to vote at an election of
directors.
4. VACANCIES
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for
such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen
by the directors then in offices as aforesaid, which election shall be
governed by Section 211 of the DGCL.
B.
1. BYLAW AMENDMENTS
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may
be altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the voting stock of the corporation entitled to vote.
The Board of Directors shall also have the power to adopt, amend, or repeal
Bylaws.
3
<PAGE>
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. The liability of the directors for monetary damages shall be eliminated
to the fullest extent under applicable law.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
4
<PAGE>
IN WITNESS WHEREOF, this Certificate has been subscribed this ____ day of
__________, 2000 by the undersigned who affirms that the statements made herein
are true and correct.
-----------------------------
Gerald K. Dinsmore
5
<PAGE>
EXHIBIT 5.1
[Letterhead of Cooley Godward LLP]
April 10, 2000
Jato Communications Corp.
1099 18th Street, Suite 2200
Denver, Colorado 80202
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Jato Communications Corp. (the "Company") of a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission"), including a prospectus to be filed with
the Commission pursuant to Rule 424(b) of Regulation C promulgated under the
Securities Act of 1933, as amended, and the underwritten public offering of up
to 10,263,750 shares of the Company's Common Stock, $.01 par value, which amount
includes 1,338,750 shares of Common Stock for which the underwriters have been
granted an over-allotment option, all of which will be sold by certain
stockholders of the Company (the "Selling Stockholder Shares") and 8,925,000
shares to be sold by the Company (the "Company Shares").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement, (ii) reviewed the Company's Restated Certificate of
Incorporation, as amended and Bylaws, as amended, and the originals or copies
certified to our satisfaction of such records, documents, certificates,
memoranda and other instruments as in our judgment were necessary or appropriate
to enable us to render the opinion expressed below, (iii) assumed that the
Company Shares to be sold to the underwriters will be sold at a price
established by the Board of Directors of the Company or the Pricing Committee
thereof in accordance with Section 153 of the Delaware General Corporation Law
and (iv) examined and relied upon a certificate executed by an officer of the
Company to the effect that consideration for the Selling Stockholder Shares was
received by the Company in accordance with the applicable Board of Directors'
resolutions and any plan or agreement relating to the issuance of such Selling
Stockholder Shares, and we have undertaken no independent verification with
respect thereto.
On the basis of the foregoing and in reliance thereon, we are of the opinion
that the Selling Stockholder Shares are, and the Company Shares (when issued and
paid for in accordance with the purchase agreement filed as an exhibit to the
Registration Statement) will be, validly issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in
the prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Sincerely,
Cooley Godward LLP
/s/ JAMES C.T. LINFIELD
James C. T. Linfield
<PAGE>
JATO COMMUNICATIONS CORP.
AMENDED AND RESTATED FOUNDERS EMPLOYMENT TRANSITION AND SEPARATION AGREEMENT
FOR
BRIAN E. GAST
THIS AMENDED AND RESTATED FOUNDERS EMPLOYMENT TRANSITION AND SEPARATION
AGREEMENT ("AGREEMENT") is entered into as of the 3rd day of April, 2000,
("Execution Date") by and between BRIAN E. GAST ("Mr. Gast") and JATO
COMMUNICATIONS CORP., a Delaware corporation (the "Company").
RECITALS
WHEREAS, Mr. Gast has been employed by the Company as its President and
Chief Executive Officer; and
WHEREAS, the Company and Mr. Gast are parties to an employment
agreement dated April 16, 1999; and
WHEREAS, the Company has materially reduced the job responsibilities of
Mr. Gast; and
WHEREAS, as a result of the material reduction of his job
responsibilities, Mr. Gast has tendered his resignation with the Company under
the terms and conditions hereinafter set forth; and
WHEREAS, the Company and Mr. Gast entered into a Founder Employment
Transition and Separation Agreement dated February 10, 2000; and
WHEREAS, the Company has accepted Mr. Gast's resignation as President
and Chief Executive Officer; and
WHEREAS, the Company and Mr. Gast desire to replace the terms of the
April 16, 1999 Employment Agreement; and
WHEREAS, the Company and Mr. Gast desire to amend and restated in its
entirety the Founders Employment Transition and Separation Agreement dated
February 10, 2000 with this Agreement; and
WHEREAS, the Company wishes to employ Mr. Gast in the capacity and
under the terms and conditions hereinafter set forth, and Mr. Gast is willing to
be so employed by the Company.
NOW, THEREFORE, in consideration of the recitals set forth above that
are incorporated by reference herein and the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
<PAGE>
AGREEMENT
1. RESIGNATION. Mr. Gast has tendered and the Company has accepted
Mr. Gast's resignation as President and Chief Executive Officer and any and all
other positions he may have held with the Company or any affiliates or
subsidiaries of the Company.
2. CONTINUED EMPLOYMENT BY THE COMPANY. Mr. Gast will continue as an
employee of the Company until such time as his employment is terminated as set
forth in paragraph 6 herein. From the Execution Date through the Separation
Date, as defined in paragraph 6 below, Mr. Gast shall be available to provide
such services as are requested by the Company's Board of Directors.
2.1 COMPENSATION. The Company agrees to continue to compensate
Mr. Gast at the same rate of regular salary he received as of the Execution
Date, less all applicable deductions and withholdings, payable on a
semi-monthly basis or in accordance with the Company's customary practices
(as they may be changed by the Company from time to time in its sole
discretion).
2.2 BENEFITS. The Company shall continue to make available to
Mr. Gast all Company benefits available and received by Mr. Gast immediately
before the Execution Date. Notwithstanding the prior sentence, Mr. Gast
agrees and acknowledges that from the Execution Date through the Separation
Date, Mr. Gast is not entitled to nor will he accrue any vacation time,
holiday leave or sick leave.
2.3 RESTRICTED STOCK. As of the Execution Date, Mr. Gast owns or
is deemed to be the beneficial owner of 3,243,604 shares of Common Stock, of
which 973,081 were vested and 2,270,523 were not yet vested. Unless Mr. Gast
voluntarily resigns as an employee or is terminated for Cause (as defined below)
prior to such date, the 2,270,523 unvested shares will vest the earlier of the
Company's initial public offering or in two installments, the first installment
of 1,135,262 shares on March 31, 2000 and the second installment of 1,135,261
shares on June 30, 2000. All shares of Common Stock in this Agreement, unless
otherwise noted, reflect a 1.407 for 1 forward stock split to take effect on or
around March 29, 2000.
2.4 VOLUME LIMITATION. Should the Company launch an initial
public offering ("IPO"), the Company shall sell all shares to be sold in the
IPO, excluding those shares to be sold pursuant to the exercise, if any, of
the underwriters' over-allotment option to purchase additional shares of
common stock within 30 days from the date of the final prospectus pertaining
to the Company's IPO (the "Green Shoe"). The Company and Mr. Gast agree, that
should the Green Shoe be exercised, all shares to be sold pursuant to the
underwriters' exercise of the Green Shoe, shall be those shares held by the
Founders (for purposes herein the term "Founders" refers to Bruce E. Dines,
Leonard Allsup and Brian E. Gast). Mr. Gast and the other Founders have
executed a lockup agreement with Merrill Lynch & Co. and other
representatives of the underwriters (the "Merrill Lynch Lockup"). The Company
acknowledges that it is not a party to the Merrill Lynch Lockup and that it
shall not have any rights to enforce the Merrill Lynch Lockup. Separate and
apart from the Merrill Lynch Lockup, Mr. Gast and the other Founders agree
that the number of shares the Founders can sell during the 180 day period
following the date which is 180 days from the date of the Purchase Agreement
related to the IPO (the "Additional Lockup"), will be limited (the "Volume
Limitation Period"). The terms of the Volume Limitation Period are as follows:
<PAGE>
(a) The Founders will be limited to the sale of an
aggregate of 2,462,250 shares during the Volume Limitation Period. The Founders
shall be solely responsible for allocating the number of shares each Founder
will be permitted to sell during the Volume Limitation Period. Shares sold under
this provision may be sold in only broadly distributed underwritten public
offerings or normal Rule 144 open market transactions.
(b) As long as Mr. Gast maintains ownership in the
Company Mr. Gast shall also be bound by the following restrictions:
(i) to not knowingly sell his shares of the
Company stock to a person or group who, as a result of such sale, would own 5%
or more of the Company's outstanding stock or to directly or indirectly solicit
any person or group to purchase from him or any other Founder shares in the
Company if such person or group, as a result of such purchase, would own 5% or
more of the Company's outstanding stock; and
(ii) to not knowingly sell his shares of the
Company stock to a Company competitor (as defined in paragraph 8.1) or to
directly or indirectly solicit any competitor (as defined in paragraph 8.1) to
purchase from him shares in the Company; and
(iii) to not engage in, or support, a hostile
proxy solicitation.
2.5 FORGIVENESS OF NOTE. The Company loaned to Mr. Gast the amount
of $100,000, pursuant to that certain promissory note (the "Note"). Unless Mr.
Gast's employment with the Company is terminated for Cause, as defined herein,
or if Mr. Gast voluntarily terminates his employment, in each case prior to
March 31, 2000, the Company agrees to forgive all outstanding amounts payable,
including interest, on said Note and after said date, Mr. Gast's obligations of
repayment under the Note shall cease effective on March 31, 2000. Mr. Gast
acknowledges that he is solely responsible for all tax consequences relating to
the forgiveness of the Note.
2.6 VACATION PAY-OUT. The parties agree that on the
Separation Date the accrued but unused vacation shall be 20 days.
2.7 SEPARATION AND RELEASE AGREEMENT. As part of this Agreement,
Mr. Gast agrees to enter into the Separation and Release Agreement attached
hereto as Exhibit B, within the time set forth in said Separation and Release
Agreement.
<PAGE>
3. POLICIES AND PROCEDURES. Mr. Gast agrees that he is subject to and will
comply with the policies and procedures of the Company, as such policies and
procedures may be modified, added to or eliminated from time to time at the sole
discretion of the Company Board of Directors, except to the extent any such
policy or procedure specifically conflicts with the express terms of this
Agreement. Mr. Gast further agrees and acknowledges that any written or oral
policies and procedures of the Company do not constitute contracts between the
Company and Mr. Gast.
4. PROPRIETARY INFORMATION OBLIGATIONS.
4.1 AGREEMENT. Except as set forth herein, Mr. Gast agrees to
continue to abide by Mr. Gast's previously executed Non-Competition, Proprietary
Information and Inventions Agreement attached hereto as EXHIBIT A.
4.2 REMEDIES. Mr. Gast's duties under the Non-Competition,
Proprietary Information and Inventions Agreement shall survive termination of
his employment with the Company. Mr. Gast acknowledges that a remedy at law for
any breach or threatened breach by him of the provisions of the Non-competition,
Proprietary Information and Inventions Agreement would be inadequate, and he
therefore agrees that the Company shall be entitled to injunctive relief in case
of any such breach or threatened breach. By seeking injunctive relief the
Company does not waive any other rights or remedies it may have.
5. OUTSIDE ACTIVITIES. Except with the prior written consent of the
Company's Board of Directors, Mr. Gast will not, from the Execution Date through
the Separation Date, undertake or engage in any other employment, occupation or
business enterprise, other than those in which Mr. Gast is a passive investor,
non-executive board member or which takes less than 10% of Mr. Gast's business
time. Mr. Gast may engage in civic and not-for-profit activities so long as such
activities do not materially interfere with the performance of his duties
hereunder.
6. TERMINATION OF EMPLOYMENT. Either Mr. Gast or the Company may terminate
the employment relationship at any time for any reason whatsoever, with thirty
(30) days prior written notice by the Company and with thirty (30) days' prior
written notice by Mr. Gast with or without Cause or advance notice. This at-will
employment relationship cannot be changed except in a writing approved by the
Board. Notwithstanding this at-will employment relationship, Mr. Gast's
employment with the Company shall automatically terminate upon the earlier of
the closing of the Company's initial public offering or on June 30, 2000.
Whether terminated for cause, without cause, automatically as provided in the
previous sentence or voluntarily terminated by Mr. Gast, such termination is
defined herein as the "Separation Date." Mr. Gast shall remain as a member of
the Board of Directors of the Company and the member of the Board of Directors
of any affiliates or subsidiaries of the Company until June 30, 2000. On June
30, 2000, Mr. Gast agrees to tender his resignation from the Board of Directors
of the Company and from the Board of Directors of any affiliates or subsidiaries
of the Company.
6.1 SEVERANCE PAYMENT. If the Company terminates Mr. Gast's
employment without Cause at any time or if Mr. Gast employment terminates
automatically as set forth in paragraph 6 herein, Mr. Gast will receive as
severance: (i) a lump sum payment equal to one (1) year of base salary, less
payroll deductions and required withholdings pursuant to the Separation
<PAGE>
Agreement attached as Exhibit B, (ii) a lump sum payment of that portion of the
bonus Mr. Gast is entitled to for the calendar year pro-rated based upon the
number of full months Mr. Gast was employed in such year pursuant to the
Separation Agreement attached as Exhibit B, (iii) continuation of all company
benefits for a period of one (1) year pursuant to the Separation Agreement
attached as Exhibit B, and (iv) termination of all repurchase rights on
Mr. Gast's stock, in exchange for the execution of a release of all claims
against the Company in the form attached as Exhibit B; PROVIDED, THAT, in the
event of termination due to Disability, this subsection (iv) shall apply only
with respect to 50% of any unvested stock held by Mr. Gast on the date of
termination and with respect to the waiver of repurchase rights of 50% of any
unvested shares held by Mr. Gast on the date of termination; PROVIDED,
FURTHER, that Mr. Gast shall remain a party to, and subject to the provisions
of, the Investors' Rights Agreement. If Mr. Gast voluntarily resigns or if
Mr. Gast's employment is terminated for Cause, all compensation and benefits
will cease immediately and Mr. Gast will receive no severance benefits.
6.2 CAUSE. For purposes of this Agreement, "CAUSE" shall mean
misconduct, including: (i) conviction of any felony or any crime involving moral
turpitude or dishonesty; (ii) participation in a fraud or act of dishonesty
against the Company; (iii) willful breach of the Company's policies; (iv)
intentional damage to the Company's property; (v) material breach of this
Agreement or Mr. Gast's Proprietary Information and Inventions Agreement; (vi) a
failure or refusal in a material respect of Mr. Gast to follow the reasonable
policies or directions of the Company as specified by the Board of Directors
after being provided with notice of such failure and an opportunity to cure
within seven (7) days of receipt of such notice; or (vii) failure to carry out
the duties of the Mr. Gast's position after being provided with notice of such
failure and an opportunity to cure. Disability shall not constitute "Cause."
6.3 DISABILITY. For purposes of this Agreement, "DISABILITY" shall
mean a disability that prevents Mr. Gast from substantially performing his
duties under this Agreement for a period of at least 90 consecutive days or 180
non-consecutive days within any 365-day period.
6.4 DEATH. In the event of death, the Company shall pay to
Mr. Gast's estate any earned but unpaid salary at the time of death and, at
the time such amount would otherwise have been due, a pro rata portion of a
discretionary bonus, if any, which may otherwise have been paid to Mr. Gast
with respect to the annual period in which the death occurs. Furthermore, the
Company shall waive its repurchase rights with respect to 50% of any unvested
shares as of the date of death; PROVIDED, HOWEVER, that Mr. Gast's estate,
administrator or distributor shall become a party to, and be subject to the
provisions of, the Investors' Rights Agreement. In addition, the acceleration
provisions set forth in paragraph 2.3 herein shall remain in effect,
PROVIDED, HOWEVER, that Mr. Gast's estate, administrator or distributor shall
become a party to, and be subject to the provisions of, this Agreement.
7. BUSINESS EXPENSE REIMBURSEMENT. The Company agrees to reimburse
Mr. Gast for those reasonable business expenses he necessarily incurs in his
capacity as a Company employee and member of the Board of Directors
consistent with the Company's policies in this regard. Mr. Gast must submit
the necessary documentation establishing the amount, date and reason for
expenses he incurred and for which he seeks reimbursement.
<PAGE>
8. NON-COMPETITION AND NON-SOLICITATION. Mr. Gast acknowledges that prior
to the Separation Date, the Company employed him, among other things, as a
member of executive and management personnel. Mr. Gast further acknowledges that
during his employment at the Company, he was and will be privy to extremely
sensitive, confidential and valuable commercial information, which constitutes
trade secrets belonging to the Company, the disclosure of which information and
secrets would greatly harm the Company.
8.1 NON-COMPETITION COVENANT. As a reasonable measure to protect
the Company from the harm of such disclosure and use of its information and
trade secrets against it, Mr. Gast agrees to the following as part of this
Agreement: Mr. Gast agrees that he shall not, individually or together with
others, directly or indirectly, during his employment with the Company and for a
period of twelve (12) months from the Separation Date, for any reason, whether
as an owner, consultant, partner, joint venturer, stockholder, broker, agent,
financial agent, principal, trustee, licensor or in any other capacity
whatsoever, own, manage, operate, join, control, finance or participate in the
ownership, management, operation, control or financing of, or be connected as an
officer, director, employee, partner, principal, agent, representative,
consultant, licensor, licensee or otherwise with, any business or enterprise in
any city, county, or state of the United States, or any other locality, region,
territory, country, or jurisdiction, which provides high speed data transmission
services in a market in which the Company has at least one (1) operational DSLAM
or at least one (1) central office location under construction as of the
Separation Date. An acquisition or ownership of less than 5% of the outstanding
shares of any publicly traded company will not constitute a violation of this
Agreement.
8.2 NON-SOLICITATION COVENANT. As a reasonable measure to protect
the Company from the harm of such disclosure and use of its information and
trade secrets against it, the parties agree to the following as part of this
Agreement: Mr. Gast acknowledges and agrees that information regarding employees
of the Company is Confidential Information, including without limitation, the
names of the Company employees; information regarding the skills and knowledge
of employees of the Company; information regarding any past, present, or
intended compensation, benefits, policies and incentives for employees of the
Company; and information regarding the management and reporting structure of the
Company. Mr. Gast agrees that he will not, individually or with others, directly
or indirectly (including without limitation, individually or through any
business, venture, proprietorship, partnership, or corporation in which they
control or own more than a five (5) percent interest, through any agents,
through any contractors, through recruiters, by their successors, by their
employees, or by their assigns) hire, solicit, or induce any employee of the
Company to leave the Company during the period Mr. Gast is employed by the
Company and for a period of twelve (12) months from the Separation Date.
Mr. Gast further agrees that during the period he is employed by the Company
and for a period of twelve (12) months from the Separation Date, he will not,
either directly or indirectly, solicit or attempt to solicit any customer,
client, supplier, investor, vendor, consultant or independent contractor of
the Company to terminate, reduce or negatively alter his, her or its
relationship with the Company. The geographic scope of the covenants in this
paragraph shall include any city, county, or state of the United States and
any such other city, territory, country, or jurisdiction in which the Company
does business. Nothing in this paragraph should be construed to narrow the
obligations of Mr. Gast imposed by any other provision herein, any other
agreement, law or other source.
<PAGE>
8.3 REASONABLE. Mr. Gast agrees and acknowledges that the time
limitation and the geographic scope on the restrictions in this paragraph 8 and
its subparts are reasonable. Mr. Gast also acknowledges and agrees that the
limitation in this paragraph 8 and its subparts is reasonably necessary for the
protection of the Company, that through this Agreement he shall receive adequate
consideration for any loss of opportunity associated with the provisions herein,
and that these provisions provide a reasonable way of protecting the Company's
business value which was imparted to him. In the event that any term, word,
clause, phrase, provision, restriction, or section of this paragraph 8 of this
Agreement is more restrictive than permitted by the law of the jurisdiction in
which the Company seeks enforcement thereof, the provisions of this Agreement
shall be limited only to that extent that a judicial determination finds the
same to be unreasonable or otherwise unenforceable. Moreover, notwithstanding
any judicial determination that any term, word, clause, phrase, provision,
restriction, or section of this Agreement is not specifically enforceable, the
parties intend that the Company shall nonetheless be entitled to recover
monetary damages as a result of any breach hereof.
8.4 LEGAL AND EQUITABLE REMEDIES. In view of the nature of the
rights in goodwill, employee relations, trade secrets, and business reputation
and prospects of the Company to be protected under this paragraph 8 of this
Agreement, Mr. Gast understands and agrees that the Company could not be
reasonably or adequately compensated in damages in an action at law for
Mr. Gast's breach of his obligations hereunder. Accordingly, Mr. Gast
specifically agrees that the Company shall be entitled to temporary and
permanent injunctive relief, specific performance, and other equitable relief
to enforce the provisions of this paragraph 8 of this Agreement and that such
relief may be granted without the necessity of proving actual damages, and
without bond. MR. GAST ACKNOWLEDGES AND AGREES THAT THE PROVISIONS IN THIS
PARAGRAPH 8 AND ITS SUBPARTS ARE ESSENTIAL AND MATERIAL TO THIS AGREEMENT,
AND THAT UPON BREACH OF THIS PARAGRAPH 8 BY HIM, THE COMPANY IS ENTITLED TO
WITHHOLD PROVIDING PAYMENTS OR CONSIDERATION, TO EQUITABLE RELIEF TO PREVENT
CONTINUED BREACH, TO RECOVER DAMAGES AND TO SEEK ANY OTHER REMEDIES AVAILABLE
TO THE COMPANY. This provision with respect to injunctive relief shall not,
however, diminish the right of the Company to claim and recover damages or
other remedies in addition to equitable relief.
8.5 EXTENSION OF TIME. In the event that Mr. Gast breaches any
covenant, obligation or duty in this paragraph 8 or its subparts, any such duty,
obligation, or covenants to which the parties agreed by this paragraph 8 and its
subparts shall automatically toll from the date of the first breach, and all
subsequent breaches, until the resolution of the breach through private
settlement, judicial or other action, including all appeals. The duration and
length of Mr. Gast's duties and obligations as agreed by this paragraph 8 and
its subparts shall continue upon the effective date of any such settlement, or
judicial or other resolution.
9. GENERAL PROVISIONS.
9.1 NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telex) or the third day after mailing by first class mail,
to the Company at its primary office location and to Mr. Gast at his address as
listed on the Company's then current payroll records.
<PAGE>
9.2 TAX CONSEQUENCES. Mr. Gast agrees to indemnify the Company and
hold the Company harmless from any and all claims or penalties asserted against
the Company for any failure to pay taxes due on any consideration provided by
the Company pursuant to this Agreement. Mr. Gast expressly acknowledges that the
Company has not made, nor herein makes, any representation about the tax
consequences of any consideration provided by the Company to Mr. Gast pursuant
to this Agreement.
9.3 COOPERATION. Mr. Gast agrees to fully cooperate with the
Company with respect to its corporate relationships. Mr. Gast further agrees to
cooperate with the Company in connection with any defense of or prosecution by
the Company regarding any litigation in which the Company may be involved as a
party or non-party in from time to time.
9.4 NON-DISPARAGEMENT. Mr. Gast and the Company agree that neither
party will at any time disparage the other to third parties in any manner likely
to be harmful to the other party, their business reputation, or the personal or
business reputation of its directors, shareholders and/or employees.
Notwithstanding the prohibition in the preceding sentence, each party shall
respond accurately and fully to any question, inquiry, or request for
information when required by legal process, or when posed by a governmental
entity
9.5 THE COMPANY PROPERTY. Unless authorized by the Company, on the
Separation Date, Mr. Gast agrees to return to the Company all Company documents
(and all copies thereof) and any and all other Company property in Mr. Gast's
possession, custody or control, including, but not limited to, financial
information, customer information, customer lists, employee lists, Company
files, notes, cellular telephones, personal computers, personal computers,
contracts, drawings, records, business plans and forecasts, financial
information, specifications, computer-recorded information, software, tangible
property, credit cards, entry cards, identification badges and keys, and any
materials of any kind which contain or embody any proprietary or confidential
material of the Company (and all reproductions thereof).
9.6 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 invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
9.7 WAIVER. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.
9.8 COMPLETE AGREEMENT. This Agreement and EXHIBITS A AND B
hereto, constitute the entire agreement between Mr. Gast and the Company and it
is the complete, final, and exclusive embodiment of their agreement with regard
to this subject matter. This Agreement supersedes and replaces the Employment
Agreement dated April 16, 1999. It is entered into without reliance on any
promise or representation other than those expressly contained herein, and it
cannot be modified or amended except in a writing signed by an officer of the
Company.
<PAGE>
9.9 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
9.10 HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
9.11 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Mr. Gast and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Mr. Gast may not assign any of his duties hereunder and he may not
assign any of his rights hereunder without the written consent of the Company,
which shall not be withheld unreasonably.
9.12 ATTORNEY FEES. If either party hereto brings any action to
enforce his or its rights hereunder, the prevailing party in any such action
shall be entitled to recover his or its reasonable attorneys' fees and costs
incurred in connection with such action.
9.13 CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of the
State of Colorado.
9.14 SURVIVAL. The following provisions of this Agreement shall
survive the termination of Mr. Gast's employment as an employee or independent
contractor and the assignment of this Agreement by the Company to any successor
in interest or other assignee: Sections 2.4, 4, 8, and 9.
9.15 INJUNCTIVE RELIEF. Mr. Gast acknowledges that the restrictions
set forth in Sections 2.4, 4, 8, and 9 above are necessary to protect the
Company's confidential proprietary information and other legitimate business
interests and are reasonable in all respects, including duration, territory and
scope of activity restricted. Mr. Gast further acknowledges that the provisions
of Sections 2.4, 4, 8, and 9 hereof are essential to the Company, that the
Company would not enter into this Agreement if it did not include these
provisions and that damages sustained by the Company as a result of a breach of
these provisions cannot be adequately remedied by damages, and Mr. Gast agrees
that the Company, in addition to any other remedy it may have under this
Agreement or at law, shall be entitled to injunctive and other equitable relief
to prevent or curtail any breach of Sections 2.4, 4, 8, and 9 of this Agreement.
Mr. Gast agrees that the existence of any claim or cause of action by Mr. Gast
against the Company or its affiliates, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
any of the provisions of this Agreement. Mr. Gast shall have no right to enforce
any of his rights under this Agreement by seeking or obtaining injunctive or
other equitable relief and acknowledges that damages are an adequate remedy for
any breach by the Company of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
JATO COMMUNICATIONS CORP.
By: /s/ Gerald Dinsmore
-----------------------------------
Gerald Dinsmore,
President and Chief Executive
Officer
By: /s/ Brian E. Gast
-----------------------------------
BRIAN E. GAST
Exhibit A: Non-Competition, Proprietary Information and Inventions Agreement.
Exhibit B: Separation and Release Agreement.
<PAGE>
JATO COMMUNICATIONS CORP.
AMENDED AND RESTATED FOUNDERS EMPLOYMENT TRANSITION AND SEPARATION AGREEMENT
FOR
LEONARD ALLSUP
THIS AMENDED AND RESTATED FOUNDERS EMPLOYMENT TRANSITION AND SEPARATION
AGREEMENT ("AGREEMENT") is entered into as of the 3rd day of April, 2000,
("Execution Date") by and between LEONARD ALLSUP ("Mr. Allsup") and JATO
COMMUNICATIONS CORP., a Delaware corporation (the "Company").
RECITALS
WHEREAS, Mr. Allsup has been employed by the Company as its Executive
Vice President, Sales; and
WHEREAS, the Company and Mr. Allsup are parties to an employment
agreement dated April 16, 1999; and
WHEREAS, the Company has materially reduced the job responsibilities of
Mr. Allsup; and
WHEREAS, as a result of the material reduction of his job
responsibilities, Mr. Allsup has tendered his resignation with the Company under
the terms and conditions hereinafter set forth; and
WHEREAS, the Company and Mr. Allsup entered into a Founder Employment
Transition and Separation Agreement dated February 10, 2000; and
WHEREAS, the Company has accepted Mr. Allsup's resignation as Executive
Vice President, Sales; and
WHEREAS, the Company and Mr. Allsup desire to replace the terms of the
April 16, 1999 Employment Agreement; and
WHEREAS, the Company and Mr. Allsup desire to amend and restated in its
entirety the Founders Employment Transition and Separation Agreement dated
February 10, 2000 with this Agreement; and
WHEREAS, the Company wishes to employ Mr. Allsup in the capacity and
under the terms and conditions hereinafter set forth, and Mr. Allsup is willing
to be so employed by the Company.
1.
<PAGE>
NOW, THEREFORE, in consideration of the recitals set forth above that
are incorporated by reference herein and the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
AGREEMENT
1. RESIGNATION. Mr. Allsup has tendered and the Company has accepted Mr.
Allsup's resignation as Executive Vice President, Sales and any and all other
positions he may have held with the Company or any affiliates or subsidiaries of
the Company.
2. CONTINUED EMPLOYMENT BY THE COMPANY. Mr. Allsup will continue as an
employee of the Company until such time as his employment is terminated as set
forth in paragraph 6 herein. From the Execution Date through the Separation
Date, as defined in paragraph 6 below, Mr. Allsup shall be available to provide
such services as are requested by the Company's Board of Directors.
2.1 COMPENSATION. The Company agrees to continue to compensate Mr.
Allsup at the same rate of regular salary he received as of the Execution Date,
less all applicable deductions and withholdings, payable on a semi-monthly basis
or in accordance with the Company's customary practices (as they may be changed
by the Company from time to time in its sole discretion).
2.2 BENEFITS. The Company shall continue to make available to Mr.
Allsup all Company benefits available and received by Mr. Allsup immediately
before the Execution Date. Notwithstanding the prior sentence, Mr. Allsup agrees
and acknowledges that from the Execution Date through the Separation Date, Mr.
Allsup is not entitled to nor will he accrue any vacation time, holiday leave or
sick leave.
2.3 RESTRICTED STOCK. As of the Execution Date, Mr. Allsup owns or
is deemed to be the beneficial owner of 3,007,228 shares of Common Stock, of
which 902,168 were vested and 2,105,060 were not yet vested. Unless Mr. Allsup
voluntarily resigns as an employee or is terminated for Cause (as defined in the
Employment Agreement) prior to such date, the 2,105,060 unvested shares will
vest the earlier of the Company's initial public offering or in two equal
installments, the first installment of 1,052,530 shares on March 31, 2000 and
the second installment of 1,052,530 shares on June 30, 2000. All shares of
Common Stock in this Agreement, unless otherwise noted, reflect a 1.407 for 1
forward stock split to take effect on or around March 29, 2000.
2.4 VOLUME LIMITATION. Should the Company launch an initial
public offering ("IPO"), the Company shall sell all shares to be sold in the
IPO, excluding those shares to be sold pursuant to the exercise, if any, of
the underwriters' over-allotment option to purchase additional shares of
common stock within 30 days from the date of the final prospectus pertaining
to the Company's IPO (the "Green Shoe"). The Company and Mr. Allsup agree,
that should the Green Shoe be exercised, all shares to be sold pursuant to
the underwriters' exercise of the Green Shoe, shall be those shares held by
the Founders (for purposes herein the term "Founders" refers to Bruce E.
Dines, Leonard Allsup and Brian E. Gast). Mr. Allsup and the other Founders
have executed a lockup agreement with Merrill Lynch & Co. and other
representatives of the
<PAGE>
underwriters (the "Merrill Lynch Lockup"). The Company acknowledges that it
is not a party to the Merrill Lynch Lockup and that it shall not have any
rights to enforce the Merrill Lynch Lockup. Separate and apart from the
Merrill Lynch Lockup, Mr. Allsup and the other Founders agree that the number
of shares the Founders can sell during the 180 day period following the date
which is 180 days from the date of the Purchase Agreement related to the IPO
(the "Additional Lockup"), will be limited (the "Volume Limitation Period").
The terms of the Volume Limitation Period are as follows:
(a) The Founders will be limited to the sale of an
aggregate of 2,462,250 shares during the Volume Limitation Period. The Founders
shall be solely responsible for allocating the number of shares each Founder
will be permitted to sell during the Volume Limitation Period. Shares sold under
this provision may be sold in only broadly distributed underwritten public
offerings or normal Rule 144 open market transactions.
(b) As long as Mr. Allsup maintains ownership in the
Company Mr. Allsup shall also be bound by the following restrictions:
(i) to not knowingly sell his shares of the
Company stock to a person or group who, as a result of such sale, would own 5%
or more of the Company's outstanding stock or to directly or indirectly solicit
any person or group to purchase from him or any other Founder shares in the
Company if such person or group, as a result of such purchase, would own 5% or
more of the Company's outstanding stock; and
(ii) to not knowingly sell his shares of the
Company stock to a Company competitor (as defined in paragraph 8.1) or to
directly or indirectly solicit any competitor (as defined in paragraph 8.1) to
purchase from him shares in the Company; and
(iii) to not engage in, or support, a hostile
proxy solicitation.
2.5 VACATION PAY-OUT. The parties agree that on the Separation
Date the accrued but unused vacation shall be 20 days.
2.6 SEPARATION AND RELEASE AGREEMENT. As part of this Agreement,
Mr. Allsup agrees to enter into the Separation and Release Agreement attached
hereto as Exhibit B, within the time set forth in said Separation and Release
Agreement.
3. POLICIES AND PROCEDURES. Mr. Allsup agrees that he is subject to and
will comply with the policies and procedures of the Company, as such policies
and procedures may be modified, added to or eliminated from time to time at the
sole discretion of the Company Board of Directors, except to the extent any such
policy or procedure specifically conflicts with the express terms of this
Agreement. Mr. Allsup further agrees and acknowledges that any written or oral
policies and procedures of the Company do not constitute contracts between the
Company and Mr. Allsup.
4. PROPRIETARY INFORMATION OBLIGATIONS.
4.1 AGREEMENT. Except as set forth herein, Mr. Allsup agrees to
continue to abide by Mr. Allsup's previously executed Non-Competition,
Proprietary Information and Inventions Agreement attached hereto as EXHIBIT A.
4.2 REMEDIES. Mr. Allsup's duties under the Non-Competition,
Proprietary Information and Inventions Agreement shall survive termination of
his employment with the
<PAGE>
Company. Mr. Allsup acknowledges that a remedy at law for any breach or
threatened breach by him of the provisions of the Non-competition, Proprietary
Information and Inventions Agreement would be inadequate, and he therefore
agrees that the Company shall be entitled to injunctive relief in case of any
such breach or threatened breach. By seeking injunctive relief the Company does
not waive any other rights or remedies it may have.
5. OUTSIDE ACTIVITIES. Except with the prior written consent of the
Company's Board of Directors, Mr. Allsup will not, from the Execution Date
through the Separation Date, undertake or engage in any other employment,
occupation or business enterprise, other than those in which Mr. Allsup is a
passive investor, non-executive board member or which takes less than 10% of Mr.
Allsup's business time. Mr. Allsup may engage in civic and not-for-profit
activities so long as such activities do not materially interfere with the
performance of his duties hereunder.
6. TERMINATION OF EMPLOYMENT. Either Mr. Allsup or the Company may
terminate the employment relationship at any time for any reason whatsoever,
with thirty (30) days prior written notice by the Company and with thirty (30)
days' prior written notice by Mr. Allsup with or without Cause or advance
notice. This at-will employment relationship cannot be changed except in a
writing approved by the Board. Notwithstanding this at-will employment
relationship, Mr. Allsup's employment with the Company shall automatically
terminate upon the earlier of the closing of the Company's initial public
offering or on June 30, 2000. Whether terminated for cause, without cause,
automatically as provided in the previous sentence or voluntarily terminated by
Mr. Allsup, such termination is defined herein as the "Separation Date." Mr.
Allsup shall remain as a member of the Board of Directors of the Company and a
member of the Board of Directors of any affiliates or subsidiaries of the
Company until June 30, 2000. On June 30, 2000, Mr. Allsup agrees to tender his
resignation from the Board of Directors of the Company and from the Board of
Directors of any affiliates or subsidiaries of the Company.
6.1 SEVERANCE PAYMENT. If the Company terminates Mr. Allsup's
employment without Cause at any time or if Mr. Allsup employment terminates
automatically as set forth in paragraph 6 herein, Mr. Allsup will receive as
severance: (i) a lump sum payment equal to one (1) year of base salary, less
payroll deductions and required withholdings pursuant to the Separation
Agreement attached as Exhibit B, (ii) a lump sum payment of that portion of the
bonus Mr. Allsup is entitled to for the calendar year pro-rated based upon the
number of full months Mr. Allsup was employed in such year pursuant to the
Separation Agreement attached as Exhibit B, (iii) continuation of all Company
Benefits for a period of one (1) year pursuant to the Separation Agreement
attached as Exhibit B, and (iv) termination of all repurchase rights on Mr.
Allsup's stock, in exchange for the execution of a release of all claims against
the Company in the form attached as Exhibit B; PROVIDED, THAT, in the event of
termination due to Disability, this subsection (iv) shall apply only with
respect to 50% of any unvested stock held by Mr. Allsup on the date of
termination and with respect to the waiver of repurchase rights of 50% of any
unvested shares held by Mr. Allsup on the date of termination; PROVIDED,
FURTHER, that Mr. Allsup shall remain a party to, and subject to the provisions
of, the Investors' Rights Agreement. If Mr. Allsup voluntarily resigns or if Mr.
Allsup's employment is terminated for Cause, all compensation and benefits will
cease immediately and Mr. Allsup will receive no severance benefits.
<PAGE>
6.2 CAUSE. For purposes of this Agreement, "CAUSE" shall mean
misconduct, including: (i) conviction of any felony or any crime involving moral
turpitude or dishonesty; (ii) participation in a fraud or act of dishonesty
against the Company; (iii) willful breach of the Company's policies; (iv)
intentional damage to the Company's property; (v) material breach of this
Agreement or Mr. Allsup's Proprietary Information and Inventions Agreement; (vi)
a failure or refusal in a material respect of Mr. Allsup to follow the
reasonable policies or directions of the Company as specified by the Board of
Directors after being provided with notice of such failure and an opportunity to
cure within seven (7) days of receipt of such notice; or (vii) failure to carry
out the duties of the Mr. Allsup's position after being provided with notice of
such failure and an opportunity to cure. Disability shall not constitute
"Cause."
6.3 DISABILITY. For purposes of this Agreement, "DISABILITY" shall
mean a disability that prevents Mr. Allsup from substantially performing his
duties under this Agreement for a period of at least 90 consecutive days or 180
non-consecutive days within any 365-day period.
6.4 DEATH. In the event of death, the Company shall pay to Mr.
Allsup's estate any earned but unpaid salary at the time of death and, at the
time such amount would otherwise have been due, a pro rata portion of a
discretionary bonus, if any, which may otherwise have been paid to Mr. Allsup
with respect to the annual period in which the death occurs. Furthermore, the
Company shall waive its repurchase rights with respect to 50% of any unvested
shares as of the date of death; PROVIDED, HOWEVER, that Mr. Allsup's estate,
administrator or distributor shall become a party to, and be subject to the
provisions of, the Investors' Rights Agreement. In addition, the acceleration
provisions set forth in paragraph 2.3 herein shall remain in effect, PROVIDED,
HOWEVER, that Mr. Allsup's estate, administrator or distributor shall become a
party to, and be subject to the provisions of, this Agreement.
7. BUSINESS EXPENSE REIMBURSEMENT. The Company agrees to reimburse Mr.
Allsup for those reasonable business expenses he necessarily incurs in his
capacity as a Company employee and member of the Board of Directors consistent
with the Company's policies in this regard. Mr. Allsup must submit the necessary
documentation establishing the amount, date and reason for expenses he incurred
and for which he seeks reimbursement.
8. NON-COMPETITION AND NON-SOLICITATION. Mr. Allsup acknowledges that
prior to the Separation Date, the Company employed him, among other things, as a
member of executive and management personnel. Mr. Allsup further acknowledges
that during his employment at the Company, he was and will be privy to extremely
sensitive, confidential and valuable commercial information, which constitutes
trade secrets belonging to the Company, the disclosure of which information and
secrets would greatly harm the Company.
8.1 NON-COMPETITION COVENANT. As a reasonable measure to protect
the Company from the harm of such disclosure and use of its information and
trade secrets against it, Mr. Allsup agrees to the following as part of this
Agreement: Mr. Allsup agrees that he shall not, individually or together with
others, directly or indirectly, during his employment with the Company and for a
period of twelve (12) months from the Separation Date, for any reason, whether
as an owner, consultant, partner, joint venturer, stockholder, broker, agent,
financial agent, principal, trustee, licensor or in any other capacity
whatsoever, own, manage, operate, join, control, finance or participate in the
ownership, management, operation, control or
<PAGE>
financing of, or be connected as an officer, director, employee, partner,
principal, agent, representative, consultant, licensor, licensee or otherwise
with, any business or enterprise in any city, county, or state of the United
States, or any other locality, region, territory, country, or jurisdiction,
which provides high speed data transmission services in a market in which the
Company has at least one (1) operational DSLAM or at least one (1) central
office location under construction as of the Separation Date. An acquisition or
ownership of less than 5% of the outstanding shares of any publicly traded
company will not constitute a violation of this Agreement.
8.2 NON-SOLICITATION COVENANT. As a reasonable measure to protect
the Company from the harm of such disclosure and use of its information and
trade secrets against it, the parties agree to the following as part of this
Agreement: Mr. Allsup acknowledges and agrees that information regarding
employees of the Company is Confidential Information, including without
limitation, the names of the Company employees; information regarding the skills
and knowledge of employees of the Company; information regarding any past,
present, or intended compensation, benefits, policies and incentives for
employees of the Company; and information regarding the management and reporting
structure of the Company. Mr. Allsup agrees that he will not, individually or
with others, directly or indirectly (including without limitation, individually
or through any business, venture, proprietorship, partnership, or corporation in
which they control or own more than a five (5) percent interest, through any
agents, through any contractors, through recruiters, by their successors, by
their employees, or by their assigns) hire, solicit, or induce any employee of
the Company to leave the Company during the period Mr. Allsup is employed by the
Company and for a period of twelve (12) months from the Separation Date. Mr.
Allsup further agrees that during the period he is employed by the Company and
for a period of twelve (12) months from the Separation Date, he will not, either
directly or indirectly, solicit or attempt to solicit any customer, client,
supplier, investor, vendor, consultant or independent contractor of the Company
to terminate, reduce or negatively alter his, her or its relationship with the
Company. The geographic scope of the covenants in this paragraph shall include
any city, county, or state of the United States and any such other city,
territory, country, or jurisdiction in which the Company does business. Nothing
in this paragraph should be construed to narrow the obligations of Mr. Allsup
imposed by any other provision herein, any other agreement, law or other source.
8.3 REASONABLE. Mr. Allsup agrees and acknowledges that the time
limitation and the geographic scope on the restrictions in this paragraph 8 and
its subparts are reasonable. Mr. Allsup also acknowledges and agrees that the
limitation in this paragraph 8 and its subparts is reasonably necessary for the
protection of the Company, that through this Agreement he shall receive adequate
consideration for any loss of opportunity associated with the provisions herein,
and that these provisions provide a reasonable way of protecting the Company's
business value which was imparted to him. In the event that any term, word,
clause, phrase, provision, restriction, or section of this paragraph 8 of this
Agreement is more restrictive than permitted by the law of the jurisdiction in
which the Company seeks enforcement thereof, the provisions of this Agreement
shall be limited only to that extent that a judicial determination finds the
same to be unreasonable or otherwise unenforceable. Moreover, notwithstanding
any judicial determination that any term, word, clause, phrase, provision,
restriction, or section of this Agreement is not specifically enforceable, the
parties intend that the Company shall nonetheless be entitled to recover
monetary damages as a result of any breach hereof.
<PAGE>
8.4 LEGAL AND EQUITABLE REMEDIES. In view of the nature of the
rights in goodwill, employee relations, trade secrets, and business reputation
and prospects of the Company to be protected under this paragraph 8 of this
Agreement, Mr. Allsup understands and agrees that the Company could not be
reasonably or adequately compensated in damages in an action at law for Mr.
Allsup's breach of his obligations hereunder. Accordingly, Mr. Allsup
specifically agrees that the Company shall be entitled to temporary and
permanent injunctive relief, specific performance, and other equitable relief to
enforce the provisions of this paragraph 8 of this Agreement and that such
relief may be granted without the necessity of proving actual damages, and
without bond. MR. ALLSUP ACKNOWLEDGES AND AGREES THAT THE PROVISIONS IN THIS
PARAGRAPH 8 AND ITS SUBPARTS ARE ESSENTIAL AND MATERIAL TO THIS AGREEMENT, AND
THAT UPON BREACH OF THIS PARAGRAPH 8 BY HIM, THE COMPANY IS ENTITLED TO WITHHOLD
PROVIDING PAYMENTS OR CONSIDERATION, TO EQUITABLE RELIEF TO PREVENT CONTINUED
BREACH, TO RECOVER DAMAGES AND TO SEEK ANY OTHER REMEDIES AVAILABLE TO THE
COMPANY. This provision with respect to injunctive relief shall not, however,
diminish the right of the Company to claim and recover damages or other remedies
in addition to equitable relief.
8.5 EXTENSION OF TIME. In the event that Mr. Allsup breaches any
covenant, obligation or duty in this paragraph 8 or its subparts, any such duty,
obligation, or covenants to which the parties agreed by this paragraph 8 and its
subparts shall automatically toll from the date of the first breach, and all
subsequent breaches, until the resolution of the breach through private
settlement, judicial or other action, including all appeals. The duration and
length of Mr. Allsup's duties and obligations as agreed by this paragraph 8 and
its subparts shall continue upon the effective date of any such settlement, or
judicial or other resolution.
9. GENERAL PROVISIONS.
9.1 NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telex) or the third day after mailing by first class mail,
to the Company at its primary office location and to Mr. Allsup at his address
as listed on the Company's then current payroll records.
9.2 TAX CONSEQUENCES. Mr. Allsup agrees to indemnify the Company
and hold the Company harmless from any and all claims or penalties asserted
against the Company for any failure to pay taxes due on any consideration
provided by the Company pursuant to this Agreement. Mr. Allsup expressly
acknowledges that the Company has not made, nor herein makes, any representation
about the tax consequences of any consideration provided by the Company to Mr.
Allsup pursuant to this Agreement.
9.3 COOPERATION. Mr. Allsup agrees to fully cooperate with the
Company with respect to its corporate relationships. Mr. Allsup further agrees
to cooperate with the Company in connection with any defense of or prosecution
by the Company regarding any litigation in which the Company may be involved as
a party or non-party in from time to time.
9.4 NON-DISPARAGEMENT. Mr. Allsup and the Company agree that
neither party will at any time disparage the other to third parties in any
manner likely to be harmful to the other party, their business reputation, or
the personal or business reputation of its directors, shareholders and/or
employees. Notwithstanding the prohibition in the preceding sentence, each
<PAGE>
party shall respond accurately and fully to any question, inquiry, or request
for information when required by legal process, or when posed by a governmental
entity
9.5 THE COMPANY PROPERTY. Unless authorized by the Company, on the
Separation Date, Mr. Allsup agrees to return to the Company all Company
documents (and all copies thereof) and any and all other Company property in Mr.
Allsup's possession, custody or control, including, but not limited to,
financial information, customer information, customer lists, employee lists,
Company files, notes, cellular telephones, personal computers, personal
computers, contracts, drawings, records, business plans and forecasts, financial
information, specifications, computer-recorded information, software, tangible
property, credit cards, entry cards, identification badges and keys, and any
materials of any kind which contain or embody any proprietary or confidential
material of the Company (and all reproductions thereof).
9.6 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 invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
9.7 WAIVER. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.
9.8 COMPLETE AGREEMENT. This Agreement and EXHIBITS A AND B
hereto, constitute the entire agreement between Mr. Allsup and the Company and
it is the complete, final, and exclusive embodiment of their agreement with
regard to this subject matter. This Agreement supersedes and replaces the
Employment Agreement dated April 16, 1999. It is entered into without reliance
on any promise or representation other than those expressly contained herein,
and it cannot be modified or amended except in a writing signed by an officer of
the Company.
9.9 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
9.10 HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
9.11 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Mr. Allsup and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Mr. Allsup may not assign any of his duties hereunder and he may not
assign any of his rights hereunder without the written consent of the Company,
which shall not be withheld unreasonably.
9.12 ATTORNEY FEES. If either party hereto brings any action to
enforce his or its rights hereunder, the prevailing party in any such action
shall be entitled to recover his or its reasonable attorneys' fees and costs
incurred in connection with such action.
<PAGE>
9.13 CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of the
State of Colorado.
9.14 SURVIVAL. The following provisions of this Agreement shall
survive the termination of Mr. Allsup's employment as an employee or independent
contractor and the assignment of this Agreement by the Company to any successor
in interest or other assignee: Sections 2.4, 4, 8, and 9.
9.15 INJUNCTIVE RELIEF. Mr. Allsup acknowledges that the
restrictions set forth in Sections 2.4, 4, 8, and 9 above are necessary to
protect the Company's confidential proprietary information and other legitimate
business interests and are reasonable in all respects, including duration,
territory and scope of activity restricted. Mr. Allsup further acknowledges that
the provisions of Sections 2.4, 4, 8, and 9 hereof are essential to the Company,
that the Company would not enter into this Agreement if it did not include these
provisions and that damages sustained by the Company as a result of a breach of
these provisions cannot be adequately remedied by damages, and Mr. Allsup agrees
that the Company, in addition to any other remedy it may have under this
Agreement or at law, shall be entitled to injunctive and other equitable relief
to prevent or curtail any breach of Sections 2.4, 4, 8, and 9 of this Agreement.
Mr. Allsup agrees that the existence of any claim or cause of action by Mr.
Allsup against the Company or its affiliates, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by the
Company of any of the provisions of this Agreement. Mr. Allsup shall have no
right to enforce any of his rights under this Agreement by seeking or obtaining
injunctive or other equitable relief and acknowledges that damages are an
adequate remedy for any breach by the Company of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
JATO COMMUNICATIONS CORP.
By: /s/ Gerald Dinsmore
-------------------------------
Gerald Dinsmore,
President and Chief Executive
Officer
By: /s/ Leonard Allsup
-------------------------------
LEONARD ALLSUP
Exhibit A: Non-Competition, Proprietary Information and Inventions Agreement.
Exhibit B: Separation and Release Agreement.
<PAGE>
JATO COMMUNICATIONS CORP.
AMENDED AND RESTATED FOUNDERS EMPLOYMENT TRANSITION AND SEPARATION AGREEMENT
FOR
BRUCE E. DINES
THIS AMENDED AND RESTATED FOUNDERS EMPLOYMENT TRANSITION AND SEPARATION
AGREEMENT ("AGREEMENT") is entered into as of the 3rd day of April, 2000,
("Execution Date") by and between BRUCE E. DINES ("Mr. Dines") and JATO
COMMUNICATIONS CORP., a Delaware corporation (the "Company").
RECITALS
WHEREAS, Mr. Dines is currently employed by the Company as its Vice
President, Customer Operations and Executive; and
WHEREAS, the Company and Mr. Dines are parties to an employment
agreement dated April 16, 1999; and
WHEREAS, the Company has materially reduced the job responsibilities of
Mr. Dines; and
WHEREAS, as a result of the material reduction of his job
responsibilities, Mr. Dines has tendered his resignation with the Company under
the terms and conditions hereinafter set forth; and
WHEREAS, the Company and Mr. Dines entered into a Founder Employment
Transition and Separation Agreement dated February 10, 2000; and
WHEREAS, the Company has accepted Mr. Dines' resignation as Vice
President, Customer Operations and Executive; and
WHEREAS, the Company and Mr. Dines desire to replace the terms of the
April 16, 1999 Employment Agreement; and
WHEREAS, the Company and Mr. Dines desire to amend and restated in its
entirety the Founders Employment Transition and Separation Agreement dated
February 10, 2000 with this Agreement; and
WHEREAS, the Company wishes to employ Mr. Dines in the capacity and
under the terms and conditions hereinafter set forth, and Mr. Dines is willing
to be so employed by the Company.
<PAGE>
NOW, THEREFORE, in consideration of the recitals set forth above that
are incorporated by reference herein and the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
AGREEMENT
1. RESIGNATION. Mr. Dines has tendered and the Company has accepted Mr.
Dines' resignation as Vice President, Customer Operations and Executive and any
and all other positions he may have held with the Company or any affiliates or
subsidiaries of the Company.
2. CONTINUED EMPLOYMENT BY THE COMPANY. Mr. Dines will continue as an
employee of the Company until such time as his employment is terminated as set
forth in paragraph 6 herein. From the Execution Date through the Separation
Date, as defined in paragraph 6 below, Mr. Dines shall be available to provide
such services as are requested by the Company's Board of Directors.
2.1 COMPENSATION. The Company agrees to continue to compensate Mr.
Dines at the same rate of regular salary he received as of the Execution Date,
less all applicable deductions and withholdings, payable on a semi-monthly basis
or in accordance with the Company's customary practices (as they may be changed
by the Company from time to time in its sole discretion).
2.2 BENEFITS. The Company shall continue to make available to Mr.
Dines all Company benefits available and received by Mr. Dines immediately
before the Execution Date. Notwithstanding the prior sentence, Mr. Dines agrees
and acknowledges that from the Execution Date through the Separation Date, Mr.
Dines is not entitled to nor will he accrue any vacation time, holiday leave or
sick leave.
2.3 RESTRICTED STOCK. As of the Execution Date, Mr. Dines owns or
is deemed to be the beneficial owner of 1,628,368 shares of Common Stock, of
which 488,510 were vested and 1,139,858 were not yet vested. Unless Mr. Dines
voluntarily resigns as an employee or is terminated for Cause (as defined in
paragraph 6 below) prior to such date, the 1,139,858 unvested shares will vest
the earlier of the Company's initial public offering or in two equal
installments, the first installment of 569,929 shares on March 31, 2000 and the
second installment of 569,929 shares on June 30, 2000. All shares of Common
Stock in this Agreement, unless otherwise noted, reflect a 1.407 for 1 forward
stock split to take effect on or around March 29, 2000.
2.4 VOLUME LIMITATION. Should the Company launch an initial
public offering ("IPO"), the Company shall sell all shares to be sold in the
IPO, excluding those shares to be sold pursuant to the exercise, if any, of
the underwriters' over-allotment option to purchase additional shares of
common stock within 30 days from the date of the final prospectus pertaining
to the Company's IPO (the "Green Shoe"). The Company and Mr. Dines agree,
that should the Green Shoe be exercised, all shares to be sold pursuant to
the underwriters' exercise of the Green Shoe, shall be those shares held by
the Founders (for purposes herein the term "Founders" refers to Bruce E.
Dines, Leonard Allsup and Brian E. Gast). Mr. Dines and the other Founders
have executed a lockup agreement with Merrill Lynch & Co. and the other
representatives of the
<PAGE>
underwriters (the "Merrill Lynch Lockup"). The Company acknowledges that it
is not a party to the Merrill Lynch Lockup and that it shall not have any
rights to enforce the Merrill Lynch Lockup. Separate and apart from the
Merrill Lynch Lockup, Mr. Dines and the other Founders agree that the number
of shares the Founders can sell during the 180 day period following the date
which is 180 days from the date of the Purchase Agreement related to the IPO
(the "Additional Lockup"), will be limited (the "Volume Limitation Period").
The terms of the Volume Limitation Period are as follows:
(a) The Founders will be limited to the sale of an
aggregate of 2,462,250 shares during the Volume Limitation Period. The Founders
shall be solely responsible for allocating the number of shares each Founder
will be permitted to sell during the Volume Limitation Period. Shares sold under
this provision may be sold in only broadly distributed underwritten public
offerings or normal Rule 144 open market transactions.
(b) As long as Mr. Dines maintains ownership in the
Company Mr. Dines shall also be bound by the following restrictions:
(i) to not knowingly sell his shares of the
Company stock to a person or group who, as a result of such sale, would own 5%
or more of the Company's outstanding stock or to directly or indirectly solicit
any person or group to purchase from him or any other Founder shares in the
Company if such person or group, as a result of such purchase, would own 5% or
more of the Company's outstanding stock; and
(ii) to not knowingly sell his shares of the
Company stock to a Company competitor (as defined in paragraph 8.1 below) or to
directly or indirectly solicit any competitor (as defined in paragraph 8.1
below) to purchase from him shares in the Company; and
(iii) to not engage in, or support, a hostile
proxy solicitation.
2.5 THE DYNEX & CO. SHARES. The Company agrees, as allowed by
applicable law, to exclude from the Additional Lockup 66,666 shares of the
Company's Series A Preferred Stock held by DYNEX & Co, which will convert into
93,799 shares upon the closing of the IPO, of which Mr. Dines' owes a beneficial
one-third interest in.
2.6 VACATION PAY-OUT. The parties agree that on the Separation
Date the accrued but unused vacation shall be 20 days.
2.7 SEPARATION AND RELEASE AGREEMENT. As part of this Agreement,
Mr. Dines agrees to enter into the Separation and Release Agreement attached
hereto as Exhibit B, within the time set forth in said Separation and Release
Agreement.
<PAGE>
3. POLICIES AND PROCEDURES. Mr. Dines agrees that he is subject to and
will comply with the policies and procedures of the Company, as such policies
and procedures may be modified, added to or eliminated from time to time at the
sole discretion of the Company Board of Directors, except to the extent any such
policy or procedure specifically conflicts with the express terms of this
Agreement. Mr. Dines further agrees and acknowledges that any written or oral
policies and procedures of the Company do not constitute contracts between the
Company and Mr. Dines.
4. PROPRIETARY INFORMATION OBLIGATIONS.
4.1 AGREEMENT. Except as set forth herein, Mr. Dines agrees to
continue to abide by Mr. Dines' previously executed Non-Competition, Proprietary
Information and Inventions Agreement attached hereto as EXHIBIT A.
4.2 REMEDIES. Mr. Dines' duties under the Non-competition,
Proprietary Information and Inventions Agreement shall survive termination of
his employment with the Company. Mr. Dines acknowledges that a remedy at law for
any breach or threatened breach by him of the provisions of the Non-competition,
Proprietary Information and Inventions Agreement would be inadequate, and he
therefore agrees that the Company shall be entitled to injunctive relief in case
of any such breach or threatened breach. By seeking injunctive relief the
Company does not waive any other rights or remedies it may have.
5. OUTSIDE ACTIVITIES. Except with the prior written consent of the
Company's Board of Directors, Mr. Dines will not, from the Execution Date
through the Separation Date, undertake or engage in any other employment,
occupation or business enterprise, other than those in which Mr. Dines is a
passive investor, non-executive board member or which takes less than 10% of Mr.
Dines' business time. Mr. Dines may engage in civic and not-for-profit
activities so long as such activities do not materially interfere with the
performance of his duties hereunder.
6. TERMINATION OF EMPLOYMENT. Either Mr. Dines or the Company may
terminate the employment relationship at any time for any reason whatsoever,
with thirty (30) days prior written notice by the Company and with thirty (30)
days' prior written notice by Mr. Dines with or without Cause or advance notice.
This at-will employment relationship cannot be changed except in a writing
approved by the Board. Notwithstanding this at-will employment relationship, Mr.
Dines' employment with the Company and any affiliates or subsidiaries of the
Company, including any position as a member of the board of directors of the
Company or any affiliates or subsidiaries of the Company shall automatically
terminate upon the earlier of the closing of the Company's initial public
offering or on June 30, 2000. Whether terminated for cause, without cause,
automatically as provided in the previous sentence or voluntarily terminated by
Mr. Dines, such termination is defined herein as the "Separation Date."
6.1 SEVERANCE PAYMENT. If the Company terminates Mr. Dines'
employment without Cause at any time or if Mr. Dines employment terminates
automatically as set forth in paragraph 6 herein, Mr. Dines will receive as
severance: (i) a lump sum payment equal to one (1) year of base salary, less
payroll deductions and required withholdings, pursuant to the terms of the
Separation Agreement, attached as Exhibit B (ii) a lump sum payment of that
portion of the bonus Mr. Dines is entitled to for the calendar year pro-rated
based upon the number of full
<PAGE>
months Mr. Dines was employed in such year, pursuant to the terms of the
Separation Agreement, attached as Exhibit B (iii) continuation of all company
benefits for a period of one (1) year pursuant to the terms of the Separation
Agreement, attached as Exhibit B, and (iv) termination of all repurchase rights
on Mr. Dines' stock, in exchange for the execution of a release of all claims
against the Company in the form attached as Exhibit B; PROVIDED, THAT, in the
event of termination due to Disability, this subsection (iv) shall apply only
with respect to 50% of any unvested stock held by Mr. Dines on the date of
termination and with respect to the waiver of repurchase rights of 50% of any
unvested shares held by Mr. Dines on the date of termination; PROVIDED, FURTHER,
that Mr. Dines shall remain a party to, and subject to the provisions of, the
Investors' Rights Agreement. If Mr. Dines voluntarily resigns or if Mr. Dines'
employment is terminated for Cause, all compensation and benefits will cease
immediately and Mr. Dines will receive no severance benefits.
6.2 CAUSE. For purposes of this Agreement, "CAUSE" shall mean
misconduct, including: (i) conviction of any felony or any crime involving moral
turpitude or dishonesty; (ii) participation in a fraud or act of dishonesty
against the Company; (iii) willful breach of the Company's policies; (iv)
intentional damage to the Company's property; (v) material breach of this
Agreement or Mr. Dines' Proprietary Information and Inventions Agreement; (vi) a
failure or refusal in a material respect of Mr. Dines to follow the reasonable
policies or directions of the Company as specified by the Board of Directors
after being provided with notice of such failure and an opportunity to cure
within seven (7) days of receipt of such notice; or (vii) failure to carry out
the duties of the Mr. Dines' position after being provided with notice of such
failure and an opportunity to cure. Disability shall not constitute "Cause."
6.3 DISABILITY. For purposes of this Agreement, "DISABILITY" shall
mean a disability that prevents Mr. Dines from substantially performing his
duties under this Agreement for a period of at least 90 consecutive days or 180
non-consecutive days within any 365-day period.
6.4 DEATH. In the event of death, the Company shall pay to Mr.
Dines' estate any earned but unpaid salary at the time of death and, at the time
such amount would otherwise have been due, a pro rata portion of a discretionary
bonus, if any, which may otherwise have been paid to Mr. Dines with respect to
the annual period in which the death occurs. The Company shall waive its
repurchase rights with respect to 50% of any unvested shares as of the date of
death; PROVIDED, HOWEVER, that Mr. Dines' estate, administrator or distributor
shall become a party to, and be subject to the provisions of, the Investors'
Rights Agreement. In addition, the acceleration provisions set forth in
paragraph 2.3 herein shall remain in effect, PROVIDED, HOWEVER, that Mr. Dines'
estate, administrator or distributor shall become a party to, and be subject to
the provisions of, this Agreement.
7. BUSINESS EXPENSE REIMBURSEMENT. The Company agrees to reimburse Mr.
Dines for those reasonable business expenses he necessarily incurs in his
capacity as a Company employee and member of the Board of Directors consistent
with the Company's policies in this regard. Mr. Dines must submit the necessary
documentation establishing the amount, date and reason for expenses he incurred
and for which he seeks reimbursement.
8. NON-COMPETITION AND NON-SOLICITATION. Mr. Dines acknowledges that prior
to the Separation Date, the Company employed him, among other things, as a
member of executive and
<PAGE>
management personnel. Mr. Dines further acknowledges that during his employment
at the Company, he was and will be privy to extremely sensitive, confidential
and valuable commercial information, which constitutes trade secrets belonging
to the Company, the disclosure of which information and secrets would greatly
harm the Company.
8.1 NON-COMPETITION COVENANT. As a reasonable measure to protect
the Company from the harm of such disclosure and use of its information and
trade secrets against it, Mr. Dines agrees to the following as part of this
Agreement: Mr. Dines agrees that he shall not, individually or together with
others, directly or indirectly, during his employment with the Company and for a
period of twelve (12) months from the Separation Date, for any reason, whether
as an owner, consultant, partner, joint venturer, stockholder, broker, agent,
financial agent, principal, trustee, licensor or in any other capacity
whatsoever, own, manage, operate, join, control, finance or participate in the
ownership, management, operation, control or financing of, or be connected as an
officer, director, employee, partner, principal, agent, representative,
consultant, licensor, licensee or otherwise with, any business or enterprise in
any city, county, or state of the United States, or any other locality, region,
territory, country, or jurisdiction, which provides high speed data transmission
services in a market in which the Company has at least one (1) operational DSLAM
or at least one (1) central office location under construction as of the
Separation Date. An acquisition or ownership of less than 5% of the outstanding
shares of any publicly traded company will not constitute a violation of this
Agreement.
8.2 NON-SOLICITATION COVENANT. As a reasonable measure to protect
the Company from the harm of such disclosure and use of its information and
trade secrets against it, the parties agree to the following as part of this
Agreement: Mr. Dines acknowledges and agrees that information regarding
employees of the Company is Confidential Information, including without
limitation, the names of the Company employees; information regarding the skills
and knowledge of employees of the Company; information regarding any past,
present, or intended compensation, benefits, policies and incentives for
employees of the Company; and information regarding the management and reporting
structure of the Company. Mr. Dines agrees that he will not, individually or
with others, directly or indirectly (including without limitation, individually
or through any business, venture, proprietorship, partnership, or corporation in
which they control or own more than a five (5) percent interest, through any
agents, through any contractors, through recruiters, by their successors, by
their employees, or by their assigns) hire, solicit, or induce any employee of
the Company to leave the Company during the period Mr. Dines is employed by the
Company and for a period of twelve (12) months from the Separation Date. Mr.
Dines further agrees that during the period he is employed by the Company and
for a period of twelve (12) months from the Separation Date, he will not, either
directly or indirectly, solicit or attempt to solicit any customer, client,
supplier, investor, vendor, consultant or independent contractor of the Company
to terminate, reduce or negatively alter his, her or its relationship with the
Company. The geographic scope of the covenants in this paragraph shall include
any city, county, or state of the United States and any such other city,
territory, country, or jurisdiction in which the Company does business. Nothing
in this paragraph should be construed to narrow the obligations of Mr. Dines
imposed by any other provision herein, any other agreement, law or other source.
<PAGE>
8.3 REASONABLE. Mr. Dines agrees and acknowledges that the time
limitation and the geographic scope on the restrictions in this paragraph 8 and
its subparts are reasonable. Mr. Dines also acknowledges and agrees that the
limitation in this paragraph 8 and its subparts is reasonably necessary for the
protection of the Company, that through this Agreement he shall receive adequate
consideration for any loss of opportunity associated with the provisions herein,
and that these provisions provide a reasonable way of protecting the Company's
business value which was imparted to him. In the event that any term, word,
clause, phrase, provision, restriction, or section of this paragraph 8 of this
Agreement is more restrictive than permitted by the law of the jurisdiction in
which the Company seeks enforcement thereof, the provisions of this Agreement
shall be limited only to that extent that a judicial determination finds the
same to be unreasonable or otherwise unenforceable. Moreover, notwithstanding
any judicial determination that any term, word, clause, phrase, provision,
restriction, or section of this Agreement is not specifically enforceable, the
parties intend that the Company shall nonetheless be entitled to recover
monetary damages as a result of any breach hereof.
8.4 LEGAL AND EQUITABLE REMEDIES. In view of the nature of the
rights in goodwill, employee relations, trade secrets, and business reputation
and prospects of the Company to be protected under this paragraph 8 of this
Agreement, Mr. Dines understands and agrees that the Company could not be
reasonably or adequately compensated in damages in an action at law for Mr.
Dines' breach of his obligations hereunder. Accordingly, Mr. Dines specifically
agrees that the Company shall be entitled to temporary and permanent injunctive
relief, specific performance, and other equitable relief to enforce the
provisions of this paragraph 8 of this Agreement and that such relief may be
granted without the necessity of proving actual damages, and without bond. MR.
DINES ACKNOWLEDGES AND AGREES THAT THE PROVISIONS IN THIS PARAGRAPH 8 AND ITS
SUBPARTS ARE ESSENTIAL AND MATERIAL TO THIS AGREEMENT, AND THAT UPON BREACH OF
THIS PARAGRAPH 8 BY HIM, THE COMPANY IS ENTITLED TO WITHHOLD PROVIDING PAYMENTS
OR CONSIDERATION, TO EQUITABLE RELIEF TO PREVENT CONTINUED BREACH, TO RECOVER
DAMAGES AND TO SEEK ANY OTHER REMEDIES AVAILABLE TO THE COMPANY. This provision
with respect to injunctive relief shall not, however, diminish the right of the
Company to claim and recover damages or other remedies in addition to equitable
relief.
8.5 EXTENSION OF TIME. In the event that Mr. Dines breaches any
covenant, obligation or duty in this paragraph 8 or its subparts, any such duty,
obligation, or covenants to which the parties agreed by this paragraph 8 and its
subparts shall automatically toll from the date of the first breach, and all
subsequent breaches, until the resolution of the breach through private
settlement, judicial or other action, including all appeals. The duration and
length of Mr. Dines' duties and obligations as agreed by this paragraph 8 and
its subparts shall continue upon the effective date of any such settlement, or
judicial or other resolution.
9. GENERAL PROVISIONS.
9.1 NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telex) or the third day after mailing by first class mail,
to the Company at its primary office location and to Mr. Dines at his address as
listed on the Company's then current payroll records.
<PAGE>
9.2 TAX CONSEQUENCES. Mr. Dines agrees to indemnify the Company
and hold the Company harmless from any and all claims or penalties asserted
against the Company for any failure to pay taxes due on any consideration
provided by the Company pursuant to this Agreement. Mr. Dines expressly
acknowledges that the Company has not made, nor herein makes, any representation
about the tax consequences of any consideration provided by the Company to Mr.
Dines pursuant to this Agreement.
9.3 COOPERATION. Mr. Dines agrees to fully cooperate with the
Company with respect to its corporate relationships. Mr. Dines further agrees to
cooperate with the Company in connection with any defense of or prosecution by
the Company regarding any litigation in which the Company may be involved as a
party or non-party in from time to time.
9.4 NON-DISPARAGEMENT. Mr. Dines and the Company agree that
neither party will at any time disparage the other to third parties in any
manner likely to be harmful to the other party, their business reputation, or
the personal or business reputation of its directors, shareholders and/or
employees. Notwithstanding the prohibition in the preceding sentence, each party
shall respond accurately and fully to any question, inquiry, or request for
information when required by legal process, or when posed by a governmental
entity
9.5 THE COMPANY PROPERTY. Unless authorized by the Company, on the
Separation Date, Mr. Dines agrees to return to the Company all Company documents
(and all copies thereof) and any and all other Company property in Mr. Dines'
possession, custody or control, including, but not limited to, financial
information, customer information, customer lists, employee lists, Company
files, notes, cellular telephones, personal computers, personal computers,
contracts, drawings, records, business plans and forecasts, financial
information, specifications, computer-recorded information, software, tangible
property, credit cards, entry cards, identification badges and keys, and any
materials of any kind which contain or embody any proprietary or confidential
material of the Company (and all reproductions thereof).
9.6 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 invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
9.7 WAIVER. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.
9.8 COMPLETE AGREEMENT. This Agreement and EXHIBITS A AND B
hereto, constitute the entire agreement between Mr. Dines and the Company and it
is the complete, final, and exclusive embodiment of their agreement with regard
to this subject matter. This Agreement supersedes and replaces the Employment
Agreement dated April 16, 1999. It is entered into without reliance on any
promise or representation other than those expressly contained herein, and it
cannot be modified or amended except in a writing signed by an officer of the
Company.
<PAGE>
9.9 COUNTERPARTS. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
9.10 HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
9.11 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Mr. Dines and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Mr. Dines may not assign any of his duties hereunder and he may not
assign any of his rights hereunder without the written consent of the Company,
which shall not be withheld unreasonably.
9.12 ATTORNEY FEES. If either party hereto brings any action to
enforce his or its rights hereunder, the prevailing party in any such action
shall be entitled to recover his or its reasonable attorneys' fees and costs
incurred in connection with such action.
9.13 CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of the
State of Colorado.
9.14 SURVIVAL. The following provisions of this Agreement shall
survive the termination of Mr. Dines' employment as an employee or independent
contractor and the assignment of this Agreement by the Company to any successor
in interest or other assignee: Sections 2.4, 4, 8, and 9.
9.15 INJUNCTIVE RELIEF. Mr. Dines acknowledges that the
restrictions set forth in Sections 2.4, 4, 8, and 9 above are necessary to
protect the Company's confidential proprietary information and other legitimate
business interests and are reasonable in all respects, including duration,
territory and scope of activity restricted. Mr. Dines further acknowledges that
the provisions of Sections 2.4, 4, 8, and 9 hereof are essential to the Company,
that the Company would not enter into this Agreement if it did not include these
provisions and that damages sustained by the Company as a result of a breach of
these provisions cannot be adequately remedied by damages, and Mr. Dines agrees
that the Company, in addition to any other remedy it may have under this
Agreement or at law, shall be entitled to injunctive and other equitable relief
to prevent or curtail any breach of Sections 2.4, 4, 8, and 9 of this Agreement.
Mr. Dines agrees that the existence of any claim or cause of action by Mr. Dines
against the Company or its affiliates, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
any of the provisions of this Agreement. Mr. Dines shall have no right to
enforce any of his rights under this Agreement by seeking or obtaining
injunctive or other equitable relief and acknowledges that damages are an
adequate remedy for any breach by the Company of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
JATO COMMUNICATIONS CORP.
By: /s/ Gerald Dinsmore
----------------------------------
Gerald Dinsmore,
President and Chief Executive
Officer
By: /s/ Bruce E. Dines
----------------------------------
BRUCE E. DINES
Exhibit A: Non-Competition, Proprietary Information and Inventions Agreement.
Exhibit B: Separation and Release Agreement.
<PAGE>
JATO COMMUNICATIONS CORP.
2000 EQUITY INCENTIVE PLAN
ADOPTED AUGUST 10, 1998
APPROVED BY STOCKHOLDERS AUGUST 10, 1998
AMENDED APRIL 13, 1999
APPROVED BY STOCKHOLDERS APRIL 15, 1999
AMENDED SEPTEMBER 2, 1999
APPROVED BY STOCKHOLDERS OCTOBER 20, 1999
AMENDED AND RESTATED FEBRUARY 8, 2000
APPROVED BY STOCKHOLDERS ____________, 2000
TERMINATION DATE: FEBRUARY 7, 2010
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a means
by which eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock appreciation rights, (iv) stock bonuses and (v) rights to
acquire restricted stock.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain the
services of the group of persons eligible to receive Stock Awards, to secure and
retain the services of new members of this group and to provide incentives for
such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance with
subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means JATO Communications Corp., a Delaware corporation.
1
<PAGE>
(g) "CONSULTANT" means any person, including an advisor, (1) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (2) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director of the
Company will not constitute an interruption of Continuous Service. The Board or
the chief executive officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave, military
leave or any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
traded on the Nasdaq National Market System or the Nasdaq SmallCap Market, the
Fair Market Value of a share of Common Stock shall be the closing sales price
for such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
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(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who either (i)
is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant or
in any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not possess an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock Option
granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written Option Agreement and Notice of Stock
Option Grant between the Company and an Optionholder evidencing the terms and
conditions of an individual Option grant. Each Option Agreement and Grant Notice
shall be subject to the terms and conditions of the Plan.
(u) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(v) "OUTSIDE DIRECTOR" means a Director of the Company who either (i) is
not a current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(w) "PARTICIPANT" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.
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(x) "PLAN" means this JATO Communications Corp. 2000 Equity Incentive Plan.
(y) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(z) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(aa) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock appreciation right, a stock bonus and a right to acquire
restricted stock.
(bb) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(cc) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board will administer the Plan unless and
until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; and the number of shares with respect
to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
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(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (i) delegate to a committee of one or
more members of the Board who are not Outside Directors, the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (ii)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate of eight million seven hundred
thousand (8,700,000) shares of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full (or vested in the case of Restricted Stock), the stock
not acquired under such Stock Award shall revert to and again become available
for issuance under the Plan. Shares subject to stock appreciation rights
exercised in accordance with the Plan shall not be available for subsequent
issuance under the Plan. If any Common Stock acquired pursuant to the exercise
of an Option shall for any reason be repurchased by the Company under an
unvested share repurchase option provided under the Plan, the stock repurchased
by the Company under such repurchase option shall not revert to and again become
available for issuance under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.
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5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS. No Ten Percent Stockholder shall be eligible
for the grant of an Incentive Stock Option unless the exercise price of such
Option is at least one hundred ten percent (110%) of the Fair Market Value of
the Common Stock at the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in stock, no employee shall be eligible to
be granted Options covering more than two million five hundred thousand
(2,500,000) shares of the Common Stock during any calendar year.
(d) CONSULTANTS.
(i) A Consultant shall not be eligible for the grant of a Stock Award
if, at the time of grant, a Form S-8 Registration Statement under the Securities
Act ("Form S-8") is not available to register either the offer or the sale of
the Company's securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (E.G.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.
(ii) Form S-8 generally is available to consultants and advisors only
if (i) they are natural persons; (ii) they provide bona fide services to the
issuer, its parents, its majority-owned subsidiaries or majority-owned
subsidiaries of the issuer's parent; and (iii) the services are not in
connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option. The provisions of separate Options
need not be identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of each
of the following provisions:
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(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the provisions
of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of
each Incentive Stock Option shall be not less than one hundred percent (100%) of
the Fair Market Value of the stock subject to the Option on the date the Option
is granted. Notwithstanding the foregoing, an Incentive Stock Option may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be determined in the sole discretion of the
Board of Directors at the time of the grant; provided, however, that upon the
closing of an initial public offering, the exercise price of each Nonstatutory
Stock Option shall be not less than eighty-five percent (85%) of the Fair Market
Value of the stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with
an exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(d) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) by delivery to the
Company of other Common Stock, according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Participant or in any other
form of legal consideration that may be acceptable to the Board; provided,
however, that at any time that the Company is incorporated in Delaware, payment
of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock Option
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing provisions of this
subsection 6(e), the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.
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(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing
provisions of this subsection 6(f), the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder's Continuous Service (or
such longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionholder does not exercise his or her Option within
the time specified in the Option Agreement, the Option shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's death or
Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in subsection 6(a) or (ii) the expiration of a period of
three (3) months after the termination of the Optionholder's Continuous Service
during which the exercise of the Option would not be in violation of such
registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement) or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
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(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
Option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement) or (2) the expiration of the term of such Option as set
forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased may be subject to an unvested share repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate. The Company will not exercise its repurchase option until at
least six (6) months (or such longer or shorter period of time required to avoid
a charge to earnings for financial accounting purposes) have elapsed following
exercise of the Option unless the Board otherwise specifically provides in the
Option.
(m) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board
to make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionholder to a further Option (a "Re-Load Option") in
the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares equal to the
number of shares surrendered as part or all of the exercise price of such
Option; (ii) have an expiration date which is the same as the expiration date of
the Option the exercise of which gave rise to such Re-Load Option; and (iii)
have an exercise price which is equal to one hundred percent (100%) of the Fair
Market Value of the Common Stock subject to the Re-Load Option on the date of
exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option
shall be subject to the same exercise price and term provisions heretofore
described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under subsection 4(a) and
the "Section
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162(m) Limitation" on the grants of Options under subsection 5(c) and shall be
subject to such other terms and conditions as the Board may determine which are
not inconsistent with the express provisions of the Plan regarding the terms of
Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(i) CONSIDERATION. A stock bonus shall be awarded in consideration
for past services actually rendered to the Company for its benefit.
(ii) VESTING. Shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a
Participant's Continuous Service terminates, the Company may reacquire any or
all of the shares of Common Stock held by the Participant which have not vested
as of the date of termination under the terms of the stock bonus agreement.
(iv) TRANSFERABILITY. Rights to acquire shares under the stock bonus
agreement shall be transferable by the Participant only upon such terms and
conditions as are set forth in the stock bonus agreement, as the Board shall
determine in its discretion, so long as stock awarded under the stock bonus
agreement remains subject to the terms of the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement shall
be in such form and shall contain such terms and conditions as the Board shall
deem appropriate. The terms and conditions of the restricted stock purchase
agreements may change from time to time, and the terms and conditions of
separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. The purchase price shall
not be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made or at the time the purchase is consummated.
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(ii) CONSIDERATION. The purchase price of stock acquired pursuant to
the restricted stock purchase agreement shall be paid either: (i) in cash at the
time of purchase; (ii) at the discretion of the Board, according to a deferred
payment or other arrangement with the Participant; or (iii) in any other form of
legal consideration that may be acceptable to the Board in its discretion;
provided, however, that at any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall not be made by deferred payment.
(iii) VESTING. Shares of Common Stock acquired under the restricted
stock purchase agreement may, but need not, be subject to a share repurchase
option in favor of the Company in accordance with a vesting schedule to be
determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.
(v) TRANSFERABILITY. Rights to acquire shares under the restricted
stock purchase agreement shall be transferable by the Participant only upon such
terms and conditions as are set forth in the restricted stock purchase
agreement, as the Board shall determine in its discretion, so long as stock
awarded under the restricted stock purchase agreement remains subject to the
terms of the restricted stock purchase agreement.
(c) STOCK APPRECIATION RIGHTS.
(i) AUTHORIZED RIGHTS. The following three types of stock appreciation
rights shall be authorized for issuance under the Plan:
(1) TANDEM RIGHTS. A "Tandem Right" means a stock appreciation right
granted appurtenant to an Option which is subject to the same terms and
conditions applicable to the particular Option grant to which it pertains with
the following exceptions: The Tandem Right shall require the holder to elect
between the exercise of the underlying Option for shares of Common Stock and the
surrender, in whole or in part, of such Option for an appreciation distribution.
The appreciation distribution payable on the exercised the Tandem Right shall be
in cash (or, if so provided, in an equivalent number of shares of Common Stock
based on Fair Market Value on the date of the Option surrender) in an amount up
to the excess of (A) the Fair Market Value (on the date of the Option surrender)
of the number of shares of Common Stock covered by that portion of the
surrendered Option in which the Optionholder is vested over (B) the aggregate
exercise price payable for such vested shares.
(2) CONCURRENT RIGHTS. A "Concurrent Right" means a stock appreciation
right granted appurtenant to an Option which applies to all or a portion of the
shares of Common Stock subject to the underlying Option and which is subject to
the same terms and conditions applicable to the particular Option grant to which
it pertains with the following exceptions: A Concurrent Right shall be exercised
automatically at the same time the underlying Option is exercised with respect
to the particular shares of Common Stock to which the
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Concurrent Right pertains. The appreciation distribution payable on an exercised
Concurrent Right shall be in cash (or, if so provided, in an equivalent number
of shares of Common Stock based on Fair Market Value on the date of the exercise
of the Concurrent Right) in an amount equal to such portion as determined by the
Board at the time of the grant of the excess of (A) the aggregate Fair Market
Value (on the date of the exercise of the Concurrent Right) of the vested shares
of Common Stock purchased -under the underlying Option which have Concurrent
Rights appurtenant to them over (B) the aggregate exercise price paid for such
shares.
(3) INDEPENDENT RIGHTS. An "Independent Right" means a stock
appreciation right granted independently of any Option but which is subject
to the same terms and conditions applicable to a Nonstatutory Stock Option
with the following exceptions: An Independent Right shall be denominated in
share equivalents. The appreciation distribution payable on the exercised
Independent Right shall be not greater than an amount equal to the excess of
(a) the aggregate Fair Market Value (on the date of the exercise of the
Independent Right) of a number of shares of Company stock equal to the number
of share equivalents in which the holder is vested under such Independent
Right, and with respect to which the holder is exercising the Independent
Right on such date, over (b) the aggregate Fair Market Value (on the date of
the grant of the Independent Right) of such number of shares of Company
stock. The appreciation distribution payable on the exercised Independent
Right shall be in cash or, if so provided, in an equivalent number of shares
of Common Stock based on Fair Market Value on the date of the exercise of the
Independent Right.
(ii) RELATIONSHIP TO OPTIONS. Stock appreciation rights appurtenant
to Incentive Stock Options may be granted only to Employees. The "Section 162(m)
Limitation" provided in subsection 5(c) and any authority to reprice Options
shall apply as well to the grant of stock appreciation rights.
(iii) EXERCISE. To exercise any outstanding stock appreciation right,
the holder shall provide written notice of exercise to the Company in compliance
with the provisions of the Stock Award Agreement evidencing such right. Except
as provided in subsection 5(c) regarding the "Section 162(m) Limitation," no
limitation shall exist on the aggregate amount of cash payments that the Company
may make under the Plan in connection with the exercise of a stock appreciation
right.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell shares of Common
Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any stock issued or issuable pursuant to any such
Stock Award. If, after reasonable efforts, the Company is unable to obtain
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from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Stock Awards unless and until such authority is
obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder of,
or to have any of the rights of a holder with respect to, any shares subject to
such Stock Award unless and until such Participant has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant or other holder of Stock Awards any right to continue to serve
the Company or an Affiliate in the capacity in effect at the time the Stock
Award was granted or shall affect the right of the Company or an Affiliate to
terminate (i) the employment of an Employee with or without notice and with or
without cause, (ii) the service of a Consultant pursuant to the terms of such
Consultant's agreement with the Company or an Affiliate or (iii) the service of
a Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring stock under any Stock Award, (i) to give
written assurances satisfactory to the Company as to the Participant's knowledge
and experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or
13
<PAGE>
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring the stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the stock. The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (iii) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act or
(iv) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a Stock
Award Agreement, the Participant may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of stock under a
Stock Award by any of the following means (in addition to the Company's right to
withhold from any compensation paid to the Participant by the Company) or by a
combination of such means: (i) tendering a cash payment; (ii) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the participant as a result of the exercise or acquisition of stock
under the Stock Award; or (iii) delivering to the Company owned and unencumbered
shares of the Common Stock.
(g) CANCELLATION AND RE-GRANT OF OPTIONS.
(i) AUTHORITY TO REPRICE. The Board shall have the authority to
effect, at any time and from time to time, (i) the repricing of any outstanding
Options under the Plan and/or (ii) with the consent of any adversely affected
holders of Options, the cancellation of any outstanding Options under the Plan
and the grant in substitution therefor of new Options under the Plan covering
the same or different numbers of shares of Common Stock. The exercise price per
share shall be not less than that specified under the Plan for newly granted
Stock Awards. Notwithstanding the foregoing, the Board may grant an Option with
an exercise price lower than that set forth above if such Option is granted as
part of a transaction to which Section 424(a) of the Code applies.
(ii) EFFECT OF REPRICING UNDER SECTION 162(M) OF THE CODE. Shares
subject to an Option which is amended or canceled in order to set a lower
exercise price per share shall continue to be counted against the maximum award
of Options permitted to be granted pursuant to subsection 5(c). The repricing of
an Option under this subsection 10(i) resulting in a reduction of the exercise
price shall be deemed to be a cancellation of the original Option and the grant
of a substitute Option; in the event of such repricing, both the original and
the substituted Options shall be counted against the maximum awards of Options
permitted to be granted pursuant to subsection 5(c). The provisions of this
subsection 10(i)(b) shall be applicable only to the extent required by Section
162(m) of the Code.
14
<PAGE>
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock subject
to the Plan, or subject to any Stock Award, without the receipt of consideration
by the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject to the Plan pursuant to
subsection 4(a) and the maximum number of securities subject to award to any
person pursuant to subsection 5(c), and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of securities and price per
share of stock subject to such outstanding Stock Awards. Such adjustments shall
be made by the Board, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a transaction "without receipt of consideration" by the
Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then such Stock Awards shall be
terminated if not exercised (if applicable) prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE Merger.
In the event of (1) a sale of substantially all of the assets of the Company,
(2) a merger or consolidation in which the Company is not the surviving
corporation, (3) a reverse merger in which the Company is the surviving
corporation but the shares of Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise, or (4) an acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the Exchange
Act, or any comparable successor provisions (excluding any employee benefit
plan, or related trust, sponsored or maintained by the Company or an Affiliate)
of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors then any surviving corporation or acquiring
corporation shall assume any Stock Awards outstanding under the Plan or shall
substitute similar stock awards (including an award to acquire the same
consideration paid to the stockholders in the transaction described in this
subsection 11(c) for those outstanding under the Plan). In the event any
surviving corporation or acquiring corporation refuses to assume such Stock
Awards or to substitute similar stock awards for those outstanding under the
Plan, then with respect to Stock Awards held by Participants whose Continuous
Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full, and the Stock Awards shall terminate if not exercised (if
applicable) at or prior to such event. With respect to any other Stock Awards
outstanding under the Plan, such Stock Awards shall terminate if not exercised
(if applicable) prior to such event.
15
<PAGE>
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit any
other amendment to the Plan for stockholder approval, including, but not limited
to, amendments to the Plan intended to satisfy the requirements of Section
162(m) of the Code and the regulations thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the amendment and restatement of the Plan is
adopted by the Board or approved by the stockholders of the Company, whichever
is earlier. No Stock Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Rights and obligations under any Stock Award
granted while the Plan is in effect shall not be impaired by suspension or
termination of the Plan, except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been
16
<PAGE>
approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
17
<PAGE>
[LOGO]
MASTER SERVICES AGREEMENT
THIS MASTER SERVICES AGREEMENT ("Master Agreement") is made and entered into
as of this 9th day of February, 2000 ("Effective Date") by and between QWEST
COMMUNICATIONS CORPORATION, a Delaware corporation or its Affiliates (as
defined herein) (collectively referred to as "Qwest"), having a principal
place of business at 555 Seventeenth Street, Denver, Colorado 80202
("Qwest"), and JATO COMMUNICATIONS CORP., a Delaware corporation ("Jato"),
having a principal place of business at 1099 18th Street, Suite 2200, Denver,
Colorado 80202. (Qwest and Jato are collectively referred to herein as the
"Parties", or individually as a "Party").
WHEREAS, Jato desires to purchase from Qwest, and Qwest desires to sell to
Jato, on a preferred provider basis, certain wholesale telecommunications,
Internet and data services (collectively, the "Qwest Services").
WHEREAS, Qwest desires to purchase from Jato, and Jato desires to sell to
Qwest, on a preferred provider basis, digital subscriber line ("DSL")
services (collectively, the "Jato Services").
WHEREAS, Qwest desires to purchase an equity interest in Jato.
NOW THEREFORE, the Parties agree as follows:
1. DEFINITIONS.
(1) Backbone Transport - "Backbone Transport" shall collectively refer to
Qwest's asynchronous transfer mode ("ATM") and DS-3 and OC-n leased private
line services.
(2) DSL Services - "DSL Services" shall mean those digital subscriber line
services furnished by a Party.
(3) Frame Relay Services - "Frame Relay Services" shall refer to Qwest's frame
relay services.
(4) IP Services - "IP Services" shall collectively refer to dedicated Internet
access ("DIA") services, web hosting services, and virtual private network
("VPN") services (including, without limitation, network, customer premises
equipment ("CPE"), dial and DSL).
(5) Metro Backhaul - "Metro Backhaul" shall mean local services utilized to
provide connectivity from Jato's central offices where Jato's DSL equipment
is located to Jato switching centers in cities where Qwest's backbone
service areas overlap.
(6) Qwest Agreements - "Qwest Agreements" shall collectively refer to the
Wholesale Agreement (as defined in Section 2.1(1)) and the IP Agreement (as
defined in Section 2.1(2)).
2. MASTER AGREEMENT; SERVICES.
2.1 MASTER AGREEMENT. The parties shall concurrently with the execution of
this Master Agreement enter into the following ancillary agreements: (i) the
stock purchase agreement and related documents (the "Equity Agreements"); and
(ii) the following agreements (each, a "Service Agreement," and collectively
referred to as the "Services Agreements"). The parties agree that the terms
and conditions of this Master Services Agreement will be incorporated into
the Services Agreements in full by this reference:
(1) Qwest Wholesale Services Agreement (the "Wholesale Agreement") for the
provision of Backbone Transport and Frame Relay Services by Qwest;
(2) Qwest Web Master Internet Services Agreement (the "IP Agreement") for the
provision of IP Services (other ancillary professional services furnished
by Qwest that are related to the IP Services will be handled in a separate
professional services agreement, to be negotiated in good faith by the
Parties); and
(3) Jato Services Agreement (the "Jato Agreement") for the provision of DSL
Services to Qwest by Jato.
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The Parties acknowledge and agree that certain Services Agreements may not be
finalized and executed by the Parties on or before the Effective Date.
Accordingly, the Parties agree to negotiate in good faith and execute those
Services Agreements that have not been executed as of the Effective Date. If
the Parties are unable, after good faith negotiations, to execute any Service
Agreement, the Parties agree: (i) that such failure shall not constitute a
default under this Master Agreement, and (ii) that the amount of Jato's Usage
Commitment and Prepayment Amount shall be reduced pro rata by the amount of
the Qwest Agreements which the Parties were unable to execute.
2.2 QWEST DSL SERVICES. Qwest anticipates that it will be able to provide
Jato with wholesale DSL Services by Q4 2000, although Qwest's inability to
provide Jato DSL Services by such date shall not constitute a breach of this
Master Agreement or any Service Agreement. If Qwest is able to furnish Jato
with wholesale DSL Services, Qwest shall so notify Jato and the Parties will
negotiate in good faith a mutually agreeable amendment to the Wholesale
Agreement (the "DSL Amendment"). The DSL Amendment will confer upon Qwest
"preferred provider" status (as described herein) for those DSL Services
which Jato orders outside of its then-current service region, which the
Parties will mutually identify. Each DSL facility which Jato orders under the
DSL Amendment will have a minimum facility term of at least one (1) year.
Jato will use reasonable efforts, but does not guarantee, to supply Qwest
with a minimum of at least fifteen thousand (15,000) business-class DSL
subscribers during the Initial Term. Jato acknowledges and agrees that it
must meet its revenue commitment for "Allotment" DSL Services by the
appropriate milestones as provided in Section 4. In designating Qwest as its
"preferred provider" of DSL Services, Qwest will be Jato's first choice as a
DSL Service provider in the cities and central offices identified in the DSL
Amendment (that are identified as Qwest facility-based DSL networks and which
do not overlap with Jato's then-existing facilities-based DSL services).
Jato may award business to other providers if, after Qwest's "first right to
satisfy any order," Qwest is unable to meet Jato's end user service
requirements or service delivery schedules.
2.3 JATO DSL SERVICES. In the Jato Agreement, Qwest will designate Jato as
a Qwest "preferred provider" of DSL services during the Initial Term as the
"last mile" access connection to Qwest's data communication networks to be
identified by the Parties. In designating Jato its "preferred provider" of
DSL services, Jato will be Qwest's first choice as a DSL service provider in
the cities and central offices identified in the Jato Agreement, that do not
overlap with Qwest's DSL providers' existing as of the date of execution of
the Master Agreement and existing DSL footprint, and which do not overlap
areas where Qwest has deployed or plans to deploy its own facilities-based
DSL services. Qwest may award business to other providers if, after a right
of first refusal, Jato is unable to meet end customer service requirements or
service delivery schedules. Qwest shall make reasonable efforts to supply
Jato with a minimum of seventy five thousand (75,000) business-class DSL
subscribers during the Initial Term. The subscriber commitment in the
previous sentence *** a "take or pay" arrangement. Qwest will purchase each
circuit on a one (1) year term commitment. A specific requirement of pricing
is that Jato will always *** wholesale ILEC pricing for comparable services.
2.4 METRO BACKHAUL. The Parties agree to negotiate in good faith and
execute an agreement for Metro Backhaul Services within and outside the US
West, Inc. ("US West") territories. The Parties acknowledge and agree that
Qwest's ability to provide Metro Backhaul to Jato within the US West
territories is contingent upon the consummation of Qwest's proposed merger
with US West, which is subject to certain legal and regulatory approvals and
restrictions (the "US West Merger"). Jato acknowledges and agrees that
Qwest's current inability to provide Metro backhaul to Jato shall not
constitute a breach of this Master Agreement or any Qwest Agreement. In the
event the US West Merger is consummated and Qwest, as a result of such
merger, is reasonably able to provide Metro backhaul in the US West territory
to Jato, Qwest shall so notify Jato and the Parties will negotiate in good
faith a mutually agreeable amendment to an existing Qwest Agreement or new
services agreement.
3. TERM; TERMINATION.
3.1 The term of this Master Agreement shall commence on the Effective Date
and remain in effect for five and one-half (5.5) Annual Periods (as defined
herein) (the "Initial Term"). After the expiration of the Initial Term,
this Master Agreement shall continue so long as a Services Agreement remains
in effect unless and until terminated by either Party (the Initial Term and
any extension by way of existing Services Agreement shall be collectively
referred to as the "Term"). As used herein, "Annual Period" shall refer to:
(i) the twelve (12) consecutive month period commencing on the Effective Date
of this Agreement ("First Annual Period"); and (ii) to each subsequent twelve
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 and 240.24b-2
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(12) month period of the Term commencing on the anniversary date of the First
Annual Period (the last 6 month period of the Initial Term shall also be
deemed an Annual Period).
3.2 In addition to any other termination remedies set forth in the Qwest
Agreements, Jato may terminate: (i) the Master Agreement (but not the Equity
Agreement) prior to the expiration of the Initial Term if Jato has attained
its twenty-five million ($25,000,000.00) Usage Minimum (as defined below) and
has satisfied in full all minimum facility service terms associated with the
Qwest Services; or (ii) a Qwest Agreement prior to the expiration of the such
Qwest Agreement if Jato attains the minimum revenue commitment associated
with such Qwest Agreement(s) and has satisfied in full all minimum facility
service terms associated with the Qwest Services. Qwest may terminate the
Jato Agreement in accordance with its terms. A Party wishing to terminate
any agreement hereunder must give the non-terminating Party thirty (30)
calendar days prior written notice of the intended date of such termination.
4. USAGE COMMITMENTS.
4.1 USAGE MINIMUM; ANNUAL REVENUE SHORTFALL CHARGE. Jato shall pursuant to
the terms and conditions of the Qwest Agreements and this Master Agreement,
purchase Qwest Services during the Initial Term of at least twenty-five
million dollars ($25,000,000.00) ("Usage Minimum"), which is calculated as
having a present value of sixteen million dollars ($16,000,000.00) (the "PV
Usage Minimum"), which amount shall be paid to Qwest with the proceeds from
Jato's Initial Public Offering ("IPO") in accordance with Section 5. Jato
shall purchase Qwest Services in accordance with the total amount of revenue
commitments ("Annual Totals") at the Annual Period milestones set forth in
Table 4.1 below:
<TABLE>
<CAPTION>
Table 4.1 Usage Minimums for Qwest Services.
- ---------------------------------------------------------------------------------------------------------------------
Annual Period
- ---------------------------------------------------------------------------------------------------------------------
# 1 # 2 # 3 # 4 # 5 # 6
Service Months 0-12 Months 13-24 Months 25-36 Months 37-48 Months 49-60 Months 61-66 Totals
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Backbone
Transport *** *** *** *** *** *** $8.0 Million
- ---------------------------------------------------------------------------------------------------------------------
Frame Relay *** *** *** *** *** *** $5.0 Million
- ---------------------------------------------------------------------------------------------------------------------
IP Services *** *** *** *** *** *** $3.5 Million
- ---------------------------------------------------------------------------------------------------------------------
* Overallotment
(including
Metro Backhaul,
DSL Services,
and other
services) *** *** *** *** *** *** $8.5 Million
- ---------------------------------------------------------------------------------------------------------------------
Annual Totals *** *** *** *** *** *** $25.0 Million
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Jato's total Actual Usage of Metro Backhaul Services shall not exceed ***
during the Initial Term.
If at the end of each Annual Period, Jato's Actual Usage as measured during
such Annual Period of the Qwest Services is less than the Annual Total
minimum set forth in Table 4.1, Jato will be liable for a shortfall charge
equal to the difference between the Annual Total minimum and Jato's
aggregate, Actual Usage (as defined herein) invoiced under the Qwest
Agreements (the "Annual Shortfall Charge"). (By way of example, and not
limitation, if Jato's aggregate, Actual Usage at the end of the second Annual
Period is ***, Jato will be liable for an Annual Shortfall Charge in the
amount of *** (calculated as ***)). Qwest shall, within a reasonable period
of time after the conclusion of the Annual Period and upon thirty (30)
calendar days written notice to Jato, reduce the Prepayment Amount by an
amount equal to the Annual Shortfall Charge, or alternatively if the
remaining Prepayment Amount is insufficient to cover the full amount of the
Annual Shortfall Charge, invoice Jato for the Annual Shortfall Charge.
4.2 ACTUAL USAGE OF SPECIFIC SERVICES DOES NOT MEET EXPECTATIONS AT THE END
OF THE INITIAL TERM. If at the end of the Initial Term, Jato's Actual Usage
(as defined herein) of any of the specific Qwest Services (except Metro
Backhaul services) is less than the Usage Minimum set forth in Table 4.1,
Qwest will invoice Jato at the conclusion of the Initial Term for the
Services Shortfall Charge (as defined herein) and Jato shall be liable for
and pay the Services Shortfall Charge within thirty (30) calendar days of
after receipt of Qwest's invoice. The Services Shortfall Charge shall be an
amount equal to the difference between the Usage Minimum and the Actual Usage
invoiced
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 and 240.24b-2
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under the Qwest Agreement for specific Qwest Services, in addition to being
liable for the payment of unpaid Actual Usage charges (if any). "Actual
Usage" shall mean all recurring charges, usage charges and other qualifying
charges applicable to the Qwest Services accruing to Jato's account under the
Qwest Agreements, before application of all eligible discounts and excluding
all taxes, surcharges, fees and other amounts owing for or related to,
credits, uncollectable Jato charges, pass-through charges, installation
charges, local loops and any other charges expressly excluded in the
applicable Qwest Agreements. (By way of example, and not limitation, if
Jato's aggregate, Actual Usage of Frame Relay Services at the end of the
Initial Term is ***, Jato will be liable for a Services Shortfall Charge in
the amount of *** (calculated as ***)).
4.3 JATO TERMINATES QWEST SERVICE OR AN AGREEMENT FOR CAUSE.
If Jato terminates a Qwest Service or a Qwest Agreement for "cause" (as
described in the Qwest Agreements) prior to the end of the Initial Term and
prior to the satisfaction of the Usage Minimum during each of the Annual
Periods, the amount of revenue associated with the terminated Qwest
Service(s) or Qwest Agreement(s), as the case may be (collectively, the
"Terminated Revenue"), shall be reallocated on a pro rata basis amongst the
non-terminated Qwest Services. If as a result of terminating the Qwest
Service(s) or the Qwest Agreement(s), Jato is unable to meet its Usage
Minimum in any given Annual Period set forth in Table 4.1, Qwest shall reduce
Jato's Usage Minimum accordingly for such Annual Period by the amount of the
Terminated Revenue.
4.4 JATO TERMINATES AN AGREEMENT FOR CONVENIENCE OR QWEST TERMINATES FOR
CAUSE.
If Jato terminates the Qwest Agreements for "convenience" (i.e., for any
reason other than "cause" as described in the Qwest Agreements) or Qwest
terminates the Qwest Agreements for "cause" (as described in the Qwest
Agreements) prior to the end of the Initial Term and prior to the
satisfaction of the Usage Minimum during each of the Annual Periods, Jato
shall pay to Qwest upon termination an amount equal to: (i) the Shortfall
Charge for the terminated Qwest Services during the Annual Period in which
the Qwest Agreement is terminated; plus (ii) the Usage Minimum for the
terminated Qwest Services for each additional Annual Period remaining in the
Initial Term, in addition to being liable for the payment of unpaid Actual
Usage charges (if any). (By way of example, and not limitation, if Jato
terminates the Frame Relay Services of the Wholesale Agreement for
convenience during month fifty (50) of the Initial Term (i.e., Annual Period
#5) and has had *** of Actual Usage in Frame Relay Services as of the
effective date of such termination, Jato shall be liable for and pay an
amount equal to ***, which is calculated as follows: (i) *** (which is the
Shortfall Charge for the current Annual Period, calculated as the difference
between the Frame Relay Usage Minimum of *** minus the Frame Relay Actual
Usage of ***), plus (ii) *** (which is the Usage Minimum for the terminated
Frame Relay Services for the remaining Annual Period (i.e., Annual Period #6)
of the Initial Term.)
5. PREPAYMENT.
5.1 Subject to the completion of Jato's IPO, Jato shall prepay Qwest,
within ten (10) business days after Jato's IPO, sixteen million dollars
($16,000,000.00) (the "Prepayment Amount") to be applied against the purchase
of Qwest Services under the Wholesale Agreement and IP Agreement (and any
other Qwest Service Agreement(s) between the Parties), calculated as having a
value of twenty-five million dollars ($25,000,000.00) over the Initial Term.
Qwest shall not be liable to pay Jato any accrued interest on the Prepayment
Amount, provided however, that interest shall accrete on the Outstanding
Prepayment Balance Amount monthly (the "Accretion Interest"), such Accretion
Interest shall be calculated at an annual accretion rate of *** percent (the
"Accretion Rate"), and be added to the Prepayment Amount. Accretion will not
commence until after Qwest receives the Prepayment Amount. Upon Qwest
calculating Jato's monthly interest accretion, Qwest shall invoice Jato
monthly for Jato's use of the Qwest Services and, upon thirty (30) days after
the date of such invoice, decrease the Prepayment Amount by the undisputed
amount of Qwest's invoice. Pursuant to Section 4 herein, any undisputed
shortfall charges or early termination fees set forth in this Master
Agreement or any Qwest Agreement may be applied against and drawn down from
the Prepayment Amount, so long as Qwest gives Jato thirty (30) calendar days
prior written notice and other detailed written documentation supporting such
charges or fees. So long as the Prepayment Amount has not been fully drawn
down by Qwest, Qwest shall not be entitled to: (i) suspend the Qwest Services
or terminate the Qwest Agreements for non-payment of any invoices; or (ii)
request additional security pursuant to Section 6.3 of the
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. SECTIONS 200.80(b)(4),
200.83 and 240.24b-2
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Wholesale Agreement. Once the Prepayment Amount has been fully exhausted,
Jato shall be responsible for paying its Qwest invoices in accordance with
the "payment" sections of the Qwest Agreements.
5.2 Until Jato prepays the Prepayment Amount or if, during the Initial
Term, the aggregate amount of the Qwest invoices exceeds the Prepayment
Amount, Qwest shall invoice Jato monthly for Jato's use of the Qwest Services
for the balance of the Initial Term, and Jato shall be responsible for paying
such invoices in accordance with the "payment" sections of the Qwest
Agreements. The Parties shall each submit detailed quarterly reports
indicating, among other things, the amount of Jato's Actual Usage, Usage
Minimum, the Prepayment Amount, and interest accretion (although the failure
of Qwest to submit or demand such report shall not be deemed a default or any
waiver of any right hereunder).
5.3 Until Jato consummates its IPO, the provisions set forth in Section 5.1
shall not apply, and Qwest shall invoice Jato for Qwest Services used by Jato
in the manner set forth in the Qwest Agreements, and Jato shall be
responsible for complying with all of the payment provisions contained in the
Qwest Agreements. The failure of Jato to consummate its IPO shall not
relieve Jato of any of its obligations hereunder (except that Jato shall not
be responsible for providing the Prepayment Amount to Qwest). All Qwest
Services purchased by Jato, whether pre-Jato IPO or post-Jato IPO, shall
count towards and contribute to the Usage Minimums. Upon consummation of the
US West Merger, the Parties shall negotiate in good faith and execute
amendment(s) to an existing Qwest Agreement and/or new services agreement(s),
such that, any backbone transport, DSL services, frame relay services, IP
services, and metro backhaul services purchased thereafter from US West by
Jato shall count towards and contribute to the Usage Minimums, subject to the
Metro Backhaul cap of *** set forth in Section 4.1.
6. CONFIDENTIALITY.
Neither Party shall make any disclosure of this Master Agreement, the
Services Agreement, or the transactions contemplated hereby without first
obtaining the written approval of the other Party, except to the extent that
additional disclosure may be required by law, in which case, the Party
required to make such disclosure will give the other Party prior notice
thereof. The provisions of this paragraph shall be binding upon the Parties
and shall survive any termination of this Master Agreement, any or all of the
Service Agreements, or any other agreement between the Parties and shall
remain in effect for a period of twelve (12) months following conclusion of
the Term. The Parties agree that they will not make public announcements
(i.e., other than to a Party's advisors) or issue press releases regarding
this Master Agreement or the transactions contemplated hereunder without the
prior written consent of the other Party.
7. QWEST AFFILIATE.
For purposes of this Agreement, Qwest shall be considered to include any
"Qwest Affiliate," where a "Qwest Affiliate" shall mean any entity: (i) which
controls, is controlled by, or is under common control with Qwest; or (ii) in
which Qwest owns an equity interest of not less than ***.
8. MISCELLANEOUS.
(a) Any dispute relating to this Master Agreement shall be submitted for
binding arbitration under the Commercial Arbitration Rules of the American
Arbitration Association and judgment on any award entered therein may be
entered in any court of competent jurisdiction. The venue for any such
arbitration shall be Denver, Colorado.
(b) In the event that any portion of this Master Agreement is held to be
unenforceable, the unenforceable portion shall be construed as nearly as
possible to reflect the original intent of the Parties and the remainder of
the provisions shall remain in full force and effect.
(c) A Party's failure to insist upon strict performance of any provision of
this Master Agreement shall not be construed as a waiver of any of its rights
hereunder.
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DJS/Jato Page 5 of 6 02/09/00
QWEST CONFIDENTIAL
<PAGE>
(d) Each Party hereto is an independent contractor. Nothing in this Master
Agreement shall constitute or create a joint venture, partnership, or any
other similar arrangement between Jato and Qwest. Neither Party is
authorized to act as agent or bind the other Party except as expressly stated
in this Master Agreement.
(e) Notwithstanding anything to the contrary herein, in no event shall a
Party shall be liable to the other for any direct, indirect, consequential,
exemplary, special, incidental or punitive damages, or for any lost profits
of any kind or nature whatsoever, even if foreseeable, arising out of or
resulting from the failure to finalize or execute any or all of the Services
Agreements, even if the Party has been advised, knew or should have know of
the possibility of such damages.
(f) Subject to and without limiting any express assignment rights set forth
in the Equity Agreement or the Services Agreements, Jato shall not assign
this Master Agreement without first obtaining the prior written consent of
Qwest, which consent shall not be unreasonably withheld or delayed.
(g) This Master Agreement will be governed by and interpreted under the
laws of the State of New York, without giving effect to applicable conflicts
of law principles. Any cause of action Jato may have with respect to the
Services must be commenced within one (1) year after the claim or cause of
action arises or such claim or cause of action is barred. In any proceeding
to enforce the terms of this Master Agreement, the Party prevailing shall be
entitled to recover all of its expenses, including, without limitation,
reasonable attorney's fees.
(h) Each Party will bear its own expenses in connection with this Master
Agreement, including the Service Agreements.
(i) The terms and conditions contained in a specific Service Agreement
shall apply only to and within that Service Agreement. In the event of any
conflict between any or all of the terms and conditions contained in a
specific Service Agreement and this Master Agreement, the terms and
conditions contained in a specific Service Agreement shall prevail and be the
definitive guide to interpretation of the intent and rights and obligations
of the Parties; provided, however, the provisions of Sections 2.1, 2.4, 3.1,
3.2, 4.1, 4.2, 4.3, 4.4, 5.1, 5.2 and 5.3 of this Master Agreement shall
supplement and prevail, to the extent inconsistent, those similar terms
contained in a specific Service Agreement.
(j) This Master Agreement, including the Service Agreements which are
referenced herein, constitutes the entire agreement between Jato and Qwest
with respect to the Services. This Master Agreement may only be amended in a
written agreement executed by authorized representatives of both Parties
hereto.
The rights of Qwest set forth in this Master Agreement shall inure to Qwest
and all of its affiliates. The Parties have caused this Agreement to be
executed and warrant that their respective signatories are authorized to
execute this Agreement as of the Effective Date.
QWEST COMMUNICATIONS CORPORATION JATO COMMUNICATIONS CORP.
By: /s/ Augie Cruciotti By: /s/ William D. Myers
----------------------------- -----------------------------
Augie Cruciotti William D. Myers
Senior Vice President Chief Financial Officer
Date: 02/09/00 Date: 02/09/00
--------------------------- ---------------------------
DJS/Jato Page 6 of 6 02/09/00
QWEST CONFIDENTIAL
<PAGE>
Exhibit 10.35
EXECUTION COPY
CAPACITY AGREEMENT
BETWEEN
GLOBAL CROSSING BANDWIDTH, INC.
AND
JATO COMMUNICATIONS CORPORATION
*** Text Omitted and Filed Separately
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200.83 and 240.24b-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
- -------
<S> <C>
Definitions
1. Services; Circuit Term; Circuit Availability Date
2. Term of the Agreement
3. Billing and Payment; Minimum Commitments
4. Billing Disputes
5. Termination Rights
6. Warranties and Limitation Of Liability
7. Indemnification
8. Representation
9. Force Majeure
10. Waivers
11. Assignment
12. Confidentiality
13. Integration
14. Governing Law
15. Notices
16. Compliance with Laws
17. Survival of Provisions
18. Unenforceable Provisions
19. Cumulative Rights and Remedies
20. Amendments
21. Non-Solicitation
22. Authority
23. Tariffs
</TABLE>
EXHIBITS
Exhibit A Private Line Rates and Charges
Exhibit B National Fiber Network POP Location (By Site)
Exhibit C CarrierConnect-SM- Dedicated Internet Access Services
Exhibit D CarrierConnect-SM- IP Plus Options and Associated Charges
Schedule I Ramp Revenue Schedule
Attachment A Service Order #1
2
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<PAGE>
CAPACITY AGREEMENT
This Capacity Agreement ("AGREEMENT") is entered into between the provider of
service, Global Crossing Bandwidth, Inc. on behalf of itself and its Affiliates
(as such term is defined herein) that may provide a portion of the services
hereunder ("GLOBAL CROSSING"), a California corporation located at 90 Castilian
Drive, Goleta, CA 93117 and Jato Communications Corporation ("Jato" or
"PURCHASER"), a Delaware corporation with its principal place of business
located at 1099 18th Street, Suite 2200 Denver, Colorado 80202 (hereinafter,
Global Crossing and Jato may be referred to in the aggregate as "PARTIES", and
each singularly as a "PARTY".) Upon full execution, this Agreement supercedes
any and all existing Agreements/Addenda between the parties.
PURPOSE
Jato is an Internet Service Provider (ISP) that desires to purchase dedicated
circuit capacity from Global Crossing for use in providing Internet access and
related services to its customers. For valuable consideration, receipt of which
is hereby acknowledged, the Parties hereto agree as follows.
DEFINITIONS (not otherwise defined in the body of this Agreement or an
attachment).
A. "AFFILIATE" means any entity directly or indirectly controlling,
controlled by or under common control with a Party.
B. "BILLING CYCLE" is the Global Crossing billing cycle to which Jato's
account hereunder is assigned by Global Crossing (a full billing cycle
approximates 30 days).
C. "BUSINESS DAY" is Monday through Friday, 8:00 am to 5:00 PM EST,
excluding nationally recognized holidays. Unless otherwise stated,
"DAYS" refers to calendar days.
D. "DELINQUENT" (whether capitalized or not) means any invoiced amounts
not properly disputed under Section 4 of this Agreement and remaining
unpaid the due date of the invoice.
1. SERVICES; CIRCUIT TERM; CIRCUIT AVAILABILITY DATE:
1.1 Global Crossing shall, in accordance with the terms of this Agreement,
provide Jato with DS-1, DS-3, OC-3 and OC-12 circuit capacity for
point-to-point private line services and for dedicated Internet access
services as the same may be ordered by Jato and the order accepted by
Global Crossing hereunder from time to time. It is understood the
parties may negotiate for future services that are not currently
defined in this Agreement. All such circuit capacity is collectively
referred to as the "SERVICES".
1.2 Unless one Party provides the other with at least 90 days prior
written notice of its intent not to renew a circuit after the
circuit's minimum commitment period expires, then, unless the Parties
agree otherwise in writing, a circuit shall automatically renew on a
month-to-month basis at Global Crossing's then-current rates and
charges for that circuit type.
3
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<PAGE>
1.3 Upon receipt of a complete and accurate service order for a circuit,
Global Crossing shall notify Jato of its target date for the delivery
of each circuit (the "ESTIMATED AVAILABILITY DATE"). Any Estimated
Availability Date given by Global Crossing to Jato shall be subject to
Global Crossing's then-current standard and expedited interval
guidelines. Global Crossing shall use reasonable efforts to install
each circuit on or before the Estimated Availability Date, but the
inability of Global Crossing to deliver a circuit by such date, or
within the interval guidelines, shall not be deemed a breach of this
Agreement by Global Crossing. If Global Crossing fails to make any
circuit available within 90 days after Global Crossing's confirmed
delivery date of the service ordered, Jato's sole remedy shall be to
cancel the service order which pertains to such circuit upon ten days
prior written notice to Global Crossing. Notwithstanding the
foregoing, Jato shall also have a remedy wherein any circuit confirmed
by Global Crossing and subsequently not supplied due to Global
Crossing' s inability to deliver will count toward a reduction in the
Quarterly Minimum Charge (defined at Section 3.7). The reduction in
the Quarterly Minimum Charge shall be calculated by the specific
monthly value of the specific circuits that Global Crossing is unable
to provide under the above terms and conditions, multiplied by a
maximum of six months. Such reduction shall be accounted for in month
72 of the term hereof.
1.4 At each end of the city pairs on which Jato orders circuits, as well
as within the Global Crossing IP POP to which Jato orders circuits,
Global Crossing shall provide appropriate equipment in its SONET/IP
POP locations necessary to connect the circuits to Jato's
Interconnection Facilities. If Jato desires to install its own
equipment in one or more SONET/IP POP, and Global Crossing , in its
sole discretion, agrees to such installation, the Parties shall
execute a collocation agreement acceptable to both Parties. Jato
agrees that its Interconnection Facilities shall connect to the
circuits provided by Global Crossing hereunder at the network
interface points located in the Global Crossing SONET/IP POPs. As used
herein, the term "INTERCONNECTION FACILITIES" shall mean transmission
capacity provided by Jato or its third party supplier to extend the
circuits provided by Global Crossing from a SONET/IP POP to any other
location (e.g., a local access telephone service provided by a local
telephone company).
1.5 For DS-3 and lesser capacity circuits, Global Crossing shall use
reasonable efforts to order Interconnection Facilities on behalf of
Jato from Jato's designated supplier at a cost agreed to by Jato in
writing, provided that Jato furnishes Global Crossing with an
acceptable letter of agency. Jato shall be billed directly by the
supplier of such Interconnection Facilities, and shall defend and
indemnify Global Crossing from any loss or liability incurred by
Global Crossing as a result of Global Crossing's ordering
Interconnection Facilities from any third party on Jato's behalf. Jato
may, at its election, but subject to Global Crossing's prior written
approval, order its own Interconnection Facilities. If any party other
than Global Crossing provides Interconnection Facilities, then
unavailability, incompatibility, delay in installation, or other
impairment of Interconnection Facilities shall not excuse Jato's
obligation to pay Global Crossing all rates or charges applicable to
the circuits, whether or not such circuits are useable by Jato unless
such unavailability, incompatibility, delay in installation, or other
impairment of Interconnection Facilities is caused by Global Crossing.
When such circuit becomes available, billing will recommence
concurrent with activation. Global Crossing will not order
Interconnection Facilities on behalf of Jato for OC-N circuits.
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<PAGE>
2. TERM OF THE AGREEMENT:
This Agreement is binding on the Parties upon the date of execution by
Global Crossing ("EFFECTIVE DATE") and, subject to the early termination
provisions of this Agreement, shall continue in effect for a period of
seventy-two (72) months ("INITIAL TERM"). If a circuit remains installed
beyond the Initial Term of this Agreement, then this Agreement shall remain
in effect as long as a circuit is installed hereunder.
3. BILLING AND PAYMENT; MINIMUM COMMITMENTS:
3.1 Subject to all the terms and conditions of this Agreement, Jato shall
pay Global Crossing for the Services at the rates and charges set out
in the Exhibits or as the Parties may otherwise agree in writing. Jato
will be responsible for applicable taxes and governmental assessments
with respect to its use of the Services. If Jato is required to
provide security hereunder, then Global Crossing is not obligated to
accept orders, or provide or continue to provide any Services or
circuits, until the required security is received by Global Crossing.
If Jato is an existing customer of Global Crossing, the rates and
charges set forth herein shall be effective with Jato's first full
Billing Cycle following the later of the Effective Date of this
Agreement or the date Global Crossing receives any security required
hereunder. Billing for a circuit shall commence upon the earlier to
occur of (i) 30 days following the date Global Crossing notifies Jato,
in writing or via electronic transmission, that the ordered circuit
capacity is available from Global Crossing (regardless of whether or
not Jato's Interconnection Facilities are installed and operational),
or (ii) the date the ordered circuit capacity is first utilized by
Jato (the "SERVICE DATE").
3.2 Jato shall provide Global Crossing with a letter of credit in the
amount of $[* * *] as security with respect to its performance under
this Agreement, which letter of credit shall be provided to the
Controller of Global Crossing within thirty (30) business days after
the execution of this Agreement. Assuming timely performance of its
obligations under this Agreement, the letter of credit shall no longer
be required of Jato [* * *] after the later of: (a) the execution of
this Agreement, and (b) the completion of an initial public offering
by Jato.
3.3 Jato's initial credit limit hereunder shall be $[* * *]. As long as
Jato remains in good standing in meeting the payment schedule outlined
in Schedule I, Jato's credit limit will increase to [* * *]. In the
event that Jato's consumption accelerates beyond this schedule, Jato
and Global Crossing agree to negotiate in good faith any additional
credit requirements. In addition, if Jato is delinquent in payment of
an invoice and Global Crossing does not have security from Jato in an
amount equal to Jato's highest invoice over the prior six month period
(or such lesser period if this Agreement has not been in effect for
six months), Global Crossing may require security, to be mutually
agreed upon by the parties, to be negotiated in good faith, from Jato
in such amount. Any such security shall be provided by Jato to Global
Crossing within ten Business Days from its receipt of Global
Crossing's written request for security.
5
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<PAGE>
3.4 Monthly recurring charges ("MRC") shall be invoiced by Global Crossing
on a monthly basis in advance and non-recurring charges shall be
invoiced in arrears. If the Service Date for any circuit falls on
other than the first day of any Billing Cycle, the initial charge to
Jato shall consist of: (i) the pro-rata portion of the applicable
monthly charge covering the period from the Service Date to the first
day of the subsequent Billing Cycle, and (ii) the monthly charge for
the following Billing Cycle. Payment terms are net 30 days from the
invoice date. Any invoice not paid by its due date shall bear late
payment fees at the rate of 1-1/2% per month (or such lower amount as
maybe required by law) until paid.
3.5 The pricing and terms in Exhibit A applies to the Private Line
Services provided between the "on-net" nodes set out in the Global
Crossing SONET POP List attached hereto as Exhibit B. The pricing
and terms in Exhibits C and D apply to the Dedicated Internet
Access Services and other services stated on such Exhibits, as
provided between the [* * *] set out in the Global Crossing IP POP
List set out in Exhibit C. If Global Crossing's cost in providing
the Services is increased due to circumstances beyond its
reasonable control, or Global Crossing elects to pass through any
governmental or regulatory assessments related to its provision of
the Services, then Global Crossing may revise the rates and charges
in this Agreement and any attached Exhibits upon 30 days written
notice to Jato. Jato may cancel, without further liability (other
than to pay for the circuit through the date of cancellation), any
circuits subject to a rate/charge increase (other than increases
resulting from governmental or regulatory assessments) upon written
notice to Global Crossing given no later than [* * *] after Jato's
receipt of the increase notice. Global Crossing agrees to a review
of pricing every [* * *] for the Services. If the pricing in this
Agreement is found to be [* * *] than Global Crossing's then
current standard pricing for Services of the same type, size,
network configuration and technical characteristics, [* * *].
3.6 Subject to all of the terms and conditions of this Agreement, Jato
agrees to pay a quarterly minimum charge (the "QUARTERLY MINIMUM
CHARGE") as provided in the Ramp Revenue Schedule identified as
Schedule I. While Schedule I includes monthly amounts, the Parties
have agreed on a quarterly minimum structure.
The Quarterly Minimum Charge is intended to be met through the use of
any services offered by Global Crossing. Global Crossing may not
currently offer some services that are of interest to Jato; [* * *].
In addition, provided that Global Crossing procures such services for
Jato, [* * *] provided to Jato from Global Crossing or a Global
Crossing Affiliate [* * *]. However, Global Crossing may require, as
mutually agreed upon by the parties, that a minimum of the Quarterly
Minimum Charge be met [* * *] provided by Global Crossing, rather than
its Affiliate, which minimum charge would include, among other things,
Global Crossing [* * *].
If Jato's net charges (after any available discounts hereunder) for
the Services during a quarterly period are less than the Quarterly
Minimum Charge, Jato shall pay the shortfall. Governmental assessments
and surcharges, non-recurring charges, operator assistance charges and
local loop and third party and regulatory pass-through charges are not
included when calculating Quarterly Minimum Charge. If this Agreement
is terminated prior to the time the Quarterly Minimum Charge becomes
effective (other than termination by Jato for an uncured breach by
Global Crossing), Jato shall be liable for the amount described in
Section 5.5 hereof.
3.7 If a circuit is canceled prior to expiration of its minimum term
commitment, except if canceled by Jato under Section 3.5 hereof, or
this Agreement is terminated for Global Crossing's uncured breach,
Jato shall be liable for, and shall pay to Global Crossing upon
demand, an early termination fee in an amount equal to the applicable
monthly per circuit minimum charge times the number of months
remaining on the unexpired term commitment (whether the initial or a
renewal term) for the circuit.
6
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<PAGE>
3.8 Jato agrees that any minimum charge shortfall and any early
termination fees for which it may be liable under this Agreement are
based on agreed upon minimum commitments on its part and corresponding
rate concessions on Global Crossing's part, and are not penalties or
consequential or other damages under Section 6. 4 hereof.
4. BILLING DISPUTES: Jato shall have the affirmative obligation of providing
written notice of any dispute with an invoice within 90 days after receipt
of the invoice by Jato (which notice shall include sufficient detail for
Global Crossing to investigate the dispute). Jato may withhold payment only
on amounts so disputed within 30 Business Days after Jato's receipt of the
invoice. Jato may not withhold payment of amounts disputed after such 30
Business Day period. If Jato does not report a dispute with respect to an
invoice within the 90 day period, Jato is deemed to have waived its dispute
rights for that invoice and to have agreed to pay the same. Provided Jato
has provided sufficient detail for investigation of the dispute, Global
Crossing will use reasonable efforts to resolve and communicate its
resolution of the dispute within 30 Business Days of its receipt of the
dispute notice. If the dispute is resolved in Global Crossing's favor any
amounts to be paid by Jato shall be subject to the late payment charges
under Section 3.4 hereof retroactive to the due date of the disputed
invoice. Notwithstanding anything herein to the contrary, Jato shall not
withhold any disputed amounts while its Global Crossing account is
delinquent.
5. TERMINATION RIGHTS:
5.1 Either Party may terminate this Agreement upon the other Party's
insolvency, dissolution or cessation of business operations.
5.2 Global Crossing may, upon written notice, immediately terminate this
Agreement for (i) Jato's failure to pay any delinquent invoice within
ten days after receipt of written notice from Global Crossing as to
the delinquency, or (ii) to pay any security or additional security
within the time-frame required under Section 3.3.
5.3 In the event of a breach of any material term or condition of this
Agreement by a Party (other than a failure to pay or provide security
which is covered under Section 5.2 hereof), the other Party may
terminate this Agreement upon 30 days written notice, unless the
breaching Party cures the breach during the 30 day period. A breach
that cannot be reasonably cured within a 30 day period may be
addressed by a written waiver of this paragraph signed by the Parties.
5.4 If this Agreement is terminated prior to expiration of a circuit's
term commitment, except if terminated by Jato under Section 5.3
hereof, then Jato shall pay to Global Crossing upon demand an early
termination fee in an amount equal to the aggregate sum of each
existing circuit's monthly minimum commitment, times the number of
months remaining on each circuit's minimum commitment period, based on
the payment schedule outlined in Schedule I.
5.5 If this Agreement is terminated prior to expiration of the initial
term,, except if terminated by Jato under Section 5.3 hereof, then
Jato shall pay to Global Crossing an amount equal to the sum of the
remaining Quarterly Minimum Charges for the remaining portion of the
unexpired term of this Agreement, based on the payment schedule
outlined in Schedule I. Nothing in sections 3.7, 5.4 or 5.5 is
intended to require that Jato make a duplicate payment to Global
Crossing for the same item on termination of this Agreement, during
the Initial Term or any renewal Term, or to pay an amount higher than
the highest amount calculated under any of these three individual
Sections, based on the then-existing remaining circuit commitments or
remaining Quarterly Minimum Charges.
(Remainder of page blank.)
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<PAGE>
6. WARRANTIES AND LIMITATION OF LIABILITY:
6.1 The Services shall be provided by Global Crossing in accordance with
the Service Level Parameters in this Agreement, as well as with the
applicable technical standards established for dedicated circuit
capacity by the telecommunications industry for a digital fiber optic
network. Further, Global Crossing warrants that Jato's use of the
Services will not infringe any third party's intellectual property
rights. The foregoing intellectual property warranty shall not apply,
and Global Crossing shall have no liability hereunder, to the extent
that any infringement or claim thereof is based upon use of the
Services in combination with equipment, software or services not
provided by Global Crossing where the use of the Services alone would
not be infringing. EXCEPT AS PROVIDED HEREIN, GLOBAL CROSSING MAKES NO
OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO TRANSMISSION,
EQUIPMENT OR SERVICE PROVIDED HEREUNDER, AND EXPRESSLY DISCLAIMS ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR
FUNCTION.
6.2 The following Service Level Parameters (SLP) apply only to DS-1,
DS-3 and OC-3 circuits with term commitments of at least one year
used for the Dedicated Internet Access Services. The SLP cover (i)
the [* * *] in the Global Crossing [* * *] which connects directly
to [* * *] circuit, (ii) the Global Crossing [* * *] the Global
Crossing [* * *], and (iii) [* * *] within Global Crossing's
control which provide [* * *] and other functions which enable Jato
to logically interact with the network. The SLP specifically
exclude (a) the [* * *] between [* * *] and the Global Crossing
[* * *], (b) [* * *] equipment either owned by Jato or provided
through Global Crossing, (c) [* * *], and (d) other Internet
service provider networks.
A. Network Availability of [* * *] measured on a monthly basis for
Global Crossing's IP access ports and backbone network in the
contiguous United States.
B. Average monthly round-trip transmission latency of no more than
85 milliseconds within Global Crossing's backbone in the
contiguous United States.
C. Global Crossing's network is monitored on a 24 hours, 7 days per
week basis. Global Crossing shall use commercially reasonable
efforts to provide Jato with two day's prior notice of all
planned outages or scheduled maintenance which may cause
significant Service degradation, and shall seek to perform
maintenance during periods of low usage generally.
6.3 Except as provided in Section 7 below the entire liability of Global
Crossing for all claims of whatever nature arising out of its failure
to provide the Services, and not caused by (i) Jato or third parties,
or (ii) a scheduled or emergency interruption (hereafter an "Outage"),
shall be a credit for service interruptions greater than 120
continuous minutes (hereafter an "OUTAGE"). The amount of the credit
is computed in accordance with the following formula (the "OUTAGE
CREDIT"):
[* * *]
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<PAGE>
A. The Outage Credit shall apply to the charges for [* * *]
circuit affected by an Outage; provided, however, that if
any portion of the affected circuit remains useable by Jato,
the Outage Credit shall not apply to that pro-rata portion
of the mileage. The duration of each Outage shall be
calculated [* * *] thereof. An Outage shall be deemed to
have commenced upon verifiable notification thereof by Jato
to Global Crossing, or, when indicated by network control
information actually known to Global Crossing network
personnel, whichever is earlier. Each Outage shall be deemed
to terminate upon restoration of the affected circuit as
evidenced by appropriate network tests by Global Crossing.
Global Crossing shall give notice to Jato of any scheduled
interruption as early as is practicable, and a scheduled
outage shall under no circumstance be viewed as an Outage
hereunder.
B. Outage Credits shall not be granted if the malfunction of
any end-to-end circuit is due to an Outage or other defect
occurring in Jato's Interconnection Facilities.
C. All Outage Credits shall be credited on the next monthly
invoice for the affected circuit after receipt of Jato's
written request for credit. The total of all Outage Credits
applicable to or accruing in any given month shall not
exceed the amount payable by Jato to Global Crossing for
that same month for the affected circuit.
D. The Outage Credit described in this Section shall be the
sole and exclusive remedy of Jato in the event of any Outage
or other failure in the Services, except [* * *]. In the
event of such an Outage, Jato shall be afforded service
credits reflecting (and not less than) what Global Crossing
provides to other similarly affected carriers (based on the
average of the three most recent comparable carrier Outages.
.
6.4 In no event shall either Party be liable to the other Party for
incidental and consequential damages, loss of goodwill,
anticipated profit, or other claims for indirect damages in any
manner related to this Agreement or the Services.
7. INDEMNIFICATION: Except for claims arising out of the gross negligence or
willful misconduct of the other Party, each Party shall defend and
indemnify the other Party and its directors, officers, employees,
representatives and agents from any and all third party claims, taxes,
penalties, interest, expenses, damages, third party lawsuits or other
liabilities (including without limitation, reasonable attorney fees and
court costs) brought against the indemnified Party, relating to or arising
out of (i) acts or omissions in the operation of its business, and (ii) its
material breach of this Agreement; Notwithstanding the foregoing, absent
its gross negligence or willful misconduct, Global Crossing shall not be
obligated to indemnify Jato for any third party claims with respect to
services provided by Jato which may incorporate any of the Services;
provided that the indemnified party (i) provides the indemnifying party
prompt notice of the relevant claim, (ii) reasonably cooperates with the
defense of such claim at the indemnifying party's expense and (iii) gives
the indemnifying party the right to control the defense and settlement of
any such claim.
8. REPRESENTATION: The Parties acknowledge and agree that the relationship
between them is solely that of independent contractors. Neither Party, nor
their respective employees, agents or representatives, has any right, power
or authority to act or create any obligation, express or implied, on behalf
of the other Party.
9. FORCE MAJEURE: Other than with respect to failure to make payments due
hereunder, neither Party shall be liable under this Agreement for delays,
failures to perform, damages, losses or destruction, or malfunction of any
equipment, or any consequence thereof, beyond a party's reasonable control
or caused or occasioned by, or due to fire, earthquake, flood, water, the
elements, labor disputes or shortages, utility curtailments, power
failures, explosions, civil disturbances, governmental actions, shortages
of equipment
9
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
or supplies, unavailability of transportation, acts or omissions of third
parties, or any other cause beyond its reasonable control.
10. WAIVERS: Failure of either Party to enforce or insist upon compliance with
the provisions of this Agreement shall not be construed as a general waiver
or relinquishment of any provision or right under this Agreement.
11. ASSIGNMENT: Neither Party may assign or transfer its rights or obligations
under this Agreement without the other Party's written consent, which
consent may not be unreasonably withheld, except that either Party may
assign this Agreement to its Affiliates or successor in interest without
the other Party's consent. Any assignment or transfer without the required
consent is void.
12. CONFIDENTIALITY: Each Party agrees that all information furnished to it by
the other Party, or to which it has access under this Agreement, shall be
deemed the confidential and proprietary information or trade secrets
(collectively referred to as "PROPRIETARY INFORMATION") of the Disclosing
Party and shall remain the sole and exclusive property of the Disclosing
Party (the Party furnishing the Proprietary Information referred to as the
"DISCLOSING PARTY" and the other Party referred to as the "RECEIVING
PARTY"). Each Party shall treat the Proprietary Information and the
contents of this Agreement in a confidential manner and, except to the
extent necessary in connection with the performance of its obligations
under this Agreement, neither Party may directly or indirectly use or
disclose the Proprietary Information of the Disclosing Party to anyone
other than its employees on a need to know basis and who agree to be bound
by the terms of this Section, without the written consent of the Disclosing
Party. Neither Party will have any obligation with respect to Proprietary
Information that: (i) is or becomes generally known to the public by any
means other than a breach of the obligations of a receiving Party; (ii) was
previously known to the receiving Party or rightly received by a receiving
Party from a third party; or (iii) is independently developed by or for the
receiving Party without reference to the disclosing Party's Proprietary
Information.
13. INTEGRATION: This Agreement and all Exhibits A-D, Schedule 1 and Attachment
A, and other attachments are incorporated herein, and represent the entire
agreement between the Parties with respect to the subject matter hereof,
and supersede and merge all prior agreements, promises, understandings,
statements, representations, warranties, indemnities and inducements to the
making of this Agreement relied upon by either Party, whether written or
oral.
10
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
14. GOVERNING LAW:
Global Crossing currently maintains regional service and operations
centers to support customer accounts in [* * *]. This Agreement will be
construed and enforced in accordance with the law of the state where
Jato's account is supported, as designated by Global Crossing in this
Agreement or as designated in Exhibits or amendments to this Agreement,
without regard to that state's choice of law principles. The Parties
agree that any action related to this Agreement shall be brought and
maintained only: (i) in the Superior court of the State of [* * *] for
the County of [* * *], if the designated customer support center is
located in [* * *]; (ii) in a Federal or State court of competent
jurisdiction located in [* * *] County, [* * *], if the designated
customer support center is located in [* * *]; or (iii) in the Federal
District Court for the Eastern District of [* * *] or a State court of
competent jurisdiction located in [* * *] County, [* * *], if the
designated customer support center is located in [* * *]. The Parties
each consent to the jurisdiction and venue of such courts and waive any
right to object to such jurisdiction and venue.
15. NOTICES: All notices, including but not limited to, demands, requests and
other communications required or permitted hereunder (not including
Invoices) shall be in writing and shall be deemed given: (i) when delivered
in person, (ii) 24 hours after deposit with an overnight delivery service
for next day delivery, (ii) the same day when sent by facsimile
transmission during normal business hours, receipt confirmed by sender's
equipment, or (iii) 72 hours after deposit in the United States mail,
postage prepaid, registered or certified mail, return receipt requested,
and addressed to the recipient Party at the address set forth below:
If to Global Crossing: Global Crossing Bandwidth, Inc.
180 South Clinton Avenue
Rochester, New York 14646
Attn: Senior Vice President North American
Carrier Services
Facsimile #: 716-232-9168
with a copy to: Global Crossing Bandwidth, Inc.
180 South Clinton Avenue
Rochester, New York 14646
Attn: Sharon Posadni, Manager National
Contract Admin.
Facsimile #: 716-454-5825
If to Jato Jato Communications
1099 18th Street, Suite 2200
Denver, Colorado 80202
Attn: Jerry Dinsmore, President & CEO
Fax #: 303-226-8380
16. COMPLIANCE WITH LAWS: During the term of this Agreement, the Parties shall
comply with all local, state and federal laws and regulations applicable to
this Agreement and to their respective businesses. Each Party will obtain
and maintain at its own expense any licenses, registrations, permits and
approvals needed for it to perform its duties under this Agreement.
17. SURVIVAL OF PROVISIONS: Any obligations of the Parties relating to monies
owed, as well as those provisions relating to confidentiality, limitations
on liability and indemnification, shall survive termination of this
Agreement.
11
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
18. UNENFORCEABLE PROVISIONS: The illegality or unenforceability of any
provision of this Agreement does not affect the legality or enforceability
of any other provision or portion. If any provision or portion of this
Agreement is deemed illegal or unenforceable for any reason, there shall be
deemed to be made such minimum change in such provision or portion as is
necessary to make it valid and enforceable as so modified.
19. CUMULATIVE RIGHTS AND REMEDIES: Except as may otherwise be provided herein,
the assertion by a Party of any right or the obtaining of any remedy
hereunder shall not preclude such Party from asserting or obtaining any
other right or remedy, at law or in equity, hereunder.
20. AMENDMENTS: Except as may otherwise be provided herein, any amendments or
modifications to this Agreement must be in writing and signed by a Global
Crossing Vice President (or higher level officer) and an authorized officer
of Jato.
21. AUTHORITY: Each individual executing below on behalf of a Party hereby
represents and warrants to the other Party that such individual is duly
authorized to so execute, and to deliver, this Agreement. By its signature
below, each Party acknowledges and agrees that sufficient allowance has
been made for review of this Agreement by respective counsel and that each
Party has been advised by its legal counsel as to its legal rights, duties
and obligations under this Agreement.
22. TARIFFS: The Services are provided [* * *]. If the Services are or become
[* * *] Jato's rights or obligations hereunder.
GLOBAL CROSSING BANDWIDTH, INC. JATO COMMUNICATIONS
By: /s/ Brian V. Fitzpatrick By: /s/ William D. Myers
----------------------------------- --------------------------------
Brian V. Fitzpatrick, President
North American Carrier Services William D. Myers
Chief Financial Officer
Date: 2/23/00 Date:
---------------------------------- ------------------------------
By: /s/ Charles F. Barker
-----------------------------------
Charles F. Barker, C.F.O. Carrier Svcs.
Date: 2/23/00
----------------------------------
12
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit A
Page 1 of 1
PRIVATE LINE SERVICE
RATES AND CHARGES
Pricing for the Private Line Services is based upon the length of the circuit
term commitment according to the following rate schedule.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
MINIMUM
MONTHLY CHARGE
CIRCUIT CAPACITY [* * *] YEAR [* * *] YEAR TERM [* * *] YEAR TERM PER CIRCUIT
TERM
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[* * *] [* * *] [* * *] [* * *] [* * *]
-------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] [* * *] [* * *]
-------------------------------------------------------------------------------------------------
Notes: Pricing is per [* * *] for specific city pairs.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
INSTALLATION INSTALLATION INSTALLATION
NON-RECURRING CHARGES [* * *] YEAR [* * *] YEARS [* * *] YEARS* REARRANGEMENT** EXPEDITE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Installation charges are [* * *].
**Rearrangement is defined to be any move, change or rearrangement of a circuit.
Rearrangement charges are [* * *].
Upon signature of a SONET Service Request (SSR) by Jato, the Parties agree that
the SSR constitutes a firm order and should Jato cancel an ordered circuit(s)
prior to the Service Date, Jato will pay the applicable cancellation charge
below.
<TABLE>
<CAPTION>
- ---------------------------------------
CIRCUIT CANCELLATION CHARGES
- ---------------------------------------
<S> <C>
[* * *] [* * *]
- ---------------------------------------
[* * *] [* * *]
- ---------------------------------------
[* * *] [* * *]
- ---------------------------------------
[* * *] [* * *]
- ---------------------------------------
[* * *] [* * *]
- ---------------------------------------
</TABLE>
13
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit B
Page 1 of 3
NATIONAL FIBER NETWORK POP LOCATION (by Site)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
EXPECTED
SITE SERVICE DATE STATE LATA POP LOCATION ZIP CODE NPA-NXX
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Akron [* * *] OH 325 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Albany [* * *] NY 134 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Albuquerque [* * *] NM 664 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Altoona [* * *] PA 230 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Anaheim [* * *] CA 730 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Anaheim [* * *] CA 730 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Atlanta [* * *] GA 438 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Austin [* * *] TX 558 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Baltimore [* * *] MD 238 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Baton Rouge [* * *] LA 492 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Battle Creek [* * *] MI 348 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Billings [* * *] MT 650 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Birmingham [* * *] AL 476
- -------------------------------------------------------------------------------------------------------------------------
Boise [* * *] ID 652
- -------------------------------------------------------------------------------------------------------------------------
Boston [* * *] MA 128 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Bowling Green [* * *] KY 464 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Bridgeport [* * *] CT 920 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Buffalo [* * *] NY 140 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Casper [* * *] WY 654 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Charlotte [* * *] NC 422 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Chattanooga [* * *] TN 472 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Chicago [* * *] IL 358 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Chico [* * *] CA 724 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Cincinnati [* * *] OH 922 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Cleveland [* * *] OH 320 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Colorado Springs [* * *] CO 658 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Columbus [* * *] OH 324 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Dallas [* * *] TX 552 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Dayton [* * *] OH 328 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Daytona Beach [* * *] FL 456 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Denver [* * *] CO 656 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Detroit [* * *] MI 340 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Des Moines [* * *] IA 632 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Eau Claire [* * *] WI 352 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
El Paso [* * *] TX 540 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Erie [* * *] PA 924 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Eugene [* * *] OR 670 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Fort Worth [* * *] TX 552 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Fredricksburg [* * *] VA 246 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Ft. Lauderdale [* * *] FL 460 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Ft. Myers [* * *] FL 939 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Green Bay [* * *] WI 350 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Greensboro [* * *] NC 424 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Greenville [* * *] SC 430 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Harrisburg [* * *] PA 226 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Helena [* * *] MT 648 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Houston [* * *] TX 560 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Houston [* * *] TX 560 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Indianapolis [* * *] IN 336 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Indianapolis [* * *] IN 336 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Jackson [* * *] MS 482 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
14
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit B
Page 2 of 3
NATIONAL FIBER NETWORK POP LOCATION (by Site)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
EXPECTED
SITE SERVICE DATE STATE LATA POP LOCATION ZIP CODE NPA-NXX
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Jacksonville [* * *] FL 452 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Kansas City [* * *] MO 524 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Las Vegas [* * *] NV 721
- -------------------------------------------------------------------------------------------------------------------------
Lincoln [* * *] NE 958 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Los Angeles [* * *] CA 730 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Louisville [* * *] KY 462 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Macon [* * *] GA 446 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Medford [* * *] OR 670 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Melbourne [* * *] FL 458 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Miami [* * *] FL 460 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Milwaukee [* * *] WI 356 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Minneapolis [* * *] MN 628 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Mobile [* * *] AL 480 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Nashville [* * *] TN 470 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
New London [* * *] CT 920 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
New Orleans [* * *] LA 490 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
New York City [* * *] NY 132 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Newark [* * *] NJ 224 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Oakland [* * *] CA 722 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Oklahoma City [* * *] OK 536 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Omaha [* * *] NE 644 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Orlando [* * *] FL 458 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Owatonna [* * *] MN 620 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Pensacola [* * *] FL 448 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Philadelphia [* * *] PA 228 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Phoenix [* * *] AZ 666 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Phoenix [* * *] AZ 666 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Pittsburgh [* * *] PA 234 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Portland [* * *] OR 672 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Portsmouth [* * *] VA 252 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Poughkeepsie [* * *] NY 133 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Providence [* * *] RI 130 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Raleigh [* * *] NC 426 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Redding [* * *] CA 724 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Reno [* * *] NV 720 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Richmond [* * *] VA 248 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Rochester [* * *] NY 974 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Rocky Mt. [* * *] NC 951 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Sacramento [* * *] CA 726 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Salinas [* * *] CA 736 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Salt Lake City [* * *] UT 660 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
San Antonio [* * *] TX 566 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
San Diego [* * *] CA 732 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
San Diego [* * *] CA 732 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
San Francisco [* * *] CA 722 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
San Jose [* * *] CA 722 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
San Luis Obispo [* * *] CA 740 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Santa Barbara [* * *] CA 740 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Seattle [* * *] WA 674 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
South Bend [* * *] IN 332 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Southfield [* * *] MI 340 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
15
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit B
Page 3 of 3
NATIONAL FIBER NETWORK POP LOCATION (by Site)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
EXPECTED
SITE SERVICE DATE STATE LATA POP LOCATION ZIP CODE NPA-NXX
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Spokane [* * *] WA 676 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Springfield [* * *] MA 126 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
St. Louis [* * *] MO 520 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Stamford [* * *] CT 920 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Sunnyvale [* * *] CA 722 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Syracuse [* * *] NY 136 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Tallahassee [* * *] FL 953 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Tampa [* * *] FL 952 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Toledo [* * *] OH 326 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Topeka [* * *] KS 534 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Trenton [* * *] NJ 222 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Tucson [* * *] AZ 668 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Tulsa [* * *] OK 538 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Washington [* * *] DC 236 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Waterford [* * *] PA 924 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
West Haven [* * *] CT 920 [* * *]
- -------------------------------------------------------------------------------------------------------------------------
West Palm Beach [* * *] FL 460
- -------------------------------------------------------------------------------------------------------------------------
Westfield [* * *] MA 126 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
White Plains [* * *] NY 132 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
White Plains [* * *] NY 132 [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
Youngstown [* * *] OH 322 [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit C
Page 1 of 5
CARRIERCONNECT-SM- DEDICATED INTERNET ACCESS SERVICES SCHEDULE
GLOBAL CROSSING'S IP NETWORK
DEDICATED INTERNET ACCESS SERVICES permit direct access to the Internet via
Global Crossing's nationwide IP network via DS-1, DS-3, or OC-3 dedicated
circuits at speeds ranging from 1.544 mbps to 155 mbps. Connectivity is via the
dedicated circuit between Jato's router to the Global Crossing router located
nearest a Global Crossing SONET-POP. Some Global Crossing Internet services,
including webhosting and e-mail services may be procured through a Global
Crossing Affiliate, which Affiliate may alter its list of offerings and their
nature from time to time.
1. RATES AND CHARGES.
Pricing for CarrierConnect-SM- Dedicated Internet Access Services is based
upon :
(i) the length of the circuit term commitment; and
(ii) Jato maintaining, on a monthly basis, [* * *]. If [* * *]
Global Crossing's network, then [* * *].
<TABLE>
<CAPTION>
MONTHLY RECURRING CHARGE (MRC)
- --------------------------------------------------------------------------
[* * *] YEAR [* * *] YEAR [* * *] YEAR
CIRCUIT CAPACITY TERM TERM TERM
MRC MRC MRC
- --------------------------------------------------------------------------
<S> <C> <C> <C>
[* * *] [* * *] [* * *] [* * *]
- --------------------------------------------------------------------------
</TABLE>
NOTES:
(1) [* * *] access bandwidth start at a minimum of [* * *]
(2) [* * *] access bandwidth start at a minimum of [* * *]
NON-RECURRING CHARGES (NRC)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
[* * *] YEAR [* * *] YEAR [* * *] YEAR EXPEDITE CHANGE CHARGE
CIRCUIT CAPACITY TERM TERM TERM NRC CHARGE
NRC NRC
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- --------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: A one time fee of [* * *] will be assessed for any de-installation of
any CarrierConnect-SM- Dedicated Internet Access circuit.
Upon signature of a CarrierConnect-SM- Service Request (CCSR) by Jato, the
Parties agree that the CCSR constitutes a firm circuit order and should Jato
cancel such ordered circuit(s) prior to the Service Date Jato will pay the
applicable cancellation charge below.
<TABLE>
<CAPTION>
- ---------------------------------------
CIRCUIT CANCELLATION CHARGES
- ---------------------------------------
<S> <C>
[* * *] [* * *]
- ---------------------------------------
[* * *] [* * *]
- ---------------------------------------
</TABLE>
17
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit C
Page 2 of 5
2. Global Crossing Acceptable Use and Security Policies
2.1 Jato and its customers shall comply with Global Crossing's
Acceptable Use and Security Policies (collectively, the
"Policy"), which Policy Global Crossing may modify at any
time. The current, complete Policy is available for review at
http://www.globalcenter.net/aup/ (Global Crossing may change
the Policy and website address via electronic notice). Without
limiting the Policy, generally, neither Jato nor its customers
may use Global Crossing's network, machines, or services in
any manner which:
(i) violates any applicable law, regulation, treaty, or
tariff;
(ii) violates the acceptable use policies of any networks,
machines; or services which are accessed through
Global Crossing's network;
(iii) infringes on the intellectual property rights of
others.
Prohibited activity includes, but is not limited to,
unauthorized use (or attempted unauthorized use) of any
machines or networks; denial of service attacks; falsifying
header information or user identification or information;
monitoring or scanning the networks of others without
permission; sending unsolicited bulk e-mail; maintaining an
open mail relay; collecting e-mail addresses from the Internet
for the purpose of sending unsolicited bulk e-mail or to
provide collected addresses to others for that purpose; and
transmitting or receiving copyright-infringing or obscene
material.
2.2 Jato and its customers are responsible for the security of
their own networks and machines. Global Crossing assumes no
responsibility or liability for failures or breach of
Jato-imposed protective measures, whether implied or actual.
Abuse that occurs as a result of Jato's systems or account
being compromised may result in suspension of the Dedicated
Internet Access Services or account access by Global Crossing.
If a security related problem is escalated to Global Crossing
for resolution, Global Crossing will resolve the problem in
accordance with its then-current Policy. Without limiting the
Policy, generally, the following activities are prohibited:
(i) fraudulent activities of any kind;
(ii) network disruptions of any kind;
(iii) unauthorized access, exploitation, or monitoring.
2.3 Jato shall be responsible for enforcing the Policy for any
third parties (including its customers) accessing the Internet
through Jato's use of the Network Services; and shall defend
and indemnify Global Crossing with respect to claims related
to such third party access.
2.4 Global Crossing reserves the right to suspend the Dedicated
Internet Access Services for Jato's or its customers' failure
to comply with the requirements of Global Crossing's
then-current Policy. Further, Global Crossing may terminate
the Dedicated Internet Access Services for recurring
violations of the Policy by Jato or its customers.
18
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit C
Page 3 of 5
CARRIERCONNECT-SM- DEDICATED INTERNET ACCESS
IP POP LIST
<TABLE>
<CAPTION>
- -----------------------------------------------------------
GENERAL
LATA POP CITY AVAILABILITY
- -----------------------------------------------------------
<S> <C> <C> <C>
[* * *] [SFO] San Francisco [* * *]
- -----------------------------------------------------------
[* * *] [LAX] Los Angeles [* * *]
- -----------------------------------------------------------
[* * *] [CLE] Cleveland [* * *]
- -----------------------------------------------------------
[* * *] [NYC] New York City [* * *]
- -----------------------------------------------------------
[* * *] [WDC] Washington, DC [* * *]
- -----------------------------------------------------------
[* * *] [KCY] Kansas City [* * *]
- -----------------------------------------------------------
[* * *] [SEA] Seattle [* * *]
- -----------------------------------------------------------
[* * *] [ROC] Rochester [* * *]
- -----------------------------------------------------------
[* * *] [DEN] Denver [* * *]
- -----------------------------------------------------------
[* * *] [CHI] Chicago [* * *]
- -----------------------------------------------------------
[* * *] [DAL] Dallas [* * *]
- -----------------------------------------------------------
[* * *] [BOS] Boston [* * *]
- -----------------------------------------------------------
[* * *] [PHI] Philadelphia [* * *]
- -----------------------------------------------------------
[* * *] [ATL] Atlanta [* * *]
- -----------------------------------------------------------
[* * *] [DET] Detroit [* * *]
- -----------------------------------------------------------
[* * *] [HOU] Houston [* * *]
- -----------------------------------------------------------
[* * *] [PHX] Phoenix [* * *]
- -----------------------------------------------------------
[* * *] [AUS] Austin [* * *]
- -----------------------------------------------------------
[* * *] [RAL] Raleigh [* * *]
- -----------------------------------------------------------
[* * *] [SDG] San Diego [* * *]
- -----------------------------------------------------------
[* * *] [TMP] Tampa [* * *]
- -----------------------------------------------------------
[* * *] [MIA] Miami [* * *]
- -----------------------------------------------------------
[* * *] [ORL] Orlando [* * *]
- -----------------------------------------------------------
[* * *] [MIN] Minneapolis [* * *]
- -----------------------------------------------------------
</TABLE>
19
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit C
Page 4 of 5
SONET-POP LIST
<TABLE>
<CAPTION>
- --------------------------------------------------------------- ------------------------------------------------------------
SWITCH WHIP SWITCH WHIP
LATA ST CITY NPA-NXX HUB LATA ST CITY NPA-NXX HUB
- --------------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[* * *] OH Akron [* * *] [* * *] [* * *] NC Greensboro [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] NY Albany [* * *] [* * *] [* * *] SC Greenville [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] NM Albuquerque [* * *] [* * *] [* * *] PA Harrisburg [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] PA Altoona [* * *] [* * *] [* * *] MT Helena [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] CA Anaheim [* * *] [* * *] [* * *] TX Houston [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] GA Atlanta [* * *] [* * *] [* * *] IN Indianapolis [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] TX Austin [* * *] [* * *] [* * *] MS Jackson [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] MD Baltimore [* * *] [* * *] [* * *] FL Jacksonville [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] LA Baton Rouge [* * *] [* * *] [* * *] MO Kansas City [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] MI Battle Creek [* * *] [* * *] [* * *] NV Las Vegas [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] MT Billings [* * *] [* * *] [* * *] NE Lincoln [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] AL Birmingham [* * *] [* * *] [* * *] CA Los Angeles [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] ID Boise [* * *] [* * *] [* * *] KY Louisville [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] MA Boston [* * *] [* * *] [* * *] GA Macon [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] KY Bowling [* * *] [* * *] [* * *] FL Miami [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] NY Buffalo [* * *] [* * *] [* * *] WI Milwaukee [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] WY Casper [* * *] [* * *] [* * *] MN Minneapolis [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] NC Charlotte [* * *] [* * *] [* * *] AL Mobile [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] TN Chattanooga [* * *] [* * *] [* * *] TN Nashville [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] IL Chicago [* * *] [* * *] [* * *] LA New Orleans [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] OH Cincinnati [* * *] [* * *] [* * *] NY New York City [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] OH Cleveland [* * *] [* * *] [* * *] NJ Newark [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] CO Colorado [* * *] [* * *] [* * *] CA Oakland [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] OH Columbus [* * *] [* * *] [* * *] OK Oklahoma [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] TX Dallas [* * *] [* * *] [* * *] NE Omaha [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] OH Dayton [* * *] [* * *] [* * *] FL Orlando [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] FL Daytona [* * *] [* * *] [* * *] FL Pensacola [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] CO Denver [* * *] [* * *] [* * *] PA Philadelphia [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] IA Des Moines [* * *] [* * *] [* * *] AZ Phoenix [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] MI Detroit [* * *] [* * *] [* * *] PA Pittsburgh [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] WI Eau Claire [* * *] [* * *] [* * *] OR Portland [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] TX El Paso [* * *] [* * *] [* * *] NY Poughkeepsie [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] PA Erie [* * *] [* * *] [* * *] RI Providence [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] OR Eugene [* * *] [* * *] [* * *] NC Raleigh [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] TX Fort Worth [* * *] [* * *] [* * *] CA Redding [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] FL Ft. Lauderdale [* * *] [* * *] [* * *] NV Reno [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] FL Ft. Myers [* * *] [* * *] [* * *] VA Richmond [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
[* * *] WI Green Bay [* * *] [* * *] [* * *] NY Rochester [* * *] [* * *]
- --------------------------------------------------------------- ------------------------------------------------------------
</TABLE>
20
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit C
Page 5 of 5
SONET-POP LIST
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
SWITCH WHIP
LATA ST CITY NPA-NXX HUB
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
[* * *] NC Rocky Mount [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] CA Sacramento [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] CA Salinas [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] UT Salt Lake [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] TX San Antonio [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] CA San Diego [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] CA San Francisco [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] CA San Jose [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] CA San LuisObispo [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] WA Seattle [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] IN South Bend [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] MI Southfield [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] WA Spokane [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] MA Springfield [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] MO St. Louis [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] CT Stamford [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] NY Syracuse [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] FL Tallahassee [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] FL Tampa [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] OH Toledo [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] KS Topeka [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] AZ Tucson [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] OK Tulsa [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] DC Washington [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] FL West Palm [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] NY White Plains [* * *] [* * *]
- ---------------------------------------------------------------
[* * *] OH Youngstown [* * *] [* * *]
- ---------------------------------------------------------------
</TABLE>
Global Crossing agrees to provide connectivity from Global Crossing's SONET POPs
to Global Crossing's WHIP POP's at Global Crossing's expense for the following
routes and locations previously engineered and quoted:
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
[* * *]
21
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit D
Page 1 of 3
1. CarrierConnect-SM- IP Plus
Global Crossing or a Global Crossing Affiliate will provide Jato with
Internet access according to the following price schedule:
CARRIERCONNECT IP PLUS PRICING
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
INSTALLATION CHARGES MONTHLY RECURRING CHARGES PRICE/MB
-----------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
- -------------------------------------------------------------------------------------------------------------------------------
FLLU DS-1 [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
MBPS [* * *] ACCESS REQUIRES A MINIMUM OF [* * *].
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
[* * *] [* * *] [* * *] $ - [* * *] [* * *] [* * *] [* * *] [* * *] [* * *]
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2. IP Plus Service includes Global Crossing's CarrierConnect-SM- Internet
access service, plus enhanced IP Transit Services. IP Plus is designed to
satisfy the "Routerless" requirements in Jato's off-net cities and includes
provisioning Jato's end users' enhanced IP services, mail, news, and other
applications.
3. For the term of this Agreement, Jato appoints Global Crossing as its
"Strategic Preferred Supplier" with respect to transport above layer 2
transport, and of IP Transit and IP Plus Services and future services and
applications related thereto as made available and offered by Global Crossing
(hereafter referred to as "Transit Services and Applications"). Transit
Services and Applications do not include [* * *]. "Strategic Preferred
Supplier" means that Global Crossing shall receive a right to bid on all
Transit Services and Applications required by Jato, provided that such bid
must be made in writing. Global Crossing will be the "Strategic Preferred
Supplier" of such Transit Services and Applications; provided however,
acceptance of any bid by Jato shall be contingent upon a
22
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
determination by Jato, including but not to be limited by pricing, service
level commitments, availability, functionality and marketability, that Global
Crossing products and services are equal to or better than other similar
product and service offerings made available to Jato by third parties. Global
Crossing shall periodically advise Jato of new Transit Services and
Applications introduced or scheduled for introduction. Global Crossing shall
have ten (10) business days after receipt by Global Crossing of a
solicitation for bid notice from Jato to provide to Jato a qualified bid, to
be considered with bids from other qualified parties. Jato shall not enter
into a commitment for Transit Services or Applications without notice to
Global Crossing of a bid opportunity. Such Strategic Preferred Supplier
status shall not apply where [* * *] of the scheduled introduction of such
new Transit Services and Applications; [* * *].
23
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit D
Page 2 of 3
2. Mail Services
Global Crossing or a Global Crossing Affiliate will provide e-mail
accounts (storage space, account assignment) to JATO (or to the
end-user clients of JATO). Global Crossing or a Global Crossing
Affiliate will provide an initial [* * *] of storage space per user
account. Global Crossing or a Global Crossing Affiliate will offer
storage upgrades and end-user provisioning of individual e-mail
accounts on a [* * *] e-mail server.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SUMMARY OF E-MAIL CHARGES
- ---------------------------------------------------------------------------------------------------
E-MAIL SERVICE NON-RECURRING CHARGES
- ---------------------------------------------------------------------------------------------------
<S> <C>
New Account Set-up, 1 Year Term [* * *]
- ---------------------------------------------------------------------------------------------------
New Account Set-up, 2 Year Term [* * *]
- ---------------------------------------------------------------------------------------------------
New Account Set-up, 3 Year Term [* * *]
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
BASIC [* * *] MAIL SERVICE,
ACCESS VIA POP OR WEB MAIL MONTHLY RECURRING CHARGES
- -----------------------------------------------------------------------------------
<S> <C>
1 - 9,999 [* * *]
- -----------------------------------------------------------------------------------
10,000 - 49,999 [* * *]
- -----------------------------------------------------------------------------------
50,000 - 99,999 [* * *]
- -----------------------------------------------------------------------------------
100,000 - 499,999 [* * *]
- -----------------------------------------------------------------------------------
500,000+ [* * *]
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
ADDITIONAL CAPACITY MONTHLY RECURRING CHARGES
- -----------------------------------------------------------------------------------
<S> <C>
1 - 9,999 [* * *]
- -----------------------------------------------------------------------------------
10,000 - 49,999 [* * *]
- -----------------------------------------------------------------------------------
50,000 - 99,999 [* * *]
- -----------------------------------------------------------------------------------
100,000 - 499,999 [* * *]
- -----------------------------------------------------------------------------------
500,000+ [* * *]
- -----------------------------------------------------------------------------------
</TABLE>
3. IP Addressing and PVC Provisioning
After successful completion by JATO and acceptance by Global Crossing
of the IP Justification Form (GBLX form cs311), Global Crossing or a
Global Crossing Affiliate will obtain for JATO the IP Addresses
necessary for JATO's applications. In addition, Global Crossing or a
Global Crossing affiliate [* * *] into the Global Crossing Internet
Platform.
SUMMARY OF IP CHARGES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
#IP ADDRESSES NON-RECURRING CHARGE #IP ADDRESSES NON-RECURRING CHARGE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 [* * *] 16 [* * *]
- ---------------------------------------------------------------------------------------------------
2 [* * *] 32 [* * *]
- ---------------------------------------------------------------------------------------------------
3 [* * *] 64 [* * *]
- ---------------------------------------------------------------------------------------------------
4 [* * *] 128 [* * *]
- ---------------------------------------------------------------------------------------------------
8 [* * *] 256 [* * *]
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SUMMARY OF PVC CHARGES
- --------------------------------------------------------------------------------------------------
<S> <C>
[* * *] (Non-Recurring Charge) [* * *]
[* * *]
- --------------------------------------------------------------------------------------------------
</TABLE>
24
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Exhibit D
Page 3 of 3
4. News Services
Global Crossing or a Global Crossing Affiliate will provide for JATO
News Access, offering individual access to newsgroups, where such
access can be made commercially available. (End-user clients subscribe
to Usenet groups using Netscape, Microsoft or other compatible
newsreaders.) Global Crossing will provide JATO the news server address
and other information necessary for this access. JATO will provide to
Global Crossing lists of IPs to allow access (subscribers).
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
SUMMARY OF NEWS ACCESS CHARGES
- ---------------------------------------------------------------------------------
<S> <C>
News Access (Monthly Recurring Charge) [* * *]
- ---------------------------------------------------------------------------------
</TABLE>
5. DNS (Domain Name Service)
Global Crossing or a Global Crossing Affiliate will obtain a list of
requested domain names from JATO. When the names are available (that is,
not already registered to another account) according to domain name
registry databases (maintained by InterNIC), Global Crossing will obtain
on behalf of JATO the requested domain name where such name is available
and insure that DNS tables are updated to include the domain name.
(Note: InterNIC will bill JATO directly for the domain name service.
Currently, InterNIC charges $70 for the initial 2 years and $35 for each
additional year.)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SUMMARY OF DNS CHARGES
- -------------------------------------------------------------------------------
<S> <C>
Register New Domain [* * *]
- -------------------------------------------------------------------------------
Transfer Existing Domain [* * *]
- -------------------------------------------------------------------------------
Provision Domains on Mail platform [* * *]
- -------------------------------------------------------------------------------
</TABLE>
25
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Schedule I
Page 1 of 2
JATO REVENUE SCHEDULE - QUARTERLY COMMITMENT OUTLINE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
RAMP MINIMUM QUARTERLY YEAR YEAR TOTAL
MONTH MONTH/YEAR CHARGE QUARTER/YEAR TOTAL TOTAL AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Feb-00 [* * *]
2 Mar-00 [* * *]
3 Apr-00 [* * *]
4 May-00 [* * *]
5 Jun-00 [* * *]
6 Jul-00 [* * *]
7 Aug-00 [* * *]
8 Sep-00 [* * *] [* * *] [* * *]
9 Oct-00 [* * *]
10 Nov-00 [* * *]
11 Dec-00 [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------
12 Jan-01 [* * *]
13 Feb-01 [* * *]
14 Mar-01 [* * *] [* * *] [* * *]
15 Apr-01 [* * *]
16 May-01 [* * *]
17 Jun-01 [* * *] [* * *] [* * *]
18 Jul-01 [* * *]
19 Aug-01 [* * *]
20 Sep-01 [* * *] [* * *] [* * *]
21 Oct-01 [* * *]
22 Nov-01 [* * *]
23 Dec-01 [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------
24 Jan-02 [* * *]
25 Feb-02 [* * *]
26 Mar-02 [* * *] [* * *] [* * *]
27 Apr-02 [* * *]
28 May-02 [* * *]
29 Jun-02 [* * *] [* * *] [* * *]
30 Jul-02 [* * *]
31 Aug-02 [* * *]
32 Sep-02 [* * *] [* * *] [* * *]
33 Oct-02 [* * *]
34 Nov-02 [* * *]
35 Dec-02 [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------
36 Jan-03 [* * *]
37 Feb-03 [* * *]
38 Mar-03 [* * *] [* * *] [* * *]
39 Apr-03 [* * *]
40 May-03 [* * *]
41 Jun-03 [* * *] [* * *] [* * *]
42 Jul-03 [* * *]
43 Aug-03 [* * *]
44 Sep-03 [* * *] [* * *] [* * *]
45 Oct-03 [* * *]
46 Nov-03 [* * *]
- ----------------------------------------------------------------------------------------------------------------
47 Dec-03 [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------
26
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Schedule I
Page 2 of 2
JATO REVENUE SCHEDULE
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
RAMP MINIMUM QUARTERLY YEAR YEAR TOTAL
MONTH MONTH/YEAR CHARGE QUARTER/YEAR TOTAL TOTAL AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
48 Jan-04 [* * *]
49 Feb-04 [* * *]
50 Mar-04 [* * *] [* * *] [* * *]
51 Apr-04 [* * *]
52 May-04 [* * *]
53 Jun-04 [* * *] [* * *] [* * *]
54 Jul-04 [* * *]
55 Aug-04 [* * *]
56 Sep-04 [* * *] [* * *] [* * *]
57 Oct-04 [* * *]
58 Nov-04 [* * *]
59 Dec-04 [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------
60 Jan-05 [* * *]
61 Feb-05 [* * *]
62 Mar-05 [* * *] [* * *] [* * *]
63 Apr-05 [* * *]
64 May-05 [* * *]
65 Jun-05 [* * *] [* * *] [* * *]
66 Jul-05 [* * *]
67 Aug-05 [* * *]
68 Sep-05 [* * *] [* * *] [* * *]
69 Oct-05 [* * *]
70 Nov-05 [* * *]
71 Dec-05 [* * *] [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------
72 Jan-06 [* * *] [* * *] [* * *] [* * *]
- ----------------------------------------------------------------------------------------------------------------
$30,000,000 CONTRACT TOTAL $30,000,000 CONTRACT TOTAL $30,000,000
------------------------------------------------------------------------------------
</TABLE>
27
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 240.24b-2
<PAGE>
Attachment A
[LOGO] SHARON POSADNI
Manager National Contract Admin
Phone: 716-777-4799
Fax: 716-454-5825
FRONTIER COMMUNICATIONS OF THE WEST, INC. ("FRONTIER")
A GLOBAL CROSSING LTD. COMPANY
----------------------------------
SERVICE REQUEST
----------------------------------
To: Jato Communications Corporation
Attn: Jerry Dinsmore, President and CEO
Date: February 2, 2000
Subject: CarrierConnect-SM- Dedicated Internet Access Service Request
Facsimile #: 303-226-8380
PLEASE SIGN, DATE AND RETURN VIA FACSIMILE TO MY ATTENTION SERVICE REQUEST #1
================================================================================
By signature below, Jato acknowledges acceptance of this Service Request for
CarrierConnect-SM- Dedicated Internet Access Service under the ISP Capacity
Agreement between Global Crossing Bandwidth, Inc. (f/k/a Frontier Communications
of the West, Inc. ) ("Global Crossing") and Jato Communications Corporation
("Jato" or "Purchaser"), dated simultaneously with this Service Request (the
"Agreement"). All terms and conditions under the Agreement are applicable unless
otherwise stated below and are incorporated herein.
1. Global Crossing will order and install the following circuit(s) for
Jato. Jato shall be charged the applicable MRC (as defined below) and
any other applicable charges as described under the Agreement.
CUSTOMER SPECIFIC PRICING
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
MRC PER
QUANTITY CIRCUIT CAPACITY MBPS TOTAL MRC TERM
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 [* * *] [* * *] [* * *] [* * *]
- -----------------------------------------------------------------------------------------------------
1 [* * *] [* * *] [* * *] [* * *]
- -----------------------------------------------------------------------------------------------------
1 [* * *] [* * *] [* * *] [* * *]
- -----------------------------------------------------------------------------------------------------
1 [* * *] [* * *] [* * *] [* * *]
- -----------------------------------------------------------------------------------------------------
1 [* * *] [* * *] [* * *] [* * *]
- -----------------------------------------------------------------------------------------------------
</TABLE>
2. Upon signature by Jato below, the Parties agree that this Service
Request constitutes a firm circuit order and should Jato cancel the
above ordered circuit(s) prior to the Service Date as described under
the Agreement, Jato will pay the applicable cancellation charge below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
CARRIERCONNECT-SM- CIRCUIT CANCELLATION CHARGES
- ------------------------------------------------------------
<S> <C>
[* * *] [* * *]
- ------------------------------------------------------------
[* * *] [* * *]
- ------------------------------------------------------------
</TABLE>
3. The Parties agree that a signed facsimile hereof shall be binding.
JATO COMMUNICATIONS CORPORATION
By: _________________________________
Jerry Dinsmore
President and CEO
Date: _______________________________
<PAGE>
ARTHUR ANDERSEN
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 9, 2000 (except with respect to the matters discussed in Note
10, as to which the date is March 30, 2000) on the consolidated financial
statements of Jato Communications Corp. as of and for the period ended
December 31, 1999, and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
Denver, Colorado
April 7, 2000.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JATO
COMMUNICATION CORP.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,017
<SECURITIES> 0
<RECEIVABLES> 255
<ALLOWANCES> 0
<INVENTORY> 486
<CURRENT-ASSETS> 15,960
<PP&E> 37,933
<DEPRECIATION> (470)
<TOTAL-ASSETS> 55,591
<CURRENT-LIABILITIES> 3,615
<BONDS> 16,868
0
49,036
<COMMON> 96
<OTHER-SE> (14,024)
<TOTAL-LIABILITY-AND-EQUITY> 55,591
<SALES> 315
<TOTAL-REVENUES> 315
<CGS> 0
<TOTAL-COSTS> 15,553
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (378)
<INCOME-PRETAX> (14,860)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,860)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,860)
<EPS-BASIC> (1.64)
<EPS-DILUTED> (1.64)
</TABLE>
